Motorola 2007 Annual Report Download - page 80

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losses on the assets, liabilities and future transactions being hedged. If the hedged transactions were included in the
sensitivity analysis, the hypothetical change in fair value would be immaterial. The foreign exchange financial
instruments are held for purposes other than trading.
The Company recorded income of $0.6 million and $1.5 million for the years ended December 31, 2006 and
2005, respectively, representing the ineffective portions of changes in the fair value of fair value hedge positions.
The ineffective portion of changes in the fair value of foreign currency fair value hedge positions in 2007 was de
minimis. These amounts are included in Other within Other income (expense) in the Company’s consolidated
statements of operations. The above amounts include the change in the fair value of derivative contracts related to
the changes in the difference between the spot price and the forward price. These amounts are excluded from the
measure of effectiveness. Expense (income) related to fair value hedges that were discontinued for the years ended
December 31, 2007, 2006 and 2005 are included in the amounts noted above.
The Company recorded income of $1 million, $13 million and $1 million for the years ended December 31,
2007, 2006 and 2005, respectively, representing the ineffective portions of changes in the fair value of cash flow
hedge positions. These amounts are included in Other within Other income (expense) in the Company’s
consolidated statements of operations. The above amounts include the change in the fair value of derivative
contracts related to the changes in the difference between the spot price and the forward price. These amounts are
excluded from the measure of effectiveness. Expense (income) related to cash flow hedges that were discontinued
for the years ended December 31, 2007, 2006 and 2005 are included in the amounts noted above.
During the years ended December 31, 2007, 2006 and 2005, on a pre-tax basis, income (expense) of
$(16) million, $(98) million and $21 million, respectively, was reclassified from equity to earnings in the
Company’s consolidated statements of operations.
At December 31, 2007, the maximum term of derivative instruments that hedge forecasted transactions was
one year. However, the weighted average duration of the Company’s derivative instruments that hedge forecasted
transactions was five months.
Interest Rate Risk
At December 31, 2007, the Company’s short-term debt consisted primarily of $134 million of short-term
foreign debt, priced at short-term interest rates. The Company has $4.2 billion of long-term debt, including the
current portion of long-term debt, which is primarily priced at long-term, fixed interest rates.
In order to manage the mix of fixed and floating rates in its debt portfolio, the Company has entered into
interest rate swaps to change the characteristics of interest rate payments from fixed-rate payments to short-term
LIBOR-based variable rate payments. The following table displays these outstanding interest rate swaps at
December 31, 2007:
Date Executed
Notional Amount
Hedged
(in millions) Underlying Debt
Instrument
October 2007 $ 400 5.375% notes due 2012
October 2007 400 6.0% notes due 2017
September 2003 457 7.625% debentures due 2010
September 2003 600 8.0% notes due 2011
May 2003 114 6.5% notes due 2008
May 2003 84 5.8% debentures due 2008
May 2003 69 7.625% debentures due 2010
$2,124
The weighted average short-term LIBOR-based variable rate payments on each of the above interest rate
swaps was 6.60% for the three months ended December 31, 2007. The fair value of the above interest rate swaps
at December 31, 2007 and December 31, 2006, was $36 million and $(47) million, respectively. The fair value of
the above interest rate swaps would hypothetically decrease by $38 million (i.e., would decrease from $36 million
to $(2) 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, 2007 or December 31, 2006.
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