Motorola 2004 Annual Report Download - page 62

54 MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
outstanding short-term receivables that have been sold was $25 million at both December 31, 2004 and 2003 with
reserves of $4 million and $13 million recorded for potential losses on this exposure at December 31, 2004 and
2003, respectively.
Other Contingencies
Potential Contractual Damage Claims in Excess of Underlying Contract Value: In certain circumstances, our
businesses may enter into contracts with customers pursuant to which the damages that could be claimed by the
other party for failed performance might exceed the revenue the Company receives from the contract. Contracts
with these sorts of uncapped damage provisions are fairly rare, but individual contracts could still represent
meaningful risk. Although it has not previously happened to the Company, there is a possibility that a damage claim
by a counterparty to one of these contracts could result in expenses to the Company that are far in excess of the
revenue received from the counterparty in connection with the contract.
Legal Matters: The Company has several lawsuits Ñled against it relating to the Iridium program, as further
described under ""Item 3: Legal Proceedings'' of this document. The Company has not reserved for any potential
liability that may arise as a result of litigation related to the Iridium program. While the still pending cases are in
very preliminary stages and the outcomes are not predictable, an unfavorable outcome of one or more of these
cases could have a material adverse eÅect on the Company's consolidated Ñnancial position, liquidity or results of
operations.
The Company is a defendant in various other lawsuits, including product-related suits, and is subject to various
claims which arise in the normal course of business. In the opinion of management, and other than discussed above
with respect to the still pending Iridium cases, the ultimate disposition of these matters will not have a material
adverse eÅect on the Company's consolidated Ñnancial position, liquidity or results of operations.
Segment Information
The following commentary should be read in conjunction with the Ñnancial results of each reporting segment
as detailed in Note 10, ""Information by Segment and Geographic Region,'' to the Company's consolidated Ñnancial
statements.
Net sales and operating results for the Company's major operations for 2004, 2003 and 2002 are presented
below.
In April 2004, the Company separated its semiconductor operations into a separate subsidiary, Freescale
Semiconductor, Inc. (""Freescale Semiconductor''). In July 2004, an initial public oÅering of a minority interest of
approximately 32.5% of Freescale Semiconductor was completed. On December 2, 2004, Motorola completed the
spin-oÅ of Freescale Semiconductor from the Company by distributing its remaining 67.5% equity interest in
Freescale Semiconductor to Motorola shareholders. As of that date, Freescale Semiconductor is an entirely
independent company. The Ñnancial results of Freescale Semiconductor have been presented in Motorola's
consolidated Ñnancial statements as a discontinued operation.
Personal Communications Segment
The Personal Communications segment (""PCS'') designs, manufactures, sells and services wireless handsets
with integrated software and accessory products. In 2004, PCS's net sales represented 54% of the Company's
consolidated net sales, compared to 47% in 2003 and 48% in 2002.
Years Ended December 31 Percent Change
(Dollars in millions)
2004 2003 2002 2004Ì2003 2003Ì2002
Segment net sales $16,823 $10,978 $11,174 53% (2)%
Operating earnings 1,708 479 503 257% (5)%
Segment ResultsÌ2004 Compared to 2003
In 2004, the segment's net sales increased 53% to $16.8 billion, compared to $11.0 billion in 2003. The 53%
increase in net sales in 2004 was driven by increases in both unit shipments and average selling price (""ASP'')