avatar Motorola Solutions, Inc. Manufacturing

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    1 9 9 7 S U M M A R Y A N N U A L R E P O R T The Spirit of Imaginative Change M anaging for long-term grow th and profitability, w hile consistently and appropriately investing in technology to maintain competitive leadership. M O T O RO LA C 3


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    o Our Stockholders and Other Friends T The year 1997 w as one of significant renew al for M otorola – one that included management changes, a return to grow th in profits, the departure from certain nonstrategic businesses and the beginning of industries such as low -earth-orbit satellite manufacturing. Sales in 1997 rose 7% to $29.8 billion from $28.0 billion in 1996. Earnings w ere $1.18 billion, or $1.94 per share (diluted), up from $1.15 billion or $1.90 per share, in 1996. Detailed results appear in the 1998 Proxy Statement, as w ell as on the Internet at w w w.motorola.com. It w as a year of renew ed grow th in the Cellular Products and Semiconductor Christopher B. Galvin Robert L. Growney Chief Executive Officer President and Chief Operating Officer Products segments and continued strong grow th in the Land M obile Products segment. The M essaging, Information and M edia segment had low er sales and operating profits, reflecting w eakness in the paging industry in the Unites States and in Asia, as w ell as a charge related to the planned exit from the retail analog modem business. M otorola also had charges relating to its exit from the dynamic random access memory and M acOS ® com- patible computer businesses. M O T O R O L A 1


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    T O O U R S T O C K H O L D E R S A N D O T H E R F R I E N D S Discipline in a dynamic w orld Since the birth of the M otorola takes significant risk in developing new technology, starting new corporation, Motorolans have taken risks to industries and segments, and opening new regions and markets. But M otorola create new industries, while practicing takes very little balance sheet risk. Throughout its history, M otorola has phased financial discipline to benefit long-term out businesses w ith limited potential to focus on new technologies and new stockholders. markets throughout the w orld. We have been involved in the creation of each of the major industries in which we compete today. This growth $2,748 strategy requires significant long-term investment. Research and $1,521 Research and development expenses rose to $2.748 billion in 1997. Development spend- ing has climbed steadily in the last Despite the risks involved in expanding into new markets five years. and technologies, M otorola’s balance sheet remains strong. The ratio of net debt to net debt plus equity declined to 12.4% at the end of 1997 from 13.4% a year ago. 2 M O T O RO LA


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    The rotation of presidents among M otorola’s sectors and regions continued in 1997, follow ing the management succession plan under w hich Gary L. Tooker w as elected Chairman of the Thin and light, yet with bright images and vibrant colors, Field Emission Board. M embers of the Board of Directors and the M anagement Displays will enable a new generation of electronic products. Board are listed on page 24. We are still facing challenges in 1998, as we expect the economic conditions in certain markets in Asia that affected results in the fourth quarter of M otorol a, Inc. 1997 to continue for at least the first half of 1998. We will continue M oody’s: Aa3 S& P: AA to control costs, but w e w ill also continue our global investments Motorola’s strong where appropriate, as well as our strategic investments in technol- balance sheet is reflected by a credit rating of AA from Standard & Poor’s ogy. We remain confident that M otorola is building the foundation and Aa3 from Moody’s Investors Service. for continued profitable grow th in the years to come. M O T O RO LA 3


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    T O O U R S T O C K H O L D E R S A N D O T H E R F R I E N D S Building and investing in core technologies We continue to see exciting potential in extensions of our core technologies. Despite dramatic grow th, the w orldw ide market penetration for cellular tele- phones and pagers is still only about 3% for each. In 1997 w e introduced a broad line of advanced cellular handsets in major digital formats. We have more than 80 Global System for M obile Communications (GSM ) infrastructure contracts w orldw ide and have launched 38 Code Division M ultiple Access (CDM A) systems. Our Wireless Local Loop systems often act as the primary phone system in emerging markets. JAZZ ,™ Motorola’s We shipped our 20 millionth pager based on our FLEX™ high- smallest word message pager, measures 2.39” x 1.5” x .66” capacity messaging protocol, which is rapidly emerging as a global (60.8 x 38 x 16.8mm) and delivers complete standard. The technology has enabled the extension of basic one-way text messages. 4 M O T O RO LA


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    ® paging into two-way and voice messaging. Paging penetration rates in some Motorola’s StarTAC cellular phones incor- of the w orld’s most populous emerging markets are still less than 1%. porate breakthrough technologies from Integrated digital w ireless communications for w orkgroups design through manu- The iDEN ® i600 facturing, enabling digital handset enables a user to on the move represent the leading edge of our core tw o-w ay people to stay in touch hold a conference anywhere, anytime. call at the push of a button. radio business. These iDEN ® systems can combine mobile tele- phone, conferencing, text messaging and data in a single unit. Other advanced tw o-w ay radio systems continue to serve public safety agencies and industries such as oil refineries and pow er generation. We continue to build on our core strength in space commu- A Motorola tran- sponder aboard the Pathfinder space- craft sends scientific nications. For almost 40 years, M otorola equipment has maintained data from Mars to Earth. a vital link betw een space-bound explorers and their earth-bound counterparts. The M ars Pathfinder is the latest in a long list of such programs. M O T O RO LA 5


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    T O O U R S T O C K H O L D E R S A N D O T H E R F R I E N D S Creating new industries and segments As prime contractor With the development of the IRIDIUM ® global personal communications system, for the IRIDIUM ® global communication M otorola has created a new industry – manufacturing and deploying 46 Low -Earth- system, Motorola cre- ated the low-earth-orbit Orbit (LEO) satellites in just eight months. Building on our systems design and inte- satellite industry and set a record for the grated manufacturing techniques, w e are able to produce a satellite in less than 25 number of satellites deployed in an eight- days, at a cost 80% less than that of previous generations of satellites. month period. The IRIDIUM ® system is scheduled to begin commercial service later in 1998. The digital communications system of 66 LEO satellites is to provide subscribers w ith w orldw ide voice, data, fax and paging capability The Cable Router, using a hand-held phone and pager. It sets the stage for future which resides at the cable operator’s headend, manages generations of systems that could deliver services such as desk- up to 5,000 CyberSURFR ® cable modems. top videoconferencing, broadcast new s and entertainment. 6 M O T O RO LA


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    Building on the integration of cellular telephone and satellite technologies, M otorola is creating products for telematics, designed This telephone is to provide security, information, convenience and entertainment used in a telematics system that gives drivers access to security and infor- from a central service center to drivers and their passengers. mation services. Our technology also is leading the way to the creation of telephone systems over hybrid fiber coaxial cable. During 1997 we also shipped infrastructure to support over 2 million cable modems in more than 100 cities on five continents. Our new Smartcard Systems Business is developing solutions Motorola intends to make smart cards for industries ranging from transit to finance. Our entrance into a universal conven- ience that will change the way we this market, coupled with our 1993 acquisition of Indala Corp., a work, live and play. provider of security and access control systems, paves the way for M otorola to participate actively in the grow ing smart card industry. M O T O RO LA 7


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    T O O U R S T O C K H O L D E R S A N D O T H E R F R I E N D S M arket-driven organizational strength The rotation of leadership among M otorola’s major businesses is positioning the company for competing in the next quarter century. For example, during 1997 the Semiconductor Products Sector began charting a new direction to better meet the changing needs of customers by providing total system solutions. Draw ing on its broad range of technologies, the sector has aligned its businesses closer to customers. The realignment reflects the sector’s global nature, w ith major groups headquartered in Europe, Asia and the United States. The new organization includes four market-focused groups and a Semiconductor Components Group. The Consumer Systems The Motorola Group covers the technology found in products ranging from MPX2700AS Pressure Sensor pro- vides speed control for Polaris personal games and digital cameras to computer printers, smart cards and watercraft. 8 M O T O RO LA


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    high-definition television. The Transportation Systems Group Motorola invests in the most advanced focuses on automotive applications from engine and pow er train semiconductor wafer The MMAS40GWB fabrication and assem- is Motorola’s premier accelerometer sensor control to digital sound systems. The EV1 electric vehicle from bly facilities in the for automotive and world. Customers are industrial uses. General M otors contains more than 700 M otorola semiconductors. designing Motorola embedded chips into The Wireless Subscriber Systems Group is driving M otorola’s digital signal products ranging from automobiles to processing architecture. The move from analog to digital technologies w ill more computer printers. than triple the amount of silicon used in w ireless devices such as cellular telephones. Other markets served include devices that tap into a data source such as the Internet. The Netw orking and The PowerPC 750 ™ microprocessor was named “Editor’s Choice Best RISC Computing Systems Group creates the embedded silicon technol- Processor” for 1997 by Microprocessor Report. ogy that is used by most major sw itch manufacturers. M ost of the routers running the Internet use M otorola processors. M O T O RO LA 9


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    T O O U R S T O C K H O L D E R S A N D O T H E R F R I E N D S Regionalization Motorola’s global pres- You can find M otorola people in more than 1,100 locations in 45 countries today. ence enables it to create products designed for We have more than 65 manufacturing facilities w orldw ide, and w e are opening the specific needs of customers in all parts more and more research and development centers close to the customers w e serve of the world. throughout the w orld. To enhance our ability to seize global opportunities, w e made a series of changes in our regional and staff structure in 1997. E R A M I The new Americas Region reflects the grow ing importance C T H E A S • • R E G N of Latin America, w here M otorola’s sales have increased rapidly. I O The region is benefiting from improved governmental stability Motorola’s most rapid growth is taking place in and a trend tow ard privatization. It is estimated that half of the Latin America, part of the Americas Region. region’s 490 million people have never used a phone. We added new facilities in Brazil and M exico during 1997, and w e are expanding our pres- ence throughout the region. 1 0 M O T O RO LA


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    Another of our regional organizations includes Europe, the M iddle East and Africa. We have had a manufacturing O fficial Supplier Partner As Official Supplier Partner to the presence in Western Europe for 30 years, and today, w e are Union of European Football Associa- tions, Motorola is penetrating new markets in Central and Eastern Europe, as providing advanced communications technology. w ell as the M iddle East and Africa, w here demand for w ireless communications continues to grow. We also continue to see long-term grow th poten- tial in Asia, although current conditions in certain markets are Nippon Motorola Ltd. reducing the rate of sales grow th. Our manufacturing presence in Asia should help lessen the impact of expected low er economic grow th and greater pricing pressures. India continues to represent a major opportunity for grow th. M O T O RO LA 1 1


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    T O O U R S T O C K H O L D E R S A N D O T H E R F R I E N D S Connecting w ith the consumer Over the years, M otorola has earned a reputation among its customers as a com- pany w hose quality products enable them to solve problems and do the things they w ant to do. Today, as our products move more and more into the consumer arena, w e are w orking very hard to build equity in the M otorola name and identity, espe- cially in parts of the w orld w here people are not as familiar w ith the company. We know that w e cannot succeed unless w e commit ourselves to excellence in marketing throughout the w orld. This involves getting into a dialog w ith the people w ho use our products to better under- The TalkAbout ™ stand how M otorola improves people’s lives. We are developing two-way radio is a winner of four industry awards including Popular the marketing strategies that can make us the most competitive Science magazine’s “Best of What’s New.” provider of products and services to consumers. 1 2 M O T O RO LA


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    M otorola enables consumers to improve the w ay they live Drawing on creative resources throughout and w ork in w ays they never expected. We give people freedom, the world, Motorola is enhancing brand The Wordline FL X ™ word message mobility and convenience. In doing so, w e are building the tools awareness through pager brings full- print, television and word messaging and information that people need for success in the next century. We provide point-of-purchase updates. display. access to information, and w e develop products that help people lead safer and healthier lives, w herever they are, anyw here in the w orld. We are confident that throughout M otorola, this spirit of renew al and refounding to focus on our customers will create a more dynamic enter- prise that w ill increase value to stockholders over the long term. The StarTAC ® wearable cellular telephone has become For the M anagement Board, one of the most pre- ferred cellular phones on the market. Christopher B. Galvin Robert L. Grow ney Chief Executive Officer President and Chief Operating Officer M O T O RO LA 1 3


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    1997 Net Sales by Business Segment 1997 M arket Sales by Region


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    M anagement’s Responsibility for Financial Statements Motorola, Inc. and M anagement is responsible for the preparation, integrity and objectivity KPM G Peat M arw ick LLP, independent auditors, are retained to audit of the consolidated financial statements and other financial information M otorola’s financial statements. Their accompanying report is based on presented in this report. The accompanying consolidated financial state- audits conducted in accordance w ith generally accepted auditing stan- ments w ere prepared in accordance w ith generally accepted accounting dards, w hich include the consideration of the Company’s internal controls principles, applying certain estimates and judgments as required. to establish a basis for reliance thereon in determining the nature, timing M otorola’s internal controls are designed to provide reasonable assur- and extent of audit tests to be applied. ance as to the integrity and reliability of the financial statements and to The Board of Directors exercises its responsibility for these financial adequately safeguard, verify and maintain accountability of assets. Such statements through its Audit Committee, w hich consists entirely of inde- controls are based on established w ritten policies and procedures, are pendent non-management Board members. The Audit Committee meets implemented by trained, skilled personnel w ith an appropriate segregation periodically w ith the independent auditors and w ith the Company’s internal of duties and are monitored through a comprehensive internal audit pro- auditors, both privately and w ith management present, to review account- gram. These policies and procedures prescribe that the Company and all ing, auditing, internal controls and financial reporting matters. its employees are to maintain the highest ethical standards and that its business practices throughout the w orld are to be conducted in a manner w hich is above reproach. Christopher B. Galvin Carl F. Koenemann Chief Executive Officer Executive Vice President and Chief Financial Officer Independent Auditors’ Report The Board of Directors and Stockholders of M otorola, Inc.: statements. In our opinion, the information set forth in the accompanying We have audited, in accordance w ith generally accepted auditing stan- condensed consolidated financial statements is fairly presented, in all dards, the consolidated balance sheets of M otorola, Inc. and subsidiaries material respects, in relation to the consolidated financial statements as of December 31, 1997 and 1996, and the related consolidated state- from w hich it has been derived. ments of earnings, stockholders’ equity, and cash flow s for each of the years in the three-year period ended December 31, 1997, appearing in the appendix to the proxy statement for the 1998 Annual M eeting of Shareholders of the Corporation (not presented herein); and in our report KPM G Peat M arw ick LLP dated January 12, 1998, also appearing in that proxy statement appendix, Chicago, Illinois w e expressed an unqualified opinion on those consolidated financial February 16, 1998 1 6 M O T O RO LA


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    Consolidated Statements of Earnings (Dollars in millions, except per share amounts) Motorola, Inc. and Subsidiaries Years ended December 31 199 7 1996 1995 Net sales $29,794 $27,973 $27,037 Costs and expenses M anufacturing and other costs of sales 20,003 18,990 17,545 Selling, general and administrative expenses 5,515 4,715 4,642 Depreciation expense 2,329 2,308 1,919 Interest expense, net 131 185 149 Total costs and expenses 27,978 26,198 24,255 Net gain on Nextel asset exchange (Note 1) – – 443 Earnings before income taxes 1 1,816 1,775 3,225 Income taxes provided on earnings 1 636 621 1,177 Net earnings 1 $««1,180 $««1,154 $««2,048 Basic earnings per common share 1 $««««1.98 $««««1.95 $««««3.47 Diluted earnings per common share 1 $««««1.94 $««««1.90 $««««3.37 Diluted w eighted average common shares outstanding 612.2 609.0 609.7 1 1995 earnings before income taxes, income taxes provided on earnings, net earnings, basic earnings per common share and diluted earnings per common share would have been $2,782, $1,001, $1,781, $3.02 and $2.93, respectively, without the one-time gain on the exchange of 800 megahertz Specialized Mobile Radio business, systems and licenses in the U.S. to Nextel Communications, Inc. for shares of Nextel stock as described in Note 1. Consolidated Statements of Stockholders’ Equity Common Stock and (Dollars in millions, except per share amounts) Additional Paid-in Capital Retained Earnings Years ended December 31 199 7 1996 1995 199 7 1996 1995 Balances at January 1 $3,185 $3,257 $3,138 $8,610 $7,728 $5,917 Net earnings – – – 1,180 1,154 2,048 Conversion of zero coupon notes 7 7 23 – – – Unrealized net gain (loss) on certain investments 559 (103) 85 – – – Stock options exercised and other 17 24 11 – – – Dividends declared ($.48 per share in 1997, $.46 in 1996 and $.40 in 1995) – – – (286) (272) (237) Balances at December 31 $3,768 $3,185 $3,257 $9,504 $8,610 $7,728 See accompanying condensed notes to consolidated financial statements. M O T O RO LA 1 7


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    Consolidated Balance Sheets (Dollars in millions, except per share amounts) Motorola, Inc. and Subsidiaries December 31 199 7 1996 Assets Current assets Cash and cash equivalents $««1,445 $««1,513 Short-term investments 335 298 Accounts receivable, net 4,847 4,035 Inventories 4,096 3,220 Deferred income taxes 1,726 1,580 Other current assets 787 673 Total current assets 13,236 11,319 Property, plant and equipment, net 9,856 9,768 Other assets 4,186 2,989 Total assets $27,278 $24,076 Liabilities and Stockholders’ Equity Current liabilities Notes payable and current portion of long-term debt $÷1,282 $÷1,382 Accounts payable 2,297 2,050 Accrued liabilities 5,476 4,563 Total current liabilities 9,055 7,995 Long-term debt 2,144 1,931 Deferred income taxes 1,522 1,108 Other liabilities 1,285 1,247 Stockholders’ equity Common stock, $3 par value Authorized shares: 1997 and 1996, 1,400 Issued and outstanding shares: 1997, 597.4; 1996, 593.4 1,792 1,780 Preferred stock, $100 par value issuable in series Authorized shares: 0.5 (none issued) – – Additional paid-in capital 1,976 1,405 Retained earnings 9,504 8,610 Total stockholders’ equity 13,272 11,795 Total liabilities and stockholders’ equity $27,278 $24,076 See accompanying condensed notes to consolidated financial statements. 1 8 M O T O RO LA


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    Consolidated Statements of Cash Flow s (Dollars in millions) Motorola, Inc. and Subsidiaries Years ended December 31 199 7 1996 1995 Operating Net earnings $«1,180 $«1,154 $«2,048 Add (deduct) non-cash items Depreciation 2,329 2,308 1,919 Deferred income taxes (98) (160)) (55) Amortization of debt discount and issue costs 10 8 12 Gain on Nextel asset exchange – – (267) Gain on disposition of investments in affiliated companies (116) (78)) (111) Change in assets and liabilities, net of effects of acquisitions and dispositions Accounts receivable, net (812) 101 (653) Inventories (880) 308 (856) Other current assets (114) (69) (100) Accounts payable and accrued liabilities 1,157 398 1,172 Other assets and liabilities (60) 220 156 Net cash provided by operating activities 2,596 4,190 3,265 Investing Acquisitions and advances to affiliated companies (286) (346) (563) Proceeds from dispositions of investments in affiliated companies 248 119 252 Capital expenditures (2,874) (2,973) (4,225) Other changes to property, plant and equipment, net 324 242 (11) (Increase) decrease in short-term investments (37) 52 (32) Net cash used for investing activities (2,625) (2,906)) (4,579) Financing Net increase (decrease) in commercial paper and short-term borrow ings (100) (260) 686 Proceeds from issuance of debt 312 55 851 Repayment of debt (102) (37) (74) Issuance of common stock 137 7 71 Payment of dividends (286) (261) (236) Net cash provided by (used for) financing activities (39) (496) 1,298 Net increase (decrease) in cash and cash equivalents $«÷÷(68) $««««788 $««÷«(16) Cash and cash equivalents, beginning of year $«1,513 $««««725 $÷««741 Cash and cash equivalents, end of year $«1,445 $«1,513 $÷««725 Supplemental Cash Flow Information (Dollars in millions) Years ended December 31 199 7 1996 1995 Cash paid during the year for: Interest $211 $237 $193 Income taxes $611 $506 $947 See accompanying condensed notes to consolidated financial statements. M O T O RO LA 1 9


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    Condensed Notes to Consolidated Financial Statements Motorola, Inc. and Subsidiaries 1. Summary of Significant Accounting Policies Property, Plant and Equipment: Property, plant and equipment are Consolidation and Investments: The consolidated financial statements stated at cost less accumulated depreciation. Depreciation is recorded include the accounts of M otorola, Inc. and all majority-owned subsidiaries principally using the declining-balance method, based on the estimated (the Company) in w hich it has control. The Company’s investments in non- useful lives of the assets (buildings and building equipment, 5-40 years; controlled entities in w hich it has the ability to exercise significant influ- machinery and equipment, 2-12 years). ence over operating and financial policies are accounted for by the equity method. The Company’s investments in other entities are carried at their Fair Values of Financial Instruments: The fair values of financial historical cost. Certain of these cost-based investments are marked-to- instruments are determined based on quoted market prices and market market at the balance sheet date to reflect their fair value w ith the unre- interest rates as of the end of the reporting period. alized gains and losses, net of tax, included in a separate component of stockholders’ equity. Foreign Currency Translation: The Company’s European and Japanese operations and certain non-consolidated affiliates use the respective Cash Equivalents: The Company considers all highly liquid investments local currencies as the functional currency. For all other operations, the purchased w ith an original maturity of three months or less to be cash Company uses the U.S. dollar as the functional currency. The effects of equivalents. translating the financial position and results of operations of local func- tional currency operations into U.S. dollars are included in a separate Revenue Recognition: The Company uses the percentage-of-completion component of stockholders’ equity. method to recognize revenues and costs associated w ith most long-term contracts. For contracts involving certain new technologies, revenues and Foreign Currency Transactions: The effects of remeasuring the non- profits or parts thereof are deferred until technological feasibility is estab- functional currency assets or liabilities into the functional currency as w ell lished, customer acceptance is obtained and other contract-specific fac- as gains and losses on hedges of existing assets or liabilities are marked- tors have been completed. For other product sales, revenue is recognized to-market, and the result is recorded w ithin selling, general and adminis- at the time of shipment, and reserves are established for price protection trative expenses in the statement of earnings. Gains and losses on and cooperative marketing programs w ith distributors. financial instruments w hich hedge firm future commitments are deferred until such time as the underlying transactions are recognized or recorded Inventories: Inventories are valued at the low er of average cost (w hich immediately w hen the transaction is no longer expected to occur. Foreign approximates computation on a first-in, first-out basis) or market (i.e., exchange financial instruments w hich hedge investments in foreign sub- net realizable value or replacement cost). sidiaries are marked-to-market, and the results are included in stockholders’ equity. Other gains or losses on financial instruments w hich do not qualify as hedges are recognized immediately as income or expense. 2 0 M O T O RO LA


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    Motorola, Inc. and Use of Estimates: The preparation of financial statements in conformity 2. Information by Industry Segment and Geographic Region w ith generally accepted accounting principles requires management to The Company operates predominantly in the w ireless communication, make certain estimates and assumptions that affect the reported amounts semiconductor technology and advanced electronics industries. Operations of assets and liabilities and disclosure of contingent assets and liabilities involve the design, manufacture and sale of a diversified line of products, at the date of financial statements and the reported amounts of revenues which include, but are not limited to, cellular phones and systems; semicon- and expenses during the reporting period. Actual results could differ from ductors, including discrete semiconductors and integrated circuits; two-way those estimates. radios, pagers, data communication, personal communications equipment and systems; and automotive, defense and space electronic products. As of Reclassifications and Restatement: Certain amounts in prior years’ finan- and for the years ended December 31, 1997, 1996 and 1995, manufacturing cial statements and related notes have been reclassified to conform to and distribution operations in any one non-U.S. country did not account the 1997 presentation. for more than 10% of consolidated net sales or total assets. After discussions w ith the Securities and Exchange Commission regard- Sales and operating profits by geographical area are measured by the ing the 1995 sale of its U.S. 800 megahertz Specialized M obile Radio locale of the revenue-producing operations. Operating profits (revenues less business, systems and licenses to Nextel Communications, Inc. for shares operating expenses) exclude general corporate expenses, net interest and of Nextel stock, the Company restated its 1995 historical financial state- income taxes. Intersegment and intergeographic transfers are accounted ments and has made resulting reclassifications to the December 31, 1996 for on an arm’s length pricing basis. Consolidated Balance Sheet. As a result, the Company has amended its Identifiable assets (excluding intersegment receivables) are the Company’s Form 10-K for the year ending December 31, 1996 originally filed on assets that are identified w ith classes of similar products or operations M arch 25, 1997, to reflect the restatement and reclassifications. in each geographic area. Corporate assets primarily include cash, market- able securities, equity investments and the administrative headquarters of Recent Accounting Pronouncements: The Company has adopted and the Company. retroactively applied the requirements of Statement of Financial Accounting In 1997, 1996 and 1995, no single customer or group under common Standards (SFAS) No. 128, “ Earnings Per Share,” to all periods presented. control represented 10% or more of the Company’s sales. The equity in net This change did not have a material impact on the computation of the assets of non-U.S. subsidiaries amounted to $7.3 billion at December 31, earnings per share data. 1997 and $6.2 billion at December 31, 1996. Information for 1996 and 1995 has been reclassified to reflect the realignment of various business units. The Cellular Products segment includes the Cellular Subscriber Sector, the Cellular Infrastructure Group and the Netw ork M anagement Group (formerly included in the General Systems segment). Results of the M otorola Computer Group (formerly included in the General Systems segment) are now included in the Other Products segment. The results of Indala Corp., formerly in the Other Products segment, have been moved to the Land M obile Products segment. M O T O RO LA 2 1


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    Condensed Notes to Consolidated Financial Statements (Dollars in millions, except as noted) Motorola, Inc. and Subsidiaries Industry segment information Net Sales Operating Profit Years ended December 31 199 7 1996 1995 199 7 1996 1995 Cellular Products $11,934 $10,804 $10,211 $1,398 11.7% $1,288 11.9%% $1,278 12.5% Semiconductor Products 8,003 7,858 8,539 332 4.2% 382 4.9% 1,218 14.3% Land M obile Products 4,926 4,008 3,618 588 11.9% 498 12.4% 316 8.7% M essaging, Information and M edia Products 3,793 3,958 3,681 80 2.1% 90 2.3% 310 8.4% Other Products 4,316 4,058 3,775 (41) (0.9) % 80 2.0%% 127 3.4% Adjustments and eliminations (3,178) (2,713) (2,787) (43) – (29) – (48) – Industry segment totals $29,794 $27,973 $27,037 2,314 7.8% 2,309 8.3%% 3,201 11.8% General corporate expenses (367) (349) (270) Net gain on Nextel asset exchange – – 443 Interest expense, net (131) (185) (149) Earnings before income taxes $1,816 6.1% $1,775 6.3% $3,225 11.9% Assets Capital Expenditures Depreciation Expense Years ended December 31 199 7 1996 1995 199 7 1996 1995 199 7 1996 1995 Cellular Products $««8,021 $««6,314 $««5,842 $«««900 $«««673 $«««731 $«««534 $«««474 $«««431 Semiconductor Products 7,947 7,889 7,938 1,153 1,416 2,530 1,169 1,160 909 Land M obile Products 2,538 2,130 2,118 228 159 171 168 162 157 M essaging, Information and M edia Products 2,391 2,506 2,527 149 275 357 219 243 204 Other Products 2,974 2,256 2,094 178 196 314 191 221 171 Adjustments and eliminations (458) (262) (224) – – – – – – Industry segment totals 23,413 20,833 20,295 2,608 2,719 4,103 2,281 2,260 1,872 General corporate 3,865 3,243 2,443 266 254 122 48 48 47 Consolidated totals $27,278 $24,076 $22,738 $2,874 $2,973 $4,225 $2,329 $2,308 $1,919 Geographic area information Net Sales Operating Profit Years ended December 31 199 7 1996 1995 199 7 1996 1995 United States $21,809 $20,614 $19,187 $1,076 4.9% $1,249 6.1% $1,681 8.8% Other nations 18,032 16,883 16,954 1,488 8.3% 1,430 8.5%% 1,901 11.2%% Adjustments and eliminations (10,047) (9,524) (9,104) (250) – (370) – (381) – Geographic totals $29,794 $27,973 $27,037 2,314 7.8% 2,309 8.3%% 3,201 11.8%% General corporate expenses (367) (349) (270) Gain on Nextel asset exchange – – 443 Interest expense, net (131) (185) (149) Earnings before income taxes $1,816 6.1% $1,775 6.3% $3,225 11.9% Assets December 31 199 7 1996 1995 United States $14,000 $12,797 $12,552 Other nations 10,064 8,604 8,197 Adjustments and eliminations (651) (568) (454) Geographic totals 23,413 20,833 20,295 General corporate assets 3,865 3,243 2,443 Consolidated totals $27,278 $24,076 $22,738 2 2 M O T O RO LA


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    Five Year Financial Summary (Dollars in millions, except per share amounts and other data) Motorola, Inc. and Subsidiaries Years ended December 31 199 7 1996 1995 1994 1993 Operating Results Net sales $29,794 $27,973 $27,037 $22,245 $16,963 M anufacturing and other costs of sales 20,003 18,990 17,545 13,760 10,351 Selling, general and administrative expenses 5,515 4,715 4,642 4,381 3,776 Depreciation expense 2,329 2,308 1,919 1,525 1,170 Interest expense, net 131 185 149 142 141 Total costs and expenses 27,978 26,198 24,255 19,808 15,438 Net gain on Nextel asset exchange – – 443 – – Earnings before income taxes 1,816 1,775 3,225 2,437 1,525 Income taxes provided on earnings 636 621 1,177 877 503 Net earnings $««1,180 $««1,154 $÷2,048 $««1,560 $÷1,022 Net earnings as a percent of sales 4.0% 4.1% 7.6% 7.0% 6.0% Per Share Data (in dollars) 1 Diluted earnings per common share $««««1.94 $««««1.90 $÷÷3.37 $««««2.66 $÷÷1.78 Diluted w eighted average common shares outstanding 612.2 609.0 609.7 591.7 ÷582.6 Dividends declared $««0.480 $««0.460 $««0.400 $««0.310 $««0.220 Balance Sheet Total assets $27,278 $24,076 $22,738 $17,495 $13,498 Working capital 4,181 3,324 2,717 3,008 2,324 Long-term debt 2,144 1,931 1,949 1,127 1,360 Total debt 3,426 3,313 3,554 2,043 1,915 Total stockholders’ equity $13,272 $11,795 $10,985 $««9,055 $÷6,409 Other Data Current ratio 1.46 1.42 1.35 1.51 1.53 Return on average invested capital 8.4% 8.4% 16.7% 17.5% 15.3% Return on average stockholders’ equity 9.4% 10.0% 20.2% 21.1% 17.8% Capital expenditures $««2,874 $««2,973 $÷4,225 $««3,322 $÷2,187 % to sales 9.6% 10.6% 15.6% 14.9% 12.9% Research and development expenditures $««2,748 $««2,394 $÷2,197 $««1,860 $÷1,521 % to sales 9.2% 8.6% 8.1% 8.4% 9.0% Year-end employment (in thousands) 150 139 142 132 120 1 Per share data reflects the requirements of SFAS 128. M O T O RO LA 2 3


  • Page 26

    Directors and M anagement Board of M otorola, Inc. Directors John F. M itchell M anagement Board A. Peter Law son Gary L. Tooker Vice Chairman of the Board Keith J. Bane Senior Vice President, Chairman of the Board M otorola, Inc. Executive Vice President, General Counsel and Secretary M otorola, Inc. President, Americas Region to the Board Thomas J. M urrin Ronnie C. Chan Dean of Duquesne University’s School Robert L. Barnett James A. Norling Chairman, of Business Administration Executive Vice President, Executive Vice President, Hang Lung Development Group President, Land M obile Products Sector President, M essaging, Information and Nicholas Negroponte M edia Sector H. Laurance Fuller Director of M edia Laboratory, Arnold S. Brenner Chairman of the Board and M assachusetts Institute of Technology Executive Vice President, Hector de J. Ruiz Chief Executive Officer President, Global Government Relations Executive Vice President, John E. Pepper, Jr. Amoco Corporation and Standards President, Semiconductor Products Sector Chairman of the Board and Christopher B. Galvin Chief Executive, Christopher B. Galvin Jack M . Scanlon Chief Executive Officer Procter & Gamble Company Chief Executive Officer Executive Vice President, M otorola, Inc. President, Cellular Netw orks and Samuel C. Scott III Glenn A. Gienko Space Sector Robert W. Galvin President and Chief Operating Officer, Executive Vice President, Chairman of the Executive Committee Corn Products International Director of Human Resources Frederick T. Tucker of the Board, M otorola, Inc. Executive Vice President, B. Kenneth West M erle L. Gilmore President, Automotive, Component, Robert L. Grow ney Senior Consultant for Corporate Executive Vice President, Computer and Energy Sector President and Chief Operating Officer Governance to Teachers Insurance and President, Europe, M iddle East and M otorola, Inc. Annuity Association, College Retirement Africa Region Richard W. Younts Equities Fund; Former Chairman of the Executive Vice President, Anne P. Jones Robert L. Grow ney Board and Chief Executive Officer, President, Asia Pacific Region Consultant; formerly member of the President and Chief Operating Officer Harris Bankcorp, Inc. Federal Communications Commission Carl F. Koenemann Dr. John A. White Donald R. Jones Executive Vice President, Chancellor, Retired; formerly Executive Vice President Chief Financial Officer University of Arkansas and Chief Financial Officer, M otorola, Inc. Fred Kuznik Judy C. Lew ent Director Emeritus Executive Vice President, Senior Vice President and Elmer H. Wavering President, Cellular Subscriber Sector Chief Financial Officer Formerly Vice Chairman and M erck & Co., Inc. Chief Operating Officer, M otorola, Inc. Walter E. M assey President, M orehouse College CEO Quality Aw ards and Dan Noble Fellow s The Chief Executive Office Quality Aw ard The Customer’s Center For Systems Fellow s chosen in 1997 w ere: Phil Rasky is M otorola’s highest aw ard for quality Integration (CSSi) Corporate Research performance. Winners in 1997 w ere: Schaumburg, Ill. Steve Bunch Cellular Subscriber Sector Larry Connell Cellular Netw orks and Space Sector Semiconductor Products Sector Corporate Research Cellular Infrastructure Group, GSM Smart M OS 3A Process Transfer Team Joe Heck Products Division softw are organization, Toulouse, France and Tempe, Ariz. Land M obile Products Sector Clinton Kuo Base Station Systems, Operation and Semiconductor Products Sector M aintenance Center and the Iridium Earth The Dan Noble Fellow is the highest M ike Sasuta Terrestrial Controller Communications honorary aw ard that can be made to a Land M obile Products Sector M arc Chason Subsystem technologist within M otorola. It recognizes Automotive, Component, Computer outstanding technical creativity, innova- Bary Bertiger and Energy Sector Land M obile Products Sector tive ability and productive achievements. Cellular Netw orks and Space Sector iDEN Technology Division It is named for Dan Noble, a visionary Reuven M eidan Schaumburg, Ill. technological pioneer, former Vice Jim Long Cellular Infrastructure Group Chairman of M otorola and Chairman Cellular Netw orks and Space Sector M otorola Israel Worldw ide Sourcing/ M aterials of its Science Advisory Board. M anagement Organizations 2 4 M O T O RO LA


  • Page 27

    Stockholder Reference Information Transfer Agent, Harris Trust and Savings Bank Registrar, Dividend Corporate Trust Operations Division Disbursing Agent P.O. Box 755 and Dividend 311 West M onroe Street Reinvestment Agent 14th Floor Chicago, IL 60690 USA (312) 461-2339 (800) 704-4098 Investor Relations Security analysts, investment Investor Relations, M otorola, Inc. Or call: (800) 262-8509 professionals and shareholders Corporate Offices Internet address: should direct their business-related 1303 East Algonquin Road w w w.motorola.com/ investor inquiries to: Schaumburg, IL 60196 USA Common Stock M otorola common stock is listed on the New York, Chicago, London and Tokyo Stock Exchanges. Annual M eeting The annual meeting w ill be held on stockholders on or about M arch 23, of Stockholders M ay 4, 1998. A notice of the meeting, 1998, at w hich time proxies w ill be together w ith a form of proxy and a solicited by the Board of Directors. proxy statement, w ill be mailed to Proxy Statement A copy of the Proxy Statement may be The statement is available on the obtained without charge. Contact the Internet at www.motorola.com/ investor. Investor Relations Dept. as listed above. Form 10-K After the close of each fiscal year, tional information concerning its busi- The form 10-K is available on the M otorola submits a report on Form ness. A copy of this report may also be Internet at www.motorola.com/ investor. 10-K to the Securities and Exchange obtained w ithout charge from Investor Commission containing certain addi- Relations. Auditors KPM G Peat M arw ick LLP 303 East Wacker Drive Chicago, IL 60601 USA Business Risks Statements w hich are not historical facts, the forw ard-looking statements. Factors that risks and uncertainties; the ability of M otorola including statements about economic condi- could cause results to differ include, but are to recruit and retain highly skilled employees tions in Asia, investment strategies, uses for not limited to, the outcome of various efforts in a competitive market; steady grow th in digital communications systems, telephone to stabilize economic conditions in Asia; the emerging markets; the success of actions technology advances, the use of silicon in potential that w eak economic conditions in taken to improve performance; and the factors w ireless technology and grow th in emerging Southeast Asia could spread to countries described in the Company’s Securities and markets are forw ard-looking and involve risks w here M otorola does sizable business, includ- Exchange Commission filings, including the and uncertainties. Such risks and uncertain- ing China and Japan; pricing pressures or a 1998 Proxy Statement appendix and Form 10-K ties could (and in some cases have) caused change in demand for products; product tech- for the year ended 1997. M otorola’s results to differ from those in nology development and commercialization IRIDIUM ® is a registered trademark and service mark of Iridium LLC. MacOS ® is a registered trademark of Apple Computer Inc. PowerPC, the PowerPC logo and PowerPC 750 are trademarks of This entire report has been printed on recycled paper. International Business Machines Corp. and are used under license therefrom.


  • Page 28

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


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