Motorola 2004 Annual Report Download - page 90

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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
sheets to reÖect the fair value of the Nextel hedge.
Fair Value of Financial Instruments
The Company's Ñnancial instruments include cash equivalents, short-term investments, accounts receivable,
long-term Ñnance receivables, accounts payable, accrued liabilities, notes payable, long-term debt, foreign currency
contracts and other Ñnancing commitments.
Using available market information, the Company determined that the fair value of long-term debt at
December 31, 2004 was $5.4 billion compared to a carrying value of $5.0 billion. Since considerable judgment is
required in interpreting market information, the fair value of the long-term debt is not necessarily indicative of the
amount which could be realized in a current market exchange.
The fair values of the other Ñnancial instruments were not materially diÅerent from their carrying or contract
values at December 31, 2004.
Equity Price Market Risk
The value of the available-for-sale securities would change by $290 million as of year-end 2004 if the price of
the stock in each of the publicly-traded companies were to change by 10%. These equity securities are held for
purposes other than trading.
Interest Rate Risk
At December 31, 2004, the Company's short-term debt of $317 million consisted primarily of $300 million of
commercial paper, priced at short-term interest rates. The Company had $5.0 billion of long-term debt including
current maturities, which is primarily priced at long-term, Ñxed interest rates.
In order to manage the mix of Ñxed and Öoating rates in its debt portfolio, the Company has entered into
interest rate swaps to change the characteristics of interest rate payments from Ñxed-rate payments to short-term
LIBOR-based variable rate payments. During the year ended December 31, 2004, in conjunction with the retirement
of debt, certain of these swaps were unwound resulting in income of approximately $55 million, which is included
in Charges Related to Debt Redemption included in Other within Other Income (Expense) in the Company's
consolidated statements of operations. The following table displays the interest rate swaps that were in place at
December 31, 2004:
Principal Amount Hedged Underlying Debt
Date Executed (in millions) Instrument
August 2004 $1,200 4.608% notes due 2007
September 2003 725 7.625% debentures due 2010
September 2003 600 8.0% notes due 2011
May 2003 200 6.5% notes due 2008
May 2003 325 5.8% debentures due 2008
May 2003 475 7.625% debentures due 2010
March 2002 118 7.6% notes due 2007
$3,643
In addition, in June 1999, the Company's Ñnance subsidiary entered into interest rate swaps to change the
characteristics of interest rate payments on all $500 million of its 6.75% Debentures due 2004 from Ñxed-rate
payments to short-term LIBOR-based variable rate payments in order to match the funding with its underlying
assets. This interest rate swap expired in June 2004, when the underlying Ñxed-rate debt matured and was repaid.
The short-term LIBOR-based variable rate on each of the above interest rate swaps was 5.4% for the three
months ended December 31, 2004. The fair value of all interest rate swaps at December 31, 2004 and 2003 was
approximately $3 million and $150 million, respectively. The fair value of the interest rate swaps would
hypothetically decrease by $53 million if LIBOR rates were to increase by 10% from current levels. Except for these