Motorola 2005 Annual Report Download - page 94

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option valuation model including volatility and the expected life of options. Actual expenses could differ from the
estimate.
In November 2004, the FASB issued Statement No. 151, ""Inventory Costs'' (""SFAS 151''). SFAS 151 requires
that abnormal amounts of idle facility expense, freight, handling costs, and spoilage, be charged to expense in the
period they are incurred rather than capitalized as a component of inventory costs. In addition, SFAS 151 requires
the allocation of fixed production overheads to the costs of conversions based on the normal capacity of the
production facilities. The Company is required to adopt provisions of SFAS 151, on a prospective basis, as of
January 1, 2006. The Company does not believe the adoption of SFAS 151 will have a material impact on the
future results of operations.
2. Discontinued Operations
During the second quarter of 2004, the Company completed the separation of its semiconductor operations
into a separate subsidiary, Freescale Semiconductor, Inc. (""Freescale Semiconductor''). Under the terms of the
Master Separation and Distribution Agreement entered into between Motorola and Freescale Semiconductor,
Freescale Semiconductor has agreed to indemnify Motorola for substantially all past, present and future liabilities
associated with the semiconductor business. In July 2004, an initial public offering (""IPO'') of a minority interest
of approximately 32.5% of Freescale Semiconductor was completed. As a result of the IPO the company recorded
additional paid-in capital of $397 million related to the excess of the IPO price over the book value of the shares
sold. Concurrently in July 2004, Freescale Semiconductor issued senior debt securities in an aggregate principal
amount of $1.25 billion. On December 2, 2004, Motorola completed the spin-off of its remaining 67.5% equity
interest in Freescale Semiconductor. The spin-off was effected by way of a pro rata non-cash dividend to Motorola
stockholders, which reduced retained earnings by $2.5 billion. Holders of Motorola stock at the close of business
on November 26, 2004 received a dividend of .110415 shares of Freescale Semiconductor Class B common stock
per share of Motorola common stock. No fractional shares of Freescale Semiconductor were issued. Stockholders
entitled to fractional shares of Freescale Semiconductor Class B common stock in the distribution received the cash
value instead. The equity distribution was structured to be tax-free to Motorola stockholders for U.S. tax purposes
(other than with respect to any cash received in lieu of fractional shares). The historical results of Freescale
Semiconductor have been reflected as discontinued operations in the underlying financial statements and related
disclosures for all periods presented.
The following table displays summarized financial information for discontinued operations:
Years Ended December 31 2005 2004* 2003
Net sales (including sales to other Motorola businesses of $1,154 million and
$961 million for the years ended December 31, 2004 and 2003, respectively) $Ì $5,180 $4,864
Operating earnings (loss) 26 213 (189)
Earnings (loss) before income taxes 26 241 (83)
Income tax expense (benefit) 47 900 (48)
Loss from discontinued operations, net of tax (21) (659) (35)
* Includes the results of operations through December 2, 2004