Motorola 2010 Annual Report Download - page 63

Download and view the complete annual report

Please find page 63 of the 2010 Motorola annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 144

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144

55
The segment had operating earnings of $16 million in 2009, a decrease of 95% compared to operating earnings
of $340 million in 2008. The decrease in operating earnings was primarily due to: (i) a decrease in gross margin,
driven by the 21% decrease in net sales, and (ii) a $75 million charge related to a legal settlement. These factors
were partially offset by a decrease in R&D expenditures, reflecting savings from cost-reduction initiatives. As a
percentage of net sales in 2009 as compared to 2008, gross margin decreased slightly and SG&A expenses and
R&D expenditures increased.
Significant Accounting Policies
Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses the
Company’s consolidated financial statements, which have been prepared in accordance with U.S. generally accepted
accounting principles. The preparation of these financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during
the reporting period.
Management bases its estimates and judgments on historical experience, current economic and industry
conditions and on various other factors that are believed to be reasonable under the circumstances. This forms the
basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different assumptions or conditions.
Management believes the following significant accounting policies require significant judgment and estimates:
—Revenue recognition
—Inventory valuation
—Income taxes
—Valuation of Sigma Fund and investment portfolios
—Restructuring activities
—Retirement-related benefits
—Valuation and recoverability of goodwill and long-lived assets
Revenue Recognition
In October 2009, the Financial Accounting Standards Board (“FASB”) issued new guidance which amended the
accounting standards for revenue arrangements with multiple deliverables. The new guidance changes the criteria
required to separate deliverables into separate units of accounting when they are sold in a bundled arrangement and
requires an entity to allocate an arrangement’s consideration using estimated selling prices (“ESP”) of deliverables if
a vendor does not have vendor-specific objective evidence of selling price (“VSOE”) or third-party evidence of
selling price (“TPE”). The new guidance also eliminates the use of the residual method to allocate an arrangement’s
consideration.
In October 2009, the FASB also issued new guidance to remove from the scope of software revenue recognition
guidance tangible products containing software components and non-software components that function together to
deliver the tangible product’s essential functionality.
The new accounting guidance is effective for revenue arrangements entered into or materially modified after
June 15, 2010. The standards permit prospective or retrospective adoption as well as early adoption. The Company
elected to early adopt this guidance at the beginning of its first quarter of fiscal 2010 on a prospective basis for
applicable arrangements that were entered into or materially modified after January 1, 2010.
The Company’s material revenue streams are the result of a wide range of activities, from the delivery of
stand-alone equipment to custom design and installation over a period of time to bundled sales of devices,
equipment, software and services. The Company enters into revenue arrangements that may consist of multiple
deliverables of its product and service offerings due to the needs of its customers. Additionally, many of the
Company’s products have both software and non-software components that function together to deliver the
product’s essential functionality. The Company recognizes revenue when persuasive evidence of an arrangement