Motorola 2005 Annual Report Download - page 76

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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
carryforwards and other deferred tax assets of certain non-U.S. subsidiaries. The Company believes that the deferred
tax assets for the remaining tax carryforwards are considered more likely than not to be realizable based on
estimates of future taxable income and the implementation of tax planning strategies.
Valuation of Investments and Long-Lived Assets
The Company assesses the impairment of investments and long-lived assets, which includes identifiable
intangible assets, goodwill and property, plant and equipment, whenever events or changes in circumstances indicate
that the carrying value may not be recoverable. Factors considered important that could trigger an impairment
review include: (i) underperformance relative to expected historical or projected future operating results;
(ii) changes in the manner of use of the assets or the strategy for our overall business; (iii) negative industry or
economic trends; (iv) declines in stock price of an investment for a sustained period; and (v) our market
capitalization relative to net book value.
When the Company determines that the carrying value of intangible assets, goodwill and long-lived assets may
not be recoverable, an impairment charge is recorded. Impairment is generally measured based on a projected
discounted cash flow method using a discount rate determined by our management to be commensurate with the
risk inherent in our current business model or prevailing market rates of investment securities, if available.
At December 31, 2005 and 2004, the net book values of these assets were as follows (in millions):
December 31 2005 2004
Property, plant and equipment $2,271 $2,332
Investments 1,654 3,241
Intangible assets 233 233
Goodwill 1,349 1,283
$5,507 $7,089
The Company recorded fixed asset impairment charges of $15 million in 2005, compared to no charges in
2004 and charges of $10 million in 2003. The 2003 charges primarily related to certain information technology
equipment that was deemed to be impaired.
The Company recorded impairment charges related to its investment portfolio of $25 million, $36 million and
$96 million in 2005, 2004 and 2003, respectively, representing other-than-temporary declines in the value of the
Company's investment portfolio. The impairment charges in 2005 and 2004 are primarily related to cost-based
investment write-downs. The $96 million impairment charge in 2003 was primarily comprised of a $29 million
charge to write down to zero the Company's debt security holding in a European cable operator and other cost-
based investment writedowns. Additionally, the available-for-sale securities portfolio reflected a net pre-tax
unrealized gain position of $157 million and $2.3 billion at December 31, 2005 and 2004, respectively.
The Company performs a goodwill impairment test at the reporting unit level at least annually as of October,
or more often should triggering events occur. In determining the fair value of the reporting unit, the Company
utilizes independent appraisal firms who employ a combination of present value techniques and quoted market
prices of comparable businesses. No impairment charges were required in 2005. During 2004, the Company
determined that goodwill related to a sensor business, which was subsequently divested in 2005, was impaired by
$125 million. During 2003, the Company determined that the goodwill at the infrastructure reporting unit of the
Connected Home Solutions segment was impaired by $73 million.
The Company cannot predict the occurrence of future impairment-triggering events nor the impact such events
might have on these reported asset values. Such events may include strategic decisions made in response to the
economic conditions relative to product lines or operations and the impact of the economic environment on our
customer base.
Restructuring Activities
The Company maintains a formal Involuntary Severance Plan (the ""Severance Plan'') which permits the
Company to offer eligible employees severance benefits based on years of service and employment grade level in
the event that employment is involuntarily terminated as a result of a reduction-in-force or restructuring. Each
separate reduction-in-force has qualified for severance benefits under the Severance Plan and, therefore, such