Motorola 2012 Annual Report Download - page 74

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66
Credit Facilities
As of December 31, 2012, the Company had a $1.5 billion unsecured syndicated revolving credit facility (the “2011
Motorola Solutions Credit Agreement”) that is scheduled to expire on June 30, 2014. The 2011 Motorola Solutions Credit
Agreement includes a provision pursuant to which the Company can increase the aggregate credit facility size up to a
maximum of $2.0 billion by adding lenders or having existing lenders increase their commitments. The Company must comply
with certain customary covenants, including maintaining maximum leverage and minimum interest coverage ratios as defined
in the 2011 Motorola Solutions Credit Agreement. The Company was in compliance with its financial covenants as of
December 31, 2012. The Company has never borrowed under the 2011 Motorola Solutions Credit Agreement.
At December 31, 2012, the commitment fee assessed against the daily average unused amount was 25 basis points.
5. Risk Management
Derivative Financial Instruments
Foreign Currency Risk
The Company uses financial instruments to reduce its overall exposure to the effects of currency fluctuations on cash
flows. The Company’s policy prohibits speculation in financial instruments for profit on exchange rate price fluctuations,
trading in currencies for which there are no underlying exposures, or entering into transactions for any currency to intentionally
increase the underlying exposure. Instruments that are designated as part of a hedging relationship must be effective at
reducing the risk associated with the exposure being hedged and are designated as part of a hedging relationship at the
inception of the contract. Accordingly, changes in the market values of hedge instruments must be highly correlated with
changes in market values of the underlying hedged items both at the inception of the hedge and over the life of the hedge
contract.
The Company’s strategy related to foreign exchange exposure management is to offset the gains or losses on the financial
instruments against losses or gains on the underlying operational cash flows or investments based on the Company's
assessment of risk. The Company enters into derivative contracts for some of the Company’s non-functional currency cash,
receivables, and payables, which are primarily denominated in major currencies that can be traded on open markets. The
Company typically uses forward contracts and options to hedge these currency exposures. In addition, the Company enters into
derivative contracts for some forecasted transactions, which are designated as part of a hedging relationship if it is determined
that the transaction qualifies for hedge accounting under the provisions of the authoritative accounting guidance for derivative
instruments and hedging activities. A portion of the Company’s exposure is from currencies that are not traded in liquid
markets and these are addressed, to the extent reasonably possible, by managing net asset positions, product pricing and
component sourcing.
At December 31, 2012, the Company had outstanding foreign exchange contracts totaling $523 million, compared to
$524 million outstanding at December 31, 2011. Management believes that these financial instruments should not subject the
Company to undue risk due to foreign exchange movements because gains and losses on these contracts should generally offset
losses and gains on the underlying assets, liabilities and transactions, except for the ineffective portion of the instruments,
which is charged to Other within Other income (expense) in the Company’s consolidated statements of operations.
The following table shows the five largest net notional amounts of the positions to buy or sell foreign currency as of
December 31, 2012 and the corresponding positions as of December 31, 2011:
Notional Amount
Net Buy (Sell) by Currency
December 31,
2012
December 31,
2011
British Pound $ 225 $55
Chinese Renminbi (99)(283)
Norwegian Krone (48)—
Israeli Shekel (35)8
Japanese Yen 32 46
At December 31, 2012, the maximum term of derivative instruments that hedge forecasted transactions was
seven months. The weighted average duration of the Company’s derivative instruments that hedge forecasted transactions was
three months.
Interest Rate Risk
At December 31, 2012, the Company has $1.9 billion of long-term debt, including the current portion of long-term debt,
which is primarily priced at long-term, fixed interest rates.