Motorola 2010 Annual Report Download - page 47

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Net Interest Expense
Net interest expense was $131 million in 2010, compared to net interest expense of $132 million in 2009. Net
interest expense in 2010 included interest expense of $220 million, partially offset by interest income of $89 million.
Net interest expense in 2009 includes interest expense of $211 million, partially offset by interest income of
$79 million. The increase in interest expense in 2010 compared to 2009 is primarily attributable to the absence of
reversals of interest expense accruals that were no longer needed as a result of the settlement of certain tax audits
during 2009, partially offset by increased interest income from long-term receivables.
Gains on Sales of Investments and Businesses
Gains on sales of investments and businesses were $48 million in 2010, compared to a gain of $74 million in
2009. In 2010, the net gain was primarily comprised of a $31 million gain on the sale of a single investment. In
2009, the net gain primarily relates to sales of certain of the Company’s equity investments, of which $32 million of
gain was attributed to a single investment.
Other
Net Other expense was $29 million in 2010, compared to net Other income of $47 million in 2009. The net
Other expense in 2010 was primarily comprised of: (i) $28 million of investment impairments, (ii) a $17 million
foreign currency loss, and (iii) a $12 million loss from the extinguishment of a portion of the Company’s
outstanding long-term debt, partially offset by a $11 million gain from Sigma Fund investments. The net income in
2009 was primarily comprised of: (i) $80 million of gains from Sigma Fund investments, and (ii) a $67 million gain
related to the extinguishment of a portion of the Company’s outstanding long-term debt, partially offset by:
(i) $77 million of other-than-temporary investment impairment charges, and (ii) a $30 million foreign currency loss.
Effective Tax Rate
The Company recorded $406 million of net tax expense in 2010, resulting in an effective tax rate on continuing
operations of 60%, compared to $159 million of net tax benefits in 2009, resulting in an effective tax rate of 32%.
The Company’s effective tax rate in 2010 was higher than the U.S. statutory tax rate of 35% primarily due to: (i) an
increase in the U.S. federal income tax accrual for repatriation of undistributed foreign earnings related to the
realignment of the Company’s investment structure in preparation of the Separation of Motorola Mobility, (ii) a
non-cash tax charge related to the Medicare Part D subsidy tax law change, and (iii) certain separation-related
transaction costs incurred for which the Company recorded no tax benefit, partially offset by reductions in
unrecognized tax benefits for facts that now indicate the extent to which certain tax positions are more-likely-
than-not of being sustained.
The Company’s effective tax rate will change from period to period based on non-recurring events, such as the
settlement of income tax audits, changes in valuation allowances and the tax impact of significant unusual or
extraordinary items, as well as recurring factors including changes in the geographic mix of income and effects of
various global income tax strategies.
Earnings (Loss) from Continuing Operations
The Company had net earnings from continuing operations before income taxes of $677 million in 2010,
compared with a net loss from continuing operations before income taxes of $503 million in 2009. After taxes, and
excluding Earnings (loss) attributable to noncontrolling interests, the Company had net earnings from continuing
operations of $254 million, or $0.75 per diluted share, in 2010, compared to a net loss from continuing operations
of $367 million, or $1.12 per diluted share, in 2009.
The improvement in the earnings (loss) from continuing operations before income taxes in 2010 compared to
2009 was primarily attributable to: (i) a $1.2 billion increase in gross margin, (ii) a $365 million decrease in Other
charges, and (iii) a $68 million decrease in R&D expenditures. These improvements were partially offset by: (i) an
$309 million increase in SG&A expenses, (ii) a $76 million decrease in net Other income, as presented in Other
income (expense), and (iii) a $26 million decrease in gains on the sale of investments and businesses
Earnings from Discontinued Operations
During the third quarter of 2010, the Company announced that NSN would acquire the majority of our
Networks infrastructure assets, subject to the satisfaction of closing conditions, including receipt of regulatory