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 October 1, 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 October 1, 1994:
Class Number of Shares
Common Stock; $3 Par Value 569,168,059
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
October 1, 1994 and October 2, 1993 3
Condensed Consolidated Balance Sheets at
October 1, 1994 and December 31, 1993 4
Statements of Condensed Consolidated Cash Flows
Nine-Month Periods ended
October 1, 1994 and October 2, 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 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 15
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
Oct. 1, Oct. 2, Oct. 1, Oct. 2,
1994 1993 1994 1993
Net sales $ 5,660 $ 4,408 $ 15,792 $ 11,970
Costs and expenses
Manufacturing and
other costs of sales 3,539 2,712 9,826 7,327
Selling, general and
administrative expenses 1,106 974 3,166 2,676
Depreciation expense 379 298 1,051 841
Interest expense, net 41 36 116 108
Total costs and expenses 5,065 4,020 14,159 10,952
Earnings before income taxes 595 388 1,633 1,018
Income taxes provided on
earnings 215 134 588 336
Net earnings $ 380 $ 254 $ 1,045 $ 682
Net earnings per share
Primary and Fully diluted:
Net earnings per share $ 0.65 $ 0.44 $ 1.79 $ 1.20
Average common and common
equivalent shares outstanding,
fully diluted (in millions)(1) 589.7 579.1 589.7 579.1
Dividends paid per share $ .070 $ .055 $ .195 $ .165
(1) Average primary common and common equivalent shares outstanding for the
three and nine months ended October 1, 1994 and October 2, 1993 were 589.1
million and 577.0 million, respectively.
See accompanying notes to condensed consolidated financial statements.
MOTOROLA, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN MILLIONS)
Oct. 1, December 31,
1994 1993
ASSETS
Cash and cash equivalents $ 734 $ 886
Short-term investments 330 358
Accounts receivable, less allowance for
doubtful accounts (1994, $111; 1993, $91) 3,282 2,476
Inventories 2,564 1,864
Other current assets 1,561 1,129
Total current assets 8,471 6,713
Property, plant and equipment, less
accumulated depreciation
(1994, $5,022; 1993, $4,160) 6,594 5,547
Other assets (1) 1,493 1,238
Total Assets $16,558 $13,498
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable and current portion of
long-term debt $ 1,900 $ 555
Accounts payable 1,527 1,338
Accrued liabilities 2,875 2,496
Total current liabilities 6,302 4,389
Long-term debt 1,148 1,360
Other liabilities 1,493 1,340
Stockholders' equity (1) 7,615 6,409
Total liabilities and stockholders' equity $16,558 $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)
NINE MONTHS ENDED
Oct. 1, Oct. 2,
1994 1993
NET CASH PROVIDED BY OPERATIONS $ 1,022 $ 1,253
INVESTING
Payments for property, plant and equipment (2,318) (1,298)
(Increase) Decrease in short-term investments 28 (71)
Other investing activities (161) (238)
Net cash used for investing activities (2,451) (1,607)
FINANCING
Increase in notes payable and
current portion of long-term debt 1,345 211
Increase (decrease) in long-term debt (8) 371
Payment of dividends to stockholders (109) (91)
Other financing activities 49 91
Net cash provided by financing activities 1,277 582
Net increase (decrease) in cash and
cash equivalents $ (152) $ 228
Cash and cash equivalents, beginning of year $ 886 $ 677
Cash and cash equivalents, end of period $ 734 $ 905
SUPPLEMENTAL CASH FLOW INFORMATION
(IN MILLIONS)
NINE MONTHS ENDED
Oct. 1, Oct. 2,
1994 1993
Non-Cash Activities:
Conversion of zero coupon notes due 2009 $225 $209
Issuance of common stock for investment acquisition -- $36
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 October 1, 1994, the
Statements of Consolidated Earnings for the three-month and nine-month
periods ended October 1, 1994 and October 2, 1993, and the Statements of
Condensed Consolidated Cash Flows for the nine-month periods ended October
1, 1994 and October 2, 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 October 1, 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, and the Company's December
31, 1993 Form 10-K, as amended by Form 10-K/A, dated October 21, 1994. The
results of operations for the three-month and nine-month periods ended
October 1, 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
October 1, 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):
Oct. 1, Dec. 31,
1994 1993
Finished goods $ 772 $ 584
Work in process and production materials 1,792 1,280
$ 2,564 $ 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 consolidated financial position, liquidity or results of
operations 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 financial position, liquidity or results
of operations of the Company.
4. SUPPLEMENTAL CASH FLOWS INFORMATION
Cash payments for income taxes were $715 million during the first nine
months of 1994 and $163 million for the same period a year earlier. The
increase in cash payments for income taxes results primarily from the
required quarterly estimated payments on 1994's estimated income tax
liabilities. This liability is expected to be higher because of the
Company's higher earnings in 1994.
Cash payments for interest expense (net of amount capitalized) were $135
million and $100 million, for the first nine-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, as amended by a Form 10-K/A dated
October 21, 1994, 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 October 1, 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.
RESULTS OF OPERATIONS:
Motorola, Inc. reported higher sales and earnings in the third quarter and
first nine months of 1994. Third-quarter sales rose 28 percent to $5.7
billion from $4.4 billion in the third quarter of 1993. In the first nine
months, sales reached $15.8 billion, up 32 percent from $12.0 billion a
year ago.
Third-quarter earnings were $380 million, compared with $254 million in the
third quarter of 1993. Fully diluted earnings per share were 65 cents, up 48
percent from 44 cents a year earlier. Earnings in the first nine months
were $1.05 billion, compared with $682 million in 1993. Fully diluted earnings
per share were $1.79, up 49 percent from $1.20 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) was 6.7
percent in the third quarter, compared with 5.7 percent a year ago, while in
the first nine months, it was 6.6 percent compared with 5.7 percent in the
year- earlier period.
Revenues increased, in part, due to a higher demand for the Company's
semiconductors in a widening range of applications in the telecommunications,
automotive, and other businesses. The Company's profitability also continues
to be positively affected by significant volume increases, driven by demand
for its products, combined with its current efforts to contain costs and
eliminate non-value-added activities.
Price competition in Motorola's wireless communications businesses have
continued in the third quarter. The Company 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. The Company has, in the recent past, been able to offset
declines in overall gross margins in its wireless businesses by limiting the
percentage growth in selling, general and administrative expenses to a rate
that is less than the percentage growth in revenues, although there is no
assurance that the Company will continue to be able to do so. It is
management's current intention to budget selling, general and administrative
expense in line with this strategy.
For both the third quarter and the nine months ended October 1, 1994, there
has been a gradual increase in the percent of the Company's total sales
occurring in international markets. This continues a long-term trend of
increasing international sales, which for all of 1993, represented 54 percent
of 1993 sales. While Motorola's sales in the United States are substantially
higher than a year ago, domestic sales have not grown as rapidly as sales in
the international markets. The Company continues to experience strong markets
in Latin America, japan, Europe, Asia-Pacific and the People's Republic of
China.
Motorola's manufacturing and other costs of sales during the third quarter of
1994 and 1993 were $3.5 billion, 63 percent of net sales, and $2.7 billion, 62
percent of net sales, respectively. The reasons for this increase include the
continued high growth of the Company's cellular subscriber business, which
experiences lower gross margins than the Company's average gross margins, and
the higher manufacturing costs experienced in the Company's semiconductor
business, resulting from inefficiencies associated with the process of
creating major elements of new manufacturing capacity.
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 somewhat 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
sufficient wafer fabrication capacity becomes available. A small amount of
this incremental capacity is presently expected to become available late in
the fourth quarter of 1994.
Motorola's selling, general and administrative expenses during the third
quarter of 1994 were $1.1 billion, 20 percent of sales, compared to $974
million, 22 percent of sales in the same quarter a year ago. By comparison to
the third quarter of 1994, the third quarter of 1993 included a higher level
of expenses for recurring charges related to the Company's ongoing evaluation
of its operations and its efforts to reduce non-valued added activities.
Property, plant and equipment, less accumulated depreciation, has increased
$1.0 billion since December 31, 1993, due to the semiconductor business and
other capacity expansions. Depreciation expense increased 27 percent for
the third quarter of 1994 in comparison to the year earlier period due to
increased fixed asset expenditures, which were primarily driven by
semiconductor business requirements.
The Company uses financial instruments to hedge, and therefore help reduce,
its overall exposure to the effects of currency fluctuations on cash flows of
foreign operations and investments in foreign countries. 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.
Motorola does not speculate in these financial instruments for profit on the
exchange rate price fluctuations alone. Motorola does not trade in currencies
for which there are no underlying exposures, and the Company does not enter
into trades for any currency to intentionally increase the underlying
exposure.
Essentially all the Company's non-functional currency receivables and payables
denominated in major currencies which can be traded on open markets are
hedged. Some 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.
Currently, the Company primarily hedges only firm commitments and net
investments. The Company expects that there could be hedges of anticipated
transactions in the future. The foreign exchange financial instruments which
hedge various investments in foreign subsidiaries are marked to market
monthly as are the underlying investments and the results are recorded in the
financial statements.
As of October 1, 1994 and October 2, 1993, the Company had net outstanding
foreign exchange contracts totaling $1.0 billion and $853 million,
respectively. The following schedule shows the five largest foreign exchange
hedge positions as of October 1, 1994, and the corresponding positions at
October 2, 1993:
MILLIONS OF U.S. DOLLARS
Buy (Sell) October 1, October 2,
1994 1993
Japanese Yen (484) (218)
German Deutsche Mark (221) (95)
French Franc (66) 32
British Pound Sterling (59) 209
Spanish Peseta (58) (47)
As of October 1, 1994 and October 2, 1993, outstanding foreign exchange
contracts primarily consisted of short-term forward contracts. Net deferred
losses on these forward contracts which hedge designated firm commitments
totaled $7 million at October 1, 1994. As of October 1, 1994, combination
options, all of which are cylinder options and are designated as hedges of
firm commitments, totaled $2 million and the corresponding net deferred loss
totaled $100,000. A cylinder option is composed of a pair of options in which
one option is purchased to provide downside protection, and the other option
is sold, limiting upside return, in order to reduce the premium paid.
As of October 1, 1994, the Company's finance subsidiary has outstanding
floating to fixed interest rate commercial paper swaps totaling $75 million
which effectively lock-in the interest rate spread earned on some of its
assets, as further described in note three of the Consolidated Financial
Statements disclosed in Motorola, Inc.'s 1993 Annual Report.
General Systems Sector's segment sales rose to $2.2 billion during the third
quarter of 1994, an increase of 63 percent from the third quarter of 1993.
Operating profits were higher. The Sector's growth in sales and operating
profits was driven by significant sales volume increases. As the number of
cellular telephone subscribers approaches 50 million worldwide, the Sector has
experienced a significant increase in demand for both cellular subscriber and
infrastructure products. Orders increased 61 percent, as worldwide cellular
orders again grew rapidly for both subscriber and infrastructure equipment.
Segment sales in the Semiconductor Products Sector during the third quarter of
1994 rose 18 percent to $1.8 billion, the 23rd consecutive quarter of growth.
Orders rose 18 percent and operating profits were higher. Among the major
regions, order growth was highest in Europe followed by the Americas and
Japan. Within market segments, orders increased in automotive,
communications, distribution, computers and consumer electronics. Within
major product groups, orders increased in communications and power devices,
bipolar analog and MOS digital-analog products, microcontrollers and memories.
The Sector has seen a decline in orders for one product line of its
microprocessors, primarily as the result of a major customer's transition to a
newer technology, which the customer is presently purchasing from another
supplier liquidity or results of operations. While segment operating profits
were higher, gross margins were lower because the Sector has experienced
higher costs resulting from inefficiencies associated with the process of
creating major elements of new manufacturing capacity.
In the Communications Segment businesses, composed of the Land Mobile Products
Sector and the Paging Products and Wireless Data Groups, sales rose 23 percent
during the third quarter of 1994 to $1.5 billion and operating profits were
higher than a year ago. Orders increased 16 percent from the third quarter of
1993. Land Mobile Products Sector orders increased, led by new digital
technologies and wide-area trunking systems. The amount of Land Mobile
Products order growth from domestic orders was approximately the same
as the amount of growth from international orders. Orders for Motorola
Integrated Radio System (MIRS) equipment contributed significantly to the
order growth. Nextel Communications, Inc. committed to a substantial
purchase, over the next five years, of MIRS equipment, which offers voice
dispatch, wireless phone, text messaging and data capabilities. Paging orders
also increased overall. Order growth was experienced in the United States,
Europe, and Japan when compared to last year's third quarter, offset by
substantially lower orders in the rest of the world. Paging orders from China
were flat when compared to the third quarter last year.
In the Government and Systems Technology Group, segment sales during the third
quarter declined 35 percent to $210 million. Orders were 21 percent lower than
a year ago, when the group recorded a $375 million order as part of the
initial funding of the Iridium global wireless personal communications system.
Excluding the Iridium program, orders would have been higher than a year ago.
An operating loss was incurred, compared to a profit a year ago. Development
of the Iridium system continued with all scheduled milestones achieved
during the quarter.
In the Automotive, Energy and Controls Group, sales rose 70 percent, orders
were 69 percent higher, and operating profits were higher. Automotive
electronics demand was high in the U.S. and Europe. Demand for component and
energy products, used primarily within Motorola's wireless communications
businesses, remained strong. In the Information Systems Group, group sales
rose 2 percent. Orders were flat, and operating profits were higher. The
results for both of these Groups are reported as part of the "Other Products"
segment.
LIQUIDITY AND CAPITAL RESOURCES:
Net accounts receivable increased $806 million since December 31, 1993,
largely due to the Company's significant revenue growth during the first nine
months of 1994 and an increase in the number of weeks of receivables to 7.1
from 6.1 at December 31, 1993.
Inventories at October 1, 1994 increased by 38 percent, or $700 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 global personal communications
system. In addition, the Cellular Subscriber Group within Motorola's General
System Sector increased inventory in order to help improve responsiveness to
customer orders.
The Company's notes payable and current portion of long-term debt increased to
$1.9 billion at October 1, 1994, an increase of approximately 242% 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 22.7 percent at October 1, 1994 from 11.9 percent at December 31, 1993.
Motorola's current ratio (the ratio of current assets to current liabilities)
was 1.34 at October 1, 1994, compared to 1.53 at December 31, 1993.
During the quarter, Motorola signed a definitive agreement with Nextel
Communications, Inc. under which Motorola will receive Nextel stock in
exchange for Motorola's 800 MHz specialized mobile radio service businesses,
systems and licenses in the continental United States. The agreement is
subject to various conditions, including regulatory approvals, completion of
certain transactions, and approval by Nextel stockholders. In connection with
the Nextel agreement, Motorola agreed to provide up to an additional $260
million in vendor financing, for the purchase of various specialized mobile
radio equipment and services by Nextel subsidiaries. In addition, the Company
has agreed to finance an additional $165 million, subject to various
conditions, of purchases of equipment and services by a OneComm Corporation
subsidiary.
During the quarter, the Company also signed agreements committing to purchase,
directly or indirectly, approximately $224 million of common shares from
Iridium, Inc. These commitments were a portion of the $733 million
of additional equity commitments received by Iridium, Inc., some of which are
conditional.
Motorola's research and development expense was $485 million in the third
quarter of 1994, compared to $384 million in the third quarter of 1993.
During the first nine months ended October 1, 1994, research and development
expense was $1,350 million, compared to $1,113 million a year ago. The
Company continues to believe that a strong commitment to research and
development drives long-term growth. The Company's fixed asset expenditures
for the third quarter of 1994 totaled $846 million, compared to $431 million
for the third quarter of 1993. During the first nine months ended October 1,
1994, fixed asset expenditures were $2,317 million, compared to $1,252 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 $3.4 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 16.7 percent based on the performance of the four preceding fiscal
quarters ending October 1, 1994, compared with 13.4 percent based on the
performance of the four preceding fiscal quarters ending October 2, 1993.
During the third quarter of 1994, the Company and its finance subsidiary
entered into one and five year revolving domestic credit agreements totaling
$1.5 billion with a group of banks, led by Chase Manhattan Bank as the agent.
These agreements replaced $800 million of bilateral domestic credit facilities
of the Company and its finance subsidiary and contain various conditions,
covenants and representations. At October 1, 1994, the Company's total
domestic and foreign credit facilities aggregated $2.5 billion, of which $256
million were used and the remaining $2.2 billion were not drawn, but were
available to back up outstanding commercial paper which totaled $1.6 billion
at October 1, 1994. Total domestic and foreign credit facilities at December
31, 1993 totaled $1.9 billion, of which $83 million were used and the
remaining $1.8 billion were not drawn, but were available to back up
outstanding commercial paper which totaled $293 million at December 31, 1993.
Subsequent to October 1, 1994, the Company filed a universal shelf
registration statement with the SEC covering up to $800 million of securities,
including common stock, which subsequently has been made effective. No
securities have been issued under this registration statement. The Company
believes that if it reaches the upper limits of its capital structure ratios,
it may consider an equity offering, either under the universal shelf
registration statement or otherwise.
(Insert registered symbol here) Iridium is a registered 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 nine months ended October 1, 1994 and October 2,
1993:
SEGMENT SALES
FOR THE THREE MONTHS ENDED (1)
(In millions) Oct. 1, 1994 Oct. 2, 1993 % Change
General Systems Products $ 2,197 $ 1,350 63
Semiconductor Products 1,772 1,506 18
Communications Products 1,456 1,182 23
Government and Systems
Technology Products 210 322 (35)
Other Products 617 423 46
Adjustments and eliminations (592) (375) 58
Industry segment totals $ 5,660 $ 4,408 28
SEGMENT SALES
FOR THE NINE MONTHS ENDED (1)
(In millions) Oct. 1, 1994 Oct. 2, 1993 % Change
General Systems Products $ 5,936 $ 3,593 65
Semiconductor Products 5,100 4,176 22
Communications Products 4,112 3,338 23
Government and Systems
Technology Products 527 594 (11)
Other Products 1,769 1,262 40
Adjustments and eliminations (1,652) (993) 66
Industry segment totals $ 15,792 $ 11,970 32
(1) Information for 1993 has been reclassified to reflect the realignment of
various business units.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The Company is currently involved in six cases pending in Phoenix, Arizona,
arising out of alleged groundwater, soil and air pollution in Phoenix and
Scottsdale, Arizona. The plaintiffs in Ford et al. v. Motorola et al., filed
a First Amended Complaint on September 22, 1994 in the Arizona Superior
Court, Maricopa County and served the lawsuit on Motorola on September 26,
1994. Ford involves claims for personal injury by approximately forty
individuals against Motorola and eleven other defendants. On August 24, 1994
the court in Baker et al. v. Motorola et al., granted plaintiffs' motion for
class certification. The court certified two classes, one alleging property
damage and the other seeking the establishment of a program for the monitoring
and detection of health problems from the alleged pollution. The property
class consists of all persons who were residents, property owners or lessees
of property which overlies or is adjacent to the alleged groundwater
pollution. The medical monitoring class consists 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. (See Item 3 of the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993, as amended by Form 10-K/A dated
October
21, 1994, and the Company's first and second quarter 1994 reports on Form 10-Q
for additional disclosures regarding cases arising out of alleged groundwater,
soil and air pollution in Phoenix and Scottsdale, Arizona.) In the opinion of
management, the ultimate disposition of these matters will not have a
material adverse effect on the consolidated financial position, liquidity or
results of operations of the Company.
ITEMS 2-5
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 October 1, 1994
and October 2, 1993.
11.1 Motorola, Inc. and Consolidated Subsidiaries
Primary and Fully Diluted Earnings Per Share
for the nine months ended October 1, 1994 and
October 2, 1993.
99(a) Amendment No. 4 to the Iridium Space System
Contract between the Company and Iridium,
Inc.
99(b) Amendment No. 4 to the Iridium Operation and
Maintenance Contract between the Company and
Iridium, Inc.
(b) Reports on Form 8-K
During the third quarter of 1994, the Company filed one current report on
Form 8-K, dated August 5, 1994, containing no financial statements, but
describing, under Item 5, the announcement of the execution of an
Agreement and Plan of Contribution and Merger with Nextel Communications,
Inc. and others, and including a copy of the Agreement under Item 7.
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: November 4, 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 October 1, 1994 and October 2,
1993. 18
11.1 Motorola, Inc. and Consolidated
Subsidiaries Primary and Fully Diluted
Earnings Per Share for the nine months
ended October 1, 1994 and October 2,
1993. 19
99(a) Amendment No. 4 to the Iridium Space
System Contract between the Company and
Iridium, Inc. 20
99(b) Amendment No. 4 to the Iridium Operation
and Maintenance Contract between the
Company and Iridium, Inc. 24
EXHIBIT 11
MOTOROLA, INC. AND CONSOLIDATED SUBSIDIARIES
PRIMARY AND FULLY DILUTED EARNINGS PER SHARE
THREE MONTHS ENDED OCTOBER 1, 1994 AND OCTOBER 2, 1993
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED
Oct. 1, Oct. 2,
1994 1993
Net Income $ 380 $ 254
Add:
Interest on Zero coupon notes due 2009
and 2013, net of tax and effect of
executive incentive and employee
profit sharing plans 3 4
Adjusted net income $ 383 $ 258
EARNINGS PER COMMON AND COMMON EQUIVALENT
SHARE - PRIMARY:
Weighted average common shares outstanding 561.6 546.4
Common equivalent shares:
Stock options 12.3 11.4
Zero coupon notes due 2009 and 2013 15.2 19.2
Common and common equivalent
shares - primary (in millions) 589.1 577.0
Net earnings per share - primary $ 0.65 $ 0.44
EARNINGS PER COMMON AND COMMON EQUIVALENT
SHARE - FULLY DILUTED:
Weighted average common shares outstanding 561.6 546.4
Common equivalent shares:
Stock options 12.9 13.5
Zero coupon notes due 2009 and 2013 15.2 19.2
Common and common equivalent
shares - fully diluted (in millions) 589.7 579.1
Net earnings per share - fully diluted $ 0.65 $ 0.44
EXHIBIT 11.1
MOTOROLA, INC. AND CONSOLIDATED SUBSIDIARIES
PRIMARY AND FULLY DILUTED EARNINGS PER SHARE
NINE MONTHS ENDED OCTOBER 1, 1994 AND OCTOBER 2, 1993
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
NINE MONTHS ENDED
Oct. 1, Oct. 2,
1994 1993
Net Income $ 1,045 $ 682
Add:
Interest on Zero coupon notes due 2009
and 2013, net of tax and effect of
executive incentive and employee
profit sharing plans 11 13
Adjusted net income $ 1,056 $ 695
EARNINGS PER COMMON AND COMMON EQUIVALENT
SHARE - PRIMARY:
Weighted average common shares outstanding 561.6 546.4
Common equivalent shares:
Stock options 12.3 11.4
Zero coupon notes due 2009 and 2013 15.2 19.2
Common and common equivalent
shares - primary (in millions) 589.1 577.0
Net earnings per share - primary $ 1.79 $ 1.20
EARNINGS PER COMMON AND COMMON EQUIVALENT
SHARE - FULLY DILUTED:
Weighted average common shares outstanding 561.6 546.4
Common equivalent shares:
Stock options 12.9 13.5
Zero coupon notes due 2009 and 2013 15.2 19.2
Common and common equivalent
shares - fully diluted (in millions) 589.7 579.1
Net earnings per share - fully diluted $ 1.79 $ 1.20
Exhibit 99(a)
AMENDMENT NO. 4
TO THE
IRIDIUM (Registered symbol inserted here) SPACE SYSTEM CONTRACT
WHEREAS, Motorola, Inc. (hereinafter called "Seller") and Iridium, Inc.
(hereinafter called "Buyer") have previously entered into that certain IRIDIUM
(Registered symbol inserted here) SPACE SYSTEM CONTRACT (hereinafter called
the "Space System Contract") effective December 15, 1992, and Amendments Nos.
1, 2, and 3 thereto, respectively dated March 15, 1993, May 21, 1993, and July
29, 1993; and,
WHEREAS, Seller and Buyer have also previously entered into that certain
IRIDIUM (Registered symbol inserted here) COMMUNICATIONS SYSTEM OPERATION AND
MAINTENANCE CONTRACT (hereinafter called the "O & M Contract") effective
December 15, 1992 and Amendments Nos. 1, 2 and 3 thereto, respectively dated
March 15, 1993, May 21, 1991 and July 29, 1993; and,
WHEREAS, pursuant to ARTICLE 18. PERMITS AND LICENSES and ARTICLE 11.
EXCUSABLE DELAYS of the Space System Contract, Seller, by its letter dated
July 15, 1994, has notified Buyer of the existence of an excusable delay (the
"Excusable Delay") resulting from the failure of the U.S. Federal
Communications Commission ("FCC") to issue a permit to Seller or its wholly-
owned subsidiary on or before July 1, 1994 to construct all of the spacecraft
and System Control Segment facilities of the Space System; and,
WHEREAS, Seller and Buyer are not able at this time to precisely
determine the full impact the Excusable Delay may have on the price and
performance schedule under the Space System Contract or under the O & M
Contract but have reached an agreement with respect to such Excusable Delay
impact for a period of time; and,
WHEREAS, Buyer and Seller have agreed that: a) the inflation adjustment
provisions in both the Space System Contract and the O & M Contract shall be
deleted completely; and, b) the scheduled completion date of Milestone 47
shall be extended to December 23, 1998 all in consideration of: 1) Seller's
assumption of the cost impact of the Excusable Delay until December 1, 1994;
2) Seller's assumption of the schedule impact of the Excusable Delay until
January 1, 1995; 3) revision of the Payment provisions to explicitly provide
that Milestone Payments will be made no later than thirty days following the
scheduled completion dates of the Milestones for Milestones completed early;
4) deletion of the Payment Guarantee provisions; 5) Seller's agreement to
accelerate the delivery of the preliminary and final versions of the Satellite
Subscriber Unit Interface Specification by one year; and, 6) revising Article
18, Paragraph H to not require Buyer to reimburse Seller for its costs if it
transfers the Space System construction and spectrum use license applications
or licenses to Buyer as provided in such paragraph.
NOW, THEREFORE, in consideration of the foregoing and pursuant to ARTICLE
10. CHANGES of the Space System Contract, Buyer and Seller agree to the
following changes to the Space System Contract:
1. Paragraph A of Article 18 of the Space System Contract is amended by
substituting the following two sentences for the third sentence thereof:
"In the event such permit to construct all of the spacecraft and System
Control Segment facilities is not issued by the FCC or other authorized
Government entity acceptable to Buyer (whether U.S. or foreign) to Seller or
its wholly-owned subsidiary on or before December 1, 1994, such situation
shall be treated as an excusable delay under ARTICLE 11. EXCUSABLE DELAYS, and
the price only of this Contract shall be adjusted accordingly for costs
incurred by Seller after December 1, 1994 as a result of the failure to obtain
such permit. In the event such permit to construct all of the spacecraft and
System Control Segment facilities is not issued by the FCC or other authorized
Government entity acceptable to Buyer (whether U.S. or foreign) to Seller or
its wholly-owned subsidiary on or before January 1, 1995, such situation
shall be treated as an excusable delay under ARTICLE 11. EXCUSABLE DELAYS, and
the price and schedule of this Contract shall be adjusted accordingly for
costs incurred by Seller after December 1, 1994 and for schedule delays
incurred by Seller after January 1, 1995 as a result of failure to obtain such
permit."
2. Substitute the following paragraph for Paragraph H of Article 18 of the
Space System Contract:
"Seller agrees that, upon request of Buyer, if the written opinion of
Seller's legal counsel concludes that Buyer is lawfully qualified to hold the
approvals, permits and licenses to construct, launch and operate the Space
System obtained by Seller pursuant to Paragraph A above, Seller will use its
best reasonable efforts to promptly apply for and obtain appropriate
authorization from the FCC to transfer such approvals, permits and licenses,
including any pending applications therefore, at no cost to Buyer except for
those costs that may result from FCC implementation of an auction approach to
issuing such permits, licenses, or approvals. Neither the application to
transfer nor the issuance of any license to Buyer pursuant thereto shall
affect the rights and obligations of the parties hereto except the obligations
of Seller as provided by Paragraphs A, B, and C above, which shall also
completely transfer to Buyer upon transfer of such approvals, permits and
licenses to Buyer. In the event the FCC adopts an auction approach to issuing
any of the permits, licenses or approvals contemplated by this Article,
Seller and Buyer agree to negotiate in good faith a mutually acceptable
arrangement with respect to such auctions."
3. Substitute the following paragraph for Paragraph B of Article 5 of the
Space System Contract:
"In the event Seller completes a specific milestone prior to the
scheduled completion date in Exhibit A (as such dates may be adjusted pursuant
to the terms of this Contract), Buyer shall not be obligated to make the
payment associated with such milestone until thirty days after such scheduled
completion date."
4. The scheduled completion date of Milestone 27 as reflected on Exhibit A
to the Space System Contract is hereby changed from October 29, 1996 to
October 29, 1995. The dollar Amount Due for Milestone 27 as reflected on
Exhibit A to the Space System Contract is hereby changed from $100,000,000 to
$0.
5. The scheduled completion date of Milestone 37 as reflected on Exhibit A
to the Space System Contract is hereby changed from October 29, 1997 to
October 29, 1996. The dollar Amount Due for Milestone 37 as reflected on
Exhibit A to the Space System Contract is hereby changed from $50,000,000 to
$150,000,000.
6. The scheduled completion date of Milestone 47 as reflected on Exhibit A
to the Space System Contract is hereby changed from October 8, 1998 to
December 23, 1998.
7. The following terms and conditions of the Space System Contract are
deleted, and the effect of this deletion shall be to treat such deleted terms
and conditions as having not been a part of the Space System Contract from its
inception:
a. Paragraph C of ARTICLE 4. PRICE
b. Paragraph D of ARTICLE 5. PAYMENT
c. ARTICLE 6. PAYMENT GUARANTEE
8. All terms and conditions of the Space System Contract, as amended prior
to the date hereof, which are not amended or modified hereby shall remain
unaffected and in full force and effect.
IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 4 to
the Space System Contract, consisting of this and the preceding two pages,
effective this 25th day of October, 1994.
MOTOROLA, INC. IRIDIUM, INC.
By: By:
Title: Title:
Exhibit 99(b)
AMENDMENT NO. 4
TO THE
IRIDIUM (Registered symbol inserted here) OPERATIONS AND MAINTENANCE CONTRACT
WHEREAS, Motorola, Inc. (hereinafter called "Contractor") and Iridium,
Inc. (hereinafter called "Owner") have previously entered into that certain
IRIDIUM (Registered symbol inserted here) SPACE SYSTEM CONTRACT (hereinafter
called the "Space System Contract") effective December 15, 1992, and
Amendments Nos. 1, 2, and 3 thereto, respectively dated March 15, 1993, May
21, 1993, and July 29, 1993; and,
WHEREAS, Contractor and Owner have also previously entered into that
certain IRIDIUM (Registered symbol inserted here) COMMUNICATIONS SYSTEM
OPERATION AND MAINTENANCE CONTRACT (hereinafter called the "O & M Contract")
effective December 15, 1992 and Amendments Nos. 1, 2 and 3 thereto,
respectively dated March 15, 1993, May 21, 1991 and July 29, 1993; and,
WHEREAS, pursuant to ARTICLE 15. PERMITS AND LICENSES and ARTICLE 8.
EXCUSABLE DELAYS of the O & M Contract, Contractor, by its letter dated July
15, 1994, has notified Owner of the existence of an excusable delay (the
"Excusable Delay") resulting from the failure of the U.S. Federal
Communications Commission ("FCC") to issue a permit to Contractor or its
wholly-owned subsidiary on or before July 1, 1994 to construct all of the
spacecraft and System Control Segment facilities of the Space System; and,
WHEREAS, Contractor and Owner are not able at this time to precisely
determine the full impact the Excusable Delay may have on the price and
performance schedule under the Space System Contract or under the O & M
Contract but have reached an agreement with respect to such Excusable Delay
impact for a period of time; and,
WHEREAS, Owner and Contractor have agreed that: a) the inflation
adjustment provisions in both the Space System Contract and the O & M Contract
shall be deleted completely; and, b) the scheduled completion date of
Milestone 47 shall be extended to December 23, 1998 all in consideration of:
1) Contractor's assumption of the cost impact of the Excusable Delay until
December 1, 1994; 2) Contractor's assumption of the schedule impact of the
Excusable Delay until January 1, 1995; 3) revision of the Payment provisions
to explicitly provide that Milestone Payments will be made thirty days
following the scheduled completion dates of the Milestones for Milestones
completed early; 4) deletion of the Payment Guarantee provisions; 5)
Contractor's agreement to accelerate the delivery of the preliminary and final
versions of the Satellite Subscriber Unit Interface Specification by one year;
and, 6) revising Article 15, Paragraph H of the O & M Contract to not require
Owner to reimburse Contractor for its costs if it transfers the Space System
construction and spectrum use license applications or licenses to Owner as
provided in such paragraph.
NOW, THEREFORE, in consideration of the foregoing and pursuant to ARTICLE
7. CHANGES of the O & M Contract, Owner and Contractor agree to the following
changes to the O & M Contract:
1. Paragraph A of Article 15 of the O & M Contract is amended by
substituting following two sentences for the third sentence thereof:
"In the event such permit to construct all of the spacecraft and System
Control Segment facilities is not issued by the FCC or other authorized
Government entity acceptable to Owner (whether U.S. or foreign) to Contractor
or its wholly-owned subsidiary on or before December 1, 1994, such situation
shall be treated as an excusable delay under ARTICLE 8. EXCUSABLE DELAYS, and
the price only of this Contract shall be adjusted accordingly for costs
incurred by Contractor after December 1, 1994 as a result of failure to obtain
such permit. In the event such permit to construct all of the spacecraft
and System Control Segment facilities is not issued by the FCC or other
authorized Government entity acceptable to Owner (whether U.S. or foreign) to
Contractor or its wholly-owned subsidiary on or before January 1, 1995, such
situation shall be treated as an excusable delay under ARTICLE 8. EXCUSABLE
DELAYS, and the price and schedule of this Contract shall be adjusted
accordingly, for costs incurred by Contractor after December 1, 1994 and for
schedule delays incurred after January 1, 1995 as a result of failure to
obtain such permit."
2. Substitute the following paragraph for Paragraph H of Article 15 of the O
& M Contract:
"Contractor agrees that, upon request of Owner, if the written opinion of
Contractor's legal counsel concludes that Owner is lawfully qualified to hold
the approvals, permits and licenses to construct, launch and operate the Space
System obtained by Contractor pursuant to Paragraph A above, Contractor will
use its best reasonable efforts to promptly apply for and obtain appropriate
authorization from the FCC to transfer such approvals, permits and licenses,
including any pending applications therefore, to Owner at no cost to Owner
except for those costs that may result from FCC implementation of an auction
approach to issuing such permits, licenses, or approvals. Neither the
application to transfer nor the issuance of any license to Owner pursuant
thereto shall affect the rights and obligations of the parties hereto except
the obligations of Contractor as provided by Paragraphs A, B, and C above,
which shall also completely transfer to Owner upon transfer of such approvals,
permits and licenses to Owner. In the event the FCC adopts an auction
approach to issue any of the permits, licenses or approvals contemplated by
this Article, Contractor and Owner agree to negotiate in good faith a mutually
acceptable arrangement with respect to such auctions."
3. The following terms and conditions of the O&M Contract are deleted, and
the effect of this deletion shall be to treat such deleted terms and
conditions as having not been a part of the O&M Contract from its inception:
a. Paragraph E of ARTICLE 4. CONTRACTOR'S COMPENSATION
b. Paragraphs B and C of ARTICLE 5. PAYMENT
4. All terms and conditions of the O&M Contract, as amended prior to the
date hereof, which are not amended or modified hereby shall remain unaffected
and in full force and effect.
IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 4 to
the O&M Contract, consisting of this and the preceding two pages, effective
this 25th day of October, 1994.
MOTOROLA, INC. IRIDIUM, INC.
By: By:
Title: Title:
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> OCT-01-1994
<CASH> 734
<SECURITIES> 330
<RECEIVABLES> 3393
<ALLOWANCES> 111
<INVENTORY> 2564
<CURRENT-ASSETS> 8471
<PP&E> 11616
<DEPRECIATION> 5022
<TOTAL-ASSETS> 16558
<CURRENT-LIABILITIES> 6302
<BONDS> 1148
<COMMON> 1708
0
0
<OTHER-SE> 5907
<TOTAL-LIABILITY-AND-EQUITY> 16558
<SALES> 15792
<TOTAL-REVENUES> 0
<CGS> 9826
<TOTAL-COSTS> 12992<F1>
<OTHER-EXPENSES> 1051<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 116
<INCOME-PRETAX> 1633
<INCOME-TAX> 588
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1045
<EPS-PRIMARY> 1.79
<EPS-DILUTED> 1.79
<FN>
<F1>Total cost includes cost of goods sold and selling, general, and administrative
expense.
<F2>Other expense includes depreciation expense.
</FN>
</TABLE>
