Motorola 2005 Annual Report Download - page 61

54 MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
shares of non-voting common stock of Sprint Nextel issued in exchange for Nextel non-voting common stock
pursuant to the Sprint Nextel Merger) for a period of no longer than two years. In exchange for this agreement,
Nextel paid Motorola a fee of $50 million in the third quarter 2005.
In March 2003, the Company entered into agreements with multiple investment banks to hedge up to
25 million of its voting shares of Nextel common stock over periods of three, four and five years, respectively.
Although the precise number of shares of Nextel common stock the Company was required to deliver to satisfy the
contracts was dependent upon the price of Nextel common stock on the various settlement dates, the maximum
aggregate number of shares was 25 million and the minimum number of shares was 18.5 million. Prior to
August 12, 2005, changes in the fair value of these variable share forward purchase agreements (the ""Variable
Forwards'') were recorded in Non-owner changes to equity included in Stockholders equity. As a result of the
Sprint Nextel Merger, the Company realized the cumulative $418 million loss relating to the Variable Forwards that
had previously been recorded in Stockholder's equity. In addition, the Variable Forwards were adjusted to reflect
the underlying economics of the Sprint Nextel Merger. The Company did not designate the adjusted Variable
Forwards as a hedge of the Sprint Nextel shares received as a result of the merger. Accordingly, the Company
recorded $51 million of gains reflecting the change in value of the Variable Forwards from August 12, 2005
through the settlement of the Variable Forwards with the counterparties during the fourth quarter of 2005.
During the fourth quarter of 2005, the Company elected to settle the Variable Forwards by delivering
30.3 million shares of Sprint Nextel common stock, with a value of $725 million, to the counterparties and selling
the remaining 1.4 million Sprint Nextel common shares in the open market. The Company received aggregate cash
proceeds of $391 million and realized a loss of $70 million in connection with the settlement and sale.
Total gains recognized in 2005 related to its investment in Nextel and Sprint Nextel as described above were
approximately $1.8 billion included in Gains on sales of investments and businesses in Other income (expense) in
the Company's consolidated statement of operations plus $51 million of gains related to the Variable Forwards
included in Other in Other income (expense) in the Company's consolidated statement of operations.
Financing Activities
The most significant components of the Company's financing 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 issuances of stock due to the exercise of
employee stock options and purchases under the employee stock purchase plan, and (v) the purchase of the
Company's common stock under its share repurchase program.
Net cash used for financing activities was $1.2 billion in 2005, compared to $237 million of cash used in 2004
and $757 million of cash used in 2003. Cash used for financing activities in 2005 was primarily: (i) $1.1 billion of
cash used to repay debt, (ii) $874 million of cash used for the purchase of the Company's common stock under
the share repurchase program, and (iii) $394 million of cash used to pay dividends, partially offset by proceeds of
$1.2 billion received from the issuance of common stock in connection with the Company's employee stock option
plans and employee stock purchase plan.
Cash used for financing activities in 2004 was primarily attributable to: (i) $2.3 billion to repay debt
(including commercial paper), (ii) $500 million to redeem all outstanding Trust Originated Preferred Securities
SM
(the ""TOPrS''), and (iii) $378 million to pay dividends, partially offset by: (i) $1.7 billion in proceeds received
from the issuance of common stock in connection with the Company's employee stock option plans and employee
stock purchase plan, and (ii) $1.3 billion in distributions from discontinued operations.
Short-term Debt: At December 31, 2005, the Company's outstanding notes payable and current portion of
long-term debt was $448 million, compared to $717 million at December 31, 2004. In the fourth quarter of 2004,
$398 million of 6.5% Debentures due 2025 (the ""2025 Debentures'') were reclassified to current maturities of long-
term debt, as the holders of the debentures had the right to put their debentures back to the Company on
September 1, 2005. $1 million of the 2025 Debentures were submitted for redemption on September 1, with the
remaining put options expiring unexercised. The remaining $397 million of 2025 Debentures were reclassified back
to long-term debt in the third quarter of 2005. In addition, the remaining $118 million of 7.6% Notes due
January 1, 2007 (the ""2007 Notes'') were reclassified to current maturities of long-term debt.