This summary is based on the fourth quarter fiscal 2008 earnings call conducted by Motorola Inc. (MOT) on February 03, 2009.
Management:
Co-CEO & CEO of Broadband Mobility Solutions: Greg Brown
Co-CEO and CEO of Mobile Devices: Sanjay Jha
Acting CFO: Ed Fitzpatrick
Treasurer: Larry Raymond
CFO of Mobile Devices: Marc Rothman
Corporate VP of IR: Dean Lindroth
Key Investor Issues:
- Full year sales were $30.1 billion versus $36.6 billion in 2007.
- Full year GAAP net loss of $1.84 compared negatively to net loss of 2 cents last year.
- The cost reduction actions are forecast to generate savings of $1.5 billion in 2009.
Fourth Quarter Financial Highlights:
The management named Ed Fitzpatrick as acting CFO, replacing Paul Liska.
- The company has initiated a search for a full time replacement.
- Ed’s been with Motorola for 11 years and has held a number of senior financial roles.
- Previously he was CFO for the Home and Networks Mobility segment.
- The management expressed its appreciation for the contributions Paul made to the planned separation and managing cost reduction activities.
In the quarter, total sales were $7.1 billion.
- The decline in sales compared with the fourth quarter of 2007 is primarily attributable to lower sales in Mobile Devices.
- On a GAAP basis, the company reported net loss of $1.57 per share which includes a net charge of $3.6 billion or $1.56 per share for highlighted items.
- Substantially all of this charge is non-cash and primarily relates to the impairment of goodwill and an increase in deferred tax asset valuation reserve.
- The total charge includes pretax charges of $1.6 billion associated with goodwill impairment analysis under FAS 142.
- The communications company also had charges of $206 million associated with impairments of the investment in Clearwire and investments in the Motorola ventures portfolio.
- The management also reported $169 million associated with workforce reduction and $41 million on a previously disclosed impairment in the sigma funds related to a single issuer.
- The charges were partly offset by pretax income related to a $237 million gain from the decision to freeze the US pension plan and $99 million for income associated with the legal settlement in the extinguishment of a liability.
In accordance with FAS 109, the company took a non-cash charge of $2.1 billion to record a partial valuation reserve against deferred tax assets.
- The accounting standard required that historical results be weighed more heavily and future projections when determining the company’s ability to realize deferred tax benefits.
- Partially offsetting this charge was a $228 million tax benefit associated with the settlement of a tax audit.
Overall gross margin in the quarter improved by 100 basis points versus 2007.
- The improvement was primarily due to a more favorable business mix.
- The company expects overall gross margin to continue to expand as the broadband mobility businesses account for a larger percent of overall sales.
The management has been focused on reducing operating expenses.
- On a year-on-year basis, operating expenses declined for the quarter and full year, by $385 million and nearly $1.1 billion respectively.
- Including the cost reduction efforts in cost of goods sold, the company exceeded the original $1 billion target for 2008 by more than $300 million.
- The company recently announced workforce reductions totaling 7,000, of which 5,000 are associated with mobile devices.
- The management also implemented actions to freeze the US pension plan, suspend the US 401(k) match and eliminate salary increases in the United States and certain other markets for 2009.
- The company expects operating expense reduction in 2009 of approximately $1.5 billion compared with the 2008 cost structure.
- More than $1.2 billion of the cost savings relate to mobile devices.
The communications company had positive operating cash flow in the quarter of $201 million.
- This compares with $180 million in the third quarter.
- For the full year, the company had positive operating cash flow of $242 million.
- The cash and liquidity position remained solid.
- The company ended the year with total cash of more than $7.4 billion versus approximately $7.6 billion at the end of the third quarter.
- To strengthen the balance sheet and further enhance flexibility, the Board has made the decision to suspend the quarterly cash dividend immediately.
- This will result in a cash savings of approximately $350 million in 2009.
During the quarter, the management increased the US cash position from approximately $675 million to more than $2 billion.
- This was due in part to repatriation of more than $1.3 billion, with no significant cash cost.
- Over the course of last year, the company repatriated more than $2.1 billion from various international jurisdictions, also with no significant cash costs.
- The company invests most of its US dollar denominated cash in the Sigma Fund.
- Proceeds from maturing securities, as well as new funds, are directed exclusively into cash and treasuries and government backed agency securities with durations of 30 days or less.
- As a result, compared to the end of Q3, investments in cash and government agency securities have increased by $750 million to approximately $1.9 billion.
- These highly liquid amounts represent about 45% of the Sigma Fund assets at the end of the fourth quarter.
- The company does not have any significant amounts of long term debt maturing in 2009.
- Beyond that, the company approximately has $530 million due in November 2010.
Despite a very tough economic environment, the broadband mobility businesses performed very well in Q4 and produced solid overall results for the full year.
- In 2008, the management reported more than $18 billion of sales and contributed $2.5 billion in operating earnings.
- While the global economic downturn has adversely impacted some of the industries and the customers, the businesses remain substantial franchises with leadership positions in their respective markets.
