MOT » Topics » Results of Operations-Three months ended April 4, 2009 compared to three months ended March 29, 2008

This excerpt taken from the MOT 10-Q filed May 6, 2009.
Results of Operations—Three months ended April 4, 2009 compared to three months ended March 29, 2008
 
Net Sales
 
Net sales were $5.4 billion in the first quarter of 2009, down 28% compared to net sales of $7.4 billion in the first quarter of 2008. The decrease in net sales reflects: (i) a $1.5 billion, or 45%, decrease in net sales in the Mobile Devices segment, (ii) a $392 million, or 16%, decrease in net sales in the Home and Networks Mobility segment, and (iii) a $207 million, or 11%, decrease in net sales in the Enterprise Mobility Solutions segment. The 45% decrease in net sales in the Mobile Devices segment was primarily driven by a 46% decrease in unit shipments. The 16% decrease in net sales in the Home and Networks Mobility segment reflects a 21% decrease in net sales in the networks business and a 12% decrease in net sales in the home business. The 11% decrease in the Enterprise Mobility Solutions segment net sales was driven by a double-digit percentage decline in net sales to the commercial enterprise market and a single-digit percentage decline in net sales to the government and public safety market.
 
Gross Margin
 
Gross margin was $1.5 billion, or 27.9% of net sales, in the first quarter of 2009, compared to $2.1 billion, or 28.8% of net sales, in the first quarter of 2008. The decrease in gross margin reflects lower gross margin in all segments. The decrease in gross margin in the Mobile Devices segment was primarily driven by the 45% decrease in net sales. The decrease in gross margin in the Enterprise Mobility Solutions segment was primarily driven by: (i) the 11% decrease in net sales, and (ii) an unfavorable product mix. The decrease in gross margin in the Home and Networks Mobility segment was primarily due to a 16% decrease in net sales, partially offset by a favorable product mix.


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MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 
The decrease in gross margin as a percentage of net sales in the first quarter of 2009 compared to the first quarter of 2008 was primarily driven by a decrease in gross margin percentage in the Mobile Devices and Enterprise Mobility Solutions segments, partially offset by an increase in gross margin percentage in the Home and Networks Mobility segment. The Company’s overall gross margin as a percentage of net sales can be impacted by the proportion of overall net sales generated by its various businesses.
 
Selling, General and Administrative Expenses
 
Selling, general and administrative (“SG&A”) expenses decreased 27% to $869 million, or 16.2% of net sales, in the first quarter of 2009, compared to $1.2 billion, or 15.9% of net sales, in the first quarter of 2008. The decrease in SG&A expenses reflects lower SG&A expenses in all segments. The decrease in the Mobile Devices segment was primarily driven by lower marketing expenses and savings from cost-reduction initiatives. The decreases in the Enterprise Mobility Solutions and Home and Networks Mobility segments were primarily due to savings from cost-reduction initiatives. SG&A expenses as a percentage of net sales increased in the Enterprise Mobility Solutions and Home and Networks Mobility segments and decreased in the Mobile Devices segment.
 
Research and Development Expenditures
 
Research and development (“R&D”) expenditures decreased 20% to $847 million, or 15.8% of net sales, in the first quarter of 2009, compared to $1.1 billion, or 14.2% of net sales, in the first quarter of 2008. The decrease in R&D expenditures reflects lower R&D expenditures in all segments. The decreases in all segments were primarily due to savings from cost-reduction initiatives. R&D expenditures as a percentage of net sales increased in all segments. The Company participates in very competitive industries with constant changes in technology and, accordingly, the Company continues to believe that a strong commitment to R&D is required to drive long-term growth.
 
Other Charges
 
The Company recorded net charges of $229 million in Other charges in the first quarter of 2009, compared to net charges of $177 million in the first quarter of 2008. The charges in the first quarter of 2009 include: (i) $158 million of net reorganization of business charges included in Other charges, and (ii) $71 million of charges relating to the amortization of intangibles. The charges in the first quarter of 2008 included: (i) $83 million of charges relating to the amortization of intangibles, (ii) $74 million of net reorganization of business charges included in Other charges, and (iii) a $20 million charge related to a legal settlement. The net reorganization of business charges are discussed in further detail in the “Reorganization of Businesses” section.
 
Net Interest Expense
 
Net interest expense was $35 million in the first quarter of 2009, compared to net interest expense of $2 million in the first quarter of 2008. Net interest expense in the first quarter of 2009 includes interest expense of $62 million, partially offset by interest income of $27 million. Net interest expense in the first quarter of 2008 included interest expense of $78 million, partially offset by interest income of $76 million. The increase in net interest expense is primarily attributed to lower interest income due to the decrease in average cash, cash equivalents and the Sigma Fund balances in the first quarter of 2009 compared to the first quarter of 2008 and the significant decrease in short-term interest rates.
 
Gains (Loss) on Sales of Investments and Businesses
 
The loss on sales of investments and businesses was $20 million in the first quarter of 2009, compared to gains of $19 million in the first quarter of 2008. In the first quarter of 2009, the net loss primarily relates to a loss on the sale of a business. In the first quarter of 2008, the net gain primarily related to the sale of the Company’s shares in an equity investment.
 
Other
 
Net income classified as Other, as presented in Other income (expense), was $70 million in the first quarter of 2009, compared to net charges of $5 million in the first quarter of 2008. The net income in the first quarter of 2009 was primarily comprised of: (i) a $67 million gain related to the extinguishment of a portion of the Company’s outstanding


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MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

long-term debt, (ii) a $9 million decrease in the temporary net unrealized loss of the Sigma Fund investments, and (iii) $6 million of foreign currency gain, partially offset by: (i) $7 million of other-than-temporary investment impairment charges, and (ii) $1 million of impairment charges on the Sigma Fund investments. The net charges in the first quarter of 2008 were primarily comprised of: (i) $18 million of other-than-temporary investment impairment charges, and (ii) $4 million of impairment charges on the Sigma Fund investments, partially offset by $24 million of gains relating to several interest rate swaps not designated as hedges.
 
Effective Tax Rate
 
The Company recorded $146 million of net tax benefits in the first quarter of 2009, compared to $67 million of net tax benefits in the first quarter of 2008. During the first quarter of 2009, the Company’s net tax benefit was favorably impacted by tax benefits on reorganization of business charges, fixed asset impairments and exit costs and unfavorably impacted by a gain on debt repurchase. The Company’s effective tax rate, excluding these items, was 34%.
 
During the first quarter of 2008, the Company’s net tax benefit was favorably impacted by tax benefits on reorganization of business charges and legal settlements and unfavorably impacted by a tax charge on derivative gains. The Company’s ongoing effective tax rate, excluding these items, was 35%.
 
Loss from Continuing Operations
 
The Company incurred a net loss from continuing operations before income taxes of $434 million in the first quarter of 2009, compared with a net loss from continuing operations before income taxes of $257 million in the first quarter of 2008. After taxes, and excluding Earnings attributable to the noncontrolling interests, the Company incurred a net loss from continuing operations of $291 million, or $0.13 per diluted share, in the first quarter of 2009, compared to a net loss from continuing operations of $194 million, or $0.09 per diluted share, in the first quarter of 2008.
 
Earnings from Discontinued Operations
 
During the first quarter of 2009, the Company completed the sale of: (i) Good Technology, and (ii) the biometrics business unit, which includes its Printrak trademark. The Company had earnings from discontinued operations before income taxes of $162 million in the first quarter of 2009, primarily comprised of $175 million of net gains from the sale of businesses. After taxes, the Company had earnings from discontinued operations of $60 million, or $0.03 per diluted share, in the first quarter of 2009. For all other applicable prior periods, the operating results of these businesses have not been reclassified as discontinued operations, since the results are not material to the Company’s condensed consolidated financial statements.
 
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