Risk Management

9 Months Ended

Oct. 01, 2011

Risk Management [Abstract]

Risk Management

5. Risk Management

Derivative Financial Instruments

Foreign Currency Risk

At October 1, 2011, the Company had outstanding foreign exchange contracts with notional amounts totaling $606 million, compared to $1.5 billion outstanding at December 31, 2010. The decrease in outstanding contracts is primarily related to the Distribution of Motorola Mobility. 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 are charged to Other within Other income (expense) in the Company's condensed 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 October 1, 2011 and the corresponding positions as of December 31, 2010:

	Notional Amount
Net Buy (Sell) by Currency	October 1, 2011		December 31, 2010
Chinese Renminbi		$(377)		$(423)
Brazilian Real		(47)		(43)
Japanese Yen		38		40
Israeli Shekel		32		(5)
British Pound		27		187

Interest Rate Risk

At October 1, 2011, the Company had $2.1 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, one of the Company's European subsidiaries has outstanding interest rate agreements ("Interest Agreements") relating to Euro-denominated loans. The interest on the Euro-denominated loans is variable. The Interest Agreements change the characteristics of interest 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 fair value of the Interest Agreements was in a liability position of $3 million at both October 1, 2011 and December 31, 2010.

Counterparty Risk

The use of derivative financial instruments exposes the Company to counterparty credit risk in the event of non-performance 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 October 1, 2011, all of the counterparties have investment grade credit ratings. The Company is not exposed to material credit risk with any single counterparty. As of October 1, 2011, the Company was exposed to an aggregate credit risk of approximately $5 million with all counterparties.

The following tables summarize the fair values and location in the condensed consolidated balance sheets of all derivative financial instruments held by the Company, including amounts held for disposition, at October 1, 2011 and December 31, 2010:

	Fair Values of Derivative Instruments
	Assets				Liabilities
October 1, 2011	Fair Value		Balance Sheet Location		Fair Value		Balance Sheet Location
Derivatives designated as hedging instruments:
Foreign exchange contracts		$—		Other assets		$3		Other liabilities
Derivatives not designated as hedging instruments:
Foreign exchange contracts		5		Other assets		1		Other liabilities
Interest agreement contracts		—		Other assets		3		Other liabilities
Total derivatives not designated as hedging instruments		5				4
Total derivatives		$5				$7

	Fair Values of Derivative Instruments
	Assets				Liabilities
December 31, 2010	Fair Value		Balance Sheet Location		Fair Value		Balance Sheet Location
Derivatives designated as hedging instruments:
Foreign exchange contracts		$1		Other assets		$—		Other liabilities
Derivatives not designated as hedging instruments:
Foreign exchange contracts		4		Other assets		15		Other liabilities
Interest agreement contracts		—		Other assets		3		Other liabilities
Total derivatives not designated as hedging instruments		4				18
Total derivatives		$5				$18

The following table summarizes the effect of derivative instruments in our condensed consolidated statements of operations, including amounts related to discontinued operations, for the three and nine months ended October 1, 2011 and October 2, 2010:

	Three Months Ended				Statement of Operations Location
Gain (Loss) on Derivative Instruments	October 1, 2011		October 2, 2010
Derivatives not designated as hedging instruments:
Interest rate contracts		$(3)		$(5)		Other income (expense)
Foreign exchange contracts		8		(54)		Other income (expense)
Total derivatives not designated as hedging instruments		$5		$(59)

	Nine Months Ended				Statement of Operations Location
Loss on Derivative Instruments	October 1, 2011		October 2, 2010
Derivatives not designated as hedging instruments:
Interest rate contracts		$(8)		$(13)		Other income (expense)
Foreign exchange contracts		(7)		(23)		Other income (expense)
Total derivatives not designated as hedging instruments		$(15)		$(36)

The following table summarizes the gains and losses recognized in the condensed consolidated financial statements, including amounts related to discontinued operations, for the three and nine months ended October 1, 2011 and October 2, 2010:

	Three Months Ended				Financial Statement Location
Foreign Exchange Contracts	October 1, 2011		October 2, 2010
Derivatives in cash flow hedging relationships:
Loss recognized in Accumulated other comprehensive loss (effective portion)		$(4)		$(5)		Accumulated other comprehensive loss
Gain (loss) reclassified from Accumulated other comprehensive loss into Net earnings (effective portion)		1		(4)		Cost of sales/Sales

	Nine Months Ended				Financial Statement Location
Foreign Exchange Contracts	October 1, 2011		October 2, 2010
Derivatives in cash flow hedging relationships:
Gain (loss) recognized in Accumulated other comprehensive loss (effective portion)		$(1)		$(9)		Accumulated other comprehensive loss
Gain (loss) reclassified from Accumulated other comprehensive loss into Net earnings (effective portion)		4		(1)		Cost of sales/Sales

Fair Value of Financial Instruments

The Company's financial instruments include cash equivalents, Sigma Fund investments, short-term investments, accounts receivable, long-term receivables, accounts payable, accrued liabilities, derivative financial instruments and other financing commitments. The Company's Sigma Fund, available-for-sale investment portfolios and derivative financial instruments are recorded in the Company's condensed consolidated balance sheets at fair value.

Using quoted market prices and market interest rates, the Company determined that the fair value of long-term debt at October 1, 2011 was $2.2 billion, compared to a face value of $2.1 billion. Since considerable judgment is required in interpreting market information, the fair value of the long-term debt is not necessarily indicative of the amount which could be realized in a current market exchange.

All other financial instruments are carried at cost, which is not materially different than the instruments' fair values.