Motorola 2008 Annual Report Download - page 53

Other Charges
The Company recorded net charges of $2.3 billion in Other charges in 2008, compared to net charges of
$1.0 billion in 2007. The net charges in 2008 include: (i) $1.8 billion of goodwill and other asset impairment
charges, (ii) $318 million of charges relating to the amortization of intangible assets, (iii) $248 million of net
reorganization of business charges included in Other charges, and (iv) $59 million of transaction costs related to
the proposed separation of the Company into two independent, publicly traded companies, partially offset by a
$48 million gain on the sale of property, plant and equipment. The net charges in 2007 included: (i) $369 million
of charges relating to the amortization of intangibles, (ii) $290 million of net reorganization of business charges
included in Other charges, (iii) $140 million of charges for legal settlements and related insurance matters,
(iv) $96 million of acquisition-related in-process research and development charges (“IPR&D”) relating to 2007
acquisitions, and (v) $89 million of asset impairment charges. The net reorganization of business charges are
discussed in further detail in the “Reorganization of Businesses” section.
Net Interest Income
Net interest income was $48 million in 2008, compared to net interest income of $91 million in 2007. Net
interest income in 2008 includes interest income of $272 million, partially offset by interest expense of
$224 million. Net interest income in 2007 included interest income of $456 million, partially offset by interest
expense of $365 million. The decrease in net interest income is primarily attributed to lower interest income due to
the decrease in average cash, cash equivalents and Sigma Fund balances in 2008 compared to 2007 and the
significant decrease in short-term interest rates. This decrease was partially offset by a decrease in interest expense
in 2008 due to the reversal of $89 million of interest accruals that are no longer needed as a result of the effective
settlement of certain tax audits.
Gains on Sales of Investments and Businesses
Gains on sales of investments and businesses were $82 million in 2008, compared to $50 million in 2007. In
2008, the net gain primarily relates to sales of a number of the Company’s equity investments, of which
$29 million of gain was attributed to a single investment. In 2007, the net gain primarily reflects a gain of
$34 million from the sale of the Company’s embedded communications computing group.
Other
Net charges classified as Other, as presented in Other income (expense), were $376 million in 2008, compared
to net income of $22 million in 2007. The net charges in 2008 were primarily comprised of: (i) $365 million of
other-than-temporary investment impairment charges of which $138 million was attributed to an equity security
held by the Company as a strategic investment, (ii) $186 million of impairment charges on Sigma Fund
investments resulting primarily from investments in Lehman Brothers Holdings Inc., Washington Mutual, Inc. and
Sigma Finance Corporation, an unrelated special investment vehicle managed by United Kingdom-based Gordian
Knot Limited, (iii) $101 million of temporary unrealized losses on Sigma Fund investments, and (iv) $84 million of
foreign currency losses, partially offset by: (i) a $237 million curtailment gain associated with the decision to freeze
benefit accruals in the U.S. pension plans, (ii) $56 million of gains related to the extinguishment of a liability, and
(iii) $24 million of gains relating to several interest rate swaps not designated as hedges. The net income in 2007
was primarily comprised of $97 million of foreign currency gains, partially offset by $62 million of investment
impairment charges.
Effective Tax Rate
The Company recorded $1.6 billion of net tax expense in 2008, compared to $285 million of net tax benefits
in 2007. During 2008, the Company’s net tax expense was unfavorably impacted by: (i) non-cash tax charges to
establish deferred tax asset valuation allowances, (ii) non-deductible goodwill impairment charges, (iii) non-
deductible transaction related costs, (iv) a pension curtailment gain, (v) a gain on sale of property, plant and
equipment, (vi) tax on the reduction of interest expense related to the recognition of previously unrecognized tax
benefit, and (vii) a gain on the extinguishment of a liability. The Company’s net tax expense was favorably
impacted by: (i) a net reduction in unrecognized tax benefits, (ii) excess tax benefits on repatriations from high tax
jurisdictions, and (iii) tax benefits on charges, including charges for: a software and silicon platform consolidation,
a settlement relating to a purchase commitment, asset impairment charges, investment impairments and
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MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS