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    MANAGING CHANGE POSITIONING FOR THE FUTURE 1998 Summary Annual Report


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    MOTOROLA is a global leader in providing integrated communications solutions and embedded electronic solutions. These include: • Software-enhanced wireless • Embedded semiconductor solutions telephone, two-way radio, messag- for customers in the consumer, net- ing and satellite communications working and computing, transportation, products and systems, as well as and wireless communications markets. networking and Internet-access • Embedded electronic systems for products, for consumers, network automotive, communications, imaging, operators, and commercial, govern- manufacturing systems, computer ment and industrial customers. and consumer markets. CON T E N TS To Our Stockholders and Other Friends 2 Managing Change – Positioning for the Future 4 Motorola at a Glance 14 Condensed Consolidated Financial Statements 16 Condensed Notes to Consolidated Financial Statements 20 Five-Year Financial Summary 23 Board of Directors of Motorola, Inc. 24 Stockholder Reference Information Inside Back Cover


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    FINANCIAL HIGHLIGHTS (Dollars in millions, except as noted) Motorola, Inc. and Subsidiaries Years ended December 31 1998 1 1997 2 Net sales $29,398 $29,794 Earnings (loss) before income taxes (1,374) 1,816 % to sales ÷(4.7)«% 6.1% Net earnings (loss) (962) 1,180 % to sales ÷(3.3)«% 4.0% Diluted earnings (loss) per common share (in dollars) (1.61) 1.94 Research and development expenditures 2,893 2,748 Capital expenditures 3,221 2,874 Working capital 2,091 4,181 Current ratio 1.18 1.46 Return on average invested capital ÷(6.2)«% 8.4% Return on average stockholders’ equity (7.6)«% 9.4% % of net debt to net debt plus equity ÷26.8% 12.4% Book value per common share (in dollars) 20.33 22.21 Year-end employment (in thousands) ÷133 150 1The loss before income taxes, net loss and diluted loss per common share include special charges of $1.9 billion pre-tax, or $2.19 per share after-tax, resulting primarily from manufacturing consolidation, cost reduction and restructuring programs. 2Earnings before income taxes, net earnings and diluted earnings per common share include special charges of $306 million pre-tax, or 32 cents per share after-tax, resulting primarily from restructuring decisions to exit several unprofitable businesses. NET SALES EARNINGS (LOSS) DILUTED EARNINGS R E T U R N O N AV E R A G E B E F O R E I N C O M E TA X E S (LOSS) PER SHARE I N V E S T E D C A P I TA L (In billions) (In millions) (In dollars) (In percentages) 32 4200 6 21 24 2800 4 14 16 1400 2 7 8 0 0 0 0 -1400 -2 -7 94 95 96 97 98 94 95 96 97 2 98 1 94 95 96 97 2 98 1 94 95 96 97 98 1


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    TO OUR STOCKHOLDERS AND OTHER FRIENDS hen we began 1998, we had established plans customer solutions. We believe the measures we have W to continue our progress from 1997 in upgrading Motorola’s delivery of digital products and net- works, refining the company’s portfolio of businesses and taken can restore Motorola as a premier investment. As we liberate the power of technology, we seek to bring prosperity to customers, stockholders and partners, and improving its overall profitability. Regrettably, the impact to improve the lives of consumers. of the Asian currency crisis on our pricing and resulting lack of profitability moved us from a year of planned changes to FINANCIAL RESULTS Sales in 1998 were $29.4 bil- the need to engage a major global corporation turnaround. lion, down 1% from $29.8 billion in 1997. The decline is As its leadership, we took dramatic and decisive action in attributable to lost sales from various non-strategic and order to regain our credibility with our customers and our poorly performing businesses that we decided to exit. The shareholders. Motorola now has new organization struc- full-year loss, including special charges, was $962 million, tures that serve markets with solutions, new leadership, or $1.61 per share, compared with earnings of $1.18 billion, new strategy, new culture and a relentless focus on per- or $1.94 per share, in 1997. The 1998 loss includes special formance excellence, which has been welcomed by our charges of $1.9 billion pre-tax, or $2.19 per share after-tax, customers, consumers and the investing public. resulting primarily from manufacturing consolidation, cost In the summer, we announced comprehensive manufactur- reduction and restructuring programs. The 1997 earnings ing consolidation, cost reduction and restructuring programs. also include special charges against pre-tax earnings of We realigned our communications businesses into a single $306 million, or 32 cents a share after tax, resulting prima- market-focused entity, the Communications Enterprise, to rily from restructuring decisions to exit several unprofitable provide our customers with integrated communications solu- businesses that no longer had strategic value to the company. tions. We continued the renewal of businesses that provide Detailed results appear in the 1999 Proxy Statement, as embedded electronic solutions – the Semiconductor Products well as on the Internet at www.motorola.com/investor. Sector and the Integrated Electronic Systems Sector. The renewal programs announced in June generated By the end of the year, we enhanced our portfolio more than $300 million of continuing profit improvement in of digital cellular telephones and improved the network the second half of 1998. We now think the programs may stability of our cellular infrastructure system offerings. We achieve an annualized rate of $1 billion of profit improvement continue to make timely progress on creating integrated by mid-1999, well above the original goal of $750 million. 2


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    Christopher B. Galvin Robert L. Growney Chief Executive Officer President and Chief Operating Officer MANAGEMENT TRANSITION In February 1999, time, underlying demand remains strong for wireless Motorola’s Board of Directors elected Chris Galvin chairman communications and is beginning to improve in embedded of the Board, effective June 1, 1999, in addition to his solutions. Motorola’s transition to a leaner, more respon- responsibilities as chief executive officer. Gary L. Tooker, sive consumer-, customer- and market-focused organization the present chairman, reconfirmed his intention to retire at is designed to return the corporation to substantially improved age 60. He will serve as vice chairman of the Board from profitability and sales growth. We expect continued market June 1 through the end of 1999, to assist with the chairman’s share gains from our new and expanding portfolio of digital transition issues. Gary will retire as an officer and employee cellular telephones. Motorola is focused on performance of the company at the end of 1999 and remain as a member of improvement and continuing change management, which the Board of Directors. Bob Growney will continue as presi- is intended to please our customers, consumers and dent and chief operating officer. Gary has served Motorola stockholders worldwide. with an extraordinary work ethic and loyalty over the last 37 years. We appreciate his many leadership contributions, especially in building our semiconductor business and Christopher B. Galvin advancing Motorola’s position as a global corporation. Chief Executive Officer THE FUTURE Factors beyond our control, such as eco- nomic uncertainty in parts of Asia and Latin America, may Robert L. Growney continue to affect our worldwide businesses. At the same President and Chief Operating Officer 3


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    MANAGING CHANGE POSITIONING FOR THE FUTURE n the 1980s, Motorola recognized the potential of wireless new Motorola is that we recognize that we alone cannot I communications for emerging economies and invested heavily in Asia. These investments paid off handsomely in the early 1990s. provide those solutions. An increasing number of our cus- tomers have told us that in order to stay competitive, they need to see both competition and – at the same time – As a result of our strong Asian presence, we were also more cooperation among their suppliers and partners. among the first to feel the impact of the financial crisis and Today’s customers are wary of getting trapped in an inflexi- recession in the region. That impact became more obvious ble relationship or a singular technology roadmap. This at other global corporations later in 1998. While Motorola signals a fundamental shift in how leaders must view their remains confident of the long-term growth potential of Asia, businesses. While in the past, companies defined their suc- we have responded quickly to a rapidly changing global cess around controlling their value chains, the future will marketplace by stepping up our comprehensive renewal go to those who view their business world as an ecosys- programs, based on four key objectives: tem: a business community that thrives or dies by virtue of the overall health of its participants. You will continue to GLOBAL LEADERSHIP IN CORE BUSINESSES see Motorola entering into new and innovative partnerships Our primary objective is attaining global leadership in and aligning with best-of-breed providers in multiple indus- our core businesses. As we have heard from many of our tries, often with competitors. As a market maker, our success customers, Motorola’s decentralized business structure depends on the success of an entire market – our partners was not conducive to delivering optimal solutions to our and the industry-at-large – not just our own well-being. customers. The “new” Motorola is, first and foremost, customer-focused and driven. We have responded to our PLATFORMS FOR FUTURE LEADERSHIP A third customers by realigning our business groups to ensure a objective is developing new platforms for future global superior customer experience. We have shifted our product leadership. The days of building closed, turnkey architec- development philosophy to a market-focused delivery of tures are gone. Looking forward, our platform objective is products. We have strengthened our marketing efforts to to generate architectural leverage. Successful market makers enhance brand equity. will need to build open, extensible frameworks upon which other companies can build and add value. We will do this TOTAL SOLUTIONS THROUGH PARTNERSHIPS by creating superior integration components. A second objective is to proceed up the value chain to pro- vide total solutions. One of the biggest differences in the 4


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    70 % U N I T G R O W T H R AT E O F D I G I TA L C E L L U L A R P H O N E S compared to 1997 With a focus on strengthening its position in core businesses, Motorola introduced a broad array of digital products in 1998. The dual- band V3620 wireless telephone, left, weigh- ing 2.7 ounces, is the smallest and lightest in the industry. The iDEN® system combines dispatch with paging and telephone inter- connectivity for Nextel and other customers. Our new portfolio of digital cellular products helped us achieve a unit growth rate of almost 70% over 1997. Committed to performance excellence, Motorola’s pursuit of quality is directed toward delighting the customer. PERFORMANCE EXCELLENCE Our final business potential of 15% or more over the long term. The goal is objective is performance excellence. Our initiatives to to provide an average return on assets of 13% to 15% per improve quality and reduce cycle time have taken on year, equivalent to a 16% to 18% return on equity. And we renewed urgency, both in terms of the manufacturing process intend to do it with a strong balance sheet. This gives us and the cycles of creating new products and bringing them operational and financial flexibility. Motorola is not simply to market. Today, we are broadening and integrating the relying on revenue growth to recover its profitability. Our SM pursuit of quality. The Six Sigma quality process provided manufacturing consolidation, cost reduction and restructur- the foundation for much of the progress we achieved over ing programs are also an important part of our effort to the past decade. It remains a fundamental initiative in our restore our financial performance and increase shareholder corporation and is being adopted by other fine corporations. value. The market-focused business entities described on We are now also applying the concepts to the realm of the following pages are committed to providing the inte- consumer preference – of delighting the customer. grated solutions that our customers need. We have a clear set of financial objectives. We want to consistently achieve attractive MOTOROLA financial returns by selecting and investing Motorola’s new organiza- in a forward-looking business tion focuses on integrated communications solutions portfolio that provides self- Integrated and embedded electronic Communications Semiconductor Electronic funding revenue growth Enterprise Products Sector solutions. Additional Systems Sector information is on page 14. 5


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    FROM PRODUCT-BASED I N T E G R AT E D BUSINESSES TO C O M M U N I C AT I O N S SOLUTIONS otorola has realigned its communications businesses interconnect for Nextel and other customers. We invented M into a single entity, the Communications Enterprise, to focus on the customer. About 70% of our 1998 sales came from communications. Our challenge is to be digital voice and two-way pagers, and we were the first company to move police systems from analog to digital. To build on our strengths, we knew that we needed to a leader in the fastest-growing segments of the industry. improve relationships with integrated network operators, When we started working on the new structure, we sharpen our consumer and brand knowledge, and form asked our key customers what they wanted from Motorola. alliances to widen our leadership. We also needed more The answer was loud and clear: integrated communications cost-competitive products. solutions. We weren’t organized that way. We had busi- Our new organization focuses on three key customer nesses based on products – cellular phones, pagers and categories: consumers, telecom network operators, and two-way radios. But those markets are overlapping, and we commercial, government and industrial users. brought our businesses together to provide integrated solu- tions to these markets. Global satellite communications SOLUTIONS FOR THE CONSUMER We address have become a reality, and wireless and wireline markets the consumer arena through our Personal Communications are converging. We have seen the integration of voice, data Sector (PCS), which includes cellular phones, pagers and and Internet access. New distribution channels are evolving. consumer two-way radios. PCS delivers integrated solutions This is a new world of convergence, of total solutions and that enable consumers to take their world with them, services. The focus is on productivity and connectivity. fulfilling the promise that they can carry voice or data com- We serve this marketplace from a position of strength. munications anywhere they go, anytime they want. Our global presence in sales, manufacturing and servicing In cellular, we expect the installed base of wireless gives us the ability to create future markets. users to reach between 415 and 430 million at year-end Even before the introduction of our latest line of digital 1999, up from approximately 300 million at the end of 1998. wireless products, we were a leader in digital technology. And we see a billion subscribers worldwide in the year 2004. We contributed core intellectual property to the develop- We are repositioning our paging business so that it ment of GSM (Global System for Mobile Communications). can make a solid profit contribution even at slower industry We were the first to deploy a constellation of low-earth- growth rates. The use of pagers among teens and young orbit satellites using packet-switched TDMA (Time Division adults continues to grow. There is substantial opportunity Multiple Access). The most comprehensive TDMA digital for advanced messaging applications that apply Internet- technology today is found in our iDEN® communication based interconnectivity to paging services. We’ve seen systems that combine dispatch with paging and telephone intense interest in new services such as sports, financial 6


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    50 x FACTOR BY WHICH E-MAIL MESSAGES WILL INCREASE by the year 2005 Personal networking is a shared vision across all the businesses in the Communications Enterprise. We are provid- ing the tools that enable people to remain connected to their personal network of friends and family, as well as business col- leagues and information, wherever they go. Advanced messaging devices such as the PageWriter™ 2000X apply Internet-based interconnectivity to paging service. markets and weather. We will apply our competence in personal communications needs are exploding. In the United advanced messaging to other product areas as well, such States alone, we see a future where annual e-mail mes- as smart cellular phones. Another area of potential growth sages will increase by a factor of 50 by the year 2005. is the linking of machines and other devices in industries We participate in the Wireless Application Protocol Forum, ranging from automobiles to home automation. an alliance of the three largest wireless equipment manufac- Demand for consumer and retail business radio products turers, whose charter is to create a global wireless specifi- is also growing rapidly. Our vision is to embed the utility cation that works across different network technology types. of wireless two-way communications in every consumer Our acquisition of Starfish Software and investment lifestyle. Target markets include families and outdoors and in Symbian are part of an effort to make software widely sports enthusiasts. As consumers embraced this vision, available to connect wireless devices to desktop computers sales of our TalkAbout radios more than doubled in 1998. ® and corporate networks. Our new suite of software and The Motorola Wings™ PERSONAL NETWORKING global consumer adver- To address the shift to tising campaign shows Internet-based communica- how our products give consumers the freedom tions, we’ve combined to “take their world resources from several busi- with them.” ness units to form our Internet and Networking Group. Both business and 7


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    Motorola is rapidly becoming the a global series of high-performance two-way radios that acknowledged industry leader in digital, are tailored to user needs and regulatory requirements global, satellite-based communica- in different regional markets. tions systems and networks. FLEXIBILITY FOR MAXIMUM GROWTH The Motorola has been designated as the intended prime Communications Enterprise gives us the flexibility to rede- contractor for Teledesic, which plans to offer fixed service ploy investment to the businesses with the highest growth with multimedia capabilities, including data, video and potential. Since July, when the Enterprise was announced, voice, to every point on earth. we have reassigned more than 600 engineers to digital The Iridium® system achieved commercial availability in cellular projects, moving them from projects that provided November. Motorola will continue to play a significant role lower growth potential. in Iridium’s future. In addition to the completed contract to We expect the market for telecom equipment to grow build and deploy the space system, we have a five-year, from $218 billion today to $328 billion by 2002. The seg- $2.8 billion contract for operation and maintenance of the ments of the market where Motorola participates represent Iridium system. some $70 billion in industry sales today, or about a third of the total market. While we intend to remain strong in the SOLUTIONS FOR COMMERCIAL, GOVERNMENT wireless access and infrastructure market, our challenge AND INDUSTRIAL CUSTOMERS Customers in the is to expand into higher- commercial, government and industrial communications growth and higher- Motorola’s personal networking vision is systems arena are increasingly looking for a single supplier value-added segments brought to life through to provide complete solutions, which include services as of tomorrow’s market. synchronization prod- well as equipment, and to integrate and operate their commu- ucts acquired in the purchase of Starfish nications and operational information systems. Software. Reflecting the trend toward broader solutions, Motorola was awarded a contract from the United States Navy to design and develop, as well as provide systems integration, concept testing and training, for a new digital, software programmable radio. It is designed to route voice, data and video across a wide variety of wireline and wireless paths. TM Motorola unveiled its M-Smart family of platforms for smart card products, which provides an unparalleled range of flexibility, functionality and security to the smart card industry. Motorola announced the Professional radio, 8


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    The analog-to-digital migration is a growth driver in our two-way radio business. The XTS™ 3000R radio, right, operates on digital systems based on the APCO Project 25 stan- dard for public safety markets. In Europe, TETRA (Terrestrial Trunked Radio) is the new digital trunking standard, and we continue to win awards including recent contracts in several countries. The handset below is for use on the world’s first public national TETRA network operated by Dolphin Telecommunications Ltd. #1 GLOBAL SUPPLIER O F T W O - W AY R A D I O S services will allow all of our wireless devices to synchronize systems to packet-based peer-to-peer systems. The Internet seamlessly between themselves and the Internet and Protocol (IP) is ideally suited for this. corporate intranets. Imagine all your personal information – In early 1999, NSS announced plans for a strategic phone books, calendars, to-do lists – up to date, synchronized alliance with Cisco Systems, Inc. to deliver the world’s first and available on all your information devices. all-IP platform for the wireless industry. The goal of the alliance is to unite different standards for wireless services SOLUTIONS FOR NETWORK OPERATORS We throughout the world and to introduce an open, Internet- address the needs of network operators through several based platform for integrated data, voice and video business units, including our Network Solutions Sector services over cellular networks. (NSS), Satellite Communications Group and Global Telecom We are working to improve our relationships with major Solutions Group. telecom operators around the world through our Global In cellular technology, Motorola has contracts for more Telecom Solutions Group. The group seeks to develop a than 90 GSM systems worldwide, and contracts for CDMA comprehensive understanding of each network operator’s networks in 16 countries. In early 1999, NSS signed an business model, issues and challenges. agreement with Alcatel for the joint development, market- ing and delivery of complete CDMA network solutions, GLOBAL COMMUNICATIONS We also see exciting as well as cooperative development for third-generation opportunities in satellite communications. Our position as systems based on circuit switching. an integrator of terrestrial and satellite communications The emergence of higher-speed data applications is shift- systems is unique. ing the transport media from circuit switched hierarchical 9


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    EMBEDDED ELECTRONIC SOLUTIONS e are entering an age where electronics will be in includes the implementation of Java software. The port of TM W nearly every product we touch and use. Motorola is delivering embedded solutions to the world’s leading manufacturers of those consumer and industrial the popular programming language to M•CORE enables customers to deliver devices requiring the power, portability, scalability and flexibility of Java software in a reduced products. No other company offers such a broad portfolio, memory environment. from chips to systems-on-a-chip, from electronic compo- Other new M•CORE products include the M200 family TM nents and modules to fully integrated systems. As our for digital cameras, cellular phones and pagers, and the TM DigitalDNA brand suggests, Motorola works hand-in-hand M300 processor family for mathematically intensive applica- with customers that embed our best ideas and technology tions such as portable games, digital versatile disc players, into their products, so they can create the leading-edge, camcorders and engine controls. An M•CORE-based global intuitive, easy-to-use products that make everyday life bet- positioning satellite (GPS) chipset is accelerating develop- ter. Motorola’s intimate understanding of our customers’ ment of next-generation navigation and tracking devices needs and our ability to deliver solutions has been rewarded for automotive and wireless communication applications. by the industry. Today, approximately 30% of Motorola’s The PowerPC® architecture currently is being used sales come from the two sectors operating in this arena: in more than 1,000 designs for networking, telecommu- the Semiconductor Products Sector (SPS) and the Integrated nications, consumer, automotive and industrial control Electronic Systems Sector (IESS). embedded applications. New chips operating at speeds of up to 400 MHz (megahertz) and at 1.9 volts make the SEMICONDUCTOR PRODUCTS SECTOR SPS PowerPC architecture ideal for a new range of mobile began the first phase of its restructuring in 1997, when it and desktop applications. A new software supplement realigned itself from a product-driven business to a market- to the Microsoft® Platform Builder allows developers to based organization focused on embedded customer solutions. more quickly produce Windows CE® products based on In 1998, SPS entered the second phase of its restructuring, software and using PowerPC processors. focusing its investments on high-growth, high-potential Motorola continues to be the No. 1 global supplier of markets such as wireless communications, transportation automotive semiconductors. In a venture with Volvo Car TM and Internet networking. Corp., SPS plans to develop next-generation platforms to SPS has built the most seamless portfolio of embed- reduce wiring content by up to 50%. Motorola and AMP ded core technologies in the semiconductor industry. Inc. plan to begin a joint center for the development of The M•CORE family of low-power, low-cost processors TM automotive mechatronics (intelligent connection) devices. 10


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    #1 GLOBAL PRODUCER OF EMBEDDED PROCESSORS Motorola offers the industry’s widest spec- trum of embedded microprocessors and microcontrollers. SPS shipped its three- millionth DragonBall™ high-performance processor that powers the connected organ- izer from Palm Computing, Inc., a 3Com company. Motorola was cited as “best in class” for each of 15 key supplier attributes in a survey of its embedded marketplace sponsored by Electronic Engineering Times magazine. Motorola’s Streamaster brand of highly advanced TM wireless devices for surfing the Web, cellular phones consumer multimedia technology is an open, extensible with video capability and devices that recognize speech. interactive entertainment architecture. It combines the key In partnership with Advanced Micro Devices, Inc., SPS functions of a broadband router, a network computer and plans to cross-license patents and to jointly develop com- a digital home theater platform. mon process technology platforms for microprocessors and As the world’s No. 1 producer of embedded processors, embedded flash memory featuring copper interconnects. SPS also achieved a milestone in 1998 with the shipment of As part of Motorola’s licensing agreement with Sun the 30-millionth unit of an integrated multi-protocol micro- Microsystems, Inc. to use and distrib- processor used in networking and telecom products. ute the full family of Java software TM SPS is increasingly seeking out external compe- technologies, SPS is seizing the oppor- tencies through a range of partnering, joint ventures tunity to incorporate Java technology and direct investments. With Lucent Technologies, across its silicon systems. it is developing next-generation digital signal processors, or DSPs, at the new Star*Core The Motorola i1000™ inte- grated digital handset is Design Center in Atlanta, and cross-licensing the first product based existing DSP architectures. The advanced on the low-power, high- performance M-CORE™ DSP cores are designed to enable manufactur- architecture, part of ers to develop products such as hand-held Motorola’s portfolio of embedded core semi- conductor technologies. 11


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    The convergence of communication, naviga- tion, computing and automotive technologies offers an unprecedented flow of information to and from drivers, passengers and vehicles. Motorola is developing telematics systems for more automotive manufacturers than any other company, including the Tele Aid™ system for Mercedes-Benz, which will offer 24-hour roadside assistance, emergency response and other services using wireless communication and global positioning sys- tem technologies. #1 GLOBAL SUPPLIER OF AUTOMOTIVE ELECTRONICS To focus its investments on selected high-growth market. IESS sold its printed circuit board operations, market segments and on the most advanced, cost-effective announced the closing of two plants and signed a defini- facilities for future leadership, the restructured SPS expects tive agreement to sell its quartz and ceramic components to reduce the number of semiconductor products it offers manufacturing business. Its strategy is to focus resources by 50% by the end of 1999. SPS already has pruned 20% on delivering higher-value, integrated electronic systems, of its portfolio, including DRAMs, field-programmable gate using a broad spectrum of technologies required by arrays, opto-couplers and chemical sensors, among others. its customers. In manufacturing, SPS closed several major sites and consol- IESS is a leading provider of electronic components idated manufacturing operations. It will increasingly utilize and systems for customers who integrate them into their foundry manufacturing capacity for less advanced processes own products. These customers are increasingly relying on and products, thereby reducing future capital investment electronics experts to deliver more complete, feature-rich requirements. SPS intends to move from 14% foundry out- system solutions, allowing them to focus more precisely sourcing in 1998 to 30% by 2000 and 50% by 2002. on their consumers and markets. IESS serves a wide market base, including auto- INTEGRATED ELECTRONIC SYSTEMS SECTOR motive, communications, imaging, manufacturing and In 1998, the business formerly known as the Automotive, computing. IESS products are the brains in MRI scanners, Component, Computer and Energy Sector restructured the electronic and communications systems in vehicles, to stay competitive and to sharpen its focus on the the computing power behind navigation systems, the growing opportunities in the embedded electronic systems 12


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    Our expertise in integrated electronic computer boards and systems in the telecommunications, systems – our DigitalDNA™ – combined industrial systems and imaging markets. This refocused with our customers’ knowledge of their business has grown considerably in target markets and products and markets – enables them now leads both the CompactPCI® and VME segments. In to develop leading-edge solutions. 1998, MCG introduced and shipped the most products in its history. Those products have been well received by cus- energy systems that enable portable computers and tomers, and resulted in significant new business with such mobile phones, and the power management of fluores- customers as Northern Telecom, Ericsson, FORE Systems, cent lighting. ABB Robotics and Converse. MCG’s CompactPCI 8000 product line was named Product of the Year by Computer AUTOMOTIVE SYSTEMS BUSINESS Motorola Telephony . The top 100 board and subassembly products is the world’s largest independent automotive electronics selected by The Electronics Industry Yearbook included supplier. Our customers include most of the world’s leading 42 of MCG’s products. automotive companies. This is Motorola’s oldest market. The Energy Systems Group (ESG) offers complete Our knowledge of the customers’ needs and our ability to energy systems solutions for portable electronics manu- design and manufacture electronics for the harsh automo- facturers. ESG was the first to apply both nickel-metal tive environment have resulted in steady growth. Motorola hydride and lithium ion technology in the communications Lighting, which manufactures fluorescent electronic ballasts, industry. It has expanded its focus to now include serving joined forces with the automotive business to drive an expan- the portable computer market, and in 1998 introduced sion of our presence in the industrial electronics market. the world’s first 11-hour battery pack for the Micron Motorola created a new business organization in 1998, GoBook laptop computer. TM the Telematics Communications Group (TCG), to consolidate company-wide efforts in the emerging automotive commu- nications market. We are developing telematics systems for more automotive manufacturers than any other company, including systems for Ford, General Motors, Mercedes- Modules from the Motorola Computer Benz, BMW, Nissan and Renault. For drivers and passen- Group link ground gers, these new systems mean access to the services they control centers and want – security, roadside assistance, information, enter- gateways to the satel- lite constellation for tainment and convenience. the Iridium® system. COMPUTER SYSTEMS BUSINESS The Motorola Computer Group (MCG) exited the commercial desktop busi- ness in 1997 to focus on the growing market for embedded 13


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    MOTOROLA AT A GLANCE 1998 Net Sales by COMMUNICATIONS ENTERPRISE Business Segment The Communications Enterprise (CE) aligns all of Motorola’s communications businesses into an actively (In percentages) managed and coordinated unit to provide integrated communications solutions to a variety of customers and consumers around the world. The CE is made up of seven major business units and comprises about 70% of Motorola’s global business. Merle L. Gilmore Commercial, Government and Personal Executive Vice President, Industrial Solutions Sector Communications Sector President, Communications Organization: Organization: Enterprise Global Marketing & Sales Group Americas Group Cellular Products 42% Global Technology Development Group Asia Pacific Group Semiconductor Smartcard Solutions Consumer Solutions Group Products 19% Supply Chain Operations Group Europe, Middle East and Africa Group Land Mobile Systems Solutions Group Personal Networks Group Products 18% Technology and Messaging, Information Network Solutions Sector Product Realization Group and Media Products 9% Organization: Other Products 12% Customer Solutions Group Global Telecom Solutions Group Network Systems Group Internet and Networking Group Network Management Group Satellite Communications Group SEMICONDUCTOR PRODUCTS SECTOR As the world’s No. 1 producer of embedded processors, the Semiconductor Products Sector (SPS) offers multiple DigitalDNA™ embedded solutions that enable customers in the consumer, networking and computing, transportation 1998 Market Sales by Region and wireless communications markets to create new business opportunities. In addition, SPS provides high-volume and unique discrete, analog and digital semiconductors that are used in virtually every type of electronic equipment. (In percentages) Hector de J. Ruiz Organization: Executive Vice President, Imaging and Entertainment Solutions President, Semiconductor Networking and Computing Products Sector Systems Group Semiconductor Components Group Transportation Systems Group Wireless Subscriber Systems Group United States 41% Europe 21% INTEGRATED ELECTRONIC SYSTEMS SECTOR China 10% The Integrated Electronic Systems Sector (IESS) designs and manufactures a broad range of electronic components, Asia-Pacific 7% Latin America 8% modules and integrated electronic systems and products for automotive, industrial, transportation, navigation, Japan 7% communication, energy systems, consumer and lighting markets. Other Markets 6% Joseph M. Guglielmi Organization: Executive Vice President, Automotive and Industrial President, Integrated Electronic Electronics Group Systems Sector Energy Systems Group Flat Panel Display Division Motorola Computer Group Telematics Communications Group 14


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    MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL STATEMENTS Motorola, Inc. and Subsidiaries Management is responsible for the preparation, integrity and objectivity of the consideration of the Company’s internal controls to establish a basis the consolidated financial statements and other financial information pre- for reliance thereon in determining the nature, timing and extent of audit sented in this report. The accompanying consolidated financial statements tests to be applied. were prepared in accordance with generally accepted accounting princi- The Board of Directors exercises its responsibility for these financial ples, applying certain estimates and judgments as required. statements through its Audit and Legal Committee, which consists Motorola’s internal controls are designed to provide reasonable assur- entirely of independent non-management Board members. The Audit ance as to the integrity and reliability of the financial statements and to and Legal Committee meets periodically with the independent auditors adequately safeguard, verify and maintain accountability of assets. Such and with the Company’s internal auditors, both privately and with man- controls are based on established written policies and procedures, are agement present, to review accounting, auditing, internal controls and implemented by trained, skilled personnel with an appropriate segregation 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 LLP, independent auditors, are retained to audit Motorola’s finan- Chief Executive Officer Executive Vice President cial statements. Their accompanying report is based on audits conducted and Chief Financial Officer in accordance with generally accepted auditing standards, which include INDEPENDENT AUDITORS’ REPORT The Board of Directors and Stockholders In our opinion, the information set forth in the accompanying condensed Motorola, Inc.: consolidated financial statements is fairly presented, in all material We have audited, in accordance with generally accepted auditing standards, respects, in relation to the consolidated financial statements from which the consolidated balance sheets of Motorola, Inc. and subsidiaries as of it has been derived. December 31, 1998 and 1997, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 1998, appearing in the appendix to the proxy statement for the 1999 Annual Meeting of Stockholders of the Corporation (not presented herein); and in our report dated January 13, KPMG LLP 1999, also appearing in that proxy statement appendix, we expressed an Chicago, Illinois unqualified opinion on those consolidated financial statements. February 22, 1999 15


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    CONSOLIDATED STATEMENTS OF OPERATIONS (In millions, except per share amounts) Motorola, Inc. and Subsidiaries Years ended December 31 199 8 1997 1996 Net sales $29,398 $29,794 $27,973 Costs and expenses Manufacturing and other costs of sales 20,886 20,003 18,990 Selling, general and administrative expenses 5,493 5,188 4,715 Restructuring and other charges 1,980 327 – Depreciation expense 2,197 2,329 2,308 Interest expense, net 216 131 185 Total costs and expenses 30,772 27,978 26,198 Earnings (loss) before income taxes (1,374) 1,816 1,775 Income tax provision (benefit) (412) 636 621 Net earnings (loss) $÷÷(962) $««1,180 $««1,154 Basic earnings (loss) per common share $÷«(1.61) $««««1.98 $««««1.95 Diluted earnings (loss) per common share $÷«(1.61) $««««1.94 $««««1.90 Diluted weighted average common shares outstanding 598.6 612.2 609.0 See accompanying condensed notes to consolidated financial statements. 16


  • Page 19

    CONSOLIDATED BALANCE SHEETS (In millions, except per share amounts) Motorola, Inc. and Subsidiaries December 31 199 8 1997 Assets Current assets Cash and cash equivalents $÷1,453 $÷1,445 Short-term investments 171 335 Accounts receivable, net 5,057 4,847 Inventories 3,745 4,096 Deferred income taxes 2,362 1,726 Other current assets 743 787 Total current assets 13,531 13,236 Property, plant and equipment, net 10,049 9,856 Other assets 5,148 4,186 Total assets $28,728 $27,278 Liabilities and Stockholders’ Equity Current liabilities Notes payable and current portion of long-term debt $÷2,909 $÷1,282 Accounts payable 2,305 2,297 Accrued liabilities 6,226 5,476 Total current liabilities 11,440 9,055 Long-term debt 2,633 2,144 Deferred income taxes 1,188 1,522 Other liabilities 1,245 1,285 Stockholders’ equity Preferred stock, $100 par value issuable in series Authorized shares: 0.5 (none issued) – – Common stock, $3 par value Authorized shares: 1998 and 1997, 1,400 Issued and outstanding: 1998, 601.1; 1997, 597.4 1,804 1,793 Additional paid-in capital 1,894 1,720 Retained earnings 8,254 9,504 Non-owner changes to equity 270 255 Total stockholders’ equity 12,222 13,272 Total liabilities and stockholders’ equity $28,728 $27,278 See accompanying condensed notes to consolidated financial statements. 17


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    CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In millions, except per share amounts) Motorola, Inc. and Subsidiaries Non-owner Changes to Equity Common Fair Value Stock and Adjustment Foreign Minimum Additional to Certain Currency Pension Paid-in Cost-based Translation Liability Retained Comprehensive Capital Investments Adjustments Adjustment Earnings Earnings (Loss) Balances at January 1, 1996 $ 3,261 $÷«÷77 $÷««(81) $÷«÷÷– $ 7,728 Net earnings ÷ ÷ 1,154 1,154 Conversion of zero coupon notes 7 ÷ Fair value adjustment to certain cost-based investments: Reversal of prior period adjustment (77) (77) Recognition of current period unrecognized (loss) ÷ (26) ÷ (26) Change in foreign currency translation adjustments ÷ (40) ÷ (40) Stock options and other 64 Dividends declared ($.46 per share) ÷ (272) Balances at December 31, 1996 $ 3,332 $÷««(26) $÷ (121) $÷÷÷«– $ 8,610 $ 1,011 Net earnings ÷ ÷ 1,180 1,180 Conversion of zero coupon notes ÷7 ÷ Fair value adjustment to certain cost-based investments: Reversal of prior period adjustment 26 26 Recognition of current period unrecognized gain ÷ 533 ÷ 533 Change in foreign currency translation adjustments ÷ (119) ÷ (119) Minimum pension liability adjustment ÷ (38) (38) Stock options and other 174 Dividends declared ($.48 per share) ÷ (286) Balances at December 31, 1997 $ 3,513 $÷«533 $÷ (240) $÷««(38) $ 9,504 $ 1,582 Net loss ÷ ÷ (962) (962) Conversion of zero coupon notes 3 ÷ Fair value adjustment to certain cost-based investments: Reversal of prior period adjustment (533) (533) Recognition of current period unrecognized gain ÷ 476 ÷ 476 Change in foreign currency translation adjustments ÷ 34 ÷ 34 Minimum pension liability adjustment ÷ 38 38 Stock options and other 182 Dividends declared ($.48 per share) ÷ (288) Balances at December 31, 1998 $3,698 $÷«476 $÷(206) $÷«÷÷– $8,254 $÷(947) See accompanying condensed notes to consolidated financial statements. 18


  • Page 21

    CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions) Motorola, Inc. and Subsidiaries Years ended December 31 199 8 1997 1996 Operating Net earnings (loss) $÷«(962) $«1,180 $«1,154 Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Restructuring and other charges 1,980 327 – Depreciation 2,197 2,329 2,308 Deferred income taxes (933) (98)) (162) Amortization of debt discount and issue costs 11 10 8 Gain on disposition of investments in affiliates, net of acquisition charges (146) (116)) (78) Change in assets and liabilities, net of effects of acquisitions and dispositions: Accounts receivable (238) (812) 101 Inventories 254 (880) 308 Other current assets 31 (114) (69) Accounts payable and accrued liabilities (658) 830 398 Other assets and liabilities (515) (60) 220 Net cash provided by operating activities 1,021 2,596 4,188 Investing Acquisitions and advances to affiliates (786) (286) (346) Proceeds from dispositions of investments in affiliates 371 248 121 Capital expenditures (3,221) (2,874) (2,973) Proceeds from dispositions of property, plant and equipment 507 443 282 Sales (purchases) of short-term investments 164 (37) 52 Net cash used for investing activities (2,965) (2,506)) (2,864) Financing Proceeds from (repayment of) commercial paper and short-term borrowings 1,627 (100) (260) Proceeds from issuance of debt 773 312 55 Repayment of debt (293) (102) (37) Issuance of common stock 99 137 7 Payment of dividends (288) (286) (261) Net cash provided by (used for) financing activities 1,918 (39) (496) Effect of exchange rate changes on cash and cash equivalents 34 (119) (40) Net increase (decrease) in cash and cash equivalents $÷÷÷÷8 $÷÷«(68) $««««788 Cash and cash equivalents, beginning of year $«1,445 $«1,513 $÷««725 Cash and cash equivalents, end of year $«1,453 $«1,445 $«1,513 Supplemental Cash Flow Information Cash paid during the year for: Interest $÷÷286 $÷÷211 $÷÷237 Income taxes $÷÷388 $÷÷611 $÷÷506 See accompanying condensed notes to consolidated financial statements. 19


  • Page 22

    CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Motorola, Inc. and Subsidiaries 1. Summary of Significant Accounting Policies uses the U.S. dollar as the functional currency. The effects of translating Consolidation and Investments: The consolidated financial statements the financial position and results of operations of local functional currency include the accounts of Motorola, Inc. and all majority-owned subsidiaries operations into U.S. dollars are included in a separate component of (the Company) in which it has control. The Company’s investments in non- stockholders’ equity. controlled entities in which it has the ability to exercise significant influence over operating and financial policies are accounted for by the equity method. Foreign Currency Transactions: The effects of remeasuring the non- The Company’s investments in other entities are carried at their historical functional currency assets or liabilities into the functional currency as cost. Certain of these cost-based investments are marked-to-market at the well as gains and losses on hedges of existing assets or liabilities are balance sheet date to reflect their fair value with the unrealized gains and marked-to-market, and the result is recorded within selling, general and losses, net of tax, included in a separate component of stockholders’ equity. administrative expenses in the statement of operations. Gains and losses on financial instruments which hedge firm future commitments are deferred Cash Equivalents: The Company considers all highly liquid investments until such time as the underlying transactions are recognized or recorded purchased with an original maturity of three months or less to be cash immediately when the transaction is no longer expected to occur. Foreign equivalents. exchange financial instruments which hedge investments in foreign sub- sidiaries are marked-to-market, and the results are included in stockholders’ Revenue Recognition: The Company uses the percentage-of-completion equity. Other gains or losses on financial instruments which do not qualify method to recognize revenues and costs associated with most long-term as hedges are recognized immediately as income or expense. contracts. For contracts involving certain new technologies, revenues and profits or parts thereof are deferred until technological feasibility is estab- Use of Estimates: The preparation of financial statements in conformity lished, customer acceptance is obtained and other contract-specific factors with generally accepted accounting principles requires management to have been completed. For other product sales, revenue is recognized at the make certain estimates and assumptions that affect the reported amounts time of shipment, and reserves are established for price protection and of assets and liabilities and disclosure of contingent assets and liabilities cooperative marketing programs with distributors. at the date of financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from Inventories: Inventories are valued at the lower of average cost (which those estimates. approximates computation on a first-in, first-out basis) or market (net realizable value or replacement cost). Reclassifications: Certain amounts in prior years’ financial statements and related notes have been reclassified to conform to the 1998 presentation. Property, Plant and Equipment: Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is recorded Recent Accounting Pronouncements: As of January 1, 1998, the Company principally using the declining-balance method, based on the estimated implemented Statement of Financial Accounting Standards (SFAS) No. 130, useful lives of the assets (buildings and building equipment, 5-40 years; “Reporting Comprehensive Income”; SFAS No. 131, “Disclosures about machinery and equipment, 2-12 years). Segments of an Enterprise and Related Information”; and SFAS 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits.” Fair Values of Financial Instruments: The fair values of financial instru- SFAS No. 130, which is solely a financial statement presentation standard, ments are determined based on quoted market prices and market interest requires the Company to disclose non-owner changes included in equity rates as of the end of the reporting period. but not included in net earnings or loss. These changes include the fair value adjustment to certain cost-based investments, the foreign currency Foreign Currency Translation: The Company’s European and Japanese translation adjustments and the minimum pension liability adjustment. operations and certain non-consolidated affiliates use the respective local currencies as the functional currency. For all other operations, the Company 20


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    Motorola, Inc. and Subsidiaries SFAS No. 131 establishes standards for the way public business enter- interim financial statements in the initial year of application. The Company prises report information about operating segments in annual financial has restated the previously reported annual segment operating results statements and in interim financial reports issued to shareholders. The to conform to the Statement’s management approach. Company has restated the previously reported annual segment operating The Company’s operations are predominantly in the wireless communi- results to conform to the Statement’s management approach. cation, semiconductor technology and advanced electronics industries and SFAS No. 132 only modifies the financial statement presentation of the involve the design, manufacture and sale of a diversified line of products. Company’s pension and postretirement benefit obligations and does not The Company’s reportable segments have been determined based on the impact the measurement of such obligations. nature of the products offered to customers, which include, but are not During 1998, the Financial Accounting Standards Board issued SFAS limited to, cellular phones and systems; semiconductors (including discrete No. 133, “Accounting for Derivative Instruments and Hedging Activities,” semiconductors and integrated circuits); two-way radios and personal which will be effective for the Company’s fiscal year 2000. The Company communications equipment and systems; and pagers and data communica- is currently assessing the impact of this new statement but does not tions equipment and systems. Automotive, defense and space electronic expect any material effect on its consolidated financial position, liquidity products are part of the Other Products segment. or results of operations. The accounting policies of the segments are the same as those described in Note 1 Summary of Significant Accounting Policies. Segment operating results are measured based on profit (loss) before tax adjusted, 2. Finance Subsidiary if necessary, for certain segment specific items. Intersegment and inter- The Company’s finance subsidiary purchases customer obligations under geographic sales are accounted for on an arm’s length pricing basis. long-term contracts from the Company. Intersegment sales included in adjustments and eliminations were The finance subsidiary’s interest revenue is included in the Company’s con- $2.8 billion, $3.2 billion and $2.7 billion for the years ended December 31, solidated net sales. Interest expense totaled $37 million in 1998, $13 million 1998, 1997 and 1996, respectively. These sales were primarily from the in 1997 and $14 million in 1996, and is included in manufacturing and other Semiconductor Products segment and the Integrated Electronic Systems costs of sales. In addition, long-term finance receivables of $1.1 billion and Sector (formerly the Automotive, Component, Computer and Energy $353 million at December 31, 1998 and 1997 are included in other assets. Sector) included in the Other Products segment. Intersegment sales from the Semiconductor Products segment were $1.6 billion, $1.8 billion and Summary financial data of consolidated finance subsidiary $1.6 billion for the years ended December 31, 1998, 1997 and 1996, respec- 199 8 1997 1996 tively. For these same periods, intersegment sales from the Integrated Total revenue $«÷«÷72 $«÷«÷29 $«÷«÷36 Electronic Systems Sector were $0.9 billion, $1.0 billion and $0.9 billion, Net earnings ÷21 11 14 respectively. Net sales by geographic region are measured by the location Total assets ÷1,330 457 341 of the revenue-producing operations. Total debt ÷(1,155) (366) (261) Identifiable assets (excluding intersegment receivables) are the Company’s Stockholder’s investments and advances ÷$«÷«175 $«÷«÷91 $«÷«÷80 assets that are identified with classes of similar products or operations in each geographic region. Corporate assets primarily include cash, marketable securi- ties, equity investments and the administrative headquarters of the Company. 3. Information by Segment and Geographic Region In 1998, 1997 and 1996, no single customer or group under common The Company implemented Statement of Financial Accounting Standards control represented 10% or more of the Company’s sales. No. 131, “Disclosures about Segments of an Enterprise and Related In July 1998, the Company’s communications-related businesses were Information,” as of January 1, 1998. This Statement establishes standards realigned into the Communications Enterprise, a structure intended to for the way public business enterprises report information about operating enable integrated solutions and improved responsiveness to the needs segments in annual financial statements and in interim financial reports of distinct customer segments. For this year-end reporting, the Company issued to shareholders. This Statement is not required to be applied to continues to use the previous segments. 21


  • Page 24

    CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Motorola, Inc. and Subsidiaries Segment information Net Sales Operating Profit (Loss) Before Tax Years ended December 31 199 8 1997 1996 199 8 1997 1996 Cellular Products $12,483 $11,934 $10,804 $÷÷482 3.9% $1,283 10.8%% $1,162 10.8% Semiconductor Products ÷7,314 8,003 7,858 ÷(1,225) (16.8)«% 168 2.1% 186 2.4% Land Mobile Products ÷5,397 4,926 4,008 ÷729 13.5% 542 11.0% 452 11.3% Messaging, Information and Media Products ÷2,633 3,793 3,958 ÷(699) (26.5)«% 41 1.1% 46 1.2% Other Products ÷4,385 4,326 4,061 (544) (12.4)«% (85) (2.0)«% 30 0.7% Adjustments and eliminations (2,814) (3,188) (2,716) 14 (0.5)«% (48) 1.5% (29) 1.1% Segment totals $29,398 $29,794 $27,973 ÷(1,243) (4.2)«% 1,901 6.4%% 1,847 6.6% General corporate (131) (85) (72) Earnings (loss) before income taxes $(1,374) (4.7)«% $1,816 6.1% $1,775 6.3% Assets Capital Expenditures Depreciation Expense Years ended December 31 199 8 1997 1996 199 8 1997 1996 199 8 1997 1996 Cellular Products $÷9,282 $««8,021 $««6,314 $«««607 $«««900 $«««673 $«««411 $«««534 $«««474 Semiconductor Products ÷8,232 7,947 7,889 ÷1,783 1,153 1,416 ÷1,178 1,169 1,160 Land Mobile Products ÷2,720 2,538 2,130 ÷270 228 159 ÷183 168 162 Messaging, Information and Media Products ÷2,043 2,391 2,506 ÷97 149 275 ÷164 219 243 Other Products ÷3,111 2,974 2,256 ÷199 178 196 ÷216 191 221 Adjustments and eliminations (420) (458) (262) ÷– – – ÷– – – Segment totals ÷24,968 23,413 20,833 ÷2,956 2,608 2,719 ÷2,152 2,281 2,260 General corporate ÷3,760 3,865 3,243 ÷265 266 254 ÷45 48 48 Consolidated totals $28,728 $27,278 $24,076 $3,221 $2,874 $2,973 $2,197 $2,329 $2,308 Interest Income Interest Expense Net Interest Years ended December 31 199 8 1997 1996 199 8 1997 1996 199 8 1997 1996 Cellular Products $÷7 $««2 $««1 $««90 $««41 $««57 $÷(83) $««(39) $««(56) Semiconductor Products ÷12 12 15 ÷116 71 103 ÷(104) (59) (88) Land Mobile Products ÷2 5 2 ÷20 14 16 ÷(18) (9) (14) Messaging, Information and Media Products 15 18 22 ÷22 28 36 ÷(7) (10) (14) Other Products 5 2 2 ÷21 5 – ÷(16) (3) 2 Segment totals ÷41 39 42 ÷269 159 212 ÷(228) (120) (170) General corporate 44 46 22 ÷32 57 37 ÷12 (11) (15) Consolidated totals $85 $85 $64 $301 $216 $249 $(216) $(131) $(185) Geographic area information Net Sales Assets Years ended December 31 199 8 1997 1996 199 8 1997 1996 United States $20,397 $21,809 $20,614 $14,932 $14,000 $12,797 United Kingdom ÷ ÷5,709 5,254 4,571 ÷2,083 2,098 1,816 Other Nations ÷ ÷12,812 12,778 12,312 ÷8,804 7,966 6,788 Adjustments and eliminations ÷(9,520) (10,047) (9,524) ÷(851) (651) (568) Geographic totals ÷$29,398 $29,794 $27,973 ÷24,968 23,413 20,833 General corporate ÷ ÷ 3,760 3,865 3,243 Consolidated totals $28,728 $27,278 $24,076 22


  • Page 25

    FIVE-YEAR FINANCIAL SUMMARY (Dollars in millions, except as noted) Motorola, Inc. and Subsidiaries Years ended December 31 199 8 1997 1996 1995 1994 Operating Results Net sales $29,398 $29,794 $27,973 $27,037 $22,245 Manufacturing and other costs of sales ÷20,886 20,003 18,990 17,545 13,760 Selling, general and administrative expenses ÷5,493 5,188 4,715 4,642 4,381 Restructuring and other charges ÷1,980 327 – – – Depreciation expense ÷2,197 2,329 2,308 1,919 1,525 Interest expense, net ÷216 131 185 149 142 Total costs and expenses ÷30,772 27,978 26,198 24,255 19,808 Net gain on Nextel asset exchange ÷– – – 443 – Earnings (loss) before income taxes ÷(1,374) 1,816 1,775 3,225 2,437 Income tax provision (benefit) ÷(412) 636 621 1,177 877 Net earnings (loss) $««÷(962) $««1,180 $««1,154 $÷2,048 $÷1,560 Net earnings (loss) as a percent of sales ÷(3.3)«% 4.0% 4.1% 7.6% 7.0% Per Share Data (in dollars) Diluted earnings (loss) per common share $«««(1.61) $««««1.94 $««««1.90 $÷÷3.37 $««««2.66 Diluted weighted average common shares outstanding ÷598.6 612.2 609.0 609.7 591.7 Dividends declared $««0.480 $««0.480 $««0.460 $««0.400 $««0.310 Balance Sheet Total assets $28,728 $27,278 $24,076 $22,738 $17,495 Working capital ÷2,091 4,181 3,324 2,717 3,008 Long-term debt ÷2,633 2,144 1,931 1,949 1,127 Total debt ÷5,542 3,426 3,313 3,554 2,043 Total stockholders’ equity $12,222 $13,272 $11,795 $10,985 $««9,055 Other Data Current ratio ÷1.18 1.46 1.42 1.35 1.51 Return on average invested capital (6.2)«% 8.4% 8.4% 16.7% 17.5% Return on average stockholders’ equity ÷(7.6)«% 9.4% 10.0% 20.2% 21.1% Capital expenditures $««3,221 $««2,874 $««2,973 $÷4,225 $««3,322 % to sales ÷11.0% 9.6% 10.6% 15.6% 14.9% Research and development expenditures $««2,893 $««2,748 $««2,394 $÷2,197 $««1,860 % to sales ÷9.8% 9.2% 8.6% 8.1% 8.4% Year-end employment (in thousands) ÷133 150 139 142 132 23


  • Page 26

    BOARD OF DIRECTORS OF MOTOROLA, INC. Directors John E. Pepper Jr. Gary L. Tooker will step down as Gary L. Tooker Chairman of the Board, chairman of the Board of Directors Chairman of the Board, Procter & Gamble Company Motorola, Inc. on June 1, 1999, and will retire Samuel C. Scott III as an officer and employee of Ronnie C. Chan President and Chairman, Chief Operating Officer, Motorola at the end of the year. Hang Lung Development Group Corn Products International In addition to his leadership as H. Laurance Fuller B. Kenneth West former chief executive officer of Co-Chairman, Senior Consultant for Corporate Motorola, he has been a leader BP Amoco, p.l.c. Governance to Teachers Insurance in the semiconductor industry and and Annuity Association, College Christopher B. Galvin a vigorous champion of liberalization of the global marketplace. Retirement Equities Fund Chief Executive Officer, His distinguished 37-year career at Motorola began in 1962, when he Motorola, Inc. Dr. John A. White Chancellor, joined the Semiconductor Division after graduating from Arizona State Robert W. Galvin University of Arkansas University with a degree in electrical engineering. Since that time, he has Chairman of the Executive Committee held a series of increasingly responsible positions in marketing, product of the Board, Motorola, Inc. and operations management and corporate management. He became vice Robert L. Growney president and general manager of the International Semiconductor Division President and in 1980 and general manager of the Semiconductor Products Sector in Chief Operating Officer, Motorola, Inc. 1981. He moved to corporate headquarters as chief corporate staff officer in 1986 and was elected to the Board of Directors the same year. He was Anne P. Jones Consultant; formerly named chief operating officer in 1988, president in 1990, vice chairman Commissioner of the Federal and chief executive officer in 1993 and chairman in 1996. He will continue Communications Commission as vice chairman of the Board from June 1 until the end of 1999, and will Donald R. Jones remain as a member of the Board after his retirement. Retired; formerly Elmer Wavering, director emeri- During his career, Motorola became one the world’s largest semicon- Chief Financial Officer, Motorola, Inc. tus and a former vice chairman and ductor companies as well as a leader in global wireless communications. chief operating officer of Motorola, Tooker served as chairman of the Board of Directors of the Semiconductor Judy C. Lewent Senior Vice President and died November 20, 1998 at the age Industry Association and American Electronics Association. He envisioned Chief Financial Officer, of 91. He helped develop the first the potential of the global information infrastructure and, as chairman of the Merck & Co., Inc. commercially successful car radio Pacific Basin Economic Council, led efforts to promote free trade and open Dr. Walter E. Massey and the automotive alternator. He markets. He has also been a vigorous proponent of educational reform and President, inspired generations of Motorolans life-long learning and has served as a role model for community service. Morehouse College and will be remembered as a Thomas J. Murrin towering figure in the history of Dean of Duquesne University’s School of Business Administration automotive electronics. Nicholas Negroponte Director of Media Laboratory, Massachusetts Institute of Iridium® is a registered trademark and service mark of Iridium LLC. Technology 3Com and the 3Com logo are registered trademarks. Palm III ™ and the Palm III ™ logo are trademarks of Palm Computing, Inc., 3Com Corporation or its subsidiaries. PowerPC, the PowerPC logo and PowerPC 750 are trademarks of International Business Machines Corp. and are used under license therefrom. JAVA is a registered trademark of Sun Microsystems, Inc. Microsoft and Windows CE are registered trademarks of Microsoft Corp. CompactPCI is a registered trademark of PICMG-PCI Industrial Computer Manufacturers Group, Inc. GoBook is a trademark of Micron Electronics, Inc. Tele Aid is a trademark of Daimler-Benz Aktiengesellschaft. All other trademarks and product names referenced herein belong to Motorola, Inc. or their 24 respective owners.


  • 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 Monroe Street Reinvestment Agent 14th Floor Chicago, IL 60690 USA (312) 461-2339 (800) 704-4098 Investor Relations Security analysts, investment Investor Relations, Motorola, Inc. Or call: (800) 262-8509 professionals and shareholders Corporate Offices Internet address: should direct their business-related 1303 East Algonquin Road www.motorola.com/investor inquiries to: Schaumburg, IL 60196 USA Common Stock Motorola common stock is listed on the New York, Chicago, London and Tokyo Stock Exchanges. Annual Meeting The annual meeting will be held on stockholders on or about March 23, of Stockholders May 3, 1999. A notice of the meeting, 1999, 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 A copy of the Proxy Statement may be The statement is available on the Inter- obtained without charge. Contact the net 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 Motorola 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 without charge from Investor Commission containing certain addi- Relations. Auditors KPMG LLP 303 East Wacker Drive Chicago, IL 60601 USA Business Risks Statements that are not historical facts, and foundry outsourcing plans are forward- pricing pressure on Motorola’s products, partic- including statements about the impact of looking and involve risks and uncertainties. ularly wireless communications products and Motorola’s renewal programs on profitability, Motorola wishes to caution the reader that semiconductors; continued recovery from the the impact of economic uncertainty in parts the factors below and those in Motorola’s worldwide semiconductor industry recession; of Asia and Latin America, market share for 1999 Proxy Statement appendix and its other product technology development and commer- digital cellular telephones, the success of SEC filings could cause Motorola’s results to cialization risks; Motorola’s success in partnering business and financial objectives and their differ materially from those in the forward- with other industry leaders to meet customer impact on future performance, projected num- looking statements. These factors include: product and service requirements; Motorola’s ber of wireless phone users, the future of the Motorola’s ability to continue to successfully ability to compete as customers demand open paging business, growth in the Internet-based implement its renewal programs to improve architechtures; continued significant growth in communication business, Motorola’s role in profitability; the efforts to revive affected demand for wireless communications equipment; Iridium’s future, growth in the telecom equip- economies in Asia and to stabilize economies steady growth in emerging markets; and the ment market, and SPS’s future product portfolio in certain parts of Latin America and other ability of Motorola to recruit and retain highly emerging markets; continued or increased skilled employees in a competitive market. This entire report has been printed on recycled paper.


  • 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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