Motorola 2008 Annual Report Download - page 138

assessment process. The goodwill impairment test is performed at the reporting unit level. A reporting unit is an
operating segment or one level below an operating segment. The Company has determined that the Mobile Devices
segment meets the requirement of a reporting unit. For the Enterprise Mobility Solutions segment, the Company
has identified two reporting units, the Government and Public Safety reporting unit and the Enterprise Mobility
reporting unit. For the Home and Networks Mobility segment, the Company has identified two reporting units,
the Home reporting unit and the Public Networks reporting unit.
During this quarter, we experienced a sustained, significant decline in our stock price that reduced the market
capitalization below the book value of the Company. The reduced market capitalization reflected the
macroeconomic declines coupled with the market view on the performance of the Mobile Devices reporting unit.
The Company has considered this decline in our stock price in our impairment assessment.
The Company has weighted the valuation of its reporting units at 75% based on the income approach and
25% based on the market based approach consistent with prior periods. The Company believes that this weighting
is appropriate since it is often difficult to find other appropriate market participants that are similar to our
reporting units and the Company view of future discounted cash flows is more reflective of the value of the
reporting units. If a heavier weighting was put on the market based approach for certain reporting units, a higher
fair value would have been determined.
The determination of fair value of the reporting units and other assets and liabilities within the reporting units
requires us to make significant estimates and assumptions. These estimates and assumptions primarily include, but
are not limited to, the discount rate, terminal growth rates, earnings before depreciation and amortization, and
capital expenditures forecasts. Due to the inherent uncertainty involved in making these estimates, actual results
could differ from those estimates. The Company assigned discount rates ranging from 13 to 14% for the Home,
Public Networks, Government and Public Safety and Enterprise Mobility Reporting units. The Company assigned
a discount rate of 25% to the Mobile Devices reporting unit commensurate with development stage enterprises or
turnaround opportunities. The Company believes this rate reflects the inherent uncertainties of the Mobile Devices
reporting unit’s projected cash flows. The Company evaluated the merits of each significant assumption, both
individually and in the aggregate, used to determine the fair value of the reporting units, as well as the fair values
of the corresponding assets and liabilities within the reporting units, and concluded they are reasonable.
Based on the results of Step One of our annual assessment of the recoverability goodwill, the fair values of the
Home, Public Networks and Government and Public Safety reporting units exceeded their book value, indicating
that there was no impairment of goodwill at these reporting units.
However, the fair value of the Enterprise Mobility and Mobile Devices reporting units was below their
respective book values, indicating a potential impairment of goodwill and the requirement to perform Step Two of
the analysis for these reporting units. The Company acquired the main components of the Enterprise Mobility
reporting unit in 2007 at which time the book value and fair value of the reporting unit was the same. Because of
this fact, the Enterprise Mobility reporting unit was most likely to experience a decline in its fair value below its
book value as a result of lower values in the overall market and the deteriorating macroeconomic environment and
the market’s view of its near term impact on the reporting unit. The decline in the fair value of the Mobile Devices
reporting unit below its book value is a result of the deteriorating macroeconomic environment, lower expected
sales and cash flows as a result of the decision to consolidate platforms announced in the fourth quarter of 2008,
and the uncertainty around the reporting unit’s future cash flow. For the year ended December 31, 2008, the
Company determined that goodwill relating to the Enterprise Mobility Solution and Mobile Devices segments were
impaired, resulting in charges of $1.6 billion and $55 million, respectively. Additional impairment charges could be
recognized in the near term if the Company’s market capitalization continues to decline or macroeconomic
conditions continue to deteriorate. No impairment charges were required for the years ended December 31, 2007
and 2006.
Segment January 1, 2007 Acquired Dispositions Adjustments December 31, 2007
Mobile Devices $ 69 $ — $ — $(50) $ 19
Home and Networks Mobility 1,266 427 (119) 2 1,576
Enterprise Mobility Solutions 371 2,569 — (36) 2,904
$1,706 $2,996 $(119) $(84) $4,499
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