Motorola 2006 Annual Report Download - page 100

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provisions of SFAS No. 133, ""Accounting for Derivative Instruments and Hedging Activities''. Accordingly, to
reflect the change in fair value of the Sprint Nextel Derivative, the Company recorded a net gain of $99 million for
the year ended December 31, 2006, included in Other income (expense) in the Company's consolidated statements
of operations. In December 2006, the Sprint Nextel Derivative was terminated and settled in cash and the
37.6 million shares of Sprint Nextel were converted to common shares and sold. The Company received aggregate
cash proceeds of approximately $820 million from the settlement of the Sprint Nextel Derivative and the
subsequent sale of the 37.6 million Sprint Nextel shares. The Company recognized a loss of $126 million in
connection with the sale of the remaining shares of Sprint Nextel common stock. As described above, the
Company recorded a net gain of $99 million in connection with the Sprint Nextel Derivative.
Prior to the merger of Sprint Corporation (""Sprint'') and Nextel Communications, Inc. (""Nextel''), the
Company had entered into variable share forward purchase agreements (the ""Variable Forwards'') to hedge its
Nextel common stock. The Company did not designate the 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 for the year
ended December 31, 2005 reflecting the change in value of the Variable Forwards. The Variable Forwards were
settled during the fourth quarter of 2005.
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, 2006 was $4.3 billion, compared to a carrying value of $4.1 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, 2006.
6. Income Taxes
Components of earnings (loss) from continuing operations before income taxes are as follows:
Years Ended December 31 2006 2005 2004
United States $1,034 $3,232 $ 853
Other nations 3,576 3,180 2,259
$4,610 $6,412 $3,112
Components of income tax expense (benefit) are as follows:
Years Ended December 31 2006 2005 2004
United States $10 $ 240 $ 44
Other nations 488 638 458
States (U.S.) 13 15 6
Current income tax expense 511 893 508
United States 892 891 504
Other nations (147) (42) (94)
States (U.S.) 93 151 95
Deferred income tax expense 838 1,000 505
Total income tax expense $1,349 $1,893 $1,013
Deferred tax charges (benefits) that were recorded within Non-owner changes to equity in the Company's
consolidated balance sheets resulted primarily from fair value adjustments to available-for-sale securities, losses on
derivative instruments and retirement benefit adjustments. The adjustments were $(182) million, $(753) million
and $(189) million for the years ended December 31, 2006, 2005 and 2004, respectively. Except for certain