Motorola 2007 Annual Report Download - page 102

The fair value of the Interest Agreements at December 31, 2007 and December 31, 2006 was $3 million and
$1 million, respectively.
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 and does not anticipate nonperformance. In addition, the contracts are distributed among
several financial institutions, all of whom presently have investment grade credit ratings, thus minimizing credit
risk concentration.
Stockholders’ Equity
Derivative instruments activity, net of tax, included in Non-owner changes to equity within the consolidated
statements of stockholders’ equity for the years ended December 31, 2007 and 2006 is as follows:
2007 2006 2005
Balance at January 1 $16 $ 2 $(272)
Increase (decrease) in fair value (6) 75 28
Reclassifications to earnings (10) (61) 246
Balance at December 31 $— $16 $ 2
Net Investment in Foreign Operations Hedge
At December 31, 2007 and 2006, the Company did not have any hedges of foreign currency exposure of net
investments in foreign operations.
Investments Hedge
During the first quarter of 2006, the Company entered into a zero-cost collar derivative (the “Sprint Nextel
Derivative”) to protect itself economically against price fluctuations in its 37.6 million shares of Sprint Nextel
Corporation (“Sprint Nextel”) non-voting common stock. During the second quarter of 2006, as a result of Sprint
Nextel’s spin-off of Embarq Corporation through a dividend to Sprint Nextel shareholders, the Company received
approximately 1.9 million shares of Embarq Corporation. The floor and ceiling prices of the Sprint Nextel
Derivative were adjusted accordingly. The Sprint Nextel Derivative was not designated as a hedge under the
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 Fund investments, short-term
investments, accounts receivable, long-term finance receivables, accounts payable, accrued liabilities, derivatives
and other financing commitments. The Company’s Sigma Fund and investment portfolios and derivatives are
recorded in the Company’s consolidated balance sheets at fair value. All other financial instruments, with the
exception of long-term debt, are carried at cost, which is not materially different than the instruments’ fair values.
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