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 July 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 of each of the issuer's classes of
common stock, as of the close of business on July 2, 1994:
Class Number of Shares
Common Stock; $3 Par Value 565,821,503
MOTOROLA, INC. AND CONSOLIDATED SUBSIDIARIES
INDEX
PART I
FINANCIAL INFORMATION PAGE
Item 1 Financial Statements
Statements of Consolidated Earnings
Three-Month and Six-Month Periods ended
July 2, 1994 and July 3, 1993 3
Condensed Consolidated Balance Sheets
July 2, 1994 and December 31, 1993 4
Statements of Condensed Consolidated Cash Flows
Six-Month Periods ended
July 2, 1994 and July 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 13
Item 2 Changes in Securities 13
Item 3 Defaults Upon Senior Securities 13
Item 4 Submission of Matters to a Vote of Security
Holders 13
Item 5 Other Information 13
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 Six Months Ended
July 2, July 3, July 2, July 3,
1994 1993 1994 1993
Net sales $ 5,439 $ 3,936 $ 10,132 $ 7,562
Costs and expenses
Manufacturing and
other costs of sales 3,379 2,380 6,287 4,615
Selling, general and
administrative expenses 1,074 905 2,060 1,702
Depreciation expense 362 285 672 543
Interest expense, net 38 36 75 72
Total costs and expenses 4,853 3,606 9,094 6,932
Earnings before income taxes 586 330 1,038 630
Income taxes provided on
earnings 219 106 373 202
Net earnings $ 367 $ 224 $ 665 $ 428
Net earnings per share (1)
Fully diluted:
Net earnings per share $ 0.63 $ 0.40 $ 1.14 $ 0.76
Average common and common
equivalent shares outstanding,
fully diluted (in millions) 588.7 573.3 588.7 573.3
Dividends paid per share $ .07 $ .055 $ .125 $ .11
(1) Primary net earnings per share for the second quarters ended July 2, 1994
and July 3, 1993 were 63 cents and 40 cents, respectively. Average
primary common and common equivalent shares outstanding for the three and
six months ended July 2, 1994 and July 3, 1993 were 588.7 million and
572.1 million, respectively. For the six months ended July 2, 1994 and
July 3, 1993, primary net earnings per share were $1.14 and 76 cents,
respectively.
See accompanying notes to condensed consolidated financial statements.
MOTOROLA, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN MILLIONS)
July 2, December 31,
1994 1993
ASSETS
Cash and cash equivalents $ 683 $ 886
Short-term investments 301 358
Accounts receivable, less allowance for
doubtful accounts (1994, $103; 1993, $91)3,065 2,476
Inventories 2,372 1,864
Other current assets 1,346 1,129
Total current assets 7,767 6,713
Property, plant and equipment, less
accumulated depreciation
(1994, $4,713; 1993, $4,160) 6,222 5,547
Other assets (1) 1,467 1,238
Total Assets $15,456 $13,498
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable and current portion of
long-term debt $ 1,500 $ 555
Accounts payable 1,459 1,338
Accrued liabilities 2,656 2,496
Total current liabilities 5,615 4,389
Long-term debt 1,216 1,360
Other liabilities 1,417 1,340
Stockholders' equity (1) 7,208 6,409
Total liabilities and stockholders'
equity $15,456 $13,498
(1) Effective January 1, 1994, 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)
Six Months Ended
July 2, July 3,
1994 1993
NET CASH PROVIDED BY OPERATIONS $ 342 $ 669
INVESTING
Payments for property, plant and
equipment (1,470) (799)
Decrease in short-term investments 57 (19)
Other investing activities (34) (70)
Net cash used for investing activities (1,447) (888)
FINANCING
Increase in notes payable and
current portion of long-term debt 945 137
Increase (decrease) in long-term debt 6 (48)
Payment of dividends to stockholders (70) (60)
Other financing activities 21 183
Net cash provided by financing activities 902 212
DECREASE IN CASH AND
CASH EQUIVALENTS $ (203) $ (7)
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 July 2, 1994, the
Statements of Consolidated Earnings for the three-month and six-month
periods ended July 2, 1994 and July 3, 1993, and the Statements of
Condensed Consolidated Cash Flows for the six-month periods ended July 2,
1994 and July 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 July 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 and six-month periods ended July
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
July 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 (In millions):
July 2, Dec. 31,
1994 1993
Finished goods $ 714 $ 584
Work in process and productions
materials 1,658 1,280
$ 2,372 $ 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 that year. The settlement did not result in a material adverse
effect on the business or financial position of the Company. The IRS has
completed its field audit of the years 1986 and 1987. In connection with
these audits, 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 certain 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 $455 million during the first six
months of 1994 and $121 million for the same period a year earlier. Cash
payments for interest expense (net of amount capitalized) were $100
million and $72 million, for the first six-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 July 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 in the second quarter and
first half of 1994. Second-quarter sales rose 38 percent to $5.4 billion from
$3.9 billion in the second quarter of 1993. In the first half, sales reached
$10.1 billion, up 34 percent from $7.6 billion a year ago.
Second-quarter earnings were $367 million, compared with $224 million a year
earlier. Fully diluted earnings per share were 63 cents, compared to 40 cents
in the second quarter of 1993. Earnings in the first six months were $665
million, compared with $428 million a year earlier. Fully diluted earnings
per share were $1.14, compared to 76 cents a year earlier. The 1993 per-share
figures are restated for a 2-for-1 stock split on April 18, 1994.
Motorola's net margin on sales (net earnings divided by net sales) during the
second quarter of 1994 was 6.7 percent, compared with 5.7 percent a year ago,
while in the first half, it was 6.6 percent against 5.7 percent in the year-
earlier period.
Motorola's manufacturing and other costs of sales during the second quarter of
1994 and 1993 were $3.4 billion, 62 percent of net sales, and $2.4 billion, 60
percent of net sales, respectively. This is largely the result of the
continuing rapid growth of the cellular subscriber business, whose gross
margin (sales less manufacturing and other costs of sales) is lower than the
corporate average. Gross margin also declined in the cellular infrastructure
business and Paging Products and Wireless Data Group.
Price competition in Motorola's wireless communications businesses have
continued in the second quarter. 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 second
quarter of 1994 were $1.1 billion, 20 percent of sales, compared to $905
million, 23 percent of sales, a year ago. Included within these expenses for
the second quarter of 1994 was a higher level of expenses than a year ago for
certain employee benefit programs, marketing and distribution expenditures,
and a slightly larger foreign exchange loss. Charges for these expenses, or
other expenses, have been incurred in varying degrees in most years and will
likely continue.
Motorola has increased its effective tax rate to 37.5 percent during the
second quarter of 1994, in order to achieve a year-to-date tax rate of 36
percent to reflect a shift in the mix of its pre-tax earnings towards
countries with higher tax rates, including the United States.
Motorola adopted Statement of Financial Accounting Standards (SFAS) No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," effective
January 1, 1994. The adoption of the standard and subsequent changes in the
market value of investments in debt and equity securities has affected Other
Assets and Stockholders' Equity on Motorola's unaudited condensed consolidated
balance sheet at July 2, 1994 by immaterial amounts.
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.
Property, plant and equipment, less accumulated depreciation, increased $675
million since December 31, 1993 due, in part, to these and other capacity
expansions.
General Systems Sector's segment sales rose to $2.1 billion, an increase of 75
percent from the second quarter of 1993. Orders increased 46 percent and
operating profits were higher. Worldwide cellular orders again grew rapidly
for subscriber and infrastructure equipment. Cellular infrastructure sales
and profit performance was particularly strong during the second quarter of
1994 as previously deferred revenue and profit was recognized on the new
product introduction of the 1.56 GHz digital cellular system committed by Tuka
Tokyo. Revenues from this new 1.56 GHz technology are, however, expected to
be lower in the third quarter of 1994, by comparison. Motorola continues to
defer sales and profits for products and contracts involving certain
technologies, until technological feasibility is established or customer
acceptance is obtained. The MicroTAC Elite personal cellular phone, the
lightest phone presently available, was introduced. The sector also announced
plans for a major new facility in Harvard, Ill.
Segment sales in the Semiconductor Products Sector increased 23 percent from
the second quarter of 1993 to $1.7 billion, the 22nd consecutive quarter of
growth. Orders increased 17 percent and operating profits were higher than in
the second quarter of 1993. Among major regions, order growth was highest in
North America and all regions increased, except Asia/Pacific. Automotive,
communications and computing led the end-market segments in growth, and
distribution orders also increased. Order strength was spread across the
product portfolio, led by fast static random access memories, RISC (reduced
instruction set computer) microprocessors, communications/radio frequency
devices, advanced microcontrollers, and MOS digital-analog components.
In the Communications Segment businesses, composed of the Land Mobile Products
Sector and the Paging Products and Wireless Data Groups, segment sales
increased 26 percent to $1.4 billion and operating profits were higher. Orders
increased 28 percent from the second quarter of 1993. In the Land Mobile
Products Sector, order growth was led by North American markets.
International orders also increased in the quarter, with European orders
showing the best growth rate. Demand was high for Motorola Integrated Radio
System (MIRS) equipment. Paging orders also increased with about equal rates
of growth domestically and internationally. Orders in China rebounded from the
sharp decline of the first quarter, but remained below last year's second
quarter. However, because paging orders in China in the third quarter of 1993
were extremely strong, Motorola does not currently expect this year's third
quarter results in that market for paging products to exceed those of the
third quarter of 1993.
In the Government and Systems Technology Group, segment sales increased 22
percent from the second quarter of 1993 to $179 million, orders increased 82%
from the year-earlier period and the operating loss was smaller than a year
ago. The order growth in the quarter is attributable to the Iridium (TM/SM)
global communications program, which began receiving orders in the third
quarter of 1993. Development of the Iridium global communications system
continued on schedule during the quarter.
In the Automotive, Energy and Controls Group, sales increased 70 percent,
orders increased 77 percent and operating profits were higher compared to the
second quarter of 1993. The performance was led by strong demand for
component and energy products used primarily within Motorola's wireless
communications businesses, as well as strong demand for automotive electronics
products. In the Information Systems Group, sales declined 11 percent and
orders were 3 percent lower compared to the second quarter of 1993. An
operating loss was incurred during the second quarter of 1994, compared to a
profit in the year-earlier period. The results for both of these Groups are
reported as part of the "Other Products" segment.
As a result of the revenue growth in the first half of 1994, accounts
receivable have increased $589 million since December 31, 1993.
Inventories at July 2, 1994 increased by 27 percent or $508 million, compared
to inventories at December 31, 1993. The Government Systems and Technology
Group was a contributor to the increase in inventory due to material
requirements for the Iridium (TM/SM) global personal communications system. In
addition, the Cellular Subscriber Group within Motorola's General System
Sector increased inventory in order to improve responsiveness to customer
orders.
Motorola's notes payable and current portion of its long-term debt increased
to $1.5 billion at July 2, 1994, an increase of approximately 170 percent from
the amount at December 31, 1993, primarily due to increased capital
expenditures, material requirements, funding of acquisitions, increasing
federal income tax payments, and funding of the Motorola Profit Sharing and
Pension trusts. Net debt (notes payable and current portion of long-term
debt plus long-term debt less short-term investments and cash equivalents) to
net debt plus equity rose to 21.2 percent at July 2, 1994 from 11.9 percent at
December 31, 1993. The Company's short-term credit facilities totaled $2.2
billion at July 2, 1994, of which $1.0 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 1.38 at July 2, 1994, compared
to 1.53 at December 31, 1993.
The Company has entered into agreements during the quarter that may require it
to pay up to approximately $425 million to acquire investments in other
businesses. These payments could be made within one to three years of July 2,
1994.
Motorola's research and development expense was $455 million in the second
quarter of 1994, compared to $385 million in the second quarter of 1993. In
the first half of 1994, research and development expense was $865 million,
compared to $729 million a year ago. Motorola continues to believe that a
strong commitment to research and development drives long-term growth. The
Company's fixed asset expenditures for the second quarter of 1994 totaled $858
million, compared to $496 million for the second quarter of 1993. In the
first half of 1994, fixed asset expenditures were $1,471 million, compared to
$821 million a year ago. The Company is currently anticipating that fixed
asset and research and development expenditures incurred during 1994 could
total as much as approximately $3.5 billion, and approximately $1.8 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 $2.2 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 16.5 percent based on the performance of the four preceding fiscal
quarters ending July 2, 1994, compared with 11.8 percent based on the
performance of the four preceding fiscal quarters ending July 3, 1993.
TM/SM Iridium is a trademark and service mark of Iridium, Inc.
Motorola, Inc.
Information by Industry Segment (Unaudited)
Summarized below are the Company's segment sales as defined by industry
segment for the three and six months ended July 2, 1994 and July 3, 1993:
Segment Sales
for the three months ended (1)
(In millions) July 2, 1994 July 3, 1993 % Change
General Systems Products $ 2,072 $ 1,184 75
Semiconductor Products 1,713 1,388 23
Communications Products 1,414 1,125 26
Government and Systems
Technology Products 179 147 22
Other Products 611 432 41
Adjustments and eliminations (550) (340) 62
Industry segment totals $ 5,439 $ 3,936 38
Segment Sales
for the six months ended (1)
(In millions) July 2, 1994 July 3, 1993 % Change
General Systems Products $ 3,739 $ 2,243 67
Semiconductor Products 3,328 2,670 25
Communications Products 2,656 2,156 23
Government and Systems
Technology Products 317 272 17
Other Products 1,152 839 37
Adjustments and eliminations (1,060) (618) 72
Industry segment totals $ 10,132 $ 7,562 34
(1) Information for 1993 has been reclassified to reflect the realignment of
various business units.
PART II - OTHER INFORMATION
Items 1 - 5
Not applicable.
Item 6 - Exhibits and Reports on Form 8-K.
(a) Exhibits
11 Motorola, Inc. and Consolidated Subsidiaries
Primary and Fully Diluted Earnings Per Share
for the three months ended July 2, 1994 and
July 3, 1993.
11.1 Motorola, Inc. and Consolidated Subsidiaries
Primary and Fully Diluted Earnings Per Share
for the six months ended July 2, 1994 and
July 3, 1993.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the
second 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: July 18, 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.
11 Motorola, Inc. and Consolidated
Subsidiaries Primary and Fully Diluted
Earnings Per Share for the three months
ended July 2, 1994 and July 3, 1993. 16
11.1 Motorola, Inc. and Consolidated
Subsidiaries Primary and Fully Diluted
Earnings Per Share for the six months
ended July 2, 1994 and July 3, 1993. 17