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    MOTOROLA we 1 9 9 6 enable s u m m a r y a n n u a l r e p o r t


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    At Motorola, we enable... to stay in touch, to delight their customers, and to be conceived and developed. In short, Motorola enables to do what they want to do. The World Wildlife Fund is using two-way communications equipment supplied by Motorola to protect the earth's endangered wildlife and wildlands. Photos: page 6, Iguazu, Argentina; page 8, Milwaukee, Wis.; page 10, Weishan, Shandong Province, China; page 12, Kronberg, Germany. Contents one of the world's leading providers Financial highlights : wireless communications, semiconductors and To our stockholders and other friends advanced electronic systems, components and services. Motorola at a glance Major equipment businesses include cellular telephone, Condensed consolidated financial statements two-way radio, paging and data communications, Condensed notes to consolidated personal communications, automotive, defense and 23 space electronics and computers. Motorola semicon- Directors and manageme ductors power communication devices, computers board of Motorola, 24 CEO quality a" and millions of other products. Dan Noble fe( 24 Stockholder r inside back cover


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    f i n a n c i a l h i g h l i g h t s (In millions, except as noted) Motorola, Inc. and Consolidated Subsidiaries Years ended December 31 1996 1995 Net sales $27,973 $27,037 Earnings before income taxes 1,775 2,782 % to sales 6.3% 10.3% Net earnings 1,154 1,781 % to sales 4.1% 6.6% Fully diluted net earnings per common and common equivalent share (in dollars)1 1.90 2.93 Research and development expenditures 2,394 2,197 Fixed asset expenditures 2,973 4,225 Working capital 3,324 2,717 Current ratio 1.42 1.35 Return on average invested capital2 8.4% 14.7% Return on average stockholders' equity 10.0% 17.7% % of net debt to net debt plus equity3 13.4% 19.9% Book value per common share (in dollars) 19.88 18.57 Year-end employment (in thousands) 139 142 ^Primary earnings per common and equivalent share were the same as fully diluted for the years ended December 31, 1996 and December 31, 1995- 1 Average invested capital is defined as stockholders' equity plus long and short-term debt less short-term investments (including those short-term investments categorized as cash equivalents). ^ Includes short-term investments categorized as cash equivalents. Net Sales Earnings Before Fully Diluted Return on Average Income Taxes' Net Earnings Invested Capital Per Share (In billions) (In millions) (In dollars) (In percentages) 32 3200 3-00 20 24 2400 2.25 15 16 1600 I 1.50 10 1 1 92 93 94 95 96 8 0 1 92 93 94 95 96 *And cumulative 800 O 1 92 93 94 95 96 I Before cumulative 0.75 O 92 93 94 95 96 I Before cumulative 0 5 effect of change in effect of change in effect of change in accounting principle accounting principle accounting principle


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    to o u r s t o c k h o l d e r s and o t h e r f r i e n d s strategic investment—in technologies and businesses where we will lead. The pages of this year's report stress the ways in which Motorola enables consumers to improve their lives in ways they might not have expected. Motorola's opportunities have never been greater. Financial Results Sales in 1996 rose 3% to $28.0 billion from $27.0 billion in 1995. Earnings were $1.15 billion, or $1.90 per fully diluted common and common equivalent share, compared with $1.78 billion, or $2.93 per share, a year ago. Net margin on sales was 4.1 % in 1996 and 6.6% in 1995. The main factor contributing to the decline in earnings and slowdown in sales growth in 1996 was the recession in the semiconductor industry. Other factors included product Christopher B. Galvin deficiencies in certain segments of the cellular telephone and M otorola's financial performance in 1996 was below the modem businesses, slower sales in the U.S. paging business expectations of ourselves and our investors. At the same in the fourth quarter, and their impact on related component time, we focused on making changes that are designed to set products such as rechargeable batteries. As the year ended, the stage for an improvement in performance and a renewal of we began to see signs of improvement in our semiconductor growth in profitability later in 1997. business as the industry cycle turns up and in our cellular phone The first centerpiece of our efforts is a renewed focus on businesses as a result of introducing leadership digital phone the customer—knowing what our customers want, and serving product in the third and fourth quarters of 1996. their needs better and more quickly than any competitor. The During 1996 many of our businesses implemented actions second centerpiece of our ongoing effort is more selective and to reduce operating expenses, including workforce adjustments opp


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    and reductions in work schedules and manufacturing run rates. We also deferred capital expenditures, especially in the Semiconductor Products Sector. Summary operating and financial results of our various business segments appear on page 22. Detailed results appear in the Proxy Statement, as well as on the Internet at www.motorola.com. Management Transition Anticipating a required age-related retirement from the Motorola Board of Directors in May of 1997, William J. Weisz made a transition from chairman to vice chairman of the Board of Directors at the end of 1996. As part of Motorola's succession planning process, a subsequent series of changes took place in the Office of the Chief Executive. Robert L. Growney Gary L. Tooker, formerly vice chairman and chief executive officer, was elected chairman of the Board. Christopher B. Galvin, is to become president and general manager of the Semi- formerly president and chief operating officer, succeeded conductor Products Sector on May 15, 1997. He will succeed Mr. Tooker as chief executive officer. Robert L. Growney suc- Thomas D. George, who plans to retire later in 1997. ceeded Mr. Galvin as president and chief operating officer. Edward F. Staiano, formerly executive vice president of A number of changes also took place in Motorola's business Motorola and president and general manager of the General Sys- sectors. James A. Norling succeeded Mr. Growney as president tems Sector, retired from Motorola and became vice chairman and and general manager of the Messaging, Information and Media chief executive officer of Iridium LLC, the private international Sector. Hector Ruiz, formerly executive vice president and consortium that will operate the IRIDIUM® global wireless com- general manager of the Messaging Systems Products Group, munications network. Jack Scanlon was elected president and ortunities


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    The Future We have made a number of strategic decisions designed to improve our financial performance. They include: • A reinvigorated process of discontinuing those development programs that have not lived up to their promise, • Further cost reductions in existing businesses that are not achieving adequate profitability, and • A refocusing of investments into areas where we possess, or are cultivating, leadership core competencies. At the end of 1996, our Semiconductor Products Sector began to experience an improved pattern of orders and sales as the worldwide semiconductor industry entered a cyclical rebound. However, higher year-over-year financial results may not be evident in SPS until later in 1997. We expect only grad- Gary L. Tooker ual quarter-to-quarter sequential improvement in semiconductor general manager of the newly created Cellular Networks and Space sales and earnings during the first stages of the industry recovery. Sector, Robert N. Weisshappel became president and general The industry's long-term outlook remains bright, and Motorola is manager of the Cellular Subscriber Sector, and Frederick T. Tucker building on a leading position in fast-growing segments such as was named president and general manager of the Automotive, automotive, wireless and wireline communications, multimedia, Energy and Components Sector. Merle Gilmore, who assumed the energy and environment, and interactive smartcards. role of president and general manager of the Land Mobile Products The long-term outlook for our communications businesses Sector a few years ago, continues to lead its superb turnaround. is as promising as ever. However, many of the factors that Nicholas Negroponte, a founder and director of the affected certain of our businesses should continue to have an Massachusetts Institute of Technology's Media Laboratory, was adverse impact in early 1997. In the longer term, we should see elected to Motorola's Board of Directors. Robert L. Growney more of the benefits of our investments in digital technologies was elected to the Board in February 1997. that enable more efficient use of the radio frequency spectrum


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    for millions of new consumers. Despite its rapid growth, cellular phones and personal communications services are used by only about 2% of the world's population, and the industry is in its early stages. Likewise, we are just beginning to realize the potential of newer messaging services, such as two-way and voice paging. Motorola's promising integrated radio dispatch products are in the early stages of commercial deployment. We also look forward to enjoying the commercial benefits of our investments in areas such as software and cable modems and satellite technology. Motorola is continuing to invest in programs that create plat- forms for future growth, such as the IRIDIUM® satellite-based communication system and flat-panel displays, without ignoring substantial investments in our core technology businesses. William J. Weisz The global economic outlook is healthy, especially in emerging markets where Motorola is investing heavily, such as Latin America and Asia. We see balanced growth in the developed world as well. Although we don't anticipate positive quarter-to-quarter earn- Christopher B Galvin Chief Executive Officer ings comparisons until later in 1997, we are well into the process of improving the performance of our existing businesses, as well as building on our future technology portfolio to create new business Robert L Growne segments. We will continue to create products and technologies y President and Chief Operating Officer that will enable people to improve the way they live and work in ways they never expected. We will lead this company to achieve long-term growth. As it has been since the founding of Motorola Gary L. Tooker in 1928, the long-term Motorola investor is most often rewarded. Chairman of the Board


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    freedom beyond Motorola provides the tools that give peo- ple the time and the freedom to explore new worlds. Motorola enables you to han- dle daily tasks in the most efficient way possible. You can depend on Motorola products to keep you in touch—with your family, through affordable pagers, or with your colleagues, through two-way wireless systems designed for mobile workgroups. Your telephone can be with you when you need it—a phone so light and so small that you can wear it. You can share infor- mation by fax, voice or e-mail. This gives you the time and the freedom to do the things you want to do. Imagine the possibilities.


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    the h o r i z o n s of your experience


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    access t o you never expected to enter


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    w o r d s Motorola is leading you into a virtual world where you can access all the information you need. Twenty years ago, many people could hardly imagine that it would be pos- sible to use a computer. Today, they can be part of this new world. The new information highways are paved with our silicon. Our microcontrollers are designed into devices that access the Internet with ease. Speech and handwriting recognition programs bring you to your destination without a keyboard. High-speed modems link you to the Internet through your pager, cel- lular telephone or hand- held computer. Motorola is creating software and pathways that promise to bring the virtual world to life.


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    I ife's p o s Motorola is creating the tools for the 21st century—tools that enable emerging economies to leapfrog into the global mar- ketplace—and tools that enable students to dream about a future their parents never imagined. They can be the tools of commu- nication—wireless telephone systems that can be installed quickly and cost effectively They can be the tools that spring from creative software—such as Chinese hand- writing recognition systems. Motorola's success is coupled with our commitment to education. In China, for example, our support helps children in remote areas receive five years of fundamental education for a more promising future. 10


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    s i bi it ie s in ways that fulfill your dreams


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    s a f e t y and s of home, wherever you are n 12


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    ecu r i t y In your home, your office or your car, prod- ucts from Motorola contribute to your health, safety and security in hundreds of ways. Our semiconductors in pressure, motion and chemical sensors can help you detect carbon monoxide, monitor your blood pressure, or maintain the quality of the air you breathe. Controllers for electric motors reduce power consumption. The security of home can extend to your car, through systems that link satellite positioning devices and cellular phones to emergency and roadside assis- tance services. All in all. Motorola enables you to lead a safer, more secure life in a cleaner, healthier world. 13


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    M o t o r o l a at a g l a n c e Semiconductor Cellular Cellular Networks Land Mobile Products Sector Subscriber Sector and Space Sector Products Sector Business Activities Designs, produces and distributes Designs, manufactures and Designs and manufactures equip- Designs, manufactures and distrib- a broad line of discrete semicon- distributes a full range of wire- ment for wireless telephone sys- utes analog and digital two-way ductors and integrated circuits, less telephone products for tems, advanced electronic systems radio products and systems for including microprocessors, RF worldwide markets. and satellite communications for applications worldwide, from on- devices, microcontrollers, digital commercial and government cus- site to wide-area communications. signal processors, memories, logic tomers and is responsible for form- and analog circuits, and sensors. ing joint-venture telecom operating companies worldwide. Organization Communications and Advanced Pan American Cellular Cellular Infrastructure Group Radio Network Solutions Group Consumer Technologies Group Subscriber Group Network Management Group Radio Products Group Communications, Power and European Cellular Subscriber Division Space and Systems Radio Parts and Service Group Signal Technologies Group Greater China and Central Technology Group Integrated Digital Enhanced Logic and Analog Asia Division Network (iDEN) Group Technologies Group Japan, Eastern Asia and Network Services and Microprocessor and Memory Pacific Division Strategy Group Technologies Group Emtek Health Care Microcontroller Technologies Group Systems Division European Semiconductor Group Indala Corporation Asia-Pacific Semiconductor Group Semiconductor Products Division, Nippon Motorola Limited 68HC05-based Microcontroller used in the First Union VISA" Cash Smart Card by Schlumberger IRIDIUM Handheld Telephone GC-87 Cellular Telephone SC™ 601 CDMA PTX™ Trunked Portable Microcell Base Station Two-Way Radio for the MicroTAC* SC-720 CDMA Digital Asian Markets Cellular Telephone Astro1 XTS3000™ DSP56009 Digital Digital Two-Way Radio Signal Processor MC33340 Battery Fast Charge Controller iDEN™ i370 Portable Two-Way Radio MicroTAC Select™ 3000 Cellular Telepho 14


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    Messaging, Information Automotive, Energy Motorola and Media Sector and Components Sector Computer Group 1996 Net Sales by Business Segment* Designs, manufactures and Designs and manufactures a Designs, manufactures and distributes a variety of messaging broad range of electronic compo- distributes Mac® OS-compatible (In percentages) products, including pagers and nents, modules and integrated systems, computer board products paging systems, wireless and wire- electronic systems and products and technical computer system line data communications products, for automotive, industrial, trans- platform products. infrastructure equipment and portation, navigation, communica- systems, handwriting-recognition tion, energy systems, consumer software products, image commu- and lighting markets. nications products and services, I General Systems and Internet software products. Products 40% I Semiconductor Products 22% Land Mobile Products 14% I Messaging, Messaging Systems Automotive and Industrial Commercial Products Division Information and Products Group Electronics Group Technical Products Division Media Products 14% I Other Products 10% Information Systems Group Component Products Group Multimedia Group Energy Products Division Wireless Data Group Flat Panel Display Division International Networks Division Motorola Lighting, Inc. 1996 Market Sales Lexicus Division by Region* Platform Software Division Internet Software (In percentages) Products Division • United States 42% • Europe 19% China/Hong Kong 11% m Asia-Pacific 10% M Japan 7% WisdomPen™ Chinese Handwriting m Rest of World 11% Recognition System *Afier internal Motorola sales eliminations MVME2B00 PowerPC8 VME Single Board Computer Temperature Manifold Absolute Pressure Sensor In addition to these sectors and groups, StarMax™ Minitower PageWriter™ 2000 the New Enterprises Personal Computer Pocket Message Center organization man- ages Motorola's entry into strategically rele- High-energy iDEN vant, emerging high- Lithium-ion Battery Pack growth and high- technology global business opportunities. :•••••:••; \ W \ \ \ \ \ \ \ - - ' 15


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    m a n a g e m e n t ' s r e s p o n s i b i l i t y for f i n a n c i a l s t a t e m e n t s Motorola, Inc. and Consolidated Subsidiaries Management is responsible for the preparation, integrity and objectivity of audits conducted in accordance with generally accepted auditing standards, the consolidated financial statements and other financial information pre- which include the consideration of the Company's internal controls to sented in this report. The accompanying condensed consolidated financial establish a basis for reliance thereon in determining the nature, timing statements were prepared in accordance with generally accepted account- and extent of audit tests to be applied. ing principles, applying certain estimates and judgments as required. The Board of Directors exercises its responsibility for these financial Motorola's internal controls are designed to provide reasonable assur- statements through its Audit Committee, which consists entirely of inde- ance as to the integrity and reliability of the financial statements and to pendent non-management Board members. The Audit Committee meets adequately safeguard, verify and maintain accountability of assets. Such periodically with the independent auditors and with the Company's internal controls are based on established written policies and procedures, are auditors, both privately and with management present, to review account- implemented by trained, skilled personnel with an appropriate segregation ing, auditing, internal controls and financial reporting matters. of duties and are monitored through a comprehensive internal audit pro- gram. These policies and procedures prescribe that the Company and all its employees are to maintain the highest ethical standards and that its business practices throughout the world are to be conducted in a manner which is above reproach. Christopher B. Galvin Carl F. Koenemann KPMG Peat Marwick LLP, independent auditors, are retained to audit Chief Executive Officer Executive Vice President Motorola's financial statements. Their accompanying report is based on and Chief Financial Officer i n d e p e n d e n t a u d i t o r s ' r e p o r t The Board of Directors and Stockholders of Motorola, Inc.: statements. In our opinion, the information set forth in the accompanying We have audited, in accordance with generally accepted auditing standards, condensed consolidated financial statements is fairly presented, in all the consolidated balance sheets of Motorola, Inc. and consolidated sub- material respects, in relation to the consolidated financial statements sidiaries as of December 31,1996 and 1995, and the related statements from which it has been derived. of consolidated earnings, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31,1996, appearing in the appendix to the proxy statement for the 1997 Annual Meeting of KPMG Peat Marwick LLP Shareholders of the Corporation (not presented herein); and in our report Chicago, Illinois dated January 9,1997, also appearing in that proxy statement appendix, we expressed an unqualified opinion on those consolidated financial February 14,1997 16


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    s t a t e m e n t s of c o n s o l i d a t e d e a r n i n g s (In millions, except per share amounts) Motorola, Inc. and Consolidated Subsidiaries Years ended December 31 1996 1995 1994 Net sales $27,973 $27,037 $22,245 Costs and expenses Manufacturing and other costs of sales 18,990 17,545 13,760 Selling, general and administrative expenses 4,715 4,642 4,381 Depreciation expense 2,308 1,919 1,525 Interest expense, net 185 149 142 Total costs and expenses 26,198 24,255 19,808 Earnings before income taxes 1,775 2,782 2,437 Income taxes provided on earnings 621 1,001 877 Net earnings $ 1,154 $ 1,781 $ 1,560 Fully diluted net earnings per common and common equivalent share}1 $ 1.90 $ 2.93 $ 2.65 2 Fully diluted average common and common equivalent shares outstanding* 609.6 609.8 592.7 y Primary earnings per common and common equivalent share were the same as fully diluted for all years shown, except in 1994 when they were one cent higher than fully diluted. Average primary common and common equivalent shares outstanding for 1996, 1995 and 1994 were 609.0, 609-7and 591.7, respectively (which includes the dilutive effects of the convertible zero coupon notes and the outstanding stock options). 1 Includes adjustments for the 1994 two-for-one stock split effected in the form of a 100 percent stock dividend. s t a t e m e n t s of c o n s o l i d a t e d s t o c k h o l d e r s ' e q u i t y Common Stock and (In millions, except per share amounts) Additional Paid-in Capital1 Retained Earnings Years ended December 31 1996 1995 1994 1996 1995 1994 Balances at January 1 $3,524 $3,138 $1,875 $7,461 $5,917 $4,534 Net earnings - - - 1,154 1,781 1,560 Conversion of zero coupon notes 7 23 251 - - - Stock issuance2 - - 973 - - - Unrealized net gain (loss) on certain investments (86). 328 (8) - - - Stock options exercised and other 7 35 47 _ _ Dividends declared ($.46 per share in 1996, $.40 in 1995 and $.31 in 1994) (272) (237) (177) Balances at December 31 $3,452 $3,524 $3,138 B,343 $7,461 $5,917 1 1994 Stock Split: An amount equal to the par value of the additional shares issued has been transferred from additional paid-in capital to common stock due to the two-for-one stock split effected in the form of a 100 percent stock dividend. All references to shares outstanding, dividends and per share amounts during 1994 have been adjusted on a retroactive basis. 2 During November 1994, the Company completed a public equity offering of 17.1 million shares of common stock. See accompanying condensed notes to consolidated financial statements. 17


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    c o n s o l i d a t e d b a l a n c e s h e e t s (In millions, except per share amounts) Motorola, Inc. and Consolidated Subsidiaries December 31 1996 1995 Assets Current assets Cash and cash equivalents $ 1,513 $ 725 Short-term investments 298 350 Accounts receivable, less allowance for doubtful accounts (1996, $137;1995, $123) 4,035 4,081 Inventories 3,220 3,528 Future income tax benefits 1,580 1,222 Other current assets 673 604 Total current assets 11,319 10,510 Property, plant and equipment, less accumulated depreciation (1996, $9,830:1995, $8,110) 9,768 9,356 Other assets 2,989 2,872 Total assets $24,076 $22,738 Liabilities and Stockholders' Equity Current liabilities Notes payable and current portion of long-term debt $ 1,382 $ 1,605 Accounts payable 2,050 2,018 Accrued liabilities 4,563 4,170 Total current liabilities 7,995 7,793 Long-term debt 1,931 1,949 Deferred income taxes 1,108 968 Other liabilities 1,247 1,043 Stockholders' equity Common stock, $3 par value Authorized shares: 1996 and 1995, 1,400 Issued and outstanding shares: 1996, 593.4: 1995, 591.4 1,780 1,774 Preferred stock, $100 par value issuable in series Authorized shares: 0.5 (none issued) Additional paid-in capital 1,672 1,750 Retained earnings 8,343 7,461 Total stockholders' equity 11,795 10,985 Total liabilities and stockholders' equity $24,076 $22,738 See accompanying condensed notes to consolidated finmicial statements. 18


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    s t a t e m e n t s of c o n s o l i d a t e d cash f l o w s (In millions) Motorola, Inc. and Consolidated Subsidiaries Years ended December 31 1996 1995 1994 Operating Net earnings $1,154 $1,781 $1,560 Add (deduct) non-cash items Depreciation 2,308 1,919 1,525 Deferred income taxes (160) (55) (177) Amortization of debt discount"and issue costs 8 12 22 Gain on disposition of investments in affiliated companies (78) (111) (9) Change in assets and liabilities, net of effects of acquisitions and dispositions Accounts receivable, net 101 (653) (945) Inventories 308 (856) (806) Other current assets (69) (100) (328) Accounts payable and accrued liabilities 398 1,172 1,134 Other assets 14 8 554 Other liabilities 206 148 (19) Net cash provided by operations 4,190 3,265 2,511 Investing Acquisitions and advances to affiliated companies (346) (563) (894) Dispositions of investments in affiliated companies 119 252 23 Payments for property, plant and equipment (2,973) (4,225) (3,320) Other changes to property, plant and equipment, net 242 (11) 183 (Increase) decrease in short-term investments 52 (32) 40 Net cash used for investing activities (2,906) (4,579) (3,968) Financing Net increase (decrease) in commercial paper and short-term borrowings less than 90 days (260) 686 517 Proceeds from issuance of debt 55 851 32 Repayment of debt (37) (74) (190) Issuance of common stock 7 71 1,102 Payment of dividends (261) (236) (149) Net cash provided by (used for) financing activities (496) 1,298 1,312 Net increase (decrease) in cash and cash equivalents $ 788 $ (16) $ (145) Cash and cash equivalents, beginning of year $ 725 $ 741 $ 886 Cash and cash equivalents, end of year $1,513 $ 725 $ 741 Supplemental Cash Flow Information (In millions) Motorola, Inc. and Consolidated Subsidiaries Years ended December 31 1996 1995 1994 Non-Cash Activities Conversion of zero coupon notes $ 7 $ 23 $251 Unrealized net gain (loss) on certain investments $(86) $336 $ (8 See accompanying condensed notes to consolidated financial statements. 19


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    c o n d e n s e d n o t e s to c o n s o l i d a t e d f i n a n c i a s t a t e m e n t s Motorola, Inc. and Consolidated Subsidiaries 1. Summary of Significant Accounting Policies operations of local functional currency operations are included in stock- Consolidation and Investments: The consolidated financial statements holders' equity. The effects of foreign currency transactions and of remea- include the accounts of the Company and all those majority-owned sub- suring the financial position and results of non-U.S. operations into the sidiaries where the Company has control. The Company's non-controlled functional currency are included in the statement of earnings. investments in entities in which it has the ability to exercise significant Use of Estimates: The preparation of financial statements in conformity influence over operating and financial policies are accounted for by the with generally accepted accounting principles requires management to equity method. Accordingly, the Company's share of the net earnings of make certain estimates and assumptions that affect the reported amounts these entities is included in consolidated net income. The Company's non- of assets and liabilities and disclosure of contingent assets and liabilities controlled investments in other entities are carried at cost. Statement at the date of financial statements and the reported amounts of revenues of Financial Accounting Standards No. 115, "Accounting for Certain and expenses during the reporting period. Actual results could differ from Investments in Debt and Equity Securities," requires the carrying value those estimates. The Company's periodic filings with the Securities and of certain cost-based investments to be adjusted to fair value, which Exchange Commission include, where applicable, disclosures of estimates, resulted in the Company recording an increase to stockholders' equity, assumptions, uncertainties and concentrations in products, sources of sup- other assets and deferred taxes of $242 million, $401 million and $159 ply and markets which could affect the financial statements and future million as of December 31,1996; and of $328 million, $543 million and operations of the Company. $215 million as of December 31,1995. Reclassifications: Certain amounts in prior years' financial statements and Cash Equivalents: The Company considers all highly liquid investments related notes have been reclassified to conform to the 1996 presentation. purchased with an original maturity of three months or less to be cash equivalents. 2. Commitments and Contingencies Financial: Development of the IRIDIUM® global communications system Revenue Recognition: The Company uses the percentage-of-completion continued on schedule, as Motorola met all contractual milestones during method to recognize revenues and costs associated with most long-term 1996. Initial satellite launches, which were originally scheduled for contracts. For contracts involving certain new technologies, revenues January 1997, have been delayed to the second quarter of 1997. and profits or parts thereof are deferred until technological feasibility is Iridium LLC, a Delaware Limited Liability Company, negotiated a established, customer acceptance is obtained and other contract-specific $750 million credit facility, which Motorola guaranteed, in 1996 providing factors have been completed. For other product sales, revenue is recog- it with funding until May 1997. At that time, Iridium LLC will require fur- nized at the time of shipment, and reserves are established for price ther funding to continue to make contractual payments to Motorola. As protection and cooperative marketing programs with distributors. of December 31,1996, $512 million of the credit facility had been drawn. Inventories: Inventories are valued at the lower of average cost (which Motorola is negotiating to increase its guarantee of Iridium LLC bank approximates computation on a first-in, first-out basis) or market (i.e., net financing, and Iridium LLC is negotiating to increase its credit facility. realizable value or replacement cost). As of December 31,1996, contract These negotiations are expected to be completed in the first half of 1997. field inventories (inventory held by the customer for which no sale has There can be no assurances as to the outcome of these negotiations. In yet been recorded) were $222 million. addition, Iridium LLC is expected to require other financial support from various sources in order to complete the global communications system, Property, Plant and Equipment: Property, plant and equipment are which is expected to take place over the next two years. There also can stated at cost less accumulated depreciation. Depreciation is recorded be no assurances that Motorola or any other person will provide funding principally using the declining-balance method, based on the estimated or financial support. useful lives of the assets (buildings and building equipment, 5-50 years; At the end of 1996, Motorola was a 24% equity owner and is the largest machinery and equipment, 2-12 years). investor in Iridium LLC. A failure of Iridium LLC to obtain additional funding Foreign Currency Translation: The Company's European and Japanese would materially adversely affect Motorola's investment in Iridium LLC, in operations and certain non-consolidated affiliates use the respective local several Iridium Gateway companies and in ancillary products. The Company's currencies, instead of the U.S. dollar, as the functional currency. For all investment in Iridium LLC and in several Iridium Gateway companies, which other operations, the Company uses the U.S. dollar as the functional is approximately $537 million, is included in the Consolidated Balance currency. The effects of translating the financial position and results of Sheet category "Other Assets." 20


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    Motorola, Inc. and Consolidated Subsidiaries The Company has executed three contracts with Iridium LLC for the con- These liabilities represent only the Company's share of any possible costs struction and operation of the global communications system, providing for incurred in environmental cleanup sites, since in most cases, potentially approximately $6.5 billion in payments to Motorola over a 10-year period responsible parties other than the Company may exist. which began in 1993. The Company has in turn entered into significant The Company is a defendant in various suits, including environmental subcontracts for portions of the system, for which it will generally remain and product-related suits, and is subject to various claims which arise in obligated even if Iridium LLC is unable to satisfy the terms of the contracts the normal course of business. In the opinion of management, the ultimate with the Company, including funding. Except as noted above, the Company disposition of these matters will not have a material adverse effect on had no significant concentrations of credit risk as of December 31,1996. the consolidated financial position, liquidity or results of operations of The Company has entered into arrangements whereby the Company the Company. may increase, for an amount up to approximately $140 million, its per- IR1D1VM' is a registered trademark and service mark of Iridium LLC. centage interest in certain non-consolidated affiliates at the option of Motorola or its respective partners at various dates which do not extend 3. Information by Industry Segment and Geographic Region beyond 1998. The Company operates predominantly in the wireless communication, Other off-balance-sheet commitments to extend or guarantee financing semiconductor technology and advanced electronics industries. Operations and recourse obligations under receivable sales arrangements which involve the design, manufacture and sale of a diversified line of products, represent firm obligations at December 31,1996 and 1995, aggregated which include, but are not limited to, cellular phones and systems, semi- approximately $925 million and $858 million, respectively. Commitments conductors, including discrete semiconductors and integrated circuits; to extend or guarantee financing include commitments for customer two-way radios, pagers, data communication, personal communications financing and for the financing of non-consolidated affiliates. Customer equipment and systems; automotive, defense and space electronic prod- financing commitments require the customer to meet certain conditions ucts; and computer equipment. As of December 31,1996, manufacturing established in the financing arrangements. Commitments represent the and distribution operations in any one non-U.S. country did not account maximum amounts available under these arrangements and may not be for more than 10% of consolidated net sales or total assets. completely utilized. Sales and operating profits by geographical area are measured by the locale of the revenue-producing operations. Operating profits (revenues Environmental and Legal: Under the Comprehensive Environmental less operating expenses) exclude general corporate expenses, net interest Response Compensation and Liability Act of 1980, as amended (CERCLA, and income taxes. Intersegment and intergeographic transfers are accounted or Superfund), the Company has been designated as a potentially respon- for on an arm's length pricing basis. sible party by the United States Environmental Protection Agency with Identifiable assets (excluding intersegment receivables) are the respect to certain waste sites with which the Company may have had Company's assets that are identified with classes of similar products or direct or indirect involvement. Such designations are made regardless operations in each geographic area. Corporate assets primarily include of the extent of the Company's involvement. These claims are in various cash, marketable securities, equity investments and the administrative stages of administrative or judicial proceedings. They include demands headquarters of the Company. for recovery of past governmental costs and for future investigations or In 1996, no single customer or group under common control represented remedial actions. In many cases, the dollar amounts of the claims have 10% or more of the Company's sales. The equity in net assets of non- not been specified, and have been asserted against a number of other U.S. subsidiaries amounted to $6.2 billion at December 31,1996 and entities for the same cost recovery or other relief as was asserted against $5.5 billion at December 31,1995. the Company. The Company accrues costs associated with environmental Information for 1994 has been reclassified to reflect the realignment of matters when they become probable and reasonably estimable, and these various business units. The Messaging, Information and Media Products totaled $87 million and $86 million as of December 31,1996 and 1995, segment includes the Paging Products and Wireless Data groups (formerly respectively. The amount of such charges to earnings was $29 million, reported as part of the Communications segment) and the Information $24 million and $20 million in 1996,1995 and 1994, respectively. However, Systems Group (formerly reported as part of the Other Products segment). due to their uncertain nature, the amounts accrued could differ, perhaps Land Mobile Products (formerly reported as part of the Communications significantly, from the actual costs that will be incurred. These amounts segment) is a separate reportable segment. The Space and Systems assume no substantial recovery of costs from any insurer. The remedial Technology Group is reported as part of the Other Products segment. efforts include environmental cleanup costs and communication programs. 21


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    c o n d e n s e d n o t e s t o c o n s o l i d a t e d f i n a n c i a l s t a t e m e n t s (In millions, except as noted) Motorola, Inc. and Consolidated Subsidiaries Industry segment information Net Sales Operating Profit Years ended December 31 1996 1995 1994 1996 1995 1994 General Systems Products $11,324 $10,660 $ 8,613 $1,251 11.0% $1,266 11.9% $1,214 14.1% Semiconductor Products 7,858 8,539 6,936 382 4.9% 1,218 14.3% 996 14.4% Land Mobile Products 3,986 3,598 3,399 508 12.7% 324 9.0% 311 9.1% Messaging, Information and Media Products 3,958 3,681 2,981 90 2.3% 310 8.4% 282 9.5% Other Products 3,560 3,346 2,660 107 3.0% 131 3.9% 97 3.6% Adjustments and eliminations (2,713) (2,787) (2,344) (29) (48) _ (29) _ Industry segment totals $27,973 $27,037 $22,245 2,309 8.3% 3,201 11.8% 2,871 12.9% General corporate expenses (349) (270) (292) Interest expense, net (185) (149) (142) Earnings before income taxes $1,775 6.3% $2,782 10.3% $2,437 11.0% Assets Fixed Asset Expenditures Depreciation Expense Years ended December 31 1996 1995 1994 1996 1995 1994 1996 1995 1994 General Systems Products $ 6,736 $ 6,118 $ 4,699 $ 709 $ 762 $ 621 $ 499 $ 450 $ 327 Semiconductor Products 7,889 7,938 5,886 1,416 2,530 1,640 1,160 909 683 Land Mobile Products 2,113 2,097 2,232 158 169 217 161 155 142 Messaging, Information and Media Products 2,506 2,527 2,087 275 357 270 243 204 167 Other Products 1,851 1,839 1,470 161 285 320 197 154 143 Adjustments and eliminations (262) (224) (72) - - - - - - Industry segment totals 20,833 20,295 16,302 2,719 4,103 3,068 2,260 1,872 1 ,462 General corporate 3,243 2,443 1,193 254 122 254 48 47 63 Consolidated totals $24,076 $22,738 $17,495 $2,973 $4,225 $3,322 $2,308 $1,919 $1,525 Geographic area information' Net Sales Operating Profit Years ended December 31 1996 1995 1994 1996 1995 1994 United States $20,614 $19,187 $16,297 $1,249 6.1% $1,681 8.8% $1,932 11.9% Other nations 16,883 16,954 12,758 1,430 8.5% 1,901 11.2% 1,292 10.1% Adjustments and eliminations (9,524) (9,104) (6,810) (370) - (381) - (353) - Geographic totals $27,973 $27,037 $22,245 2,309 8.3% 3,201 11.8% 2,871 12.9% General corporate expenses (349) (270) (292) Interest expense, net (185) (149) (142)" Earnings before income taxes $1,775 6.3% $2,782 10.3% $2,437 11.0% Assets December 31 1996 1995 1994 United States $12,797 $12,552 $10,750 Other nations 8,604 8,197 5,902 Adjustments and eliminations (568) (454) (350) Geographic totals 20,833 20,295 16,302 General corporate assets 3,243 2,443 1,193 Consolidated totals $24,076 $22,738 $17,495 Mi" measured by the locale of the revenue-producing operations. 1994 has been reclassified to reflect the realignment of various business units. 22


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    f i v e y e a r f i n a n c i a l s u m m a r y (In millions, except per share amounts and other data) Motorola, Inc. and Consolidated Subsidiaries Years ended December 31 1996 1995 1994 1993 1992 Operating Results Net sales $27,973 $27,037 $22,245 $16,963 $13,303 Manufacturing and other costs of sales 18,990 17,545 13,760 10,351 8,395 Selling, general and administrative expenses 4,715 4,642 4,381 3,776 2,951 Depreciation expense 2,308 1,919 1,525 1,170 1,000 Interest expense, net 185 149 142 141 157 Total costs and expenses 26,198 24,255 19,808 15,438 12,503 Earnings before income taxes and cumulative effect of change in accounting principle 1,775 2,782 2,437 1,525 800 Income taxes provided on earnings 621 1,001 877 503 224 Net earnings before cumulative effect of change in accounting principle S 1,154 $ 1,781 $ 1,560 $ 1,022 $ 576 Net earnings $ 1,154 $ 1,781 $ 1,560 $ 1,022 $ 453 Net earnings before cumulative effect of change in accounting principle as a percent of sales 4.1% 6.6% 7.0% 6.0% 4.3% Net earnings as a percent of sales 4.1% 6.6% 7.0% 6.0% 3.4% 12 Per Share Data (in dollars) Fully diluted Net earnings before cumulative effect of change in accounting principle $ 1.90 $ 2.93 $ 2.65 $ 1.78 $ 1.05 Cumulative effect of change in accounting principle - (0.22) Net earnings S 1.90 $ 2.93 $ 2.65 $ 1.78 $ 0.83 Average common and common equivalent shares outstanding 609.6 609.8 592.7 583.7 567.1 Dividends declared $ 0.460 $0,400 $0,310 $0,220 $0,198 Balance Sheet Total assets $24,076 $22,738 $17,495 $13,498 $10,629 Working capital 3,324 2,717 3,008 2,324 1,883 Long-term debt 1,931 1,949 1,127 1,360 1,258 Total debt 3,313 3,554 2,043 1,915 1,695 Total stockholders' equity $11,795 $10,985 $ 9,055 $ 6,409 $ 5,144 Other Data Current ratio 1.42 1.35 1.51 1.53 1.56 Return on average invested capital before cumulative effect of change in accounting principle 8.4% 14.7% 17.5% 15.3% 9.4% Return on average invested capital 8.4% 14.7% 17.5% 15.3% 7.5% Return on average stockholders' equity before cumulative effect of change in accounting principle 10.0% 17.7% 21.1% 17.8% 11.7% Return on average stockholders' equity 10.0% 17.7% 21.1% 17.8% 9.4% Fixed asset expenditures $ 2,973 $ 4,225 $ 3,322 $ 2,187 $ 1,442 % to sales 10.6% 15.6% 14.9% 12.9% 10.8% Research and development expenditures $ 2,394 $ 2,197 $ 1,860 $ 1,521 $ 1,306 % to sales 8.6% 8.1% 8.4% 9.0% 9.8% Year-end employment (in thousands) 139 142 132 120 107 M// earnings per share, dividends and outstanding shares data have been restated to reflect the 1994 and 1992 two-for-one stock splits. 2 Primary earnings per common and common equivalent share were the same as fully diluted for all years shown except in 1994 when primary earnings per share were one cent higher than fully diluted. Average primary common and common equivalent shares outstanding for 1996, 1995, 1994, 1993 and 1992 were 609.0, 609.7, 591.7, 582.6 and 565-6, respectively. 23


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    d i r e c t o r s a n d m a n a g e m e n t b o a r d o f M o t o r o l a , I n c . Directors John F Mitchell Director Emeritus A. Peter Lawson Gary I. Tooker Vice Chairman of the Board Elmer H. Wavering Senior Vice President, Chairman of the Board Motorola, Inc. Formerly Vice Chairman and General Counsel and Secretary Motorola, Inc. Chief Operating Officer, to the Board Thomas J. Murrin Motorola, Inc. H. Laurance Fuller Dean of Duquesne University's School James A. Norling Chairman of the Board and of Business Administration Management Board Executive Vice President, Motorola, Inc., Chief Executive Officer Keith J. Bane President and General Manager, Nicholas Negroponte Amoco Corporation Executive Vice President, Messaging, Information and Media Sector; Director of Media Laboratory, Chief Corporate Staff Officer President, Motorola Europe, Christopher B. Galvin Massachusetts Institute of Technology Middle East and Africa Chief Executive Officer Arnold S. Brenner John £ Pepper, Jr. Motorola, Inc. Executive Vice President and Hector de J. Ruiz Chairman of the Board and General Manager, Japan Group Executive Vice President, Motorola, Inc., Robert W. Galvin Chief Executive, Office of the President, Chairman of the Executive Committee Procter & Gamble Company Christopher B. Galvin Semiconductor Products Sector of the Board, Motorola, Inc. Chief Executive Officer Samuel C. Scott III Jack M. Scanlon Robert L Growney Corporate Vice President and President Thomas D. George Executive Vice President, Motorola, Inc., President and Chief Operating Officer of the Corn Refining Business of CPC Executive Vice President, Motorola, Inc., President and General Manager, Motorola, Inc. International, Inc. President and General Manager, Cellular Networks and Space Sector AnneP Jones William J. Weisz Semiconductor Products Sector Frederick T. Tucker Consultant; formerly member of the Vice Chairman of the Board; formerly Glenn A. Gienko Executive Vice President, Motorola, Inc., Federal Communications Commission Chairman of the Board and Chief Executive Vice President, President and General Manager, Executive Officer, Motorola, Inc. Director of Human Resources Donald R. Jones Automotive, Energy and Components Sector Retired; formerly Executive Vice President ft Kenneth West Merle L Gilmore Robert N. Weisshappel and Chief Financial Officer, Motorola, Inc. Senior Consultant for Corporate Executive Vice President, Motorola, Inc., Executive Vice President, Motorola, Inc., Governance to Teachers Insurance and President and General Manager, Judy C. Lewent President and General Manager, Annuity Association, College Retirement Land Mobile Products Sector Senior Vice President and Cellular Subscriber Sector Equities Fund; Former Chairman of the Chief Financial Officer Robert L Growney Board and Chief Executive Officer, Richard W. Younts Merck & Co., Inc. Harris Bankcorp. Inc. President and Chief Operating Officer Executive Vice President, Walter £ Massey Carl F Koenemann Corporate Executive Director, Dr. John A. White President, Executive Vice President and International-Asia and Americas Dean of Engineering, Morehouse College Chief Financial Officer Georgia Institute of Technology c e o q u a l i t y a w a r d s a n d d a n n o b l e f e l l o w s The Chief Executive Office Quality Award Corporate Messaging, Information and technological pioneer, former Vice is Motorola's highest award for quality Schaumburg, III.; Scottsdale, Ariz. Media Sector Chairman of Motorola and Chairman performance. Winners in 1996 were: General Systems Sector Asia Pacific Paging Subscriber Division of its Science Advisory Board. Arlington Heights, III.; Ft. Worth, Texas; Singapore Corporate Harvard, III.; Libertyville, III.; International Networks Division Fellows chosen in 1996 were: University Relations Council, Scottsdale, Ariz.; Tempe, Ariz. Worldwide Jim P. Phillips Human Resources Land Mobile Products Sector Cellular Subscriber Sector United States Mt. Pleasant, Iowa; Plantation, FI a.; Semiconductor Products Sector Steve Gillig China Corporate Finance Organization Schaumburg, III. SPS Saw Technology MCOE Team Corporate Research Tianjin, China Messaging, Information and Phoenix, Ariz.; Manila, Philippines; Jaime Borras China Human Resources Team Media Sector Tianjin, China; Silicon Harbor, Hong Kong; Land Mobile Products Sector Beijing and Tianjin, China Boynton Beach, Fla.; Ft. Worth, Texas; Kuala Lumpur, Malaysia; Seremban, Rich Kommrusch Huntsville, Ala.; Mansfield, Mass. Malaysia; Taiwan; East Kilbride, Scotland; Automotive, Energy and Cross Sector Award Semiconductor Products Sector Guadalajara, Mexico; Korea; Aizu, Japan Components Sector Sector/Group Test Managers and Austin, Texas; Durham, N.C.; Irvine, Calif.; Rose Gibson Corporate's Strategic Human Resources The Dan Noble Fellow is the highest Phoenix, Ariz. Cellular Networks and Space Sector Selection and Assessment honorary award that can be made to a Fabio Pintchovski Automotive, Energy and Land Mobile Products Sector technologist within Motorola. It recognizes outstanding technical creativity, innova- Semiconductor Products Sector Components Sector Americas Parts Division Atlanta, Ga.; Albuquerque, N.M.; Buffalo tive ability and productive achievements. Schaumburg, III. Grove, III.; Elma, N.Y.; Northbrook, III.; It is named for Dan Noble, a visionary Seguin, Texas; Vernon Hills, III. 24


  • Page 27

    s t o c k h o l d e r r e f e r e n c e i n f o r m a t i o n Transfer Agent, Harris Trust and Savings Bank Registrar, Dividend lorporate Trust Operations Division Disbursing Agent '.0. Box 755 and Dividend 111 West Monroe Street Reinvestment Agent 4th Floor Chicago, IL 60690 USA (312)461-2339 Investor Relations r ,«curity analysts, investment Investor Relations, Motorola, Inc. Or call: (800) 262-8509 professionals and shareholders Corporate Offices Internet address: www.motorola.com should direct their business-related 1303 East Algonquin Road inquiries to: Schaumburg, IL60196 USA Common Stock Motorola common stock is listed on the New York, Chicago, London and Tokyo Stock Exchanges. Annual Meeting 3"he annual meeting will be held on stockholders on or about March 21, of Stockholders vlay 6,1997. A notice of the meeting, 1997, at which time proxies will be together with a form of proxy and a solicited by the Board of Directors. proxy statement, will be mailed to Proxy Statement . copy of the Proxy Statement may be obtained without charge. Contact the Investor Relations Dept. as listed above. Form10-K After the close of each fiscal year, tional information concerning its busi- Motorola submits a report on Form ness. A copy of this report may also be 10-K to the Securities and Exchange obtained without charge from Investor Commission containing certain addi- Relations. KPMG Peat Marwick LLP 303 East Wacker Drive Chicago, IL 60601 USA Safe Statements which are not historical facts, to capitalize on that rebound and compete: messaging services and integrated radio dis- Statement including statements about renewal of growtr continued or increased product deficiencies in patch products, IRIDIUM products and services and profitability in 1997 and the statements certain segments of the cellular telephone and and flat panel displays: steady growth in under the heading "The Future" are forward modem businesses: continued or increased emerging markets, particularly in Asia and looking statements that involve risks and competition and/or pricing pressure on Latin America: the success of strategic deci- uncertainties that could cause Motorola's Motorola's businesses, including the cellular, sions to improve financial performance: and results to differ materially from those in any paging and modem businesses: continued or the risks described in the Company's Securities forward looking statements. These risks further weakening of demand for paging prod- and Exchange Commission filings, including include: the ability of the semiconductor ucts: product and technology development its 1997 Proxy Statement appendix and Form business to sustain a rebound worldwide and commercialization risks and uncertainties, 10-K for the year ended 1996. and of Motorola's semiconductor business including for new digital technologies, newer PowerPC is a registered trademark of IBM Corporation used under license. IRIDIVM" is a registered trademark and service mark oflridium LLC. The Schlumberger name and logo are registered trademarks ofSchlumberger Technologies, Inc. used by permission. VISA" is a registered trademark of VISA International Service Association used by permission. tire reporthasl>een printed on recycled paper. Mac* is a registered trademark of Apple Computer Inc.


  • Page 28

    Motorola, Inc. Corporate Offices 1303 East Algonquin Road Schaumburg, IL 60196 USA Phone: (847) 576-5000 Motorola is an Equal Employment Opportunity/Affirmative Action Employer Motorola and @ ) are registered trademarks of Motorola, Inc.


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