Motorola 2009 Annual Report Download - page 135

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During the year ended December 31, 2008, the Company finalized its assessment of the Internal Revenue
Code Section 382 Limitations (‘‘IRC Section 382’’) relating to the pre-acquisition tax loss carry-forwards of its
2007 acquisitions. As a result of the IRC Section 382 studies, the Company recorded additional deferred tax
assets and a corresponding reduction in goodwill, which is reflected in the adjustment row above.
The Company conducts its annual assessment of goodwill for impairment in the fourth quarter of each year.
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 Networks reporting unit. The Company performs extensive valuation analyses, utilizing both income
and market-based approaches, in its goodwill assessment process. The determination of the 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 rate, earnings before depreciation and amortization, and capital expenditures forecasts specific to
each reporting unit. Due to the inherent uncertainty involved in making these estimates, actual results could differ
from those estimates.
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 it is the Company’s view that future discounted cash flows are more reflective of the
value of the reporting units.
With respect to the primary assumptions made in determining the fair value of its reporting units, for the
Home, Networks, Government and Public Safety and Enterprise Mobility reporting units, the Company assigned
discount rates ranging from 12.5% to 13.5% in 2009 and 13.0% to 14.0% in 2008. The Company assigned a
discount rate of 17.5% to the Mobile Devices reporting unit in 2009 and, commensurate with development stage
enterprises or turnaround opportunities, 25% in 2008. 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 our 2009 annual assessments of the recoverability goodwill, the fair values of all
reporting units exceeded their book values, indicating that there was no impairment of goodwill.
Following is a discussion of the goodwill impairment charges recorded for the year ended December 31,
2008.
During the fourth quarter of 2008, the Company experienced a sustained, significant decline in its 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 considered this decline in its stock price in the impairment assessment.
Based on the results of Step One of the 2008 annual assessment of the recoverability goodwill, the fair values
of the Home, 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 values of the Enterprise Mobility and Mobile Devices reporting units were 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 was a result of the deteriorating macroeconomic environment, lower
than 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 the goodwill relating to the Enterprise Mobility and Mobile