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 September 27, 1997
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: (847) 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 September 27, 1997:
Class Number of Shares
Common Stock; $3 Par Value 596,948,687
Motorola, Inc. and Consolidated Subsidiaries
Index
Part I
Financial Information Page
Item 1 Financial Statements
Statements of Consolidated Earnings
Three-Month and Nine-Month Periods ended
September 27, 1997 and September 28, 1996 3
Condensed Consolidated Balance Sheets at
September 27, 1997 and December 31, 1996 4
Statements of Condensed Consolidated Cash Flows
Nine-Month Periods ended
September 27, 1997 and September 28, 1996 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 15
Item 2 Changes in Securities 15
Item 3 Defaults Upon Senior Securities 15
Item 4 Submission of Matters to a Vote of Security Holders 15
Item 5 Other Information 15
Item 6 Exhibits and Reports on Form 8-K 16
Part I - Financial Information
Motorola, Inc. and Consolidated Subsidiaries
Statements of Consolidated Earnings
(Unaudited)
(In millions, except per share amounts)
Three Months Ended Nine Months Ended
Sept. 27, Sept. 28, Sept. 27, Sept. 28,
1997 1996 1997 1996
Net sales $ 7,353 $ 6,498 $21,516 $20,288
Costs and expenses
Manufacturing and other
costs of sales 4,986 4,489 14,389 13,792
Selling, general and
administrative expenses 1,332 1,041 3,975 3,239
Depreciation expense 595 609 1,732 1,708
Interest expense, net 30 42 98 140
Total costs and expenses 6,943 6,181 20,194 18,879
Earnings before income taxes 410 317 1,322 1,409
Income taxes provided on earnings 144 111 463 493
Net earnings $ 266 $ 206 $ 859 $916
Net earnings per common and common equivalent share (1)
Fully diluted:
Net earnings per common and
common equivalent share $ .44 $ .34 $ 1.41 $ 1.51
Average common and common
equivalent shares outstanding,
fully diluted (in millions) 613.6 609.1 613.6 609.1
Dividends paid per share $ .12 $ .12 $ .36 $ .32
(1) Average primary common and common equivalent shares outstanding
for the three months and nine months ended September 27, 1997 and
September 28, 1996 were 613.3 million and 609.0 million, respectively.
Primary earnings per common and common equivalent share were the same as
fully diluted for the three months ended September 27, 1997 and
September 28, 1996, respectively and the same as fully diluted for the
nine months ended September 27, 1997 and September 28, 1996.
See accompanying notes to condensed consolidated financial statements.
Motorola, Inc. and Consolidated Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
(In millions)
Sept. 27, December 31,
1997 1996
Assets
Cash and cash equivalents $ 1,768 $ 1,513
Short-term investments 291 298
Accounts receivable, less allowance for
doubtful accounts (1997, $171; 1996, $137) 4,547 4,035
Inventories 3,979 3,220
Other current assets 2,312 2,253
Total current assets 12,897 11,319
Property, plant and equipment, less
accumulated depreciation
(1997, $11,052; 1996, $9,830) 9,545 9,768
Other assets (1) 4,200 2,989
Total Assets $26,642 $24,076
Liabilities and Stockholders' Equity
Notes payable and current portion of
long-term debt $ 1,379 $ 1,382
Accounts payable 2,071 2,050
Accrued liabilities 5,202 4,563
Total current liabilities 8,652 7,995
Long-term debt 1,905 1,931
Other liabilities (1) 2,997 2,355
Stockholders' equity (1) 13,088 11,795
Total liabilities and stockholders' equity $26,642 $24,076
(1) SFAS No. 115 "Accounting for Certain Investments in Debt and
Equity Securities" requires the carrying value of certain investments to
be adjusted to their fair value which resulted in the Company recording
an increase to stockholders' equity, other assets and deferred taxes of
$624 million, $1,032 million and $408 million as of September 27, 1997;
and a decrease to stockholders' equity, other assets and deferred taxes
of $26 million, $43 million, and $17 million as of December 31, 1996.
See accompanying notes to condensed consolidated financial statements.
Motorola, Inc. and Consolidated Subsidiaries
Statements of Condensed Consolidated Cash Flows
(Unaudited)
(In millions)
Nine Months Ended
Sept. 27, Sept. 28,
1997 1996
Net cash provided by operations $ 1,930 $ 2,541
Investing
Payments for property, plant and equipment (1,883) (2,138)
Decrease in short-term investments 6 25
(Increase) decrease in other investing
activities 343 (203)
Net cash used for investing activities (1,534) (2,316)
Financing
Net increase (decrease) in commercial paper
and short-term borrowings (3) 213
Proceeds from issuance of debt 1 23
Repayment of debt (21) (33)
Payment of dividends to stockholders (214) (190)
Other financing activities 96 219
Net cash provided by (used for) (141) 232
financing activities
Net increase in cash and
cash equivalents $ 255 $ 457
Cash and cash equivalents, beginning of year $ 1,513 $ 725
Cash and cash equivalents, end of period $ 1,768 $ 1,182
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 September 27, 1997, the
Statements of Consolidated Earnings for the three-month and nine-month
periods ended September 27, 1997 and September 28, 1996, and the
Statements of Condensed Consolidated Cash Flows for the nine-month
periods ended September 27, 1997 and September 28, 1996 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 September 27, 1997 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 Form 10-K/A for the year ending December 31, 1996. The
results of operations for the three and nine-month periods ended
September 27, 1997, are not necessarily indicative of the operating
results for the full year.
2. Inventories
Inventories consist of the following (in millions):
Sept. 27, Dec. 31,
1997 1996
Finished goods $ 1,119 $ 830
Work in process and production materials 2,860 2,390
Inventories $3,979 $ 3,220
3. Income Taxes
The Internal Revenue Service (IRS) has examined the federal income tax
returns for Motorola, Inc. through 1991 and has settled the respective
returns through 1985. The IRS has completed its field audit of the
years 1986 and 1987. In connection with the 1986 and 1987 tax years,
the Company settled the returns for adjustments agreed to at the field
level. Certain adjustments were referred to the Appeals level of the
IRS and are expected to result in a net refund. With regard to the
1988-1991 tax years, the IRS has proposed certain 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 financial position,
liquidity or results of operations of the Company.
4. Supplemental Cash Flows Information
Cash payments for income taxes were $425 million during the first nine
months of 1997 and $355 million for the same period a year earlier.
Cash payments for interest expense (net of amount capitalized) were $180
million and $173 million for the first nine-month periods of 1997 and
1996, respectively.
5. Recent Accounting Pronouncements
The Company has evaluated the proforma effects of the recent accounting
pronouncement, SFAS No. 128 "Earnings Per Share" which will be effective
for fiscal years ending after December 15, 1997. Based on this
evaluation, the proforma effects are not material to the Company's
consolidated financial position, liquidity or results of operations.
The Financial Accounting Standards Board has recently issued two new
accounting standards, Statement 130, "Reporting Comprehensive Income"
and Statement 131, "Disclosures about Segments of an Enterprise and
Related Information". These statements will affect the disclosure
requirements for the 1998 annual financial statements. Currently, the
Company is evaluating the effects of these new statements.
6. Restatement of Financial Statements
After discussions with the Securities and Exchange Commission regarding
the 1995 sale of its U.S. 800 megahertz Specialized Mobile Radio
business, systems and licenses to Nextel Communications, Inc. for shares
of Nextel stock, the Company has restated its 1995 historical financial
statements and has made resulting reclassifications to the December 31,
1996 Consolidated Balance Sheet. As a result, the Company has amended
its Form 10-K for the year ending December 31, 1996 originally filed on
March 25, 1997, to reflect the restatement and reclassifications. These
condensed consolidated financial statements should be read in
conjunction with the Company's Form 10-K/A for the year ending December
31, 1996.
7. Reorganization of Businesses
On September 11, 1997, the Company announced its decision to exit the
MacOS(R)-compatible computer systems business. The Company's third
quarter financial results were negatively impacted as a result of this
decision and the associated special charge of $95 million before taxes,
equivalent to 10 cents per share after taxes. Excluding this special
charge, earnings for the three months ended September 30, 1997 would
have been $328 million, or 54 cents per share.
On July 1, 1997, the Company announced its decision to phase out its
participation in the dynamic random access memory (DRAM) market. The
Company's second quarter financial results were negatively impacted as a
result of this decision and the associated charge against pre-tax
earnings of $170 million or 18 cents per share. The charge related
primarily to the write down of both technology development costs and
manufacturing equipment.
The 1997 nine-month results include special charges totaling $265
million before taxes, equivalent to 28 cents per share after taxes, due
to the events noted in the two paragraphs above. Excluding these
special charges, nine-month 1997 earnings would have been $1.0 billion,
or $1.69 per share.
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
condition and results of operations: from Motorola, Inc.'s 1996 Summary
Annual Report to Stockholders, the Letter to Stockholders on page 2; and
from the Company's form 10-K/A, Management's Discussion and Analysis of
Financial Condition and Results of Operations, contained in Item 7, and
the Consolidated Financial Statements and Footnotes to the Consolidated
Financial Statements, contained in Item 8; and from Motorola, Inc.'s
Quarterly Report on Form 10-Q for the period ending September 27, 1997,
of which this commentary is a part, the Condensed Consolidated Financial
Statements and Notes to the Condensed Consolidated Financial Statements,
pages 3 through 7.
Results of Operations:
Sales were $7.4 billion in the third quarter of 1997, up 13 percent from
$6.5 billion a year earlier. In the first nine months, sales rose 6
percent to $21.5 billion from $20.3 billion in the first nine months of
1996.
Third quarter earnings were $266 million, or 44 cents per share,
compared with $206 million, or 34 cents per share in the third quarter
of 1996. The 1997 third quarter results include a special charge of $95
million before taxes, equivalent to 10 cents per share after taxes, as a
result of Motorola's decision in September to exit the
MacOS(R)-compatible computer systems business. Excluding the special
charge, earnings would have been $328 million, or 54 cents per share.
Earnings in the first nine months of 1997 were $859 million, or $1.41
per share, compared with $916 million, or $1.51 per share, a year
earlier. The 1997 nine-month results include special charges of $265
million before taxes, equivalent to 28 cents per share after taxes, as a
result of the decision to phase out of the dynamic random access memory
(DRAM) business, as well as the third quarter charge noted above.
Excluding these special charges, nine-month 1997 earnings would have
been $1.0 billion, or $1.69 per share. The per-share comparisons are on
a fully diluted basis per common and common equivalent share.
Net margin on sales was 3.6 percent in the third quarter, compared with
3.2 percent a year ago, while the first nine months, net margin was 4.0
percent against 4.5 percent in the year-earlier period. Excluding
special charges, these margins in 1997 would have been 4.5 percent in
the third quarter and 4.8 percent in the first nine months.
Cellular Products Segment sales increased 12 percent to $2.8 billion and
orders increased 13 percent. Operating profits were unchanged, but
would have declined except for a gain that resulted from the sale of an
investment. The segment includes results of the Cellular Subscriber
Sector (CSS), the Cellular Infrastructure Group (CIG) and the Network
Management Group.
CSS sales and orders increased, led by higher sales and orders in Pan
America and Europe, while sales and orders declined in the Asia-Pacific
region and Japan. Sales and orders for digital products for Global
System for Mobile Communications (GSM) continued to grow at a very
significant rate. Demand for StarTAC(TM) wearable cellular phones also
continued to grow at a very significant rate. CSS is currently capacity
constrained in both analog and GSM digital versions of the StarTAC
phone, as strong demand for these products has exceeded the presently
available supply of certain key semiconductor components.
CIG sales increased, as higher sales in the Pan American and
Asia-Pacific regions were largely offset by lower sales in Europe and
Japan. Orders were flat, led by increases in the Pan American and
Asia-Pacific regions, while they declined in Europe and Japan. Sales
and orders were lower in Japan due to the migration from existing
technology to Code Division Multiple Access (CDMA), in which CIG
announced a major award for a nationwide system in the first quarter of
1997.
Semiconductor Products Segment sales increased 12 percent to $2.1
billion, and orders rose 35 percent. The segment reported an operating
profit versus break-even results a year ago. The highest order growth
region was Asia Pacific, followed by Europe, the Americas and Japan. By
end markets, the computer/peripherals, distribution and communications
areas showed the highest growth. Consumer electronics orders and
automotive showed modest growth, while industrial orders and personal
computing orders declined.
Land Mobile Products Segment sales rose 37 percent to $1.3 billion.
Orders increased 8 percent and operating profits were higher. Orders
for iDEN(TM) equipment for integrated digital enhanced networks were
higher, primarily due to orders received from Nextel Communications,
Inc. for handsets and infrastructure for the continued rollout of its
nationwide network in the U.S. and from Nextel International, Inc. to
build a new iDEN system in Mexico.
Messaging, Information and Media Segment sales declined 13 percent to
$885 million and orders were down 44 percent. Operating profits were
lower. As indicated in September, results were negatively affected by
weakness in the world's two largest markets for paging products. In
China, the paging market experienced a larger-than-normal seasonal
downturn caused by a buildup of pager inventories in distribution
channels in the first half of 1997, as well as developing pricing
pressures. These conditions are expected to weaken further in the
fourth quarter. In the United States, paging operators continued to
control inventories tightly in order to improve their financial
positions and cash flow. The Company is reviewing various business
options related to its low-end modem business based in Huntsville, Ala.
Among the alternatives, it has retained an investment banker to explore
different business models, which could be a form of business combination
or sale.
Automotive, Energy and Components Sector sales increased 20 percent,
orders were up 17 percent, and operating profits were higher. The
sector's results are reported as part of the "Other Products" segment.
The energy products business improved, primarily due to higher orders
for batteries used in Motorola's StarTAC(TM) cellular phones and
iDEN(TM) handsets.
Space and Systems Technology Group sales increased 45 percent and orders
were down 28 percent. The decline in orders is attributable to the fact
that orders in the third quarter of 1996 were unusually high because of
recognition of bookings that had been delayed pending completion of some
of the financing of Iridium LLC. Group operating profits were higher.
The group's results are reported as part of the "Other Products"
segment. Another 22 satellites for the IRIDIUM(R) global communications
system were launched during the quarter, bringing the total number in
orbit to 34. 32 of the satellites are currently operational.
Additional launches for the 66-satellite constellation are scheduled
through May 1998. Initial testing of certain paging and telephony
functions has been successfully accomplished through orbiting
satellites. System testing will continue until the start of commercial
service, expected at the end of September 1998.
Motorola Computer Group sales increased 20 percent and orders were down
3 percent. The group recorded a larger operating loss than a year ago
because of a special charge. The group's results are reported as part
of the "Other Products" segment. The special charge related to the
group's plans to discontinue its MacOS(R)-compatible computer system
business in response to decisions by Apple Computer, Inc. to limit the
introduction of its new technology and phase out future licensing. The
group intends to focus its resources on its profitable embedded and
technical systems business, where it is a market leader. The group
announced an agreement to acquire Pro-Log Corp. of Monterey, Calif., a
manufacturer of industrial-grade single-board embedded computers and
enclosures based on CompactPCI(R) bus architecture. The agreement
strengthens the group's presence in the Intel processor-based CompactPCI
market.
Manufacturing costs during the quarter decreased to 68 percent of sales
versus 69 percent a year ago due largely to improved manufacturing
performance in the Semiconductor Products Segment.
Selling, general and administrative expenses were $1.3 billion, 18.1
percent of sales, versus $1.0 billion, 16.0 percent of sales, during the
year earlier period. The increase is largely attributable to the special
charge taken as a result of the decision to exit the MacOS(R)-compatible
computer systems business. As planned and previously disclosed, the
results also reflect the impact of increased expense in recognition of
Motorola's share of Iridium LLC's net losses, as well as increased
expenses in the commercialization of the flat panel display business.
The combined expenses for these items were $28 million in the quarter
versus $4 million a year ago. In the fourth quarter of 1997, Motorola
expects these expenses to total approximately $42 million.
Depreciation expense decreased 2 percent to $595 million for the third
quarter of 1997 in comparison with $609 million for the year-earlier
period due partly to significant reductions in fixed asset expenditures
in the Semiconductor Products Segment in both 1996 and 1997. Interest
expense declined. The tax rate of 35 percent of pre-tax profits is
identical to a year ago.
Liquidity and Capital Resources:
Inventories at September 27, 1997, increased by 24 percent or $759
million, compared to inventories at December 31, 1996. Property, plant
and equipment, less accumulated depreciation, decreased $223 million
since December 31, 1996.
Motorola's notes payable and current portion of its long-term debt
remained flat at $1.4 billion from the amount at December 31, 1996.
Long-term debt remained flat at $1.9 billion from the amount at December
31, 1996. 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 decreased to 10.7 percent at September 27, 1997
from 13.4 percent at December 31, 1996. The Company's total domestic
and foreign credit facilities aggregated $3.9 billion at September 27,
1997, of which $315 million were used and the remaining amount was not
drawn, but was available to back up outstanding commercial paper which
totaled $1.1 billion at September 28, 1997. In October of 1997, Iridium
LLC paid down $205 million of its credit facility guaranteed by
Motorola, reducing the maximum amount available under that facility to
$450 million. As announced earlier in 1997, Motorola agreed in
principle to increase Motorola's guarantee of Iridium LLC bank financing
by an additional $350 million to a total of $800 million.. As
previously reported, Iridium LLC may require additional financing,
possibly by the second quarter of 1998, to continue to make contractual
payments to Motorola. Iridium LLC currently is pursuing funding
options, but there can be no assurances as to the availability to
Iridium LLC of these funding options.
Off-balance sheet commitments to Nextel Communications, Inc. for
equipment financing aggregated approximately $450 million at the end of
the third quarter. Equipment financing commitments represent the
maximum amount available under the Company's arrangements with Nextel
and may not be completely utilized.
As of the end of the reporting period, the Company had no outstanding
interest rate swaps, currency swaps, or options relating to either its
debt instruments or investments.
The Company uses financial instruments to hedge, and therefore attempts
to reduce, its overall exposure to the effects of currency fluctuations
on cash flows. The Company's policy is not to speculate in financial
instruments for profit on the exchange rate price fluctuation, trade in
currencies for which there are no underlying exposures, or enter into
trades for any currency to intentionally increase the underlying
exposure. Instruments used as hedges must be effective at reducing the
risk associated with the exposure being hedged and must be designated as
a hedge at the inception of the contract. Accordingly, changes in
market values of hedge instruments must be highly correlated with
changes in market values of underlying hedged items both at inception of
the hedge and over the life of the hedge contract.
The Company's strategy is to offset the gains or losses of the financial
instruments against losses or gains on the underlying operational cash
flows or investments based on the operating business units' assessment
of risk. Currently, the Company primarily hedges firm commitments. The
Company expects that there could be hedges of anticipated transactions
or investments in foreign subsidiaries in the future.
Many of the Company's non-functional currency receivables and payables
which are denominated in major currencies that can be traded on open
markets are hedged. The Company uses forward contracts and options to
hedge these currency exposures. A portion of the Company's exposure is
to currencies which are not traded on open markets, such as those in
Latin America and China, and these are addressed, to the extent
reasonably possible, through managing net asset positions, product
pricing, and other means, such as component sourcing.
Assets and liabilities which are denominated in non-functional
currencies are translated to the functional currency on a monthly basis
and the resulting gain or loss is recorded within selling, general, and
administrative expenses in the income statement. Gains and losses on
hedges of existing assets or liabilities are marked to market on a
monthly basis and the result is recorded within selling, general, and
administrative expenses in the income statement. Gains and losses on
financial instruments which hedge firm future commitments are deferred
until such time as the underlying transactions are recognized or
recorded immediately when the transaction is no longer expected to
occur. The criteria used to support the election of deferred accounting
is in accordance with FAS 52 and FAS 80. The foreign exchange financial
instruments which hedge various investments in foreign subsidiaries are
marked to market monthly and the results are recorded in the equity
section. Other gains or losses on financial instruments that do not
qualify as hedges and which are terminated are recognized immediately as
income or expense.
As of September 27, 1997 and September 28, 1996, the Company had net
outstanding foreign exchange contracts totaling $1.6 billion and $1.3
billion, respectively. The following schedule shows the five largest
foreign exchange hedge positions as of September 27, 1997 and the
corresponding positions at September 28, 1996:
Millions of U.S. Dollars
Buy (Sell) Sept. 27, Sept. 28,
1997 1996 .
British Pound Sterling (383) (299)
Japanese Yen (359) (344)
German Deutschemark (224) (6)
Italian Lira (163) (98)
Taiwan Dollar (83) (36)
As of September 27, 1997 and September 28, 1996, outstanding foreign
exchange contracts primarily consisted of short-term forward contracts.
Net deferred losses on these forward contracts which hedge designated
firm commitments were immaterial at September 27, 1997.
As of the end of the reporting period, the Company had no derivatives
which hedge the value of its minority-owned equity investments.
However, the Company has entered into arrangements whereby the Company
may increase its percentage interest in certain affiliates at the option
of the other Shareholders or the Company at various dates. The value of
these arrangements was immaterial as of the end of the reporting period.
Motorola's research and development expense was $695 million in the
third quarter of 1997, compared with $617 million in the third quarter
of 1996. Research and development expenditures for the year ended
December 31, 1996 were $2.4 billion. The Company continues to believe
that a strong commitment to research and development drives long-term
growth. At September 27, 1997, the Company's fixed asset expenditures
for the third quarter totaled $831 million, compared with $579 million
in the third quarter of 1996. The Company is currently anticipating
that fixed asset expenditures for 1997 will be flat with the $3 billion
spent in 1996.
Return on average invested capital (net earnings divided by the sum of
stockholders' equity, long-term debt, notes payable and the current
portion of long-term debt, less short-term investments and cash
equivalents) was 7.8 percent based on the performance of the four
preceding fiscal quarters ending September 27, 1997, compared with 8.5
percent based on the performance of the four preceding fiscal quarters
ending September 28, 1996. Motorola's current ratio (the ratio of
current assets to current liabilities) was 1.49 at September 27, 1997,
compared to 1.42 at December 31, 1996.
Outlook:
The Company is continuing the process, which was initiated at the end of
1996, of reviewing businesses and development programs that have not
lived up to expectations while redirecting resources to core
technologies and development programs with the most potential. This
review process is expected to conclude by the end of the year and may
result in additional pre-tax charges of up to $100 million against
earnings in the fourth quarter.
Business Risks:
Statements that are not historical facts are forward-looking and involve
risks and uncertainties. These forward-looking statements include those
in "Outlook" and those about (i) Motorola's review of its businesses and
possible charges resulting therefrom, (ii) the continuation of weakness
in the market for paging products in China, (iii) exploration of
strategic options with regard to the analog modem business, (iv)
deployment and commercialization of IRIDIUM(R) products and services,
(v) the Iridium LLC financing negotiations, (vi) expenses relating to
Iridium LLC and the commercialization of the flat panel display
business, (vii) refocusing resources in connection with the exit from
the MacOS(R)-compatible computer systems business and (viii) fixed asset
expenditures. Motorola wishes to caution the reader that the factors
below along with the factors set forth in Motorola's 1996 Form 10/K-A on
pages 14 and 15 of Item 7 and in Motorola's other SEC filings could
affect, and in some cases have affected, Motorola's actual results
causing results to differ materially from those in any forward-looking
statement. These factors include: (i) the success of strategic
decisions to improve performance, (ii) the ability of Motorola to
contain costs and charges against earnings as a result of any actions
taken to improve performance, (iii) currency stability and the rate of
growth in emerging markets, (iv) unforeseen expenses in connection with
the decision to depart from the MacOS-compatible computer systems
business, (v) pricing of MacOS-compatible computer systems products
during the market exit period, (vi) pricing pressures and demand for
products, (vii) product and technology development and commercialization
risks and uncertainties, including unforeseen expenses, for new digital
technologies, newer messaging services, smartcards, new PowerPC(TM)
architecture, IRIDIUM products and services and flat panel displays;
(viii) the uncertainty of Iridium LLC future financing, (ix) continued
weak demand for paging products in China and North America, (x)
management's ability to integrate newly-acquired entities into
Motorola's overall business strategy, and (xi) the impact of any
strategic decisions relating to the analog modem business.
IRIDIUM(R) is a registered trademark and service mark of Iridium LLC.
MacOS(R) is a registered trademark of Apple Computer, Inc.
PowerPC(TM) is a trademark of IBM Corporation.
(R) Reg. U.S. Pat. & Tm. Off.
Motorola, Inc. and Consolidated Subsidiaries
Information by Industry Segment (Unaudited)
Summarized below are the Company's segment sales as defined by industry
segment for the three months and nine months ended September 27, 1997
and September 28, 1996:
Segment Sales
for the Three Months Ended
Sept. 27, Sept. 28,
(Dollars in millions) 1997 1996 % Change
Cellular Products $2,778 $2,474 12
Semiconductor Products 2,074 1,849 12
Messaging, Information and
Media Products 885 1,021 (13)
Land Mobile Products 1,280 935 37
Other Products 1,120 870 29
Adjustments and eliminations (784) (651) 21
Industry segment totals $7,353 $6,498 13
Segment Sales
for the Nine Months Ended
Sept. 27, Sept. 28,
(Dollars in millions) 1997 1996 % Change
Cellular Products $8,315 $7,725 8
Semiconductor Products 5,914 5,975 (1)
Messaging, Information and
Media Products 2,944 3,082 (5)
Land Mobile Products 3,417 2,709 26
Other Products 3,162 2,774 14
Adjustments and eliminations (2,236) (1,977) 13
Industry segment totals $21,516 $20,288 6
Part II - Other Information
Item 1 - Legal Proceedings
Motorola is a named defendant in seven cases arising out of alleged
groundwater, soil and air pollution in Phoenix and Scottsdale, Arizona.
Farr v. Motorola, a personal injury and wrongful death lawsuit based on
allegations of environmental contamination, was settled and dismissed
with prejudice on September 5, 1997. On August 8, 1997, Motorola was
served in Dawson, et al. v. Motorola, et al., a personal injury case
involving 16 plaintiffs and the same multiple defendants named in the
Lofgren, Bentancourt, Ford and Wilkins lawsuits. A portion of the
Lofgren matter has been set for trial on January 5, 1998.
Motorola is a defendant in several cases arising out of Motorola's
manufacture and sale of portable cellular telephones. On August 8, 1997,
Crist v. Motorola and Wright v. Motorola were dismissed without
prejudice.
See Item 3 of the Company's Form 10-K for the fiscal year ended December
31, 1996 and Item 1 of Part II of the Company's Forms 10-Q for the
periods ending March 29, 1997 and June 28, 1997 for additional
disclosures regarding pending cases.
In the opinion of management, the ultimate disposition of these matters
will not have a material adverse effect on the consolidated financial
condition, liquidity or results of operations of Motorola.
Item 2 - Changes in Securities
Not applicable.
Item 3 - Defaults Upon Senior Securities
Not applicable.
Item 4 - Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5 - Other Information
Sale of 100-Year Debentures.
On October 10, 1997, the Company sold an aggregate face principal amount
of $300 million of 5.22% Debentures due October 1, 2097. The Debentures
were issued at a price to the public of 75.55% of their face value. The
net proceeds to the Company from the issue and sale of the Debentures
were $224,383,500. The Company intends to use the proceeds to reduce
short-term indebtedness and for other general corporate purposes.
Stock Repurchase Program.
The Company has established the Motorola Stakeholders Plan, a worldwide
employee bonus plan that will generally be available to all employees
who are not eligible for the Motorola Executive Incentive Plan or
certain other bonus programs. In connection with the Stakeholders Plan,
which is effective as of January 1, 1997, the Motorola Worldwide RONA
Bonus Plan has been terminated. Pursuant to the Stakeholders Plan, if
the Company and its major business units meet certain financial targets,
the participants will receive an annual bonus paid 50% in cash and 50%
in shares of the Company's common stock (except in jurisdictions where
delivery of stock bonuses is not legally practical, in which
jurisdictions bonuses will be paid 100% in cash). If the financial
targets are met, bonuses will be calculated and paid in the first
quarter of the following year.
In connection with the Stakeholders Plan, the Company will be
implementing a stock repurchase program beginning in the fourth quarter
of 1997. From time to time the Company will purchase shares of its
common stock on the open market and hold those shares in treasury for
potential payment of bonuses under the Stakeholders Plan. The Company's
intent is that all shares obtained pursuant to this repurchase program
will be used in connection with the Stakeholders Plan. The Company
estimates that the number of shares of common stock acquired under the
repurchase program in any year will be less than 1% of the Company's
total number of shares of common stock outstanding.
Item 6 - Exhibits and Reports on Form 8-K.
(a) Exhibits
1 Underwriting Agreement dated October 7, 1997 by and among
Motorola, Inc., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Goldman, Sachs & Co. and Morgan Stanley & Co.
Incorporated.
4 Specimen of 5.22% Debenture due October 1, 2097.
11 Motorola, Inc. and Consolidated Subsidiaries Primary and Fully
Diluted Earnings Per Common and Common Equivalent Share for the
Three Months Ended September 27, 1997 and September 28, 1996.
11.1 Motorola, Inc. and Consolidated Subsidiaries Primary and Fully
Diluted Earnings Per Common and Common Equivalent Share for the
Nine Months Ended September 27, 1997 and September 28, 1996.
12 Calculation of Ratio of Earnings to Fixed Charges of the
Company.
27 Financial Data Schedule (filed only electronically with the
SEC).
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the third quarter of
1997.
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: Nov. 7, 1997 By: /s/ Kenneth J. Johnson
Kenneth J. Johnson
Senior Vice President and Controller
(Chief Accounting Officer and Duly
Authorized Officer of the Registrant)
EXHIBIT INDEX
Number Description of Exhibits
1 Underwriting Agreement dated October 7, 1997 by and among
Motorola, Inc., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Goldman, Sachs & Co. and Morgan Stanley & Co.
Incorporated.
4 Specimen of 5.22% Debenture due October 1, 2097.
11 Motorola, Inc. and Consolidated Subsidiaries
Primary and Fully Diluted Earnings Per
Common and Common Equivalent Share for the Three
Months Ended September 27, 1997 and September 28, 1996
11.1 Motorola, Inc. and Consolidated Subsidiaries
Primary and Fully Diluted Earnings Per
Common and Common Equivalent Share for the Nine
Months Ended September 27, 1997 and September 28, 1996
12 Calculation of Ratio of Earnings to Fixed Charges of the
Company
27 Financial Data Schedule
(filed only electronically with the SEC)