Motorola 2005 Annual Report Download - page 83

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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.
Fair Value of Financial Instruments
The Company's financial instruments include cash equivalents, Sigma Funds, short-term investments, accounts
receivable, long-term finance receivables, accounts payable, accrued liabilities, notes payable, long-term debt, foreign
currency contracts and other financing commitments.
Using available market information, the Company determined that the fair value of long-term debt at
December 31, 2005 was $4.3 billion, compared to a carrying value of $4.0 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 financial instruments were not materially different from their carrying or contract
values at December 31, 2005.
Equity Price Market Risk
At December 31, 2005, the Company's available-for-sale securities portfolio had an approximate fair market
value of $1.2 billion which represented a cost basis of $1.1 billion and a net unrealized gain of $157 million. The
value of the available-for-sale securities would change by $122 million as of year-end 2005 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, 2005, the Company's short-term debt consisted primarily of $300 million of commercial
paper, priced at short-term interest rates. The Company has $4.0 billion of long-term debt, including current
maturities, which is primarily priced at long-term, fixed interest rates.
In order to manage the mix of fixed and floating rates in its debt portfolio, the Company has entered into
interest rate swaps to change the characteristics of interest rate payments from fixed-rate payments to short-term
LIBOR-based variable rate payments. During the year ended December 31, 2005, in conjunction with the repurchase
of an aggregate principal amount of $1.0 billion of long-term debt, the Company terminated a notional amount of
$1.0 billion of these swaps that were associated with the repurchased debt, resulting in expense of approximately
$22 million, which is included in debt retirement costs within Other income (expense) in the Company's
consolidated statement of operations. The following table displays the interest rate swaps that were outstanding at
December 31, 2005:
Notional Amount
Hedged Underlying Debt
Date Executed (in millions) Instrument
August 2004 $1,200 4.608% notes due 2007
September 2003 457 7.625% debentures due 2010
September 2003 600 8.0% notes due 2011
May 2003 114 6.5% notes due 2008
May 2003 84 5.8% debentures due 2008
May 2003 69 7.625% debentures due 2010
March 2002 118 7.6% notes due 2007
$2,642
The short-term LIBOR-based variable rate payments on the above interest rate swaps was 6.9% for the three
months ended December 31, 2005. The fair value of the interest rate swaps at December 31, 2005 and 2004, was
approximately $(50) million and $3 million, respectively. The fair value of the interest rate swaps would
hypothetically decrease by $35 million (i.e., would decrease from $(50) million to $(85) million) if LIBOR rates