Motorola 2005 Annual Report Download - page 98

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91
During the first half of 2005, the Company sold 22.5 million shares of common stock of Nextel
Communications, Inc. (""Nextel''). The Company received approximately $679 million in cash and realized a pre-
tax gain of $609 million from these sales. Subsequent to these sales, the Company owned 25 million shares of
common stock and 29.7 million shares of non-voting common stock of Nextel.
On August 12, 2005, Sprint Corporation completed its merger (the ""Sprint Nextel Merger'') with Nextel. In
connection with the Sprint Nextel Merger, Motorola received $46 million in cash, 31.7 million voting shares and
37.6 million non-voting shares of Sprint Nextel Corporation (""Sprint Nextel''), in exchange for its remaining
54.7 million shares of Nextel. As a result of this transaction, the Company realized a gain of $1.3 billion, comprised
of a $1.7 billion gain recognized on the receipt of cash and the 69.3 million shares of Sprint Nextel in exchange for
its shares of Nextel, net of a $418 million loss recognized on its hedge of 25 million shares of common stock of
Nextel, as described below.
On December 14, 2004, in connection with the announcement of the definitive agreement relating to the Sprint
Nextel Merger, Motorola, a Motorola subsidiary and Nextel entered into an agreement pursuant to which
Motorola and its subsidiary agreed not dispose of their 29.7 million non-voting shares of Nextel (now 37.6 million
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 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 Stockholders' equity. In addition, the Variable Forwards purchase agreements 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 of the instruments 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.
For the year ended December 31, 2004, the $460 million gain on sales of investments and businesses is
primarily comprised of: (i) a $130 million gain on the sale of the Company's remaining shares in Broadcom
Corporation, (ii) a $122 million gain on the sale of a portion of the Company's shares in Nextel, (iii) an
$82 million gain on the sale of a portion of the Company's shares in Telus Corporation, and (iv) a $68 million
gain on the sale of a portion of the Company's shares in Nextel Partners, Inc.