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 3, 1999
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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
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MOTOROLA, INC.
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(Exact name of registrant as specified in its charter)
Delaware 36-1115800
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(State of Incorporation) (I.R.S. Employer Identification No.)
1303 E. Algonquin Road, Schaumburg, Illinois 60196
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 576-5000
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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 [ ]
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The number of shares outstanding of each of the issuer's classes of
common stock as of the close of business on July 3, 1999:
Class Number of Shares
----- ----------------
Common Stock; $3 Par Value 607,196,695
Motorola, Inc. and Subsidiaries
Index
Part I
Financial Information Page
Item 1 Financial Statements
Condensed Consolidated Statements of Operations for the
Three-Month and Six-Month Periods Ended
July 3, 1999 and June 27, 1998 3
Condensed Consolidated Balance Sheets as of
July 3, 1999 and December 31, 1998 4
Condensed Consolidated Statement of Stockholders'
Equity for the Six-Month Period Ended July 3, 1999 5
Condensed Consolidated Statements of Cash Flows for the
Six-Month Periods Ended July 3, 1999 and
June 27, 1998 6
Notes to Condensed Consolidated Financial
Statements 7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
Part II
Other Information
Item 1 Legal Proceedings 35
Item 2 Changes in Securities 35
Item 3 Defaults Upon Senior Securities 35
Item 4 Submission of Matters to a Vote of Security Holders 36
Item 5 Other Information 36
Item 6 Exhibits and Reports on Form 8-K 36
Part I - Financial Information
Motorola, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
(In millions, except per share amounts)
Three Months Ended Six Months Ended
------------------ ----------------
July 3, June 27, July 3, June 27,
1999 1998 1999 1998
------- ------- ------- -------
Net sales $ 7,513 $ 7,023 $14,745 $13,909
------- ------- ------- -------
Costs and expenses
Manufacturing and other
costs of sales 4,389 4,318 8,641 8,445
Selling, general and
administrative expenses 1,403 1,329 2,803 2,550
Restructuring and other charges --- 1,980 --- 1,980
Research & development
expenditures 811 722 1,555 1,425
Depreciation expense 564 518 1,114 1,058
Interest expense, net 51 53 93 91
------ ------ ------ ------
Total costs and expenses 7,218 8,920 14,206 15,549
------ ------ ------ ------
Earnings (loss) before income taxes 295 (1,897) 539 (1,640)
Income tax provision (benefit) 89 (569) 162 (492)
------ ------- ------ -------
Net earnings (loss) $ 206 $(1,328) $ 377 $(1,148)
====== ======= ====== =======
Net earnings (loss) per common share
Basic $ .35 $ (2.22) $ .63 $ (1.92)
====== ======= ====== =======
Diluted $ .33 $ (2.22) $ .61 $ (1.92)
====== ======= ====== =======
Weighted average common shares
outstanding
Basic 604.6 597.9 603.4 597.6
====== ====== ====== ======
Diluted 622.4 597.9 619.8 597.6
====== ====== ====== ======
Dividends paid per share $ .12 $ .12 $ .24 $ .24
====== ====== ====== ======
See accompanying notes to condensed consolidated financial statements
Motorola, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In millions)
(Unaudited)
July 3, December 31,
1999 1998
------ ------
Assets
Cash and cash equivalents $ 2,358 $ 1,453
Short-term investments 291 171
Accounts receivable, net 5,338 5,057
Inventories 3,765 3,745
Deferred income taxes 2,519 2,362
Other current assets 787 743
------- -------
Total current assets 15,058 13,531
------- -------
Property, plant and equipment, net 9,613 10,049
Other assets 7,076 5,148
------- -------
Total assets $31,747 $28,728
======= =======
Liabilities and Stockholders' Equity
Notes payable and current portion of
long-term debt $ 1,877 $ 2,909
Accounts payable 2,484 2,305
Accrued liabilities 6,365 6,226
------- -------
Total current liabilities 10,726 11,440
------- -------
Long-term debt 3,119 2,633
Deferred income taxes 2,011 1,188
Other liabilities 1,729 1,245
Company-obligated mandatorily redeemable
preferred securities of subsidiary trust
holding solely company-guaranteed debentures 484 -----
Stockholders' Equity
Preferred stock, $100 par value issuable
in series ----- -----
Common Stock, $3 par value 1,822 1,804
Additional paid-in capital 2,107 1,894
Retained earnings 8,487 8,254
Non-owner changes to equity 1,262 270
------- -------
Total stockholders' equity 13,678 12,222
------- -------
Total liabilities and stockholders' equity $31,747 $28,728
======= =======
See accompanying notes to condensed consolidated financial statements.
Motorola, Inc. and Subsidiaries
Condensed Consolidated Statement of Stockholders' Equity
(Unaudited)
(In millions)
Non-Owner Changes To Equity
---------------------------
Common
Stock Fair Value
and Adjustment Foreign
Additional to Certain Currency
Paid-In Cost-Based Translation Retained
Capital Investments Adjustments Earnings
- ---------------------------------------------------------------------------
BALANCES AT 12/31/98 $3,698 $ 476 ($206) $8,254
- ---------------------------------------------------------------------------
Net earnings 377
Conversion of zero coupon notes 2
Fair value adjustment to
certain cost-based investments:
Reversal of prior period
adjustment (476)
Recognition of current period
unrecognized gain 1,564
Change in foreign currency
translation adjustments (96)
Stock options exercised
and other 229
Dividends declared (144)
- ---------------------------------------------------------------------------
BALANCES AT 7/3/99 $3,929 $1,564 ($302) $8,487
- ---------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
Motorola, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In millions)
Six Months Ended
--------------------
July 3, June 27,
1999 1998
------ -------
Operating
Net earnings (loss) $ 377 $(1,148)
Adjustments to reconcile net earnings (loss) to net
cash provided by (used for) operating activities:
Restructuring and other charges --- 1,980
Depreciation 1,114 1,058
Deferred income taxes (45) (430)
Amortization of debt discount and issue costs 3 5
Gain on disposition of investments in
affiliates (59) (168)
Change in assets and liabilities, net of
effects of acquisitions and dispositions:
Accounts receivable (281) (64)
Inventories (43) (314)
Other current assets (44) (40)
Accounts payable and accrued liabilities 274 (848)
Other assets and liabilities 538 (298)
------ -------
Net cash provided by (used for) operating activities $1,834 $ (267)
Investing
Acquisitions and advances to affiliates $ (195) $ (320)
Proceeds from dispositions of investments
in affiliates 225 184
Capital expenditures (957) (1,688)
Proceeds from dispositions of property, plant and
equipment 151 246
(Purchases) sales of short-term investments (79) 67
------ ------
Net cash used for investing activities $ (855) $(1,511)
Financing
(Repayment of) proceeds from commercial paper and
short-term borrowings $(1,032) $ 1,691
Proceeds from issuance of debt 500 8
Repayment of debt (17) (27)
Issuance of common stock 231 18
Issuance of preferred securities of subsidiary
trust 484 ---
Payment of dividends (144) (144)
----- ------
Net cash provided by financing activities $ 22 $ 1,546
Effect of exchange rate changes on cash and
cash equivalents $ (96) $ (36)
------ -------
Net increase(decrease) in cash and cash equivalents $ 905 $ (268)
Cash and cash equivalents, beginning of period $1,453 $ 1,445
Cash and cash equivalents, end of period $2,358 $ 1,177
====== =======
See accompanying notes to condensed consolidated financial statements.
Motorola, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The condensed consolidated financial statements as of July 3, 1999 and for
the three-month and six-month periods ended July 3, 1999 and June 27, 1998,
include, in the opinion of management, all adjustments (consisting of
normal recurring adjustments and reclassifications) necessary to present
fairly the financial position, results of operations and cash flows at July
3, 1999 and for all periods presented.
Certain information and footnote disclosures normally included in 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
consolidated financial statements and notes thereto incorporated by
reference in the Company's Form 10-K for the year ended December 31, 1998.
The results of operations for the three-month and six-month periods ended
July 3, 1999 are not necessarily indicative of the operating results to be
expected for the full year. Certain amounts in prior years' financial
statements and related notes have been reclassified to conform to the 1999
presentation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
2. Supplemental Balance Sheet Information
Inventories consist of the following (in millions):
July 3, Dec. 31,
1999 1998 .
------- --------
Finished goods $ 1,126 $ 1,033
Work in process and production materials 2,639 2,712
------- -------
$ 3,765 $ 3,745
======= =======
Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities", requires the carrying
value of certain investments to be adjusted to fair value. The Company
recorded an increase to stockholders' equity, other assets and deferred
income taxes of $1.6 billion, $2.6 billion and $1.0 billion as of July 3,
1999; compared to an increase of $476 million, $787 million and $311
million as of December 31, 1998.
3. Supplemental Cash Flow Information
Cash paid for interest during the first six months of 1999 and 1998 was $86
million and $146 million, respectively. Cash paid for income taxes during
the first six months of 1999 and 1998 was $89 million and $307 million,
respectively.
4. Earnings (Loss) Per Common Share
The following table presents a reconciliation of the numerators and
denominators of basic and diluted earnings (loss) per common share:
Three Months Ended
------------------
July 3, June 27,
(In millions, except per share amounts) 1999 1998
---- ----
Basic earnings (loss) per common share:
Net earnings (loss) $ 206 $(1,328)
Weighted average common shares
outstanding 604.6 597.9
------ -------
Per share amount $ .35 $ (2.22)
====== =======
Diluted earnings (loss) per common share:
Net earnings (loss) $ 206 $(1,328)
Add: Interest on zero coupon
notes, net 1 ---
------ -------
Net earnings (loss) as adjusted $ 207 $(1,328)
------ -------
Weighted average common shares
outstanding 604.6 597.9
Add: Effect of dilutive securities
Stock options 15.8 ---
Zero coupon notes 2.0 ---
------ -------
Diluted weighted average common
shares outstanding 622.4 597.9
------ -------
Per share amount $ .33 $ (2.22)
====== =======
Six Months Ended
----------------
July 3, June 27,
(In millions, except per share amounts) 1999 1998
---- ----
Basic earnings (loss) per common share:
Net earnings (loss) $ 377 $(1,148)
Weighted average common shares
outstanding 603.4 597.6
------ -------
Per share amount $ .63 $ (1.92)
====== =======
Diluted earnings (loss) per common share:
Net earnings (loss) $ 377 $(1,148)
Add: Interest on zero coupon
notes, net 1 ---
------ ------
Net earnings (loss) as adjusted $ 378 $(1,148)
------ -------
Weighted average common shares
outstanding 603.4 597.6
Add: Effect of dilutive securities
Stock options 14.4 ---
Zero coupon notes 2.0 ---
------ -----
Diluted weighted average common
shares outstanding 619.8 597.6
------ -------
Per share amount $ .61 $ (1.92)
====== =======
5. Reorganization of Businesses
In the second quarter of 1998, the Company recorded a pre-tax charge of
$1.98 billion to cover restructuring costs of $1.275 billion and asset
impairments and other charges of $705 million. Restructuring costs include
costs to consolidate manufacturing operations throughout the Company; to
exit non-strategic, poorly-performing businesses; and to reduce worldwide
employment by 20,000 employees. The following table displays a rollforward
to July 3, 1999, of the accruals established during the second quarter of
1998:
Second 1998 Accruals at
Quarter 1998 Reclassifi- Amounts July 3,
Initial Charges cations Used 1999
- ---------------------------------------------------------------------------
Consolidation of
manufacturing
operations $ 361 $ (35) $ (252) $ 74
Business exits 453 (162) (108) 183
Employee separations 461 197 (547) 111
----- ------ ------ -----
Total restructuring $1,275 $ --- $ (907) 368
- --------------------------------------------------------------------------
Asset impairments and
other charges 705 --- (556) 149
- --------------------------------------------------------------------------
Totals $1,980 $ --- $(1,463) $ 517
- --------------------------------------------------------------------------
Amounts in the 1998 Reclassifications column represent the reallocation of
accruals in 1998 between categories and not increases in the initial
charges. These reallocations were due to the sale of, rather than the
planned closure of, two of the Company's businesses and the
reclassification of certain employee severance costs originally accrued for
in the consolidation of manufacturing operations and business exits. These
reallocations were also offset by higher than anticipated severance costs.
Amounts used for consolidation of manufacturing operations, business exits,
and asset impairments and other charges reflect write-offs. Amounts used
for employee separations reflect payments to employees, primarily for
severance.
Consolidation of manufacturing operations relates to the closing of
production and distribution facilities, selling or disposing of the
machinery and equipment that was no longer needed and, in some cases,
scrapping excess assets that had no realizable value. The remaining $74
million accrual at July 3, 1999, for this restructuring category primarily
relates to the finalization of plant closings in the Semiconductor Products
and Personal Communications segments.
Business exit costs include costs associated with shutting down businesses
that did not fit with the Company's new strategy. In many cases, these
businesses used older technologies that produced non-strategic products.
The remaining $183 million accrual at July 3, 1999, for this restructuring
category primarily relates to: (1) contract requirements and contingencies
as part of the sales of the Company's printed circuit board business in the
third quarter of 1998 and non-silicon component manufacturing business in
the first quarter of 1999; and (2) the finalization of remaining activities
in the Semiconductor Products segment.
Employee separation costs represent the accrual of severance based upon the
headcount reductions for the involuntary severance package the Company
offered as part of its restructuring plan. At July 3, 1999, the Company's
worldwide employment aggregated approximately 124,000 employees compared
with approximately 150,000 employees at the beginning of the second quarter
of 1998. Of this estimated 26,000 headcount reduction, approximately
22,000 employees have separated from the Company through a combination of
voluntary and involuntary severance programs and business exits. Of these
22,000 separated employees, approximately 14,500 were direct employees, and
7,500 were indirect employees. Direct employees are primarily non-
supervisory production employees, and indirect employees are primarily non-
production employees and production managers. The 22,000 separated
employees include a reduction of the Company's employee population by
approximately 4,200 people in connection with the sale of the non-silicon
component manufacturing business. These 4,200 people were not paid any
severance because the business was sold to another corporation. The
remaining $111 million accrual at July 3, 1999, for the employee
separations restructuring category relates to severance programs still to
be completed.
The asset impairment costs related to reductions in the carrying values of
assets for businesses that the Company was going to continue to operate
but, in doing an impairment analysis, the carrying values of these assets
were not recoverable from the future cash flows of the businesses. The
Company reduced the carrying values of the related asset balances by
approximately $380 million.
The other charges are not restructuring charges, but rather are unusual or
non-recurring items. These items are primarily contract termination costs
related to agreements that were associated with businesses that the Company
was no longer making investments in, losses incurred on cellular
infrastructure contracts, and an in-process research and development write-
off of $42 million related to a transaction from the second quarter of
1998. The remaining $149 million accrual at July 3, 1999, relates entirely
to these other charges.
As the Company's 1998 comprehensive manufacturing consolidation, cost
reduction and restructuring programs reach their planned completion,
management continues to assess the estimated costs to complete these
programs. Management anticipates completing these programs by December 31,
1999, and believes the remaining accruals are adequate to cover these
costs.
In 1997, the Company established restructuring accruals totaling $327
million to exit its retail analog modem business in Huntsville, AL, to exit
the MacOSr-compatible computer systems business, and to phase out
participation in the dynamic random access memory (DRAM) market. Through
July 3, 1999, $276 million of the accruals had been utilized, and $34
million had been reversed into income over previous quarters. The
remaining $17 million primarily relates to contract contingencies arising
from the Company's exit from the MacOS-compatible computer systems
business. Management believes the remaining accrual is adequate to cover
these matters.
6. Comprehensive Earnings (Loss)
Comprehensive earnings (loss) for the three-month periods ended July 3,
1999 and June 27, 1998 were $678 million and $(1.4) billion, respectively.
Comprehensive earnings (loss) for the six-month periods ended July 3, 1999,
and June 27, 1998, were $1.4 billion and $(1.1) billion, respectively. The
unrecognized gain on cost-based investments of $1.6 billion properly
excludes a reclassification adjustment of $44.7 million, net of tax,
related to the sale of securities.
7. Finance Subsidiary Debt and Trust Originated Preferred SecuritiesSM
On June 21, 1999, the Company's finance subsidiary sold an aggregate face
principal amount at maturity of $500 million of 6.75% Guaranteed Bonds due
June 21, 2004, to non-U.S. persons. The Bonds were sold outside of the
United States in reliance on Regulation S under the Securities Act of 1933,
as amended. The net proceeds to the finance subsidiary from the issuance
and sale of the bonds were $497 million and were used to reduce its short-
term indebtedness. Shortly after the sale, the finance subsidiary entered
into interest rate swaps to change the characteristics of the interest rate
payments on the bonds from fixed-rate payments to short-term LIBOR based
variable rate payments in order to match the funding of its underlying
assets.
In February 1999, Motorola Capital Trust I, a Delaware statutory business
trust and wholly-owned subsidiary of the Company (the "Trust"), sold Trust
Originated Preferred SecuritiesSM ("TOPrS") to the public at an aggregate
offering price of $500 million. The Trust used the proceeds from this
sale, together with the proceeds from its sale of common stock to the
Company, to buy a series of 6.68% Deferrable Interest Junior Subordinated
Debentures due March 31, 2039 ("Subordinated Debentures") from the Company
with the same payment terms as the TOPrS. The sole asset of the Trust is
the Subordinated Debentures. The TOPrS are shown as "Company-obligated
mandatorily redeemable preferred securities of subsidiary trust holding
solely company-guaranteed debentures" in the Company's consolidated
financial statements.
SM "Trust Originated Preferred Securities" and "TOPrS" are service marks of
Merrill Lynch & Co., Inc.
8. Segment Information
Beginning in the first quarter of 1999, the Company changed the operating
segments it uses for financial reporting purposes as a result of
organizational changes implemented in its communications businesses.
Historical segment data has been restated to reflect these changes.
Summarized below are the Company's segment sales and operating profit
(loss) before taxes by new reportable segment for the three months ended
July 3, 1999 and June 28, 1998.
Three Months Ended
-------------------------
July 3, June 27, %
1999 1998 Change
------ ------ ------
Segment Sales:
Personal Communications Segment $2,788 $2,386 17
Network Systems Segment 1,587 1,590 --
Commercial, Govt. and Industrial
Systems Segment 955 1,020 (6)
Semiconductor Products Segment 1,979 1,808 9
Other Products Segment 884 890 (1)
Adjustments & Eliminations (680) (671) 1
------ ------
Segment Totals $7,513 $7,023 7
====== ======
% Of % Of
Sales Sales
------ -----
Segment Operating Profit
(Loss) Before Taxes:
Personal Communications Segment $ 125 4 $ (501) (21)
Network Systems Segment 169 11 57 4
Commercial, Govt. and Industrial
Systems Segment 94 10 (24) (2)
Semiconductor Products Segment 80 4 (899) (50)
Other Products Segment (171) (19) (466) (52)
Adjustments & Eliminations 1 -- 2 --
------- --------
Segment Totals 298 4 (1,831) (26)
General Corporate (3) -- (66) --
------- --------
Earnings (Loss) Before Income Taxes $ 295 4 $(1,897) (27)
======= =======
Summarized below are the Company's segment sales and operating profit
(loss) before taxes by new reportable segment for the six months ended July
3, 1999 and June 27, 1998.
Six Months Ended
-------------------------
July 3, June 27, %
1999 1998 Change
------ ------ ------
Segment Sales:
Personal Communications Segment $5,390 $4,798 12
Network Systems Segment 3,210 3,133 2
Commercial, Govt. and Industrial
Systems Segment 1,840 1,950 (6)
Semiconductor Products Segment 3,886 3,641 7
Other Products Segment 1,757 1,767 (1)
Adjustments & Eliminations (1,338) (1,380) (3)
------- -------
Segment Totals $14,745 $13,909 6
======= =======
% Of % Of
Sales Sales
----- -----
Segment Operating Profit
(Loss) Before Taxes:
Personal Communications Segment $ 208 4 $ (434) (9)
Network Systems Segment 362 11 206 7
Commercial, Govt. and Industrial
Systems Segment 146 8 131 7
Semiconductor Products Segment 127 3 (957) (26)
Other Products Segment (262) (15) (525) (30)
Adjustments & Eliminations (7) -- (7) --
----- ------
Segment Totals 574 4 (1,586) (11)
General Corporate (35) -- (54) --
----- -------
Earnings (Loss) Before Income Taxes $ 539 4 $(1,640) (12)
======= =======
Motorola, Inc. and Subsidiaries
Management's Discussion and Analysis
of Financial Condition and Results of Operations
This commentary should be read in conjunction with the Company's
consolidated financial statements and related notes thereto and
management's discussion and analysis of financial condition and results of
operations incorporated by reference in the Company's Form 10-K for the
year ended December 31, 1998. The order information as of any particular
date may not be an accurate indicator of future results as orders are
subject to revision or cancellation to reflect changes in customer needs.
Results of Operations:
Sales were $7.5 billion in the second quarter of 1999, up 7 percent from
$7.0 billion a year earlier. Sales were $14.7 billion in the first half of
1999, up 6 percent from $13.9 billion in the first half of 1998. These
comparisons are affected by actions taken to exit various businesses and
product lines. On the basis of a comparison of continuing business
operations, sales would have increased by 10 percent in the second quarter
of 1999 and 8 percent in the first half of 1999.
Second-quarter 1999 earnings were $206 million, or 33 cents per share,
compared with a loss of $1.3 billion, or $2.22 per share in the second
quarter of 1998. In the second quarter of 1999, the Company reported
special charges of $94 million pre-tax, or 11 cents per share after-tax.
The Company recorded a special charge of $126 million to write down the
carrying value of its investment in Iridium LLC bonds to an amount which
reflects the decline in market value of Iridium LLC's public high-yield
debt. Offsetting this charge were a $12 million gain from the sale of
securities and a $20 million gain from an exchange of securities. In the
second quarter of 1998, the Company recorded special charges of $1.91
billion pre-tax, or $2.23 per share after-tax, which included $1.98 billion
of charges from manufacturing consolidation, cost reduction and
restructuring programs, partially offset by gains on the sale of assets.
Earnings for the first six months of 1999 were $377 million, or 61 cents
per share, compared with a loss of $1.15 billion, or $1.92 per share, in
the first half of 1998.
Net margin on sales was 2.7 percent in the second quarter of 1999 compared
with a negative 18.9 percent in the year-ago quarter, and 2.6 percent in
this year's first half compared with a negative 8.3 percent in the first
six months of 1998.
Results of the Company's major operations for the second quarter of 1999
compared with the second quarter of 1998 are as follows:
Personal Communications Segment
Three Months Ended
-------------------
July 3, June 27, %
(in millions) 1999 1998 Change
- --------------------------------------------------------
Orders $3,151 $2,607 21%
Segment sales $2,788 $2,386 17%
Operating profit (loss)
before tax $125 $(501) NMF*
* NMF = not a meaningful figure
Segment sales rose 17 percent to $2.8 billion, and orders increased 21
percent to $3.2 billion. Operating profits were $125 million, compared
with a $501 million loss a year ago, which included a large restructuring
charge. Excluding all special items included in last year's results,
operating profits increased $102 million over last year, as higher sales
and gross margins more than offset an increased investment in advertising
and engineering resources devoted to delivering new digital wireless
phones.
Sales and orders of wireless phones increased very significantly, led by
Asia and Europe. Sales and orders of wireless phones were also higher in
the Americas. While analog phone sales declined significantly, sales of
digital phones increased very significantly. These sales represented 87
percent of all wireless phone sales in the quarter versus 84 percent of all
wireless phone sales in the first quarter of 1999. The most rapid growth
of digital phones were for Global System for Mobile (GSM) phones in Asia
and Europe, Code Division Multiple Access (CDMA) phones in Asia and the
Americas and integrated digital enhanced network (iDEN) phones in the
Americas. For the full year of 1998, digital phones accounted for
approximately 72 percent of wireless phone sales.
The number of digital phones sold in the quarter increased approximately
115 percent versus the year ago quarter as follows: the number of GSM
phones sold increased by approximately 100 percent; the number of CDMA
phones sold increased by approximately 2,000 percent and now represent 20
percent of all digital phone sales; the number of Time Division Multiple
Access (TDMA) phones sold increased by approximately 5 percent; and the
number of iDEN phones sold increased by approximately 30 percent.
The overall average selling price for digital phone products declined
within a normal range versus the first quarter of 1999 and declined less
than the normal historical range versus a year ago. The overall average
selling price for analog products continued to decline more quickly than
the historical range versus both the first quarter of 1999 and a year ago.
Average selling prices can be subject to changes in product mix and
regional mix.
Sales and orders of paging products were very significantly lower than a
year ago due to a combination of fewer products being sold and declining
prices. Sales were lower in the Americas, but down very significantly in
Europe and in Asia. Orders were down significantly in the Americas and
down very significantly in Europe and Asia.
Network Systems Segment
Three Months Ended
-------------------
July 3, June 27, %
(in millions) 1999 1998 Change
- ----------------------------------------------------------
Orders $1,551 $1,676 (7)%
Segment sales $1,587 $1,590 ---
Operating profit before tax $169 $57 196%
Segment sales were flat at $1.6 billion, and orders declined 7 percent to
$1.6 billion. Operating profits increased to $169 million. Excluding the
large restructuring charge included in last year's results, operating
profits were $47 million lower than a year ago, primarily due to an
increased investment in engineering resources working to develop digital
solutions for network operators and larger losses in the satellite
communications business.
Digital infrastructure equipment, including iDEN? infrastructure equipment,
represented approximately 95 percent of sales dollars in the second quarter
versus 98 percent in the first quarter of 1999. For the full year of 1998,
digital infrastructure equipment represented 88 percent of sales dollars.
Cellular and personal communications systems infrastructure equipment
orders were higher and sales were flat. Orders were significantly higher
in the Americas and Japan, higher in Europe, but were significantly lower
in Asia. Sales were higher in Europe, Japan, and Asia, but were
significantly lower in the Americas. Sales grew significantly in CDMA and
GSM but were offset by very significant declines in analog and PDC digital
for Japan.
Orders and sales were lower for iDEN infrastructure equipment. Orders for
iDEN system expansions were received for Argentina, Brazil, Colombia,
Mexico and Singapore. A five-year extension to the iDEN infrastructure
supply agreement with Nextel was executed which could represent in excess
of $3 billion in sales over the period.
The Company and Cisco Systems, Inc. agreed to purchase the fixed wireless
assets of Bosch Telecom, Inc. and create a jointly owned company called
SpectraPoint Wireless. This new company will focus on delivering high-
speed data, voice and video capabilities to businesses over a fixed
wireless infrastructure. This transaction is expected to be completed in
the third quarter, subject to certain regulatory approvals and other
conditions.
The Satellite Communications Group had higher sales. However, orders were
down very significantly due to Iridium LLC's present financial situation
and sharply reduced activity from Iridium gateway operators.
After the close of the quarter, the Company signed a contract with
Teledesic LLC under which the Company will serve as prime contractor in the
design and construction of Teledesic's "Internet-in-the Sky" satellite
communications network. The contract is contingent upon Teledesic's
approval following a technical review period of about three months. The
Teledesic program had no impact to sales or orders in the second quarter.
Commercial, Government and Industrial Systems Segment
Three Months Ended
-------------------
July 3, June 27, %
(in millions) 1999 1998 Change
- ----------------------------------------------------------
Orders $1,182 $1,063 11%
Segment sales $955 $1,020 (6)%
Operating profit (loss)
before tax $94 $(24) NMF*
* NMF = not a meaningful figure
Segment sales declined 6 percent to $955 million, while orders rose 11
percent to $1.2 billion. Operating profits were $94 million, compared with
a restructuring-driven loss of $24 million last year. Excluding all
special charges, operating profits declined $18 million, primarily due to
lower sales volume.
Two-way radio equipment sales increased in the Americas and Asia, but were
more than offset by a decline in Europe. Two-way radio equipment orders
were higher in all regions. Systems Solutions Group sales were lower and
orders were higher.
The Company signed a definitive agreement to sell its North American
antenna site business to Pinnacle Towers for a cash price of $255 million.
The sale will include all the assets and operations of the business,
including a portfolio of approximately 1,850 wireless communications
facilities located throughout the U.S. and Canada that are currently owned,
managed or leased by the Company. The sale is expected to be completed in
the third quarter subject to certain regulatory approvals and other
conditions.
Semiconductor Products Segment
Three Months Ended
-------------------
July 3, June 27, %
(in millions) 1999 1998 Change
- ----------------------------------------------------------
Orders $2,086 $1,744 20%
Segment sales $1,979 $1,808 9%
Operating profit (loss)
before tax $80 $(899) NMF*
* NMF = not a meaningful figure
Segment sales increased 9 percent to $2.0 billion, and orders rose 20
percent to $2.1 billion. The segment recorded an operating profit of $80
million compared with an operating loss of $899 million a year ago, which
included a large restructuring charge. The segment recorded an operating
loss of $164 million last year when this charge is excluded.
Orders increased in all regions, led by Asia and Japan. Sales were higher
in all regions except Europe. Among major market segments, sales and order
growth was led by wireless communications. Components, networking and
computing, and transportation market segments sales and orders were also
higher.
Lead times for product deliveries are increasing in many, but not all,
product categories, as the semiconductor industry's recovery continues.
Pricing has remained stable compared to the first quarter for most product
categories, although strong demand for networking solutions is pressuring
prices upward in that market. Orders were flat with the first quarter of
1999. Sales increased 4 percent versus the first quarter, and operating
margin continues to improve sequentially. The Company's equipment
businesses consumed approximately 21 percent of the segment's production in
the second quarter.
Under an agreement announced in May, Texas Pacific Group will lead a
management buyout of the segment's Semiconductor Components Group. The
Company will receive approximately $1.6 billion in cash, notes and
approximately 9 percent of the stock of the new company. The transaction
is expected to be completed during the third quarter subject to the
satisfaction of certain closing conditions.
In July, the Company completed the sale of two chip-processing facilities,
one in Chung-Li, Taiwan, and the other in Paju, South Korea, to Taiwan's
Advanced Semiconductor Engineering Inc. for $290 million.
Other Products Segment
Integrated Electronic Systems Sector
Sales were down 2 percent, and orders were 6 percent higher. The sector
had an operating profit versus a loss a year ago, which included a
restructuring charge. Excluding special charges, the sector had an
operating profit increase. The year-earlier results include businesses
that the sector has exited. For continuing businesses, sales were up 13
percent, orders were up 20 percent and operating profits were higher.
Internet and Networking Group
Sales increased 16 percent, and orders were 49 percent higher. The group
had a smaller operating loss than a year ago.
General
Manufacturing margin in the second quarter of 1999 improved to 42 percent
of sales from 39 percent a year ago. Selling, general and administrative
expenses remained flat at 19 percent of sales. Excluding special charges,
selling, general and administrative expenses as a percentage of sales
declined to 17 percent in the second quarter of 1999 from 20 percent a year
ago. This decline is primarily attributable to the Company's manufacturing
consolidation, cost reduction and restructuring programs. Depreciation
expense increased slightly as a percent of sales. Depreciation expense for
1999 is presently expected to be relatively unchanged for the year compared
to 1998. Interest expense decreased slightly as a percent of sales.
Assuming stable interest rates in 1999, interest expense is expected to be
lower than a year ago in the remaining quarters and the full year of 1999.
The tax rate for the second quarter was 30 percent, the same as a year ago.
The Company currently expects the tax rate to remain at 30 percent for
1999.
Liquidity and Capital Resources:
Net cash provided by operations increased to $1.8 billion for the six-month
period ended July 3, 1999, as compared to $267 million cash used for
operations for the six-month period ended June 27, 1998. The increase in
1999 compared to 1998 was primarily due to increased earnings as well as
increases in accounts payable and accrued and other liabilities.
Net cash used in investing activities was $855 million for the six-month
period ended July 3, 1999 as compared to $1.5 billion for the six-month
period ended June 27,1998. The decrease was primarily due to capital asset
expenditures decreasing by $731 million in 1999 as compared to 1998.
Approximately $400 million of this reduction occurred in semiconductor
capital asset expenditures. For the full year of 1999, the Company's
capital expenditures are still expected to be approximately $3.0 billion,
down from $3.2 billion in 1998. Semiconductor capital expenditures are
expected to be $1.4 billion in 1999 compared to $1.8 billion in 1998. In
addition to the decrease in capital asset expenditures, cash was generated
from the sale of the non-silicon component manufacturing business in the
first quarter of 1999.
Net cash provided by financing activities was $22 million for the six-month
period ended July 3, 1999 as compared to $1.5 billion in the six-month
period ended June 27, 1998. The decrease in 1999 was driven primarily by
the Company paying down $1.0 billion in commercial paper and short-term
borrowings as compared to increasing notes payable and current portion of
long term debt in the same period last year in order to finance operations.
The Company was able to pay down short-term borrowings in 1999 due to
improved cash flow from operations and investing activities and to $981
million in net proceeds generated from the sale of bonds and subordinated
debentures.
Net debt to net debt plus equity decreased to 18 percent at July 3, 1999
from 27 percent at December 31, 1998. The Company's total domestic and
non-U.S. credit facilities aggregated $4.7 billion at July 3, 1999, none of
which was used but was all available to back up outstanding commercial
paper which totaled $1.8 billion.
At July 3, 1999, the Company's off-balance sheet commitment to Nextel
Communications, Inc. ("Nextel") for equipment financing aggregated $542
million, of which $259 million was outstanding. The Company's other off-
balance sheet third party financial guarantees, excluding the Iridium LLC
guarantee which is separately discussed below, aggregated $362 million, of
which $314 million was outstanding. The aggregate off-balance sheet
amounts represent the maximum available and may not be completely utilized.
On July 20, 1999, the Company announced that it intends to sell 2.8 million
shares of Nextel common stock during the third quarter of 1999. The
completion of this sale is subject to market conditions and other factors
and there can be no assurances as to its completion or the amount of
proceeds that will be received. The Company expects that this transaction,
along with the completion of the sales of the North American antenna site
business, the Semiconductor Components Group and the chip-processing
facilities in Taiwan and Korea, will generate significant cash inflows in
the third quarter of 1999.
The Company is an equity investor in, a creditor of, and a supplier to,
Iridium LLC and its subsidiaries (collectively "Iridium"). Iridium is the
first global wireless telecommunications business using a low-earth orbit
satellite communications network. Commercial voice service on the Iridium
system began November 1, 1998. Iridium is currently transitioning from a
developmental stage company to an operating company and, accordingly, has
very little operating history. This transition requires that Iridium
attract a sufficient number of customers that use Iridium's services at
levels that will generate enough revenue for Iridium to meet its financial
obligations to a variety of parties, including the Company. Iridium has
experienced significant difficulties in making this transition, including
that the number of subscribers for the service and revenue generated by
Iridium have been substantially below Iridium's expectations. Iridium
operates in an essentially new market for wireless communications services
and there can be no assurance that Iridium will be successful.
At July 3, 1999, the Company owned, directly and indirectly, approximately
18% of the equity interests in Iridium as well as Iridium bonds with a face
value of approximately $157 million. The Company also holds equity
investments and receivables with a book value of approximately $32 million
in several Iridium gateway companies. The Company's equity investment in
Iridium, as reflected in its financial statements, is zero as a result of
the Company recording its share of Iridium losses. The Company recorded a
special charge in the second quarter of 1999 of $126 million to write down
the value of its Iridium bonds to a level which reflects the decline in
value of Iridium's public high-yield debt. The Company's investment in
Iridium bonds and its equity investments in several Iridium gateway
companies are included in Other Assets.
Iridium is in discussions with its creditors, including the Company,
regarding a financial restructuring of its indebtedness and the
capitalization of Iridium. The impact on the Company of an Iridium
restructuring may become clearer in the third quarter, and may necessitate
an additional special charge at that time. The Company believes that it
will maintain a strong balance sheet despite any additional charge in the
third quarter that could arise in connection with an Iridium restructuring.
The Company believes that it can absorb the negative impact of such a
charge because of previously announced sales of several businesses and
assets that are expected to generate significant gains and cash inflows in
the third quarter.
Iridium's bank facilities are (1) an $800 million Senior Secured Credit
Agreement (the "Secured Credit Agreement") and (2) a $750 million Senior
Guaranteed Credit Agreement (the "Guaranteed Credit Agreement"). The
Guaranteed Credit Agreement is guaranteed by the Company. As of July 3,
1999, Iridium had borrowed all of the funds available under the Guaranteed
Credit Agreement. The majority of this facility is scheduled to mature on
December 31, 2000 and the remainder is scheduled to mature on December 31,
2001.
The Secured Credit Agreement contains covenants that require Iridium to
satisfy certain minimum revenue and customer levels as of various dates.
On March 29, 1999, Iridium announced that it would not meet its first
quarter 1999 revenue and customer requirements, and that it had received a
sixty-day waiver, until May 31, 1999, from the lenders under the Secured
Credit Agreement. On May 13, 1999, Iridium announced that it did not
expect to meet, on May 31, 1999, the first quarter 1999 revenue and
customer requirements previously waived. Iridium announced on May 28,
1999, that it received a 30-day waiver, until June 30, 1999, of its revenue
and customer requirements. On June 30, 1999, Iridium announced that it
received a further waiver through August 11, 1999 of these requirements.
However this waiver could terminate earlier if Iridium pays or asks to
borrow funds to pay interest on its public debt.
The Company had also agreed under a Memorandum of Understanding to grant a
guarantee of up to an additional $350 million of Iridium debt for Iridium's
use, subject to certain conditions. Motorola believes such conditions have
not been met. In certain circumstances and subject to certain conditions,
$300 million of such guarantee could have been required to be used to
guarantee amounts borrowed under the Secured Credit Agreement. The lenders
under the Secured Credit Agreement have recently asserted that Iridium
failed to have the Company provide such guarantee as required, and that a
default under the Secured Credit Agreement occurred because of such
failure. The lenders have also asserted that the Company is obligated to
provide them with this $300 million guarantee. The Company believes that
it is not obligated to provide this $300 million guarantee to these lenders
because it believes the conditions to this obligation have not been met.
Iridium has also stated that it believes it is not obligated to have the
Company provide this $300 million guarantee to these lenders. If Iridium
and the Company are correct, then no default has occurred under the Secured
Credit Agreement as a result of such failure.
The Company has also agreed to permit Iridium to defer up to $400 million
of amounts owed under its operations and maintenance contracts with the
Company. As of July 3, 1999, Iridium had deferred $399 million of such
payments. The repayment by Iridium of these deferred payments is
subordinated to repayment of Iridium's Secured Credit Agreement, as is the
repayment to the Company by Iridium of any amounts the Company may pay to
the lenders under its guarantees and certain other obligations owed to the
Company. Apart from the deferred payments described above, approximately
$95 million is owed to the Company by Iridium, as of July 3, 1999.
There can be no assurance that (1) the lenders under the Secured Credit
Agreement will waive any default under that agreement or (2) such lenders
will revise the revenue and customer requirements for future periods so
that Iridium will remain in compliance with that agreement. If a default
occurs under the Secured Credit Agreement, the lenders could accelerate
Iridium's obligations under the Secured Credit Agreement and seek to
foreclose on their security interests in substantially all of Iridium's
assets and require certain investors in Iridium to comply with their
capital call requirements. In the Company's case, this would require an
additional equity investment of approximately $50 million. If this
investment were required, it would be subject to the same accounting
treatment as applied to the Company's prior equity investment in Iridium.
If Iridium defaults under its Secured Credit Agreement, it will also be in
default under the Guaranteed Credit Agreement. If Iridium were to default
under the Guaranteed Credit Agreement, the banks providing loans under the
Guaranteed Credit Agreement could accelerate all the outstanding
obligations under that agreement and require the Company to satisfy its
guarantee obligations as to amounts previously drawn.
On July 15, 1999, Iridium announced that it would invoke, for a $90 million
interest payment due that day, a 30-day grace period permitted under the
indentures for its approximately $1.4 billion public high-yield debt.
Iridium's failure to make that interest payment by August 15, 1999 would
result in a default under the indentures relating to the public high-yield
debt, the Secured Credit Agreement and the Guaranteed Credit Agreement.
These defaults could result in defaults under other agreements.
The Company has several contracts with Iridium, primarily for the operation
and maintenance of the global personal communications system, under which
aggregate payments are scheduled to be approximately $3.2 billion. Through
July 3, 1999, the Company had earned and received payments of approximately
$259 million under these contracts. The Company has significant
subcontracts for portions of the system, for which it will generally remain
obligated even if Iridium is unable to satisfy the terms of such contracts
with the Company. In addition, the Company has investments in assets
related to these contracts, such as inventory, manufacturing equipment,
buildings and potential obligations in connection with these contracts, the
value of which the company currently estimates to be $762 million. While
the Company expects to be able to use a portion of these assets in
connection with other programs, the Company would still incur substantial
costs in winding down operations related to the Iridium program if Iridium
were to cease to perform under such agreements.
As Iridium continues its transition from a developmental stage company to
an operating company, it will require significant amounts of cash to fund
its operations. Iridium disclosed in its Form 10-Q for the quarter-ended
March 31, 1999, that it expected that its aggregate cash requirements for
1999 would be approximately $1.65 billion. If Iridium defaults under its
credit agreements its lenders may not waive such defaults. This could
subject the entire amount outstanding under its credit agreements to
acceleration by the lenders and pursuit of other remedies, including
enforcement of security interests in substantially all of the assets of
Iridium. This could result in Iridium's bankruptcy. If Iridium is not
able to repay amounts due to lenders under facilities guaranteed by the
Company, the Company would be required to pay such guaranteed amounts.
Finally, if such events occur, Iridium would likely not be able to repay in
full the Company amounts theretofore deferred under its various contracts
with the Company and might be unable to pay amounts becoming due under such
contracts in the future.
In the context of an Iridium bankruptcy, it is possible that creditors and
other stakeholders in Iridium may seek to bring various claims against the
Company, with respect to payments previously made by Iridium to the
Company, and otherwise. As described herein under "Legal Proceedings," a
number of purported class action lawsuits alleging securities law
violations have been filed naming Iridium, certain current and former
officers of Iridium and the Company as defendants.
The loss of the value of its investment in Iridium and Iridium gateway
companies, any default by Iridium under its credit agreements and debt
instruments which results in the acceleration of Iridium debt or the
Company having to perform under its Iridium guarantee obligations, the
failure of Iridium to make contractual payments to the Company and other
costs or liability related to the Company's relationship with Iridium,
collectively, would have a material negative impact on the Company's
consolidated financial position and results of operations.
As a multinational company, the Company's transactions are denominated in a
variety of currencies. 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 in foreign exchange exposure issues 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, including assets and liabilities currently on the
balance sheet. The Company expects that it may hedge anticipated
transactions, forecasted transactions or investments in foreign
subsidiaries in the future.
Almost all 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 these are addressed, to the extent reasonably possible,
through managing net asset positions, product pricing, and other means,
such as component sourcing.
At July 3, 1999 and June 27, 1998, the Company had net outstanding foreign
exchange contracts totaling $2.0 billion. The following table shows, in
millions, the five largest foreign exchange hedge positions at July 3, 1999
and the corresponding positions at June 27, 1998:
July 3, June 27,
Buy (Sell) 1999 1998
- ------------------------------------------------
Japanese Yen (775) (569)
Euro (584) (611)
Chinese Renminbi (180) (45)
Australian Dollar (124) (37)
Korean Won (85) ---
At July 3, 1999 and June 27, 1998, outstanding foreign exchange contracts
primarily consisted of short-term forward contracts. Net deferred gains at
July 3, 1999, and at June 27, 1998, on these forward contracts which hedge
designated firm commitments were not material.
In June 1999, the Company's finance subsidiary entered into interest rate
swaps to change the characteristics of the interest rate payments on its
$500 million 6.75% Guaranteed Bonds due 2004 from fixed-rate payments to
short-term LIBOR based variable rate payments in order to match the funding
with its underlying assets. Except for these interest rate swaps, as of
the end of the reporting period, the Company had no outstanding commodity
derivatives, currency swaps or options relating to either its debt
instruments or investments. The Company does not have any derivatives to
hedge the value of its equity investments in affiliated companies.
The Company's research and development expenditures in the second quarter
of 1999 were $811 million compared to $722 million a year ago. The Company
continues to believe that a strong commitment to research and development
drives long-term growth. Research and development expenditures are
expected to increase as a percentage of sales in 1999 versus 1998.
Return on average invested capital, based on the performance of the four
preceding quarters ending with July 3, 1999, was 3.6 percent, compared with
negative 3.8 percent based on the performance of the four preceding
quarters ending June 27, 1998. The Company's current ratio was 1.40 at
July 3, 1999, compared to 1.18 at December 31, 1998.
Year 2000:
- ---------
Motorola has been actively addressing Year 2000 issues since 1997. A Year
2000 Enterprise Council was formed and is responsible for coordinating and
facilitating activities across the Company. The Year 2000 Enterprise
Council reports to the Company's President and Chief Operating Officer and
its progress is reported to the Audit and Legal Committee of the Board of
Directors. The Board of Directors also receives periodic updates on the
Company's Year 2000 program.
The Year 2000 issue refers to the risk that systems, products and equipment
having date-sensitive components will not recognize the Year 2000.
Throughout this disclosure the Company uses the generic phrase "year 2000
ready" to mean that a system, product or piece of equipment will perform
its intended functions on or after January 1, 2000 the same as it did
before January 1, 2000. The Company also has a specific definition of Year
2000 Ready for Motorola products described below.
The Six-Phase Year 2000 Program
Motorola developed the Six-Phase Year 2000 Program to ensure a thorough and
standard approach to addressing the Year 2000 issue across the Company.
The Program summarizes the tasks to be completed while leaving each
business to tailor actions specifically to its environment, to identify the
goals of each phase, and to schedule their targeted completion dates. The
six-phases are Preliminary (identify the issues, create awareness, and
dedicate resources); Discovery/Charter (inventory, categorize, and make
initial cost estimates); Scope (refine inventory and assess business
impacts and risks); Conversion Planning (determine specific implementation
solutions through analysis, formulate strategies, and develop project and
test plans); Conversion (make program changes, perform applications and
acceptance testing and certification); and Deployment and Post
Implementation Review (deploy program and software changes, evaluate and
apply lessons learned).
The Company's Readiness
All of the Company's sectors and groups have completed Phases 1-4, all but
one of the groups also have substantially completed Phase 5 and all but two
of the Company's groups also have substantially completed Phase 6. All of
the Company's sectors and groups are expected to complete the Six-Phase
Program by the end of the third quarter of 1999. The work being completed
in 1999 is being separately monitored and tracked with appropriate target
completion dates.
Contingency plans are substantially complete for all sectors and groups,
and those plans are focusing on matters not resolved through the Six-Phase
Program at this time that may have a material negative impact on Motorola's
final "year 2000 readiness". Discussion of contingency planning is
included below.
As part of the Company's overall program and to ensure adequate means to
measure progress, Motorola has established five functional categories to be
reviewed by each business as follows:
Products. While addressing all five functional categories, the Company has
placed a high priority on ensuring that Motorola products are Year 2000
Ready and is completing a comprehensive review of the Year 2000 Readiness
of Motorola products. The results of these reviews are being made
available to Motorola customers and third parties through the use of a
Motorola Year 2000 website and are supplemented with additional written
communications. The Motorola definition of "Year 2000 Ready," which is the
standard Motorola uses to determine the Year 2000 Readiness of Motorola
products, is as follows:
Year 2000 Ready means the capability of a Motorola product, when used in
accordance with its associated documentation, to correctly process, provide
and/or receive date data in and between the years 1999 and 2000, including
leap year calculations, provided that all other products and systems (for
example, hardware, software and firmware) used with the Motorola product
properly exchange accurate date data with it.
Manufacturing. Some of the tools and equipment (hardware and software)
used to develop and manufacture Motorola products are date-sensitive. The
Company believes, based on the results of the Six-Phase Program to date and
based on assurances from its suppliers, that the critical tools and
equipment used by it to manufacture products will be "year 2000 ready" or
will be made ready through upgrades by the suppliers of the tools or
equipment or by using alternate sources of supplies. As a result, the
Company does not expect significant interruption to its manufacturing
capabilities because of the failure of tools and/or equipment.
Non-Manufacturing Business Applications. Throughout the business the
Company is fixing and testing all non-manufacturing business applications
such as core financial information and reporting, procurement, human
resources/payroll, factory applications, customer service, and revenue, and
does not expect any significant Year 2000 issues in this area.
Facilities and Infrastructure. The Company also is fixing and testing its
facilities and infrastructure (health, safety and environment systems,
buildings, security/alarms/doors, desktop computers, networks) to ensure
they are "year 2000 ready" and does not expect significant interruption to
its operations because of Year 2000 issues with its facilities or
infrastructure.
Logistics. The Company has devoted significant resources to ensure that
its operations are not disrupted because of services or products supplied
to the Company. In addition, the Company has requested assurances from its
joint venture partners and alliance partners of their "year 2000
readiness."
Of critical importance to the Company's Year 2000 Readiness is the
readiness of suppliers and the products the Company procures from
suppliers. Motorola has many thousands of suppliers and has a
comprehensive program to identify and obtain Year 2000 information from its
critical suppliers. The program includes awareness letters, site visits,
questionnaires, compliance agreements and warranties as well as a review of
suppliers' Year 2000 websites. If a supplier is determined to entail a
"high risk" of Year 2000 non-readiness, the Company is developing
contingency and alternate sourcing plans to minimize the Year 2000 risk.
As described in the Company's discussion of most reasonably likely worst
case scenarios, the Company is particularly concerned about energy and
transportation suppliers. Many of these suppliers are unwilling to provide
assurances that they will be "year 2000 ready."
Unique issues related to the readiness of the Company's major businesses
are discussed in more detail below.
Year 2000 Costs
Motorola estimates that the expected total aggregate costs for its Year
2000 activities from 1997 through 2000 will be in the range of $250 million
to $300 million. These costs do not include estimates for potential
litigation. Approximately $135 million of the total estimated costs relate
to internal resources. Total costs incurred through July 3, 1999 were
approximately $180 million, of which approximately $105 million were for
external costs. Of the remaining costs, the majority relate to
installation of software upgrades of certain infrastructure equipment,
installing software upgrades to internal semiconductor manufacturing
equipment and assessing the Company's critical suppliers. The Company does
not believe the cost of addressing Year 2000 issues will have a material
adverse effect on the Company's consolidated results of operations,
liquidity or capital resources.
The Company reviews and updates data for costs incurred and forecasted
costs each quarter. As the Company continues to assess the last phases of
the Year 2000 Program, estimated costs may change. These costs are based
on management's estimates, which were determined based on assumptions of
future events, some within the Company's control, but many outside of the
Company's control. There can be no guarantee that these estimates will be
correct, and if actual costs increased by a sizeable amount, the Company's
actual results could be materially adversely impacted.
Most Reasonably Likely Worst Case Scenarios for the Company and Company
Contingency Plans
The Company has and will continue to devote substantial resources to
address its Year 2000 issues. However, there can be no assurances that the
Company's products do not contain undetected Year 2000 issues. Further,
there can be no assurances that the Company's assessment of suppliers and
vendors will be accurate. Customers of Motorola could be impacted by Year
2000 issues causing them to reduce purchases from the Company. In
addition, many commentators believe that there will be a significant amount
of litigation arising out of "year 2000 readiness" issues, especially for
product liability. Because of the unprecedented nature of this litigation,
it is impossible for the Company to predict the impact of such litigation
although it could be significant to the Company. In addition to the unique
reasonably likely worst case scenarios described by the specific businesses
and potential litigation, the Company believes its scenarios include: (i)
corruption of data contained in the Company's internal information systems;
(ii) hardware failures; (iii) the failure of infrastructure services
provided by government agencies and other third-party suppliers (including
energy, water, and transport); and (iv) health, environmental and safety
issues relating to its facilities. If any of these were to occur, the
Company' operations could be interrupted, in some cases for a sustained
period of time. These interruptions could be more severe in countries
outside the U.S., where the Company does sizeable business.
The Company's contingency plans focus on customers, products, supplies and
internal operations. Each sector is establishing emergency operations
centers at key locations. These centers will be staffed ahead of the Year
2000 rollover and well into the Year 2000. During critical times they will
be staffed 24-hours a day. The first priority of these centers is to
ensure the performance of a customer's network or system.
Critical facilities have been identified and the Company's plans prioritize
their continued operations. These sites will be supported by generators
capable of maintaining health, safety, communications and environmental
operations if locally provided power sources fail. These sites will have a
number of means of communicating including Intranet, pagers, cellular
phones, and satellite phones.
The businesses are identifying key individuals in a variety of functions to
be on-site at the Company's facilities to monitor the rollover to the Year
2000. Additionally, the Company is establishing rapid response teams that
can be sent to major customer locations when and if needed in connection
with the rollover. There are also plans to shift operations to different
facilities if there are interruptions to operations in particular areas,
countries or regions.
The plans also include procedures to maintain and recover business
operations such as stockpiling critical supplies, identifying alternate
supply sources, inspecting critical functions, reporting operational
status, communicating with interdependent operations, and operating in
contingency mode until a return to normal.
The sectors and groups continue to perform various tests, including on
manufacturing production lines and internal networks. Each business will
also be testing its contingency plans during the third quarter of 1999. In
addition, the Company has planned a test of its overall contingency plans
for the third quarter of 1999.
Personal Communications Segment
The Personal Communications Segment includes both the Personal
Communications Sector (PCS) and the iDENr subscriber business. PCS, which
designs, develops, manufactures and sells Motorola cellular telephones,
paging subscriber products, and paging infrastructure equipment has
completed its Year 2000 product review.
All Motorola wireless telephones, cordless phones and accessories ever
placed on the market by Motorola either: (i) do not contain internal date
storage, processing, or display capabilities and thus are not impacted by
the Year 2000 date change; or (ii) contain internal date storage,
processing, or display capabilities that are Year 2000 Ready. In addition,
PCS has systems in place to ensure that future telephones and accessories
sold by the Company will be Year 2000 Ready.
Paging products currently being shipped are Year 2000 Ready. The paging
business has identified customer system upgrades required to enable certain
infrastructure equipment in Asia to be Year 2000 Ready. [These upgrades
are scheduled to be complete by August 1999.] Paging has posted on its
website and sent in printed form to inquiring customers lists of all its
products that have no internal calendars or clocks and are not materially
impacted by the Year 2000, all products that have such clocks and calendars
and are Year 2000 Ready, and a third group of products that have reached
the end of their supported life and, therefore, have not been tested for
Year 2000 Readiness. Certain infrastructure products that require an
upgrade to be Year 2000 Ready have been listed on the website.
Paging's management believes the worst case scenario is that a mission
critical page may not be sent or received as a result of lack of Year 2000
Readiness of messaging software, infrastructure or pagers and the Company
is sued. Management believes that its efforts at communicating to paging
customers the potential for such failures should reduce the likelihood of
this occurring.
Network Solutions Segment
The Network Solutions segment includes the cellular infrastructure
business, the satellite communications business and iDEN infrastructure
products.
The cellular infrastructure business designs and develops, manufactures,
installs and services wireless infrastructure equipment for cellular and
personal communications networks. Certain cellular infrastructure products
operate with date sensitivity. The business has developed appropriate
hardware modifications and new versions of software to address the Year
2000 issue. The business has made upgrades (i.e., hardware modifications
and/or new software versions, as appropriate) available to most of its
operator customers. The business sells systems throughout the world and
trained technicians are in the process of installing these upgrades.
The cellular infrastructure business has communicated to customers and
company customer contacts "work-arounds" for certain systems that will not
be upgraded. A "work-around" gives the operator necessary procedures to
keep the system operating on and after January 1, 2000. If a customer does
not follow the recommended procedures it is likely that the system will not
recognize certain dates properly, affecting the accuracy of certain data.
The business has concluded that some of its systems are too old to either
upgrade or provide a work-around for Year 2000 issues. It has notified
customers with outdated systems. Additionally, a website provides Year
2000 information on certain discontinued products. Some customers of
discontinued products have been notified that their system will not work
and information has been provided on needed upgrades and/or replacements.
The business has sent out second notices and has asked for confirmations
back from these customers.
Management believes that its most reasonably likely worst case scenario
related to the Year 2000 issue is its inability to upgrade all systems
before January 1, 2000 due to the significant number of customer locations
to be visited and to delays by customers in scheduling upgrades. As a
result, system performance could be affected and certain data routinely
available from those systems could be inaccurate on and after January 1,
2000 until upgraded. As a result, the business could incur cost, and
potentially be sued as the supplier of those systems, although its efforts
to identify its customers and provide software solutions should reduce
these risks.
The satellite business designs, develops, manufactures, integrates,
deploys, operates and maintains space-based telecommunication systems and
related ground system components. At present, the business consists of one
operating system known as the Iridiumr System. This system contains date-
sensitive functions. The business has made all necessary hardware and/or
software upgrades available to customers by July 1, 1999. The business
anticipates that it will need to supply technicians to install any such
upgrades, and does not presently anticipate any difficulty in meeting any
potential installation needs.
Management believes that the most reasonably likely worst case scenario
related to the Year 2000 issue is a temporary interruption of the Iridium
System due to the inability of the ground segment to communicate with the
satellite constellation. As a result, the satellite business would incur
costs in correcting such a failure. Management believes adequate efforts
are in place to identify potential hardware/software problems and to
implement and test solutions.
Some iDENr infrastructure products operate with date sensitivity. The iDEN
system became Year 2000 Ready when a new system release was completed on
June 30, 1999. While the business expects to deploy this release in a
timely matter, it will confront the same resource and installation issues
facing the Company's infrastructure businesses.
Commercial, Government and Industrial Solutions Segment
The segment, consisting of the Commercial, Government and Industrial
Solutions Sector ("CGISS"), manufactures and sells two-way voice and data
products and systems for a variety of worldwide applications. Principal
customers for two-way products include public safety agencies (police,
fire, etc.), utilities, diverse industrial companies, transportation
companies and companies in various other industries. Additionally, CGISS
includes the System Solutions Group (SSG), excluding its satellite
business, that is engaged in the design, development, and production of
advanced electronic communications systems and products.
All two-way products currently shipping from factories are Year 2000 Ready
with a few minor exceptions. All customers buying exceptions are fully
informed that these products are not Year 2000 Ready before purchases are
made and products shipped. Some older products operate with date
sensitivity, including legacy Special Products (SPs) and "911 Systems."
CGISS has notified or is in the process of notifying customers of certain
of its "911 Systems" in the U.S. that their systems are not fully Year 2000
Ready. New software for these systems and the code were available in
December 1998 and a test installation of such software was made in late
December 1998. Regular customer installations will continue through the
end of third quarter 1999. SPs are communication systems designed
specifically for particular customers. CGISS cannot assess whether those
systems are Year 2000 Ready because the systems must be tested where they
are located. CGISS is contacting customers and developing solutions,
usually software upgrades, to make these systems Year 2000 Ready.
Management believes that the most reasonably likely worst case scenario
involving its business is the failure of a public safety system on January
1, 2000 (or thereafter). As a result, the two-way radio business could
potentially be sued as the supplier of those systems. Management believes
that its efforts to identify the customers of these systems and provide
software solutions or "work arounds" should reduce these risks.
SSG has conducted a comprehensive review of all products and systems sold
under contracts and purchase orders executed since January 1, 1990.
Through that process it has been determined that relatively few of SSG's
products or systems contain date-sensitive functions that are expected to
be adversely affected by the Year 2000 issue. SSG is addressing each of
the few products or systems affected in one of four ways. First, SSG has
developed, or is in the process of developing, fixes for some of the Year
2000 issues discovered and is offering those fixes to its customers.
Second, in some cases, SSG is working directly with customers who have
funded specific testing and corrective actions to products or systems they
purchased or are purchasing under contracts with SSG. Some of these
customer-funded fixes are not expected to be complete until the middle of
1999. Third, "work-arounds" have been communicated to certain customers
when a more elaborate fix is not necessary for them to keep their products
or systems operating on and after January 1, 2000. Finally, SSG has
concluded that some of its products and systems are too old to either fix
or provide a work-around for Year 2000 Readiness. SSG has notified (or
made reasonable efforts to notify) customers of those products or systems
for which fixes or work-arounds will not be available.
SSG believes the most reasonably likely worst case scenario related to the
Year 2000 issue is the failure of a product or system to operate for a
short period of time after January 1, 2000. As a result, SSG may be sued
as a manufacturer of products or systems that failed. Many of these
products or systems were sold to government customers. Management believes
it generally does not have legal liability to these customers.
Semiconductor Products Segment
The segment, consisting of the Semiconductor Product Sector ("SPS"), has
completed an extensive review of its products to determine if they are Year
2000 Ready. The vast majority of these products are Year 2000 Ready. A
limited number of products that contain a real-time clock function are
identified as having a potential Year 2000 issue with the manner in which
years are tracked. In addition, it is possible that an SPS semiconductor
may experience "year 2000 readiness" issues due to the manner in which a
customer has programmed the semiconductor or due to the manner in which the
semiconductor is incorporated into a customer system or product. SPS is
also making information available to its customers on these potential Year
2000 readiness issues.
Literature on the Year 2000 issue references what is referred to as the
"embedded chip" Year 2000 issue or the "embedded systems" Year 2000 issue.
(The word "chip" is a short-hand reference for a semiconductor product.)
Many common electronic products contain "chips" or "systems" containing
chips that are incorporated or "embedded" into the product. If these
"chips" or "systems" experience Year 2000 readiness issues, due to the
manner in which they are programmed, the product may malfunction. Because
this programming is customer defined, the extent to which the
malfunctioning of these products may occur due to a Year 2000 Readiness
issue with a SPS semiconductor is unknown at this time.
With relatively few internal items from the global multi-phase approach
remaining to be fixed, validated, and solutions deployed throughout the
organization, SPS, in conjunction with the newly formed High Tech
Consortium - Year 2000 and Beyond, is focusing on assessing external
critical suppliers, including utilities and critical transportation. This
effort is global in scope. In addition, SPS is taking actions to make
information available on the potential Year 2000 issues with the real time
clocks and the customer programming of SPS semiconductor products.
Finally, the business is reconfirming the readiness of its environmental
health and safety systems.
Integrated Electronic Systems Sector (IESS)
The Integrated Electronic Systems Sector (IESS) manufactures and sells
automotive and industrial electronics, energy storage products and systems,
electronic fluorescent ballasts and computer system products.
IESS has completed formal assessment of "Year 2000 Readiness" of its
products manufactured within the last eight years and its manufacturing
facilities. Other than embedded board and system products, and Global
Positioning System receivers, these products do not contain date-sensitive
functions, excluding customer provided software incorporated in such
products, for which IESS does not have sufficient information in most cases
to conduct an evaluation of whether such functions are included. Motorola
has advised its customers that responsibility for evaluating this software
is that of the customer. The sector is substantially complete with the
Six-Phase Program. The remaining projects relate to a few internal systems
and pieces of manufacturing equipment that the sector is working to ensure
that will be ready.
In the case of Global Positioning System receivers, engineering analysis is
complete on the most current version, and the products are Year 2000 Ready.
The operation of such receivers is dependent on the proper functioning of
the Global Positioning satellite system maintained and operated by the
Federal government, and is outside of the control of Motorola. There is a
second date-related issue for these products, relating to the "1024 weeks"
method of date calculation used in the satellites, which will potentially
impact the GPS in August 1999. The products are believed to be Year 2000
Ready based on completed engineering evaluation and simulator testing on
all but some older products. Simulator testing of older products will be
undertaken when representative samples are identified.
In the case of embedded boards, systems and software products that are
manufactured by the Motorola Computer Group (MCG), some of the older
products do not meet Motorola's definition of Year 2000 Ready. In many of
these cases, MCG has made fixes available to its customers to cure the
problem. Although it is difficult to measure any potential liability from
non-Year 2000 Ready products, MCG believes the risks are relatively small
based on the following. Since October 1, 1998, MCG has ceased shipping any
products that are not Year 2000 Ready without a waiver from the customer.
Fixes have been made available for products that may remain under warranty
after 1999. Many products which are outside the warranty period, have been
updated over the years with products that are Year 2000 Ready. Other
potential liability may arise in cases where it is not known in what
applications the products are being used. There is always the possibility
that some products have been incorporated by customers into critical use
applications. All of the known cases are being evaluated but Motorola
believes that this is the customer's responsibility.
The business has reviewed the year 2000 readiness of its key suppliers.
Suppliers that are considered "high-risk" vendors because of Year 2000
issues have been identified. The sector continues to assess these
suppliers and has developed contingency plans that may include the use of
alternate suppliers to minimize any potential risk.
Internet and Networking Group (ING)
ING manufactures and sells modems, data communication devices and equipment
that enables voice, video and data communications over private and public
networks. All data communications equipment and modems currently sold by
ING are Year 2000 Ready. Some of the older products, including some network
management and router software products, do not meet Motorola's definition
of Year 2000 Ready. In many of these cases, ING has made fixes available
to its customers. Some products have also reached the end of their
supported life and, therefore, have not been tested for Year 2000
Readiness.
Management believes that the most reasonably likely worst case scenario
involving its business is the failure of a mission critical or financial
communications system on January 1, 2000 (or thereafter). As a result, ING
could potentially be sued as the supplier of the communications equipment.
Management believes that its efforts to notify its customers of products
with issues and provide software solutions should reduce these risks.
The Company has made forward-looking statements regarding its Year 2000
Program. Those statements include: the Company's expectations about when
it will be "Year 2000 Ready"; the Company's expectations about the impact
of the Year 2000 issue on its ability to continue to operate on and after
January 1, 2000; the readiness of its suppliers; the costs associated with
the Year 2000 Program; and worst case scenarios. The Company has described
many of the risks associated with those forward-looking statements above.
However, the Company wishes to caution the reader that there are many
factors that could cause its actual results to differ materially from those
stated in the forward-looking statements. This is especially the case
because many aspects of its Year 2000 Program are outside its control such
as the performance of many thousands of third-party suppliers, customers
and end-users. As a global company it operates in many different
countries, some of which may not be addressing the Year 2000 issues to the
same extent as in the United States. As a result, there may be unforeseen
issues in different parts of the world. All of these factors make it
impossible for the Company to ensure that it will be able to resolve all
Year 2000 issues in a timely manner to avoid materially adversely affecting
its operations or business or exposing the Company to third-party
liability.
Euro Conversion:
- ---------------
For disclosure regarding the impact to the Company from the introduction of
the euro, see the information contained under the caption "Euro Conversion"
on pages F-13 and F-14 of the Company's Proxy Statement for its 1999 annual
meeting of stockholders.
Outlook:
- -------
The Company expects improving economic conditions throughout much of the
world, led by Asia and Europe. In addition, the successful results of the
Company's manufacturing consolidation, cost reduction and restructuring
programs have set the stage for improved long-term growth.
During the first half of 1999, the Company has entered into significant
alliances and partnerships that are expected to enhance its ability to
provide end-to-end solutions for its customers. While these relationships
are not yet benefiting its financial results, they give the Company the
opportunity to create new markets and gain leadership in providing
integrated communications solutions and embedded electronics solutions, the
Company's two major focuses.
The Company is also committed to invest heavily in a future where wireless
Internet technology will change the way the world communicates, and where
embedded electronics create new possibilities for people everywhere.
Business Risks:
- --------------
Statements concerning the Company's expectations about the Company's
renewal plan, the completion of the SpectraPoint Wireless transaction, the
outcome, timing and impact of certain pending business and asset sales, the
outcome and impact of events related to Iridium LLC, Motorola's 1999
depreciation expense, interest expense, tax rate, capital expenditures and
research and development expenditures, and the statements in "Review and
Outlook" are forward-looking and involve risks and uncertainties. The
Company wishes to caution the reader that the factors below and those in
the Company's 1999 Proxy Statement on pages F-15 through F-18, in its 10-Q
for the period ending April 3, 1999 and in its other SEC filings could
cause the Company's results to differ materially from those stated in the
forward-looking statements. These factors include: (i) the ability of
Motorola to complete its renewal plan in a timely manner and the continued
success of those efforts; (ii)continued improvement in the semiconductor
industry and the company's participation in that improvement; (iii)
continued gains in the digital wireless telephone market and market
acceptance of new products; (iv) continued improving economic conditions
throughout much of the world, particularly Asia; (v) the conclusion of
pending sales of businesses and assets which are subject to conditions,
many of which are out of the Company's control; (vi) the outcome of Iridium
LLC's refinancing efforts and the impact on the Company, including the
Company's investment in Iridium LLC and the Iridiumr project, its contracts
related to the Iridium project and its satellite business; (vii) pricing
pressures and demand for the Company's products especially in light of the
current economic conditions in parts of Asia, Latin America and other
emerging markets; (viii) the success of alliances and agreements with other
companies to develop new products and services; (ix) product and technology
development and commercialization risks, including for newer digital
products and Iridium products and services; and (x) unanticipated impact of
Year 2000 issues, particularly the failure of products or services of major
suppliers to function properly in the Year 2000 and reduced purchases by
customers because of the adverse impact of Year 2000 issues on their
businesses.
Iridiumr is a registered trademark and service mark of Iridium LLC.
Part II - Other Information
Item 1 - Legal Proceedings.
- --------------------------
Motorola is currently a named defendant in seven cases arising out of
alleged groundwater, soil and air pollution in Phoenix and Scottsdale,
Arizona. A trial is scheduled to begin in February 2000 involving the
Scottsdale property damage subclass in Baker, et al., v. Motorola, et al.
Motorola and several of its directors and officers are named defendants in
Kaufman, et al., v Motorola, et al., a consolidated class action for
alleged securities law violations. The Kaufman case has been scheduled to
begin trial in October 1999.
Motorola has been named as one of several defendants in a number of nearly
identical putative class action securities lawsuits arising out of alleged
material misrepresentations or omissions regarding difficulties in the
satellite communications business of Iridium World Communications, LTD,
Iridium LLC and Iridium Operating LLC: Freeland v. Iridium World
Communications, LTD, et al., Yong v. Iridium World Communications, LTD, et
al., Kleinman v. Iridium World Communications, LTD, et al., Marshall v.
Iridium World Communications, LTD, et al., Ackerman v. Iridium World
Communications, LTD, et al., Hargrove v. Iridium World Communications, LTD,
et al., Turner v. Iridium World Communications, LTD, et al.,Astiazaran v.
Iridium World Communications, LTD, et al., Coyle v. Iridium World
Communications, LTD, et al., Demopoulos v. Iridium World Communications,
LTD, et al., Evans v. Iridium World Communications, LTD, et al., Ginechese
v. Iridium World Communications, LTD, et al., Hammerschmidt v. Iridium
World Communications, LTD, et al., Hoyt v. Iridium World Communications,
LTD, et al., Mace v. Iridium World Communications, LTD, et al., Mandelbaum
v. Iridium World Communications, LTD, et al., Maytorena v. Iridium World
Communications, LTD, et al., Phiel v. Iridium World Communications, LTD, et
al., Strougo v. Iridium World Communications, LTD, et al., and Garvin v.
Iridium World Communications, LTD, et al., all filed in the US District
Court for the District of Columbia. The alleged classes consist of
purchasers of Iridium securities during the period from July 14, 1998 to
May 13, 1999. A motion to consolidate the cases is currently pending.
See Item 3 of the Company's Form 10-K for the fiscal year ended December
31, 1998 and Item 1 of Part II of the Company's Form 10-Q for the period
ended April 3, 1999 for additional disclosures regarding pending matters.
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 Motorola.
Item 2 - Changes in Securities and Use of Proceeds.
- --------------------------------------------------
Not applicable.
Item 3 - Defaults Upon Senior Securities.
- ----------------------------------------
Not applicable.
Item 4 - Submission of Matters to Vote of Security Holders.
- ----------------------------------------------------------
Not applicable.
Item 5 - Other Information.
- --------------------------
On June 21, 1999, the Company's finance subsidiary sold an aggregate face
principal amount at maturity of $500 million of 6.75% Guaranteed Bonds due
June 21, 2004, to non-U.S. persons. The Bonds were sold outside of the
United States in reliance on Regulation S under the Securities Act of 1933,
as amended. The net proceeds to the finance subsidiary from the issuance
and sale of the bonds were $497 million and were used to reduce its short-
term indebtedness.
Item 6 - Exhibits and Reports on Form 8-K.
- -----------------------------------------
(a) Exhibits
- --------
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 second quarter of
1999.
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: August 2, 1999 By: /s/ Anthony Knapp
- --------------------- ---------------------
Anthony Knapp
Corporate Vice President and Controller
(Chief Accounting Officer and Duly
Authorized Officer of the Registrant)
EXHIBIT INDEX
Number Description of Exhibits
- ------ -----------------------
27 Financial Data Schedule (filed only electronically with the SEC)
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated Balance Sheet as of 07/03/99 and the Consolidated Statement of
Earnings for the six months ended 07/03/99 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-12-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUL-03-1999
<CASH> 2,358
<SECURITIES> 291
<RECEIVABLES> 5,626
<ALLOWANCES> (288)
<INVENTORY> 3,765
<CURRENT-ASSETS> 15,058
<PP&E> 22,908
<DEPRECIATION> (13,295)
<TOTAL-ASSETS> 31,747
<CURRENT-LIABILITIES> 10,726
<BONDS> 3,119
484
0
<COMMON> 1,822
<OTHER-SE> 11,856
<TOTAL-LIABILITY-AND-EQUITY> 31,747
<SALES> 14,745
<TOTAL-REVENUES> 0
<CGS> 8,641
<TOTAL-COSTS> 12,999<F1>
<OTHER-EXPENSES> 1,114<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 93
<INCOME-PRETAX> 539
<INCOME-TAX> 162
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 377
<EPS-BASIC> 0.63
<EPS-DILUTED> 0.61
<FN>
<F1>Total Cost Includes: Cost of goods sold, selling & admin expense and research
and development expenditures.
<F2>Other Expense Includes: Depreciation expenses.
</FN>
</TABLE>
