UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the period ending April 2, 1994
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 number: 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 E. Algonquin Road, Schaumburg, Illinois 60196
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (708) 576-5000
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 [ ]
The number of shares outstanding, adjusted for the 2-
for-1 stock split, payable April 18, 1994 to stockholders of
record as of March 15, 1994, of each of the issuer's classes
of common stock, as of the close of business on April 2,
1994:
Class Number of Shares
Common Stock; $3 Par Value 558,457,255
Motorola, Inc. and Consolidated Subsidiaries
Index
Part I
Financial Information Page
Item 1 Financial Statements
Statements of Consolidated Earnings
Three-Month Periods ended
April 2, 1994 and April 3, 1993 3
Condensed Consolidated Balance Sheets
April 2, 1994 and December 31, 1993 4
Statements of Condensed Consolidated Cash Flows
Three-Month Periods ended
April 2, 1994 and April 3, 1993 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Part II
Other Information
Item 1 Legal Proceedings 12
Item 2 Changes in Securities 12
Item 4 Submission of Matters to a Vote of Security
Holders 12
Item 6 Exhibits and Reports on Form 8-K 13
Part I - Financial Information
Motorola, Inc. and Consolidated Subsidiaries
Statements of Consolidated Earnings
(Unaudited)
(In millions, except per share amounts)
Three Months Ended
April 2, April 3,
1994 1993
Net sales $ 4,693 $ 3,626
Costs and expenses
Manufacturing and other costs of sales 2,908 2,235
Selling, general and
administrative expenses 986 797
Depreciation expense 310 258
Interest expense, net 37 36
Total costs and expenses 4,241 3,326
Earnings before income taxes 452 300
Income taxes provided on earnings 154 96
Net earnings $ 298 $ 204
Net earnings per common and common equivalent share (1,2)
Fully diluted:
Net earnings per common and common
equivalent share $ 1.03 $ 0.72
Average common and common equivalent shares
outstanding, fully diluted (in millions) 294.7 287.9
(1) Before 2-for-1 stock split payable in the form of a 100
percent stock dividend on April 18, 1994. After the
stock split, fully diluted earnings per common and
common equivalent share in the first quarter was 51
cents in 1994 and 36 cents in 1993.
(2) Primary net earnings per common and common equivalent
share for the first quarters ended April 2, 1994 and
April 3, 1993 before the 2-for-1 stock split payable
April 18, 1994 was $1.03 and 73 cents, respectively, and
after the stock split was 51 cents and 36 cents,
respectively. Average primary common and common
equivalent shares outstanding for the quarters ended
April 2, 1994 and April 3, 1993 before the 2-for-1 stock
split payable April 18, 1994 were 294.7 million and
287.7 million, respectively.
See accompanying notes to condensed consolidated financial
statements.
Motorola, Inc. and Consolidated Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
(In millions)
April 2, December 31,
1994 1993
Assets
Cash and cash equivalents $ 728 $ 886
Short-term investments 330 358
Accounts receivable, less allowance for
doubtful accounts (1994, $91; 1993, $91) 2,678 2,476
Inventories 2,211 1,864
Other current assets 1,214 1,129
Total current assets 7,161 6,713
Property, plant and equipment, less
accumulated depreciation
(1994, $4,409; 1993, $4,160) 5,716 5,547
Other assets(1) 1,424 1,238
Total Assets $14,301 $13,498
Liabilities and Stockholders' Equity
Notes payable and current portion of
long-term debt $ 809 $ 555
Accounts payable 1,333 1,338
Accrued liabilities 2,695 2,496
Total current liabilities 4,837 4,389
Long-term debt 1,373 1,360
Other liabilities 1,329 1,340
Stockholders' equity (1) 6,762 6,409
Total liabilities and stockholders' equity $14,301 $13,498
(1) The Company adopted SFAS #115, "Accounting for Certain
Investments in Debt and Equity Securities", which
increased other assets and stockholders' equity by
immaterial amounts.
See accompanying notes to condensed consolidated financial
statements.
Motorola, Inc. and Consolidated Subsidiaries
Statements of Condensed Consolidated Cash Flows
(Unaudited)
(In millions)
Three Months Ended
April 2, April 3,
1994 1993
Net cash provided by operations $ 82 $ 380
Investing
Payments for property, plant and equipment (480) (325)
Decrease in short-term investments 28 1
Other investing activities (39) (49)
Net cash used for investing activities (491) (373)
Financing
Increase (decrease) in notes payable and
current portion of long-term debt 254 (80)
Increase in long-term debt 14 147
Payment of dividends to stockholders (31) (30)
Other financing activities 14 73
Net cash provided by financing activities 251 110
Increase (decrease) in cash and
cash equivalents $ (158) $ 117
See accompanying notes to condensed consolidated financial
statements.
Motorola, Inc. and Consolidated Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The Condensed Consolidated Balance Sheet as of April 2,
1994, the Statements of Consolidated Earnings for the
three-month periods ended April 2, 1994 and April 3,
1993, and the Statements of Condensed Consolidated Cash
Flows for the three-month periods ended April 2, 1994 and
April 3, 1993 have been prepared by the Company. In the
opinion of management, all adjustments (which include
reclassifications and normal recurring adjustments)
necessary to present fairly the financial position,
results of operations and cash flows at April 2, 1994 and
for all periods presented, have been made.
Certain information and footnote disclosures normally
included in the financial statements prepared in
accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that
these condensed consolidated financial statements be read
in conjunction with the financial statements and notes
thereto included in the Company's December 31, 1993
annual report to stockholders. The results of operations
for the three-month period ended April 2, 1994 are not
necessarily indicative of the operating results for the
full year.
Motorola adopted Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," effective
January 1, 1994, which increased Other Assets and
Stockholders' Equity on Motorola's unaudited condensed
consolidated balance sheet at April 2, 1994 by immaterial
amounts. Investments in debt and equity securities are
reported at fair value, except for debt securities the
Company intends to hold to maturity which are stated at
cost. Fair values are estimated based on quoted market
prices and interest rates as of the balance sheet date.
2. Inventories
Inventories consist of the following:
April 2, Dec. 31,
1994 1993
Finished goods $ 714 $ 584
Work in process and productions materials 1,497 1,280
$ 2,211 $ 1,864
3. Income Taxes
The Internal Revenue Service (IRS) has examined the
federal income tax returns for Motorola, Inc. through
1985 and the returns have been settled through 1983. In
connection with the audits for the years 1984 through
1987, the IRS has proposed adjustments to the Company's
income and tax credits for those years which would result
in substantial additional tax. The Company disagrees
with most of the proposed adjustments and is contesting
them. In the opinion of the Company's management, the
final disposition of these matters, and proposed
adjustments from other tax authorities, will not have a
material adverse effect on the consolidated business or
financial position of the Company.
4. Supplemental Cash Flows Information
Cash payments for income taxes were $169 million during the
first three months of 1994 and $43 million for the same
period a year earlier. Cash payments for interest expense
(net of amount capitalized) were $38 million and $36
million, for the first three-month periods of 1994 and 1993,
respectively.
Motorola, Inc. and Consolidated Subsidiaries
Management's Discussion and Analysis
of Financial Condition and Results of Operations
This commentary should be read in conjunction with the
sections of the following documents for a full understanding
of Motorola's financial position and results of operations:
from Motorola, Inc.'s 1993 Annual Report to Stockholders,
the Letter to Stockholders - Financial Results paragraph on
page 2, the Review of Operations section on pages 18 through
21, the Financial Review section on pages 22 through 24, and
the Consolidated Financial Statements and Footnotes to the
Consolidated Financial Statements, pages 26 through 37; and
from Motorola, Inc.'s Quarterly Report on Form 10-Q for the
period ending April 2, 1994, of which this commentary is a
part, the Condensed Consolidated Financial Statements and
Notes to the Condensed Consolidated Financial Statements,
pages 3 through 7.
Motorola, Inc. reported higher sales and earnings for the
first quarter of 1994. Sales rose to $4.69 billion in the
first quarter of 1994, up 29.4 percent from $3.63 billion a
year earlier. Earnings were $298 million, compared with
$204 million in the same period a year earlier. Primary and
fully diluted net earnings per common and common equivalent
share for the first quarter of 1994 were $1.03, before the 2-
for-1 stock split payable in the form of a 100 percent stock
dividend on April 18, 1994, to stockholders of record as of
March 15, 1994, and $.51 after the stock split. In the same
period a year earlier, primary earnings per common and
common equivalent share was $.73 before the 2-for-1 stock
split, and $.36 after the stock split; and, fully diluted
net earnings per common and common equivalent share was $.72
before the 2-for-1 stock split and $.36 after the stock
split. Motorola's net margin on sales (net earnings divided
by net sales) during the first quarter of 1994 was 6.4
percent compared to 5.6 percent a year earlier
Motorola's manufacturing and other costs of sales during the
first quarter of 1994 and 1993 were $2.91 billion, 62.0
percent of net sales, and $2.24 billion, 61.6 percent of net
sales, respectively. Motorola's wireless communications
businesses have been attracting significant price
competition for some time, which is expected to continue.
Motorola intends to protect and, if possible, improve its
market share in these businesses by utilizing its high
volume manufacturing capabilities. This may also mean
tolerating lower gross margins per unit. It is management's
current intention to budget selling, general and
administrative expense in line with this strategy.
Motorola's selling, general and administrative expenses
during the first quarter of 1994 were $986 million, 21.0
percent of sales, versus $797 million, 22.0 percent of
sales, a year ago. Included within these expenses for the
first quarter of 1994 was a higher level of expenses for
unique transactions, which included expenses pertaining to a
technology dispute and certain employee benefit programs.
Charges for these expenses, or other expenses, have been
incurred in varying degrees in most years and will likely
continue. Motorola's selling, general and administrative
expenses during the quarter also included a foreign exchange
loss, in comparison to a slight foreign exchange gain in the
year-earlier period.
Motorola adopted Statement of Financial Accounting Standards
(SFAS) No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," effective January 1, 1994, which
increased Other Assets and Stockholders' Equity on
Motorola's unaudited condensed consolidated balance sheet at
April 2, 1994 by immaterial amounts.
Inventories at April 2, 1994 increased by 18.6 percent or
$347 million, compared to inventories at December 31, 1993.
The Government Systems and Technology Group was a primary
contributor to the increase in inventory due to material
requirements for the Iridium (TM/SM) global personal
communications system. In addition, a group within
Motorola's General System Sector increased inventory for
certain wireless products in order to improve responsiveness
to customer orders. Motorola's internal consumption of some
of its products, generally semiconductors, crystals, ceramic
filters and batteries, also grew in the first quarter of
1994. Because of this growth, a larger amount of these
products remained in the inventory of Motorola's wireless
businesses than had previously been experienced.
Motorola's Semiconductor Product Sector continues to
experience limits on the amount of orders it can accept for
certain types of products, due to capacity constraints.
These constraints may also restrict Motorola's ability to
ship cellular telephones and certain other products. If
customer demand for semiconductors and wireless
communications products remains strong, Motorola does not
expect that these capacity constraints will ease until its
new wafer fabrication capacity becomes available. This is
not expected to occur until late 1994.
Orders for the Company's products are used to plan its
future production needs. Motorola has a general practice of
including in its reported order growth only those contracts
or commitments which are written and firm, and which it
believes will result in a sale within one year. For long-
term contracts, only the portion to be funded within a year
generally is recorded as an order. For products and
contracts involving certain new technologies, Motorola's
general practice is to defer recognition of revenues and
profits until technological feasibility is established or
customer acceptance is obtained.
General Systems Sector's segment sales rose to $1.67
billion, an increase of 57 percent from the first quarter of
1993. Orders increased 62 percent and operating profits
were higher than in the first quarter of 1993. In Japan, an
agreement was reached with Nippon Idou Tsushin Corp. (IDO)
to begin expanding the service area for the Motorola TACS
system in the Tokyo and Nagoya areas.
Segment sales in the Semiconductor Products Sector increased
26 percent from the first quarter of 1993 to $1.62 billion,
the 21st consecutive quarter of growth. Orders increased 15
percent and operating profits were higher than in the first
quarter of 1993. Orders increased in all major market
regions, led by the Americas and Japan, and in all four of
the Sector's major product groups. Among key market
segments, demand was highest in automotive, communication
and computing. Distributor orders were up significantly.
Construction began on a new design and development center in
Sendai, Japan. The sector began production in the newly
acquired wafer fabrication facility in Irvine, California.
In the Communications Segment businesses, composed of the
Land Mobile Products Sector and the Paging Products and
Wireless Data Groups, segment sales increased 20 percent to
$1.24 billion and operating profits were higher from the
first quarter of 1993. Orders increased 1 percent from the
first quarter of 1993. Land Mobile Products orders were
lower, as a decline in international markets more than
offset an increase in the United States. Paging Products
Group orders were higher, with strong order growth in the
U.S., but lower international orders, due to lower orders in
China. The business of the Land Mobile Products Sector is
increasingly becoming focused on large system awards and
their associated subscriber equipment, which increases the
potential for volatility in orders from period to period.
Motorola, Clearnet, Inc. and Nextel Communications, Inc.
announced the execution of an agreement in principle that
would create an Enhanced Specialized Mobile Radio (ESMR)
network across Canada that would use Motorola Integrated
Radio System equipment. As part of this agreement, a
subsidiary of Motorola would transfer its 800 MHz
specialized mobile radio businesses, systems and licenses in
a region of Canada to a new entity, in return for stock in
that entity. A binding commitment to complete this
transaction is subject to a number of significant
conditions, including, among other items, agreement on
definitive documents, receipt of all necessary governmental
approvals and approvals by specified boards of directors and
stockholders.
In the Government and Systems Technology Group, segment
sales increased 10 percent from the first quarter of 1993 to
$138 million, orders increased 241% from the year-earlier
period and the operating loss increased. A significant
portion of the order growth is attributable to the Iridium
global communications system, which continued on schedule
during the quarter.
In the Automotive, Energy and Controls Group, sales
increased 58 percent, orders increased 60 percent and
operating profits were higher from the first quarter of
1993. Results were up across all of the Group's major
businesses, led by energy and component products and
continued strength in automotive electronics. In the
Information Systems Group, sales declined 7 percent and
orders were 11 percent lower from the first quarter of 1993.
An operating loss was incurred during the first quarter of
1994, versus a profit in the year-earlier period. Delays in
new product introduction and competitive pricing pressures
adversely affected this Group's results. The results for
both of these Groups are reported as part of the "Other
Products" segment.
Motorola's notes payable and current portion of its long-
term debt increased to $809 million at April 2, 1994, an
increase of approximately 45.8 percent from the amount at
December 31, 1993, primarily due to increased capital
expenditures and material requirements. Net debt to net
debt plus equity (includes short-term investments
categorized as cash equivalents) rose to 16.7 percent at
April 2, 1994 from 11.9 percent at December 31, 1993.
During the quarter, Motorola also called its 11.5 percent
Eurodollar notes due 1997, effective May 9, 1994, at a rate
of 101 percent of their principal amount. The Company's
short-term credit facilities totaled $2.2 billion at April
2, 1994, of which $1.5 billion remain unused versus total
short-term credit facilities at December 31, 1993 totaling
$1.9 billion of which $1.5 billion then remained unused.
Motorola's current ratio (the ratio of current assets to
current liabilities) was 1.48 at April 2, 1994, compared to
1.53 at December 31, 1993.
Motorola's research and development expense was $410 million
in the first quarter of 1994, compared to $344 million in
the first quarter of 1993. Motorola continues to believe
that a strong commitment to research and development drives
long-term growth. At April 2, 1994, the Company's fixed
asset expenditures for the first quarter totaled $613
million, compared to $325 million in the first quarter of
1993. The Company is currently anticipating that fixed
asset and research and development expenditures incurred
during 1994 could total approximately $2.9 billion, and
approximately $1.7 billion, respectively; however, these
amounts are only estimates, and the actual expenditures
incurred may vary. Total fixed asset and research and
development expenditures for the year ended December 31,
1993 were $2.1 billion and $1.5 billion, respectively.
Return on average invested capital (net earnings divided by
the sum of stockholders' equity, long-term debt, and notes
payable and the current portion of long-term debt, less
short-term investments and cash equivalents) was 15.8
percent based on the performance of the four preceding
fiscal quarters ending April 2, 1994, compared with 10.8
percent based on the performance of the four preceding
fiscal quarters ending April 3, 1993.
TM/SM Iridium is a trademark and service mark of Iridium,
Inc.
Information by Industry Segment (Unaudited)
Summarized below are the Company's segment sales as defined
by industry segment for the quarters ended April 2, 1994 and
April 3, 1993:
(In millions) Q1 1994 Q1 1993 % Change
General Systems Products $1,667 $1,059 57
Semiconductor Products 1,615 1,282 26
Communications Products 1,242 1,031 20
Government and Systems
Technology Products 138 125 10
Other Products 541 408 33
Adjustments and eliminations (510) (279) 83
Industry segment totals $4,693 $3,626 29
Information for 1993 has been reclassified to reflect the
realignment of various business units.
Part II - Other Information
Item 1 - Legal Proceedings.
There are currently five cases pending in Phoenix, Arizona
arising out of alleged ground water, soil and air pollution
in Phoenix and Scottsdale, Arizona. (See Item 3 of the
Company's Annual Report on Form 10-K for the year ended
December 31, 1993.) In Lofgren et al. v. Motorola et al.,
plaintiffs have dismissed, without prejudice, their class
action allegations, and the Lofgren case has been
consolidated with Betancourt et al. v. Motorola et al. in
the Arizona Superior Court, Maricopa County. This
consolidated case now involves claims for personal injury by
approximately 70 individuals against Motorola and eleven
other defendants. In the opinion of management, the
ultimate disposition of these matters will not have a
material adverse effect on the business or financial
position of Motorola.
Item 2 - Changes in Securities.
The Company's Restated Certificate of Incorporation, which
defines the rights of the holders of the Company's common
stock, has been amended to increase the number of authorized
shares of the Company's common stock from 700,000,000 to
1,400,000,000. Such amendment generally permits the Board
of Directors of the Company to authorize the issuance of
additional shares of the Company's common stock without
further stockholder approval.
Item 3 - Defaults Upon Senior Securities.
Not applicable.
Item 4 - Submission of Matters to a Vote of Security Holders.
(a) and (c). The Company held its annual meeting of
stockholders on May 3, 1994, and the following matters were
voted on at that meeting:
1. The election of the following directors who will serve
until their successors are elected and qualified, or
their earlier death or resignation:
BROKER
DIRECTOR FOR WITHHELD NON-VOTES
Erich Bloch 235,672,627 876,825 0
David R. Clare 236,131,192 418,260 0
Wallace C. Doud 236,126,462 422,990 0
Christopher B. Galvin 236,118,086 431,366 0
Robert W. Galvin 236,120,954 428,497 0
John T. Hickey 235,667,758 881,694 0
Anne P. Jones 236,127,103 422,349 0
Donald R. Jones 236,676,908 872,544 0
Walter E. Massey 236,105,802 443,650 0
John F. Mitchell 236,130,895 418,557 0
Thomas J. Murrin 236,136,020 413,431 0
Samuel C. Scott III 236,130,763 418,689 0
Gary L. Tooker 236,132,860 416,592 0
Gardiner L. Tucker 235,674,005 875,446 0
William J. Weisz 235,681,369 868,083 0
B. Kenneth West 236,139,268 410,184 0
2. An amendment to the Company's Restated Certificate of
Incorporation to increase the authorized shares of common
stock, $3 par value, from 700,000,000 to 1,400,000,000
was approved by the following vote: For, 222,075,378 ;
Against, 13,247,266 ; Abstain, 1,226,808 and Broker Non-Votes, 0 .
3. The adoption of the Motorola Long Range Incentive Plan
of 1994 was approved by the following vote: For,
231,250,328 ; Against, 3,849,051 ; Abstain, 1,450,072 ;
and Broker Non-Votes, 0 .
4. A proposal concerning the creation of an independent
nominating committee was defeated by the following vote:
For, 21,594,925 ; Against, 178,444,754 ; Abstain,
9,794,178 ; and Broker Non-Votes, 26,715,594 .
Item 5 - Other Information.
Not applicable.
Item 6 - Exhibits and Reports on Form 8-K.
(a) Exhibits
3(i)(a) Certificate of Amendment of Restated
Certificate of Incorporation, filed May 5,
1994.
3(i)(b) Restated Certificate of Incorporation, as
amended through May 5, 1994, including
Certificate of Designation, Preferences and
Rights of Junior Participating Preferred
Stock, Series A.
3(ii) Bylaws of Motorola, Inc., as amended through
May 3, 1994.
11 Motorola, Inc. and Consolidated Subsidiaries
Primary and Fully Diluted Earnings Per Common
and Common Equivalent Share.
11.1 Motorola, Inc. and Consolidated Subsidiaries
Pro Forma Primary and Fully Diluted Earnings
Per Common and Common Equivalent Share Giving
Retroactive Effect to the March 15, 1994 2-
for-1 Stock Split.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the
first quarter of 1994.
Signature
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
MOTOROLA, INC.
(Registrant)
Date: May 9, 1994 By: /s/ Kenneth J. Johnson
Kenneth J. Johnson
Corporate Vice President and Controller
(Chief Accounting Officer and Duly
Authorized Officer of the Registrant)
EXHIBIT INDEX
Number Description of Exhibit Page No.
3(i)(a) Certificate of Amendment of Restated Certificate
of Incorporation, filed May 5, 1994. 16
3(i)(b) Restated Certificate of Incorporation, as
amended through May 5, 1994, including
Certificate of Designation, Preferences
and Rights of Junior Participating
Preferred Stock, Series A. 18
3(ii) Bylaws of Motorola, Inc., as amended through
May 3, 1994. 33
11 Motorola, Inc. and Consolidated Subsidiaries
Primary and Fully Diluted Earnings Per
Common and Common Equivalent Share. 48
11.1 Motorola, Inc. and Consolidated Subsidiaries
Pro Forma Primary and Fully Diluted Earnings
Per Common and Common Equivalent Share Giving
Retroactive Effect to the
March 15, 1994 2-for-1 Stock Split. 49