Motorola 2015 Annual Report Download - page 66

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65
Motorola Solutions Credit Agreement. The Company was in compliance with its financial covenants as of December 31, 2015.
The Company did not borrow under the 2014 Motorola Solutions Credit Agreement during the twelve months ended
December 31, 2015.
As of December 31, 2015, the Company had a letter of credit sub-limit of $450 million under the 2014 Motorola Solutions
Credit Agreement. No letters of credit were issued under the revolving credit facility as of December 31, 2015.
5. Risk Management
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 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 gains or losses 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 its 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 has entered 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, 2015, the Company had outstanding foreign exchange contracts totaling $494 million, compared to $628
million outstanding at December 31, 2014. The Company does not believe these financial instruments should subject it to undue
risk due to foreign exchange movements because gains and losses on these contracts should generally offset gains and losses
on the underlying assets, liabilities and transactions.
The following table shows the Company's five largest net notional amounts of the positions to buy or sell foreign currency
as of December 31, 2015 and the corresponding positions as of December 31, 2014:
Notional Amount
Net Buy (Sell) by Currency 2015 2014
Chinese Renminbi $(114)$(161)
Euro 99 214
British Pound 62 34
Australian Dollar (60) (42)
Brazilian Real (44) (28)
Interest Rate Risk
One of the Company’s European subsidiaries has Euro-denominated loans. The interest on the Euro-denominated loans is
variable. The Company has interest rate swap agreements in place which change the characteristics of interest rate payments
from variable to maximum fixed-rate payments. The interest rate swaps are not designated as a hedge. As such, the changes in
the fair value of the interest rate swaps are included in Other income (expense) in the Company’s consolidated statements of
operations. The fair value of the interest rate swaps was a liability position of $1 million at December 31, 2015 and a liability
position of $2 million at December 31, 2014.
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. As of December 31, 2015, all of the
counterparties have investment grade credit ratings. As of December 31, 2015, the Company was exposed to an aggregate
credit risk of approximately $6 million with all counterparties.