Motorola 2006 Annual Report Download - page 51

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43
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
partial collection of the previously-uncollected receivable from Telsim, and (ii) $11 million of net reorganization of
businesses reversals for reserves no longer needed. The net reorganization of businesses charges are discussed in
further detail in the ""Reorganization of Businesses'' section.
Net Interest Income (Expense)
Net interest income was $71 million in 2005, compared to net interest expense of $200 million in 2004. Net
interest income in 2005 included interest income of $396 million, partially offset by interest expense of
$325 million. Net interest expense in 2004 included interest expense of $354 million, partially offset by interest
income of $154 million. The increase in net interest income in 2005 compared to 2004 reflects: (i) an increase in
interest income due to higher average cash, cash equivalents and Sigma Funds balances earning interest at higher
rates, and (ii) the significantly lower levels of total debt in 2005 compared to 2004.
Gains on Sales of Investments and Businesses
Gains on sales of investments and businesses were $1.8 billion in 2005, compared to $460 million in 2004. The
2005 net gains were primarily: (i) a $1.3 billion net gain recognized when the Company received 69.3 million
shares of Sprint Nextel, as well as $46 million in cash, in exchange for the Company's shares of Nextel when Sprint
and Nextel completed their merger in August 2005, (ii) a $609 million net gain on the sale of a portion of the
Company's shares of Nextel, partially offset by a $70 million net loss on the sale of a portion of the Company's
shares of Sprint Nextel. The 2004 net gains of $460 million were primarily related to: (i) a $130 million gain on
the sale of the Company's remaining shares in Broadcom Corporation, (ii) a $122 million gain on the sale of a
portion of the Company's shares in Nextel, (iii) an $82 million gain on the sale of a portion of the Company's
shares in Telus Corporation, and (iv) a $68 million gain on the sale of a portion of the Company's shares in
Nextel Partners, Inc.
Other
Charges classified as Other, as presented in Other income (expense), were $109 million in 2005, compared to
$140 million in 2004. The $109 million of net charges in 2005 were primarily comprised of: (i) $137 million of
debt retirement costs, relating to the Company's repurchase of an aggregate principal amount of $1.0 billion of
long-term debt through cash tender offers, (ii) $38 million of foreign currency losses, and (iii) $25 million in
investment impairment charges, partially offset by: (i) a $51 million gain due to an increase in the market value of
variable forward instruments entered into to protect the Company's investment in Nextel common stock prior to
the merger of Sprint and Nextel, and (ii) $30 million in income from the repayment of a previously-reserved loan
related to Iridium. The $140 million of net charges in 2004 was primarily comprised of: (i) $81 million of charges
related to the redemption of debt, (ii) $44 million of foreign currency losses, and (iii) $36 million of investment
impairment charges.
Effective Tax Rate
The effective tax rate was 30% in 2005, representing a $1.9 billion net tax expense, compared to a 33%
effective tax rate in 2004, representing a $1.0 billion net tax expense. The 2005 tax rate reflected a:
(i) $265 million net tax benefit related to the repatriation of foreign earnings under the provisions of the American
Jobs Creation Act of 2004, and (ii) an $81 million net tax benefit on the stock sale of a sensor business that was
divested in 2005.
The 2004 effective tax rate reflected a $241 million benefit from the reversal of previously-accrued income
taxes as the result of settlements reached with taxing authorities and a reassessment of tax exposures based on the
status of current audits, offset by: (i) a $125 million of nondeductible goodwill impairment charges related to the
sensor business that was divested in 2005, and (ii) $31 million of acquisition-related IPR&D charges.
Earnings from Continuing Operations
The Company had earnings from continuing operations before income taxes of $6.4 billion in 2005, compared
to earnings from continuing operations before income taxes of $3.1 billion in 2004. After taxes, the Company had
earnings from continuing operations of $4.5 billion, or $1.79 per diluted share from continuing operations, in 2005,