Motorola 2012 Annual Report Download - page 36

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28
Geographic market sales measured by the locale of the end customer as a percent of total net sales for 2012, 2011 and
2010 are as follows:
Geographic Market Sales by Locale of End Customer
2012 2011 2010
North America 58% 57% 58%
Latin America 8% 9% 9%
EMEA 21% 21% 21%
Asia 13% 13% 12%
100% 100% 100%
Results of Operations—2012 Compared to 2011
Net Sales
Net sales were $8.7 billion in 2012, a 6% increase compared to net sales of $8.2 billion in 2011. The increase in net sales
reflects: (i) a $631 million, or 12% increase in net sales in the Government segment driven by broad based growth across the
product portfolio, and (ii) a $136 million, or 5% decrease in net sales in the Enterprise segment driven by the anticipated
decline in iDEN infrastructure sales, reduced information technology spending driven by macroeconomic uncertainty, and
unfavorable foreign currency fluctuations.
Gross Margin
Gross margin was $4.3 billion, or 50.0% of net sales in 2012, compared to $4.1 billion, or 50.5% of net sales, in 2011. The
gross margin increase was driven by the 12% increase in net sales in our Government segment, offset by lower gross margin in
our Enterprise segment, primarily related to a decline in volume, including the decline in iDEN infrastructure sales, and
unfavorable foreign currency fluctuations. The decrease in gross margin as a percent of sales reflects higher gross margin
percent from product sales and lower gross margin percent from service sales. The decline in gross margin percentage from
service sales primarily relates to: (i) the expansion of managed services, which generally have lower gross margin than our
traditional service contracts, and (ii) unfavorable foreign currency fluctuations.
Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses increased 3% to $2.0 billion, or 22.6% of net sales in 2012,
compared to $1.9 billion, or 23.2% of net sales in 2011. The increase in SG&A expenses is driven by an increase in pension
and employee benefit-related expenses, as well as the Psion acquisition that closed in the fourth quarter of 2012.
Research and Development Expenditures
Research and development (“R&D”) expenditures increased 4% to $1.1 billion, or 12.4% of net sales in 2012, compared to
$1.0 billion, or 12.6% of net sales, in 2011. The increase in R&D expenditures reflects higher R&D expenditures in both
segments, primarily due to: (i) an increase in employee benefit-related expenses, and (ii) increased investment in next-
generation technology, including strategic acquisitions.
Other Charges
We recorded net charges of $54 million in Other charges in 2012, compared to net charges of $341 million in 2011. The
charges in 2012 included: (i) $41 million of charges relating to the reorganization of business charges, and (ii) $29 million of
charges relating to amortization of intangibles, partially offset by $16 million of income related to a legal matter. The charges
in 2011 included: (i) $200 million of charges relating to the amortization of intangibles, (ii) $88 million of net charges relating
to legal matters, (iii) $52 million of net reorganization of business charges, and (iv) $10 million related to a long term financing
receivable reserve, partially offset by $9 million in gains related to pension plan adjustments. The net reorganization of
business charges are discussed in further detail in the “Reorganization of Businesses” section.
Net Interest Expense
Net interest expense was $66 million in 2012, compared to net interest expense of $74 million in 2011. Net interest
expense in 2012 included interest expense of $108 million, partially offset by interest income of $42 million. Net interest
expense in 2011 includes interest expense of $132 million, partially offset by interest income of $58 million. The decrease in
net interest expense in 2012 compared to 2011 is primarily attributable to lower interest expense driven by lower average debt
outstanding, partially offset by a decrease in interest income due to lower average cash and cash equivalents during 2012
compared to 2011.