Motorola 2009 Annual Report Download - page 104

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96
Additionally, one of the Company’s European subsidiaries has outstanding interest rate agreements (‘‘Interest
Agreements’’) relating to a Euro-denominated loan. The interest on the Euro-denominated loan is variable. The
Interest Agreements change the characteristics of interest rate payments from variable 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. During the second quarter of 2009, the Company’s European subsidiary
terminated a portion of the Interest Agreements to ensure that the notional amount of the Interest Agreements
matched the amount outstanding under the Euro-denominated loan. The termination of the Interest Agreements
resulted in an expense of approximately $2 million. The weighted average fixed rate payments on these Interest
Agreements was 5.34%. The fair value of the Interest Agreements at December 31, 2009 and December 31, 2008
were $(4) million and $(2) million, respectively.
Counterparty Risk
The use of derivative financial instruments exposes the Company to counterparty credit risk in the event of
nonperformance by counterparties. However, the Company’s risk is limited to the fair value of the instruments
when the derivative is in an asset position. The Company actively monitors its exposure to credit risk. At present
time, all of the counterparties have investment grade credit ratings. The Company is not exposed to material
credit risk with any single counterparty. As of December 31, 2009, the Company was exposed to an aggregate
credit risk of $8 million with all counterparties.
The following table summarizes the fair values and location in our consolidated balance sheet of all
derivative financial instruments held by the Company:
Fair Values of Derivative Instruments
Assets Liabilities
Balance Balance
Fair Sheet Fair Sheet
December 31, 2009 Value Location Value Location
Derivatives designated as hedging instruments:
Foreign exchange contracts $ 5 Other assets $ 1 Other liabilities
Derivatives not designated as hedging instruments:
Foreign exchange contracts 10 Other assets 16 Other liabilities
Interest agreement contracts — Other assets 4 Other liabilities
Total derivatives not designated as hedging instruments 10 20
Total derivatives $15 $21
The following table summarizes the effect of derivative instruments in our consolidated statements of
operations:
Loss on the Derivative Statement of
Year Ended December 31, 2009 Instrument Operations Location
Derivatives designated as hedging instruments:
Foreign exchange contracts $ — Foreign currency income (expense)
Derivatives not designated as hedging instruments:
Interest rate contracts (16) Other income (expense)
Foreign exchange contracts (166) Other income (expense)
Total derivatives not designated as hedging
instruments $(182)