And now for a little accounting…
In anticipation of our upcoming earnings release and given our pending Motorola Home sale announced in December 2012, we wanted to remind everyone about the related accounting treatment of this deal, known as “discontinued operations.” In short, financial results from Motorola Home will be presented as a separate line item in our 2012 consolidated statements of income. While this is a standard accounting treatment (more details below), people who follow our company may not be fully aware of how it impacts our financial reporting. For example, as of this writing, a majority of Wall Street analysts who cover Google have not reflected the Home business as discontinued operations in their estimates.
At the risk of boring everyone silly, here are the nitty-gritty details:
In accordance with U.S. generally accepted accounting principles (GAAP), an entity is required to present the results of a business to be disposed as discontinued operations if the business is clearly distinguishable from the rest of the entity and the entity will not have any significant continuing involvement in the operations of the business after the disposal. Results from discontinued operations are required to be presented separately from the results of continuing operations, below net income from continuing operations.
As the sale of the Home business meets the above U.S. GAAP criterion, we are required to present the Home results as discontinued operations in our consolidated statements of income. That means our net income for this quarter as well as for Q212 and Q312 will be split between our ongoing operations and the Home business. Note that assets and liabilities of the Home business will not be separated out from our other reported financial and operating measures, such as our consolidated cash flow and balance sheet as the Home business is not material to those measures.
Posted by Brent Callinicos, VP, Treasurer and Chief Accountant