Motorola 2008 Annual Report Download - page 54

reorganization of business charges. The Company’s effective tax rate, excluding these items, was 67%. The
Company’s 2008 effective tax rate of 67% is higher than the comparable 2007 effective tax rate of 26%, primarily
due to non-deductible foreign exchange and translation adjustment losses incurred in 2008.
The Company’s net tax benefit for 2007 was favorably impacted by an increase in tax credits compared to
2006. The Company’s net tax benefit was also favorably impacted by: (i) the settlement of tax positions, (ii) tax
incentives received, and (iii) reversal of deferred tax valuation allowances, and unfavorably impacted by:
(i) adjustments to deferred taxes in non-U.S. locations due to enacted tax rate changes, (ii) an increase in
unrecognized tax benefits, and (iii) a non-deductible IPR&D charge. The Company’s effective tax rate excluding
the items described above and the tax impact of restructuring charges and asset impairments, was 26%.
Loss from Continuing Operations
The Company incurred a net loss from continuing operations before income taxes of $2.6 billion in 2008,
compared with a net loss from continuing operations before income taxes of $390 million in 2007. After taxes, the
Company incurred a net loss from continuing operations of $4.2 billion, or $1.87 per diluted share, in 2008,
compared to a net loss from continuing operations of $105 million, or $0.05 per diluted share, in 2007.
The increase in the loss from continuing operations before income taxes in 2008 compared to 2007 was
primarily attributed to: (i) a $1.6 billion decrease in gross margin, (ii) a $1.4 billion increase in Other charges,
(iii) a $398 million increase in charges classified as Other, as presented in Other income (expense), and (iv) a
$43 million decrease in net interest income. These factors were partially offset by: (i) a $762 million decrease in
SG&A expenses, (ii) a $320 million decrease in R&D expenditures, and (iii) a $32 million increase in gains on the
sale of investments and businesses.
Results of Operations—2007 Compared to 2006
Net Sales
Net sales were $36.6 billion in 2007, down 15% compared to net sales of $42.8 billion in 2006. The decrease
in net sales reflected a $9.4 billion decrease in net sales by the Mobile Devices segment, partially offset by a
$2.3 billion increase in net sales by the Enterprise Mobility Solutions segment and an $850 million increase in net
sales by the Home and Networks Mobility segment. The 33% decrease in net sales in the Mobile Devices segment
was primarily driven by: (i) a 27% decrease in unit shipments, (ii) a 9% decrease in ASP, and (iii) decreased
revenue from intellectual property and technology licensing. The 43% increase in net sales in the Enterprise
Mobility Solutions segment was primarily driven by net sales from the Symbol business acquired in January 2007,
as well as higher net sales in the government and public safety market due to strong demand in North America.
The 9% increase in net sales in the Home and Networks Mobility segment was primarily driven by a 51% increase
in unit shipments of digital entertainment devices, partially offset by lower net sales of wireless networks due
primarily to lower demand for iDEN and CDMA infrastructure equipment.
Gross Margin
Gross margin was $10.0 billion, or 27.2% of net sales, in 2007, compared to $12.7 billion, or 29.7% of net
sales, in 2006. The decrease in gross margin reflects decreases in gross margin in the Mobile Devices and Home
and Networks Mobility segments, partially offset by an increase in gross margin in the Enterprise Mobility
Solutions segment. The decrease in gross margin in the Mobile Devices segment was primarily due to: (i) a 9%
decrease in ASP, (ii) decreased income from intellectual property and technology licensing, (iii) a 27% decrease in
unit shipments, and (iv) a $277 million charge for a legal settlement, partially offset by savings from supply chain
cost-reduction initiatives. The decrease in gross margin in the Home and Networks segment was primarily due to:
(i) continuing competitive pricing pressure in the market for GSM infrastructure equipment, and (ii) lower sales of
iDEN infrastructure equipment, partially offset by increased sales of digital entertainment devices. The increase in
gross margin in the Enterprise Mobility Solutions segment was primarily due to the 43% increase in net sales,
driven by net sales from the Symbol business acquired in January 2007, as well as higher net sales in the
government and public safety market due to strong demand in North America. Gross margin as a percentage of
net sales decreased in 2007 as compared to 2006, reflecting decreases in all three of the Company’s business
segments.
46 MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS