Motorola 2004 Annual Report Download - page 56

48 MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Available-For-Sale Securities: In addition to available cash and cash equivalents and short-term investments,
the Company views its available-for-sale securities as an additional source of liquidity. The majority of these
securities represent investments in technology companies and, accordingly, the fair market values of these securities
are subject to substantial price volatility. In addition, the realizable value of these securities is subject to market and
other conditions. At December 31, 2004, the Company's available-for-sale securities portfolio had an approximate
fair market value of $2.9 billion, which represented a cost basis of $616 million and a net unrealized gain of
$2.3 billion. At December 31, 2003, the Company's available-for-sale securities portfolio had an approximate fair
market value of $2.9 billion, which represented a cost basis of $499 million and a net unrealized gain of
$2.4 billion.
Nextel Investment: In March 2003, the Company entered into three agreements with multiple investment
banks to hedge up to 25 million of its shares of Nextel common stock. The three agreements are to be settled over
periods of three, four and Ñve years, respectively. Under these agreements, the Company received no initial
proceeds, but has retained the right to receive, at any time during the contract periods, the present value of the
aggregate contract ""Öoor'' price. Pursuant to these agreements, and exclusive of any present value discount, the
Company is entitled to receive aggregate proceeds of approximately $333 million. The precise number of shares of
Nextel common stock that the Company will deliver to satisfy the contracts is dependent upon the price of Nextel
common stock on the various settlement dates. The maximum aggregate number of shares the Company would be
required to deliver under these agreements is 25 million and the minimum number of shares is 18.5 million.
Alternatively, the Company has the exclusive option to settle the contracts in cash. The Company will retain all
voting rights associated with the up to 25 million hedged Nextel shares. Pursuant to customary market practice, the
covered shares are pledged to secure the hedge contracts. The Company has recorded $340 million and
$310 million as of December 31, 2004 and 2003, respectively, in Other Liabilities in the consolidated balance sheet
to reÖect the fair value of the Nextel hedge.
Motorola, together with its wholly-owned subsidiary Motorola SMR, Inc. (""Motorola SMR'') owns
29,660,000 shares of Class B Non-Voting Common Stock of Nextel (the ""Nextel Class B Shares''). On
December 15, 2004, Nextel and Sprint Corp. (""Sprint'') announced a deÑnitive agreement (the ""Merger
Agreement'') for a merger of the two companies in a stock-for-stock transaction. Pursuant to a letter agreement
dated December 14, 2004 among Motorola, Motorola SMR and Nextel (the ""Letter Agreement''), Motorola and
Motorola SMR agreed not to dispose of their Nextel Class B Shares (or any shares of non-voting common stock
of Sprint/Nextel issued in exchange therefor pursuant to the Merger Agreement) for a period of up to 2 years. In
exchange for the restrictions imposed under the Letter Agreement, Nextel agreed to pay Motorola a fee of
$50 million (the ""Consent Fee'') on the third business day following the receipt of necessary approvals by the
stockholders of Nextel and Sprint for the merger. Nextel has agreed to pay the Consent Fee to Motorola at an
earlier date under certain circumstances.
Financing Activities
The most signiÑcant components of the Company's Ñnancing activities are: (i) net proceeds from (or
repayment of) commercial paper and short-term borrowings, (ii) net proceeds from (or repayment of) long-term
debt securities, (iii) the payment of dividends, (iv) proceeds from the issuance of stock due to exercises of
employee stock options and purchases under the employee stock purchase plan, and (v) distributions from (to)
discontinued operations.
Net cash used for Ñnancing activities was $237 million in 2004, as compared to $757 million in 2003 and
$402 million in 2002. Cash used for Ñnancing activities in 2004 was primarily: (i) $1.5 billion to redeem all
outstanding 6.75% Debentures due 2006 (the ""2006 Debentures'') in July 2004, (ii) $500 million to redeem all
outstanding Trust Originated Preferred Securities
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(the ""TOPrS'') in March 2004, (iii) $500 million to repay, at
maturity, all outstanding 6.75% Debentures due 2004 in June 2004, (iv) $202 million to redeem a portion of the
7.60% Notes due 2007 (the ""2007 Notes'') in July 2004, (v) $115 million for the open market repurchase of a
portion of the 6.50% Debentures due 2028 (the ""2028 Debentures'') in August 2004, and (vi) $378 million to pay
dividends. This cash used for Ñnancing activities was partially oÅset by: (i) net proceeds of $1.3 billion distributed
to the Company by Freescale Semiconductor in July 2004 at the time of the initial public oÅering by Freescale
Semiconductor of approximately 32.5% of its total common shares and the issuance of senior debt securities in an
aggregate principal amount of $1.25 billion, (ii) net proceeds of $1.2 billion received from the sale of stock
pursuant to the terms of 7.00% Equity Security Units (the ""MEUs''), and (iii) proceeds of approximately
$500 million received from the issuance of common stock in connection with the Company's employee stock
option plans and employee stock purchase plan.