MOT » Topics » Interest Rate Risk

This excerpt taken from the MOT 10-Q filed May 6, 2009.
Interest Rate Risk
 
At April 4, 2009, the Company’s short-term debt consisted primarily of $59 million of short-term variable rate foreign debt. At April 4, 2009, the Company has $3.9 billion of long-term debt, including the current portion of long-term debt, which is primarily priced at long-term, fixed interest rates.
 
As part of its domestic liability management program, the Company from time to time entered into interest rate swaps (“Hedging Agreements”) to synthetically modify the characteristics of interest rate payments for certain of its outstanding long-term debt from fixed-rate payments to short-term variable rate payments. During the fourth quarter of 2008, the Company terminated all of its Hedging Agreements. The termination of the Hedging Agreements resulted in cash proceeds of approximately $158 million and a net gain of approximately $173 million, which was deferred and is being recognized as a reduction of interest expense over the remaining term of the associated debt.
 
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


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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 condensed consolidated statements of operations. The weighted average fixed rate payments on these Interest Agreements was 5.04%. The fair value of the Interest Agreements at April 4, 2009 and December 31, 2008 were $(5) million and $(2) million, respectively.
 
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 April 4, 2009, the Company was exposed to an aggregate credit risk of $14 million with all counterparties.
 
These excerpts taken from the MOT 10-K filed Feb 26, 2009.
Interest Rate Risk
 
At December 31, 2008, the Company’s short-term debt consisted primarily of $89 million of short-term variable rate foreign debt. The Company has $4.1 billion of long-term debt, including the current portion of long-term debt, which is primarily priced at long-term, fixed interest rates.
 
As part of its liability management program, the Company historically entered into interest rate swaps (“Hedging Agreements”) to synthetically modify the characteristics of interest rate payments for certain of its outstanding long-term debt from fixed-rate payments to short-term variable rate payments. During the fourth quarter of 2008, the Company terminated all of its Hedging Agreements. The termination of the Hedging Agreements resulted in cash proceeds of approximately $158 million and a gain of approximately $173 million, which has been deferred and will be recognized as a reduction of interest expense over the remaining term of the associated debt.
 
Prior to the termination of the Hedging Agreements in the fourth quarter of 2008, the Hedging Agreements were designated as part of fair value hedging relationships of the Company’s long-term debt. As such, the changes in fair value of the Hedging Agreements and corresponding adjustments to the carrying amount of the debt were recognized in earnings. Interest expense on the debt was adjusted to include payments made or received under such Hedging Agreements. During 2008 (prior to the Hedging Agreements being terminated) and 2007, the Company recognized expense of $1 million and $2 million, respectively, representing the ineffective portion of changes in the fair value of the Hedging Agreements. These amounts are included in Other within Other income (expense) in the Company’s consolidated statement of operations.
 
Certain of the terminated Hedging Agreements were originally entered into during the fourth quarter of 2007. The Company entered into the Hedging Agreements concurrently with issuance of long-term debt to convert the fixed rate interest cost on the newly issued debt to a floating rate. The Hedging Agreements were originally designated as fair value hedges of the underlying debt, including the Company’s credit spread. During the first quarter of 2008, the swaps were no longer considered effective hedges because of the volatility in the price of the Company’s fixed-rate domestic term debt and the swaps were dedesignated. In the same period, the Company was able to redesignate the same Hedging Agreements as fair value hedges of the underlying debt, exclusive of the Company’s credit spread. For the period of time that the Hedging Agreements were deemed ineffective hedges, the Company recognized a gain of $24 million in the Company’s consolidated statements of operations, representing the increase in the fair value of the Hedging Agreements.


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80

 
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. The weighted average fixed rate payments on these Interest Agreements was 5.07%. The fair value of the Interest Agreements at December 31, 2008 and 2007 were $(2) million and $3 million, respectively. The fair value of the Interest Agreements would hypothetically decrease by $1 million (i.e., would decrease from $(2) million to $(3) million) if EURIBOR rates were to change unfavorably by 10% from current levels.
 
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 concentration on these transactions by distributing these contracts among several leading financial institutions, all of whom presently have investment grade credit ratings, and having collateral agreements in place. The Company does not anticipate nonperformance.
 
Interest
Rate Risk



 



At December 31, 2008, the Company’s short-term debt
consisted primarily of $89 million of short-term variable
rate foreign debt. The Company has $4.1 billion of
long-term debt, including the current portion of long-term debt,
which is primarily priced at long-term, fixed interest rates.


 



As part of its liability management program, the Company
historically entered into interest rate swaps (“Hedging
Agreements”) to synthetically modify the characteristics of
interest rate payments for certain of its outstanding long-term
debt from fixed-rate payments to short-term variable rate
payments. During the fourth quarter of 2008, the Company
terminated all of its Hedging Agreements. The termination of the
Hedging Agreements resulted in cash proceeds of approximately
$158 million and a gain of approximately $173 million,
which has been deferred and will be recognized as a reduction of
interest expense over the remaining term of the associated debt.


 



Prior to the termination of the Hedging Agreements in the fourth
quarter of 2008, the Hedging Agreements were designated as part
of fair value hedging relationships of the Company’s
long-term debt. As such, the changes in fair value of the
Hedging Agreements and corresponding adjustments to the carrying
amount of the debt were recognized in earnings. Interest expense
on the debt was adjusted to include payments made or received
under such Hedging Agreements. During 2008 (prior to the Hedging
Agreements being terminated) and 2007, the Company recognized
expense of $1 million and $2 million, respectively,
representing the ineffective portion of changes in the fair
value of the Hedging Agreements. These amounts are included in
Other within Other income (expense) in the Company’s
consolidated statement of operations.


 



Certain of the terminated Hedging Agreements were originally
entered into during the fourth quarter of 2007. The Company
entered into the Hedging Agreements concurrently with issuance
of long-term debt to convert the fixed rate interest cost on the
newly issued debt to a floating rate. The Hedging Agreements
were originally designated as fair value hedges of the
underlying debt, including the Company’s credit spread.
During the first quarter of 2008, the swaps were no longer
considered effective hedges because of the volatility in the
price of the Company’s fixed-rate domestic term debt and
the swaps were dedesignated. In the same period, the Company was
able to redesignate the same Hedging Agreements as fair value
hedges of the underlying debt, exclusive of the Company’s
credit spread. For the period of time that the Hedging
Agreements were deemed ineffective hedges, the Company
recognized a gain of $24 million in the Company’s
consolidated statements of operations, representing the increase
in the fair value of the Hedging Agreements.








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80



 



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. The
weighted average fixed rate payments on these Interest
Agreements was 5.07%. The fair value of the Interest Agreements
at December 31, 2008 and 2007 were $(2) million and
$3 million, respectively. The fair value of the Interest
Agreements would hypothetically decrease by $1 million
(i.e., would decrease from $(2) million to
$(3) million) if EURIBOR rates were to change unfavorably
by 10% from current levels.


 



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 concentration on these
transactions by distributing these contracts among several
leading financial institutions, all of whom presently have
investment grade credit ratings, and having collateral
agreements in place. The Company does not anticipate
nonperformance.


 




Interest Rate Risk
 
At December 31, 2008, the Company’s short-term debt consisted primarily of $89 million of short-term variable rate foreign debt. The Company has $4.1 billion of long-term debt, including the current portion of long-term debt, which is primarily priced at long-term, fixed interest rates.
 
As part of its liability management program, the Company historically entered into interest rate swaps (“Hedging Agreements”) to synthetically modify the characteristics of interest rate payments for certain of its outstanding long-term debt from fixed-rate payments to short-term variable rate payments. During the fourth quarter of 2008, the Company terminated all of its Hedging Agreements. The termination of the Hedging Agreements resulted in cash proceeds of approximately $158 million and a gain of approximately $173 million, which has been deferred and will be recognized as a reduction of interest expense over the remaining term of the associated debt.
 
Prior to the termination of the Hedging Agreements in the fourth quarter of 2008, the Hedging Agreements were designated as part of fair value hedging relationships of the Company’s long-term debt. As such, the changes in fair value of the Hedging Agreements and corresponding adjustments to the carrying amount of the debt were recognized in earnings. Interest expense on the debt was adjusted to include payments made or received under such Hedge Agreements. During 2008 (prior to the Hedging Agreements being terminated) and 2007, the Company recognized expense of $1 million and $2 million, respectively, representing the ineffective portion of changes in the fair value of the Hedging Agreements. These amounts are included in Other within Other income (expense) in the Company’s consolidated statement of operations.
 
Certain of the terminated Hedging Agreements were originally entered into during the fourth quarter of 2007. The Company entered into the Hedging Agreements concurrently with issuance of long-term debt to convert the fixed rate interest cost on the newly issued debt to a floating rate. The Hedging Agreements were originally designated as fair value hedges of the underlying debt, including the Company’s credit spread. During the first quarter of 2008, the swaps were no longer considered effective hedges because of the volatility in the price of the Company’s fixed-rate domestic term debt and the swaps were dedesignated. In the same period, the Company was able to redesignate the same Hedging Agreements as fair value hedges of the underlying debt, exclusive of the Company’s credit spread. For the period of time that the Hedging Agreements were deemed ineffective hedges, the Company recognized a gain of $24 million in the Company’s consolidated statements of operations, representing the increase in the fair value of the Hedging Agreements.
 
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. The weighted average fixed rate payments on these Interest Agreements was 5.07%. The fair value of the Interest Agreements at December 31, 2008 and 2007 were $(2) million and $3 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 concentration on these transactions by distributing these contracts among several leading financial institutions, all of whom presently have investment grade credit ratings, and having collateral agreements in place. The Company does not anticipate nonperformance.


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102

 
Interest
Rate Risk



 



At December 31, 2008, the Company’s short-term debt
consisted primarily of $89 million of short-term variable
rate foreign debt. The Company has $4.1 billion of
long-term debt, including the current portion of long-term debt,
which is primarily priced at long-term, fixed interest rates.


 



As part of its liability management program, the Company
historically entered into interest rate swaps (“Hedging
Agreements”) to synthetically modify the characteristics of
interest rate payments for certain of its outstanding long-term
debt from fixed-rate payments to short-term variable rate
payments. During the fourth quarter of 2008, the Company
terminated all of its Hedging Agreements. The termination of the
Hedging Agreements resulted in cash proceeds of approximately
$158 million and a gain of approximately $173 million,
which has been deferred and will be recognized as a reduction of
interest expense over the remaining term of the associated debt.


 



Prior to the termination of the Hedging Agreements in the fourth
quarter of 2008, the Hedging Agreements were designated as part
of fair value hedging relationships of the Company’s
long-term debt. As such, the changes in fair value of the
Hedging Agreements and corresponding adjustments to the carrying
amount of the debt were recognized in earnings. Interest expense
on the debt was adjusted to include payments made or received
under such Hedge Agreements. During 2008 (prior to the Hedging
Agreements being terminated) and 2007, the Company recognized
expense of $1 million and $2 million, respectively,
representing the ineffective portion of changes in the fair
value of the Hedging Agreements. These amounts are included in
Other within Other income (expense) in the Company’s
consolidated statement of operations.


 



Certain of the terminated Hedging Agreements were originally
entered into during the fourth quarter of 2007. The Company
entered into the Hedging Agreements concurrently with issuance
of long-term debt to convert the fixed rate interest cost on the
newly issued debt to a floating rate. The Hedging Agreements
were originally designated as fair value hedges of the
underlying debt, including the Company’s credit spread.
During the first quarter of 2008, the swaps were no longer
considered effective hedges because of the volatility in the
price of the Company’s fixed-rate domestic term debt and
the swaps were dedesignated. In the same period, the Company was
able to redesignate the same Hedging Agreements as fair value
hedges of the underlying debt, exclusive of the Company’s
credit spread. For the period of time that the Hedging
Agreements were deemed ineffective hedges, the Company
recognized a gain of $24 million in the Company’s
consolidated statements of operations, representing the increase
in the fair value of the Hedging Agreements.


 



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. The
weighted average fixed rate payments on these Interest
Agreements was 5.07%. The fair value of the Interest Agreements
at December 31, 2008 and 2007 were $(2) million and
$3 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 concentration on these
transactions by distributing these contracts among several
leading financial institutions, all of whom presently have
investment grade credit ratings, and having collateral
agreements in place. The Company does not anticipate
nonperformance.








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102



 




This excerpt taken from the MOT 10-Q filed Oct 30, 2008.
Interest Rate Risk
 
At September 27, 2008, the Company’s short-term debt consisted primarily of $101 million of short-term variable rate foreign debt. The Company has $4.1 billion of long-term debt, including the current portion of long-term debt, which is primarily priced at long-term, fixed interest rates.


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As part of its liability management program, the Company has entered into interest rate swaps to synthetically modify the characteristics of interest rate payments for certain of its outstanding long-term debt from fixed-rate payments to short-term variable rate payments. The following table displays these outstanding interest rate swaps at September 27, 2008:
 
                 
    Notional Amount
     
    Hedged
    Underlying Debt
Date Executed   (In millions)     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
    84       5.8% debentures due 2008  
May 2003
    69       7.625% debentures due 2010  
             
    $ 2,010          
 
 
 
The weighted average short-term variable rate payments on each of the above interest rate swaps was 5.23% for the three months ended September 27, 2008. The fair value of the above interest rate swaps on September 27, 2008 and December 31, 2007, was $39 million and $36 million, respectively. Except as noted below, the Company had no outstanding commodity derivatives, currency swaps or options relating to debt instruments at September 27, 2008 or December 31, 2007.
 
The Company designated the above interest rate swap agreements as part of fair value hedging relationships. As such, changes in the fair value of the hedging instrument, and corresponding adjustments to the carrying amount of the debt are recognized in earnings. Interest expense on the debt is adjusted to include the payments made or received under such hedge agreements. In the event the underlying debt instrument matures or is redeemed or repurchased, the Company is likely to terminate the corresponding interest rate swap contracts.
 
During the fourth quarter of 2007, concurrently with the issuance of debt, the Company entered into several interest rate swaps to convert the fixed rate interest cost of the debt to a floating rate. At the time of entering into these interest rate swaps, the swaps were designated as fair value hedges and qualified for hedge accounting treatment. The swaps were originally designated as fair value hedges of the underlying debt, including the Company’s credit spread. During the first quarter of 2008, the swaps were no longer considered effective hedges because of the volatility in the price of the Company’s fixed-rate domestic term debt and the swaps were dedesignated. In the same period, the Company was able to redesignate the same interest rate swaps as fair value hedges of the underlying debt, exclusive of the Company’s credit spread. For the period of time that the swaps were deemed ineffective hedges, the Company recognized a gain of $24 million, representing the increase in the fair value of swaps.
 
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 condensed consolidated statements of operations. The weighted average fixed rate payments on these Interest Agreements was 5.07%. The fair value of the Interest Agreements at September 27, 2008 and December 31, 2007 was $4 million and $3 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 concentration on these transactions by distributing these contracts among several leading financial institutions, all of whom presently have investment grade credit ratings, and having collateral agreements in place. The Company does not anticipate nonperformance.
 
This excerpt taken from the MOT 10-Q filed Jul 31, 2008.
Interest Rate Risk
 
At June 28, 2008, the Company’s short-term debt consisted primarily of $55 million of short-term variable rate foreign debt. The Company has $4.1 billion of long-term debt, including the current portion of long-term debt, which is primarily priced at long-term, fixed interest rates.


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As part of its liability management program, the Company has entered into interest rate swaps to synthetically modify the characteristics of interest rate payments from fixed-rate payments to short-term variable rate payments. The following table displays these outstanding interest rate swaps at June 28, 2008:
 
                 
    Notional Amount
     
    Hedged
    Underlying Debt
Date Executed   (in millions)     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
    84       5.8% debentures due 2008  
May 2003
    69       7.625% debentures due 2010  
             
    $ 2,010          
 
 
 
The weighted average short-term variable rate payments on each of the above interest rate swaps was 4.02% for the three months ended June 28, 2008. The fair value of the above interest rate swaps on June 28, 2008 and December 31, 2007, was $21 million and $36 million, respectively. Except as noted below, the Company had no outstanding commodity derivatives, currency swaps or options relating to debt instruments at June 28, 2008 or December 31, 2007.
 
The Company designated the above interest rate swap agreements as part of fair value hedging relationships. As such, changes in the fair value of the hedging instrument, and corresponding adjustments to the carrying amount of the debt are recognized in earnings. Interest expense on the debt is adjusted to include the payments made or received under such hedge agreements. In the event the underlying debt instrument matures or is redeemed or repurchased, the Company is likely to terminate the corresponding interest rate swap contracts.
 
During the fourth quarter of 2007, concurrently with the issuance of debt, the Company entered into several interest rate swaps to convert the fixed rate interest cost of the debt to a floating rate. At the time of entering into these interest rate swaps, the swaps were designated as fair value hedges and qualified for hedge accounting treatment. The swaps were originally designated as fair value hedges of the underlying debt, including the Company’s credit spread. During the first quarter of 2008, the swaps were no longer considered effective hedges because of the volatility in the price of the Company’s fixed-rate domestic term debt and the swaps were dedesignated. In the same period, the Company was able to redesignate the same interest rate swaps as fair value hedges of the underlying debt, exclusive of the Company’s credit spread. For the period of time that the swaps were deemed ineffective hedges, the Company recognized a gain of $24 million, representing the increase in the fair value of swaps.
 
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 condensed consolidated statements of operations. The weighted average fixed rate payments on these Interest Agreements was 5.01%. The fair value of the Interest Agreements at June 28, 2008 and December 31, 2007 was $6 million and $3 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 concentration on these transactions by distributing these contracts among several leading financial institutions, all of whom presently have investment grade credit ratings, and having collateral agreements in place. The Company does not anticipate nonperformance.
 
This excerpt taken from the MOT 10-Q filed May 7, 2008.
Interest Rate Risk
 
At March 29, 2008, the Company’s short-term debt consisted primarily of $79 million of short-term variable rate foreign debt. 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.


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As part of its liability management program, the Company has entered into interest rate swaps to modify the characteristics of interest rate payments from fixed-rate payments to short-term variable rate payments. The following table displays these outstanding interest rate swaps at March 29, 2008:
 
                 
    Notional Amount
     
    Hedged
    Underlying Debt
Date Executed   (in millions)     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
    84       5.8% debentures due 2008  
May 2003
    69       7.625% debentures due 2010  
             
    $ 2,010          
 
 
 
The weighted average short-term variable rate payments on each of the above interest rate swaps was 5.01% for the three months ended March 29, 2008. The fair value of the above interest rate swaps on March 29, 2008 and December 31, 2007, was $102 million and $36 million, respectively. Except as noted below, the Company had no outstanding commodity derivatives, currency swaps or options relating to debt instruments at March 29, 2008 or December 31, 2007.
 
The Company designated the above interest rate swap agreements as part of fair value hedging relationships. As such, changes in the fair value of the hedging instrument, and corresponding adjustments to the carrying amount of the debt are recognized in earnings. Interest expense on the debt is adjusted to include the payments made or received under such hedge agreements. In the event the underlying debt instrument matures or is redeemed or repurchased, the Company is likely to terminate the corresponding interest rate swap contracts.
 
During the three months ended December 31, 2007, the Company concurrently with the issuance of debt entered into several interest rate swaps to convert the fixed rate interest cost of the debt to a floating rate. At the time of entering into these interest rate swaps, the swaps were designated as fair value hedges and qualified for hedge accounting. The swaps were originally designated as fair value hedges of the underlying debt, including the Company’s credit spread. During the three months ended March 29, 2008, the swaps were no longer considered effective hedges because of the volatility in the price of Motorola’s fixed-rate domestic term debt and the swaps were dedesignated. Motorola was able to redesignate the same interest rate swaps as fair value hedges of the underlying debt, exclusive of the Company’s credit spread. For the period of time during the quarter that the swaps were deemed ineffective hedges, Motorola recognized a gain of approximately $24 million.
 
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 condensed consolidated statements of operations. The weighted average fixed rate payments on these Interest Agreements was 6.54%. The fair value of the Interest Agreements at March 29, 2008 and December 31, 2007 was $1 million and $3 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 concentration on these transactions by distributing these contracts among several leading financial institutions, all of whom presently have investment grade credit ratings, and having collateral agreements in place. The Company does not anticipate nonperformance.
 
These excerpts taken from the MOT 10-K filed Feb 28, 2008.
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:
 
             
    Notional Amount
     
    Hedged
     
Date Executed   (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. 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.
 
The Company designated the above interest rate swap agreements as part of fair value hedging relationships. As such, changes in the fair value of the hedging instrument, as well as the hedged debt are recognized in earnings, therefore adjusting the carrying amount of the debt. Interest expense on the debt is adjusted to include the payments made or received under such hedge agreements. In 2007, the Company recorded an expense of $2.3 million representing the ineffective portions of changes in the fair value of interest rate swap hedge positions. These amounts are included in Other within Other income (expense) in the Company’s consolidated statements of operations. In the event the underlying debt instrument matures or is redeemed or repurchased, the Company is likely to terminate the corresponding interest rate swap contracts.
 
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 floating based on 3-month EURIBOR plus a spread. The Interest Agreements change the characteristics of interest rate payments from short-term EURIBOR based variable payments 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. The weighted average fixed rate payments on these EURIBOR interest rate agreements was 6.71%.


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94

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.
 
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:


 



































































































































             

 

 

Notional Amount



 

 

 

 

 

Hedged



 

 

 

Date Executed

 

(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. 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.


 



The Company designated the above interest rate swap agreements
as part of fair value hedging relationships. As such, changes in
the fair value of the hedging instrument, as well as the hedged
debt are recognized in earnings, therefore adjusting the
carrying amount of the debt. Interest expense on the debt is
adjusted to include the payments made or received under such
hedge agreements. In 2007, the Company recorded an expense of
$2.3 million representing the ineffective portions of
changes in the fair value of interest rate swap hedge positions.
These amounts are included in Other within Other income
(expense) in the Company’s consolidated statements of
operations. In the event the underlying debt instrument matures
or is redeemed or repurchased, the Company is likely to
terminate the corresponding interest rate swap contracts.


 



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 floating based on
3-month
EURIBOR plus a spread. The Interest Agreements change the
characteristics of interest rate payments from short-term
EURIBOR based variable payments 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. The weighted average fixed rate payments on these
EURIBOR interest rate agreements was 6.71%.





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94




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.


 




This excerpt taken from the MOT 10-Q filed Nov 6, 2007.
Interest Rate Risk
 
At September 29, 2007, the Company’s short-term debt consisted primarily of $164 million of short-term foreign debt and $50 million of commercial paper, priced at short-term interest rates. The Company has $3.9 billion of long-term debt, including the current portion of long-term debt, which is primarily priced at long-term, fixed interest rates.


47


 

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 September 29, 2007:
 
             
    Notional Amount
    Underlying Debt
Date Executed   Hedged     Instrument
 
 
August 2004
  $ 1,200     4.608% notes due 2007
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
             
    $ 2,524      
 
 
 
The weighted average short-term LIBOR-based variable rate payments on each of the above interest rate swaps was 7.5% for the three months ended September 29, 2007. The fair value of the above interest rate swaps at September 29, 2007 and December 31, 2006, was $(16) million and $(47) million, respectively. Except as noted below, the Company had no outstanding commodity derivatives, currency swaps or options relating to debt instruments at September 29, 2007 or December 31, 2006.
 
The Company designated the above interest rate swap agreements as part of a fair value hedging relationship. As such, changes in the fair value of the hedging instrument, as well as the hedged debt are recognized in earnings, therefore adjusting the carrying amount of the debt. Interest expense on the debt is adjusted to include the payments made or received under such hedge agreements. In the event the underlying debt instrument matures or is redeemed or repurchased, the Company intends to terminate the corresponding interest rate swap contracts.
 
In connection with the issuance of debt on October 29, 2007, the Company 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 on the $400 million of 5.375% Senior Notes due November 15, 2012 and the $400 million of 6.0% Senior Notes due November 15, 2017.
 
Additionally, effective December 31, 2006, one of the Company’s European subsidiaries entered into interest rate agreements (“Interest Agreements”) relating to a Euro-denominated loan. The interest on the Euro-denominated loan is floating based on 3-month EURIBOR plus a spread. The Interest Agreements change the characteristics of interest rate payments from short-term EURIBOR based variable payments to maximum fixed-rate payments. The Interest Agreements are not accounted for as part of a hedging relationship and accordingly the changes in the fair value of the Interest Agreements are included in Other income in the Company’s condensed consolidated statements of operations. The fair value of the Interest Agreements at September 29, 2007 and December 31, 2006 was $4 million and $1 million, respectively. The weighted average fixed rate payments on these EURIBOR interest rate agreements was 5.8%.
 
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 having long-term debt ratings of “A” or better and, does not anticipate nonperformance. In addition, the contracts are distributed among several financial institutions, thus minimizing credit risk concentration.
 
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