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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
COMMISSION FILE NO. 1-7221
MOTOROLA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 36-1115800
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
1303 EAST ALGONQUIN ROAD, SCHAUMBURG, ILLINOIS 60196
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER (847) 576-5000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, $3 Par Value per Share New York Stock Exchange
Chicago Stock Exchange
Liquid Yield Option Notes due 2009 New York Stock Exchange
Liquid Yield Option Notes due 2013 New York Stock Exchange
Rights to Purchase Junior Participating New York Stock Exchange
Preferred Stock, Series A Chicago Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
[_]
The aggregate market value of voting stock held by non-affiliates of the
registrant as of January 31, 1997 was approximately $39.2 billion (based on
closing sale price of $68.375 per share as reported for the New York Stock
Exchange--Composite Transactions).
The number of shares of the registrant's Common Stock, $3 par value per
share, outstanding as of January 31, 1997 was 593,866,999.
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT LOCATION IN FORM 10-K
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Portions of Registrant's Proxy Statement for 1997 Parts I, II, III and IV
Annual Meeting of Stockholders Including Management's
Discussion and Analysis and Consolidated Financial
Statements
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PART I
ITEM 1: BUSINESS
(a) General development of business.
Motorola, Inc. is a corporation organized under the laws of the State of
Delaware as the successor to an Illinois corporation organized in 1928.
Motorola's principal executive offices are located at 1303 East Algonquin
Road, Schaumburg, Illinois 60196 (telephone number: 847-576-5000).
Motorola, Inc., one of the world's leading providers of electronic
equipment, systems, components and services for worldwide markets, is engaged
in the design, manufacture and sale, principally under the Motorola brand, of
a diversified line of such products. These products include two-way land
mobile communication systems, paging and wireless data systems, personal
communications equipment and systems and other forms of electronic
communication systems; subscriber and infrastructure equipment for the
telephone market; cellular mobile and portable telephones and systems;
semiconductors, including integrated circuits, discrete devices and
microprocessor units; information systems products such as modems,
multiplexers and network processors; electronic equipment for military and
aerospace use; electronic engine controls, and other automotive and industrial
electronic equipment; and multifunction computer systems for distributed data
processing and office automation applications. Motorola also provides services
for paging, cellular telephone, shared mobile radio and wireless data.
The term "Motorola" as used hereinafter means Motorola, Inc. or Motorola,
Inc. and its subsidiaries, as the context requires.
(b) Financial information about industry segments.
The response to this section of Item 1 is incorporated by reference to Note
7 of the Notes to the Consolidated Financial Statements contained in the
attachment to Motorola's Proxy Statement for the 1997 annual meeting of
stockholders.
(c) Narrative description of business.
GENERAL SYSTEMS PRODUCTS
The Cellular Subscriber Sector (formerly the Cellular Subscriber Group) and
the Cellular Infrastructure Group design, manufacture, sell, install and
service cellular infrastructure and radiotelephone equipment. In addition, the
Cellular Subscriber Sector resells cellular line service in the U.S., New
Zealand, Germany, France and the U.K. markets. The Network Management Group is
a joint venture partner in cellular operating systems in Argentina, Chile, the
Dominican Republic, Honduras, Hong Kong, India, Israel, Japan, Jordan,
Lithuania, Mexico, Nicaragua, Pakistan, Russia, Thailand, and Uruguay. In
addition, the Network Management Group acts as an investor in Iridium(R)
gateway companies which operate in North America, Central America, South
America and India. The Cellular Infrastructure Group products include
electronic exchanges (i.e., telephone switches), base site controllers and
radio base stations. Radiotelephone products include mobile, portable,
personal and transportable radiotelephones with various options, personal
communications equipment and cordless telephones. Products are marketed
worldwide through original equipment manufacturers, carriers, distributors,
dealers, retailers and, in certain countries, through a direct sales force.
Financing of cellular infrastructure equipment is sometimes offered to
qualifying customers.
Radio frequencies are required to provide cellular services. The allocation
of frequencies is regulated in the United States and other countries
throughout the world, and limited spectrum space is allocated for cellular
services. The growth of the cellular and personal communications industry may
be affected if adequate frequencies are not allocated for its use, or
alternatively, if new technology is not developed to increase capacity on
presently allocated frequencies which may have an effect on the segment's
results.
1
The Motorola Computer Group develops, manufactures, sells and services
multi-function computer systems and board level products, together with
operating systems and system enablers based on the Motorola 68000, 88000 and
PowerPC(TM) series microprocessors, including computers compatible with the
Mac(R) OS operating system. These products are sold worldwide to a variety of
customers, some of whom produce computer products which compete with the
Group. The Computer Group's products are marketed to end-users, original
equipment manufacturers, value-added resellers and distributors throughout the
world. The Motorola Computer Group also markets computer products and
peripherals that it does not manufacture.
The segments products are subject to constant changes in technology.
Consequently, the General Systems Products segment has an extensive research
and development program.
The General Systems Products segment's backlog amounted to $2.03 billion at
December 31, 1996 and $1.47 billion at December 31, 1995. The 1996 backlog is
believed to be generally firm, and approximately 94% of that amount is
expected to be shipped during 1997. This forward-looking estimate of the
firmness of such orders is subject to future events which may cause the
percentage of the 1996 backlog actually shipped to change.
The segment has several material customers, worldwide, the loss of any one
or more of which could have a material impact on the results of the segment.
The General Systems Products segment experiences intense competition from
numerous competitors in world-wide markets ranging from some of the world's
largest companies to small, specialized firms. Competitive factors in the
market for the products are price, service, delivery, quality, availability,
warranty, product features, company image, time to market and product and
system performance. An additional factor for the Cellular Infrastructure Group
is vendor financing because customers are looking to equipment vendors as one
additional source of funding. An additional factor for the Motorola Computer
Group products is the availability of software products to address specific
user applications. Participation in a very competitive industry requires a
continuing high level of investment in technology. Management believes that,
looking forward, Motorola's commitment to research and development programs
for improving existing products and developing new products and its
utilization of state-of-the-art technology will allow these businesses to
remain competitive.
Materials used in the segment's operations are generally second-sourced to
ensure a continuity of supply. Occasionally, there are shortages of required
purchased components. Energy necessary for the segment's operations consists
of electricity, natural gas and gasoline, all of which are currently adequate
in supply. The segment's factories are highly automated and therefore,
dependent upon a steady supply of electrical power. Difficulties in obtaining
any of the aforementioned items could affect the segment's results.
The Cellular Subscriber Sector carries reasonable product inventories in
distribution centers to meet customer delivery requirements. As a general
rule, the Cellular Subscriber Sector does not permit customers to return
merchandise. The Cellular Infrastructure Group permits customer returns in
accordance with specific contract terms, and the Motorola Computer Group
permits customers to return products in accordance with practices followed in
the computer industry. The Cellular Subscriber Sector has offered extended
payment terms when necessary to meet competitive offerings. In the Cellular
Infrastructure Group, payment terms are particular to individual contracts, a
majority of which provide for the hold back of certain residual payments until
system acceptance by the customer. For qualifying customers, the Cellular
Infrastructure Group finances equipment purchases under various arrangements.
Credit terms offered by the Motorola Computer Group normally are in accordance
with practices followed in the computer industry. Occasionally, the Motorola
Computer Group uses installment sale agreements and leases which are sold to a
Motorola finance subsidiary.
Patent protection is very important to the cellular business. Reference is
made to the material under the heading "General" for information relating to
patents and trademarks and seasonality of business with respect to this
industry segment.
The segment's headquarters are located in Schaumburg, Illinois. The segment
operates manufacturing facilities in Tempe, Arizona; Arlington Heights,
Grayslake, Harvard, Libertyville and McHenry, Illinois; Ft.
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Worth, Texas; Swindon, England; Easter Inch, Scotland; Flensburg, Germany;
Arad, Israel; Tianjin, China and Campinas, Brazil. The segment also has joint
venture manufacturing operations in Austria and China.
SEMICONDUCTOR PRODUCTS
Semiconductors control and amplify electrical signals and are used in a
broad range of electronic products, including consumer electronic products,
computers, communications equipment, solid-state ignition systems and other
automotive electronic products, major home appliances, industrial controls,
robotics, aircraft, missiles, space vehicles, calculators and automatic
controls.
The semiconductor products manufactured by Motorola's Semiconductor Products
segment include integrated circuit devices (metal-oxide semiconductor and
bipolar) such as high-performance microprocessors, microcontrollers and
peripherals; digital signal processors; dynamic and fast/application-specific
static random access memories; custom and proprietary bipolar and MOS digital-
analog components; emitter-coupled logic; programmable logic devices; deep
submicron CMOS gate array, cell-based and customizable standard products;
rectifiers; zener and tuning diodes; power and small signal transistors; RF
and microwave devices, thyristors, optoelectronics and sensors.
The segment sells its products worldwide to original equipment manufacturers
through its own sales force. Products also are sold through a network of
industrial distributors in the United States. Sales outside the United States
are made through the segment's own sales staff and through independent
distributors. Products manufactured by the segment are also supplied to other
operating units of Motorola. Other businesses of Motorola collectively
constitute the segment's largest customer, and the loss of, or significant
reduction of purchases by them has and could continue to affect the segment's
results. Customers are allowed to return merchandise for the period the longer
of, (i) the product warranty period of the distributor or (ii) three years.
The segment and its results are affected by the cyclical nature of the
semiconductor industry. Available capacity, cyclical customer demands, new
product introduction and aggressive pricing has and could continue to impact
its business and results.
The segment experienced underutilization of certain of its facilities
producing products with reduced market demand. The segment's capacity for
certain other products is being increased to meet current market demand. In
addition the segment supplements its internal manufacturing capacity with
joint venture manufacturing facilities and purchases of products from outside
vendors.
The semiconductor industry is subject to rapid changes in technology, and
requires a high level of capital spending and an extensive research,
development and design program to maintain state-of-the-art technology.
Accordingly, the segment maintains an extensive research and development
program in advanced semiconductor technology.
The segment's backlog amounted to $2.32 billion at December 31, 1996 and
$3.25 billion at December 31, 1995. In addition to a decline due to general
market conditions in 1996, the backlog declined by a significant amount due to
changes in booking procedures implemented throughout 1996. An increasing
number of the segment's customers are converting to schedule sharing, Just-In-
Time warehouses, and inventory minimum-maximum stocking versus the traditional
"order." This causes backlog to decrease, as low as zero in some instances,
while the actual level of demand may stay the same or increase.
The Semiconductor Products segment experiences intense competition from
numerous competitors ranging from large companies offering a full range of
products to small companies specializing in certain segments of the market.
The competitive environment also is changing as a result of increased
alliances between competitors. The segment competes in many markets, including
the telecommunications, personal computer/work station, industrial,
automotive, consumer, computer, government and distributor markets. In 1996,
the segment exited its military business. Due to the multitude of competitors,
price, service, technology, warranty, availability, time to market, product
features, company image and product quality are important factors in
competition. The ability to
3
develop new products to meet customer requirements and to meet customer
delivery schedules also are competitive factors. Management believes, looking
forward, that Motorola's commitment to research and development of new
products combined with utilization of state-of-the-art technology should allow
the segment to remain competitive.
The segment is not currently experiencing any shortages in obtaining raw
materials. A significant portion of certain materials and parts used by the
segment is supplied from a single country. With respect to other materials,
the segment is seeking additional sources of supply to minimize the risk of
obtaining materials from only a few sources. Electricity, oil and natural gas
are used extensively in the segment's operations. All of these energy sources
are available in adequate quantities for current needs. Electricity and oil
are the primary energy sources for the segment's foreign operations, and
presently, there are no shortages of these sources although the reliability of
electrical power has been a problem from time to time. Difficulties in
obtaining any of the aforementioned items could affect the segment's results.
Reference is made to the material under the heading "General" for
information relating to patents and trademarks and seasonality of business
with respect to this industry segment.
The Semiconductor Products segment's headquarters are in Phoenix, Arizona.
Its manufacturing facilities are located in Chandler, Mesa, Phoenix and Tempe,
Arizona; Irvine, California; Research Triangle Park, North Carolina; Austin,
Texas; Tianjin, China; Toulouse, France; Munich, Germany; Kwai Chung and Tai
Po, Hong Kong; Aizu and Sendai, Japan; Seoul, Korea; Geneva, Switzerland; Tel
Aviv, Israel; Kuala Lumpur and Seremban, Malaysia; Guadalajara, Mexico;
Carmona and Manila, the Philippines; Singapore; Chung-Li, Taiwan; and East
Kilbride and South Queensferry, Scotland.
LAND MOBILE PRODUCTS
The Land Mobile Products Sector ("LMPS") designs, manufactures and sells
analog and digital two-way voice and data products and systems for a variety
of worldwide applications.
As a principal supplier of mobile and portable FM two-way radio products and
systems, LMPS provides equipment and systems to meet the communications needs
of individuals and many different types of business, institutional and
governmental organizations. Products of LMPS provide voice and data
communications between vehicles, persons and base stations. Also, LMPS
provides network services for two-way radio subscribers in international
markets through joint ventures.
The principal customers for two-way radio products and systems include
public safety agencies, such as police, fire, highway maintenance departments
and forestry services; petroleum companies; gas, electric and water utilities;
telephone companies; diverse industrial companies; mining companies;
transportation companies such as railroads, airlines, taxicab operations and
trucking firms; institutions, such as schools and hospitals; and companies in
the construction, vending machine and service businesses. Also, there is an
emerging consumer two-way radio market using the products for personal and
family communication needs. These products also are sold and leased to various
federal agencies for many uses. In addition to the federal government, a
material part of the business of LMPS is dependent on one external customer,
the loss of either of which could have a material effect on the segment's
business.
Users of two-way radios are regulated by a variety of governmental and other
regulatory agencies throughout the world. In the United States, users of two-
way radios are licensed by the Federal Communications Commission ("FCC") which
has broad authority to make rules and regulations and prescribe restrictions
and conditions to carry out the provisions of the Communications Act of 1934.
The FCC has authorized two services and specific channels for consumer
applications; the General Mobile Radio Service requires a license for
consumers while the Family Radio Service does not require a license. The FCC's
authority includes, among other things, the power to classify radio stations,
prescribe the nature of the service to be rendered by each class of station,
assign frequencies to the various classes of stations and regulate the kinds
of equipment which may be
4
used. Regulatory agencies in other countries have similar types of authority.
Motorola has developed products using trunking and data communications
technologies to enhance spectral efficiencies. The growth and results of the
two-way radio communications industry and the results of the segment may be
materially affected by the rules and regulations adopted by regulatory
agencies, if adequate frequencies are not allocated for its use, or, if new
technology is not developed to increase capacity on presently allocated
frequencies.
LMPS also manufactures and sells signaling and control systems and
communication control centers used in two-way radio operations.
This segment carries on an extensive product development program. Its
products make substantial use of solid-state semiconductor components,
including integrated circuits.
The products manufactured and marketed by LMPS are sold directly through its
own distribution force, or through independent authorized distributors and
dealers and retailers, network service providers and independent commission
sales representatives. Leasing and conditional sale arrangements are also made
available to customers. The direct distribution force also provides systems
engineering and technical services to meet the customer's particular needs.
The customer may choose to install and maintain the equipment with its own
employees, or may obtain installation, service and parts from a network of
Motorola authorized service stations (most of whom are also authorized
dealers) or from other non-Motorola service stations. Some of the leases and
conditional sale contracts entered into by LMPS are sold to several
unaffiliated finance companies and banks on terms which, in some instances,
provide recourse to Motorola with certain limitations. Some leases and
conditional sale contracts are sold to a Motorola finance subsidiary.
Subscriber units are sold directly and through indirect distribution channels.
In certain circumstances, the segment permits customers to return products in
accordance with industry practices.
This segment's backlog amounted to $1.18 billion at December 31, 1996 and
$1.18 billion at December 31, 1995. The 1996 backlog amount is believed to be
generally firm, and approximately 91% of that amount is expected to be shipped
during 1997. This forward-looking estimate of the firmness of such orders is
subject to future events which may cause the percentage of the 1996 backlog
actually shipped to change.
This segment experiences widespread, intense competition from numerous
competitors ranging from some of the world's largest, diversified companies to
foreign state-owned telecommunications companies to many small, specialized
firms. The principal manufacturing operations of many competitors are located
outside of the United States. Competitive factors for LMPS include price,
performance, quality, delivery, service, warranty, technology, product
features and performance, time to market, and availability of systems
engineering, with no one factor being dominant. An additional factor is vendor
financing because customers are looking to equipment vendors as one additional
source of funding. Management believes, looking forward, that Motorola's
commitment to research and development programs for improving existing
products and developing new products and its utilization of state-of-the-art
technology should allow this segment to remain competitive.
Availability of materials and components required by this segment is
relatively dependable and certain, but normal fluctuations in market demand
and supply could cause temporary, selective shortages and affect results. LMPS
operates certain offshore subassembly plants, the loss of one or more of which
could constrain its production capabilities and affect results. Natural gas,
electricity and, to a lesser extent, oil, are the primary sources of energy.
Current supplies of these forms of energy are considered to be adequate for
this segment's United States and foreign operations. However, difficulties in
obtaining any of the aforementioned items could affect the segment's results.
LMPS provides custom products based on assembling basic units into a large
variety of models or combinations. This requires stocking of inventories and
large varieties of piece parts as well as a variety of basic level assemblies
to meet short delivery requirements.
Patent protection is very important to the segment's business. Reference is
made to the material under the heading "General" for information relating to
patents and trademarks with respect to this segment.
5
This segment's headquarters are located in Schaumburg, Illinois, with major
manufacturing facilities in Schaumburg, Illinois; Plantation, Florida; Mount
Pleasant, Iowa; Swords, Ireland; Arad, Israel; and Penang, Malaysia.
MESSAGING, INFORMATION AND MEDIA PRODUCTS
Motorola's Messaging, Information and Media Sector ("MIMS") manufactures,
distributes and sells paging subscriber, paging infrastructure, and related
products such as paging software and accessories. MIMS also provides network
services for paging and wireless data and gateway communication subscribers
through wholly-owned and operated businesses as well as domestic and
international joint ventures. It also manufactures and sells modems, analog
and digital transmission devices and other data communication devices. In
addition MIMS manufactures equipment that enable voice, video and high-speed
data communications over cable networks. It also offers handwriting and speech
recognition software for various applications. MIMS provides equipment and
systems to meet the communication needs of many different types of business,
institutional and governmental organizations. Also, there is a growing base of
paging and modem customers using the products for personal and family
communication needs. A majority of the Sector's manufacturing, distribution
and sales occurs outside of the United States.
Radio frequencies are required to provide paging and wireless data
information services. The allocation of frequencies is regulated in the United
States and other countries throughout the world, and limited spectrum space is
allocated for these services. The growth of the paging and wireless data
information industry and this segment's results could be affected if adequate
frequencies are not allocated for its use, or alternatively, if new technology
is not developed to increase capacity on presently allocated frequencies.
The segment's backlog amounted to $775 million at December 31, 1996 and $926
million at December 31, 1995. The 1996 backlog is believed to be generally
firm, and approximately 100% of that amount is expected to be shipped during
1997. This forward-looking estimate of the firmness of such orders is subject
to future events which may cause the percentage of the 1996 backlog actually
shipped to change. Several large paging carriers represent a material part of
the business of the MIMS segment, the loss of one or more of which could have
a material adverse effect on the results of the MIMS segment.
MIMS products are sold through both domestic and international sales
organizations which sell through direct and indirect channels such as
distributors, retailers and value-added resellers.
This segment carries on an extensive product development program. Its
products make substantial use of solid-state semiconductor components,
including integrated circuits.
This segment experiences widespread, intense competition from numerous
competitors ranging from some of the world's largest, diversified companies to
foreign state-owned telecommunications companies to many small, specialized
firms. The principal manufacturing operations of many competitors are located
outside of the United States. Competitive factors for MIMS include, but are
not limited to, price, quality, time-to-market, technology, company image,
service, warranty, product features and availability.
Materials and components required by this segment are relatively dependable
and certain, but normal fluctuations in market demand and supply could cause
temporary, selective shortages. Occasionally, shortages or extended delivery
periods have occurred in various component parts, the effects of which have
generally been industry-wide and short in duration. Natural gas, electricity
and oil are the primary sources of energy. These types of energy are currently
readily available, but difficulties in obtaining any of the aforementioned
items could affect the segment's results.
Patent protection is very important to the segment's business. Reference is
made to the material under the heading "General" for information relating to
patents and trademarks and seasonality with respect to this segment.
6
This segment's headquarters are located in Schaumburg, Illinois, with
manufacturing facilities in Lake Zurich, Illinois; Boynton Beach, Florida; Ft.
Worth, Texas; Mansfield, Massachusetts; Huntsville, Alabama; Singapore;
Tianjin, China; Vega Baja, Puerto Rico; and Dublin, Ireland; additionally,
software development and administration offices are located in Alpharetta,
Georgia and Palo Alto, California.
OTHER PRODUCTS
AUTOMOTIVE, ENERGY AND COMPONENTS SECTOR
The Automotive, Energy and Components Sector (formerly the Automotive Energy
and Controls Group) manufactures and sells products in three major categories:
automotive and industrial electronics; energy storage products and systems;
and ceramic and quartz electronic components. The Sector also includes
operations which manufacture electronic ballasts for fluorescent lighting,
radio frequency identification devices and printed circuit boards. The Sector
established a Flat Panel Display Division to develop the next generation of
flat panel displays. The Sector is involved in several joint ventures.
The Sector sells its automotive and industrial electronics products to
original equipment manufacturers, including foreign and domestic automobile
manufacturers, heavy vehicle manufacturers, farm equipment manufacturers and
industrial customers. The energy storage products business and the ceramic and
quartz products business sell primarily to other industry segments within
Motorola, principally the Land Mobile Products, Messaging, Information and
Media Products and General Systems Products segments. A large part of the
Sector's business is dependent upon the business of these other Motorola
industry segments, collectively and two other external customers. The loss of
any of these three customers could have a material adverse effect on the
business of the Sector.
Demand for products is linked to automobile sales in the United States and
other countries where the Sector sells its products. The Sector experiences
competition from numerous global competitors including automobile
manufacturers. Competitive factors in the sale of all of the Sector's products
include price, product quality and performance, supply integrity, quality
reputation, experience, responsiveness and design and manufacturing
technology.
The Sector's backlog amounted to $259 million at December 31, 1996 and $257
million at December 31, 1995. The 1996 backlog is believed to be generally
firm, and approximately 100% of that amount is expected to be shipped during
1997. This forward-looking estimate of the firmness of such orders is subject
to future events which may cause the percentage of the 1996 backlog actually
shipped to change.
All materials used by the Sector have good availability at this time. The
Sector uses electricity and gas in its operations, which are currently
adequate in supply. However, difficulties in obtaining any of the
aforementioned items could affect the Sector's results.
Reference is made to the material under the heading "General" for
information relating to patents and trademarks with respect to this Sector.
The Sector's headquarters is located in Northbrook, Illinois. It has
manufacturing operations located in Scottsdale and Tempe, Arizona; San Jose,
California; Atlanta, Georgia; Northbrook, Buffalo Grove, Schaumburg and Vernon
Hills, Illinois; Albuquerque, New Mexico; Elma, New York; Carlisle,
Pennsylvania; Seguin, Texas; Angers, France; Stotfold, England; Singapore;
Tianjin, China; Chung-Li, Taiwan; Penang, Malaysia; Dublin, Ireland; and San
Jose, Costa Rica.
SPACE AND SYSTEMS TECHNOLOGY GROUP
The Space and Systems Technology Group, formerly called the Government and
Space Technology Group, is engaged in the design, development and production
of electronic systems and products, and it competes for a variety of United
States Government projects and commercial business. The Group has diversified
its activities
7
by applying its core technologies to commercial opportunities. The Group
provides electronic and communications equipment products that have various
applications based upon customer requirements of the Group's three business
segments: government, commercial and satellite communications.
The government business segment, known as the Government Electronics
Division and Government Systems Operations, primarily performs research,
development and production work under contracts with governmental agencies,
but also conducts independent research and development programs. The
government business segment produces diversified military electronic
equipment, including military communications equipment, radar systems, data
links, display systems, positioning and navigation systems, missile guidance
equipment, electronic ordnance devices and drone electronic systems. The
government business segment has been predominantly dependent upon the United
States Government as its main customer, acting as either a prime contractor or
a subcontractor to other prime contractors. The total loss of all of this
business could have a material adverse effect on the Group's results.
Contracts are secured from United States Government agencies and their
suppliers by negotiation and competitive bidding. Competition has increased
substantially in all aspects of the government business due to a smaller
defense budget and consolidations in the industry. Competitors include large
and small technically competent firms. Some competitors from whom the segment
procured subcontract work in the past are becoming more vertically integrated
and are performing the work previously subcontracted. This Group currently
looking forward expects to continue to meet competition on the basis of price
and quality of product performance.
The Group's Satellite Communications Group (SCG) is developing the
IRIDIUM(R) satellite-based communication system. The IRIDIUM(R) system is a
space-based wireless communications system that is being designed to provide
global digital service to hand-held telephones and related equipment. The
IRIDIUM(R) system involves four components: (1) a constellation of low earth
orbit satellites, (2) centralized system control centers, (3) approximately
ten gateways located throughout the world; and (4) individual subscriber units
for voice, data, facsimile and paging. SCG is the prime contractor under
contracts with Iridium LLC to provide and launch the satellites, construct the
centralized system control centers and gateways; maintain the performance of
the constellation and provide certain computer systems and software for the
system. During the last four years, these contracts have become a significant
portion of the Group's business and are expected to remain a major contributor
to the Group's sales for the next several years. Iridium LLC's failure to make
payments under these contracts or the loss of these contracts could have a
material adverse effect on the Group's and Motorola's results. SCG has entered
into significant subcontracts for portions of the system for which it will
generally remain obligated even if Iridium LLC is unable to satisfy the terms
of its contracts with SCG, including funding. In addition, Motorola has
guaranteed $750 million of Iridium LLC's bank financing which could be
affected by Iridium LLC's failure to make such payments.
SCG also performs research, development, design and manufacturing services
for space-based equipment for government customers.
Total sales for the Group include sales made to a number of free world
governments and corporations. Products of the Group are marketed outside the
United States by a few distributors, by independent representatives and by the
Group's own sales force. In 1996, a small percentage (approximately 5%) of the
Group's business was conducted internationally, primarily through the
government business segment. These sales generally relate to the development
and deployment of defense, security and commercial air traffic management
systems with Canada and selected countries, concentrated in the Asia-Pacific
region.
The Group's backlog amounted to $1.02 billion at December 31, 1996 and $906
million at December 31, 1995. The 1996 backlog is believed to be generally
firm and 72% of that amount is expected to be shipped during 1997. These
shipments could be significantly impacted to the extent that additional
funding is not received by Iridium LLC. All contracts with the United States
Government are subject to cancellation at the convenience of the Government,
and the contracts with Iridium LLC may be terminated by Iridium LLC pursuant
to the terms set forth in the contracts. The forward-looking estimate of the
firmness of the 1996 backlog as discussed above is subject to future events
which may cause the percentage of the 1996 backlog actually shipped to change.
8
Bookings during 1996 for the Iridium LLC space system contract were delayed
because Iridium LLC needed to obtain additional funding required to continue
to make contractual payments to Motorola. Iridium LLC is negotiating to obtain
additional funding during 1997. If such financing is obtained the orders not
booked related to the space system contract are expected to be booked. There
can be no assurance that Iridium LLC will obtain the additional financing.
Materials used by the Group in its operations are generally available.
Natural gas and electricity are the principal types of energy used, and
availability of both to the Group is currently more than adequate.
Difficulties in obtaining any of the aforementioned items could affect the
Group's results.
Patents continue to become more important as competition increases in a
declining U.S. Government market and as the Group expands commercial
opportunities. Also reference is made to the material under the heading
"General" for information relating to patents and trademarks.
The Group has its headquarters in Scottsdale, Arizona, with manufacturing
facilities in Scottsdale and Chandler, Arizona.
GENERAL
Customers. Motorola is not dependent for a material part of its overall
business upon a single or a very few customers. Approximately 2.9% of
Motorola's total sales and revenues in 1996 were received from various
branches and agencies, including the armed services, of the United States
Government.
All contracts with the United States Government are subject to cancellation
at the convenience of the Government.
Government contractors, including Motorola, are routinely subjected to
numerous audits and investigations, which may be either civil or criminal in
nature. The consequences of these audits and investigations may include
administrative action to suspend business dealings with the contractor and to
exclude it from receiving new business. In addition, Motorola, like other
contractors, is internally reviewing aspects of its government contracting
operations, and, where appropriate, taking corrective actions and making
voluntary disclosures to the Government. From time to time, these audits and
investigations may adversely affect Motorola and its results.
Backlog. Motorola's aggregate backlog position, including the backlog
position of subsidiaries through which some of its business units operate, as
of the end of the last two fiscal years, was approximately as follows:
December 31, 1996........................................... $7.59 billion
December 31, 1995........................................... $7.99 billion
The orders supporting the 1996 backlog amounts shown in the foregoing table
are believed to be generally firm, and approximately 99% of orders on hand at
December 31, 1996 are expected to be shipped during 1997. However, this is a
forward-looking estimate of the amount expected to be shipped, and future
events may cause the percentage actually shipped to change.
The Semiconductor Products segment's backlog position has declined due to
various factors described in Item 1(c). This decline affected Motorola's
overall backlog position in 1996.
Motorola uses the percentage-of-completion method to recognize revenues and
costs associated with most long-term contracts. For contracts involving
certain technologies, revenues and profits, or parts thereof, are deferred
until technological feasibility is established and customer acceptance is
obtained. For other product sales, revenue is recognized at the time of
shipment, and reserves are established for price protection and cooperative
marketing programs with distributors.
Research and Development. Throughout its history, Motorola has relied, and
continues to rely, primarily on its research and development programs for the
development of new products and its production engineering
9
capabilities for the improvement of existing products. Technical data and
product application ideas are exchanged among Motorola's industry segments on
a regular basis. Research and development expenditures relating to new product
development or product improvement, other than customer-sponsored contracts,
were approximately $2,394 million in 1996, $2,197 million in 1995 and $1,860
million in 1994.
In addition, research funded under customer-sponsored contracts amounted to
approximately $758 million in 1996, $546 million in 1995 and $601 million in
1994.
Approximately 15,800 professional employees were engaged in such research
activities (including customer-sponsored contracts) during 1996.
Patents and Trademarks. Motorola owns 8,420 patents in the United States and
8,298 in foreign countries. These foreign patents are counterparts of
Motorola's United States patents. During 1996, Motorola was granted 1,225
United States patents. Many of the patents owned by Motorola are used in its
operations or licensed for use by others, and Motorola is licensed to use
certain patents owned by others. In some instances, certain of the patents
licensed by Motorola to others have generated significant amounts of revenue
to Motorola.
Motorola considers its trademark "MOTOROLA" and the "M" symbol to be
valuable assets. These are protected through trademark registrations. Other
trademarks of Motorola are protected and registered in the relevant markets,
but are used only on limited product lines.
Environmental Quality. Motorola operations are from time to time the
subjects of investigations, conferences, discussions and negotiations with
various federal, state and local environmental agencies with respect to the
discharge or cleanup of hazardous waste and compliance by those operations
with environmental laws and regulations. The balance of the response to this
section of Item 1 is incorporated by reference to Note 6 of the Notes to the
Consolidated Financial Statements under the caption "Environmental and Legal"
and the information contained in Management's Discussion and Analysis of
Financial Condition and Results of Operations under the caption "Environmental
Matters" contained in the attachment to Motorola's Proxy Statement for the
1997 annual meeting of stockholders.
Miscellaneous. At December 31, 1996, there were approximately 139,000
employees of Motorola and its subsidiaries. The business of Motorola and its
industry segments is taking on certain seasonal characteristics: the
Semiconductor Products segment has tended to have stronger, seasonally-
adjusted sales in the first half of the year; and sales of products, such as
cellular telephones and pagers, in consumer markets tend to increase in the
fourth quarter. An increase or decrease in large system orders in the Cellular
Infrastructure Group and the Land Mobile Products segment could cause the
volatility of orders, revenues and profits recognized in any particular
period.
Business Risk Factors. Except for historical matters, the matters discussed
in this Form 10-K are forward-looking statements that involve risks and
uncertainties. Forward-looking statements include, but are not limited to,
statements under the following headings; (i) "General Systems Products," about
the allocation of frequencies, development of technologies, expected shipments
during 1997, the loss of material customers and competitiveness through
research and development and technology; (ii) "Semiconductor Products," about
the loss of or reduction in purchases by customers, capacity, cyclical
customer demands, new product introductions and aggressive pricing, expected
shipments during 1997, competitiveness through research and development and
technology and sources of supplies; (iii) "Land Mobile Products," about the
loss of material customers, the allocation and regulations of frequencies,
expected shipments during 1997, competitiveness through research and
development and technology and the availability of supplies; (iv) "Messaging,
Information and Media Products," about the allocation of frequencies,
development of technologies, the loss of material customers and expected
shipments during 1997; (v) "Automotive, Energy and Components Sector," about
the loss of material
10
customers, expected shipments during 1997 and the availability of supplies;
(vi) "Space and Systems Technology Group," about the loss of material
customers, competitiveness, the impact of Motorola's investment in Iridium
LLC, expected shipments during 1997 and the availability of supplies; and
(vii) "General," about expected shipments during 1997, seasonality, large
system orders, and the growth from products.
Motorola wishes to caution readers that in addition to the important factors
described elsewhere in this Form 10-K, the following important factors, among
others, sometimes have affected, and in the future could affect, Motorola's
actual results and could cause Motorola's actual consolidated results during
1997, and beyond, to differ materially from those expressed in any forward
looking statements made by, or on behalf of, Motorola:
. Motorola's actions in connection with continued and increasing price and
product competition in many product areas, including, but not limited to
semiconductor products, cellular subscriber products and modems;
deficiencies in certain product segments, particularly cellular
telephones and modems;
. Difficulties or delays in the development, production, testing and
marketing of products, including, but not limited to, a failure to ship
new products and technologies when anticipated, including, but not
limited to, two-way and voice paging, Code Division Multiple Access
(CDMA) for cellular and Personal Communication Systems (PCS), wireless
local loop, telephony and high-speed data for cable and integrated
dispatch radio, the failure of customers to accept these products or
technologies when planned, any defects in products and a failure of
manufacturing economies to develop when planned;
. Risk related to the loss of material customers of one or more of
Motorola's businesses, including the unexpected loss of sales and market
perception, particularly because of the trend towards increasingly large
system contracts for the Cellular Infrastructure Group and the Land
Mobile Products Sector.
. The ability of the semiconductor industry to sustain a rebound and the
ability of Motorola's semiconductor business to capitalize on that
rebound and compete in the highly competitive semiconductor business.
Factors that could affect Motorola's ability to compete are production
inefficiencies and higher costs related to underutilized facilities, both
wholly-owned and joint venture facilities; shortage of manufacturing
capacity; start-up expenses, inefficiencies and delays and increased
depreciation costs in connection with the capital investments in 1997 for
facilities in Korea, China, Arizona and Texas; competitive factors, such
as rival chip architectures, mix of products, acceptance of new products
and price pressures; risk of inventory obsolescence due to shifts in
market demand; and the effect of lower orders from Motorola's other
businesses such as the Cellular Subscriber Sector and the Automotive,
Energy and Components Sector;
. The risks related to the Iridium(R) project including: the ability of
investors to timely obtain licenses and sign agreements for, and to
market, the service, to timely receive and, as appropriate, operate and
sell telecommunications equipment and to otherwise timely finance and
operate a successful telecommunications business; the successful and
timely orbiting of the project's low-earth orbit satellites and the
successful and timely operation of such satellites and related ground
equipment; the ability of Iridium LLC to raise the significant funds it
needs during at least the next few years to continue to make contractual
payments to Motorola and to make debt payments and otherwise operate,
including raising needed funds in early 1997; the outcome of Motorola's
and Iridium's negotiations to increase Iridium LLC's bank financing and
Motorola's guarantee; the risks associated with the large Iridium systems
contracts and the financial risk to Motorola under those contracts,
including the difficulty in projecting costs associated with those
contracts; the market acceptance (both on its own and when compared to
possible competitors) of what is expected to be the first worldwide
global satellite-based communications service and of the related
equipment; and the significant technological and other risks associated
with the development and commercial operation of the project, including
any software and support systems-related risks;
. The effects of, and changes in, laws and regulations, other activities of
governments, agencies and similar organizations, including, but not
limited to, those affecting frequency, use and availability of spectrum
authorizations and licensing; and
11
. The costs and other effects of legal and administrative cases and
proceedings (whether civil, such as environmental and product-related,
or criminal), settlements and investigations, claims, and changes in
those items, and developments or assertions by or against Motorola
relating to intellectual property rights and intellectual property
licenses.
Certain portions of Motorola's Proxy Statement for the 1997 annual meeting
of stockholders with Management's Discussion and Analysis and Consolidated
Financial Statement are incorporated by reference into this Form 10-K. There
are additional important factors included therein, including those beginning
on page F-8 of the attachment to Motorola's Proxy Statement for the 1997
annual meeting of stockholders, that sometimes have affected, and in the
future could affect, Motorola's actual results and could cause Motorola's
actual consolidated results during 1997, and beyond, to differ materially from
those expressed in any forward-looking statements made by, or on behalf of,
Motorola.
(d) Financial information about foreign and domestic operations and export
sales.
Domestic export sales to third parties were $3.74 billion in 1996, $3.59
billion in 1995 and $2.97 billion in 1994. Domestic export sales to affiliates
were $6.31 billion in 1996, $6.64 billion in 1995 and $4.40 billion in 1994.
The remainder of the response to this section of Item 1 is incorporated by
reference to Note 7 of the Notes to the Consolidated Financial Statements and
the "1996 Compared With 1995" and "1995 Compared With 1994" sections of
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in the attachment to Motorola's Proxy Statement for the
1997 annual meeting of stockholders.
IRIDIUM(R) is a registered trademark and service mark of Iridium LLC.
ITEM 2: PROPERTIES
Motorola's principal executive offices are located at 1303 East Algonquin
Road, Schaumburg, Illinois 60196. Its other major facilities in the United
States are located in Arlington Heights, Buffalo Grove, Grayslake, Harvard,
Lake Zurich, Libertyville, Northbrook, Schaumburg and Vernon Hills, Illinois;
Elma, New York; Phoenix, Chandler, Scottsdale, Mesa and Tempe, Arizona;
Boynton Beach and Plantation, Florida; Atlanta, Georgia; Austin, Ft. Worth and
Seguin, Texas; Mount Pleasant, Iowa; Mansfield, Massachusetts; Huntsville,
Alabama; Research Triangle Park, North Carolina; Albuquerque, New Mexico;
Carlisle, Pennsylvania; and Irvine and San Jose, California. Motorola also
operates manufacturing facilities or sales offices in 39 other countries. (See
"Narrative Description of Business" for information regarding the location of
the principal manufacturing facilities for each industry segment.) Motorola
owns 129 facilities (manufacturing, sales, service and office, 73 of which are
located in the United States and 56 of which are located in other countries.
Motorola leases 505 such facilities, 305 of which are located in the United
States and 200 of which are located in other countries.
Motorola generally considers the productive capacity of the plants operated
by each of its industry segments adequate and suitable for the requirements of
each of such segments. New semiconductor product manufacturing facilities in
Korea, China, Arizona and Texas are under construction and a new facility for
Cellular handsets is under construction in Jaguariuna, Brazil.
The extent of utilization of such manufacturing facilities varies from plant
to plant and from time to time during the year.
ITEM 3: LEGAL PROCEEDINGS
Motorola is a named defendant in seven cases arising out of alleged
groundwater, soil and air pollution in Phoenix and Scottsdale, Arizona. On
January 29, 1997, plaintiffs dismissed their appeal in Camelhead Equities et
al. v. Motorola et al., a suit filed on June 1, 1993, for business losses by
four failed real estate development limited partnerships alleging that
groundwater contamination caused property damage and the failure of their real
12
estate development, and this matter is concluded. McIntire et al. v. Motorola,
and Farr v. Motorola are pending in the U.S. District Court for the District
of Arizona. Baker et al. v. Motorola et al., Lofgren et al. v. Motorola et
al., Bentancourt et al. v. Motorola et al., Ford et al. v. Motorola et al. and
Wilkins et al. v. Motorola et al. are pending in the Arizona Superior Court,
Maricopa County. The McIntire lawsuit, filed on December 20, 1991, involves
approximately 925 plaintiffs (325 personal injury, 125 property damage, and
475 personal injury and property damage) who allege that the operations of
Motorola at several facilities in Phoenix and Scottsdale, Arizona have caused
property damage and health problems by contaminating the soil, groundwater and
air in the area surrounding those facilities. Farr is a personal injury and
wrongful death case, filed on November 17, 1995, based on like allegations of
environmental contamination. The Baker lawsuit, filed on February 11, 1992, is
a class action, involving six representative individual named plaintiffs,
alleging that Motorola and 28 other defendants contaminated the soil, air and
groundwater in the Phoenix/Scottsdale area, diminishing property values and
exposing members of the class to possible adverse health effects. On August
24, 1994, the Baker court certified two classes, a property damage class
consisting of all persons who were residents, property owners or lessees of
property which overlies, or is adjacent to, the alleged groundwater pollution,
and a medical monitoring class consisting of all persons who resided in
Phoenix and/or Scottsdale for more than one year continuously during the years
between 1955 and 1989, and who received potable drinking water containing
trichloroethylene at a level equal to or exceeding 2.0 parts per billion, on
average. The Lofgren, Bentancourt, Ford and Wilkins lawsuits, filed on April
6, 1993, July 16, 1993, June 10, 1994 and July 19, 1995, respectively, have
been consolidated. The consolidated cases involve more than 200 plaintiffs,
alleging that Motorola and about 30 other defendants contaminated the soil,
air and groundwater in the Phoenix/Scottsdale area, causing health problems.
All seven lawsuits seek compensatory and punitive damages. The McIntire
complaint includes personal injury and property damage claims and seeks
injunctive relief. The Baker complaint seeks damages for medical monitoring
and alleges claims for property, business and economic loss and seeks
declaratory and injunctive relief.
Motorola and several of its directors and officers are named defendants in a
consolidated alleged class action for alleged violations of Section 10(b) and
20(a) of the Securities Exchange Act and SEC Rule 10b-5, Kaufman, et al. v.
Motorola, Inc. et al., which was filed on May 19, 1995 and is pending in the
U.S. District Court for the Northern District of Illinois. Plaintiffs maintain
that Motorola and the individual defendants inflated the price of Motorola
stock by failing to timely disclose a buildup of cellular phone inventory with
its distributors. Plaintiffs propose a class period of November 4, 1994
through February 17, 1995, and seek an unspecified amount of damages.
A class action, In Re Nextel Communications Securities Litigation, against
Nextel Communications, Inc., certain of its officers and directors and
Motorola for alleged violations of Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934 and SEC Rule 10b-5, is pending in the United States
District Court for the District of New Jersey. The pending complaint, a
consolidation of cases previously filed against Nextel, was filed on July 11,
1995 and maintains that the defendants artificially inflated the price of
Nextel common stock through a series of alleged misrepresentations and
omissions. Plaintiffs propose a class period of July 22, 1993 through January
10, 1995 and seek an unspecified amount of monetary damages.
Motorola is a defendant in several cases arising out of Motorola's
manufacture and sale of portable cellular telephones. In Verb, et al. v.
Motorola, Inc., et al., a purported economic loss class action by purchasers
of portable cellular phones against Motorola and seven other corporate
defendants filed on February 1, 1993, the Illinois Appellate Court in 1996
affirmed the Cook County, Illinois Circuit Court's dismissal of the case;
plaintiffs have petitioned for leave to appeal to the Illinois Supreme Court.
Schiffner v. Motorola, Inc., filed on March 3, 1995 in the Circuit Court of
Cook County, Illinois, is another economic loss purported class action by
purchasers of portable cellular phones. Jerald P. Busse, et al. v. Motorola,
Inc. et al., filed on October 26, 1995 in the Circuit Court of Cook County,
Illinois, Chancery Division, is a purported class action alleging that
defendants have failed to adequately warn consumers of the alleged dangers of
cellular telephones and challenging ongoing safety studies.
13
Crist v. Motorola, Inc. et al., filed on August 20, 1993 in the Circuit
Court of Cook County, Illinois, Ward v. Motorola, Inc., et al., filed on
October 4, 1994 in the State Court of Fulton County, Georgia, Wright v.
Motorola, et al., filed on March 2, 1995 in the Circuit Court of Cook County,
Illinois, Kane, et al., v. Motorola, Inc., et al., filed on December 13, 1993
in the Circuit Court of Cook County, Illinois, and Rittman, et al. v.
Motorola, Inc., et al., 151st District Court of Harris County, Texas,
originally filed on August 31, 1995 in Tarrant County, Texas, are cases where
individuals allege that brain cancer was caused by or aggravated by the use of
a cellular telephone. In Ward, the Georgia Court of Appeals has ruled that
summary judgment should be entered on behalf of Motorola and plaintiffs have
petitioned for certiorari to the Georgia Supreme Court. The stay entered in
the Wright, Kane and Crist cases after the ruling in the Verb case in 1996 has
been lifted based on the Illinois Appellate Court decision in the Verb case.
Pennsylvania Bancshares, Inc. et al. v. Motorola, Inc., et al., filed on
October 10, 1995 in the Court of Common Pleas, Montgomery County,
Pennsylvania, is a purported class action wherein it is alleged that Motorola,
Inc. systematically engages in deceptive trade practices, including without
limitation, intentionally misrepresenting the quality of certain types of
cellular telephones. Silber, et. al. v. Motorola, Inc., et al., filed on
August 1, 1995 in the Supreme Court of The State of New York, County of
Suffolk, which was transferred from the County of New York, is an action
wherein it is alleged that a traffic accident was caused by the use of a
cellular phone.
The information contained in Management's Discussion and Analysis of
Financial Condition and Results of Operations under the caption "Environmental
Matters" and in Note 6 of the Notes to the Consolidated Financial Statements
under the caption "Environmental and Legal" contained in the attachment to
Motorola's Proxy Statement for the 1997 annual meeting of stockholders is
incorporated herein by reference.
Motorola is a defendant in various other suits, claims and investigations
which arise in the normal course of business. In the opinion of management,
the ultimate disposition of these matters, including those matters described
above in this Item 3, will not have a material adverse effect on the
consolidated financial position, liquidity or results of operations of
Motorola.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
Following are the persons who were the executive officers of Motorola as of
December 31, 1996, their ages as of December 31, 1996, their current titles
and positions held during the last five years:
Gary L. Tooker; age 57; Vice Chairman of the Board and Chief Executive
Officer since December 1993; President and Acting Chief Executive Officer from
October 1993 to December 1993; and President and Chief Operating Officer from
January 1990 to October 1993. On January 1, 1997, Mr. Tooker became Chairman
of the Board.
Christopher B. Galvin; age 46; President and Chief Operating Officer since
December 1993; and Senior Executive Vice President and Assistant Chief
Operating Officer from January 1990 to December 1993. On January 1, 1997, Mr.
Galvin became Chief Executive Officer.
Robert W. Galvin; age 74; Chairman of the Executive Committee of the Board
of Directors since January 1990.
Keith J. Bane; age 57; Executive Vice President and Chief Corporate Staff
Officer since February 1995; Senior Vice President and Chief Corporate Staff
Officer from August 1994 to February 1995; Senior Vice President and Motorola
Director of Strategy, Technology and External Relations from October 1993 to
August 1994; and Senior Vice President and Motorola Director of Strategy from
November 1988 to October 1993.
14
Arnold S. Brenner; age 59; Executive Vice President and General Manager,
Japan Group since November 1988.
Thomas D. George; age 56; Executive Vice President, and President and
General Manager, Semiconductor Products Sector since April 1993; Executive
Vice President and Assistant General Manager, Semiconductor Products Sector
from November 1992 to April 1993; and Senior Vice President and Assistant
General Manager, Semiconductor Products Sector from July 1986 to November
1992. Mr. George has announced his planned retirement from Motorola later in
1997.
Glenn A. Gienko; age 44; Executive Vice President and Director of Human
Resources since May 1996; Senior Vice President and Director of Human
Resources from June 1995 to May 1996; Corporate Vice President--Human
Resources, General Systems Sector from February 1994 to June 1995; and Vice
President--Human Resources, General Systems Sector from June 1990 to February
1994.
Merle L. Gilmore; age 48; Executive Vice President, President and General
Manager, Land Mobile Products Sector ("LMPS"), since July 1994; Senior Vice
President and President and General Manager, LMPS, from June 1994 to July
1994; Senior Vice President and Assistant General Manager, LMPS, from July
1992 to June 1994; and Senior Vice President and General Manger, Worldwide
Radio Products Group, LMPS, from May 1991 to July 1992.
Robert L. Growney; age 54; Executive Vice President, President and General
Manager, Messaging, Information and Media Sector since January 1994; Executive
Vice President and General Manager, Paging and Wireless Data Group from
September 1992 to January 1994; and Senior Vice President and General Manager,
Paging and Telepoint Systems Group from January 1991 to September 1992. On
January 1, 1997, Mr. Growney became President and Chief Operating Officer.
Carl F. Koenemann; age 58; Executive Vice President and Chief Financial
Officer since December 1991.
James A. Norling; age 54; Executive Vice President, and President, Motorola
Europe, Middle East and Africa since April 1993; and Executive Vice President,
and President and General Manager, Semiconductor Products Sector from December
1989 to April 1993. On January 1, 1997, Mr. Norling became President and
General Manager, Messaging, Information and Media Sector.
Edward F. Staiano; age 60; Executive Vice President, and President and
General Manager, General Systems Sector since December 1989. Mr. Staiano
retired as of January 1, 1997.
Frederick T. Tucker; age 56; Executive Vice President and President and
General Manager, Automotive, Energy and Controls Group since September 1992;
and Senior Vice President and General Manager, Automotive and Industrial
Electronics Group from April 1988 to September 1992. On January 7, 1997, Mr.
Tucker became President and General Manager, Automotive and Industrial
Components Sector.
Richard H. Weise; age 61; Senior Vice President since November 7, 1996;
Senior Vice President and Secretary since February 20, 1996 to November 7,
1996; Senior Vice President, General Counsel and Secretary from November 1985
to February 20, 1996. Mr. Weise retired as of January 1, 1997.
Richard W. Younts; age 57; Executive Vice President and Corporate Executive
Director International-Asia and Americas since December 1993; and Senior Vice
President and Corporate Executive Director, International-Asia and Americas
from July 1991 to December 1993.
The above executive officers, with the exception of Messrs. Staiano and
Weise, will serve as officers of Motorola until the regular meeting of the
Board of Directors in May 1997 or until their respective successors shall have
been elected except as noted above. Christopher B. Galvin is a son of Robert
W. Galvin. There is no family relationship between any of the other executive
officers listed above.
15
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Motorola's Common Stock is listed on the New York, Chicago, London and Tokyo
Stock Exchanges. The remainder of the response to this Item is incorporated by
reference to the information under the caption "Quarterly and Other Financial
Data" of Motorola's Consolidated Financial Statements contained in the
attachment to Motorola's Proxy Statement for the 1997 annual meeting of
stockholders.
ITEM 6: SELECTED FINANCIAL DATA
The response to this Item is incorporated by reference to the information
under the caption "Five-Year Financial Summary" of Motorola's Consolidated
Financial Statements contained in the attachment to Motorola's Proxy Statement
for the 1997 annual meeting of stockholders.
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The response to this Item is incorporated by reference to the information
under the caption "Management's Discussion and Analysis of Financial Condition
and Results of Operations" contained in the attachment to Motorola's Proxy
Statement for the 1997 annual meeting of stockholders.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this Item is incorporated by reference to the information
under the captions "Management's Responsibility For Financial Statements,"
"Independent Auditors' Report," "Statements of Consolidated Earnings,"
"Statements of Consolidated Stockholders' Equity," "Consolidated Balance
Sheets," "Statements of Consolidated Cash Flows," "Supplemental Cash Flow
Information," "Notes to Consolidated Financial Statements," "Quarterly and
Other Financial Data" and "Five Year Financial Summary" of Motorola's
Consolidated Financial Statements contained in the attachment to Motorola's
Proxy Statement for the 1997 annual meeting of stockholders.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The response to this Item required by Item 401 of Regulation S-K, with
respect to directors, is incorporated by reference to the information under
the caption "Nominees" on pages 1 through 5 of Motorola's Proxy Statement for
the 1997 annual meeting of stockholders and with respect to executive
officers, is contained in Part I hereof under the caption "Executive Officers
of the Registrant". The response to this Item required by Item 405 of
Regulation S-K is incorporated by reference to the information under the
caption "Section 16(a) Beneficial Ownership Reporting Compliance" on page 16
of Motorola's Proxy Statement for the 1997 annual meeting of stockholders.
ITEM 11: EXECUTIVE COMPENSATION
The response to this Item is incorporated by reference to the information
under the caption "Director Compensation" on pages 6 and 7 of Motorola's Proxy
Statement for the 1997 annual meeting of stockholders and "Summary
Compensation Table," "Stock Option Grants in 1996," "Aggregated Option
Exercises in 1996 and 1996 Year-End Option Values," "Long-Term Incentive
Plans--Awards in 1996," "Pension and Supplementary Retirement Plans," and
"Termination of Employment and Change in Control Arrangements" on pages 9-11
of Motorola's Proxy Statement for the 1997 annual meeting of stockholders.
16
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The response to this Item is incorporated by reference to the information
under the caption "Security Ownership of Management of Motorola" on pages 8
and 9 of Motorola's Proxy Statement for the 1997 annual meeting of
stockholders.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The response to this Item is incorporated by reference to the information
under the caption "Director Compensation" on page 7 of Motorola's Proxy
Statement for the 1997 annual meeting of stockholders.
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)1. Financial Statements
See Part II, Item 8 hereof.
2. Financial Statement Schedule and Auditors' Report
TITLE SCHEDULE
----- --------
Valuation and Qualifying Accounts.................................. II
All schedules omitted are inapplicable or the information required is
shown in the Consolidated Financial Statements or notes thereto. The
auditors' report of KPMG Peat Marwick LLP with respect to the Financial
Statement Schedule is located at page 26.
3. Exhibits
Exhibits required to be attached by Item 601 of Regulation S-K are listed
in the Exhibit Index attached hereto, which is incorporated herein by
this reference. Following is a list of management contracts and
compensatory plans and arrangements required to be filed as exhibits to
this form by Item 14(c) hereof:
Motorola Executive Incentive Plan ("MEIP")
Motorola Long Range Incentive Plan of 1994
Share Option Plan of 1982
Share Option Plan of 1991
Share Option Plan of 1996
Motorola Elected Officers Supplementary Retirement Plan
Executive Health Plan
Accidental Death and Dismemberment Insurance for MEIP Participants
Arrangement for Directors' Fees
Retirement Plan for Non-Employee Directors
Deferred Fee Plan for Outside Directors
Officers' Group Life Insurance Policy
Consultant Agreement with John F. Mitchell
Form of Termination Agreement
Policy Protecting Salary and Medical Benefits
Insurance Policy for Non-employee Directors
Motorola, Inc. Non-Employee Directors' Stock Plan
(b)Reports on Form 8-K.
Motorola filed no reports on Form 8-K during the last quarter of 1996.
(c)Exhibits See Item 14(a)3 above.
17
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of Motorola, Inc.:
Under date of January 9, 1997, except for note 9, which is as of March 14,
1997, we reported on the consolidated balance sheets of Motorola, Inc. and
consolidated subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of earnings, stockholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1996, as
contained in the 1997 proxy statement to stockholders. These consolidated
financial statements and our report thereon are incorporated by reference in
the annual report on Form 10-K for the year 1996. In connection with our
audits of the aforementioned consolidated financial statements, we also have
audited the related financial statement schedule as listed in Part IV, Item
14(a)2. The financial statement schedule is the responsibility of Motorola's
management. Our responsibility is to express an opinion on the financial
statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
/s/ KPMG Peat Marwick LLP
January 9, 1997
Chicago, Illinois
18
SCHEDULE II
MOTOROLA, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED DECEMBER 31, 1996
(IN MILLIONS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ---------- --------------------- ---------- ----------
ADDITIONS
---------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS & OTHER END OF
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
---------- ---------- ---------- ---------- ----------
1996
Allowance for doubtful
accounts............. $123 $ 42 -- $ 28(1) $137
Product and service
warranties........... $309 $160 -- $155(2) $314
Customer reserves..... $349 $524 -- $488(3) $385
1995
Allowance for doubtful
accounts............. $118 $ 45 -- $ 40(1) $123
Product and service
warranties........... $283 $122 -- $ 96(2) $309
Customer reserves..... $121 $790 -- $562(3) $349
1994
Allowance for doubtful
accounts............. $ 91 $ 48 -- $ 21(1) $118
Product and service
warranties........... $166 $195 -- $ 78(2) $283
Customer reserves..... $ 51 $291 -- $221(3) $121
- --------
(1) Uncollectible accounts written off
(2) Warranty claims paid
(3) Customer claims paid/reductions in reserves
19
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors of Motorola, Inc.:
We consent to incorporation by reference in the registration statements on
Form S-8 (Nos. 333-03681, 333-03731 and 333-12817) and Form S-3 (Nos. 33-62911
and 333-11433 ) of Motorola, Inc. and consolidated subsidiaries of our reports
dated January 9, 1997, except for note 9, which is as of March 14, 1997,
relating to the consolidated balance sheets of Motorola, Inc. and consolidated
subsidiaries as of December 31, 1996 and 1995, and the related statements of
consolidated earnings, stockholders' equity, and cash flows and related
financial statement schedule for each of the years in the three-year period
ended December 31, 1996, which reports appear in or are incorporated by
reference in the annual report on Form 10-K of Motorola, Inc. for the year
ended December 31, 1996.
/s/ KPMG Peat Marwick LLP
March 19, 1997
Chicago, Illinois
20
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, MOTOROLA, INC. HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
MOTOROLA, INC.
/s/ Christopher B. Galvin
By: _________________________________
Christopher B. Galvin
Chief Executive Officer
March 14, 1997
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF MOTOROLA,
INC. AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Christopher B. Galvin Director and Principal 3/14/97
____________________________________ Executive Officer
Christopher B. Galvin
/s/ Carl F. Koenemann Principal Financial Officer 3/3/97
____________________________________
Carl F. Koenemann
/s/ Kenneth J. Johnson Principal Accounting Officer 3/4/97
____________________________________
Kenneth J. Johnson
/s/ H. Laurance Fuller Director 3/4/97
____________________________________
H. Laurance Fuller
/s/ Robert W. Galvin Director 3/14/97
____________________________________
Robert W. Galvin
/s/ Robert L. Growney Director 3/3/97
____________________________________
Robert L. Growney
/s/ Anne P. Jones Director 3/4/97
____________________________________
Anne P. Jones
/s/ Donald R. Jones Director 3/14/97
____________________________________
Donald R. Jones
/s/ Judy C. Lewent Director 3/3/97
____________________________________
Judy C. Lewent
/s/ Walter E. Massey Director 3/1/97
____________________________________
Walter E. Massey
/s/ John F. Mitchell Director 3/1/97
____________________________________
John F. Mitchell
21
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Thomas J. Murrin Director 3/1/97
____________________________________
Thomas J. Murrin
/s/ Nicholas Negroponte Director 3/3/97
____________________________________
Nicholas Negroponte
/s/ John E. Pepper, Jr. Director 3/2/97
____________________________________
John E. Pepper, Jr.
/s/ Samuel C. Scott III Director 3/1/97
____________________________________
Samuel C. Scott III
/s/ Gary L. Tooker Director 3/4/97
____________________________________
Gary L. Tooker
/s/ William J. Weisz Director 3/1/97
____________________________________
William J. Weisz
/s/ B. Kenneth West Director 3/3/97
____________________________________
B. Kenneth West
/s/ John A. White Director 3/14/97
____________________________________
John A. White
22
EXHIBIT INDEX
EXHIBIT NO. EXHIBIT
----------- -------
3(i) Restated Certificate of Incorporation of Motorola, Inc., as
amended, including Certificate of Designation, Preferences
and Rights for Junior Participating Preferred Stock, Series
A (incorporated by reference to Exhibit 3(i)(b) to
Motorola's Quarterly Report on Form 10-Q for the fiscal
quarter ended April 2, 1994).
3(ii) By-Laws of Motorola, Inc., revised as of November 14, 1996.
4.1 Rights Agreement dated November 9, 1988 (incorporated by
reference to Exhibit (1) to Motorola's Registration
Statement on Form 8-A dated November 15, 1988).
4.2 Amendment to Rights Agreement dated August 7, 1990
(incorporated by reference to Exhibit 2 to Motorola's Form 8
dated August 9, 1990 amending Motorola's Registration
Statement on Form 8-A dated November 15, 1988).
4.3 Amendment No. 2 on Form 8 dated December 2, 1992 amending
Motorola's Registration Statement on Form 8-A dated November
15, 1988 (incorporated by reference to Motorola's Form 8
dated December 2, 1992).
4.3(a) Amendment No. 3 on Form 8-A/A dated February 28, 1994
amending Motorola's Registration Statement on Form 8-A dated
November 15,1988 (incorporated by reference to Motorola's
Amendment No. 3 on Form 8-A/A dated February 28, 1994).
4.4 LYONs Indenture dated September 1, 1989 (incorporated by
reference to Exhibit 4(a) to Motorola's Registration
Statement on Form S-3, Registration No. 33-30662).
4.5 Indenture dated as of March 15, 1985 between Motorola, Inc.
and Harris Trust and Savings Bank, as Trustee, and specimen
of 8.40% Debentures due August 15, 2031 under the Indenture
(incorporated by reference to Exhibits 4(C) and 4(B),
respectively, to Motorola's Current Report on Form 8-K dated
August 12, 1991).
4.6 Indenture dated as of October 1, 1991 between Motorola, Inc.
and Harris Trust and Savings Bank, as Trustee (incorporated
by reference to Exhibit 4.5 to Motorola's Annual Report on
Form 10-K for the fiscal year ended December 31, 1991).
4.7 Specimen of 7.60% Notes due January 1, 2007 (incorporated by
reference to Exhibit 4.6 to Motorola's Annual Report on Form
10-K for the fiscal year ended December 31, 1991).
4.8 Specimen of 6 1/2% Notes due March 1, 2008 (incorporated by
reference to Exhibit 4(B) to Motorola's Current Report on
Form 8-K dated March 1, 1993).
4.9 LYONs Indenture dated as of September 1, 1993 (incorporated
by reference to Exhibit 4(v) to Motorola's Quarterly Report
on Form 10-Q for the quarter ended October 2, 1993).
4.10 Indenture dated as of May 1, 1995 between Motorola, Inc. and
Harris Trust and Savings Bank, as Trustee (incorporated by
reference to Exhibit 4(d) to Motorola's Registration
Statement on Form S-3, Registration No. 33-56055).
4.11 Specimen of 7 1/2% Debentures due May 15, 2025 (incorporated
by reference to Exhibit 4(B) to Motorola's Current Report on
Form 8-K dated May 15, 1995).
4.12 Specimen of 6$% Debentures due September 1, 2025
(incorporated by reference to Exhibit 4.12 to Motorola's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1995).
10.1 Motorola Executive Incentive Plan, as amended through
November 23, 1993, including the Long Range Incentive
Program (incorporated by reference to Exhibit 10.1 to
Motorola's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993).
10.2 Motorola Long Range Incentive Plan of 1994 (incorporated by
reference to Exhibit 10.2 to Motorola's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993).
23
EXHIBIT NO. EXHIBIT
----------- -------
10.3 Share Option Plan of 1982, as amended through March 24, 1992
(incorporated by reference to Exhibit 10.3 to Motorola's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1990, Exhibit 10.2(a) to Motorola's Annual
Report on Form 10-K for the fiscal year ended December 31,
1991 and Exhibit 10.3 to Motorola's Annual Report on Form
10-K for the fiscal year ended December 31, 1992).
10.4 Share Option Plan of 1991, as amended through August 7, 1995
(incorporated by reference to Exhibit 10.4 to Motorola's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1993 and Exhibit 10.4 to Motorola's Report on
Form 10-K for the fiscal year ended December 31, 1995).
10.5 Resolutions Amending Sections 8 and 10(2) of the Share
Option Plan of 1982, and Resolutions Amending Sections 7 and
9(b) of the Share Option Plan of 1991, effective August 15,
1996.
10.6 Share Option Plan of 1996, as amended through August 15,
1996.
10.7 Motorola Elected Officers Supplementary Retirement Plan, as
amended through February 6, 1995 (incorporated by reference
to Exhibit 10.5 to Motorola's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994).
10.8 Executive Health Plan.
10.9 Accidental death and dismemberment insurance for MEIP
participants (incorporated by reference to Exhibit 10.7 to
Motorola's Annual Report on Form 10-K for the fiscal year
ended December 31, 1990).
10.10 Arrangement for directors' fees and retirement plan for non-
employee directors (description incorporated by reference
from pages 6 and 7 of Motorola's Proxy Statement for the
1997 annual meeting of stockholders).
10.11 Deferred Fee Plan for Outside Directors, as amended February
6, 1996 (incorporated by reference to Exhibit 10.9 to
Motorola's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995).
10.12 Motorola, Inc. Non-Employee Directors' Stock Plan, as
amended August 15, 1996.
10.13 Officers' Group Life Insurance Policy (incorporated by
reference to Exhibit 10.10 to Motorola's Annual Report on
Form 10-K for the fiscal year ended December 31, 1990).
10.14 Consultant Agreement dated May 1, 1996 between Motorola,
Inc. and John F. Mitchell (incorporated by reference to
Exhibit 99 to Motorola's Quarterly Report on Form 10-Q for
the quarter ended March 30, 1996).
10.15 Form of Termination Agreement in respect of a change in
control (incorporated by reference to Exhibit 10.15 to
Motorola's Annual Report on Form 10-K for the fiscal year
ended December 31, 1989).
10.16 Policy protecting salary and medical benefits of employees
in the event of an unsolicited change in control
(incorporated by reference to Exhibit 10.16 to Motorola's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1990).
10.17 Insurance policy covering non-employee Directors
(incorporated by reference to the description on page 6 of
Motorola's Proxy Statement for the 1997 annual meeting of
stockholders and to Exhibit 10.16 to Motorola's Annual
Report on Form 10-K for the fiscal year ended December 31,
1989).
24
EXHIBIT NO. EXHIBIT
----------- -------
10.18 Iridium Space System Contract between Motorola, Inc. and
Iridium, Inc., as amended to date, and Iridium
Communications Systems Operations and Maintenance Contract
between Motorola, Inc. and Iridium, Inc., as amended to date
(incorporated by reference to Exhibits 99.2 and 99.3,
respectively, to Motorola's Current Report on Form 8-K dated
August 2, 1993 and Exhibits 99(a) and 99(b), respectively,
to Motorola's Quarterly Report on Form 10-Q for the quarter
ended October 1, 1994).
11 Motorola, Inc. and Consolidated Subsidiaries Primary and
Fully Diluted Earnings Per Common and Common Equivalent
Share.
21 Subsidiaries of Motorola.
23 Consent of KPMG Peat Marwick LLP. See page 28 of the Annual
Report on Form 10-K of which this Exhibit Index is a part.
27 Financial Data Schedule (filed only electronically with
SEC).
25