Motorola 2006 Annual Report Download - page 80

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72
the above interest rate swaps would hypothetically decrease by $24 million (i.e., would decrease from
$(47) million to $(71) million) if LIBOR were to change unfavorably by 10% from current levels. Except as noted
below, the Company had no outstanding commodity derivatives, currency swaps or options relating to debt
instruments at December 31, 2006 or December 31, 2005.
The Company designated the above interest rate swap agreements as part of a fair value hedging relationship.
As such, changes in the fair value of the hedging instrument, as well as the hedged debt are recognized in earnings,
therefore adjusting the carrying amount of the debt. Interest expense on the debt is adjusted to include the
payments made or received under such hedge agreements. In the event the underlying debt instrument matures or is
redeemed or repurchased, the Company is likely to terminate the corresponding interest rate swap contracts.
Additionally, effective December 31, 2006, one of the Company's European subsidiaries entered into interest
rate agreements (""Interest Agreements'') relating to a Euro-denominated loan. The interest on the Euro-
denominated loan is floating based on 3-month EURIBOR plus a spread. The Interest Agreements change the
characteristics of interest rate payments from short-term EURIBOR based variable payments to maximum fixed-rate
payments. The Interest Agreements are not accounted for as a part of a hedging relationship and accordingly the
changes in the fair value of the Interest Agreements are included in Other income (expense) in the Company's
consolidated statements of operations. The fair value of the Interest Agreements at December 31, 2006 was
$1 million. The fair value of the Interest Agreements would hypothetically decrease by $2 million (i.e., would
decrease from $1 million to $(1) million if EURIBOR rates were to change unfavorably by 10% from current
levels).
The Company is exposed to credit loss in the event of nonperformance by the counterparties to its swap
contracts. The Company minimizes its credit risk on these transactions by only dealing with leading, creditworthy
financial institutions having long-term debt ratings of ""A'' or better and, does not anticipate nonperformance. In
addition, the contracts are distributed among several financial institutions, thus minimizing credit risk concentration.
Environmental Matters
Compliance with federal, state and local laws regulating the discharge of materials into the environment, or
otherwise relating to the protection of the environment, has no material effect on capital expenditures, earnings or
the competitive position of Motorola.
ยปReg. U.S. Patent & Trademark Office.
""MOTOROLA'' and ""Stylized M Logo'' are registered trademarks of Motorola, Inc. throughout the world.
These marks are valuable corporate assets. Certain other trademarks and service marks of Motorola are registered
in relevant markets. Motorola's increasing focus on marketing products directly to consumers is reflected in an
increasing emphasis on brand equity creation and protection. All other products or service names are the property
of their respective owners.