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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
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Preliminary Proxy Statement |
[_] |
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2)) |
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to Section
240.14a-11(c) or Section 240.14a-12
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MOTOROLA
(Name of
Registrant as Specified In Its Charter)
(Name of
Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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No fee required.
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Fee computed on table below per
Exchange Act Rules 14a-6(i)(4) and 0-11.
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(1) Title of each class of
securities to which transaction applies:
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(2) Aggregate number of securities to which
transaction applies:
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(3)
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Per unit price or other underlying value of
transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it was
determined):
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(4) Proposed maximum aggregate
value of transaction:
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(5) Total fee paid:
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Fee paid previously with
preliminary materials.
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[_]
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Check box if any part of the fee
is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the
filing for which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the Form or Schedule
and the date of its filing.
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(1) Amount Previously Paid:
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(2) Form, Schedule or
Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
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[MOTOROLA LOGO] |
PROXY
STATEMENT
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MANAGEMENT
’S
DISCUSSION
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AND
ANALYSIS
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1999
CONSOLIDATED
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FINANCIAL
STATEMENTS
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AND
NOTES
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| PRINCIPAL EXECUTIVE
OFFICES:
1303 East Algonquin
Road
Schaumburg,
Illinois 60196
March 23,
2000
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PLACE OF
MEETING:
Hyatt Regency
Woodfield
1800 E. Golf
Road
Schaumburg,
Illinois 60173
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NOTICE OF ANNUAL
MEETING OF STOCKHOLDERS
To the
Stockholders:
Our Annual Meeting will be held at the Hyatt
Regency Woodfield, 1800 E. Golf Road, Schaumburg, Illinois 60173 on Monday,
May 1, 2000 at 5:00 P.M., local time.
The purpose of the meeting is to:
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elect directors for
the next year;
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2.
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approve a proposal
to amend Motorola’s Restated Certificate of Incorporation, as
amended, to increase the number of authorized shares of Motorola’s
common stock from 1.4 billion shares to 4.2 billion shares;
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3.
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consider and vote
upon the Motorola Omnibus Incentive Plan of 2000; and
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4.
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act upon such other
matters as may properly come before the meeting.
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Only Motorola
stockholders of record at the close of business on March 15, 2000 will be
entitled to vote at the meeting. Please vote in one of these
ways:
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use the toll-free
telephone number shown on your proxy card;
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visit the website
shown on your proxy card to vote via the Internet; or
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mark, sign, date
and return the enclosed proxy card in the enclosed postage-paid
envelope.
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PLEASE NOTE THAT
ATTENDANCE AT THE MEETING WILL BE LIMITED TO STOCKHOLDERS OF MOTOROLA AS
OF THE RECORD DATE (OR THEIR AUTHORIZED REPRESENTATIVES) HOLDING ADMISSION
TICKETS OR OTHER EVIDENCE OF OWNERSHIP. THE ADMISSION TICKET IS DETACHABLE
FROM YOUR PROXY CARD. IF YOUR SHARES ARE HELD BY A BANK OR BROKER, PLEASE
BRING TO THE MEETING YOUR BANK OR BROKER STATEMENT EVIDENCING YOUR
BENEFICIAL OWNERSHIP OF MOTOROLA STOCK TO GAIN ADMISSION TO THE
MEETING.
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By order of the
Board of Directors,
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[Signature of A.
Peter Lawson]
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Christopher B. Galvin
Chairman of the Board and
Chief Executive Officer
March 23,
2000
Dear Fellow
Stockholders:
It has been an
exciting year at Motorola. We have worked very hard on meeting the goals we
outlined to stockholders last year. We have made a lot of progress in 1999.
We know much remains to be done.
We are asking our
stockholders to consider two important proposals for our 2000 Annual
Meeting. First, we are asking you to approve an increase in the number of
authorized shares of Motorola common stock. In February 2000, the Motorola
Board of Directors approved a 3-for-1 stock split in the form of a stock
dividend, subject to the stockholders approving an increase in the number of
the Company’s authorized shares. In addition to enabling the contingent
3-for-1 stock split, additional shares may also be used by the Company to
purchase other companies, such as in the recently completed merger with
General Instrument, and in connection with our employee benefit
plans.
We are also asking
for your approval of the Motorola Omnibus Incentive Plan of 2000. The Board
adopted the 2000 Plan in response to what can only be called a “war for
talent” that is being waged in the information technology industry. The
Company has spent the last year reviewing its compensation programs. Motorola
’s programs related to equity-based awards have fallen behind most of
our key competition. The Board and senior management believe that
competitive compensation programs are crucial for Motorola’s success.
The 2000 Plan is integral to our compensation strategies in 2000 and going
forward.
Each of these
proposals is discussed in greater detail in the Proxy Statement. I
appreciate your support of these proposals and your continued support of
Motorola.
Very truly
yours,
[SIGNATURE OF CHRISTOPHER B. GALVIN]
PROXY
STATEMENT
1
PROXY STATEMENT
—VOTING PROCEDURES
Your vote is very important. The Board of
Directors is soliciting proxies to be used at the May 1, 2000 Annual
Meeting. This proxy statement, the form of proxy and the 1999 Summary Annual
Report will be mailed to stockholders on or about March 23, 2000. The
Summary Annual Report is not a part of this proxy statement. The proxy
statement and Summary Annual Report also are available on the Company’s
website at www.motorola.com/investor.
Who Can
Vote
Only stockholders of record at the close of
business on March 15, 2000 (the “record date”) will be entitled to
notice of and to vote at the Annual Meeting or any adjournments thereof. On
that date, there were 717,292,815 issued and outstanding shares of the
Company’s common stock, $3 par value per share (“Common Stock
”), the only class of voting securities of the Company.
How You Can
Vote
This year there are three convenient voting
methods:
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Voting by
Telephone. You can vote your shares by telephone by calling the toll-free
telephone number on your proxy card. Telephone voting is available 24
hours a day. If you vote by telephone you should not return your proxy
card.
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Voting by Internet.
You can also vote via the Internet. The website for Internet voting is on
your proxy card, and voting also is available 24 hours a day. If you vote
via the Internet you should not return your proxy card.
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Voting by Mail. If
you choose to vote by mail, mark your proxy, date and sign it, and return
it in the postage-paid envelope provided.
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How You May Revoke
or Change Your Vote
You can revoke your proxy at any time before
it is voted at the meeting by:
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Sending written
notice of revocation to the Secretary.
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Submitting another
timely proxy by telephone, Internet or paper ballot.
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Attending the
Annual Meeting and voting in person. If your shares are held in the name
of a bank, broker or other holder of record, you must obtain a proxy,
executed in your favor, from the holder of record to be able to vote at
the meeting.
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General
Information on Voting
You are entitled to cast one vote for each
share of Common Stock you own on the record date. Stockholders do not have
the right to vote cumulatively in electing directors.
In order for business to be conducted, a
quorum must be represented at the Annual Meeting. A quorum is a majority of
the shares entitled to vote at the Annual Meeting. Shares represented by a
proxy in which authority to vote for any matter considered is “withheld
”, a proxy marked “abstain” or a proxy as to which there is a
“broker non-vote” will be considered present at the meeting for
purposes of determining a quorum.
There are differing vote requirements for the
various proposals. Directors will be elected by a plurality of the votes
cast at the Annual Meeting, meaning the 14 nominees receiving the most votes
will be elected. Only votes cast for a nominee will be counted. Unless
indicated otherwise by your proxy, the shares will be voted for the 14
management nominees. Instructions on the accompanying proxy to withhold
authority to vote for one or more of the nominees will result in those
nominees receiving fewer votes but will not count as a vote against the
nominees.
The amendment to the Company’s Restated
Certificate of Incorporation, as amended, to increase the number of shares
of authorized Common Stock to 4.2 billion shares requires an affirmative
vote of a majority of the shares outstanding and entitled to vote as of the
record date. Abstentions and broker non-votes on this matter will have the
same impact as votes against the proposal.
The adoption of the Motorola Omnibus Incentive
Plan of 2000 requires an affirmative vote of a majority of the shares
present in person or by proxy and entitled to vote at the Annual Meeting.
For this proposal, an abstention will have the same effect as a vote against
the proposal. Broker non-votes will not be voted for or against the proposal
and will have no effect on the proposal.
If you are the beneficial owner of shares held
in “street name” by a broker, the broker as the record holder of
the shares is required to vote those shares in accordance with your
instructions. If you do not give instructions to the broker, the broker will
be entitled to vote the shares with respect to “discretionary”
items but will not be permitted to vote the shares with respect to
“non-discretionary” items (those shares are treated as
“broker non-votes”).
All shares that have been properly voted
—whether by telephone, Internet or mail—and not revoked will be
voted at the Annual Meeting in accordance with your instructions. If you
sign your proxy card but do not give voting instructions, the shares
represented by that proxy will be voted as recommended by the Board of
Directors.
If any other matters are properly presented at
the Annual Meeting for consideration, the persons named in the enclosed
proxy card will have the discretion to vote on those matters for you. At the
date we began printing this proxy statement, the Board of Directors did not
know of any other matter to be raised at the annual meeting.
Voting by
Participants in the Company’s Profit Sharing and Investment
Plan
If a stockholder is a participant in the
Motorola Profit Sharing and Investment Plan (the “Profit Sharing Plan
”) the proxy card also will serve as a voting instruction for the
trustees of that plan where all accounts are registered in the same name. If
shares of Common Stock in the Profit Sharing Plan are not voted either by
telephone, via the Internet, or by returning the proxy card representing
such shares, those shares will be voted by the trustees in the same
proportion as the shares properly voted.
PROXY
STATEMENT
Voting by
Participants in the General Instrument Corporation Savings
Plan
If a stockholder is a participant in the
General Instrument Corporation Savings Plan (the “GI Savings Plan
”) the proxy card also will serve as voting instructions for the
special fiduciary under that plan for all shares of Common Stock that have
been allocated to the participant’s account under the GI Savings Plan.
The special fiduciary will instruct the trustee to vote all shares for which
the special fiduciary receives timely voting instructions from participants
in accordance with such participants’ instructions. The special
fiduciary shall direct the trustee to vote all shares for which the special
fiduciary has not received timely voting instructions in the special
fiduciary’s sole discretion. The trustee will vote the shares in
accordance with directions received from the special fiduciary. Please note
that participants in the GI Savings Plan are considered named fiduciaries
with respect to the shares of Common Stock for which they are entitled to
direct the special fiduciary to vote. In directing the special fiduciary how
to vote, they should consider the long-term best interests of themselves and
the other participants in the GI Savings Plan.
1. ELECTION OF
DIRECTORS FOR A ONE-YEAR TERM
The term of office of all present directors of
the Company will expire on the day of the 2000 Annual Meeting upon the
election of their successors. The number of directors of the Company to be
elected at the Annual Meeting is 14. The directors elected at the Annual
Meeting will serve until their respective successors are elected and
qualified or until their earlier death or resignation.
NOMINEES
Each of the nominees named below is currently
a director of the Company and was elected at the Annual Meeting of
stockholders held on May 3, 1999. The ages shown are as of December 31,
1999. Donald R. Jones is not standing for re-election to the Board because
of the Company’s policy on age and tenure of directors.
If any of the nominees named below is not
available to serve as a director at the time of the Annual Meeting (an event
which the Board does not now anticipate), the proxies will be voted for the
election as director of such other person or persons as the Board may
designate, unless the Board, in its discretion, reduces the number of
directors.
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[photo of
CHRISTOPHER B. GALVIN]
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CHRISTOPHER B.
GALVIN, Principal Occupation: Chairman of the Board and Chief Executive
Officer, Motorola, Inc.
Director since
1988 Age—49
Mr. Galvin began
working for the Company in 1967 and he served in sales, sales management,
marketing, product management, service management and general management
positions in the Company’s various businesses. He served as president
and chief operating officer from 1993 until he became Chief Executive
Officer on January 1, 1997. In February 1999, Mr. Galvin was elected
Chairman of the Board. Mr. Galvin received a bachelor’s degree from
Northwestern University and a master’s degree from the Kellogg
Graduate School of Management at Northwestern University. Mr. Galvin is
the son of Robert W. Galvin.
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[photo of RONNIE C.
CHAN]
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RONNIE C. CHAN,
Principal Occupation: Chairman, Hang Lung Development
Group
Director since
1997 Age—50
Mr. Chan has been
the Chairman of Hong Kong-based Hang Lung Development Group since 1991.
Hang Lung Development Group is involved in property development, property
investment and hotels. In 1986, Mr. Chan co-founded the private
Morningside/Springfield Groups. The Morningside Group directs investments
in private companies. The Springfield Group engages in financial trading,
fund management and investment consulting. He is a member of the Board of
Directors of Enron Corporation and Standard Chartered PLC. Mr. Chan
obtained his first two degrees in biology from California State University
and an MBA from the University of Southern California. Mr. Chan is a U.S.
citizen residing in Hong Kong.
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PROXY
STATEMENT
3
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[photo of H.
LAURANCE FULLER]
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H. LAURANCE
FULLER, Principal Occupation: Co-Chairman of the Board, BP Amoco,
p.l.c.
Director since
1994 Age—61
Mr. Fuller will be
retiring as Co-Chairman and a director of BP Amoco, p.l.c., an energy
company, on March 31, 2000. He is a director of The Chase Manhattan
Corporation, The Chase Manhattan Bank, N.A., Abbott Laboratories, Security
Capital Group and Catalyst. Mr. Fuller graduated from Cornell University
with a B.S. degree in chemical engineering and earned a J.D. degree from
DePaul University Law School.
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[photo of ROBERT W.
GALVIN]
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ROBERT W.
GALVIN, Principal Occupation: Chairman of the Executive Committee,
Motorola, Inc.
Director since
1945 Age—77
Mr. Galvin started
his career at the Company in 1940. He held the senior officership position
in the Company from 1959 until 1990, when he became Chairman of the
Executive Committee. He continues to serve as a full time officer of the
Company. He attended the University of Notre Dame and the University of
Chicago, and is currently a member of the Board of Trustees of Illinois
Institute of Technology. Mr. Galvin has been awarded a number of honorary
degrees as well as industrial, professional and national
awards.
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[photo of Robert L.
GROWNEY]
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ROBERT L.
GROWNEY, Principal Occupation: President and Chief Operating Officer,
Motorola, Inc.
Director since
1997 Age—57
Mr. Growney began
his career with Motorola in 1966, holding various positions in the Company
’s wireless communications businesses including president and general
manager of the Messaging, Information and Media Sector from 1994 until he
was elected President and Chief Operating Officer on January 1, 1997. Mr.
Growney received both his bachelor’s degree in mechanical engineering
and his master’s degree in business administration from Illinois
Institute of Technology and is currently a member of the Board of Trustees
of Illinois Institute of Technology.
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[photo of ANNE P.
JONES]
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ANNE P. JONES,
Principal Occupation: Consultant
Director since
1984 Age—64
Ms. Jones is
currently working as a consultant. She was a partner in the Washington,
D.C. office of the Sutherland, Asbill & Brennan law firm from 1983
until 1994. Before that, she was a Commissioner of the Federal
Communications Commission. Ms. Jones is a director of the American Express
Mutual Fund Group. She holds B.S. and L.L.B. degrees from Boston College
and its Law School, respectively.
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[photo of JUDY C.
LEWENT]
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JUDY C. LEWENT,
Principal Occupation: Senior Vice President and Chief Financial Officer,
Merck & Co., Inc.
Director since
1995 Age—50
Ms. Lewent has been
Senior Vice President and Chief Financial Officer, Merck & Co., Inc.,
a pharmaceuticals company, since 1992. She is also a director of Johnson
& Johnson Merck Consumer Pharmaceuticals Company, The Quaker Oats
Company, Merial Limited, and the National Bureau of Economic Research. Ms.
Lewent is also a trustee of the Rockefeller Family Trust, a trustee board
member of the University of Pennsylvania Health System, and a
Massachusetts Institute of Technology Corporation member. Ms. Lewent
received a B.S. degree from Goucher College and a M.S. degree from the MIT
Sloan School of Management.
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PROXY
STATEMENT
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[photo of DR.
WALTER E. MASSEY]
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DR. WALTER E.
MASSEY, Principal Occupation: President of Morehouse
College
Director since
1993 Age—61
Dr. Massey is
President of Morehouse College. He has been director of the Argonne
National Laboratory and vice president for research at the University of
Chicago. In 1991 he was appointed by President Bush as the Director of the
National Science Foundation after which he was Provost and Senior Vice
President for the University of California System. Dr. Massey received a
Ph.D. degree in Physics and a Master of Arts degree from Washington
University. He also holds a Bachelor of Science degree in Physics and
Mathematics from Morehouse College. He is a director of BP Amoco p.l.c.,
BankAmerica Corporation and McDonalds, Inc. Dr. Massey previously served
as a director of the Company from May 1984 until May 1991 when he accepted
his appointment to the National Science Foundation.
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[photo of NICHOLAS
NEGROPONTE]
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NICHOLAS
NEGROPONTE, Principal Occupation: Director of the Massachusetts Institute
of Technology Media Laboratory
Director since
1996 Age—56
Mr. Negroponte is a
co-founder and director of the Massachusetts Institute of Technology Media
Laboratory, an interdisciplinary, multi-million dollar research center
focusing on the study and experimentation of future forms of human and
machine communication. He founded MIT’s pioneering Architecture
Machine Group, a combination lab and think tank responsible for many
radically new approaches to the human-computer interface. He joined the
MIT faculty in 1966 and became a full professor in 1980. Mr. Negroponte
received a B.A. and M.A. in Architecture from Massachusetts Institute of
Technology.
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[photo of JOHN E.
PEPPER, JR.]
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JOHN E. PEPPER,
JR., Principal Occupation: Chairman of the Executive Committee of the
Board of Directors, Procter & Gamble Co.
Director since
1994 Age—61
Mr. Pepper is
Chairman of the Executive Committee of the Board of Directors of Procter
& Gamble Co., a consumer products company, and its former chairman of
the board and chief executive officer. Mr. Pepper is also a director of
the Xerox Corporation and Boston Scientific Corporation. Mr. Pepper
graduated from Yale University in 1960.
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[photo of SAMUEL C.
SCOTT III]
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SAMUEL C. SCOTT
III, Principal Occupation: President and Chief Operating Officer, Corn
Products International
Director since
1993 Age—55
Mr. Scott is
President and Chief Operating Officer of Corn Products International, a
corn refining business. Mr. Scott serves on the Board of Directors of Corn
Products International, Reynolds Metals Company, the Corn Refiners
Association Inroads Chicago and Russell Reynolds Associates. Mr. Scott
graduated from Fairleigh Dickinson University, with a bachelor’s
degree in engineering in 1966 and an MBA in 1973.
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[photo of GARY L.
TOOKER]
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GARY L. TOOKER,
Principal Occupation: Retired; formerly Chairman of the Board, Motorola,
Inc.
Director since
1986 Age—60
Mr. Tooker started
with the Company in 1962, holding ascending marketing and operations
assignments within the semiconductor business and the Company, including
chief executive officer from 1993 through 1996 and chairman of the board
from January 1997 through May 1999. He retired as an officer of the
Company on December 31, 1999. He is a member of the Board of Directors of
Eaton Corporation, Atlantic Richfield Company (ARCO) and Catalyst and the
Morehouse College Board of Trustees. He is a graduate of Arizona State
University where he received a bachelor’s degree in Electrical
Engineering and did post-graduate studies in Business
Administration.
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PROXY
STATEMENT
5
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[photo of B.
KENNETH WEST]
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B. KENNETH WEST,
Principal Occupation: Senior Consultant for Corporate Governance to
Teachers Insurance and Annuity Association-College Retirement Equities
Fund
Director since
1976 Age—66
Mr. West is serving
as Senior Consultant for Corporate Governance to TIAA-CREF, a major
pension fund company. He retired as chairman of Harris Bankcorp, Inc. in
1995 where he had been employed since 1957. He is also a director of The
Pepper Companies, Inc. Mr. West graduated from the University of Illinois
and received an MBA degree from the University of Chicago.
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[photo of DR. JOHN
A. WHITE]
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DR. JOHN A.
WHITE, Principal Occupation: Chancellor, University of
Arkansas
Director since
1995 Age—60
Dr. White is
currently Chancellor of the University of Arkansas. Dr. White served as
Dean of Engineering at Georgia Institute of Technology from 1991 to early
1997, having been a member of the faculty since 1975. He is a director of
Eastman Chemical Company, J.B. Hunt Transport Services, Inc., Logility,
Inc., and Russell Corporation. Dr. White received a B.S.I.E. from the
University of Arkansas, a M.S.I.E. from Virginia Polytechnic Institute and
State University and a Ph.D. from The Ohio State University.
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PROXY
STATEMENT
MEETINGS OF THE
BOARD OF DIRECTORS OF THE COMPANY
During 1999 the Board had nine meetings. All
incumbent directors attended 75% or more of the combined total meetings of
the Board and the committees on which they served during 1999 except Mr.
Chan.
COMMITTEES OF THE
BOARD OF DIRECTORS
Audit and Legal
Committee
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Members: Directors
A. Jones (Chair), Chan, Fuller, D. Jones and White
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Number of Meetings
in 1999: Four
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Oversees internal
controls, audits and compliance programs
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Recommends
independent auditors and oversees the scope of their
activities
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Oversees health,
safety and environmental audit functions and business ethics
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Oversees internal
legal practice and policy
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Compensation
Committee
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Members: Directors
Scott (Chair), Fuller and Pepper
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Number of Meetings
in 1999: Seven
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Establishes elected
officers compensation
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Administers or
monitors compensation and benefit plans
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Executive
Committee
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Members: Directors
R. Galvin (Chair), C. Galvin, Growney, Scott, Tooker and West
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Number of Meetings
in 1999: None
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Reviews strategic
planning process, allocation of resources and other specific matters
assigned by the Board
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Finance
Committee
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Members: Directors
D. Jones (Chair), Chan, Growney, Lewent and West
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Number of Meetings
in 1999: Seven
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Reviews current and
long-range financial strategy and planning, including dividends and
borrowings
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Management
Development Committee
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Members: Directors
West (Chair), C. Galvin, Scott and Tooker
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Number of Meetings
in 1999: Three
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Reviews the process
and results of the Company’s organization and management development
program
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Nominating
Committee
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Members: Directors
Pepper (Chair), A. Jones, Massey and Negroponte
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Number of Meetings
in 1999: Four
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Recommends
candidates for membership on the Board based on committee-established
guidelines
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Consults with the
Chairman of the Board on committee assignments
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Considers
candidates for the Board recommended by stockholders
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Considers matters
of corporate governance
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This Committee will
consider a candidate for director proposed by a stockholder. A candidate
must be highly qualified and be both willing and expressly interested in
serving on the Board. A stockholder wishing to propose a candidate for the
Committee’s consideration should forward the candidate’s name
and information about the candidate’s qualifications to the Company
’s Secretary as described on page 23.
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Technology
Committee
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Members: Directors
Massey (Chair), Growney, Lewent, Negroponte and White
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Number of Meetings
in 1999: Three
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Identifies and
assesses significant technological issues and needs affecting the
Company
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DIRECTOR
COMPENSATION
In 1999, non-employee directors were paid an
annual retainer of $40,000. This fee has not increased over the last four
years. Employee directors receive no additional compensation for serving on
the Board or its Committees.
In addition to the annual retainer,
non-employee directors are paid for each meeting attended as follows: (i)
$1,500 per day for directors’ meetings; (ii) $1,000 per day for
committee meetings (unless on the same day as another meeting, then $500);
and (iii) $1,500 per day and a pro-rata portion thereof for partial days,
for assigned work for the benefit of the Company or any subsidiary. Each
non-employee director who is a chair of a committee receives an additional
$4,000 per annum. The Company also reimburses its directors, and in certain
instances spouses who accompany directors, for travel, lodging and related
expenses they incur in attending Board and committee meetings.
Directors are required to accept half of all
their board compensation in Common Stock or restricted Common Stock, and may
elect to accept up to 100% of their compensation in Common Stock or
restricted Common Stock. Restricted Common Stock is Common Stock that may
not be transferred until (i) the holder does not stand for re-election or is
not re-elected or (ii) the holder’s disability or death.
In 1999, each non-employee director received
an option to acquire 2,500 shares of Common Stock at the fair market value
of the shares on the date of grant.
Non-employee directors may elect to defer
receipt of all or any portion of their compensation until the year after
they cease being a director, become disabled or reach a designated age. Such
deferred amounts are credited with interest at a rate based on the discount
rate for ninety-day Treasury bills. Payments generally may be made in a lump
sum or in annual installments over a period not exceeding ten years. The
entire undistributed deferred amount (plus interest) will be distributed in
a lump sum upon a participating director’s death.
In 1996, the Board terminated its retirement
plan. Non-employee directors elected after the termination are not entitled
to benefits under this plan, and non-employee directors already
participating in the plan accrued no additional benefits for services after
May 31, 1996. In 1998, some directors converted their accrued benefits in
the retirement plan into shares of restricted Motorola Common Stock. They
may not
sell or transfer these shares until they are no longer members of the Board
because (i) they did not stand for re-election or were not re-elected or
(ii) their disability or death. Directors who did not convert their accrued
benefits in the retirement plan are entitled to receive payment of such
benefits in accordance with the applicable payment terms of the plan,
including payments to spouses in the event of death. For each year of
service on the Board prior to the date the plan was terminated, these
directors are entitled to receive annual payments equal to 10% of the annual
retainer for directors in effect on the date the plan was terminated, with a
maximum annual payment equal to 80% of the retainer. Directors who had
served on the Board for 8 or more years prior to the termination of the plan
are fully vested and entitled to an annual payment of $32,000.
Non-employee directors are covered by
insurance that provides accidental death and dismemberment coverage of
$500,000 per person. The spouse of each such director is also covered by
such insurance when traveling with the director on business trips for the
Company. The Company pays the premiums for such insurance. The total
premiums for coverage of all such directors and their spouses during the
year ended December 31, 1999 was $3,500.
Robert W. Galvin, a director and executive
officer, owns an airplane, which he used on business travel for the Company
for approximately 77% of its miles flown in 1999. The Company employs pilots
and mechanics for Company-owned airplanes. They also devote a portion of
their time to Mr. Galvin’s airplane, including those times when it is
not being used on Company business. The Company pays the salaries and the
cost of fringe benefits of these employees. Mr. Galvin pays all of the other
expenses of his airplane, except that the cost of fuel, oil and relatively
minor incidental crew and flight expenses incurred solely in connection with
Company business flights are paid by the Company. Mr. Galvin does not charge
the Company when other Company personnel accompany him on his airplane on
business trips. In 1999, and historically, the percentage of Company-paid
expenses of the airplane has been less than the percentage of usage of the
airplane for Company business.
Gary Tooker retired as an officer of the
Company on December 31, 1999. In connection with his retirement, the Company
entered into a consultant agreement with Mr. Tooker, which began on January
1, 2000. Under this consultant agreement, Mr. Tooker has agreed to make
available to Motorola consulting services that are specifically requested by
Motorola’s CEO. Those services are expected to include:
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Representing
Motorola at meetings with U. S. and foreign governments and with councils
and committees associated with U.S. and foreign governments
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Representing
Motorola at various international meetings and trade shows
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Representing
Motorola at meetings of charitable and educational organizations and
institutions
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Continued
involvement with Motorola University activities, both in teaching and in
fostering external relationships
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Other topics as may
from time-to-time be decided upon by consultant and the CEO.
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Mr. Tooker did not receive any payments in
1999 under this consultant agreement. The Company expects to pay Mr. Tooker
approximately $2,727,000 in 2000 and approximately $270,000 in 2001 under
the agreement. In addition, during the term of the consultant agreement, Mr.
Tooker will receive secretarial and computer support and be entitled to use
the Company-owned aircraft in connection with his consulting services. He
will also be entitled to home security services and tax preparation services
comparable to those offered to elected officers of the Company. The Company
also will pay for annual physical examinations and medical insurance
premiums. Mr. Tooker will also receive regular director compensation paid to
non-employee directors.
RECOMMENDATION OF
THE BOARD OF DIRECTORS
THE BOARD RECOMMENDS A VOTE FOR
THE ELECTION OF THE NOMINEES NAMED HEREIN AS DIRECTORS. UNLESS INDICATED
OTHERWISE BY YOUR PROXY VOTE, THE SHARES WILL BE VOTED FOR THE
ELECTION AS DIRECTORS OF SUCH NOMINEES.
2. APPROVAL OF
INCREASE IN AUTHORIZED COMMON STOCK
The Board of Directors of the Company has
proposed the adoption by the stockholders of an amendment to the Company
’s Restated Certificate of Incorporation, as amended, to increase the
number of shares of authorized Common Stock of the Company to 4.2 billion
shares from the presently authorized number of 1.4 billion shares. The Board
of Directors has declared that the proposed amendment be submitted to a vote
by the stockholders at the Annual Meeting.
On February 29, 2000, the Board of Directors
declared a contingent 3-for-1 stock split in the form of a stock dividend.
If, and only if, the proposed amendment to the Company’s Restated
Certificate of Incorporation, as amended, is adopted by the stockholders at
the Annual Meeting and the number of shares of authorized Common Stock is
increased to 4.2 billion, the stock dividend will be distributed on June 1,
2000 to holders of Common Stock of record on May 15, 2000. The Company
reserves the right to rescind the stock dividend.
If the proposed amendment is adopted by the
stockholders, the Company plans to file a Certificate of Amendment to the
Restated Certificate of Incorporation, as amended, as soon as practicable
following the Annual Meeting and the number of shares of authorized Common
Stock will thereby be increased to 4.2 billion.
On March 15, 2000, of the 1.4 billion
authorized shares of Common Stock, a total of 717.3 million shares were
outstanding, approximately 32 thousand shares were held in treasury and
approximately 69.2 million shares were reserved for issuance in connection
with the Company’s obligations to issue stock in connection with
outstanding options, warrants, convertible debt securities and other
exchangeable securities. The remainder of the shares of authorized common
stock were not issued or subject to reservation.
PROXY
STATEMENT
In addition to enabling the contingent 3-for-1
stock split in the form of a stock dividend that is described above, the
additional shares will enhance the Company’s flexibility in connection
with possible future actions, such as stock splits, stock dividends, future
acquisitions of property and securities of other companies, financings and
other corporate purposes. The Board of Directors will determine whether,
when and on what terms the issuance of shares of Common Stock may be
warranted in connection with any of the foregoing purposes. The Board of
Directors believes that it is beneficial to the Company to have the
additional shares available for such purposes without delay or the necessity
of a special shareholders’ meeting. Other than the contingent 3-for-1
stock split in the form of a stock dividend that is described above, the
Company has no immediate plans, arrangements, commitments or understandings
with respect to the issuance of any of the additional shares of common stock
which would be authorized by the proposed amendment.
If the proposed amendment is adopted by the
stockholders, the additional shares will be available for issuance from time
to time without further action by the stockholders (unless required by
applicable law, regulatory agencies or by the rules of any stock exchange on
which the Company’s securities may then be listed) and without first
offering such shares to the stockholders. Stockholders do not have
preemptive rights with respect to the Common Stock. The issuance of Common
Stock, or securities convertible into Common Stock, on other than a pro-rata
basis would result in the dilution of a present stockholder’s interest
in the Company.
The Company has not proposed the increase in
the authorized number of shares with the intention of using the additional
shares for anti-takeover purposes, although the Company could theoretically
use the additional shares to make it more difficult or to discourage an
attempt to acquire control of the Company. As of this date, the Company is
unaware of any pending or threatened efforts to acquire control of the
Company.
The affirmative vote of a majority of the
shares outstanding and entitled to vote as of the record date is required
for the adoption of the proposed amendment to the Company’s Restated
Certificate of Incorporation, as amended.
RECOMMENDATION OF
THE BOARD OF DIRECTORS
THE BOARD RECOMMENDS A VOTE
FOR APPROVAL OF THE PROPOSED AMENDMENT TO THE RESTATED
CERTIFICATE OF INCORPORATION, AS AMENDED, TO INCREASE THE AUTHORIZED NUMBER
OF SHARES OF COMMON STOCK. UNLESS OTHERWISE INDICATED BY YOUR PROXY, THE
SHARES WILL BE VOTED FOR APPROVAL OF THE PROPOSED
AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION, AS AMENDED, TO
INCREASE THE AUTHORIZED NUMBER OF SHARES OF COMMON STOCK.
3. ADOPTION OF THE
MOTOROLA OMNIBUS INCENTIVE PLAN OF 2000
The Board has adopted the Motorola Omnibus
Incentive Plan of 2000 (the “2000 Plan”) and is recommending that
stockholders approve the 2000 Plan at the Annual Meeting. The 2000 Plan is
integral to the Company’s compensation strategies and programs. There
is an ongoing “war for talent” within the information technology
industry where the Company competes. In order to retain and secure employees
in this intensely competitive employment environment, the Company must have
competitive compensation programs, particularly with respect to equity-based
awards. The use of stock options and other stock awards among information
technology companies is widely prevalent and continues to increase. The
Company has found that its use of stock options falls behind the usage by
others in the industry. The 2000 Plan will give Motorola more flexibility to
keep pace with competitors.
With stockholder approval of the 2000 Plan,
the Company expects to continue its efforts to expand the use of stock
options as the Company’s most widely-used form of long-term incentive.
The 2000 Plan will also permit annual management incentive awards, stock
grants, restricted stock grants, performance stock grants, performance unit
grants, stock appreciation rights grants (“SARs”), and cash
awards. Stockholder approval of the 2000 Plan also will permit the
performance-based awards discussed below to qualify for deductibility under
Section 162(m) of the Internal Revenue Code.
Awards and grants under the 2000 Plan are
referred to as “Benefits.” Those eligible for Benefits under the
2000 Plan are referred to as “Participants.” Participants include
all employees of the Company and its subsidiaries and all non-employee
directors.
The Company’s existing incentive plan,
the Motorola Incentive Plan of 1998 (the “1998 Plan”), by its
terms, expires on May 4, 2002, and no benefits will be granted under the
1998 Plan after that date. As of December 31, 1999, approximately 25.8
million shares were available for new grants under the 1998 Plan and there
were approximately 31.3 million shares subject to outstanding options under
the 1998 Plan and it predecessors. As of March 15, 2000, approximately 6.6
million shares were available for new grants under the 1998 Plan. This
number reflects grants made under the 1998 Plan after December 31, 1999,
including grants of stock options to approximately 30,000 employees on
January 31, 2000 based on 1999 performance. While the 1998 Plan will remain
in place, it does not provide sufficient shares for the grants which will
occur prior to the 2001 stockholder meeting. Rather than request that
stockholders approve additional shares for the 1998 Plan, the Board of
Directors approved for submission to the stockholders the new 2000 Plan. The
Board recommends a vote for adoption of the 2000 Plan, so the Company can
effectively recruit, motivate, and retain the caliber of employees essential
for achievement of the Company’s success.
PROXY
STATEMENT
9
A summary of the principal features of the
2000 Plan is provided below, but is qualified in its entirety by reference
to the full text of the 2000 Plan which was filed electronically with this
proxy statement with the Securities and Exchange Commission. Such text is
not included in the printed version of this proxy statement.
Shares Available
for Issuance
The aggregate number of shares of Common Stock
that may be issued under the 2000 Plan will not exceed 35.7 million (subject
to the adjustment provisions discussed below). The 35.7 million new shares
represent slightly less than 5 percent of the currently outstanding
shares.
The number of shares which may be issued under
the 2000 Plan for Benefits other than stock options will not exceed a total
of 3 million shares (subject to the adjustment provisions discussed
below).
Administration and
Eligibility
The 2000 Plan will be administered by a
Committee of the Board (the “Committee”) consisting of two or more
directors, each of whom will qualify as a “non-employee director”
within the meaning set forth in Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”). The
Committee will approve the aggregate Benefits and the individual Benefits
for the most senior elected officers and non-employee directors.
No Participant may receive in any Plan Year:
(i) stock options relating to more than 1,000,000 shares; (ii) restricted
stock that is subject to the attainment of Performance Criteria (as
described below) relating to more than 100,000 shares; (iii) SARs
relating to more than 1,000,000 shares; or (iv) performance shares relating
to more than 100,000 shares (all of these limits subject to the adjustment
provisions discussed below). The maximum amount that may be earned under
Performance Unit awards by any Participant who is a “covered employee
” in any calendar year may not exceed $5,000,000.
Stock
Options
Grants of
Options
The Committee is authorized to grant stock
options to Participants (“Optionees”), which may be either
incentive stock options (“ISOs”) or nonqualified stock options (
“NSOs”). NSOs and ISOs are collectively referred to as “Stock
Options.” The exercise price of any Stock Option must be equal to or
greater than the fair market value of the shares on the date of the grant.
The term of an ISO cannot exceed 10 years, and it is anticipated that NSOs
will have a term of 10 years, although the Committee retains the discretion
to establish different terms for NSOs, as long as the term does not exceed
10 years. ISOs may not be granted more than 10 years after the date of
adoption of the 2000 Plan by the Board.
For purposes of the 2000 Plan, fair market
value shall be determined in such manner as the Committee may deem
equitable, or as required by applicable law or regulation. Generally,
however, fair market value means the average of the high and low sale price
as reported on the New York Stock Exchange—Composite
Transactions.
Exercisability and
Termination
At the time of grant, the Committee in its
sole discretion will determine when Options are exercisable and when they
expire.
Payment of Option
Price
Payment for shares purchased upon exercise of
a Stock Option must be made in full at the time of purchase. Payment may be
made in cash, by the transfer to the Company of shares owned by the
Participant for at least six months valued at fair market value on the date
of transfer (including a certification of ownership of shares owned by the
Participant, delivery of a properly executed exercise notice to a broker to
deliver to the Company proceeds to pay the option exercise price and any
withholding taxes due to the Company) or in such other manner as may be
authorized by the Committee.
Restricted Stock
Grants
Restricted Stock consists of shares which are
transferred or sold by the Company to a Participant, but are subject to
substantial risk of forfeiture and to restrictions on their sale or other
transfer by the Participant (“Restricted Stock”). The Committee
determines the eligible Participants to whom, and the time or times at
which, grants of Restricted Stock will be made, the number of shares to be
granted, the price to be paid, if any, the time or times within which the
shares covered by such grants will be subject to forfeiture, the time or
times at which the restrictions will terminate, and all other terms and
conditions of the grants. Restrictions could include, but are not limited
to, Performance Criteria (as described below), continuous service with the
Company, the passage of time or other restrictions.
Performance
Stock
Performance Stock is the right of a
Participant to whom a grant of such stock is made to receive shares or cash
or a combination of shares and cash equal to the fair market value of such
shares at a future date in accordance with the terms of such grant and upon
the attainment of Performance Criteria specified by the
Committee.
The award of Performance Stock to a
Participant will not create any rights in such Participant as a stockholder
of the Company until the issuance of Common Stock with respect to an
award.
Performance
Units
Performance Units are the right of a
Participant to whom a grant of such Performance Units is made to receive a
payment in cash upon the attainment of Performance Criteria. The Committee
may substitute actual shares of Common Stock for the cash payment otherwise
required to be made pursuant to a Performance Unit award.
Performance
Criteria
Awards of Restricted Stock, Performance Stock,
Performance Units and other incentives under the 2000 Plan may
be made subject to the attainment of performance goals relating to one or more
business criteria within the meaning of Section 162(m) of the Code,
including, but not limited to, cash flow; cost; ratio of debt to debt plus
equity; profit before tax; earnings before interest and taxes; earnings
before interest, taxes, depreciation and amortization; earnings per share;
operating earnings; economic value added; ratio of operating earnings to
capital spending; free cash flow; net profit; net sales; price of the Company
’s Common Stock; return on net assets, equity, or stockholders’
equity; market share; or total return to stockholders (“Performance
Criteria”).
Any Performance Criteria may be used to
measure the performance of the Company as a whole or any business unit of
the Company, and any Performance Criteria may be adjusted to include or
exclude extraordinary items.
SARs
The Committee has the authority to grant SARs
to Participants and to determine the number of shares subject to each SAR,
the term of the SAR, the time or times at which the SAR may be exercised,
and all other terms and conditions of the SAR. An SAR is a right,
denominated in shares, to receive, upon exercise of the right, in whole or
in part, without payment to the Company an amount, payable in shares, in
cash or a combination thereof, that is equal to the excess of: (i) the fair
market value of Common Stock on the date of exercise of the right; over (ii)
the fair market value of Common Stock on the date of grant of the right
multiplied by the number of shares for which the right is exercised. It is
anticipated that SARs primarily will be used in place of stock options, and
any appreciation in value will be paid in cash, in order to comply with the
laws and regulations of foreign jurisdictions or to make the grant a more
effective form of compensation in a foreign jurisdiction.
Annual Management
Incentive Awards
The Committee has the authority to grant
Management Incentive Awards to designated executive officers of the Company
or any subsidiary.
Management Incentive Awards will be paid out
of an incentive pool equal to 5 percent of the Company’s consolidated
operating earnings for each calendar year. The Committee will allocate an
incentive pool percentage to each designated Participant for each calendar
year. In no event, may the incentive pool percentage for any one Participant
exceed 30 percent of the total pool. For purposes of the 2000 Plan,
“consolidated operating earnings” will mean the consolidated
earnings before income taxes of the Company, computed in accordance with
generally accepted accounting principles, but shall exclude the effects of
extraordinary items. Extraordinary items mean: (i) extraordinary, unusual,
and/or nonrecurring items of gain or loss; (ii) gains or losses on the
disposition of a business; (iii) changes in tax or accounting regulations or
laws; or (iv) the effect of a merger or acquisition. The Participant’s
incentive award then will be determined by the Committee based on the
Participant’s allocated portion of the incentive pool subject to
adjustment in the sole discretion of the Committee.
Stock
Awards
The Committee may award shares of Common Stock
to Participants without payment therefor, as additional compensation for
service to the Company or a subsidiary.
Cash
Awards
A cash award consists of a monetary payment
made by the Company to an employee as additional compensation for his or her
services to the Company or a subsidiary. A cash award may be made in tandem
with another Benefit or may be made independently of any other Benefit. Cash
awards may be subject to other terms and conditions, which may vary from
time to time and among employees, as the Committee determines to be
appropriate.
Amendment of the
2000 Plan
Except as may be required for compliance with
Rule 16b-3 under the Exchange Act and Section 162(m) of the Code, the Board
or the Committee has the right and power to amend the 2000 Plan, provided,
however, that neither the Board nor the Committee may amend the 2000 Plan in
a manner which would impair or adversely affect the rights of the holder of
a Benefit without the holder’s consent. If the Code or any other
applicable statute, rule or regulation, including, but not limited to, those
of any securities exchange, requires stockholder approval with respect to
the 2000 Plan or any type of amendment thereto, then to the extent so
required, stockholder approval will be obtained.
Termination of the
2000 Plan
The 2000 Plan may be terminated at any time by
the Board. Termination will not in any manner impair or adversely affect any
Benefit outstanding at the time of termination.
Committee’s
Right to Modify Benefits
Any Benefit granted may be converted,
modified, forfeited, or canceled, in whole or in part, by the Committee if
and to the extent permitted in the 2000 Plan, or applicable agreement
entered into in connection with a Benefit grant or with the consent of the
Participant to whom such Benefit was granted. The Committee may grant
Benefits on terms and conditions different than those specified in the 2000
Plan to comply with the laws and regulations of any foreign jurisdiction, or
to make the Benefits more effective under such laws and
regulations.
Neither the Board nor the Committee may cancel
any outstanding Stock Option for the purpose of reissuing the option to the
Participant at a lower exercise price, or reduce the option price of an
outstanding option.
Change in
Control
Stock
Options
Upon the occurrence of a Change in Control,
each Stock Option outstanding on the date on which the Change in Control
occurs will immediately become exercisable in full for the remainder of its
term.
PROXY
STATEMENT
11
Restricted
Stock
Upon the occurrence of a Change in Control,
the restrictions on all shares of Restricted Stock outstanding on the date
on which the Change in Control occurs will be automatically
terminated.
Performance
Stock
Upon the occurrence of a Change in Control,
any Performance Criteria with respect to any Performance Stock previously
granted, but still considered outstanding (as a right to receive shares or
cash at a future date) will be deemed to have been attained at target
levels, and shares of Common Stock or cash will be paid to the Participant
in an amount or amounts determined in accordance with the terms and
conditions set forth in the applicable agreement relating to the Performance
Stock.
Performance
Units
Upon the occurrence of a Change in Control,
any Performance Criteria with respect to any Performance Units previously
granted, but still considered outstanding (as a right to receive shares or
cash at a future date) will be deemed to have been attained at target
levels, and the cash (or shares of Common Stock) will be paid to the
Participant in an amount or amounts determined in accordance with the terms
and conditions set forth in the applicable agreement relating to the
Performance Units.
SARs
Upon the occurrence of a Change in Control,
each SAR outstanding on the date on which the Change in Control occurs will
immediately become exercisable in full for the remainder of its
term.
Management
Incentive Awards
Upon the occurrence of a Change in Control,
all Management Incentive Awards will be paid out based on the consolidated
operating earnings of the immediately preceding year, or such other method
of payment as may be determined by the Committee (prior to the Change in
Control).
Other Stock or
Cash Awards
Upon the occurrence of a Change in Control,
any terms and conditions with respect to other stock or cash awards
previously granted under the 2000 Plan will be deemed to be fully satisfied
and the other stock or cash awards will be paid out immediately to the
Participants, in amounts determined in accordance with the terms and
conditions set forth in the applicable grant, award, or agreement relating
to such Benefits.
For purposes of the 2000 Plan, the term
“Change in Control” is defined as: (i) any change in the person or
group that possesses, directly or indirectly, the power to direct or cause
the direction of the management and the policies of the Company, whether
through the ownership of voting securities, by contract or otherwise; (ii)
the acquisition, directly or indirectly, of securities of the Company
representing at least 20 percent of the combined voting power of the
outstanding securities of the Company (other than by the Company, or any
employee benefit plan of the Company); (iii) the consummation of certain
mergers and consolidations involving the Company; (iv) the consummation of
the sale or other disposition of all or substantially all of the Company
’s assets; (v) a liquidation or dissolution of the Company approved by
its stockholders; and (vi) a change in the majority of the board in
existence prior to the first public announcement relating to any cash tender
offer, exchange offer, merger or other business combination, sale of assets,
proxy or consent solicitation (other than by the Board of the Company),
contested election or substantial stock accumulation.
Adjustments
If there is any change in the Common Stock by
reason of any stock split, stock dividend, spin-off, split-up, spin-out,
recapitalization, merger, consolidation, reorganization, combination, or
exchange of shares, the number and class of shares available for Benefits,
and the number of shares subject to outstanding Benefits, and the price of
each of the foregoing, as applicable, will be equitably adjusted by the
Committee in its discretion. The Board has approved a 3-for-1 stock split in
the form of a stock dividend contingent upon stockholder approval of the
increase of authorized shares described in Proposal 2 in this proxy
statement. If the contingent 3-for-1 stock split in the form of a stock
dividend occurs, then the number of shares of Common Stock reserved for
issuance under the 2000 Plan will be adjusted to reflect the stock split and
will increase from 35.7 million shares to 107.1 million shares.
Subject to the Change-in-Control provisions,
without affecting the number of shares reserved or available hereunder,
either the Board or the Committee may authorize the issuance or assumption
of Benefits in connection with any merger, consolidation, acquisition of
property or stock, or reorganization upon such terms and conditions as it
deems appropriate.
In the event of any merger, consolidation, or
reorganization in which the Company is not the continuing corporation, there
shall be substituted on an equitable basis as determined by the Committee,
for each share of common stock subject to a Benefit, the number and kind of
shares of stock, other securities, cash, or other property to which holders
of Common Stock of the Company are entitled pursuant to the
transaction.
Reusage
If a Stock Option expires or is terminated,
surrendered or canceled without having been fully exercised or if Restricted
Stock, Performance Shares or SARs are forfeited or terminated without the
issuance of all of the shares subject thereto, the shares covered by such
Benefits (as long as such Benefits were issued under the 2000 Plan) will
again be available for use under the 2000 Plan. Shares covered by a Benefit
granted under the 2000 Plan will not be counted as used unless and until
they are actually and unconditionally issued and delivered to a Participant.
The number of shares which are transferred to the Company by a Participant
to pay the exercise or purchase price of a Benefit will be subtracted
from the number of shares issued with respect to such Benefit for the purpose
of counting shares used. Shares withheld to pay withholding taxes in
connection with the exercise or payment of a Benefit will not be counted as
used. Shares covered by a Benefit granted under the 2000 Plan which is
settled in cash will not be counted as used.
Federal Income Tax
Consequences
The Company has been advised by counsel that
the federal income tax consequences as they relate to Benefits are as
follows:
ISOs
An Optionee does not generally recognize
taxable income upon the grant or upon the exercise of an ISO. Upon the sale
of ISO shares, the Optionee recognizes income in an amount equal to the
difference, if any, between the exercise price of the ISO shares and the
fair market value of those shares on the date of sale. The income is taxed
at long-term capital gains rates if the Optionee has not disposed of the
stock within two years after the date of the grant of the ISO and has held
the shares for at least one year after the date of exercise and the Company
is not entitled to a federal income tax deduction. The holding period
requirements are waived when an Optionee dies.
The exercise of an ISO may in some cases
trigger liability for the alternative minimum tax.
If an Optionee sells ISO shares before having
held them for at least one year after the date of exercise and two years
after the date of grant, the Optionee recognizes ordinary income to the
extent of the lesser of: (i) the gain realized upon the sale; or (ii) the
difference between the exercise price and the fair market value of the
shares on the date of exercise. Any additional gain is treated as long-term
or short-term capital gain depending upon how long the Optionee has held the
ISO shares prior to disposing of them in a disqualifying disposition. In the
year of disposition, the Company receives a federal income tax deduction in
an amount equal to the ordinary income which the Optionee recognizes as a
result of the disposition.
NSOs
An Optionee does not recognize taxable income
upon the grant of an NSO. Upon the exercise of such a Stock Option, the
Optionee recognizes ordinary income to the extent the fair market value of
the shares received upon exercise of the NSO on the date of exercise exceeds
the exercise price. The Company receives an income tax deduction in an
amount equal to the ordinary income which the Optionee recognizes upon the
exercise of the Stock Option. If an Optionee sells shares received upon the
exercise of an NSO, the Optionee recognizes capital gain income to the
extent the sales proceeds exceed the fair market value of such shares on the
date of exercise.
Restricted
Stock
A Participant who receives an award of
Restricted Stock does not generally recognize taxable income at the time of
the award or payment. Instead, the Participant recognizes ordinary income in
the first taxable year in which his or her interest in the shares becomes
either: (i) freely transferable; or (ii) no longer subject to substantial
risk of forfeiture. On the date the restrictions lapse, the Participant
includes in taxable income the fair market value of the shares less the
cash, if any, paid for the shares.
A Participant may elect to recognize income at
the time he or she receives Restricted Stock in an amount equal to the fair
market value of the Restricted Stock (less any cash paid for the shares) on
the date of the award.
The Company receives a compensation expense
deduction in the taxable year in which restrictions lapse (or in the taxable
year of the award if, at that time, the Participant had filed a timely
election to accelerate recognition of income).
Other
Benefits
In the case of an exercise of an SAR or an
award of Performance Stock, Performance Units, or Common Stock or cash, the
Participant will generally recognize ordinary income in an amount equal to
any cash received and the fair market value of any shares received on the
date of payment or delivery. In that taxable year, the Company will receive
a federal income tax deduction in an amount equal to the ordinary income
which the Participant has recognized.
Million Dollar
Deduction Limit
The Company may not deduct compensation of
more than $1,000,000 that is paid to an individual who, on the last day of
the taxable year, is either the Company’s chief executive officer or is
among one of the four other most highly-compensated officers for that
taxable year. The limitation on deductions does not apply to certain types
of compensation, including qualified performance-based compensation. The
Company believes that Benefits in the form of Stock Options, Performance
Stock, Performance Units, SARs, performance-based Restricted Stock and cash
payments under Management Incentive Awards constitute qualified
performance-based compensation and, as such, will be exempt from the
$1,000,000 limitation on deductible compensation.
Miscellaneous
A new benefits table
is not provided because no grants have been made under the 2000 Plan and all
Benefits are discretionary. As of March 15, 2000, the closing price of
Motorola’s Common Stock was $150.88.
Approval by
Stockholders
In order to be adopted, the 2000 Plan must be
approved by the affirmative vote of a majority of the outstanding shares
represented at the meeting and entitled to vote.
RECOMMENDATION OF
THE BOARD OF DIRECTORS
THE BOARD RECOMMENDS A VOTE
FOR ADOPTION OF THE MOTOROLA OMNIBUS INCENTIVE PLAN OF
2000. UNLESS OTHERWISE INDICATED ON THE PROXY, THE SHARES WILL BE VOTED
FOR ADOPTION OF THE MOTOROLA OMNIBUS INCENTIVE PLAN OF
2000.
PROXY
STATEMENT
13
OWNERSHIP OF
SECURITIES
The following table sets forth information as
of February 29, 2000 regarding the beneficial ownership of shares of Common
Stock by each director and nominee for director of the Company, by the
persons named in the Summary Compensation Table on page 15, and by all
current directors, nominees and executive officers of the Company as a
group.
| Name |
|
Shares
Owned(1) |
|
Shares Under
Exercisable
Options(2) |
|
Total Shares
Beneficially
Owned(3)(4) |
|
| Christopher B.
Galvin |
|
3,287,573 |
|
553,334 |
|
|
3,841,313 |
(5) |
| Gary L.
Tooker |
|
167,799 |
|
606,920 |
(6) |
|
776,280 |
(6) |
| Robert L.
Growney |
|
129,972 |
|
295,667 |
|
|
426,272 |
(7) |
| Merle L.
Gilmore |
|
106,533 |
|
274,667 |
|
|
381,919 |
(8) |
| Carl F.
Koenemann |
|
31,308 |
|
163,644 |
|
|
198,226 |
(9) |
| Ronnie C.
Chan |
|
5,476 |
|
— |
|
|
5,476 |
(10) |
| H. Laurance
Fuller |
|
9,878 |
|
6,000 |
|
|
15,878 |
(11) |
| Robert W.
Galvin |
|
15,129,932 |
|
— |
|
|
15,164,176 |
(12) |
| Anne P.
Jones |
|
3,085 |
|
6,000 |
|
|
9,843 |
(13) |
| Donald R.
Jones |
|
51,906 |
|
6,000 |
|
|
109,108 |
(14) |
| Judy C.
Lewent |
|
4,641 |
|
6,000 |
|
|
10,641 |
(15) |
| Walter E.
Massey |
|
3,957 |
|
3,500 |
|
|
7,457 |
(16) |
| Nicholas
Negroponte |
|
7,628 |
|
6,000 |
|
|
13,628 |
|
| John E. Pepper,
Jr. |
|
8,200 |
|
6,000 |
|
|
18,550 |
(17) |
| Samuel C. Scott
III |
|
8,196 |
|
6,000 |
|
|
14,196 |
(18) |
| B. Kenneth
West |
|
9,132 |
|
6,000 |
|
|
15,132 |
(19) |
| John A.
White |
|
6,707 |
|
— |
|
|
6,707 |
(20) |
All current
directors, nominees and current
executive officers as a group (30 persons) |
|
17,362,380 |
|
4,086,448 |
|
|
21,599,524 |
(21) |
|
(1)
|
Includes shares
over which the person currently holds or shares voting and/or investment
power but excludes interests, if any, in shares held in the Company’s
Profit Sharing Trust and the shares listed under “Shares Under
Exercisable Options.”
|
(2)
|
Includes shares
under options exercisable on February 29, 2000 and options which become
exercisable within 60 days thereafter.
|
(3)
|
Unless otherwise
indicated, each person has sole voting and investment power over the
shares reported.
|
(4)
|
Includes interests,
if any, in shares held in the Company’s Profit Sharing Trust, which
is subject to some investment restrictions, and the shares listed under
“Shares Under Exercisable Options. Each director, other than Mr. R.
Galvin, owns less than 1% of the Common Stock. Mr. R. Galvin beneficially
owns 2.1% of the Common Stock. All current directors, nominees and current
executive officers as a group own 3.0%.
|
(5)
|
Mr. C. Galvin has
or shares investment and voting power with respect to these shares as
follows: sole voting and investment power, 889,151 shares; shared voting
and investment power, 1,611,860 shares; sole voting power only, 403,669
shares; and shared voting power only, 382,893 shares. Included in Mr. C.
Galvin’s shares are 1,986,593 shares, which are shown in this table
to be owned by Mr. R. Galvin. Mr. C. Galvin disclaims beneficial ownership
of all shares not held directly by him.
|
(6)
|
Mr. Tooker has
shared voting and investment power over 167,799 of these shares. Mr.
Tooker disclaims beneficial ownership of 51,285 shares held in certain
trusts and of 9,108 shares under exercisable options which are indirectly
held by he and family members.
|
(7)
|
Mr. Growney does
not have investment power over 90,000 of these shares.
|
(8)
|
Mr. Gilmore has
shared voting and investment power over 23,778 of these shares, and does
not have investment power over 80,000 of these shares.
|
(9)
|
Mr. Koenemann has
shared voting and investment power over 30,864 of these
shares.
|
(10)
|
Mr. Chan does not
have investment power over 1,225 of these shares.
|
(11)
|
Mr. Fuller does not
have investment power over 312 of these shares.
|
(12)
|
Mr. R. Galvin has
or shares investment and voting power with respect to these shares as
follows: sole voting and investment power, 9,762,446 shares; sole
investment power only, 4,067,455 shares; and shared voting and investment
power, 1,300,031 shares. Included in Mr. R. Galvin’s shares are
1,986,593 shares, which are shown in this table to be owned by Mr. C.
Galvin. Mr. R. Galvin disclaims beneficial ownership of all shares not
directly held by him and of 31,222 shares owned by his wife, which are
included for him under “Total Shares Beneficially Owned.”
Christopher B. Galvin presently serves as co-trustee with his father,
Robert W. Galvin, and his mother, Mary B. Galvin, under certain trusts
established for their benefit, estate planning and charity and holds an
executed general power of attorney from them to manage their assets,
including the voting or selling of Motorola shares, if that becomes
necessary.
|
(13)
|
Ms. Jones does not
have investment power over 696 of these shares, and disclaims beneficial
ownership of 758 shares held by her husband, which are included for her
under “Total Shares Beneficially Owned.”
|
(14)
|
Mr. Jones disclaims
beneficial ownership of 51,202 shares held by his wife, which are included
for him under “Total Shares Beneficially Owned.”
|
(15)
|
Ms. Lewent does not
have investment power over 88 of these shares.
|
(16)
|
Mr. Massey has
shared voting and investment power over 768 of these shares, and does not
have investment power over 654 of these shares.
|
(17)
|
Mr. Pepper does not
have investment power over 1,571 of these shares, and disclaims beneficial
ownership of 4,350 shares held by his family members, which are included
for him under “Total Shares Beneficially Owned.”
|
(18)
|
Mr. Scott does not
have investment power over 1,202 of these shares.
|
(19)
|
Mr. West does not
have investment power over 4,632 of these shares.
|
(20)
|
Mr. White does not
have investment power over 180 of these shares.
|
(21)
|
All directors,
nominees and current executive officers as a group have shared voting and
investment power over 1,873,964 of these shares, and do not have
investment power over 385,560 of these shares.
|
Principal
Shareholders
As of December 31, 1999, no person was known
by the Company to be the beneficial owner of more than 5% of the Company
’s Common Stock, except that FMR Corp. filed a Schedule 13G with the
Securities and Exchange Commission containing the following
information:
| Name and
Address |
|
Number of shares
and Nature of
Beneficial Ownership |
|
Percent of
Class |
|
FMR Corp.
82 Devonshire Street
Boston, MA 02109 |
|
49,983,620 shares
of Common Stock (1) |
|
8.206% |
|
(1)
|
As of December 31,
1999, FMR Corp. had sole voting power over 3,912,440 shares of Common
Stock and sole dispositive power over 49,983,620 shares of Common
Stock.
|
PROXY
STATEMENT
15
EXECUTIVE
COMPENSATION
SUMMARY
COMPENSATION TABLE
| |
|
Annual
Compensation
|
|
Long Term
Compensation
|
|
|
Name and
Principal
Position |
|
Year |
|
Salary
($) (1) |
|
Bonus
($)(2) |
|
Other Annual
Compen-
sation
($)(3)(4) |
|
Restricted
Stock
Awards
($)(6) |
|
Securities
Underlying
Options
(#)(7)(8) |
|
LTIP
Payouts
($)(9) |
|
All Other
Compen-
Sation
($)(10)(11) |
|
| Christopher B.
Galvin |
|
1999 |
|
1,275,000 |
|
1,900,000 |
|
7,973 |
|
|
13,153,000 |
|
300,000 |
|
0 |
|
6,419 |
| Chairman of the
Board and |
|
1998 |
|
1,200,000 |
|
600,000 |
|
13,476 |
|
|
0 |
|
250,000 |
|
0 |
|
8,179 |
| Chief Executive
Officer |
|
1997 |
|
990,000 |
|
955,000 |
|
5,615 |
|
|
0 |
|
80,000 |
|
505,260 |
|
7,661 |
| |
|
| Gary L.
Tooker |
|
1999 |
|
1,080,000 |
|
500,000 |
|
13,048 |
|
|
0 |
|
0 |
|
0 |
|
10,062 |
| Vice Chairman of
the Board |
|
1998 |
|
1,080,000 |
|
250,000 |
|
25,884 |
|
|
0 |
|
100,000 |
|
0 |
|
15,999 |
| |
|
1997 |
|
1,080,000 |
|
760,000 |
|
14,901 |
|
|
0 |
|
80,000 |
|
692,928 |
|
15,732 |
| |
|
| Robert L.
Growney |
|
1999 |
|
975,000 |
|
1,200,000 |
|
7,066 |
|
|
11,837,700 |
|
275,000 |
|
0 |
|
8,971 |
| President and
Chief |
|
1998 |
|
920,000 |
|
450,000 |
|
5,289 |
|
|
0 |
|
215,000 |
|
0 |
|
6,056 |
| Operating
Officer |
|
1997 |
|
720,000 |
|
695,000 |
|
4,428,617 |
(5) |
|
0 |
|
60,000 |
|
256,640 |
|
7,225 |
| |
|
| Merle L.
Gilmore |
|
1999 |
|
750,000 |
|
900,000 |
|
2,288 |
|
|
10,522,400 |
|
250,000 |
|
0 |
|
5,422 |
| Executive Vice
President |
|
1998 |
|
646,558 |
|
400,000 |
|
4,074 |
|
|
0 |
|
200,000 |
|
0 |
|
5,058 |
| |
|
1997 |
|
565,000 |
|
495,000 |
|
2,064 |
|
|
0 |
|
40,000 |
|
232,580 |
|
6,252 |
| |
|
| Carl F.
Koenemann |
|
1999 |
|
570,000 |
|
500,000 |
|
2,555 |
|
|
0 |
|
110,000 |
|
0 |
|
6,918 |
| Executive Vice
President |
|
1998 |
|
550,000 |
|
180,000 |
|
4,531 |
|
|
0 |
|
100,000 |
|
0 |
|
7,500 |
| and Chief Financial
Officer |
|
1997 |
|
485,000 |
|
325,000 |
|
3,916 |
|
|
0 |
|
40,000 |
|
195,488 |
|
7,500 |
|
(1)
|
Including amounts
deferred pursuant to salary reduction arrangements under the Profit
Sharing Plan.
|
(2)
|
These amounts were
earned in each of these years under the Motorola Executive Incentive Plan (
“MEIP”) for performance during that year.
|
(3)
|
These amounts are
the Company’s reimbursements for the income tax liability resulting
from the income imputed to that executive officer as a result of coverage
by a group life insurance policy for elected officers and the use of
Company aircraft.
|
(4)
|
The aggregate
amount of perquisites and other personal benefits, securities or property,
given to each named executive officer valued on the basis of aggregate
incremental cost to the Company, was less than either $50,000 or 10% of
the total of annual salary and bonus for that executive officer during
each of these years.
|
(5)
|
Elected officers
participate in a supplementary retirement plan and generally become vested
in the plan at age 55. A discussion of the Company’s pension and
retirement plans is on page 18. At the time of vesting the Company makes a
contribution to the trust for that plan. The purpose of that contribution
is to enable the trust to make payments of the benefits under the plan due
to the participant after retirement. Federal and state tax laws require
that the participant include in income the amount of any contribution in
the year it was made even though the participant receives no cash in
connection with such contribution or any payments from the retirement
plan. Because the participant receives no cash yet incurs a significant
income tax liability, the Company believes that it is appropriate to
reimburse the participant so that he or she is not paying additional taxes
as a result of a contribution. This is the Company’s policy with
respect to elected officers all of whom participate in the plan, including
those named in the Summary Compensation Table. In 1997, Mr. Growney was
reimbursed for such a tax liability of $4,423,360.
|
(6)
|
This column shows
the market value of restricted stock awards on the date of grant. The
closing price of the Common Stock on January 31, 2000, the date on which
the shares of restricted stock were granted, was $131.53. The shares of
restricted stock were granted to these executives in recognition of their
successful efforts to significantly improve the Company’s performance
during 1999 and to provide them with strong incentive to continue to
increase the value of the Company during their employment as follows:
100,000 shares to Mr. Galvin; 90,000 shares to Mr. Growney; and 80,000
shares to Mr. Gilmore. The restrictions on 50% of the restricted stock
lapse upon the executive officer’s retirement. The restrictions on
the remaining 50% of the shares lapse on a scheduled basis over the
executive officer’s career as long as he is employed by the Company
or a subsidiary. These restrictions lapse on 25% of the shares in 4 years
and on 25% of the shares in 6 years after the date of grant. In certain
circumstances, those restrictions could all lapse at retirement. In
addition, for the shares held by these three executives, if total
shareholder return from the date of grant is 125% or greater before the
restrictions on the time-vesting 50% of their shares lapse, the
restrictions on these shares would automatically lapse. Upon death or
total and permanent disability, all restrictions lapse. Regular quarterly
dividends or dividend equivalents are paid on restricted stock held by
these individuals.
|
PROXY
STATEMENT
(7)
|
Stock options
granted in 1997 vested and became exercisable after one year. In 1998, the
Committee granted stock options to key employees at the Company that vest
and become exercisable over a 3-year period. Other than Mr. Tooker’s
options, the options in the 1998 grant to the named executives vest and
become exercisable as follows: 33.3% on 11/05/99; 33.3% on 11/05/00; and
33.4% on 11/05/01. Mr. Tooker’s options vested on
11/05/99.
|
(8)
|
The Committee
granted stock options to these executives in recognition of their
successful efforts to significantly improve the Company’s performance
during 1999 and to provide them with strong incentive to continue to
increase the value of the Company during their employment. Traditionally,
grants of stock options were made in November or December of each year.
The Committee delayed the 1999 grant to January 31, 2000 so that it could
fully assess the full year 1999 performance of the Company. These options
were granted at fair market value at the time of grant. Other than Mr.
Koenemann’s options, the options vest and become exercisable over 4
years as follows: 25% on 1/31/01; 25% on 1/31/02; 25% on 1/31/03; and 25%
on 1/31/04. Mr. Koenemann’s options vest and become exercisable as
follows: 60% on 1/31/01 and 40% on 1/31/02.
|
(9)
|
No payments under
this plan will be made for the cycle ending with 1999.
|
(10)
|
These figures for
1999 include the following amounts for the premiums paid under the term
life portion of the split-dollar life insurance for: Mr. C. Galvin,
$2,995; Mr. Tooker, $6,638; Mr. Growney, $5,547; Mr. Gilmore, $1,998; and
Mr. Koenemann, $3,494.
|
(11)
|
These figures
include the following contributions made by the Company to the Profit
Sharing Plan for 1999 for: Mr. C. Galvin, $3,424; Mr. Tooker, $3,424; Mr.
Growney, $3,424; Mr. Gilmore, $3,424; and Mr. Koenemann,
$3,424.
|
STOCK OPTION
GRANTS IN 1999
Individual
Grants
| | |
| Name |
|
Number of
Securities
Underlying
Options Granted
(# of shares)
(1) (2) |
|
% of Total
Options Granted
to Employees in
1999 |
|
Exercise
or Base
Price
($/Sh) |
|
Expiration
Date (3) |
|
|
|
|
|
Potential
Realizable
Value (4) at Assumed
Annual Rates of Stock
Price Appreciation for
Option Term
|
| 5% ($)
(4) |
|
10% ($)
(4) |
|
| Christopher B.
Galvin |
|
300,000 |
|
1.6 |
% |
|
$131.53 |
|
1/31/15 |
|
42,573,427 |
|
125,371,036 |
| Gary L.
Tooker |
|
0 |
|
0 |
% |
|
$131.53 |
|
1/31/15 |
|
0 |
|
0 |
| Robert L.
Growney |
|
275,000 |
|
1.5 |
% |
|
$131.53 |
|
1/31/15 |
|
39,025,641 |
|
114,923,449 |
| Merle L.
Gilmore |
|
250,000 |
|
1.4 |
% |
|
$131.53 |
|
1/31/15 |
|
35,477,856 |
|
104,475,863 |
| Carl F.
Koenemann |
|
110,000 |
|
0.6 |
% |
|
$131.53 |
|
1/31/15 |
|
15,610,257 |
|
45,969,380 |
|
(1)
|
These are options
granted under the Motorola Incentive Plan of 1998 to acquire shares of
Common Stock. Options were granted on January 31, 2000 relating to
performance during 1999. Traditionally, grants of stock options were made
in November or December of each year. The Committee delayed the 1999 grant
to January 31, 2000 so that it could fully assess the full year 1999
performance of the Company.
|
(2)
|
These options were
granted at fair market value at the time of the grant, and carry with them
the right to elect to have shares withheld upon exercise and/or to deliver
previously-acquired shares of Common Stock to satisfy tax withholding
requirements. Other than Mr. Koenemann’s options, the options vest
and become exercisable over 4 years as follows: 25% on 1/31/01; 25% on
1/31/02; 25% on 1/31/03; and 25% on 1/31/04. Mr. Koenemann’s options
vest and become exercisable as follows: 60% on 1/31/01 and 40% on 1/31/02.
Options may be transferred to family members or certain entities in which
family members have an interest. In the aggregate, the options described
in this table are exercisable for approximately 0.13% of the shares of
Common Stock outstanding on March 15, 2000.
|
(3)
|
The option term is
15 years from the date of grant. The option term is the same for
substantially all of the options granted to employees on January 31, 2000.
These options could expire earlier in certain situations.
|
(4)
|
These hypothetical
gains are based entirely on assumed annual growth rates of 5% and 10% in
the value of the Company’s stock price over the entire 15-year life
of these options. This equates to an increase in stock price of 108% and
318%, respectively. These assumed rates of growth are selected by the
Securities and Exchange Commission for illustration purposes only and are
not intended to predict future stock prices, which will depend upon market
conditions and the Company’s future performance. This calculation
does not take into account any taxes or other expenses which might be
owed. For example, the options granted to Mr. Galvin would produce a
pre-tax gain of $125,371,036 only if the Company’s stock price
appreciates by 10% per year for 15 years and rises to more than $549 per
share before Mr. Galvin exercises the stock options. Based on the number
of shares of Motorola Common Stock outstanding as of January 31, 2000,
such an increase would produce a corresponding aggregate pre-tax gain of
more than $298 billion for the Company’s stockholders. In other
words, Mr. Galvin’s gain from the options would equal .042% of the
potential gain to all stockholders.
|
PROXY
STATEMENT
17
AGGREGATED OPTION
EXERCISES IN 1999
AND 1999 YEAR-END
OPTION VALUES
| Name |
|
Shares
Acquired on
Exercise
(# of shares) |
|
Value
Realized
($) (1) |
|
Number of
Securities
Underlying Unexercised
Options at end of 1999 (#)
|
|
Value of
Unexercised In-The-
Money (2) Options at end of
1999 ($) (3)
|
|
|
|
Exercisable |
|
Unexercisable
(4) |
|
Exercisable |
|
Unexercisable
(4) |
|
| Christopher B.
Galvin |
|
0 |
|
|
0 |
|
|
553,334 |
|
|
466,666 |
|
55,239,009 |
|
|
20,284,271 |
| Gary L.
Tooker |
|
63,080 |
(5) |
|
4,549,363 |
(5) |
|
660,920 |
(6) |
|
0 |
|
66,372,819 |
(6) |
|
0 |
| Robert L.
Growney |
|
30,373 |
|
|
1,647,233 |
|
|
295,667 |
|
|
418,333 |
|
26,614,554 |
|
|
17,711,736 |
| Merle L.
Gilmore |
|
0 |
|
|
0 |
|
|
274,667 |
|
|
383,333 |
|
25,976,044 |
|
|
16,384,636 |
| Carl F.
Koenemann |
|
69,690 |
|
|
5,286,278 |
|
|
163,644 |
|
|
176,666 |
|
14,872,980 |
|
|
7,956,471 |
|
(1)
|
The “value
realized” represents the difference between the base (or exercise)
price of the option shares and the market price of the option shares on
the date the option was exercised. The value realized was determined
without considering any taxes which may have been owed.
|
(2)
|
“In-the-Money
” options are options whose base (or exercise) price was less than
the market price of Common Stock at December 31, 1999.
|
(3)
|
Assuming a stock
price of $147.25 per share, which was the closing price of a share of
Common Stock reported for the New York Stock Exchange-Composite
Transactions on December 31, 1999.
|
(4)
|
Includes options
granted on January 31, 2000 relating to performance during 1999.
Traditionally, grants of stock options are made in November or December of
each year. The Committee delayed the grant to January 31, 2000 so that it
could fully assess the full year 1999 performance of the
Company.
|
(5)
|
Includes 18,000
shares acquired upon exercise of options that were previously transferred
by Mr. Tooker to a limited partnership indirectly held by Mr. Tooker and
his family members.
|
(6)
|
Includes 27,108
shares under exercisable options that were transferred by Mr. Tooker to a
limited partnership indirectly held by Mr. Tooker and his family
members.
|
LONG-TERM
INCENTIVE PLANS-AWARDS IN 1999
| Name |
|
Performance
or Other
Period Until
Maturation
or Payout
Maximum
($) |
|
Estimated Future
Payouts
Under Non-Stock
Based Plans
|
|
|
(1)(2)(4) |
|
|
Target
$(3) |
|
Maximum
($) |
|
| Christopher B.
Galvin |
|
4 Years |
|
1,593,750 |
|
3,187,500 |
| Gary L.
Tooker |
|
4 Years |
|
1,350,000 |
|
2,700,000 |
| Robert L.
Growney |
|
4 Years |
|
1,218,750 |
|
2,437,500 |
| Merle L.
Gilmore |
|
4 Years |
|
937,500 |
|
1,875,000 |
| Carl F.
Koenemann |
|
4 Years |
|
712,500 |
|
1,425,000 |
|
(1)
|
Under the Company
’s Long Range Incentive Plan of 1994 (“LRIP”), at the
beginning of each four-year cycle, the Compensation Committee determines
the objective measures/metrics for that cycle. The measures/metrics used
for this purpose are return on net assets (“RONA”), stockholder
return and sales growth over a four-year period, each weighted at 25%,
compared to a selected comparator group of companies. The fourth
measurement is fundable growth weighted at 25%. An award is earned only
when Company performance exceeds the minimum specified RONA floor,
notwithstanding superior performance versus the comparator group of
companies, and can range from 0% to 200% of the lesser of (i) 125% of the
executive officer’s annualized base salary on January 1 of the first
year of the four year cycle, or (ii) 100% of the executive officer’s
annualized base salary on December 31 of the last year of the four year
cycle.
|
(2)
|
All the payments
shown are potential assumed amounts. There is no assurance that Motorola
will achieve results that would lead to payments under LRIP or that any
payments will be made under this plan.
|
(3)
|
At the performance
target, which is that point at which 50% of the maximum award under the
LRIP would be payable, the indicated payments would be made under the
LRIP.
|
(4)
|
These figures were
calculated using the January 1, 1999 annualized base salary for each
participating executive officer.
|
PROXY
STATEMENT
RETIREMENT
PLANS
The Motorola, Inc. Pension Plan (the
“Pension Plan”) may provide pension benefits to the named
executive officers in the future. Most regular U.S. employees who have
completed one year of employment with the Company or certain of its
subsidiaries are eligible to participate in the Pension Plan. They become
vested after five years of service. Normal retirement is at age
65.
The Company also maintains supplementary
retirement plans for employees, including the executive officers named in
the Compensation Table, who receive compensation in excess of the reduced
compensation limit imposed under the Internal Revenue Code. The plan
applicable to the named executives provides that if the benefit payable
annually (computed on a single life annuity basis) to any officer under the
Pension Plan (which is generally based on varying percentages of specified
amounts of final average earnings, prorated for service, as described in the
Pension Plan) is less than the benefit calculated under the supplementary
plan, that officer will receive supplementary payments upon retirement.
Generally, the total annual payments to such officer from both plans will
aggregate a percentage of the sum of such officer’s rate of salary at
retirement plus an amount equal to the highest average of the Motorola
Executive Incentive Plan (“MEIP”) awards paid to such officer for
any five years within the last eight years preceding retirement. Such
percentage ranges from 40% to 45%, depending upon such officer’s years
of service and other factors. However, the total annual pension payable on
the basis of a single life annuity to any named executive officer from the
Pension Plan and supplementary retirement plan is subject to a maximum of
70% of that officer’s base salary prior to retirement. If the officer
is vested and retires at or after age 57 but prior to age 60, he or she may
elect to receive a deferred unreduced benefit when he or she attains age 60,
or an actuarially reduced benefit when that officer retires contingent upon
entering into an agreement not to compete with the Company. If a change in
control (as defined) of the Company occurs, the right of each non-vested
elected officer to receive supplementary payments will become vested on the
date of such change in control.
Participants in the supplementary retirement
plan generally become vested in the plan at age 55. At the time of vesting
the Company makes a contribution to the trust for that plan. The purpose of
that contribution is to enable the trust to make payments of the benefits
under the supplementary retirement plan due to the participant after
retirement. Federal and state tax laws require that the participant include
in income the amount of any contribution in the year it was made even though
the participant receives no cash in connection with such contribution or any
payments from the retirement plan. Because the participant receives no cash
yet incurs a significant income tax liability, the Company believes that it
is appropriate to reimburse the participant so that he or she is not paying
additional taxes as a result of a contribution. This is the Company’s
policy with respect to elected officers, all of whom participate in the
plan, including those named in the Compensation Table.
Based on salary levels at December 31, 1999,
and the average of the MEIP awards paid for the highest five years out of
the last eight years, for the named executive officers in the Summary
Compensation Table, the estimated annual benefit payable upon retirement at
normal retirement age from the Pension Plan, as supplemented pursuant to the
officers’ supplementary retirement plan described above and a previous
retirement income plan, is as follows: Mr. C. Galvin, $1,608,367; Mr.
Tooker, $762,636; Mr. Growney, $778,846; Mr. Gilmore, $780,200, and Mr.
Koenemann, $419,401.
TERMINATION OF
EMPLOYMENT AND CHANGE IN CONTROL ARRANGEMENTS
The Company has adopted a policy (the
“salary protection policy”) which generally provides that most
employees of the Company and its subsidiaries would receive a lump sum
payment, based on years of service and salary, in the event their employment
is involuntarily terminated (except for specific reasons) during a two-year
period following an unsolicited change in control (as defined) of the
Company. This policy, which is subject to specified amendment and
termination, also provides for continuation of medical plan benefits. In
addition, the Company has entered into Termination Agreements with certain
key employees, including the named executive officers, who are not covered
by the salary protection policy because of the Termination Agreements. Each
Termination Agreement provides for the payment of benefits in the event that
(i) the executive officer terminates his or her employment for any reason
within one year of a change in control (as defined), (ii) the executive
officer terminates his or her employment for “good reason” (as
defined) within two years of a change in control, or (iii) the executive
officer’s employment is terminated for any reason other than
termination for “good cause” (as defined), disability, death or
normal retirement within two years of a change in control. In the case of
(ii) and (iii) above, accumulation by a person or group of a 20 percent
stock position would constitute a change in control, although, in the case
of (i) above, a 51 percent stock position would be required. No benefits are
payable under the Termination Agreements in the case of any change in
control which the Company’s Chairman of the Board determines to be the
result of a transaction which was initiated by the Company. The amount of
the benefits payable to an executive officer entitled thereto would be equal
to, in addition to unpaid salary for accrued vacation days and accrued
salary and annual bonus through the termination date, an amount equal to
three times the greater of the executive officer’s highest annual base
salary in effect during the three years immediately preceding the change in
control and the annual base salary in effect on the termination date, plus
an amount equal to three times the highest annual bonus received during the
immediately preceding five fiscal years ending on or before the termination
date. Benefits are subject to offset to the extent that such offset would
improve the executive officer’s after-tax position by eliminating any
excise taxes otherwise imposed on the employee under the “parachute
payment” provisions of the Internal Revenue Code. The term of each
Termination
Agreement is subject to automatic one-year extensions unless the Company gives
12 months prior notice that it does not wish to extend. In addition, if a
change in control occurs during the term, the Termination Agreement
continues for an additional two years.
The following “Report of Compensation
Committee on Executive Compensation” and “Performance Graphs”
and related disclosure shall not be deemed incorporated by reference by any
general statement incorporating this proxy statement into any filing under
the Securities Act of 1933 or under the Securities Exchange Act of 1934,
except to the extent that the Company specifically incorporates this
information by reference, and shall not otherwise be deemed filed under such
Acts.
REPORT OF
COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
Objectives of
Executive Compensation Program
Motorola’s executive compensation program
is designed to attract and retain key executives critical to the long-term
success of the Company. The design is centered around three focal points
—a) providing competitive base pay, b) delivering excellent pay when
results warrant, and c) generating outstanding returns to shareholders over
the long term. The programs were redesigned during 1999 for implementation
during 2000 to create stronger links to performance and shareholder
value.
Summary of
Compensation Plans
Base pay levels are compared to a competitive
peer group within each country and region. In the U.S., the peer group
consists of 23 companies which, in the aggregate, the Committee believes
fairly represent the Motorola portfolio of businesses. Outside the U.S., the
same companies are compared unless other, more compelling competitors for
executive talent are present.
Overall, base salary levels for each executive
position are set at the 50th percentile of similar positions in the
competitive peer group. When a position does not readily match those found
in the data, judgment is applied to determine a fair competitive salary.
Some variation above and below the competitive median is allowed when, in
the judgment of management and the Committee, the value of the individual
’s experience and specific skill set justifies. Variations are
permitted in order to place more emphasis on performance-related rewards
that generate significant income to those individuals and businesses that
demonstrate their ability to produce strong results. In this way,
competitively superior pay goes to those that earn it. As a result, the
greatest retention value has been invested in the strongest
performers.
The major executive compensation programs are
as follows:
1. Participants in the Motorola Executive
Incentive Plan (the “MEIP”) include elected and appointed vice
presidents (including the executives named in the Compensation Table) and
employees at certain levels of management and specific professionals who are
deemed individual contributors. In 1999, approximately 1,050 people
participated in MEIP.
The MEIP awards are generally earned and paid
annually. Awards are determined as a percentage of the participant’s
base salary earnings. The Company may provide up to 7% of its annual
consolidated pretax earnings after deducting 5% of capital employed, each as
defined in the MEIP, for awards under this Plan. The MEIP award for each
participant is based on the achievement of a mixture of financial, strategic
non-financial and individual goals set for each calendar year. The MEIP sets
no limits on the amount of awards to individual participants, except that
the aggregate amounts awarded under the MEIP cannot exceed the amount
reserved. In addition, the Committee has established target and upper limit
MEIP award levels which vary by salary range and which are upgraded
periodically based on competitive survey information. For exceptional
performance, the upper limit guidelines can be exceeded.
2. The second program is the Long Range
Incentive Plan of 1994 (the “LRIP”). In 1999, 37 of the Company
’s most senior elected officers (including the executives named in the
Compensation Table) were eligible for awards, but no awards will be
paid.
The LRIP award is determined, in part, by the
Company’s RONA (Return On Net Assets), sales growth and stockholder
return over a four-year period, compared to an average of a similar
calculation for a group of selected competitive companies chosen by the
Committee (the “comparator group index”) and to Company targets.
The comparator group index is a group of approximately 20 companies,
generally in one or more of the same lines of business as the Company, and
believed by the Committee to be appropriate for measuring comparative
performance on the basis of the factors in the LRIP over a four-year period.
An award is earned only when Company performance exceeds a minimum specified
RONA floor, notwithstanding superior performance versus the comparator group
index and Company targets. Additionally, the award is determined, in part,
by the Company’s fundable growth.
The LRIP or a predecessor plan has been in
effect in 18 succeeding four-year cycles, the first of which began in 1982.
Since inception of the LRIP and its predecessor plan, payments have only
been made four times, for the cycles ending with 1994, 1995, 1996 and 1997,
because the Company’s overall RONA performance had not previously
exceeded the required RONA floor. For the four-year cycle ending with 1997,
the Company exceeded the Company-wide RONA floor set in the LRIP but
payments were less than the maximum award. For the four-year cycles ending
with 1998 and 1999, the Company did not meet the Company-wide RONA floor set
in the LRIP and no payments were or will be made.
PROXY
STATEMENT
3. A wide range of managerial
and individual contributors participate in the Company’s stock option
plans. Recipients of stock options for 1999 performance numbered
approximately 30,000. There are approximately 36,000 current option holders.
Stock options are typically awarded annually to encourage optionees to own
Common Stock to align their own personal financial worth to the Company
’s share price growth. The option exercise price is the market price at
the time of grant. Options are granted in quantities as low as 50 shares to
mid-range and lower-level Company employees, and in substantially higher
numbers to senior managers. Traditionally, grants of stock options were made
in November or December of each year. The Committee delayed the 1999 grant
until January 31, 2000 so that it could fully assess the full year 1999
performance of the Company.
Beginning with the stock option grant in
December 1993, the Company established higher stock ownership guidelines for
executive officers, including the Chief Executive Office. Under those
guidelines, if a Chief Executive Office member does not own shares of Common
Stock representing four times his base salary or if other executive officers
do not own shares of Common Stock representing three times their base
salaries, then such officers must retain fifty percent of the shares that
remain from any exercise of the stock option grant received after December
1993 (after deducting the number of shares of Common Stock that could be
surrendered to cover the cost of such exercise and any required tax
withholdings, even if he or she does not actually surrender shares), until
the minimum stock ownership level is reached. Additionally, these guidelines
set a minimum stock ownership level of 5,000 shares of Common Stock for all
other elected officers, 1,000 shares of Common Stock for all appointed
vice-presidents and 300 shares for all other MEIP participants. Under these
additional guidelines, if an elected officer or appointed vice-president
does not own shares of Common Stock representing the minimum stock ownership
level, then he or she must retain fifty percent of the shares that remain
from any exercise of any stock option granted after June 30, 1994, or after
the date he or she becomes an elected officer or appointed vice-president if
later (after deducting the number of shares of Common Stock that could be
surrendered to cover the cost of such exercise and any required tax
withholdings, even if he or she does not actually surrender shares), until
the minimum Common Stock ownership level is reached.
On one basis or another, the rewards under
each of these major plans depend on overall Company performance, with some
also taking account of sector, group, division, small team or individual
performance. There have been years when the employees of entire sectors,
groups, or divisions, as well as executive officers (including one or more
of the five most highly compensated at that time) have received no payments
under these plans.
The description of the Motorola Omninbus
Incentive Plan of 2000, which the Board is recommending that stockholders
approve at the Annual Meeting, begins on page 8. As noted there, the 2000
Plan will give Motorola the flexibility to keep pace with other “high
tech” and industrial companies in a very competitive employment
environment.
Chief Executive
Office
The compensation for the Chief Executive
Office members consists of base salary, annual MEIP award eligibility, LRIP
award eligibility, stock options, restricted stock and certain other
benefits. Christopher B. Galvin, Chairman of the Board and Chief Executive
Officer, and Robert L. Growney, President and Chief Operating Officer, are
the current members of the Chief Executive Office.
The Committee studied the data gathered from
the 23-company peer group mentioned earlier to assess the appropriate
competitive compensation levels for members of the Chief Executive
Office.
Chief Executive
Office Base Salary
In determining the Chief Executive Office
members’ base salaries, the Committee considered the results of the
study together with the Company’s performance on its own financial and
non-financial strategic goals and the individual performance of the Chief
Executive Office members. No particular weight was given to any one of these
goals in setting base salaries for the Chief Executive Office members. The
competitive study gave the Committee a base from which to modify salary
and/or incentive compensation based upon performance. In 1999, the Committee
reviewed, and recommended for approval to the Board, the base salaries of
the Chief Executive Office members and the full Board approved
them.
Chief Executive
Office Annual MEIP
For the 1999 MEIP awards, the Committee
assessed performance to the business plan, results from the Company’s
Performance Excellence Scorecard and the outstanding results achieved from
the restructuring implemented beginning in the second half of 1998. On this
basis, the Committee granted awards at the planned levels determined under
the competitive study.
Chief Executive
Office Stock Options and Restricted Stock Grants
Options to purchase 300,000 shares of Common
Stock at $131.53 per share, the market price on January 31, 2000, the date
of grant, were awarded to Christopher B. Galvin as part of the Company
’s annual option program. Options to purchase 275,000 shares were
similarly awarded to Robert L. Growney. These stock options vest and become
exercisable over four years as follows: 25% on 1/31/01; 25% on 1/31/02; 25%
on 1/31/03; and 25% on 1/31/04. 100,000 shares of restricted stock were
awarded to Mr. Galvin and 90,000 shares of restricted stock were awarded to
Mr. Growney on January 31, 2000. The restrictions on 50% of the shares of
restricted stock lapse upon the executive officer’s retirement. The
restrictions on the remaining 50% of the shares lapse on a scheduled basis
over the executive officer’s career as long as he is employed by the
Company or a subsidiary. These restrictions lapse on 25% of the shares in
4 years and on 25% of the shares in 6 years after the date of grant. In
certain circumstances, those restrictions could all lapse at retirement. In
addition, for the shares held by these executives, if total shareholder
return from the date of grant is 125% or greater before the restrictions on
the time-vesting 50% of their shares lapse, the restrictions on these shares
would automatically lapse. Upon death or total and permanent disability all
restrictions lapse.
Options and restricted stock were granted to
these executives in recognition of their successful efforts to significantly
improve the Company’s performance during 1999 and to provide them with
strong incentive to continue to increase the value of the company during
their employment. The level of option awards and restricted stock were made
using the Committee’s judgment considering the vesting schedule and
restrictions and the Company’s performance in 1999. The Committee also
considered the options granted to and exercised by these Chief Executive
Office members from 1989 to 1999 and their stock ownership as of January 1,
2000.
Chief Executive
Office LRIP
The minimum corporate four-year RONA
percentage required to be met for payment under the LRIP was not met for the
four-year periods ending with 1998 and 1999 and no payments were or will be
made for these periods. For the four-year period ending 1997, performance
met plan criteria and the CEO and COO were awarded $505,260 and $256,640,
respectively, under the LRIP. This represented 25.5% and 17.85% of the
maximum awards.
Section 162(m) of
the Internal Revenue Code
Section 162(m) of the Internal Revenue Code
generally limits the corporate tax deduction to one million dollars for
compensation paid to named executive officers unless certain requirements
are met. The Company has not been entitled to deduct some amount of payments
under the Motorola Executive Incentive Plan in the past. The 1999 MEIP
awards will not be deductible to the extent they cause the applicable
employee remuneration to exceed one million dollars during 1999. MEIP awards
fail to qualify as “performance based compensation” exempt from
the limitation on deductions that is imposed by Section 162(m) because the
Committee exercises discretion in making these awards. The Committee
believes that the discretionary component of this plan permits the Committee
to make decisions in the best interests of the Company and its stockholders
and it intends, therefore, to continue the process by which it determines
MEIP awards. The Stock Option Plan of 1996 and the Long Range Incentive Plan
of 1994 meet the requirements for exemption under Section 162(m) and
compensation paid under these plans in 1999, if any, also will be
deductible. The Motorola Incentive Plan of 1998 permits various types of
awards, some of which qualify for exemption under Section 162(m) and some of
which do not. Stock options, performance shares and stock appreciation
rights that are granted under the plan qualify as “performance based
compensation” and, as such, are exempt from the limitation on
deductions. Outright grants of common stock, restricted stock and/or cash do
not qualify for exemption and are subject to the Section 162(m) limitation
on deductions.
Overall, the Committee believes that the Chief
Executive Office members are being appropriately compensated in a manner
that relates to performance and is in the long-term interests of the
stockholders.
|
Samuel C. Scott
III, Chairman
|
PROXY
STATEMENT
PERFORMANCE
GRAPHS
The following graphs
compare the five-year and one-year cumulative total returns of Motorola,
Inc., the S&P 500 Index and a composite S&P Electronic Subgroups
Index composed of the following nine S&P indices, weighted by market
value at each measurement point: the S&P Communications
Equipment/Manufacturers Index, the S&P Computers (Peripherals) Index,
the S&P Electrical Equipment Index, the S&P Electronics (Component
Distributors) Index, the S&P Electronics Index, the S&P Computers
(Hardware) Index, the S&P Computers (Networking) Index, the S&P
Electronics (Semiconductors) Index and the S&P Equipment
(Semiconductors) Index. This composite index contains a total of 48
electronics companies. The graphs assume $100 was invested in the stock or
the Index on December 31, 1994 or December 31, 1998, respectively, and also
assume the reinvestment of dividends.
Comparison of
Five-Year Cumulative Total Return
[LINE CHART]
Measurement Period S&P
(Fiscal Year Covered) MOTOROLA 500 INDEX SUB-GROUPS INDEX
------------------- -------- --------- ----------------
1994 $100 $100 $100
1995 $ 99.0 $136.5 $137.5
1996 $107.1 $169.5 $192.4
1997 $100.9 $226.0 $251.6
1998 $108.6 $291.0 $418.0
1999 $262.7 $352.3 $733.9
Comparison of
One-Year Total Return
[LINE CHART]
Measurement Period S&P
(Fiscal Year Covered) MOTOROLA 500 INDEX SUB-GROUPS INDEX
------------------- -------- --------- ----------------
1998 $100 $100 $100
1999 $241.9 $121 $175.6
PROXY
STATEMENT
23
OTHER
MATTERS
The Board knows of no other business to be
transacted at the 2000 Annual Meeting of Stockholders, but if any other
matters do come before the meeting, it is the intention of the persons named
in the accompanying proxy to vote or act with respect to them in accordance
with their best judgment.
Independent Public
Accountants
KPMG LLP served as the Company’s
independent public accountants for the fiscal year ended December 31, 1999
and are serving in such capacity for the current fiscal year. The
appointment of independent public accountants is made annually by the Board.
The decision of the Board is based on the recommendation of the Audit and
Legal Committee, which reviews both the audit scope and estimated audit
fees. Representatives of KPMG LLP are expected to be present at the Annual
Meeting and will have the opportunity to make a statement if they desire to
do so and to respond to appropriate questions of stockholders.
Manner and Cost of
Proxy Solicitation
The Company pays the cost of soliciting
proxies. In addition to mailing proxies, officers, directors and regular
employees of the Company, acting on its behalf, may solicit proxies by
telephone or personal interview. Also, the Company has retained D. F. King
& Co., Inc. to aid in soliciting proxies. The Company will pay an
estimated fee of $20,000 plus expenses, to D. F. King. The Company will, at
its expense, request brokers and other custodians, nominees and fiduciaries
to forward proxy soliciting material to the beneficial owners of shares held
of record by such persons.
Section 16(a)
Beneficial Ownership Reporting Compliance
Each director and certain officers of the
Company are required to report to the Securities and Exchange Commission, by
a specified date, his or her transactions related to Motorola Common Stock.
Based solely on review of the copies of reports furnished to the Company or
written representations that no other reports were required, the Company
believes that, during the 1999 fiscal year, all filing requirements
applicable to its officers, directors and greater than 10% beneficial owners
were complied with, except that one report covering one transaction was
filed late by Mr. Negroponte, a director, and one report covering one
transaction was filed late by Mr. Younts, an executive officer.
List of
Stockholders
A list of stockholders entitled to vote at the
meeting will be available for examination at Motorola’s Galvin Center,
1297 East Algonquin Road, Schaumburg, Illinois 60196 for ten days before the
2000 Annual Meeting and at the Annual Meeting.
Proposals
Proposals of stockholders intended to be
presented at the Company’s 2001 annual meeting of stockholders and
included in the Company’s proxy statement and form of proxy for that
meeting must be received at the Company’s principal executive offices
not later than November 23, 2000.
After the November 23, 2000 deadline, a
stockholder may present a proposal at the Company’s 2001 Annual Meeting
if it is submitted to the Company’s Secretary at the address below no
later than February 6, 2001. If timely submitted, the stockholder may
present the proposal at the 2001 Annual Meeting, but the Company is not
obligated to present the matter in its proxy materials.
A stockholder wishing to recommend a candidate
for election to the Board should send the recommendation and a description
of the person’s qualifications to the Nominating Committee in care of
the Secretary of Motorola at the address below. The Nominating Committee has
full discretion in considering its nominations to the Board. A stockholder
wishing to nominate a candidate for election to the Board is required to
give written notice to the Secretary of the Company of his or her intention
to make such a nomination. The notice of nomination must be received by the
Company’s Secretary at the address below no later than February 6,
2001. The notice of nomination is required to contain certain information
about both the nominee and the stockholder making the nomination as set
forth in the Company’s bylaws. A nomination which does not comply with
the above requirements will not be considered.
Send all proposals or
nominations to A. Peter Lawson, Secretary, Motorola, Inc., 1303 East
Algonquin Road, Schaumburg, Illinois 60196.
Form
10-K
The Company will mail without charge, a copy
of the Annual Report on Form 10-K. Direct requests to Investor Relations,
1303 E. Algonquin Road, Schaumburg, IL 60196. The report also is available
on the Company’s website www.motorola.com/investor.
|
By order of the
Board of Directors,
|
|
[Signature of A.
Peter Lawson]
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS
OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
F-1
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This commentary should be read in conjunction
with the Consolidated Financial Statements and Notes, presented on pages F-29
–F-61 of this Proxy Statement Appendix, for a full understanding of
Motorola’s financial position and results of operations.
In accordance with Rule 14a-3(c) under the
Securities Exchange Act of 1934 (the “Exchange Act”), as adapted
to the “Summary Annual Report” procedure, the information
contained in the following commentary and consolidated financial statements
and notes is provided solely for the information of stockholders and the
Securities and Exchange Commission. Such information shall not be deemed to
be “soliciting material” or to be “filed” with the
Commission or subject to Regulation 14A under the Exchange Act (except as
provided in Rule 14a-3) or to the liabilities of Section 18 of the Exchange
Act, unless, and only to the extent that, it is expressly incorporated by
reference into the Form 10-K of Motorola, Inc. for its fiscal year ending
December 31, 1999.
MOTOROLA,
INC.
1999 COMPARED TO
1998
Motorola Results
of Operations
Year
Ended
| ($ in Millions
except per share amounts) |
|
December 31,
1999 |
|
% of
Sales |
|
December 31,
1998 |
|
% of
Sales |
|
| Net
sales |
|
$30,931 |
|
|
|
|
|
$29,398 |
|
|
|
|
| Percent change from
prior year |
|
5 |
% |
|
|
|
|
(1 |
)% |
|
|
|
| Costs and
expenses |
|
|
|
|
|
|
|
|
|
|
|
|
| Manufacturing and
other costs of sales |
|
19,169 |
|
|
62.0 |
% |
|
18,043 |
|
|
61.4 |
% |
| Selling, general
and administrative expenses |
|
5,045 |
|
|
16.3 |
% |
|
5,443 |
|
|
18.5 |
% |
| Restructuring and
other charges |
|
(226 |
) |
|
(0.7 |
)% |
|
1,980 |
|
|
6.7 |
% |
| Research and
development expenditures |
|
3,438 |
|
|
11.1 |
% |
|
2,893 |
|
|
9.8 |
% |
| Depreciation
expense |
|
2,182 |
|
|
7.1 |
% |
|
2,197 |
|
|
7.5 |
% |
| Interest expense,
net |
|
155 |
|
|
0.5 |
% |
|
216 |
|
|
0.7 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Total costs and
expenses |
|
29,763 |
|
|
|
|
|
30,772 |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Earnings (loss)
before income taxes |
|
1,168 |
|
|
3.8 |
% |
|
(1,374 |
) |
|
(4.7 |
)% |
| Income tax
provision (benefit) |
|
351 |
|
|
|
|
|
(412 |
) |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Net earnings
(loss) |
|
$
817 |
|
|
2.6 |
% |
|
$
(962 |
) |
|
(3.3 |
)% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Diluted earnings
(loss) per common share |
|
$
1.31 |
|
|
|
|
|
$
(1.61 |
) |
|
|
|
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS
OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Sales increased 5% to $30.9
billion from $29.4 billion in 1998. Sales growth is attributed primarily to
the digital wireless telephone business. Sales are expected to grow at a
rate higher than the 1999 growth rates due primarily to strong demand for
wireless telephones. Geographic market sales, measured by the locale of the
end customer, as a percent of total sales changed from 1998 to 1999 as
follows:
Geographic
Market Sales
by Locale of End Customer |
|
1999 |
|
1998 |
|
| United
States |
|
37% |
|
41% |
| Europe |
|
21% |
|
21% |
| China |
|
10% |
|
10% |
| Latin
America |
|
8% |
|
8% |
| Asia, excluding
China and Japan |
|
10% |
|
7% |
| Japan |
|
7% |
|
7% |
| Other
Markets |
|
7% |
|
6% |
| |
|
|
|
|
| |
|
100% |
|
100% |
|
Earnings before income taxes were $1.2
billion, compared with a loss before income taxes of $1.4 billion in 1998.
Net earnings were $817 million, or $1.31 per share, compared with a net loss
of $962 million, or $1.61 per share in 1998. Net margin on sales
improved to 2.6%, compared with negative 3.3% margin on sales in
1998. The increase in earnings in 1999 compared to 1998 is attributed
to: (i) lower net special items including a significant restructuring charge
in 1998, a portion of which was returned as income in 1999, (ii) margin
generated from higher sales volume, and (iii) decrease in the percentage of
sales represented by selling, general and administrative expenses. These
improvements were partially offset by an increase in research and
development expenditures. The main businesses contributing to this
improvement in earnings were the wireless telephone and
semiconductor businesses.
Manufacturing and other costs of sales were
$19.2 billion or 62.0% of sales in 1999 compared to $18.0 billion or 61.4%
of sales in 1998. Manufacturing and other costs of sales for 1999 include a
special charge of $806 million for inventory charges related to the Iridium
project. Excluding this special item from 1999, manufacturing and other
costs of sales were $18.4 billion or 59.4% of sales compared to $18.0
billion or 61.4% of sales in 1998. The improvement in manufacturing margin
is due to the wireless telephone and semiconductor products businesses.
Manufacturing and other costs of sales as a percent of sales is expected
to increase in 2000 compared to 1999 as the Company anticipates a faster
rate of growth in its Personal Communi-cations Segment (PCS) than in its
other segments. PCS has the lowest manufacturing margin of any of the
segments in the Company.
Selling, general and administrative expenses
were $5.0 billion, or 16.3% of sales in 1999 compared to $5.4 billion, or
18.5% of sales, in 1998. Selling, general and administrative costs for 1999
include net special charges of $104 million which includes $1,176 million
for Iridium related charges, and $67 million for in-process research and
development charges, offset by $1,139 million of income from sales of
investments and businesses. Selling, general and administrative costs for
1998 include net special income items of $111 million which includes a $109
million charge for in-process research and development and $30 million of
other charges, offset by $250 million of income from sales of investments
and businesses. Excluding net special items, selling, general and
administrative costs were $4.9 billion or 16.0% of sales in 1999 compared to
$5.6 billion or 18.9% of sales in 1998. This decline is primarily
attributable to benefits from the Company’s manufacturing
consolidation, cost reduction and restructuring programs and lower losses
related to Motorola’s investment in Iridium LLC. Selling, general and
administrative costs are expected to increase below the expected rate of
sales growth as the Company continues to invest in new
businesses.
Restructuring and other charges reflect the
Company’s comprehensive manufacturing consolidation, cost reduction and
restructuring programs initiated in 1998 (“1998 Program”). In the
second quarter of 1998, the Company recorded, as a separate line in the
consolidated statements of operations, 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. The 1998 Program reached its planned completion at
December 31, 1999. At that time, the Company reversed into income $226
million, shown as a separate line in the consolidated statements of
operations, for accruals no longer required. In 1999 $387 million of
accruals were used including approximately $189 million in cash payments and
$198 million in write-offs. In 1998 $1.34 billion of accruals were used
reflecting approximately $600 million in cash payments and $740 million in
write-offs. At December 31, 1999 $27 million in accruals remain which
represent cash payments to be made by the end of the first quarter of
2000.
The Company achieved its goal of an
approximately
$1 billion annual rate of profit improvement from these programs. The Company
’s restructuring and other charges are described further in the section
titled, 1998 Compared to 1997 that follows and is also detailed in Note 12
to the
Consolidated Financial Statements.
Research and development expenditures
increased to $3.4 billion, or 11.1% of sales, in 1999 from $2.9 billion, or
9.8% of sales, in 1998. Over the past three years, the Company has been
increasing the percentage of its sales that is spent on research and
development; and continues to believe that a strong commitment to research
and development is required to drive long-term growth. Research and
development spending in 2000 is expected to increase at a rate similar to or
slightly higher than the rate of sales growth.
Depreciation expense was $2.2 billion in both
1999 and 1998, or 7.1% and 7.5% of sales, respectively. Fixed asset
expenditures were $2.7 billion in 1999 versus $3.2 billion in 1998. Of the
total fixed asset expenditures, $1.5 billion occurred in the semiconductor
business, a reduction of $277 million from the amount spent in this business
in 1998. During 2000, fixed asset expenditures are expected to increase to
$4.8 billion, of which $2.3 billion is expected to
be spent in the semiconductor business. The Company estimates that worldwide
semiconductor industry growth in the years 2000 and 2001 will be in the 20%
–25% range and expects to increase its fixed asset expenditures in line
with that anticipated growth. As a result of the increased fixed asset
expenditures, depreciation expense is expected to increase in 2000 compared
to 1999.
Net interest expense was $155 million versus
$216 million a year ago. The decrease in interest expense is attributed to
utilizing cash both from operations and from the sale of investments and
businesses to pay down debt. Interest expense in 2000 is expected to
increase, because of anticipated increases in interest rates in the United
States.
The effective income tax rate for 1999 and
1998 was 30%. The Company currently expects approximately the same tax rate
in 2000 as in 1999.
Special Items and
Results of Operations Excluding Special Items
The 1999 earnings include net special charges
of $684 million before income taxes, equivalent to 77 cents per share after
income taxes. The 1998 earnings include net special charges of $1.9 billion
before income taxes, equivalent to $2.19 per share after income
taxes.
Summarized in the following two tables are the
special items included in the Company’s results for the years ended
December 31, 1999 and 1998 and the corresponding line on the consolidated
statements of operations where these items are recorded.
1999 Special
Items
($ in Millions)
(Income) Charge |
|
SG
&A |
|
Costs of
Sales |
|
Restructuring
and Other |
|
Total |
|
| Iridium related
charges |
|
$
1,176 |
|
|
$806 |
|
$
— |
|
|
$
1,982 |
|
| In-Process research
and development write-off |
|
67 |
|
|
— |
|
— |
|
|
67 |
|
| Gains from the sale
of investments and businesses |
|
(1,139 |
) |
|
— |
|
— |
|
|
(1,139 |
) |
| Restructuring &
other charges |
|
— |
|
|
— |
|
(226 |
) |
|
(226 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
| Net special
charge |
|
$
104 |
|
|
$806 |
|
$(226 |
) |
|
$
684 |
|
|
1998 Special
Items
($ in Millions)
(Income) Charge |
|
SG
&A |
|
Restructuring
and Other |
|
Total |
|
| Restructuring &
other charges |
|
$
— |
|
|
$1,980 |
|
$1,980 |
|
| In-Process research
and development write-off |
|
109 |
|
|
— |
|
109 |
|
| Other
charges |
|
30 |
|
|
— |
|
30 |
|
| Gains from the sale
of investments and businesses |
|
(250 |
) |
|
— |
|
(250 |
) |
| |
|
|
|
|
|
|
|
|
| Net special
charge |
|
$(111 |
) |
|
$1,980 |
|
$1,869 |
|
|
Summarized in the table below are the results
of operations, excluding special items, for the years ended December 31,
1999 and 1998.
Motorola,
Excluding Special Items
Year Ended
| ($ in Millions
except per share amounts) |
|
December 31,
1999 |
|
% of
Sales |
|
December 31,
1998 |
|
% of
Sales |
|
| Net
sales |
|
$30,931 |
|
|
|
|
$29,398 |
|
|
|
|
Percent change from prior year |
|
5 |
% |
|
|
|
(1 |
)% |
|
|
| Costs and
expenses |
|
|
|
|
|
|
|
|
|
|
|
Manufacturing and other costs of sales |
|
18,363 |
|
|
59.4% |
|
18,043 |
|
|
61.4% |
|
Selling, general and administrative expenses |
|
4,941 |
|
|
16.0% |
|
5,554 |
|
|
18.9% |
|
Restructuring and other charges |
|
— |
|
|
—
|
|
— |
|
|
— |
|
Research and development expenditures |
|
3,438 |
|
|
11.1% |
|
2,893 |
|
|
9.8% |
|
Depreciation expense |
|
2,182 |
|
|
7.1% |
|
2,197 |
|
|
7.5% |
|
Interest expense, net |
|
155 |
|
|
0.5% |
|
216 |
|
|
0.7% |
| |
|
|
|
|
|
|
|
|
|
|
| Total costs and
expenses |
|
29,079 |
|
|
|
|
28,903 |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
| Earnings before
income taxes |
|
1,852 |
|
|
6.0% |
|
495 |
|
|
1.7% |
| Income tax
provision |
|
556 |
|
|
|
|
148 |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
| Net
earnings |
|
$
1,296 |
|
|
4.2% |
|
$
347 |
|
|
1.2% |
| |
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share |
|
$
2.08 |
|
|
|
|
$
0.58 |
|
|
|
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS
OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Excluding net special items,
earnings before income taxes were $1.9 billion compared to $495 million in
1998. Net earnings were $1.3 billion, or $2.08 per share after income taxes,
compared with $347 million or 58 cents per share after income taxes, in
1998. Net margin on sales improved to 4.2% compared to 1.2% in 1998. The
increase in earnings compared to 1998 is attributed to: (i) margin generated
from higher sales volume, and (ii) decreases in the percentage of sales
represented by both manufacturing and other costs of sales and selling,
general and administrative expenses. These improvements were partially
offset by an increase in research and development expenditures. The main
businesses contributing to this improvement in earnings were
the wireless telephone and semiconductor businesses.
Results of
Operations for Ongoing Businesses Excluding Special Items
Several Motorola businesses have been sold
since the beginning of 1998 including the Semiconductor Components Group,
the North American Antenna Sites business and the non-silicon component
manufacturing business.
Summarized below are the Company’s sales
and earnings before income taxes that were generated during each year by
businesses sold since the beginning of 1998.
Impact of
businesses sold
Year
Ended
| ($ in
Millions) |
|
Dec. 31,
1999 |
|
Dec. 31,
1998 |
|
| Net
sales |
|
$927 |
|
$1,763 |
| Earnings before
income taxes |
|
$126 |
|
$
42 |
|
Summarized below are the results of operations
for the Company for the years ended December 31, 1999 and 1998 for ongoing
businesses only, excluding net special items discussed above.
Motorola Ongoing
Businesses, Excluding Special Items
Year
Ended
| ($ in Millions
except per share amounts) |
|
December
31,
1999 |
|
% of
Sales |
|
December 31,
1998 |
|
% of
Sales |
|
| Net
sales |
|
$30,004 |
|
|
|
|
|
$27,635 |
|
|
|
|
Percent change from prior year |
|
9 |
% |
|
|
|
|
4 |
% |
|
|
| Costs and
expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing and other costs of sales |
|
17,724 |
|
|
59.1 |
% |
|
16,823 |
|
|
60.9% |
|
Selling, general and administrative expenses |
|
4,809 |
|
|
16.0 |
% |
|
5,157 |
|
|
18.7% |
|
Restructuring and other charges |
|
— |
|
|
— |
|
|
— |
|
|
—
|
|
Research and development expenditures |
|
3,415 |
|
|
11.4 |
% |
|
2,850 |
|
|
10.3% |
|
Depreciation expense |
|
2,179 |
|
|
7.3 |
% |
|
2,145 |
|
|
7.8% |
|
Interest expense, net |
|
151 |
|
|
0.5 |
% |
|
207 |
|
|
0.8% |
| |
|
|
|
|
|
|
|
|
|
|
|
| Total costs and
expenses |
|
28,278 |
|
|
|
|
|
27,182 |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| Earnings before
income taxes |
|
1,726 |
|
|
5.8 |
% |
|
453 |
|
|
1.6% |
| Income tax
provision |
|
520 |
|
|
|
|
|
136 |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| Net
earnings |
|
$
1,206 |
|
|
4.0 |
% |
|
$
317 |
|
|
1.1% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share |
|
$
1.94 |
|
|
|
|
|
$
0.53 |
|
|
|
|
Excluding the results of businesses sold from
both 1999 and 1998, sales increased 9% to $30.0 billion from $27.6 billion
in 1998. Earnings before income taxes were $1.7 billion compared to $453
million in 1998. Net earnings increased to $1.2 billion, or $1.94 per share,
compared to $317 million or 53 cents per share in 1998. Net margin on
sales improved to 4.0%, compared with 1.1% in 1998.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
F-5
1998 COMPARED TO 1997
Motorola Results
of Operations
Year
Ended
| ($ in Millions
except per share amounts) |
|
December
31,
1998 |
|
% of
Sales |
|
December 31,
1997 |
|
% of
Sales |
|
| Net
sales |
|
$29,398 |
|
|
|
|
|
$29,794 |
|
|
|
|
Percent change from prior year |
|
(1 |
)% |
|
|
|
|
7 |
% |
|
|
| Costs and
expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing and other costs of sales |
|
18,043 |
|
|
61.4 |
% |
|
17,283 |
|
|
58.0% |
|
Selling, general and administrative expenses |
|
5,443 |
|
|
18.5 |
% |
|
5,160 |
|
|
17.3% |
|
Restructuring and other charges |
|
1,980 |
|
|
6.7 |
% |
|
327 |
|
|
1.1% |
|
Research and development expenditures |
|
2,893 |
|
|
9.8 |
% |
|
2,748 |
|
|
9.2% |
|
Depreciation expense |
|
2,197 |
|
|
7.5 |
% |
|
2,329 |
|
|
7.8% |
|
Interest expense, net |
|
216 |
|
|
0.7 |
% |
|
131 |
|
|
0.4% |
| |
|
|
|
|
|
|
|
|
|
|
|
| Total costs and
expenses |
|
30,772 |
|
|
|
|
|
27,978 |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| Earnings (loss)
before income taxes |
|
(1,374 |
) |
|
(4.7 |
)% |
|
1,816 |
|
|
6.1% |
| Income tax
provision (benefit) |
|
(412 |
) |
|
|
|
|
636 |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| Net earnings
(loss) |
|
$
(962) |
|
|
(3.3 |
)% |
|
$
1,180 |
|
|
4.0% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per common share |
|
$
(1.61 |
) |
|
|
|
|
$
1.94 |
|
|
|
|
Sales decreased 1% to $29.4 billion from $29.8
billion in 1997. Geographic market sales, measured by the locale of the end
customer, as a percent of total sales changed from 1997 to 1998 as
follows:
Geographic Market
Sales
by Locale of End
Customer
| |
|
1998 |
|
1997 |
|
| United
States |
|
41% |
|
42% |
| Europe |
|
21% |
|
19% |
| China |
|
10% |
|
11% |
| Latin
America |
|
8% |
|
7% |
| Asia, excluding
China and Japan |
|
7% |
|
9% |
| Japan |
|
7% |
|
6% |
| Other
Markets |
|
6% |
|
6% |
| |
|
|
|
|
| |
|
100% |
|
100% |
|
The Company had an operating loss before
income taxes in 1998 of $1.4 billion, compared to an operating profit before
income taxes in 1997 of $1.8 billion. The net loss in 1998 was $962 million,
or $1.61 per share, compared with net earnings of $1.2 billion in 1997, or
$1.94 per share. Net margin on sales was negative 3.3%, compared with
positive 4.0% during 1997. The 1998 earnings included net special charges of
$1.9 billion before income taxes, equivalent to $2.19 per share after income
taxes, resulting primarily from manufacturing consolidation, cost reduction
and restructuring programs. These programs are discussed below in the
section titled “1998 Program”. The 1997 earnings included net
special charges of $306 million before income taxes, equivalent to 32 cents
per share after income taxes, resulting from a $327 million charge for
restructuring charges relating to decisions to exit several unprofitable
businesses that no longer had long-term strategic value to the Company and
other charges of $72 million offset by income of $93 million from the sale
of investments and favorable settlement of patent claims. Those businesses
exited in 1997 included dynamic random access memory (DRAM) semiconductors,
MacOS® compatible computer systems and retail analog modems. The
restructure charge is shown as a separate line on the consolidated
statements of operations. The other special items are included in selling,
general and administrative expenses in the consolidated statements of
operations.
Selling, general and administrative expenses
were $5.4 billion, or 18.5% of sales, in 1998 compared to $5.2 billion, or
17.3% of sales, in 1997. These expenses were adversely impacted by higher
losses related to Motorola’s investment in Iridium LLC and certain
semiconductor joint ventures. The increase occurred in spite of
significantly lower incentive compensation payments in 1998.
Restructuring and other charges reflect the
costs for restructuring programs initiated in 1998 and 1997. These programs
are described below.
In the second quarter of 1998, the Company
recorded, as a separate line in the consolidated statements of operations, 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 (“1998
Program”). Restructuring costs included 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 tables display rollforwards of the accruals
established during the second quarter of 1998 for the year ended December
31, 1999, and from June 27, 1998, to December 31, 1998:
MANAGEMENT’S
DISCUSSION AND ANALYSIS
OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
1998
Program
| |
|
Accruals at
Dec. 31, 1998 |
|
1999 Amounts
Used |
|
Fourth
Quarter
1999 Reversals
Into Income |
|
Accruals at
Dec. 31, 1999 |
|
| Consolidation of
manufacturing operations |
|
$155 |
|
$(143 |
) |
|
$
— |
|
|
$12 |
| Business
exits |
|
137 |
|
(31 |
) |
|
(102 |
) |
|
4 |
| Employee
separations |
|
187 |
|
(136 |
) |
|
(40 |
) |
|
11 |
| |
|
|
|
|
|
|
|
|
|
|
|
Total restructuring |
|
$479 |
|
$(310 |
) |
|
$(142 |
) |
|
$27 |
| |
|
|
|
|
|
|
|
|
|
|
| Asset impairments
and other charges |
|
161 |
|
(77 |
) |
|
(84 |
) |
|
— |
| |
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$640 |
|
$(387 |
) |
|
$(226 |
) |
|
$27 |
|
| |
|
Second
Quarter 1998
Initial Charges |
|
1998
Reclassifications |
|
Initial
Charges
As Adjusted |
|
1998 Amounts
Used |
|
Accruals at
Dec. 31, 1998 |
|
Consolidation of
manufacturing
operations |
|
$
361 |
|
$
(35 |
) |
|
$
326 |
|
$
(171 |
) |
|
$155 |
| Business
exits |
|
453 |
|
(162 |
) |
|
291 |
|
(154 |
) |
|
137 |
| Employee
separations |
|
461 |
|
197 |
|
|
658 |
|
(471 |
) |
|
187 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring |
|
$1,275 |
|
$
— |
|
|
$1,275 |
|
$
(796 |
) |
|
$479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Asset impairments
and other charges |
|
705 |
|
— |
|
|
705 |
|
(544 |
) |
|
161 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$1,980 |
|
$
— |
|
|
$1,980 |
|
$(1,340 |
) |
|
$640 |
|
The 1998 Program reached its planned
completion at December 31, 1999. At that time, the Company reversed into
income $226 million, shown as a separate line in the consolidated statements
of operations, for accruals no longer required. The remaining $27 million in
accruals at December 31, 1999, represent cash payments to be made by the end
of the first quarter of 2000.
The 1999 amount used of $387 million reflects
approximately $189 million in cash payments and $198 million in write-offs.
The 1998 amount used of $1.34 billion reflects approximately $600 million in
cash payments and $740 million in write-offs.
Amounts in the 1998 Reclassifications column
represent the reallocation of accruals in 1998 between restructuring
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 employee severance
costs originally accrued for in consolidation of manufacturing operations
and business exits. These reallocations were also offset by higher than
anticipated severance costs from special voluntary termination
benefits.
In connection with its review of the continued
propriety of the Company’s restructuring accrual, management determined
that certain amounts previously accrued for consolidation of manufacturing
operations and business exits were no longer necessary given the revisions
to the timing and nature of disposal for those operations. Similarly,
management had additional information in the fourth quarter of 1998 related
to the acceptance of special voluntary termination benefits. Recognizing
that additional accruals were necessary to reflect the special voluntary
termination benefits and that based upon the requirement under Statement of
Financial Accounting Standards (SFAS) No. 88 to accrue for these benefits
upon acceptance by the employees, management reclassified $142 million of
accruals from the consolidation of manufacturing operations and business
exits portion of the restructuring accrual to the employee separations
portion in the fourth quarter of 1998. In addition, management reclassified
$55 million of employee separations costs originally accrued for in the
consolidation of manufacturing operations and business exits to employee
separations in the fourth quarter of 1998.
In July 1998, the Company’s
communications-related businesses began realigning into the Communications
Enterprise, a structure intended to enable the development of integrated
communications technology solution offerings to customers and improved
responsiveness to customers’ needs. This realignment resulted in the
formation of some new reportable segments. The following table displays by
category the restructuring and other charges, as adjusted, according to the
revised reportable segments and included in the segments’ restated
operating profit (loss) before tax for the year ended
December 31, 1998. The segment amounts also include the allocation of $55
million in restructuring and other charges recorded at the corporate
level.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
F-7
| |
|
Restructuring
Charges
|
|
Other
Charges
|
| Segment |
|
Consol of
mfg. ops |
|
Business
exits |
|
Employee
separations |
|
Asset
Impairments |
|
Other |
|
Total |
|
| Personal
Communications |
|
$113 |
|
$
38 |
|
$149 |
|
$175 |
|
$122 |
|
$
597 |
| Network
Systems |
|
11 |
|
— |
|
44 |
|
— |
|
104 |
|
159 |
| Commercial,
Government and |
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial Systems |
|
18 |
|
— |
|
104 |
|
5 |
|
— |
|
127 |
| Semiconductor
Products |
|
163 |
|
101 |
|
282 |
|
159 |
|
26 |
|
731 |
| Other
Products |
|
21 |
|
152 |
|
79 |
|
41 |
|
73 |
|
366 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$326 |
|
$291 |
|
$658 |
|
$380 |
|
$325 |
|
$1,980 |
|
Consolidation of
manufacturing operations
Consolidation of manufacturing operations
charges related to the closing of production and distribution facilities and
selling or disposing of the machinery and equipment that was no longer
needed and, in some cases, disposing of excess assets that had no net
realizable value. The buildings associated with these production facilities,
in many cases, were sold to outside parties. Severance costs incurred for
terminating employees at these production facilities were also originally
included in the consolidation of manufacturing operations line item but were
subsequently reclassified to the employee separations line item. Also
included in this restructuring category were costs related to shutting down
or reducing the capacity of certain production lines. In most cases, older
facilities with older technologies or non-strategic products were closed.
Machinery and equipment write downs related to equipment that would no
longer be utilized comprised the majority of these costs. These assets have
been deemed to be held for use until such time as they are removed from
service and, therefore, no longer utilized in manufacturing products. An
assessment was made as to whether or not there was an asset impairment
related to the valuation of these assets in determining what the amount of
the write down included in the restructuring charge should be for this
machinery and equipment. This assessment utilized the anticipated future
undiscounted cash flows generated by the equipment as well as its ultimate
value upon disposition.
The charges in this restructuring category do
not include any costs related to the abandonment or sub-lease of facilities,
moving expenses, inventory disposals or write downs, or litigation or
environmental obligations.
The consolidation of manufacturing operations
was primarily focused in the Semiconductor Products and Personal
Communications segments. Semiconductor facilities in North Carolina,
California, Arizona and the Philippines were closed as planned, while in
other areas, production facilities were consolidated into fewer integrated
factories to achieve economies of scale and improved efficiencies and to
capitalize on newer technologies that reduced operating costs. As a result
of excess global manufacturing capacity, the paging facility in Vega Baja,
Puerto Rico was closed. Paging facilities in Singapore and Canada and
cellular facilities in Northern Illinois were realigned. Since 1998,
approximately $255 million was used for these consolidation activities. The
remaining $12 million accrual, included in accrued liabilities in the
consolidated balance sheets, as of December 31, 1999, for this restructuring
category relates to the finalization of plant closings in both of these
segments.
Business
exits
Business exit charges included costs
associated with shutting down businesses that no longer fit the Company
’s strategic direction. In many cases, these businesses used older
technologies that produced non-strategic products. Included in these
business exit costs were the costs for terminating technology agreements and
for selling or liquidating interests in joint ventures. Severance costs
included in this category were reclassified to the employee separations line
item in the fourth quarter of 1998. Similar to consolidation of
manufacturing operations, the charges in this restructuring category
did not include any costs related to the abandonment or sub-lease of
facilities, moving expenses, inventory disposals or write downs, or
litigation or environmental obligations.
Business exit costs were primarily focused in
the Integrated Electronic Systems sector. During the third quarter of 1998,
the Integrated Electronic Systems Sector sold its printed circuit board
business. The Sector also sold its non-silicon component manufacturing
business to CTS Corp in the first quarter of 1999. The loss of operating
income from these businesses was not significant to the Company’s
results of operations.
The Company reversed into income in the fourth
quarter of 1999 approximately $102 million for accruals no longer required
for the contract requirements and contingencies related to the sales of its
printed circuit board business and non-silicon component manufacturing
business and the business pruning activities of the Semiconductor Products
segment. The remaining $4 million accrual, included in accrued liabilities
in the consolidated balance sheets, as of December 31, 1999, for this
restructuring category relates to the payment of final shut down costs for
these actions, expected to occur early in 2000.
Employee
separations
Employee separation charges represent the
costs of involuntary severance benefits for the 20,000 positions identified
as subject to severance under the restructuring plan.
Employee separation costs of $55 million were also included in the
consolidation of manufacturing operations and business exits line items.
These costs were subsequently reclassified to the employee separations line
item in the fourth quarter of 1998. In implementing the restructuring plan,
the Company offered, beginning in the third quarter of 1998, special
voluntary termination benefits in addition to the planned involuntary
termination benefits previously communicated to employees pursuant to the
plan. The special voluntary termination benefits provided for one week of
pay for each year of service between years 1-10, two weeks of pay for each
year of service between years 11-19, and three weeks of pay for each year of
service for year 20 and greater. The special voluntary termination program
expired at the end of the fourth quarter of 1998, although severance
payments related to this program were not completed at that time. To the
extent that employees accepted special voluntary termination benefits in
future periods, additional accruals, under a new program, would be necessary
and recognized in expense at the date of acceptance by the employees. No new
programs were implemented during 1999.
Management had additional information in the
fourth quarter of 1998 related to the acceptance of special voluntary
termination benefits. Recognizing that additional accruals were necessary to
reflect the special voluntary termination benefits and that based upon the
requirement under Statement of Financial Accounting Standards (SFAS) No. 88
to accrue for these benefits upon acceptance by the employees, management
reclassified $142 million of accruals from the consolidation of
manufacturing operations and business exits portion of the restructuring
accrual to the employee separations portion in the fourth quarter of
1998.
The Company’s successful redeployment
efforts reduced the severance requirement in the fourth quarter of 1999.
Therefore, the Company reversed into income in the fourth quarter of 1999
approximately $40 million of accruals no longer required for a cancelled
separation plan involving approximately 500 employees. As of December 31,
1999, approximately 19,400 employees have separated from the Company through
a combination of voluntary and involuntary severance programs. Of these
19,400 separated employees, approximately 12,400 were direct employees, and
7,000 were indirect employees. Direct employees are primarily
non-supervisory production employees, and indirect employees are primarily
non-production employees and production managers. In addition, 4,200
employees separated from the Company 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 $11 million accrual, included in accrued liabilities in the
consolidated balance sheets, as of December 31, 1999, relates to severance
payments still to be completed in the Semiconductor Products Segment,
Integrated Electronic Systems Sector, and Internet and Networking Group
bringing the total employees separated to 19,500.
Asset impairments
and other charges
As a result of then current and projected
business conditions, the Company wrote down operating assets that became
impaired. All impaired asset write downs were reflected as contra-assets in
the consolidated balance sheets at December 31, 1998. This action reduced
the carrying value of the related asset balances by $380 million. The assets
written down were primarily used manufacturing equipment and machinery.
Other assets written down were buildings and joint venture
investments.
The amount of the impairment charge for the
assets written down was based upon an estimate of the future cash flows
expected from the use of the assets, as well as upon their eventual
disposition. These undiscounted cash flows were then compared to the
net book value of the equipment, and impairment was determined based on that
comparison. Cash flows were determined at the facility level for certain
production facilities based upon the anticipated sales value of the products
to be produced and the costs of producing the products at those facilities.
In cases in which sufficient cash flows were not going to be generated by
the equipment at those facilities, the assets were written down to their
estimated fair value. These estimated fair values were based upon
what the assets could be sold for in a transaction with an unrelated third
party. Since the majority of these assets were machinery and equipment, the
Company was able to utilize current market prices for comparable equipment
in the marketplace in assessing what would be the fair value upon sale of
the equipment. Building writedowns were based on marketability factors of
the building in the particular location. The amount of the write down
assigned to joint venture investments and intangibles was $75 million.
Valuations for joint venture investments and intangibles were based on
prevailing market conditions. The intangibles were patents, communication
frequencies and licenses, and goodwill related to the Personal
Communications segment.
The segments primarily impacted by these asset
writedowns were Personal Communications, Network Systems and Semiconductor
Products. Assets held for use continue to be depreciated based on an
evaluation of their remaining useful lives and their ultimate values upon
disposition. There were no assets held for sale at December 31, 1998 nor
were any impaired assets disposed of prior to that date.
The other charges of $325 million were not
restructuring charges, but rather were primarily comprised of contract
termination costs related to agreements that were associated with businesses
in which the Company was no longer making investments, losses recorded on
cellular infrastructure contracts, and an in-process research and
development write-off of $42 million related to the NetSpeak transaction
that occurred in the second quarter of 1998. The Company reversed into
income in the fourth quarter of 1999 approximately $84 million of accruals
no longer required for contract termination costs previously deemed probable
to occur.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
F-9
1997 Programs
During 1997, the Company recorded
restructuring charges of $327 million resulting from decisions to exit
several unprofitable businesses that no longer had long-term strategic value
to the Company. The following tables display rollforwards of the accruals
established by business exit for the years ended December 31, 1999, 1998 and
1997:
| |
|
|
|
Accruals
at Dec. 31,
1998 |
|
Adjustments |
|
Amounts
Used |
|
Accruals
at Dec. 31,
1999 |
|
| Q2 1997: |
|
Semiconductor
Products Segment
Exit from DRAM market |
|
$
8 |
|
$(3 |
) |
|
$(5 |
) |
|
$— |
|
| Q3 1997: |
|
Other Products
Segment
Exit from MacOS-compatible computer
systems business |
|
15 |
|
— |
|
|
(2 |
) |
|
13 |
|
| Q4 1997: |
|
Former
Messaging, Information and
Media Products Segment
Exit from retail analog modem business |
|
3 |
|
(3 |
) |
|
— |
|
|
— |
|
| Grand
Total |
|
|
|
$26 |
|
$(6 |
) |
|
$(7 |
) |
|
$13 |
|
| |
|
|
|
1997
Initial
charges |
|
Adjust-
ments |
|
Amounts
Used |
|
Accruals
at Dec. 31,
1997 |
|
Adjust-
ments |
|
Amounts
Used |
|
Accruals
at Dec. 31,
1998 |
|
| Q2 1997: |
|
Semiconductor
Products
Segment
Exit from DRAM market |
|
$170 |
|
$(9 |
) |
|
$(131 |
) |
|
$
30 |
|
$(12 |
) |
|
$
(10 |
) |
|
$
8 |
|
| Q3 1997: |
|
Other Products
Segment
Exit from MacOS-
compatible computer
systems business |
|
95 |
|
— |
|
|
(28 |
) |
|
67 |
|
(10 |
) |
|
(42 |
) |
|
15 |
|
| Q4 1997: |
|
Former Messaging,
Information and Media
Products Segment
Exit from retail analog
modem business |
|
62 |
|
— |
|
|
— |
|
|
62 |
|
— |
|
|
(59 |
) |
|
3 |
|
| Grand
Total |
|
|
|
$327 |
|
$(9 |
) |
|
$(159 |
) |
|
$159 |
|
$(22 |
) |
|
$(111 |
) |
|
$26 |
|
In the second quarter of 1997, the Company
’s Semiconductor Products Segment announced its decision to phase out
its participation in the dynamic random access memory (DRAM) market. The
decision to exit this business was made primarily because the business did
not meet strategic and profitability objectives, rather than to generate
significant future cost savings. As a result of this decision, the segment
incurred a $170 million charge to write off technology development costs and
to provide for the write-down of manufacturing equipment which could not be
retrofitted for other production. In the fourth quarter of 1997 and in the
first quarter of 1998, the segment sold some of this manufacturing equipment
to its joint venture partner and thus reversed into income $9 million and
$12 million, respectively, of accruals no longer needed. The amounts used in
1997 reflect write-offs. The amounts used in 1998 reflect $3 million in cash
payments for exit fees and $7 million in write-offs. The amounts used in
1999 reflect $4 million in cash payments for exit fees and $1 million in
write-offs. The remaining $3 million was reversed into income in the third
quarter of 1999.
In the third quarter of 1997, the Company
announced its decision to exit the MacOS-compatible computer systems
business, a business included in the Other Products Segment. The decision
was made in response to a decision by Apple Computer to limit the
introduction of its new technology and phase out future licenses and because
the business did not meet strategic and profitability objectives, rather
than to generate significant future cost savings. As a result of this
decision, the Company incurred a $95 million charge primarily for the
write-down of inventory and the cost of terminating contractual commitments.
In the second quarter of 1998, the exposures on these contractual
commitments were determined to be less than previously anticipated, thus
resulting in the reversal into income of $10 million. The amounts used in
1997 reflect $3 million in employee severance payments and $25 million in
write-offs. The amounts used in 1998 reflect $3 million in employee
severance payments and $39 million in write-offs. The amounts used in 1999
reflect $2 million in write-offs. The remaining $13 million accrual as of
December 31, 1999, relates to contractual commitments and warranty liability
and may extend past the 2000 year end.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
In the fourth quarter of 1997, the Company
announced its decision to exit the retail analog modem business based in
Huntsville, AL. This business was formerly part of the Messaging,
Information and Media segment. The decision was made primarily because the
business was not meeting the Company’s strategic and profitability
objectives, rather than to generate significant future cost savings. As a
result of this decision, the segment incurred a $62 million charge for the
write-down of inventory and fixed assets, severance costs and certain other
costs relating to the realignment process. The amounts used in 1998 reflect
$37 million in employee severance payments and $22 million in write-offs.
The remaining $3 million accrual as of December 31, 1998, was reversed into
income in the first quarter of 1999.
The results of operations of each of these
exited businesses were not material to the Company’s consolidated
financial statements.
A discussion of the Company’s
restructuring and other charges is also detailed in Note 12 to the
Consolidated Financial Statements and Notes in this Proxy Statement
Appendix.
Research and development expenditures
increased to $2.9 billion, or 9.8% of sales in 1998 from $2.7 billion or
9.2% of sales in 1998. Over the past two years, the Company has been
increasing the percentage of its sales that is spent on research and
development and continues to believe that a strong commitment to research
and development is required to drive long-term growth.
Depreciation expense was $2.2 billion, or 7.5%
of sales in 1998 compared with $2.3 billion, or 7.8% of sales in 1997. Net
interest expense was $216 million compared to $131 million in 1997. The
increase in interest expense was due to increased borrowings by the Company
due to lower operating cash flow and significantly increased customer
financing. The effective income tax rate for 1998 was 30% compared to a 35%
rate for 1997.
Special
Items and Results of Operations Excluding Special Items
The 1998 earnings include net special charges
of $1.9 billion before income taxes, equivalent to $2.19 per share
after income taxes. The 1997 earnings include net special charges of $306
million before income taxes, equivalent to 32 cents per share after income
taxes.
Summarized in the following two tables are the
special items included in the Company’s results for the years ended
December 31, 1998 and 1997 and the corresponding line on the consolidated
statements of operations where these items are recorded.
1998 Special
Items
| ($ in
Millions) |
|
|
|
|
|
|
| (Income)
Charge |
|
SG
&A |
|
Restructuring
and Other |
|
Total |
|
Restructuring &
other
charges |
|
$
— |
|
|
$1,980 |
|
$1,980 |
|
In-Process research
and
development write-off |
|
109 |
|
|
— |
|
109 |
|
| Other
charges |
|
30 |
|
|
— |
|
30 |
|
| |
|
|
|
|
|
|
|
|
Gains from the sale
of
investments and
businesses |
|
(250 |
) |
|
— |
|
(250 |
) |
|
| Net special
charge |
|
$(111 |
) |
|
$1,980 |
|
$1,869 |
|
|
1997 Special
Items
| ($ in
Millions) |
|
|
|
|
|
|
| (Income)
Charge |
|
SG
&A |
|
Restructuring
and Other |
|
Total |
|
Restructuring &
other
charges |
|
$— |
|
|
$327 |
|
$327 |
|
| Other
charges |
|
41 |
|
|
— |
|
41 |
|
Impairment on joint
venture investments |
|
31 |
|
|
— |
|
31 |
|
Income from
favorable
settlement of patent
claims |
|
(34 |
) |
|
— |
|
(34 |
) |
Gains from the sale
of
investments and
businesses |
|
(59 |
) |
|
— |
|
(59 |
) |
|
| Net special
charge |
|
$(21 |
) |
|
$327 |
|
$306 |
|
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS
OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
F-11
Summarized in the table below
are the results of operations, excluding net special items, for the years
ended
December 31, 1998 and 1997:
Motorola,
Excluding Special Items
Year
Ended
| ($ in Millions
except per share amounts) |
|
December
31,
1998 |
|
% of
Sales |
|
December 31,
1997 |
|
% of
Sales |
|
| Net
sales |
|
$29,398 |
|
|
|
|
|
$29,794 |
|
|
|
|
Percent change from prior year |
|
(1 |
)% |
|
|
|
|
7 |
% |
|
|
| Costs and
expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing and other costs of sales |
|
18,043 |
|
|
61.4 |
% |
|
17,283 |
|
|
58.0% |
|
Selling, general and administrative expenses |
|
5,554 |
|
|
18.9 |
% |
|
5,181 |
|
|
17.4% |
|
Restructuring and other charges |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Research and development expenditures |
|
2,893 |
|
|
9.8 |
% |
|
2,748 |
|
|
9.2% |
|
Depreciation expense |
|
2,197 |
|
|
7.5 |
% |
|
2,329 |
|
|
7.8% |
|
Interest expense, net |
|
216 |
|
|
0.7 |
% |
|
131 |
|
|
0.4% |
| |
|
|
|
|
|
|
|
|
|
|
|
| Total costs and
expenses |
|
28,903 |
|
|
|
|
|
27,672 |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| Earnings before
income taxes |
|
495 |
|
|
1.7 |
% |
|
2,122 |
|
|
7.1% |
| Income tax
provision |
|
148 |
|
|
|
|
|
743 |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| Net
earnings |
|
$
347 |
|
|
1.2 |
% |
|
$
1,379 |
|
|
4.6% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share |
|
$
0.58 |
|
|
|
|
|
$
2.26 |
|
|
|
|
Excluding net special
items, net earnings for 1998 were $347 million, or 58 cents per share after
income taxes, compared with $1.4 billion, or $2.26 per share after income
taxes in 1997. This decline in earnings is attributable to increases in the
percentage of sales represented by: (i) manufacturing and other costs of
sales, (ii) selling, general and administrative expenses and (iii) research
and development expenditures. The main businesses contributing to this
decrease in earnings were the semiconductor products, wireless telephone and
messaging system products businesses. To address these cost pressures, in
the second quarter of 1998 the Company established comprehensive
restructuring programs and recorded a pre-tax charge of $1.98 billion (the
“1998 Program”) to cover restructuring costs of $1.275 billion and
asset impairments and other charges of $705 million in connection with these
programs.
MOTOROLA, INC.
SEGMENTS
The following commentary should be read in
conjunction with the 1999 financial results of each reporting segment as
detailed in Note 10, “Information by Segment and Geographic Region
” of the Consolidated Financial Statements and Notes in this Proxy.
Results of major operations, which include the effect of the sales of
various businesses and net special items, for the years ended December 31,
1999, 1998 and 1997 are as follows:
PERSONAL
COMMUNICATIONS
($ in millions)
Years ended December 31 |
|
1999 |
|
1998 |
|
1997 |
|
| Orders |
|
$13,694 |
|
|
$10,653 |
|
|
$10,406 |
|
| %
change from prior year |
|
29 |
% |
|
(2 |
)% |
|
|
|
| Segment
sales |
|
$11,932 |
|
|
$10,132 |
|
|
$11,026 |
|
| %
change from prior year |
|
18 |
% |
|
(8 |
)% |
|
|
|
| Operating profit
(loss) before tax |
|
$
608 |
|
|
$
(373 |
) |
|
$
1,122 |
|
| %
change from prior year |
|
263 |
% |
|
(133 |
)% |
|
|
|
| Special Items:
Income (Expense) |
|
|
|
|
|
|
| Iridium
Related |
|
$
(97 |
) |
|
$
— |
|
|
$
— |
|
| Restructuring &
Other |
|
112 |
|
|
(597 |
) |
|
— |
|
| Sale of
Investments/Businesses |
|
10 |
|
|
118 |
|
|
24 |
|
| In-Process Research
& Development |
|
(7 |
) |
|
— |
|
|
— |
|
| Other
Charges |
|
— |
|
|
— |
|
|
(44 |
) |
| |
|
|
|
|
|
|
|
|
|
| Net Special
Items |
|
$
18 |
|
|
$
(479 |
) |
|
$
(20 |
) |
| |
|
|
|
|
|
|
|
|
|
| Operating profit
(loss) excluding special items |
|
$
590 |
|
|
$
106 |
|
|
$
1,142 |
|
| %
change from prior year |
|
457 |
% |
|
(91 |
)% |
|
|
|
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS
OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Personal Communications
Segment (PCS) primarily designs, manufactures, sells and services wireless
subscriber equipment including wireless telephones, iDEN®, integrated
digital enhanced network, digital radio-telephones, satellite
radio-telephones, paging and advanced messaging devices and personal two-way
radios, with related software and accessory products.
Segment sales rose 18% to $11.9 billion and
orders increased 29% to $13.7 billion. Operating profits were $608 million
compared to an operating loss of $373 million a year ago.
Segment sales rose entirely due to increased
unit sales of digital wireless telephones and personal two-way radios, as
consumer demand for both product categories grew rapidly in 1999 versus
1998. Sales of paging products were significantly lower than a year ago, as
fewer units were sold and prices declined. The market for paging products
experienced significant competitive pressure from digital wireless
telephones, which offer similar messaging capability along with their
telephony capability and which experienced declining costs of service making
them more affordable to consumers worldwide.
Sales of digital telephones increased very
significantly, while analog telephone sales declined significantly. The
sales mix shift from analog to digital products is an industry trend that
has continued for several years and is expected to continue in the future.
Digital products have increasingly been preferred by consumers as the number
of features offered which are not available on analog telephones has
increased and the geographic coverage of digital wireless infrastructure
systems has rapidly increased. Digital telephone sales, including iDEN
telephones represented 88% of all wireless telephone sales in 1999 versus
72% of all wireless telephone sales in 1998. The overall average selling
price for digital telephones declined, but at a lower rate than in prior
years, because demand was strong. The overall average selling price for
analog telephones declined at a faster rate than prior years because demand
continued to weaken.
On a geographic basis, 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 iDEN telephones in the Americas.
Operating profits were $608 million compared
with a loss of $373 million a year ago. Operating profits include $18
million of net special items comprised of $97 million for Iridium related
charges, a $7 million charge for in-process research and development charges
related to the acquisition of Digianswer A/S, offset by $112 million of
income for the reversal of accruals related to the 1998 Program and a $10
million gain from the sale of investments. The 1998 operating loss includes
net special items of $479 million, comprised of $597 million of charges for
restructuring and other charges offset by a $118 million gain from the sale
of businesses.
Excluding net special items from both years,
operating profits increased to $590 million compared to $106 million in
1998. Higher sales combined with improved gross margins for wireless
telephones and personal two-way radios more than offset declining sales and
lower gross margins for paging products and increased investment in research
and development and advertising focused on digital wireless
telephones.
For ongoing businesses, which exclude the
results of businesses sold, sales increased 20% to $11.9 billion and orders
grew 29% to $13.7 billion. Operating profit for ongoing businesses,
excluding net special items, increased to $591 million compared to $103 in
1998.
Worldwide demand and production of wireless
telephones during 1999 was greater than manufacturers and component
suppliers had anticipated at the beginning of the year. As a result, there
were shortages of certain types of components used in manufacturing wireless
telephones, including those used by Motorola. These component shortages may
have impacted customer order patterns, as customers now appear to have
ordered some of their fourth quarter needs in the third quarter, when orders
were very significantly higher than usual. Component shortages are expected
to continue in first and in the second quarters of 2000.
PCS introduced a variety of new, innovative
voice and data digital communications products around the world. Among the
products introduced were multi-frequency band wireless telephones for each
of the digital technologies in use around the world. These telephones are
offered in a variety of designs including the extremely popular StarTAC®
telephones. The functionality of the StarTAC telephone was significantly
enhanced with the introduction of the StarTAC ClipOn Organizer, which
attaches to the back of a StarTAC telephone and enables one-touch dialing
and the ability to synchronize information with web calendars, desk-top
organizers and personal digital assistants. Also introduced, in the latter
part of 1999, were a variety of Internet-capable digital wireless
telephones. This new category of product is expected to see rapid growth
beginning in 2000, as an increasing number of wireless communications
service providers around the world upgrade their infrastructure systems to
make wireless Internet access available to the consumer. PCS established
relationships with America Online, Inc., Yahoo, Inc. and Oracle Corp.
intended to make Internet content and services available on Motorola
wireless devices.
The Company believes PCS’s share of the
overall wireless telephone market declined in 1999 as a result of: the
continuing transition from analog products, where the Company has a higher
relative market share, to digital products, where the Company has a lower
relative market share; increased competition in the digital product market;
and timing in the introduction and availability by PCS of a full portfolio
of digital products. The Company introduced many new digital products in
1999, with some significant introductions in the fourth quarter that have
enhanced the portfolio of digital product offerings in the Americas region.
Further product introductions are planned for 2000 to continue to
enhance the portfolio of digital products in all regions. In 2000, the Company
expects market share gains from its growing portfolio of digital telephones
that offer expanded features and functionality, and that its digital and
analog product mix will be comparable to that of the industry as a
whole.
NETWORK
SYSTEMS
| ($ in
millions) |
|
|
|
|
|
|
| Years ended
December 31 |
|
1999 |
|
1998 |
|
1997 |
|
| Orders |
|
$
6,510 |
|
|
$6,403 |
|
|
$7,800 |
| %
change from prior year |
|
2 |
% |
|
(18 |
)% |
|
|
| Segment
sales |
|
$
6,544 |
|
|
$7,064 |
|
|
$6,061 |
| %
change from prior year |
|
(7 |
)% |
|
17 |
% |
|
|
| Operating profit
(loss) before tax |
|
$
(479 |
) |
|
$
819 |
|
|
$
618 |
| %
change from prior year |
|
(158 |
)% |
|
33 |
% |
|
|
| Special Items:
Income (Expense) |
|
|
|
|
|
|
| Iridium
Related |
|
$(1,325 |
) |
|
$
— |
|
|
$
— |
| Restructuring &
Other |
|
67 |
|
|
(159 |
) |
|
— |
| In-Process Research
& Development |
|
(14 |
) |
|
— |
|
|
— |
| Miscellaneous |
|
— |
|
|
(8 |
) |
|
— |
| |
|
|
|
|
|
|
|
|
| Net Special
Items |
|
$(1,272 |
) |
|
$
(167 |
) |
|
$
— |
| |
|
|
|
|
|
|
|
|
| Operating profit
(loss) excluding special items |
|
$
793 |
|
|
$
986 |
|
|
$
618 |
| %
change from prior year |
|
(20 |
)% |
|
60 |
% |
|
|
|
The Network Systems Segment (NSS) is comprised
of the terrestrial, or land-based, wireless infrastructure business and the
satellite infrastructure business. The terrestrial infrastructure business
designs, manufactures, sells, installs, and services cellular and fixed
digital wireless infrastructure equipment primarily for the CDMA (Code
Division Multiple Access), GSM (Global System for Mobile), and iDEN
technologies. The satellite communications business markets, designs, builds
and operates and maintains space-based telecommunications
systems.
Segment sales decreased 7% to $6.5 billion and
orders increased 2% to $6.5 billion. The segment had an operating loss of
$479 million in 1999 compared to operating income of $819 million in
1998.
The decrease in sales was almost entirely due
to lower satellite equipment sales. Terrestrial wireless infrastructure
sales increased in Europe, were flat in Asia and decreased in the Americas.
Sales of GSM and CDMA infrastructure equipment increased, while iDEN sales
declined and analog sales declined significantly.
Order growth was due to increases in
terrestrial wireless infrastructure orders offset by significant decreases
in the satellite communications orders resulting from the bankruptcy of
Iridium LLC. No orders relating to the Iridium operations and maintenance
contract exist at December 31, 1999 as a result of the Iridium bankruptcy
proceedings. If orders related to the Iridium operations and maintenance
contract were removed from orders at December 31, 1998, that number would
decrease from $6.4 billion to $5.9 billion. Orders for terrestrial, wireless
infrastructure increased in Europe, Asia and Latin America while North
America was flat.
The segment had an operating loss of $479
million compared to an operating profit a year earlier of $819 million. The
operating loss was due to $1.3 billion of net special items consisting of:
$1.3 billion of charges related to the Iridium project $14 million for
in-process research and development charges related to the acquisition of
SpectraPoint Wireless LLC, offset by the $67 million reversal of accruals
related to the 1998 Program. The Iridium related charge and the Company
’s exposure related to Iridium are discussed further in Note 8,
Commitments and Contingencies. The 1998 operating profit includes net
special items of $167 million, including $159 million for restructuring and
other charges and $8 million of miscellaneous charges.
Excluding net special items, operating profits
decreased 20% to $793 million compared to $986 million in 1998. Operating
profits for the terrestrial wireless infrastructure business decreased as
investments in research and development were made. The satellite
communications business had an operating loss compared to an operating
profit in 1998 primarily because the business stopped recognizing revenue on
the operations and maintenance contract with Iridium after the second
quarter of 1999, and continued to perform its services under that contract
throughout 1999. This segment was not impacted by discontinued
businesses.
NSS’s market share of terrestrial
wireless infrastructure sales declined in 1999. The decline is largely
attributable to a lack of participation in the market for TDMA
infrastructure equipment, the lack of its own mobile switch product offering
and the lack of presence in some of the large GSM operators. Strategic
relationships and third generation wireless technology development efforts,
some of which are discussed in the following paragraphs, are underway to
address the factors that have caused the segment’s decline in market
share.
Motorola plays a key role in the wireless
communications industry’s efforts to develop common standards for third
generation (3G) technology, with Motorola executives chairing key positions
in 3G standards bodies worldwide.
NSS is a leader in the deployment of new data services over Global Packet
Radio Switch (GPRS) and CDMA. NSS is participating in several major trials
and enabled BT Cellnet of the United Kingdom to place the world’s first
GPRS data transfer call over a GSM system. Motorola was awarded a contract
from RadioMobil of the Czech Republic to deploy a GPRS system. In addition,
high-speed wireless Internet access was launched commercially in January
2000 on the NSS CDMA system in Japan. These data services are transitional
technologies that are expected to lead to the commercial deployment of 3G
services.
NSS received several major contracts in all of
its key technologies. Among these were GSM expansion contracts for Germany
’s T-Mobil and contracts to upgrade and expand GSM digital
communications system in China. NSS was awarded a new three-year CDMA
equipment supply contract in North America from Sprint PCS and received a
contract to expand its trial CDMA system in China. NSS was also awarded a
five-year extension to the iDEN infrastructure supply agreement with Nextel
as well as iDEN system expansions in Argentina, Brazil, Colombia, Mexico,
Singapore, and Japan.
NSS launched several major programs and
alliances in 1999 and substantially increased investments in future
technology development. One key area is to develop and deliver a complete,
integrated, end-to-end Internet Protocol (IP)-based communications
architecture. To enable the shift to IP, Motorola and Cisco Systems, Inc.
announced an alliance to develop and deliver the first all-IP platform for
the wireless industry, which will unite different standards for wireless
services worldwide, and introduced an open Internet-based platform for
integrated data, voice and video services over wireless networks. Other
enabling IP alliances include an agreement with Sun Microsystems, Inc. for
high-availability platforms and a memorandum of understanding with Telcordia
Technologies, Inc. for wireless call agent software.
Motorola and Cisco Systems, Inc. purchased the
fixed wireless assets of Bosch Telecom, Inc. and created a jointly owned
company called SpectraPoint Wireless LLC, which focuses on delivering
high-speed data, voice and video capabilities to businesses over a fixed
wireless infrastructure. SpectraPoint Wireless has already been awarded
three contracts.
Motorola and Alcatel announced they will
provide new functionality and features to the CDMA platform for the EMX®
switch. This also allows Motorola the ability to offer customers Alcatel
’s S12 switching platform for CDMA networks. In addition, Motorola and
Alcatel will work together to develop integrated 3G CDMA technology based on
mobile-switched networks.
Motorola’s contract with Teledesic LLC
for design and construction of a satellite communications network continues
to be contingent upon Teledesic’s approval following a technical review
period. This technical review period was originally scheduled to end on
Sept. 11, 1999, but Teledesic has extended the period several times.
Currently the review period is scheduled to end on March 24, 2000. Approval
of the contract is in the sole discretion of Teledesic, and there can be no
assurances that Teledesic will provide this approval.
COMMERCIAL,
GOVERNMENT AND INDUSTRIAL SYSTEMS
| ($ in
millions) |
|
|
|
|
|
|
| Years ended
December 31 |
|
1999 |
|
1998 |
|
1997 |
|
| Orders |
|
$4,733 |
|
|
$4,009 |
|
|
$4,147 |
|
% change from prior year |
|
18 |
% |
|
(3 |
)% |
|
|
| Segment
sales |
|
$4,068 |
|
|
$4,079 |
|
|
$4,037 |
|
% change from prior year |
|
0 |
% |
|
1 |
% |
|
|
| Operating profit
(loss) before tax |
|
$
609 |
|
|
$
412 |
|
|
$
345 |
|
% change from prior year |
|
48 |
% |
|
19 |
% |
|
|
| Special Items:
Income (Expense) |
|
|
|
|
|
|
| Iridium
Related |
|
$
(8 |
) |
|
$
— |
|
|
$
— |
| Restructuring &
Other |
|
— |
|
|
(127 |
) |
|
— |
| Sale of
Investments/Businesses |
|
198 |
|
|
90 |
|
|
10 |
| In-Process Research
& Development |
|
(4 |
) |
|
— |
|
|
— |
| Miscellaneous |
|
— |
|
|
(9 |
) |
|
— |
| |
|
|
|
| Net Special
Items |
|
$
186 |
|
|
$
(46 |
) |
|
$
10 |
| |
|
|
|
| Operating profit
(loss) excluding special items |
|
$
423 |
|
|
$
458 |
|
|
$
335 |
|
% change from prior year |
|
(8 |
)% |
|
37 |
% |
|
|
The Commercial, Government and Industrial
Solutions Segment (CGISS) primarily designs, manufactures, sells, installs
and services analog and digital two-way radio voice and data products and
systems for many different commercial, governmental and industrial customers
worldwide.
Segment sales were flat at $4.1 billion and
orders increased 18% to $4.7 billion. Operating profits increased 48% to
$609 million.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
F-15
Orders were higher in all regions and
significantly higher in Europe and Asia. The significant order increase in
Europe is largely based on TETRA contracts received in 1999. TETRA
(TErrestrial Trunked RAdio) is the European standard for both private and
public digital trunked radio communications products. The significant order
increase in Asia is believed to be due to the economic recovery from the
1998 recession in the region.
Segment geographic sales were higher in the
Americas and Asia while they declined in Europe, due mainly to customers
scheduling of installation of TETRA-based equipment beyond 1999.
The increase in CGISS operating profit was due
entirely to a gain of $198 million on the sale of its North American Antenna
Site business. The segment also recognized other special items of $8 million
for Iridium related charges and $4 million for in-process research and
development charges related to the acquisition of Software Corporation of
America, Inc. 1998 operating profits included a net special charge of $46
million comprised of $127 million for restructuring and other charges and $9
million of other charges, partially offset by $90 million of income related
to the sale of businesses.
Excluding net special items, operating profits
declined 8% to $423 million from $458 million the prior year. The decline in
profit is attributable to increased operating expenses related to new
business development.
Sales and orders for ongoing businesses were
flat. Operating profit for ongoing businesses, excluding net special items,
declined 7% to $416 million from $447 million in 1998. The decline in
profits is attributable to increased operating expenses related to new
business development.
Market share data for the segment’s
primary business, providing two-way radio voice and data products and
systems, is very difficult to obtain on a reliable basis. The segment
believes that its market share in 1999 was comparable to its market share in
1998.
The Radio Solutions business within CGISS
continued to make significant progress in developing and deploying digital
two-way radio communications based on industry standards. CGISS has
installed more than 325 ASTRO® digital systems worldwide, including more
than 170 systems that are compliant with Project 25, the U.S. digital
standard for public-safety communications. CGISS also has been awarded more
than 15 contracts to date for Dimetra™ equipment, which is based on the
TETRA standard. CGISS was also awarded a contract for a private iDEN
communications system from Consolidated Edison of New York and delivered the
first phase of the first private iDEN system in China.
CGISS is expanding its portfolio of advanced,
integrated communications and information system solutions for commercial,
government and industrial customers worldwide. CGISS was awarded a contract
from the Warsaw, Poland police force for a command and control computer
system that provides the commander with a complete picture of the law
enforcement landscape. The system solution includes advanced digital
radio-communications based on the European TETRA standard. CGISS also
introduced the PowerCom™ system, which enables electric utilities to
offer pre-pay services to customers. The service is planned to be deployed
by Salt River Project in Arizona. Integration of gate-control, baggage,
ticketing, passenger check-in and docking control information systems was
completed for the new terminal at Beijing Capital Airport.
CGISS announced the XTS 3500, the newest
addition to its ASTRO XTS family of digital portable radios. The XTS 3500
radio offers enhanced portable performance and better protection against
radio frequency interference from other wireless radio systems and is one of
the first digital portable radios scheduled to be Type 1 encryption
certified. The Company also announced a new advanced key management system,
the first compliant with the Project 25 standard’s OTAR™
Over-The-Air-Rekeying suite, for use with its ASTRO Project 25-compliant
integrated voice and data radio systems.
The Company acquired Software Corporation of
America, Inc. (SCA), a provider of wireless applications and middleware for
public safety and other markets. CGISS announced the release of TxMessenger
™, a new mobile messaging application that supports customers currently
using Motorola’s TX™ and WaveSoft®-Link mobile messaging
applications.
The Systems Solution business within CGISS is
a supplier to the government market for defense and space electronics.
Awards from the U.S. Department of Defense included contracts for Tactical
Airspace Integration Systems, Tactical Operations Centers, Common Ground
Stations, Joint Services Workstations and Theatre Deployable-Integrated
Communications Access Packages. In addition, a team from Raytheon and
Motorola was selected to work on the U.K. Ministry of Defense Airbourne
Stand-Off Radar program. The business also provided deep-space transponders
for the U.S. National Aeronautics and Space Administration’s STARDUST
mission spacecraft to collect comet dust samples.
The Worldwide Smartcard Solutions Division of
CGISS announced multiyear contracts valued in excess of $500 million during
the year for its smartcard automated fare collection systems to be
implemented in Germany, Singapore, Australia, Italy, the Netherlands, China
and the United States. The division also introduced BiStatix™ Systems,
a powerful new technology that allows the creation of cost-effective
“smart” labels. The technology allows RFID (radio frequency
identification) antennas to be printed on materials, including paper, with
conductive non-metallic ink. The division established agreements with
leading business forms providers Moore Corp. and Toppan Forms to jointly
develop and market BiStatix smart label solutions. During the year, the
division introduced three new RFID card reader solutions and shipped its 60
millionth wireless RFID card to date for the physical access control
market.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SEMICONDUCTOR
PRODUCTS
($ in millions)
Years ended December 31 |
|
1999 |
|
1998 |
|
1997 |
|
| Orders |
|
$8,077 |
|
|
$
7,425 |
|
|
$8,416 |
|
| %
change from prior year |
|
9 |
% |
|
(12 |
)% |
|
|
|
| Segment
sales |
|
$7,370 |
|
|
$
7,314 |
|
|
$8,003 |
|
| %
change from prior year |
|
1 |
% |
|
(9 |
)% |
|
|
|
| Operating profit
(loss) before tax |
|
$
619 |
|
|
$(1,225 |
) |
|
$
168 |
|
| %
change from prior year |
|
151 |
% |
|
(829 |
)% |
|
|
|
| Special Items:
Income (Expense) |
|
|
|
|
|
|
| Restructuring &
Other |
|
$
— |
|
|
$
(731 |
) |
|
$
(170 |
) |
| Sale of
Investments/Businesses |
|
373 |
|
|
—
|
|
|
23 |
|
| In-Process Research
& Development |
|
(42 |
) |
|
—
|
|
|
—
|
|
| Miscellaneous |
|
—
|
|
|
(21 |
) |
|
(27 |
) |
| |
|
|
|
|
|
|
|
|
|
| Net Special
Items |
|
$
331 |
|
|
$
(752 |
) |
|
$
(174 |
) |
| |
|
|
|
|
|
|
|
|
|
| Operating profit
(loss) excluding special items |
|
$
288 |
|
|
$
(473 |
) |
|
$
342 |
|
| %
change from prior year |
|
161 |
% |
|
(238 |
)% |
|
|
|
|
The Semiconductor Products Segment (SPS)
designs, produces and sells integrated semiconductor solutions for the
networking and computing, transportation, wireless communications and
imaging/entertainment equipment markets worldwide.
Segment sales increased 1% to $7.4 billion and
orders rose 9% to $8.1 billion. The segment had an operating profit of $619
million compared to an operating loss of $1.2 billion a year
ago.
In the Networking and Computing Systems Group
sales and orders increased as a result of the sales growth of key customers.
In the Wireless Subscriber Systems Group sales increased and orders were
significantly higher due to the rapid growth of the wireless telephone
market, including sales growth within the Company’s PCS segment, which
is the group’s largest customer. In the Transportation Systems Group
sales and orders increased due to the higher penetration of electronics in
automotive production. In the Semiconductor Components Group sales and
orders declined significantly due to the fact that the Group was sold in the
third quarter 1999.
Geographic sales and orders increased in Asia,
Japan, the Americas and Europe. By end market, orders increased
significantly in the Wireless Subscriber Systems Group, and increased in the
Network and Computing Systems Group and Transportation Systems Group, and
decreased in the Imaging and Entertainment Group. By end market, sales grew
in the Imaging and Entertainment Group, the Wireless Subscriber Systems
Group, Networking and Computing Systems Group and the Transportation Systems
Group. Sales to
Motorola internal business units consumed 22% of the
segment’s product output in both 1999 and 1998.
A robust and continuing semiconductor industry
recovery in 1999, following a three-year recessionary period, positively
impacted the segment’s financial performance. In 1999, worldwide
industry sales increased 18.9%, following an 8.4% decline in 1998, 4.0%
growth in 1997, and an 8.6% decline in 1996. The Company estimates that
worldwide semiconductor industry growth in the years 2000 and 2001 will be
in the 20–25% range.
The segment had an operating profit of $619
million compared to an operating loss of $1.2 billion a year ago. Operating
profit for 1999 includes $331 million of net special items comprised of a
$360 million gain from the sale of the Semiconductor Components Group and a
$13 million gain from the sale of investments, partially offset by a $35
million charge for the write-off of acquired in-process research and
development related to the acquisition of Metrowerks, Inc. and a $7 million
charge for the write-off of acquired in-process research and development
related to the acquisition of Digianswer A/S. The 1998 operating loss
includes $752 million of net special items comprised of $731 million for
restructuring, asset impairment and other charges associated with the 1998
restructuring programs and $21 million of miscellaneous charges.
Excluding net special items, operating profits
were $288 million compared to an operating loss of $473 million in 1998.
This improvement in operating profits reflects several factors. The profit
improvement is the result of the impact of restructuring programs, including
the exit of low-growth or unprofitable businesses, the consolidation of
manufacturing facilities and the reduction of headcount. These restructuring
programs included the strategic decision to focus the business on the
specific high-growth end markets mentioned earlier and to emphasize
systems-on-chip solutions, providing opportunities to reap the benefits of
higher gross margins from value-added hardware, software and
services.
For ongoing businesses, which exclude the
results the Semiconductor Components Group business that was sold in 1999,
sales increased 11% to $6.5 billion and orders increased 20% to $7.1
billion. This growth was driven by recovery of the semiconductor industry
from its recessionary period. Operating profits for ongoing businesses,
excluding net special items were $175 million versus an operating loss of
$528 million in 1998. This growth was due to margin
generated from higher sales. Although the increases in sales and orders are
attributable to the worldwide semiconductor industry recovery mentioned
earlier, the segment believes it experienced some market share loss in
1999.
SPS has been involved in a major restructuring
of its business since the middle of 1997. That restructuring effort was
substantially completed at the end of 1999. One large element of that
restructuring process involved the sale of the Semiconductor Components
Group. This business accounted for approximately 25% of the segment’s
annual sales. Because a comparison of the segment’s results versus a
year ago have been so significantly affected by the sale of this business, a
clearer view of comparative performance can be seen when results are
compared on an ongoing business basis. In addition to the sale of the
Semiconductor Components Group mentioned above, the segment sold factories
in Taiwan and South Korea.
In mid-1998, the segment launched an
initiative to increase the use of foundry manufacturing, with the goal of
achieving 30% outsourcing by the end of 2000 and 50% outsourcing by year-end
2002. Improving the return on net assets, more effectively leveraging a
smaller capital investment and increasing flexibility are key reasons for
the foundry strategy. By year-end 1999, the segment was ahead of the
timetable, having outsourced 25% of production for the year and over 33%
during the fourth quarter. The segment also exceeded the goal of reducing
the number of devices it manufactured and sold by 50% by the end of 1999,
compared with mid-1997 levels. In addition to the divestiture of the
components business, non-strategic, low-volume products were trimmed from
the portfolio to reduce overhead costs and generate profit improvements,
without creating a material impact on sales going forward.
Capital expenditures in 1999 decreased 16%
compared to 1998. Capital expenditures are estimated to increase in 2000, in
response to industry growth expectations. Emphasis will continue to be on
expanding and increasing capacity for leading-edge technologies, including
RFBiCMOS, GaAS, SmarTMOS and HiPERMOS.
The Company purchased all of the outstanding
shares of Metrowerks Co., Ltd. for approximately $98 million. This
acquisition, added the CodeWarrior® product line to the segment’s
software development tools portfolio. In the fourth quarter the Company
acquired Digianswer A/S for approximately $45 million. This acquisition
enables new opportunities for SPS to embed Digianswer’s version of the
Bluetooth short-range personal area wireless networking standard into its
DigitalDNA product portfolio for wireless connectivity, portable computing
and home networking platforms.
SPS technology innovations during 1999
included announcement of the world’s thinnest functional transistor
using a new class of semiconductor materials called perovskites. It will
enable future chips to be faster and more powerful while consuming far less
power. Process technology breakthroughs included shipment of the world
’s first products using 300 millimeter wafers from Semiconductor300,
the segment’s research and development joint venture in Dresden,
Germany, with Infineon Technologies. The segment announced a breakthrough to
integrate copper with porous low-k dielectric films, once thought
unachievable, and a breakthrough enabling next-generation lithography
targeted at below 0.1 micron feature sizes.
For the wireless subscriber equipment market,
SPS announced the world’s first baseband processor that can execute all
existing major, wireless standards, allowing manufacturers to incorporate
one standard processor across product lines.
The MPC7400 PowerPC
TM
microprocessor
debuted with copper interconnect and AltiVec
TM
technologies. In
addition to powering Apple Computer Inc.’s PowerMac
TM
G4 series, the
MPC7400 is being used by customers in embedded applications markets
including real-time interactive video communications, array processing,
high-end scientific and high definition television (HDTV).
For performance-intensive applications of
wireless and wireline infrastructure customers that provide Internet
telephony gateways and next-generation digital cellular systems, SPS
announced the industry’s most powerful digital signal processor (DSP),
the MSC8101, for packet switched networks. It is the first DSP chip
developed by the StarCore alliance formed last year with Lucent
Technologies, and the first Motorola DSP to use 0.13 micron copper
interconnect technology. Also developed by the StarCore alliance, SPS
announced the SC140 DSP core for telecom applications, which can reduce
development time for communications electronic products by 50%.
Many innovations were developed for networking
customers, some to enhance delivery and speed of Internet services. Among
them was the new CopperGold
TM
Lite chip set for
modem manufacturers, offering an analog solution for accessing the Internet
today and a digital subscriber line (DSL) connection for high-bandwidth
Internet access when offered in the future by local service
providers.
Innovations for transportation customers
included an advanced driver information system that customers can tailor to
specific platforms. The MobileGT
TM
platform is being
developed as an open Java-centric offering in partnership with IBM, Embedded
Planet and QNX Software Systems.
The segment’s Imaging and Entertainment
Systems business partnered with Identix Inc. and introduced an optical
reader that sets new standards in biometric fingerprint security for small
size, low cost and high reliability. Target markets include e-commerce,
personal computing, auto, wireless communications and financial services.
Innovations for entertainment end-markets included development of an
M-DTV
TM
module that allows
consumers to receive DTV or HDTV broadcasts affordably, using current analog
TV sets. The MCT2100 is a new digital receiver technology developed for DTV
and HDTV that solves reception problems broadcasters have with the ATSC
standard due to reflected signals from obstacles or buildings. Working with
Sarnoff Corp. and DirecTV, a new digital TV set-top-box was
announced that allows TVs to receive digital signals from both land-based
stations and from DirecTV satellite.
OTHER
PRODUCTS
The Other Products segment primarily includes
the Integrated Electronic Systems Sector (IESS), the Internet and Networking
Group (ING), the Network Management Group (NMG), which holds and manages
investments in terrestrial and satellite-based network operators, and other
corporate programs. The Other Products Segment recorded restructuring and
other charges of $256 million and $95 million, in 1998 and 1997,
respectively.
INTEGRATED
ELECTRONIC SYSTEMS SECTOR
The Integrated Electronic Systems Sector
(IESS) designs, manufactures and sells automotive and industrial electronics
products and solutions, energy storage products and systems, and
multi-function embedded board and computer system products and telematics
products and solutions. Telematics products and solutions successfully blend
innovative wireless communications and automotive technologies to provide
security, information, convenience and entertainment services from a central
service center to drivers and passengers. Both sales and orders increased
significantly compared to last year.
Sales increased 3% and orders increased 5%.
The Sector experienced increases in sales and orders for each of its market
segments in 1999. The Sector had an operating profit versus a loss in 1998.
Operating profit increased due to a restructuring charge in 1998 that was
partially returned as income in 1999 and higher sales in the energy systems
and computer systems businesses. The operating loss in 1998 was primarily
due to charges associated with restructuring programs, which included
exiting non-strategic businesses that were not meeting their financial
performance objectives. During the year the Company sold its non-silicon
component manufacturing business to CTS Corp.
Operating profit includes net special items,
representing reversal into income of restructuring and other accruals
related to the 1998 restructuring program offset by charges related to the
sale of businesses. The 1998 operating profit includes net special items
representing restructuring and other charges offset by income from the sale
of businesses. Excluding net special items from both years operating profit
increased due to higher sales in the energy systems and computer systems
businesses.
For ongoing businesses, sales increased 17%
and orders were 18% higher. Sales for ongoing businesses increased due to
higher demand for telecommunication products and battery packs and power
supplies for cellular telephones. The operating profit improvement was
primarily due to higher sales in energy systems and computer
systems.
The Sector is focused on growing opportunities
in the embedded electronic systems market. The market for embedded
technologies and systems is projected by industry analysts to experience
strong growth in 2000 and beyond.
INTERNET AND
NETWORKING GROUP
The Internet and Networking Group (ING)
manufactures and sells cable telephony products, cable modems, cable access
units, analog and digital transmission devices and other data communication
devices, as well as wireline networking products that carry converged voice
and data traffic.
ING sales increased 16% and orders increased
19%. The Group had an operating profit in 1999 compared to an operating loss
a year ago. Included in the 1999 operating profit are net special items
representing gains from the sale of investments. Included in the 1998
operating loss are net special items representing restructuring and other
charges and in-process research and development costs related to the
acquisition of Starfish Software, Inc.
Excluding net special items from both years,
the Group had a smaller operating loss, resulting from increased sales in
1999 compared to 1998.
LIQUIDITY AND
CAPITAL RESOURCES
Cash and cash equivalents aggregated $3.3
billion at the end of 1999, compared to $1.5 billion at the end of 1998. A
significant source of cash for the Company was $2.5 billion from the sale of
investments and businesses as well as $1.9 billion generated from
operations.
Cash provided by operations increased 88% or
$907 million to $1.9 billion in 1999 compared with $1.0 billion in 1998 and
$2.6 billion in 1997. The increased cash flow from operations in 1999 versus
1998 was primarily due to an increase in net earnings, adjusted for non-cash
items, of $947 million year over year. Operating cash flow includes cash
paid for the Company’s restructuring programs. The cash outflows for
these programs in 2000 and beyond is expected to be significantly less than
in 1999 and 1998 as the programs had nearly reached their completion as of
December 31, 1999. Through December 31, 1999, the Company’s 1998
Program utilized approximately $789 million in cash payments including $189
million in 1999 and $600 million in 1998. At December 31, 1999, the
remaining accrual balance for the 1998 Program is $27 million, which the
Company expects to pay in cash by the end of the first quarter 2000. During
1999 the Company’s 1998 Program reached its planned completion. Through
December 31, 1999, the Company’s 1997 Program utilized approximately
$50 million in cash payments including $4 million in 1999, $43 million in
1998 and $3 million in 1997. At December 31, 1999, the remaining accrual
balance is $13 million, which relates to contractual commitments and
warranty liability and may extend past the 2000 year end. Operating cash
flow includes cash payments of $758 million for Iridium related charges in
1999. At December 31, 1999 development and commercialization reserves for
the Iridium project were $1.8 billion, of which the Company expects to make
approximately $430 million in cash payments and $1.4 billion in
write-offs.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
F-19
Net cash used in investing
activities was $728 million in 1999 compared with $3.0 billion in 1998 and
$2.5 billion in 1997. The decrease in use of cash from investing activities
in 1999 compared with 1998 was primarily due to lower capital expenditures
and increased proceeds from dispositions of investments and businesses.
Capital expenditures continue to represent the single largest use of the
Company’s cash. In 1999 capital expenditures were $2.7 billion compared
to $3.2 billion in 1998 and $2.9 billion in 1997. Of this total, $1.5
billion occurred in semiconductor fixed asset expenditures, a reduction of
$277 million from the amount spent in this segment in 1998. The
Semiconductor Products segment continued to comprise the largest portion of
capital expenditures, with approximately 56% of all such investments in
1999. For 2000, total fixed asset expenditures are expected to be $4.9
billion, of which $2.3 billion is expected to be spent in the Semiconductor
Products segment and $120 million in the Broadband Communications Segment,
which was not part of the 1999 total. The Company also used cash to increase
its investments in short-term investments. Offsetting these uses of cash,
$2.5 billion of cash was generated from the sales of investments and
businesses including the sale of the Semiconductor Components Group, the
North American Antenna Site business, the non-silicon component
manufacturing business and chip processing facilities in Taiwan and
Korea.
Net cash provided by financing activities was
$725 million in 1999 compared to $1.9 billion in 1998 and a use of cash of
$39 million in 1997. Improved cash flow from operations resulted in reduced
external financing requirements. As discussed below, the Company generated
$981 million in net proceeds from the sale of subordinated debentures and
bonds in February and June 1999. These proceeds were used to reduce
short-term indebtedness. Additionally the Company received $481 million from
the issuance of common stock, related to the exercise of stock options.
Increased financing needs in 1998 were driven primarily by lower operating
cash flow, significantly increased customer financing and net cash used in
investing activities. Cash provided from financing activities in 1998 was
primarily from commercial paper and short-term borrowings of $1.6 billion
and net proceeds from the issuance of long-term debt of $773 million. The
Company’s ratio of net debt to net debt plus equity was 10.1% at
December 31, 1999 compared with 26.8% at December 31, 1998 and 12.4% at
December 31, 1997.
In February 1999, Motorola Capital Trust I, a
Delaware statutory business trust and wholly-owned subsidiary of Motorola,
sold 20 million Trust Originated Preferred Securities (SM) (“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 Motorola, to buy a series of 6.68% Deferrable
Interest Junior Subordinated Debentures, due March 31, 2039 (
“Subordinated Debentures”) from Motorola with the same payment
terms as the TOPrS. Motorola, in turn, used the $484 million of net proceeds
from the sale of the Subordinated Debentures to reduce short-term
indebtedness.
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.
The Company and its finance subsidiary have
revolving domestic credit agreements of one and five years with a group of
banks for $2.5 billion. The one-year and five-year revolving domestic credit
agreements expire in September of 2000 and September of 2002, respectively.
Commitment fees assessed against the daily average amounts unused range from
5 to 6.25 basis points. These domestic credit agreements contain various
conditions, covenants and representations with which the Company was in
compliance at December 31, 1999. The Company also has non-U.S. credit
facilities with interest rates on borrowings varying from country to country
depending upon local market conditions. Commitment fees against unused
amounts are 25 basis points. At December 31, 1999, the Company’s total
available domestic and non-U.S. credit facilities aggregated $5.3 billion,
of which $275 million was used and the remaining $5.1 billion was available
to back up outstanding commercial paper which totaled $2.3
billion.
The Company believes that it can continue to
access the capital markets in 2000, if necessary, on terms and conditions
acceptable to it, despite increased long-term financing activities in 1999
and late 1998. However, there are many factors that affect the Company
’s ability to access the capital markets, many of which are outside the
control of the Company, such as the Company’s credit ratings and
liquidity of the capital markets. There can be no assurances that the
Company will continue to have access to the capital markets on favorable
terms.
Purchasers of the Company’s
infrastructure equipment continue to require suppliers to provide long-term
financing in connection with equipment purchases. Financing may include all
or a portion of the purchase price and working capital. The Company also may
assist customers in getting financing from banks and other sources. During
1999 the Company significantly increased the amount of customer financing
provided by its consolidated financing subsidiary. As a result of increased
demand for customer financing, the Company’s consolidated financing
subsidiary borrowed more money in 1999. The Company expects that the need to
provide this type of financing or to arrange financing for its customers
will continue and may increase in the future.
The number of weeks that accounts receivable
was outstanding improved to 7.5 weeks from 8.3 in 1998 and 7.5 in 1997. The
decrease in accounts receivable weeks partially
resulted from continued focus on accounts receivable management, including
offering cash discounts for early payment, and collections of extended term
financing. Inventory turns, using the cost-of-sales calculation method,
improved to 5.9 in 1999 from 5.1 in 1998 and 4.9 in 1997.
Iridium
Program
At December 31, 1999, the Company owned,
directly and indirectly, approximately 18% of the equity interests in
Iridium LLC and its operating subsidiaries (Iridium LLC and its operating
subsidiaries are collectively referred to as “Iridium”) and a
significant portion of a series of Iridium bonds. Since August 1999, Iridium
operated as debtors-in-possession under Chapter 11 of the U.S. Federal
Bankruptcy Code. On March 17, 2000, Iridium began winding down and
liquidating its operations because no qualified bid to purchase the Iridium
satellites was received.
The Company recorded $2.1 billion, $360
million and $178 million of charges in 1999, 1998 and 1997 respectively,
related to the Iridium program. The Company recorded a special charge during
1999 of $2.0 billion to: (i) increase its reserve related to its financial
exposure to the Iridium project, (ii) to write-down the value of the Iridium
bonds it holds and (iii) to reserve for assets at risk and other potential
contractual obligations. These reserves and write-downs are believed by
management to be sufficient to cover the Company’s current exposure,
but do not include additional special charges that may arise as a result of
litigation related to the Iridium project. There were no special charges
recorded in 1998 or 1997 related to the Iridium project.
The following table presents the Company
’s provisions for bond investment write-down and development and
commercialization reserves, and the Company’s share of Iridium net
losses for the years ended December 31, 1999, 1998 and 1997 and where on the
consolidated statements of operations these items are recorded:
Classification of
Iridium Charges in Statements of Operations
| ($ in
Millions) |
|
|
|
|
|
|
|
| |
|
SG
&A
|
|
Cost
of
Sales
|
|
1999
Total
|
|
SG
&A
|
|
Cost
of
Sales
|
|
1998
Total
|
|
SG
&A
|
|
Cost
of
Sales
|
|
1997
Total
|
| Special
Charges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Bond Investment
write-down |
|
$
157 |
|
$ — |
|
$
157 |
|
$
— |
|
$— |
|
$
— |
|
$— |
|
$ |
|
$
— |
Development &
Commercialization
provisions |
|
1,019 |
|
806 |
|
1,825 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total Special
Charges |
|
$1,176 |
|
$806 |
|
$1,982 |
|
$
— |
|
$— |
|
$
— |
|
$— |
|
$
— |
|
$
— |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other
Charges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development &
Commercialization
Provisions |
|
$
56 |
|
$
31 |
|
$
87 |
|
$
14 |
|
$81 |
|
$
95 |
|
$— |
|
$
132 |
|
$132 |
| Company’s
share of Iridium net losses |
|
50 |
|
— |
|
50 |
|
265 |
|
— |
|
265 |
|
46 |
|
— |
|
46 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total Other
Charges |
|
$
106 |
|
$
31 |
|
$
137 |
|
$279 |
|
$81 |
|
$360 |
|
$46 |
|
$
132 |
|
$178 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total
Charges |
|
$1,282 |
|
$837 |
|
$2,119 |
|
$279 |
|
$81 |
|
$360 |
|
$46 |
|
$
132 |
|
$178 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS
OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
F-21
The Company had equity investments and notes
receivable in several Iridium gateway companies, accounts receivable from
Iridium, capital call obligations and contractual commitments and other
obligations in the amount of $1.8 billion all of which had been reserved or
written-off as of December 31, 1999. The amounts are detailed in the tables
that follow.
| |
|
Dec. 31,
1999 |
|
Dec. 31,
1998 |
|
| Company
Assets: |
|
|
|
|
|
Investments: |
|
|
|
|
|
Equity investment in
Iridium |
|
$
— |
|
$
50 |
|
Bond investment in Iridium |
|
— |
|
157 |
Investments in and notes
receivable from Iridium
gateway
companies |
|
39 |
|
56 |
| |
|
|
|
|
| Total |
|
$
39 |
|
$
263 |
| |
|
|
|
|
|
Accounts Receivable: |
|
|
|
|
Operations & Maintentance
contract |
|
|
|
|
Deferred
amount due to
Company |
|
$
400 |
|
$
— |
Other amounts
due to
Company |
|
179 |
|
176 |
| |
|
|
|
|
| |
|
$
579 |
|
$
176 |
|
Other contracts |
|
82 |
|
88 |
| |
|
|
|
|
| Total |
|
$
661 |
|
$
264 |
| |
|
|
|
|
| Company
Guarantees and Other: |
|
|
|
|
Bank Guarantees and Other
Financial Commitments: |
|
|
|
|
Senior Secured Credit
Agreement Capital
Call |
|
$
50 |
|
$
50 |
Senior Guaranteed Credit
Agreement |
|
— |
|
750 |
Conditional Commitment to
Provide
Guarantee |
|
See
Below |
|
See
Below |
| |
|
|
|
|
| Total |
|
$
50 |
|
$
800 |
| |
|
|
|
|
Contractual Commitments and
Other Obligations: |
|
|
|
|
|
Obligations to
subcontractors |
|
$
85 |
|
$
109 |
Assets at risk and other
estimated potential
contractual
obligations |
|
963 |
|
791 |
| |
|
|
|
|
| Total |
|
$
1,048 |
|
900 |
| |
|
|
|
|
Total Company
Assets and
Guarantees |
|
$
1,798 |
|
$
2,227 |
| |
|
|
|
|
Company
Development and
Commercialzation Reserves
(See table that follows) |
|
$
1,798 |
|
$
649 |
| |
|
|
|
|
The Company accounted for its investment in
Iridium under the equity method of accounting due to its financial influence
on Iridium in the form of guarantees of Iridium’s indebtedness, its
contract with Iridium for the operation and maintenance of the global
communications system and the other financial commitments more fully
discussed below. The Company’s equity investment in Iridium reached
zero due to recording its share of Iridium net losses in the first quarter
of 1999 but the Company continued to record provisions to establish reserves
related to its financial commitments and debt guarantees to Iridium. The
Company’s equity investments in several Iridium gateway companies as
well as the contra asset related to a valuation reserve was included in
other assets in the consolidated balance sheets. The Company’s portion
of Iridium bonds was included in other assets and the bond write-down was
included as a contra-asset in other assets, in the consolidated balance
sheets.
The Company had several contracts with
Iridium, primarily for the operation and maintenance of the global personal
communications system. The Company stopped recognizing revenue on the
operations and maintenance contract with Iridium after the second quarter of
1999, and continued to perform its services under that contract throughout
1999 without being paid currently, although the Company has not waived its
right to receive payment. The Company had previously agreed to permit
Iridium to defer up to $400 million of amounts owed under its operations and
maintenance contract with the Company. As of December 31, 1999, the Company
had accounts receivable from Iridium relating to the operations and
maintenance contract of $579 million and accounts receivable for other
contracts with Iridium of $82 million. All of these amounts have been
reserved as of December 31, 1999.
The repayment by Iridium of the contractually
deferred amounts owed under the operations and maintenance contract with the
Company and the amount of borrowings by Iridium under the Guaranteed Credit
Agreement were subordinated to repayment of Iridium’s Secured Credit
Agreement, as was the repayment to the Company by Iridium of any other
amounts the Company paid to the lenders under its guarantees and certain
other obligations owed to the Company. As a result of the Chapter 11 filing,
Iridium was believed unlikely to be able to repay in full to the Company
amounts previously deferred under its various contracts with the Company and
was unlikely to be able to pay amounts which accrued after the filing and
which had not been paid.
The Company has subcontracts for portions of
the system, for which it generally remained obligated in the amount of $85
million as of December 31, 1999. In addition, the Company had investments in
assets related to these contracts which were at risk, such as inventory,
manufacturing equipment and buildings, as well as other potential
obligations in connection with these contracts, the value of which the
Company estimated to be approximately $963 million as of December 31, 1999.
The Company will incur substantial costs in winding down operations related
to the
Iridium program, therefore these obligations and assets were written down or
reserved to zero as of December 31, 1999.
The following table presents the activity of
the Company’s development and commercialization reserves for the years
ended December 31, 1999, 1998 and 1997 related to the Iridium
project:
Development and
Commercialization
Reserves |
|
Dec. 31,
1999 |
|
Dec. 31,
1998 |
|
Dec. 31,
1997 |
|
| Provisions: |
|
|
|
|
|
|
|
|
Special Charges |
|
$1,825 |
|
|
$
— |
|
$
— |
|
Other Charges |
|
87 |
|
|
95 |
|
132 |
| |
|
|
|
|
|
|
|
| Total
Provisions |
|
$1,912 |
|
|
$
95 |
|
$132 |
| Amounts
Used |
|
|
|
|
|
|
|
Payments under
Guaranteed Credit
Agreement |
|
(743 |
) |
|
— |
|
— |
Interim Funding to
Iridium |
|
(20 |
) |
|
— |
|
— |
| |
|
|
|
|
|
|
|
Development and
Commercialization
Reserves |
|
$1,798 |
|
|
$649 |
|
$554 |
|
The development and commercialization
provisions for the years ended December 31, 1999, 1998 and 1997 are shown in
the above table. During 1999 the Company used $763 million of the
development and commercialization reserve including payment by the Company
of $743 million to the banks as payment of guaranteed amounts under the
Senior Guaranteed Credit Agreement and $20 million in additional funding to
Iridium while Iridium sought to attract additional investment and achieve
its financial restructuring.
The development and commercialization reserve
as of December 31, 1999 was $1.8 billion of which $869 million was included
in accrued liabilities, $734 million was included as a contra asset, in
inventories, $79 million was included as a contra asset, in property, plant
and equipment, $72 million was included as a contra asset, in other assets,
$39 million was included in other liabilities, $4 million was included in
accounts payable, and $1 million was included as a contra asset, in accounts
receivable, in the consolidated balance sheets. The reserve as of December
31, 1998 was $649 million of which $529 million was included in accrued
liabilities and $120 million was included in other liabilities in the
consolidated balance sheets. The related reserves for 1997 were $554 million
and were included in accrued liabilities in the consolidated balance
sheets.
Additionally in 1999, the Company wrote down
its investment in Iridium bonds. The bond write-down of $157 million is
reflected in selling, general and administrative expenses in the
consolidated statements of operations. The bond write-down of $157 million
is reflected as a contra-asset, in other assets, in the consolidated balance
sheets as of December 31, 1999.
Iridium’s only outstanding bank facility
as of December 31, 1999 was an $800 million Senior Secured Credit Agreement
(the “Secured Credit Agreement”). Iridium was in default under the
Secured Credit Agreement and on approximately $1.4 billion of public
debt.
During most of 1999, Iridium had outstanding a
$750 million Senior Guaranteed Credit Agreement (the “Guaranteed Credit
Agreement”). The Guaranteed Credit Agreement was guaranteed by the
Company and Iridium had borrowed all of the funds available. On November 15,
1999, the Company paid the banks approximately $743 million to satisfy its
guarantee under the Guaranteed Credit Agreement. With that payment, the
Company believes it satisfied all of its guarantee obligations under this
Agreement. By satisfying its guarantee obligations, the Company avoided
paying additional interest and substantial monthly fees to the
banks.
Subject to the automatic stay provisions of
Chapter 11, the lenders under the Secured Credit Agreement could have
accelerated Iridium’s obligations under the Secured Credit Agreement
and sought to foreclose on their security interests in substantially all of
Iridium’s assets. Iridium was subject to a court order (the “Court
Order”) which permitted it to make only a limited use of some of the
assets subject to these security interests. The Court Order generally
permitted Iridium, during the term of the Court Order, to pay only specified
budgeted amounts and prohibited Iridium from making any payments to
Motorola. The Court Order was effective through March 17, 2000. In addition,
under the Court Order, Motorola has no obligation to continue providing
those services to Iridium after March 17, 2000 since it is not being paid
for those services. Although not required to do so, Motorola expects to
maintain the Iridium system for a limited time, while a deorbiting plan is
finalized.
The Company had agreed under a Memorandum of
Understanding to provide a guarantee of up to an additional $350 million of
Iridium debt for Iridium’s use, subject to certain conditions. Iridium
requested Motorola to provide this guarantee during the third quarter of
1999, however, Motorola believes it was not obligated to do so. 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 asserted that Iridium failed to have the Company provide such
guarantee as required, and that the Company was obligated to provide them
with this $300 million guarantee. The Company believes that it was not
obligated to do so. Iridium has also stated that it believed it was not
obligated to have the Company provide this $300 million guarantee to these
lenders. The lenders under the Secured Credit Agreement have also demanded
that the investors in Iridium comply with their capital call requirements.
In the Company’s case, this could require an additional equity
investment of $50 million.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
F-23
During the fourth quarter of
1999, Motorola led a group of investors in providing a $20 million funding
commitment to Iridium. It was used by Iridium to fund its on-going
operations through February 15, 2000 while it sought to attract additional
investment and achieve its financial restructuring. Iridium continued
discussions with its lenders and creditors regarding plans to restructure
its debt and Motorola worked with Iridium and its other investors to find
viable restructuring options.
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 in “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, other entities and
the Company as defendants.
On February 17, 2000, Motorola and Eagle River
Investments, LLC provided an additional $5 million of funding which used by
Iridium to fund its on-going operations through March 6, 2000 while Eagle
River Investments, LLC developed a follow-up financing plan for submission
to the bankruptcy court. Eagle River Investments, LLC subsequently did not
submit that plan and, on March 6, 2000, the lenders under the Secured Credit
Facility allowed Iridium to use $3 million of funds for permitted expenses
while Iridium sought a qualified bid for their assets.
A discussion of the Company’s commitments
and contingencies are detailed in Notes 8 and 9 to the Consolidated
Financial Statements in this Proxy Statement.
The Company believes that it has adequate
internal and external resources available to fund expected working capital
and capital expenditure requirements through fiscal 2000.
OTHER
MATTERS
Environmental
Matters
A discussion of the Company’s
environmental matters is detailed in Note 9 to the Consolidated Financial
Statements in this Proxy Statement Appendix.
Acquired
In-Process Research & Development
A discussion of the Company’s Acquired
In-Process Research and Development costs is discussed in Note 13 to the
Consolidated Financial Statements in this Proxy Statement
Appendix.
Year
2000
Motorola has not experienced any significant
Year 2000 related issues. The Company’s success in dealing with the
Year 2000 rollover was the culmination of three years of preparation. The
Company plans to continue to monitor date-related product and system
performance issues through the end of March, 2000 to account for any
possible leap year-related or residual Year 2000 issues, and will continue
to handle these issues thereafter in the normal course of its commercial
operations.
Motorola estimates that the expected total
aggregate cost of its Year 2000 activities from 1997 to 2000 were $209
million. Of this amount, approximately $104 million was for external costs
and $105 million for internal costs. While the Company does not expect to be
sued in connection with the Year 2000 rollover, because of the success of
its Year 2000 program, there can be no assurances there will not be lawsuits
or other unforeseen costs associated with the rollover. These costs are not
included in the aggregate cost described above. In addition, it is possible
that date-related issues involving the products, services or operations of
customers, suppliers or other third parties could arise in the future, which
could adversely affect Motorola.
Euro
Conversion
On January 1, 1999, the euro was created and
eleven of the fifteen member countries of the European Union (EU)
established fixed conversion rates between their existing national
currencies and the euro. The participating countries adopted the euro as
their common legal currency on that date. Until January 1, 2002, either the
euro or a participating country’s present currency (a “national
currency”) will be accepted as legal currency. On or before January 1,
2002, euro-denominated notes and coins will begin to be issued and national
currencies will start to be withdrawn from circulation.
The Company formed a joint European-United
States task force to assess the potential impact to the Company that may
result from the introduction of the euro. In addition to tax and accounting
considerations, the Company continues to assess the potential impact from
the euro conversion in a number of areas, including the following: (1) the
technical challenges to adapt information technology and other systems to
accommodate euro-denominated transactions; (2) the competitive impact of
cross-border price transparency, which may make it more difficult for
businesses to charge different prices for the same product in different
countries; (3) the impact on currency exchange costs and currency exchange
rate risk; and (4) the impact on existing contracts.
The Company has established a euro project
plan with two phases. Each business segment is responsible for following
this plan and internal audit is reviewing progress against established
milestones. Phase I of the plan was to enable the Company to be
“euro-capable,” meaning able to process euro transactions and
comply with all relevant EU and national regulations. This was accomplished
by January 1, 1999 by all business segments. Phase II of the plan is
intended to enable various Motorola businesses in Europe to become
“euro-functional,” meaning that the functional currency used by
the businesses in relevant countries will be the euro. Phase II is targeted
to be completed by January 1, 2001.
(1) Technical Challenges: As of January 1,
1999, the Company’s information systems are “euro-capable.”
The costs to migrate systems and equipment to “’euro-capability
”’ were not significant, as many of the Company’s systems
were already multi-currency capable. Project plans for becoming
“euro-functional” in Phase II are completed and the project has
been initiated. Cost estimates have not yet been completed for this phase,
but the costs are not expected to be material to the Company.
(2) Competitive Impacts: The Company believes
that it will not experience a significant competitive impact as a result of
the cross-border price transparency that will result from the euro
conversion. Motorola is already a multi-currency company operating in a
global market with a presence in most countries within the EU. A number of
contracts are negotiated on a world-wide basis with the U.S. Dollar as the
basis for price negotiations. As a result, price transparency already
exists. Additionally, in the European sales environment, the presence of the
same major customers in various consortia means that comparison of prices by
large customers is already well established. Accordingly, the Company does
not anticipate a material impact to our business due to the elimination of
currency barriers that will result from the euro conversion.
(3) Continuity of Material Contracts: European
legislation has been written specifying that contracts may not be terminated
or frustrated by the introduction of the euro unless this event is
specifically provided for as being an event of termination, force majeure or
frustration. In addition, a number of U.S. states, including California,
Illinois and New York, have adopted legislation to confirm that the
introduction of the euro will not by itself allow parties to avoid or alter
their contractual obligations, unless the parties have otherwise agreed.
Further, the Company’s business units have reviewed, and will continue
to review, all relevant contracts and work together with customers to try to
ensure that contractual matters affected by the euro conversion are
addressed. Although the Company will continue to evaluate contractual issues
that may result from the euro conversion, it currently believes that these
issues are unlikely to have a material impact on its business.
(4) Currency Exchange Costs and Exchange Rate
Risk: The Company’s currency risk and risk management for operations in
participating EU countries may be reduced as a result of the euro
conversion. The Company expects overall currency management costs to
decrease, as there will be fewer currencies to manage. Company has already
established plans for each business segment to manage any impact caused by
changes in billing practices for either customers or vendors as a result of
the euro conversion. The Company is unable to predict how rapidly these
changes may occur.
The Company will continue to evaluate the
issues relating to the euro conversion. However, based on its work to date,
the Company believes that the introduction of the euro and the phasing out
of national currencies is unlikely to have a material adverse effect on its
consolidated financial position, liquidity or results of
operations.
Recent Accounting
Pronouncements
In June 1998, the Financial Accounting
Standards Board (the FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 133 “Accounting for Derivative Instruments and
Hedging Activities,” subsequently amended by SFAS No. 137, which the
Company is required to adopt in the first quarter of 2001. SFAS 133 will
require the Company to record all derivatives on the balance sheet at fair
value. Changes in derivative fair values will either be recognized in
earnings as offsets to the changes in fair value of related hedged assets,
liabilities and firm commitments or, for forecasted transactions, deferred
and recorded as a component of non-owner changes to equity until the hedged
transactions occur and are recognized in earnings. The impact of SFAS 133 on
the Company’s consolidated financial position, liquidity and results of
operations will depend upon a variety of factors, including future
interpretive guidance from the FASB and the extent of the Company’s
hedging activities. However, the Company does not expect the adoption of
SFAS 133 will materially affect its consolidated financial position,
liquidity or results of operations.
Merger with
General Instrument Corporation
On January 5, 2000, the Company and General
Instrument Corporation completed their previously announced merger. The
merger positions the Company as a leader in the convergence of voice, video
and data technologies. The new Broadband Communications Sector will focus on
solutions that deliver interactive television, the Internet and telephone
services over cable networks. The new sector combines the operations of
General Instrument with the cable modem and cable telephony businesses of
the Company’s Internet and Networking Group. Through the merger the
Company also acquired a majority ownership in Next Level Communications,
Inc., which completed an initial public offering in the fourth quarter of
1999. The Company issued 100.6 million shares to effect the merger and will
account for the merger under the pooling-of-interests method of accounting.
Note 14 to the Consolidated Financial Statements presents combined operating
results for the three years ending December 31, 1999, 1998 and 1997 and
combined balance sheets as of December 31, 1999 and 1998 as if the merger
had occurred on January 1, 1997.
2000 Segment
Realignment
Beginning in the first quarter of 2000 the
Company intends to change its segment reporting by adding the following new
segments:
|
·
|
The Broadband
Communications Segment, as discussed above, will focus on solutions that
deliver interactive television, the Internet and telephone services over
cable networks. The new segment combines the operations of General
Instrument with the existing cable modem telephony business of the Company
’s Internet and Networking Group.
|
|
·
|
The Integrated
Electronics Systems Sector, IESS, which has been included in the Other
Products seg
ment, will be reported as a separate segment. Management believes that
growth prospects for IESS are strong, particularly for Telematics products
and systems solutions, which blend innovative wireless communications and
automotive technologies to provide security, information, convenience and
entertainment services from a central service center to drivers and
passengers.
|
Restated historical
segment data will be available for the first quarter 2000.
MARKET RISK
FACTORS
Interest Rate
Market Risk
The Company has fixed-income investments
consisting of cash equivalents, short-term investments, and long-term
finance receivables. See Note 2 to the Consolidated Financial Statements in
this Proxy Statement Appendix for information about the long-term finance
receivables.
The majority of the long-term finance
receivables are floating rate notes subject to periodic interest rate
adjustments. The Company’s practice is to fund these receivables with
commercial paper to minimize the effects of interest rate changes.
Management does not expect gains or losses on short-term investments and
short-term debt to have a material effect on the Company’s financial
position, liquidity or results of operations.
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. The fair
value of these interest rate swaps would hypothetically increase by $12.7
million as of year end 1999 if LIBOR rates were to increase by a
hypothetical 10%.
Foreign Exchange
Market Risk
See Note 1 to the Consolidated Financial
Statements in this Proxy Statement Appendix for a description of the Company
’s currency translation and transaction accounting policies, and Note 5
for information about the Company’s currency exposure management policy
and strategy.
Foreign exchange financial instruments that
are subject to the effects of currency fluctuations which may affect
reported earnings include derivative financial instruments and other
financial instruments, which are not denominated in the currency of the
legal entity holding the instrument. Derivative financial instruments
consist primarily of forward contracts. Other financial instruments, which
are not denominated in the currency of the legal entity holding the
instrument, consist primarily of cash, short-term deposits, long-term
financing receivables, equity investments, and notes as well as accounts
payable and receivable. Accounts payable and receivable are reflected at
fair value in the financial statements. The fair value of the remainder of
the foreign exchange financial instruments would hypothetically decrease by
$187 million as of year-end 1999 if the U.S. dollar were to depreciate
against all other currencies by 10%. This hypothetical amount is suggestive
of the effect on future cash flows under the following conditions: a) all
current payables and receivables that are hedged were not realized, b) all
hedged commitments and anticipated transactions were not realized or
canceled, and c) hedges of these amounts were not canceled or offset. The
Company does not expect that any of these conditions will be realized. The
Company expects that gains and losses on the derivative financial
instruments should offset gains and losses on the assets, liabilities and
future transactions being hedged. The foreign exchange financial instruments
are held for purposes other than trading.
Equity Price
Market Risk
The value of the cost-based equity
investments, as defined by Statement of Financial Accounting Standards No.
115 “Accounting for Certain Investments in Debt and Equity Securities,
” would change by approximately $696 million as of year-end 1999 if the
price of the stock in each of the publicly-traded companies were to change
by 10%. These equity securities are held for purposes other than
trading.
The analysis methods used by the Company to
assess and mitigate risk discussed above should not be considered
projections of future events.
BUSINESS RISK
FACTORS
With the exception of historical facts, the
statements in Management’s Discussion and Analysis of Financial
Condition and Results of Operations are forward-looking statements based on
current expectations that involve risks and uncertainties. Forward-looking
statements include, but are not limited to, statements about selling,
general and administrative costs, research and development spending,
depreciation expense, interest expense, tax rate, growth in the digital
telephone market, component shortages for, wireless telephones, product
introductions in 2000 and the impact on the Company, the Company’s role
in 3G, the impact of various alliances on the Network Systems Segment, the
introduction of new infrastructure products and technology, worldwide
semiconductor industry growth, outsourcing in the semiconductor business,
semiconductor capital expenditures, the impact of technology innovations in
the semiconductor business, the market for embedded technologies and
systems, the Company’s access to capital markets, customer financing,
future events regarding Iridium and the impact on the Company, Year 2000
costs, the euro conversion, the growth of the Integrated Electronics System
Sector, the effect of market risk factors, and statements in the section
titled Outlook.
We wish to caution the reader that the
following important business risks and factors, and those business risks and
factors described elsewhere in the commentary or our other Securities and
Exchange Commission filings, could cause our actual results to differ
materially from those stated in the forward-looking statements.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
Impact of
Restructuring Programs
|
·
|
The impact of
manufacturing consolidation, cost reduction and restructuring programs on
the Company’s ability to effectively compete and to continue to
grow.
|
Integration of New
Businesses
|
·
|
The ability of the
Company to integrate its newly acquired businesses, and to achieve
strategic objectives, cost savings and other benefits.
|
Recruitment and
Retention of Employees
|
·
|
The ability of the
Company to recruit and retain engineers and other highly skilled personnel
needed to compete in an intensely competitive market and develop
successful new products.
|
Economic
Conditions in China
|
·
|
During 1999, 10% of
the Company’s sales were in China and it has significant operations
in China. An economic downturn in China’s economy could materially
adversely impact the Company.
|
The Success of
Various Efforts to Stabilize Economic Conditions in Parts of Asia, Including
Japan
|
·
|
During 1999, 17% of
the Company’s sales were in Japan and Asia-Pacific (excluding China).
If the economic recession being experienced in some Asian countries fails
to improve, or spreads to other parts of Asia, the Company’s
performance will likely continue to be adversely impacted.
|
Economic
Conditions in Other Foreign Markets
|
·
|
Because more than
half of the Company’s sales are outside the U.S., the Company’s
results could be materially adversely affected by weak economic conditions
in countries in which it does sizable business and emerging markets (in
which there tend to be significant growth) and by changes in foreign
currency exchange rates which can introduce significant volatility to
rates of growth.
|
Changes in
Government Policy or Economic Conditions
|
·
|
The effect of, and
change in, trade, monetary and fiscal policies, laws and regulations,
other activities of U.S. and non-U.S. governments, agencies and similar
organizations, and social and economic conditions, affecting the Company
’s operations, including in emerging markets in Asia and Latin
America.
|
Strategic
Alliances
|
·
|
Motorola’s
success in partnering with other industry leaders to meet customer product
and service requirements, particularly in its communications
businesses.
|
Euro
Conversion
|
·
|
Risks related to
the introduction of the euro currency in Europe, including the ability of
the Company to successfully compete in Europe.
|
Development of
Acquired Technologies
|
·
|
During 1998 and
1999, the Company acquired controlling and non-controlling interests in
several businesses that had technology that was not fully developed. If
the technology is not fully developed in a timely manner, the Company
’s investments in such companies could be materially adversely
impacted.
|
Outcome of
Litigation
|
·
|
The outcome of
pending and future litigation and the protection and validity of patents
and other intellectual property rights. Patent and other intellectual
property rights of the Company are important competitive tools and many
generate income under license agreements. There can be no assurances as to
the favorable outcome of litigation or that intellectual property rights
will not be challenged, invalidated or circumvented in one or more
countries.
|
Actual Adverse
Market Conditions
|
·
|
The risk that the
actual adverse market conditions differ from the assumed adverse market
conditions that are used in the market risk factors discussion, causing
actual future results to differ materially from projected
results.
|
Communications
Businesses
Component
Shortages
|
·
|
The Company’s
ability to meet customer demands depends in part on our ability to obtain
timely delivery of parts and components from our suppliers. We have
experienced component shortages in the past, including components for
wireless telephones, that have adversely affected our operations. Although
we work closely with our suppliers to avoid these types of shortages,
there can be no assurances that we will not continue to encounter these
problems in the future.
|
Pricing
Pressures
|
·
|
Continued pricing
pressure on wireless telephones, infrastructure equipment, paging and
messaging products and infrastructure, and the adverse impact on gross
margins for those products, especially because of economic conditions in
Asia and Latin America that have resulted in significant pressure to
reduce the cost of the Company’s products in order to compete with
manufacturers in Asia.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS
OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
F-27
Transition from Analog to Digital
|
·
|
The ability of the
Company’s wireless telephone business to continue its transition to
digital technologies and successfully compete in that business and retain
or gain market share. The Company faces intense competition in these
markets from both established companies and new entrants. Product life
cycles can be short and new products are expensive to develop and bring to
market.
|
Development of New
Products and Technologies
|
·
|
The risks related
to the Company’s significant investment in developing and introducing
new products such as digital wireless telephones, two-way and voice
paging, CDMA and other technologies for third generation (3G) wireless,
products for transmission of telephony and high-speed data over hybrid
fiber coaxial cable systems, integrated digital radios, and semiconductor
products. These risks include: difficulties and delays in the development,
production, testing and marketing of products; customer acceptance of
products, particularly as the Company’s focus on the consumer market
increases; the development of industry standards; the significant amount
of resources the Company must devote to the development of new technology;
and the ability of the Company to differentiate its products and compete
with other companies in the same market.
|
Demand for Paging
Products
|
·
|
The impact of
continued or increased weak demand for paging products particularly in
North America and China, the two largest markets for these
products.
|
Risks Related to
the Iridium(R) System
|
·
|
Unfavorable
outcomes to any currently pending or future litigation involving the
Iridium project.
|
|
·
|
Difficulties,
delays and unexpected liabilities or expenses encountered in connection
with the implementation of Iridium’s liquidation proceedings,
including those encountered in finalizing and implementing the deorbiting
process and in resolving any remaining obligations Motorola has under its
agreements related to the Iridium project.
|
|
·
|
Difficulties,
delays and unexpected liabilities or expenses incurred in effectively
reallocating resources that were previously dedicated to the Iridium
project.
|
Demand for
Customer Financing
|
·
|
Increasing demand
for customer financing of equipment sales, particularly infrastructure
equipment, and the ability of the Company to provide financing on
competitive terms with other companies.
|
Risks from Large
System Contracts
|
·
|
Risks related to
the trend towards increasingly large system contracts for infrastructure
equipment and the resulting reliance on large customers, the technological
risks of such contracts, especially when the contracts involve new
technology, and financial risks to Motorola under these contracts,
including the difficulty of projecting costs associated with large
contracts.
|
Demand for
Wireless Communications Equipment
|
·
|
The need for
continued significant demand for wireless communications equipment,
including of the type the Company manufactures or is
developing.
|
Growth in the
Cable Industry
|
·
|
Continued growth in
the cable industry and that industry’s ability to compete with other
entertainment providers.
|
Semiconductor
Businesses
Continued Recovery
from Semiconductor Market Recession
|
·
|
The impact of the
continued recovery in the semiconductor market and the Company’s
participation in that recovery. The semiconductor business has
restructured itself to participate in some of the semiconductor markets
with the best growth potential. There can be no assurances that this
strategy will be successful.
|
Ability to Compete
in Semiconductor Market
|
·
|
The ability of
Motorola’s semiconductor business to compete in the highly
competitive semiconductor market. Factors that could adversely affect
Motorola’s ability to compete include: production inefficiencies and
higher costs related to underutilized facilities, including both
wholly-owned and joint venture facilities; shortage of manufacturing
capacity for some products; competitive factors, such as rival chip
architectures, mix of products, acceptance of new products and price
pressures; risk of inventory obsolescence due to shifts in market demand;
the continued growth of embedded technologies and systems and the Company
’s ability to compete in that market; and the effect of orders from
Motorola’s equipment businesses.
|
Success and Impact
of Increased Use of Foundry Manufacturing Capacity
|
·
|
The ability of
Motorola’s semiconductor business to increase its utilization of
foundry manufacturing capacity and the impact of such efforts on capital
expenditures, production costs and ability to satisfy delivery
requirements.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS
OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Electronic Content in Cars and Trucks
|
·
|
Continued
significant increases in the electronic content cars and trucks and
consumer demand for the related products and services.
|
iDEN, StarTAC, EMX,
ASTRO, Dimetra, PowerCom, OTAR, TxMessenger, TX, WaveSoft, BiStatix,
CodeWarrior,
DigitalDNA,
CopperGold, MobileGT and M-DTV are trademarks or registered trademarks of
Motorola, Inc. All other product names and other trademarks or service marks
used herein are the property of their respective owners.
FINANCIAL
HIGHLIGHTS
F-29
FINANCIAL
HIGHLIGHTS
(Dollars in
millions, except as noted)
Motorola, Inc. and
Subsidiaries
| Years ended
December 31 |
|
1999(1) |
|
1998(2) |
|
| Net
sales |
|
$30,931 |
|
|
$29,398 |
|
| Earnings (loss)
before income taxes |
|
1,168 |
|
|
(1,374 |
) |
| % to
sales |
|
3.8 |
% |
|
(4.7 |
)% |
| Net earnings
(loss) |
|
817 |
|
|
(962 |
) |
| % to
sales |
|
2.6 |
% |
|
(3.3 |
)% |
| Diluted earnings
(loss) per common share (in dollars) |
|
1.31 |
|
|
(1.61 |
) |
| Research and
development expenditures |
|
3,438 |
|
|
2,893 |
|
| Capital
expenditures |
|
2,684 |
|
|
3,221 |
|
| Working
capital |
|
4,087 |
|
|
2,091 |
|
| Current
ratio |
|
1.33 |
|
|
1.18 |
|
| Return on average
invested capital |
|
5.5 |
% |
|
(6.2 |
)% |
| Return on average
stockholders’ equity |
|
5.9 |
% |
|
(7.6 |
)% |
| % of net debt to
net debt plus equity |
|
10.1 |
% |
|
26.8 |
% |
| Book value per
common share (in dollars) |
|
26.67 |
|
|
20.33 |
|
| Year-end employment
(in thousands) |
|
121 |
|
|
133 |
|
|
(1)
|
Earnings before
income taxes, net earnings and diluted earnings per common share include
special charges of $684 million pre-tax, or 77 cents per share after-tax,
resulting primarily from charges related to Iridium offset by gains from
the sales of investments and businesses.
|
(2)
|
The loss before
income taxes, net loss and diluted loss per common share include special
charges of $1.9 billion pre-tax, or $2.19 per share after-tax, resulting
primarily from manufacturing consolidation, cost reduction and
restructuring programs.
|
CONSOLIDATED
FINANCIAL STATEMENTS
MANAGEMENT’S
RESPONSIBILITY FOR FINANCIAL STATEMENTS
Management is responsible for the preparation,
integrity and objectivity of the consolidated financial statements and other
financial information presented in this report. The accompanying
consolidated financial statements were prepared in accordance with generally
accepted accounting principles, applying certain estimates and judgments as
required.
Motorola’s internal controls are designed
to provide reasonable assurance as to the integrity and reliability of the
financial statements and to adequately safeguard, verify and maintain
accountability of assets. Such controls are based on established written
policies and procedures, are implemented by trained, skilled personnel with
an appropriate segregation of duties and are monitored through a
comprehensive internal audit program. These policies and procedures
prescribe that the Company and all its employees are to maintain the highest
ethical standards and that its business practices throughout the world are
to be conducted in a manner which is above reproach.
KPMG LLP, independent auditors, are retained
to audit Motorola’s financial statements. Their accompanying report is
based on audits conducted in accordance with generally accepted auditing
standards, which include the consideration of the Company’s internal
controls to establish a basis for reliance thereon in determining the
nature, timing and extent of audit tests to be applied.
The Board of Directors exercises its
responsibility for these financial statements through its Audit and Legal
Committee, which consists entirely of independent non-management Board
members. The Audit and Legal Committee meets periodically with the
independent auditors and with the Company’s internal auditors, both
privately and with management present, to review accounting, auditing,
internal controls and financial reporting matters.
| |
|
|
| [Signature of
Christopher B. Galvin] |
|
[Signature of Carl
F. Koenemann] |
| Christopher B.
Galvin |
|
Carl F.
Koenemann |
| Chairman of the
Board |
|
Executive Vice
President |
| and Chief Executive
Officer |
|
and Chief Financial
Officer |
INDEPENDENT
AUDITORS’ REPORT
The Board of
Directors and Stockholders
Motorola, Inc.:
We have audited the accompanying consolidated
balance sheets of Motorola, Inc. and Subsidiaries as of December 31, 1999
and 1998, and the related consolidated statements of operations, stockholders
’ equity and cash flows for each of the years in the three-year period
ended December 31, 1999. These consolidated financial statements are the
responsibility of the Company’s management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with
generally accepted auditing standards. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the
financial position of Motorola, Inc. and Subsidiaries as of December 31,
1999 and 1998, and the results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 1999 in
conformity with generally accepted accounting principles.
[Signature of
KPMG]
Chicago,
Illinois
January 17, 2000,
except as to Note 15,
which is as of March 17, 2000
CONSOLIDATED
FINANCIAL STATEMENTS
F-31
Motorola, Inc.
and Subsidiaries
Consolidated
Statements of Operations
| |
|
Years Ended
December 31 |
|
| (In millions,
except per share amounts) |
|
1999 |
|
1998 |
|
1997 |
|
| NET
SALES |
|
$30,931 |
|
|
$29,398 |
|
|
$29,794 |
|
| COSTS AND
EXPENSES |
|
Manufacturing and other costs of sales |
|
19,169 |
|
|
18,043 |
|
|
17,283 |
|
Selling, general and administrative expenses |
|
5,045 |
|
|
5,443 |
|
|
5,160 |
|
Restructuring and other charges |
|
(226 |
) |
|
1,980 |
|
|
327 |
|
Research and development expenditures |
|
3,438 |
|
|
2,893 |
|
|
2,748 |
|
Depreciation expense |
|
2,182 |
|
|
2,197 |
|
|
2,329 |
|
Interest expense, net |
|
155 |
|
|
216 |
|
|
131 |
|
| TOTAL COSTS AND
EXPENSES |
|
29,763 |
|
|
30,772 |
|
|
27,978 |
|
| EARNINGS (LOSS)
BEFORE INCOME TAXES |
|
1,168 |
|
|
(1,374 |
) |
|
1,816 |
|
| INCOME TAX
PROVISION (BENEFIT) |
|
351 |
|
|
(412 |
) |
|
636 |
|
| NET EARNINGS
(LOSS) |
|
$
817 |
|
|
$
(962 |
) |
|
$
1,180 |
|
| BASIC EARNINGS
(LOSS) PER COMMON SHARE |
|
$
1.35 |
|
|
$
(1.61 |
) |
|
$
1.98 |
|
| DILUTED EARNINGS
(LOSS) PER COMMON SHARE |
|
$
1.31 |
|
|
$
(1.61 |
) |
|
$
1.94 |
|
| BASIC WEIGHTED
AVERAGE COMMON SHARES OUTSTANDING |
|
606.4 |
|
|
598.6 |
|
|
595.5 |
|
| DILUTED WEIGHTED
AVERAGE COMMON SHARES OUTSTANDING |
|
624.7 |
|
|
598.6 |
|
|
612.2 |
|
See accompanying
notes to consolidated financial statements.
Motorola, Inc. and
Subsidiaries
Consolidated
Balance Sheets
| |
|
December
31
|
| (In millions,
except per share amounts) |
|
1999 |
|
1998 |
|
| ASSETS |
|
|
|
|
| Current
assets |
|
|
|
|
| Cash and cash
equivalents |
|
$
3,345 |
|
$
1,453 |
| Short-term
investments |
|
699 |
|
171 |
| Accounts
receivable, net |
|
5,125 |
|
5,057 |
| Inventories |
|
3,422 |
|
3,745 |
| Deferred income
taxes |
|
3,162 |
|
2,362 |
| Other current
assets |
|
750 |
|
743 |
| |
|
|
| Total current
assets |
|
16,503 |
|
13,531 |
| |
|
|
| Property, plant and
equipment, net |
|
9,246 |
|
10,049 |
| Other
assets |
|
11,578 |
|
5,148 |
| |
|
|
| TOTAL
ASSETS |
|
$37,327 |
|
$28,728 |
|
| LIABILITIES AND
STOCKHOLDERS’ EQUITY |
|
|
|
|
| Current
liabilities |
|
|
|
|
| Notes payable and
current portion of long-term debt |
|
$
2,504 |
|
$
2,909 |
| Accounts
payable |
|
3,015 |
|
2,305 |
| Accrued
liabilities |
|
6,897 |
|
6,226 |
| |
|
|
| Total current
liabilities |
|
12,416 |
|
11,440 |
| |
|
|
| Long-term
debt |
|
3,089 |
|
2,633 |
| Deferred income
taxes |
|
3,481 |
|
1,188 |
| Other
liabilities |
|
1,513 |
|
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
Authorized shares: 0.5 (none issued) |
|
— |
|
— |
| Common stock, $3
par value |
|
|
|
|
|
Authorized shares: 1999 and 1998, 1,400 |
|
|
|
|
|
Issued and outstanding: 1999, 612.8; 1998, 601.1 |
|
1,838 |
|
1,804 |
| Additional paid-in
capital |
|
2,572 |
|
1,894 |
| Retained
earnings |
|
8,780 |
|
8,254 |
| Non-owner changes
to equity |
|
3,154 |
|
270 |
| |
|
|
| Total stockholders
’ equity |
|
16,344 |
|
12,222 |
| |
|
|
| TOTAL LIABILITIES
AND STOCKHOLDERS’ EQUITY |
|
$37,327 |
|
$28,728 |
|
See accompanying
notes to consolidated financial statements.
CONSOLIDATED
FINANCIAL STATEMENTS
Motorola, Inc.
and Subsidiaries
Consolidated
Statements of Stockholders’ Equity
| |
|
|
|
Non-Owner
Changes To Equity
|
| (In
millions, except per share
amounts) |
|
Common
Stock and
Additional
Paid-In
Capital |
|
Fair Value
Adjustment
To Certain
Cost-Based
Investments |
|
Foreign
Currency
Translation
Adjustments |
|
Minimum
Pension
Liability
Adjustment |
|
Retained
Earnings |
|
Comprehensive
Earnings (Loss) |
|
|
| Balances at
January 1, 1997 |
|
$3,332 |
|
|
$
(26 |
) |
|
$(121 |
) |
|
$
— |
|
|
$8,610 |
|
|
|
|
| Net
earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
1,180 |
|
|
1,180 |
|
Conversion of zero
coupon
notes |
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value
adjustment to certain
cost-based investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reversal of prior period
adjustment |
|
|
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
26 |
|
Recognition of current
period unrecognized
gain |
|
|
|
|
533 |
|
|
|
|
|
|
|
|
|
|
|
533 |
|
Change in foreign
currency
translation adjustments |
|
|
|
|
|
|
|
(119 |
) |
|
|
|
|
|
|
|
(119 |
) |
Minimum pension
liability
adjustment |
|
|
|
|
|
|
|
|
|
|
(38 |
) |
|
|
|
|
(38 |
) |
| Stock options and
other |
|
174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared
($.48 per
share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(286 |
) |
|
|
|
|
|
| Balances at
December 31, 1997 |
|
$3,513 |
|
|
$
533 |
|
|
$(240 |
) |
|
$(38 |
) |
|
$9,504 |
|
|
$1,582 |
|
|
|
|
| Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
(962 |
) |
|
(962 |
) |
Conversion of zero
coupon
notes |
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value
adjustment to certain
cost-based investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reversal of prior period
adjustment |
|
|
|
|
(533 |
) |
|
|
|
|
|
|
|
|
|
|
(533 |
) |
Recognition of current
period unrecognized
gain |
|
|
|
|
476 |
|
|
|
|
|
|
|
|
|
|
|
476 |
|
Change in foreign
currency
translation adjustments |
|
|
|
|
|
|
|
34 |
|
|
|
|
|
|
|
|
34 |
|
Minimum pension
liability
adjustment |
|
|
|
|
|
|
|
|
|
|
38 |
|
|
|
|
|
38 |
|
| Stock options and
other |
|
182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared
($.48 per
share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(288 |
) |
|
|
|
|
|
| Balances at
December 31, 1998 |
|
$3,698 |
|
|
$
476 |
|
|
$(206 |
) |
|
$
— |
|
|
$8,254 |
|
|
$
(947 |
) |
|
|
|
| Net
earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
817 |
|
|
817 |
|
Conversion of zero
coupon
notes |
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value
adjustment to certain
cost-based investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reversal of prior period
adjustment |
|
|
|
|
(476 |
) |
|
|
|
|
|
|
|
|
|
|
(476 |
) |
Recognition of current
period unrecognized
gain |
|
|
|
|
3,466 |
|
|
|
|
|
|
|
|
|
|
|
3,466 |
|
Change in foreign
currency
translation adjustments |
|
|
|
|
|
|
|
(33 |
) |
|
|
|
|
|
|
|
(33 |
) |
Minimum pension
liability
adjustment |
|
|
|
|
|
|
|
|
|
|
(73 |
) |
|
|
|
|
(73 |
) |
| Stock options and
other |
|
703 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared
($.48 per
share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(291 |
) |
|
|
|
|
|
| Balances at
December 31, 1999 |
|
$4,410 |
|
|
$3,466 |
|
|
$(239 |
) |
|
$(73 |
) |
|
$8,780 |
|
|
$3,701 |
|
|
|
|
See accompanying
notes to consolidated financial statements.
CONSOLIDATED
FINANCIAL STATEMENTS
F-33
Motorola, Inc. and Subsidiaries
Consolidated
Statements of Cash Flows
|
|
Years Ended
December 31
|
| (In
millions) |
|
1999 |
|
1998 |
|
1997 |
|
| OPERATING |
|
|
|
|
|
|
|
|
|
| Net earnings
(loss) |
|
$
817 |
|
|
$
(962 |
) |
|
$
1,180 |
|
| Adjustments to
reconcile net earnings (loss) to net cash provided by operating
activities: |
|
|
|
|
|
|
|
|
|
|
Restructuring and other charges |
|
(226 |
) |
|
1,980 |
|
|
327 |
|
|
Iridium charges |
|
2,119 |
|
|
360 |
|
|
178 |
|
|
Depreciation |
|
2,182 |
|
|
2,197 |
|
|
2,329 |
|
|
Deferred income taxes |
|
(415 |
) |
|
(933 |
) |
|
(98 |
) |
|
Amortization of debt discount and issue costs |
|
11 |
|
|
11 |
|
|
10 |
|
|
Gain on disposition of investments and businesses, net of
acquisition charges |
|
(1,034 |
) |
|
(146 |
) |
|
(116 |
) |
|
Change in assets and liabilities, net of effects of acquisitions and
dispositions: |
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
15 |
|
|
(238 |
) |
|
(812 |
) |
|
Inventories |
|
(661 |
) |
|
254 |
|
|
(880 |
) |
|
Other current assets |
|
(30 |
) |
|
31 |
|
|
(114 |
) |
|
Accounts payable and accrued
liabilities |
|
270 |
|
|
(753 |
) |
|
698 |
|
|
Other assets and
liabilities |
|
(1,120 |
) |
|
(780 |
) |
|
(106 |
) |
| |
|
|
|
| Net cash provided
by operating activities |
|
1,928 |
|
|
1,021 |
|
|
2,596 |
|
|
| INVESTING |
|
|
|
|
|
|
|
|
|
| Acquisitions and
advances to affiliates |
|
(552 |
) |
|
(786 |
) |
|
(286 |
) |
| Proceeds from
dispositions of investments and businesses |
|
2,536 |
|
|
371 |
|
|
248 |
|
| Capital
expenditures |
|
(2,684 |
) |
|
(3,221 |
) |
|
(2,874 |
) |
| Proceeds from
dispositions of property, plant and equipment |
|
468 |
|
|
507 |
|
|
443 |
|
| (Purchases) sales
of short-term investments |
|
(496 |
) |
|
164 |
|
|
(37 |
) |
| |
|
|
|
| Net cash used for
investing activities |
|
(728 |
) |
|
(2,965 |
) |
|
(2,506 |
) |
|
| FINANCING |
|
|
|
|
|
|
|
|
|
| (Repayment of)
proceeds from commercial paper and short-term borrowings |
|
(403 |
) |
|
1,627 |
|
|
(100 |
) |
| Proceeds from
issuance of debt |
|
501 |
|
|
773 |
|
|
312 |
|
| Repayment of
debt |
|
(47 |
) |
|
(293 |
) |
|
(102 |
) |
| Issuance of common
stock |
|
481 |
|
|
99 |
|
|
137 |
|
| Issuance of
preferred securities of subsidiary trust |
|
484 |
|
|
— |
|
|
— |
|
| Payment of
dividends |
|
(291 |
) |
|
(288 |
) |
|
(286 |
) |
| |
|
|
|
| Net cash provided
by (used for) financing activities |
|
725 |
|
|
1,918 |
|
|
(39 |
) |
|
| Effect of exchange
rate changes on cash and cash equivalents |
|
(33 |
) |
|
34 |
|
|
(119 |
) |
|
| NET INCREASE
(DECREASE) IN CASH AND CASH EQUIVALENTS |
|
$
1,892 |
|
|
$
8 |
|
|
$
(68 |
) |
| CASH AND CASH
EQUIVALENTS, BEGINNING OF YEAR |
|
$
1,453 |
|
|
$
1,445 |
|
|
$
1,513 |
|
|
| CASH AND CASH
EQUIVALENTS, END OF YEAR |
|
$
3,345 |
|
|
$
1,453 |
|
|
$
1,445 |
|
|
|
|
| Supplemental
Cash Flow Information |
|
|
|
|
|
|
|
|
|
|
| CASH PAID DURING
THE YEAR FOR: |
|
|
|
|
|
|
|
|
|
| Interest |
|
$
265 |
|
|
$
286 |
|
|
$
211 |
|
| Income
taxes |
|
$
279 |
|
|
$
388 |
|
|
$
611 |
|
|
|
See accompanying
notes to consolidated financial statements.
MOTOROLA, INC. AND
SUBSIDIARIES
NOTES TO
(Dollars in millions,
except as noted)
CONSOLIDATED
FINANCIAL STATEMENTS
1. Summary of
Significant Accounting Policies
Consolidation and Investments: The
consolidated financial statements include the accounts of Motorola, Inc. and
all majority-owned subsidiaries (the Company) in which it has control. The
Company’s investments in non-controlled entities in which it has the
ability to exercise significant influence over operating and financial
policies are accounted for by the equity method. The Company’s
investments in other entities are carried at their historical cost. Certain
of these cost-based investments are marked-to-market at the balance sheet
date to reflect their fair value with the unrealized gains and losses, net
of tax, included in a separate component of stockholders’
equity.
Cash Equivalents: The Company considers
all highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents.
Revenue Recognition: The Company uses
the percentage-of-completion method to recognize revenues and costs
associated with most long-term contracts. For contracts involving certain
new technologies, revenues and profits or parts thereof are deferred until
technological feasibility is established, customer acceptance is obtained
and other contract-specific factors have been completed. For other product
sales, revenue is recognized at the time of shipment, and reserves are
established for price protection and cooperative marketing programs with
distributors.
Advertising and Sales Promotion Costs:
Advertising and sales promotion costs are expensed as incurred and are
included in selling, general and administrative expenses in the consolidated
statements of operations.
Inventories: Inventories are valued at
the lower of average cost (which approximates computation on a first-in,
first-out basis) or market (net realizable value or replacement
cost).
Property, Plant and Equipment:
Property, plant and equipment are stated at cost less accumulated
depreciation. Depreciation is recorded principally using the
declining-balance method, based on the estimated useful lives of the assets
(buildings and building equipment, 5-40 years; machinery and equipment, 2-12
years).
Intangible Assets: Goodwill and other
intangible assets are recorded at cost and amortized on a straight-line
basis over periods ranging from 3 to 10 years.
Long-Lived Assets: Long-lived
assets held and used by the Company are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of
assets may not be recoverable. The Company evaluates recoverability of
assets to be held and used by comparing the amount of an asset to future net
undiscounted cash flows to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceeds the fair value
of the assets. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell.
Fair Values of Financial Instruments:
The fair values of financial instruments are determined based on quoted
market prices and market interest rates as of the end of the reporting
period.
Foreign Currency Translation: The
Company’s European and Japanese operations and certain non-consolidated
affiliates use the respective local currencies as the functional currency.
For all other operations, the Company uses the U.S. dollar as the functional
currency. The effects of translating the financial position and results of
operations of local functional currency operations into U.S. dollars are
included in a separate component of stockholders’ equity.
Foreign Currency Transactions: The
effects of remeasuring the non-functional currency assets or liabilities
into the functional currency as well as gains and losses on hedges of
existing assets or liabilities are marked-to-market, and the result is
recorded within selling, general and administrative expenses in the
consolidated statements of operations. Gains and losses on financial
instruments that hedge firm future commitments are deferred until such time
as the underlying transactions are recognized or recorded immediately when
the transaction is no longer expected to occur. Foreign exchange financial
instruments that hedge investments in foreign subsidiaries are
marked-to-market, and the results are included in stockholders’ equity.
Other gains or losses on financial instruments that do not qualify as hedges
are recognized immediately as income or expense.
Use of Estimates: 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.
Reclassifications: Certain amounts in
prior years’ financial statements and related notes have been
reclassified to conform to the 1999 presentation.
Recent Accounting Pronouncements: In
June 1998, the Financial Accounting Standards Board (the FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133 “Accounting
for Derivative Instruments and Hedging Activities”, subsequently
amended by SFAS No. 137, which the Company is required to adopt in the first
quarter of 2001. SFAS 133 will require the Company to record all derivatives
on the balance sheet at fair value. Changes in derivative fair values will
either be recognized in earnings as offsets to the changes in fair value of
related hedged assets, liabilities and firm commitments or, for forecasted
transactions, deferred and recorded as a component of non-owner changes to
equity until the hedged transactions occur and are recognized in earnings.
The impact of SFAS 133 on the Company’s consolidated financial
position, liquidity and results of operations will depend upon a variety of
factors, including future interpretive guidance from the FASB and the extent
of the Company’s hedging activities. However, the Company does not
expect the adoption of SFAS 133 to ma
terially affect its consolidated financial position, liquidity or results of
operations.
2. Motorola Credit
Corporation
Motorola Credit Corporation (MCC), the Company
’s wholly owned finance subsidiary, is engaged principally in financing
long-term commercial receivables arising out of equipment sales made by the
Company to customers throughout the United States and
internationally.
MCC’s interest revenue is included in the
Company’s consolidated net sales. Interest expense totaled $72 million
in 1999, $37 million in 1998 and $13 million in 1997, and is included in
manufacturing and other costs of sales. In addition, long-term finance
receivables of $1.7 billion and $1.1 billion (net of allowance for losses on
commercial receivables of $292 million and $167 million, respectively) at
December 31, 1999 and 1998 are included in other assets.
Summary Financial
Data of Motorola Credit Corporation
| |
|
1999 |
|
1998 |
|
1997 |
|
| Total
revenue |
|
$
159 |
|
$
72 |
|
$
29 |
| |
|
|
|
|
|
|
| Net
earnings |
|
53 |
|
21 |
|
11 |
| |
|
|
|
|
|
|
| Total
assets |
|
2,015 |
|
1,152 |
|
458 |
| |
|
|
|
|
|
|
| Total
liabilities |
|
1,768 |
|
977 |
|
367 |
| |
|
|
|
|
|
|
| Total stockholder
’s equity |
|
$
247 |
|
$
175 |
|
$
91 |
|
3. Other Financial
Data
Statement of
Operations Information
| Years ended
December 31 |
|
1999 |
|
1998 |
|
1997 |
|
| Research and
development |
|
$3,438 |
|
|
$2,893 |
|
|
$2,748 |
|
| |
|
|
|
|
|
|
|
|
|
| Foreign currency
losses |
|
20 |
|
|
20 |
|
|
2 |
|
| |
|
|
|
|
|
|
|
|
|
| Interest expense,
net: |
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
305 |
|
|
301 |
|
|
216 |
|
|
Interest income |
|
(150 |
) |
|
(85 |
) |
|
(85 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
$
155 |
|
|
$
216 |
|
|
$
131 |
|
|
The following table presents a reconciliation
of the numerators and denominators of basic and diluted earnings (loss) per
common share:
| Years ended
December 31 |
|
1999 |
|
1998 |
|
1997 |
|
Basic earnings
(loss) per
common share |
|
|
|
|
|
|
|
| Net earnings
(loss) |
|
$
817 |
|
$
(962 |
) |
|
$1,180 |
Weighted average
common
shares outstanding |
|
606.4 |
|
598.6 |
|
|
595.5 |
| |
|
|
|
|
|
|
|
| Per share
amount |
|
$
1.35 |
|
$(1.61 |
) |
|
$
1.98 |
| |
|
|
|
|
|
|
|
Diluted earnings
(loss) per
common share |
|
|
|
|
|
|
|
| Net earnings
(loss) |
|
$
817 |
|
$
(962 |
) |
|
$1,180 |
Add: Interest on
zero coupon
notes, net |
|
2 |
|
— |
|
|
5 |
| |
|
|
|
|
|
|
|
Net earnings
(loss), as
adjusted |
|
$
819 |
|
$
(962 |
) |
|
$1,185 |
| |
|
|
|
|
|
|
|
Weighted average
common
shares outstanding |
|
606.4 |
|
598.6 |
|
|
595.5 |
Add: Effect of
dilutive
securities |
|
|
|
|
|
|
|
|
Stock options |
|
16.4 |
|
— |
|
|
10.4 |
|
Zero coupon notes |
|
1.9 |
|
— |
|
|
6.3 |
| |
|
|
|
|
|
|
|
Diluted wtd.
average common
shares outstanding |
|
624.7 |
|
598.6 |
|
|
612.2 |
| |
|
|
|
|
|
|
|
| Per share
amount |
|
$
1.31 |
|
$(1.61 |
) |
|
$
1.94 |
|
In the computation of diluted loss per common
share for the year ended December 31, 1998, the assumed conversions of the
zero coupon notes due 2009 and 2013 and options outstanding were excluded
because their inclusion would have been antidilutive.
MOTOROLA, INC. AND
SUBSIDIARIES
NOTES TO
(Dollars in millions,
except as noted)
CONSOLIDATED
FINANCIAL STATEMENTS
Balance Sheet
Information
| December
31 |
|
1999 |
|
1998 |
|
| Inventories: |
|
|
|
|
|
|
|
Finished goods |
|
$
987 |
|
|
$
1,033 |
|
Work-in-process and production
materials |
|
2,435 |
|
|
2,712 |
|
| |
|
|
|
|
|
|
|
Total |
|
$
3,422 |
|
|
$
3,745 |
|
| |
|
|
|
|
|
|
| Property, plant and
equipment: |
|
|
|
|
|
|
|
Land |
|
$
251 |
|
|
$
284 |
|
|
Buildings |
|
5,989 |
|
|
6,288 |
|
|
Machinery and equipment |
|
15,608 |
|
|
16,316 |
|
| |
|
|
|
|
|
|
| |
|
21,848 |
|
|
22,888 |
|
| Less accumulated
depreciation |
|
(12,602 |
) |
|
(12,839 |
) |
| |
|
|
|
|
|
|
|
Total |
|
$
9,246 |
|
|
$
10,049 |
|
| |
|
|
|
|
|
|
| Other
assets: |
|
|
|
|
|
|
Equity-based investments in
affiliated companies |
|
$
1,149 |
|
|
$
931 |
|
Cost-based investments in
affiliated companies |
|
1,393 |
|
|
1,431 |
|
Fair value adjustment of certain
cost-based investments |
|
5,734 |
|
|
787 |
|
|
Long-term finance receivables |
|
1,679 |
|
|
1,062 |
|
|
Other |
|
1,623 |
|
|
937 |
|
| |
|
|
|
|
|
|
|
Total |
|
$
11,578 |
|
|
$
5,148 |
|
| |
|
|
|
|
|
|
| Accrued
liabilities: |
|
|
|
|
|
|
|
Dividends payable |
|
$
74 |
|
|
$
72 |
|
Contribution to employees’ profit
sharing funds |
|
172 |
|
|
78 |
|
|
Income taxes payable |
|
8 |
|
|
84 |
|
|
Taxes other than income taxes |
|
349 |
|
|
302 |
|
|
Deferred revenue |
|
583 |
|
|
378 |
|
|
Accrued warranties |
|
326 |
|
|
333 |
|
|
Compensation |
|
677 |
|
|
548 |
|
|
Restructuring and other accruals |
|
40 |
|
|
666 |
|
|
Customer reserves |
|
410 |
|
|
422 |
|
|
Iridium reserves |
|
869 |
|
|
529 |
|
|
Other |
|
3,389 |
|
|
2,814 |
|
| |
|
|
|
|
|
|
|
Total |
|
$
6,897 |
|
|
$
6,226 |
|
|
Contract field inventories, which are included
in finished goods, are inventories held by customers for which no sales have
yet been recorded. At December 31, 1999 and 1998, contract field inventories
were $189 million and $125 million, respectively.
Unbilled receivables which are included in
accounts receivable but not yet billed to the customers were $737 million
and $600 million at December 31, 1999 and 1998, respectively.
Statement of Financial Accounting Standards
No. 115, “Accounting for Certain Investments in Debt and Equity
Securities”, requires the carrying value of available for sale
securities to be adjusted to fair value. The Company classifies certain of
its cost-based investments as available for sale securities. As such, the
Company recorded an increase to stockholders’ equity, other assets and
deferred income taxes of $3.5 billion, $5.7 billion and $2.3 billion as of
December 31, 1999; and an increase to stockholders’ equity, other
assets and deferred income taxes of $476 million, $787 million and $311
million as of December 31, 1998.
Stockholders’
Equity Information
Comprehensive earnings (loss) for the years
ended December 31, 1999, 1998 and 1997, were $3.7 billion, ($947) million
and $1.6 billion, respectively. The unrecognized gains on certain cost-based
investments of $3.5 billion, $476 million and $533 million as of December
31, 1999, 1998 and 1997, respectively, exclude reclassification adjustments
of $52 million, $4 million and $9 million, net of tax, related to the sale
of securities.
Leases
The Company owns most of its major facilities,
but does lease certain office, factory and warehouse space, land, and data
processing and other equipment under principally noncancelable operating
leases. Rental expense, net of sublease income, was $334 million in 1999,
$320 million in 1998 and $308 million in 1997. At December 31, 1999, future
minimum lease obligations, net of minimum sublease rentals, for the next
five years and beyond, in millions, are as follows: 2000, $116; 2001, $71;
2002, $59; 2003, $51; 2004, $49; beyond, $63.
4. Debt and Credit
Facilities
Long-term
debt
| December
31 |
|
1999 |
|
1998 |
|
| 7.5% debentures due
2025 |
|
$
398 |
|
$
398 |
| 6.75% debentures
due 2004 |
|
497 |
|
— |
6.5% debentures due
2025 (redeemable
at the holders’ option in 2005) |
|
398 |
|
397 |
| 7.6% notes due
2007 |
|
300 |
|
300 |
| 5.8% debentures due
2008 |
|
323 |
|
322 |
| 6.5% debentures due
2008 |
|
199 |
|
199 |
| 6.5% debentures due
2028 |
|
439 |
|
439 |
| 5.22% debentures
due 2097 |
|
226 |
|
225 |
| Zero coupon notes
due 2009 |
|
17 |
|
24 |
| Zero coupon notes
due 2013 |
|
80 |
|
80 |
8.4% debentures due
2031 (redeemable
at the holders’ option in 2001) |
|
200 |
|
200 |
| Other long-term
debt |
|
34 |
|
57 |
| |
|
|
|
|
| |
|
3,111 |
|
2,641 |
| Less: Current
maturities |
|
22 |
|
8 |
| |
|
|
|
|
| Long-term
debt |
|
$3,089 |
|
$2,633 |
|
MOTOROLA, INC. AND
SUBSIDIARIES
NOTES TO
(Dollars in millions,
except as noted)
CONSOLIDATED
FINANCIAL STATEMENTS
F-37
Short-term
debt
| December
31 |
|
1999 |
|
1998 |
|
| Notes to
banks |
|
$
142 |
|
|
$
157 |
|
| Commercial
paper |
|
2,335 |
|
|
2,739 |
|
| Other short-term
debt |
|
5 |
|
|
5 |
|
| |
|
|
|
|
|
|
| |
|
2,482 |
|
|
2,901 |
|
| Add: Current
maturities |
|
22 |
|
|
8 |
|
| |
|
|
|
|
|
|
Notes payable and
current portion of
long-term debt |
|
$2,504 |
|
|
$2,909 |
|
|
|
Weighted average
interest rates on
short-term borrowings |
|
|
|
|
|
| Commercial
paper |
|
5.2 |
% |
|
5.4 |
% |
| Other short-term
debt |
|
6.3 |
% |
|
8.0 |
% |
|
At December 31, 1999, the outstanding zero
coupon notes due 2009, referred to as Liquid Yield Option™ Notes (LYONs
™), had a face value at maturity and net carrying value of $30 million
and $17 million, respectively. The 2009 LYONs were originally priced at a 6%
yield to maturity and are convertible into 18.268 shares of the Company
’s common stock for each $1,000 note. The Company can redeem these
notes at any time at their accreted values. In addition, on September 7,
2004, the Company will become obligated, at the election of the holders
thereof, to purchase those notes for which written notice requesting
redemption has been received. The purchase price is $744.10 per $1,000
principal amount at September 7, 2004, plus accrued original issue discount
calculated to that date.
At December 31, 1999, the LYONs due 2013 had a
face value at maturity and net carrying value of $109 million and $80
million, respectively. The 2013 LYONs were originally priced at a 2.25%
yield to maturity and are convertible into 11.178 shares of the Company
’s common stock for each $1,000 note. The Company can redeem these
notes at any time at their accreted values. In addition, on September 27,
2003, and September 27, 2008, the Company will become obligated, at the
election of the holders thereof, to purchase those notes for which written
notice requesting redemption has been received. Purchase prices are $799.52
and $894.16 per $1,000 principal amount at September 27, 2003, and September
27, 2008, respectively, plus accrued original issue discount calculated to
each such date. On September 28, 1998, the Company redeemed $368 million
principal amount at maturity of its outstanding LYONs due 2013 at the
election of the holders thereof. The Company made a total payment of $263
million to redeem these LYONs.
The LYONs issues are subordinated to all
existing and future senior indebtedness of the Company and rank on a parity
with each other.
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
sales, 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.
On February 3, 1999, Motorola Capital Trust I,
a Delaware statutory business trust and wholly-owned subsidiary of the
Company, sold 20 million Trust Originated Preferred Securities
SM
(“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 sales 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 Company, in turn, used the $484 million of net proceeds from the sale of
the Subordinated Debentures to reduce short-term indebtedness.
On October 20, 1998, the Company sold an
aggregate face principal amount at maturity of $325 million of 5.80% Notes
due October 15, 2008. The net proceeds to the Company from the issuance and
sale of the Notes were $322 million. On November 23, 1998, the Company sold
an aggregate face principal amount at maturity of $445 million of 6.50%
Debentures due November 15, 2028. The net proceeds to the Company from the
issuance and sale of the Debentures were $439 million. The Company used the
proceeds from both debt issuances to reduce short term indebtedness and for
other general corporate purposes.
Aggregate requirements for debt maturities, in
millions, during the next five years are as follows: 2000, $22; 2001, $2;
2002, $0; 2003, $0; 2004, $497.
The Company and its finance subsidiary have
revolving domestic credit agreements of one and five years with a group of
banks for $2.5 billion. The one year and five year revolving domestic credit
agreements expire in September of 2000 and September of 2002, respectively.
Commitment fees assessed against the daily average amounts unused range from
5 to 6.25 basis points. These domestic credit agreements contain various
conditions, covenants and representations with which the Company was in
compliance at December 31, 1999. The Company also has non-U.S. credit
facilities with interest rates on borrowings varying from country to country
depending upon local market conditions. Commitment fees against unused
amounts are 25 basis points. At December 31, 1999, the Company’s total
available domestic and non-U.S. credit facilities aggregated $5.3 billion,
of which $275 million was used and the remaining $5.1 billion was available
to back up outstanding commercial paper which totaled $2.3
billion.
MOTOROLA, INC. AND
SUBSIDIARIES
NOTES TO
(Dollars in millions,
except as noted)
CONSOLIDATED
FINANCIAL STATEMENTS
Outstanding letters of credit
aggregated approximately $206 million and $193 million at December 31, 1999
and 1998, respectively.
LYONs is a
trademark of Merrill Lynch & Co., Inc.
SM
“Trust
Originated Preferred Securities” and “TOPrS” are service
marks of Merrill Lynch & Co Inc.
5. Risk
Management
Derivative
Financial Instruments
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 to not 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 December 31, 1999 and 1998, the Company had
net outstanding foreign exchange contracts totaling $3.6 billion and $1.8
billion, respectively. Most of the hedge contracts, which are
over-the-counter instruments, mature within three months with the longest
maturity extending out four years. Management believes that these financial
instruments should not subject the Company to undue risk due to foreign
exchange movements because gains and losses on these contracts should offset
losses and gains on the assets, liabilities and transactions being hedged.
At December 31, 1999, deferred gains totaled $1.4 million and deferred
losses totaled $20.9 million. At December 31, 1998, deferred gains totaled
$3.5 million and deferred losses totaled $4.3 million. The following
schedule shows the five largest net foreign exchange hedge positions as of
December 31, 1999 and 1998:
| |
|
Buy
(Sell)
|
| December
31 |
|
1999 |
|
1998 |
|
| Japanese
Yen |
|
$(1,780 |
) |
|
$(674 |
) |
| Euro |
|
(580 |
) |
|
(566 |
) |
| Chinese
Renminbi |
|
(460 |
) |
|
(100 |
) |
| British
Pound |
|
230 |
|
|
(137 |
) |
| Taiwan
Dollar |
|
(132 |
) |
|
(102 |
) |
|
The Company is exposed to credit-related
losses if counterparties to financial instruments fail to perform their
obligations. However, it does not expect any counterparties, which presently
have high credit ratings, to fail to meet their obligations.
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. The fair
value of the interest rate swaps as of December 31, 1999, was $9.3 million.
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.
Fair Value of
Financial Instruments
The Company’s financial instruments
include cash equivalents, short-term investments, accounts receivable,
long-term finance receivables, accounts payable, notes payable, long-term
debt, foreign currency contracts and other financing
commitments.
Using available market information, the
Company determined that the fair value of long-term debt at December 31,
1999 was $3.0 billion compared to a carrying value of $3.1 billion. Since
considerable judgment is required in interpreting market information, the
fair value of the long-term debt is not necessarily indicative of the amount
which could be realized in a current market exchange.
The fair values of the other financing
commitments could not be reasonably estimated at December 31, 1999. The fair
values of the other financial instruments were not materially different from
their carrying or contract values at December 31, 1999.
MOTOROLA, INC. AND
SUBSIDIARIES
NOTES TO
(Dollars in millions,
except as noted)
CONSOLIDATED
FINANCIAL STATEMENTS
F-39
6. Income Taxes
Components of
earnings (loss) before income taxes
| Years ended
December 31 |
|
1999 |
|
1998 |
|
1997 |
|
| United
States |
|
$
(547 |
) |
|
$(2,262 |
) |
|
$
307 |
| Other
nations |
|
1,715 |
|
|
888 |
|
|
1,509 |
| |
|
|
|
|
|
|
|
|
|
Total |
|
$1,168 |
|
|
$(1,374 |
) |
|
$1,816 |
|
Components of
income tax provision (benefit)
| Years ended
December 31 |
|
1999 |
|
1998 |
|
1997 |
|
| Current: |
|
United States |
|
$423 |
|
|
$
40 |
|
|
$416 |
|
|
Other nations |
|
252 |
|
|
472 |
|
|
234 |
|
|
State (U.S.) |
|
91 |
|
|
9 |
|
|
89 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
766 |
|
|
521 |
|
|
739 |
|
| Deferred |
|
(415 |
) |
|
(933 |
) |
|
(103 |
) |
| |
|
|
|
|
|
|
|
|
|
| Income tax
provision (benefit) |
|
$351 |
|
|
$(412 |
) |
|
$636 |
|
|
Deferred tax adjustments to stockholders’
equity, which resulted primarily from fair value adjustments related to
cost-based investments, were $1.9 billion, ($37) million and $365 million
for the years ended December 31, 1999, 1998 and 1997, respectively. Except
for certain earnings that the Company intends to reinvest indefinitely,
provisions have been made for the estimated U.S. federal income taxes
applicable to undistributed earnings of subsidiaries and affiliated
companies. Undistributed earnings for which no U.S. income tax has been
provided aggregated $5.5 billion, $4.8 billion and $4.3 billion at December
31, 1999, 1998 and 1997, respectively. Should these earnings be distributed,
foreign tax credits may reduce the additional U.S. income tax which would be
payable. In cases where taxes are provided on such undistributed earnings,
those taxes have been included in U.S. income taxes.
At December 31, 1999, certain non-U.S.
subsidiaries had loss carryforwards for income tax reporting purposes of
$187 million, with expiration dates starting in 2000.
Differences
between income tax expense (benefit) computed at the U.S. federal statutory
tax rate of 35% and income tax provision (benefit)
| Years ended
December 31 |
|
1999 |
|
1998 |
|
1997 |
|
Income tax expense
(benefit) at
statutory rate |
|
$409 |
|
|
$(481 |
) |
|
$636 |
|
| Taxes on non-U.S.
earnings |
|
172 |
|
|
186 |
|
|
67 |
|
| State income
taxes |
|
(52 |
) |
|
(122 |
) |
|
(1 |
) |
| Foreign Sales
Corporation |
|
(157 |
) |
|
(80 |
) |
|
(65 |
) |
Non-deductible
acquisition
charges |
|
19 |
|
|
67 |
|
|
— |
|
| Other |
|
(40 |
) |
|
18 |
|
|
(1 |
) |
| |
|
|
|
|
|
|
|
|
|
| Income tax
provision (benefit) |
|
$351 |
|
|
$(412 |
) |
|
$636 |
|
|
Significant
components of deferred tax assets (liabilities)
| December
31 |
|
1999 |
|
1998 |
|
| Inventory
reserves |
|
$
740 |
|
|
$
612 |
|
| Contract accounting
methods |
|
86 |
|
|
226 |
|
| Employee
benefits |
|
398 |
|
|
179 |
|
| Capitalized
items |
|
207 |
|
|
223 |
|
| Tax basis
differences on investments |
|
(116 |
) |
|
(83 |
) |
| Depreciation |
|
(249 |
) |
|
(277 |
) |
| Undistributed
non-U.S. earnings |
|
(1,071 |
) |
|
(636 |
) |
| Restructuring
reserves |
|
2 |
|
|
271 |
|
| Tax
carryforwards |
|
397 |
|
|
397 |
|
| Cost-based
investment mark-to-market |
|
(2,265 |
) |
|
(311 |
) |
| Iridium
reserves |
|
650 |
|
|
257 |
|
| Other |
|
902 |
|
|
316 |
|
| |
|
|
|
|
|
|
| Net deferred tax
asset (liability) |
|
$
(319 |
) |
|
$1,174 |
|
|
Gross deferred tax assets were $5.3 billion
and $4.2 billion at December 31, 1999 and 1998, respectively. Gross deferred
tax liabilities were $5.6 billion and $3.0 billion at December 31, 1999 and
1998, respectively. The Company has U.S. tax carryforwards of approximately
$397 million at December 31, 1999. These carryforwards are primarily foreign
tax credit carryforwards of which $345 million expire in 2003. The deferred
tax asset is considered realizable given past income and estimates of future
income.
The Internal Revenue Service (IRS) has
examined the federal income tax returns for the Company through 1991 and has
settled the respective returns through 1987. The IRS has proposed certain
adjustments to the Company’s income and tax credits for the years 1988
through 1991 which would result in additional tax. The Company disagrees
with most of the proposed adjustments and is contesting them at the Appeals
level of the IRS. The IRS is currently performing the field level
examination of the 1992 through 1995 tax returns and has proposed income
adjustments. In the opinion of the Company’s management, the final
disposition of these matters, and proposed adjustments from other tax
authorities, will not have a material adverse effect on the consolidated
financial position, liquidity or results of operations of the
Company.
7. Employee
Benefit and Incentive Plans
Pension
Benefits
The Company’s noncontributory pension
plan (the Regular Pension Plan) covers most U.S. employees after one year of
service. The benefit formula is dependent upon employee earnings and years
of service. The Company’s policy is to fund the accrued pension cost or
the amount allowable based on the full funding limitations of the Internal
Revenue Code, if less. The Company has a noncontributory supplemental
retirement benefit plan for its elected officers. The plan contains
provisions for funding the participants’ expected retirement benefits
when the participants meet the minimum age and years of service
requirements. The Company has an additional noncontributory supplemental
retirement benefit plan (the Motorola Supplemental Pension Plan —MSPP)
which provides supplemental benefits in excess of the limitations imposed by
the Internal Revenue Code on
the Regular Pension Plan for U.S. employees (excluding elected
officers).
Certain non-U.S. subsidiaries have varying
types of retirement plans providing benefits for substantially all of their
employees. Amounts charged to earnings for all non-U.S. plans were $93
million in 1999, $95 million in 1998 and $106 million in 1997.
The Company uses a five-year (three years for
1992 through 1997), market-related asset value method of amortizing
asset-related gains and losses. Net transition amounts and prior service
costs are being amortized over periods ranging from 9 to 15
years.
Benefits under all U.S. pension plans are
valued based upon the projected unit credit cost method. The assumptions
used to develop the projected benefit obligations for the plans for the
years ended December 31, 1999 and 1998 were as follows:
| |
|
1999 |
|
1998 |
|
| Discount rate for
obligations |
|
7.75% |
|
7.00% |
| Future compensation
increase rate |
|
4.50% |
|
4.00% |
| Investment return
assumption (regular) |
|
9.00% |
|
9.00% |
Investment return
assumption (elected
officers) |
|
6.00% |
|
6.00% |
|
Accounting literature requires discount rates
to be established based on prevailing market rates for high-quality
fixed-income instruments that, if the pension benefit obligation was settled
at the measurement date, would provide the necessary future cash flows to
pay the benefit obligation when due. At December 31, 1999, the investment
portfolio was predominantly equity investments, which have historically
realized annual returns at or significantly above the assumed investment
return rate. The Company believes short-term changes in interest rates
should not affect the measurement of the Company’s long-term
obligation.
The net U.S. periodic pension cost for the
years ended December 31, 1999, 1998 and 1997 for the regular pension plan
and the elected officers’ supplemental retirement benefit plan was as
follows:
Regular Pension
Plan
| |
|
1999 |
|
1998 |
|
1997 |
|
| Service
cost |
|
$191 |
|
|
$176 |
|
|
$157 |
|
| Interest
cost |
|
196 |
|
|
174 |
|
|
146 |
|
| Expected return on
plan assets |
|
(240 |
) |
|
(205 |
) |
|
(166 |
) |
Amortization of
unrecognized net
asset |
|
— |
|
|
(11 |
) |
|
(11 |
) |
| |
|
|
|
|
|
|
|
|
|
| Net periodic
pension cost |
|
$147 |
|
|
$134 |
|
|
$126 |
|
|
Elected Officers
’ Supplemental Retirement Benefit Plan
| |
|
1999 |
|
1998 |
|
1997 |
|
| Service
cost |
|
$33 |
|
|
$22 |
|
|
$22 |
|
| Interest
cost |
|
15 |
|
|
11 |
|
|
11 |
|
| Expected return on
plan assets |
|
(5 |
) |
|
(5 |
) |
|
(3 |
) |
| Amortization
of: |
|
|
|
|
|
|
|
|
|
|
Unrecognized net loss |
|
13 |
|
|
8 |
|
|
5 |
|
|
Unrecognized prior service cost |
|
2 |
|
|
6 |
|
|
6 |
|
|
Unrecognized net obligation |
|
1 |
|
|
1 |
|
|
1 |
|
| Settlement
expense |
|
9 |
|
|
7 |
|
|
4 |
|
| |
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost |
|
$68 |
|
|
$50 |
|
|
$46 |
|
|
The net periodic pension cost for the Motorola
Supplemental Pension Plan was $4 million in 1999, $3 million in 1998 and $2
million in 1997.
MOTOROLA, INC. AND
SUBSIDIARIES
NOTES TO
(Dollars in millions,
except as noted)
CONSOLIDATED
FINANCIAL STATEMENTS
F-41
The status of the Company’s plans at
December 31 is shown in the following table.
|
|
1999
|
|
1998
|
| |
|
Regular |
|
Elected
Officers
And
MSPP |
|
Regular |
|
Elected
Officers
and
MSPP |
|
| Change in
benefit obligation |
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at January 1 |
|
$2,868 |
|
|
$174 |
|
|
$2,165 |
|
|
$156 |
|
|
Service cost |
|
191 |
|
|
34 |
|
|
176 |
|
|
23 |
|
|
Interest cost |
|
196 |
|
|
16 |
|
|
174 |
|
|
12 |
|
|
Divestitures |
|
(86 |
) |
|
— |
|
|
— |
|
|
— |
|
|
Actuarial (gain) loss |
|
(361 |
) |
|
58 |
|
|
398 |
|
|
26 |
|
|
Benefit payments |
|
(67 |
) |
|
(35 |
) |
|
(45 |
) |
|
(43 |
) |
| |
|
|
|
| Benefit obligation
at December 31 |
|
$2,741 |
|
|
$247 |
|
|
$2,868 |
|
|
$174 |
|
| Change in plan
assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value at January 1 |
|
$3,086 |
|
|
$142 |
|
|
$2,493 |
|
|
$113 |
|
|
Actual return on plan assets |
|
505 |
|
|
2 |
|
|
508 |
|
|
9 |
|
|
Company contributions |
|
110 |
|
|
50 |
|
|
130 |
|
|
63 |
|
|
Divestitures |
|
(76 |
) |
|
— |
|
|
— |
|
|
— |
|
|
Benefit payments |
|
(67 |
) |
|
(35 |
) |
|
(45 |
) |
|
(43 |
) |
| |
|
|
|
|
Fair value at December 31 |
|
$3,558 |
|
|
$159 |
|
|
$3,086 |
|
|
$142 |
|
| Funded status of
the plan |
|
817 |
|
|
(88 |
) |
|
218 |
|
|
(32 |
) |
| Unrecognized net
(gain) loss |
|
(829 |
) |
|
158 |
|
|
(193 |
) |
|
99 |
|
| Unrecognized prior
service cost |
|
— |
|
|
10 |
|
|
— |
|
|
12 |
|
| Unrecognized net
transition (asset) liability |
|
— |
|
|
1 |
|
|
— |
|
|
2 |
|
| |
|
|
|
|
Prepaid (accrued) pension cost recognized in balance
sheet |
|
$
(12 |
) |
|
$
81 |
|
|
$
25 |
|
|
$
81 |
|
|
|
|
|
1999
|
|
1998
|
| |
|
Regular |
|
Elected
Officers
And
MSPP |
|
Regular |
|
Elected
Officers
and
MSPP |
|
| Components of
prepaid (accrued) pension cost recognized in balance sheet: |
|
|
Prepaid benefit cost |
|
$
— |
|
|
$
— |
|
|
$
25 |
|
|
$
90 |
|
|
Intangible asset |
|
— |
|
|
9 |
|
|
— |
|
|
4 |
|
|
Accrued benefit liability |
|
(12 |
) |
|
(50 |
) |
|
— |
|
|
(13 |
) |
|
Deferred income taxes |
|
— |
|
|
49 |
|
|
— |
|
|
— |
|
|
Non-owner changes to equity |
|
— |
|
|
73 |
|
|
— |
|
|
— |
|
|
| Total recognized
prepaid (accrued) pension cost |
|
$
(12 |
) |
|
$
81 |
|
|
$
25 |
|
|
$
81 |
|
|
Postretirement
Health Care Benefits
In addition to providing pension benefits, the
Company provides certain health care benefits to its retired employees. The
majority of its domestic employees may become eligible for these benefits if
they meet age and service requirements upon termination of employment. The
Company’s policy is to fund the maximum amount allowable based on
funding limitations of the Internal Revenue Code.
The assumptions used to develop the
accumulated postretirement benefit obligation for the retiree health care
plan for the years ended December 31, 1999 and 1998 were as
follows:
| |
|
1999 |
|
1998 |
|
| Discount rate for
obligations |
|
7.75% |
|
7.00% |
| Investment return
assumptions |
|
9.00% |
|
9.00% |
|
Net retiree health care expenses for the years
ended December 31, 1999, 1998 and 1997 were as follows:
| |
|
1999 |
|
1998 |
|
1997 |
|
| Service
cost |
|
$17 |
|
|
$14 |
|
|
$13 |
|
| Interest
cost |
|
37 |
|
|
32 |
|
|
29 |
|
| Expected return on
plan assets |
|
(26 |
) |
|
(22 |
) |
|
(16 |
) |
Amortization of
unrecognized net
loss |
|
5 |
|
|
2 |
|
|
3 |
|
| |
|
|
|
|
|
|
|
|
|
| Net retiree health
care expense |
|
$33 |
|
|
$26 |
|
|
$29 |
|
|
MOTOROLA, INC. AND
SUBSIDIARIES
NOTES TO
(Dollars in millions,
except as noted)
CONSOLIDATED
FINANCIAL STATEMENTS
The funded status of the plan at December 31
is shown in the following table. Plan assets are comprised primarily of
equity securities, bonds and cash equivalents.
| |
|
1999 |
|
1998 |
|
| Change in
benefit obligation |
|
|
|
|
|
|
| Benefit obligation
at January 1 |
|
$493 |
|
|
$413 |
|
| Service
cost |
|
17 |
|
|
14 |
|
| Interest
cost |
|
37 |
|
|
32 |
|
| Divestitures |
|
(5 |
) |
|
— |
|
| Actuarial (gain)
loss |
|
7 |
|
|
49 |
|
| Benefit
payments |
|
(23 |
) |
|
(15 |
) |
| Other
payments |
|
(5 |
) |
|
— |
|
| |
|
|
|
|
|
|
| Benefit obligation
at December 31 |
|
$521 |
|
|
$493 |
|
| |
|
| Change in plan
assets |
|
|
|
|
|
|
| Fair value at
January 1 |
|
$328 |
|
|
$263 |
|
| Actual return on
plan assets |
|
53 |
|
|
54 |
|
| Company
contributions |
|
31 |
|
|
26 |
|
| Benefit
payments |
|
(23 |
) |
|
(15 |
) |
| |
|
|
|
|
|
|
| Fair value at
December 31 |
|
$389 |
|
|
$328 |
|
| Funded status of
the plan |
|
(132 |
) |
|
(165 |
) |
| Unrecognized net
loss |
|
28 |
|
|
55 |
|
| Unrecognized prior
service cost |
|
— |
|
|
(1 |
) |
| |
|
|
|
|
|
|
Liability
recognized in balance
sheet |
|
$(104 |
) |
|
$(111 |
) |
|
The health care trend rate used to determine
the pre-age 65 accumulated postretirement benefit obligation was 6.56% for
1999, decreasing to 6.00% or 5.00% for medical benefits, depending on the
option chosen, by the year 2002 and beyond. A flat 5% rate per year is used
for the post-age 65 obligation. Changing the health care trend rate by one
percentage point would change the accumulated postretirement benefit
obligation and the net retiree health care expense as follows:
| |
|
1% Point
Increase |
|
1% Point
Decrease |
|
| Effect
on: |
|
|
|
|
|
Accumulated postretirement
benefit obligation |
|
$34 |
|
$(53 |
) |
|
Net retiree health care expense |
|
4 |
|
(7 |
) |
|
The Company has no significant postretirement
health care benefit plans outside of the United States.
Other
Benefits
Profit Sharing Plans: The Company and
certain subsidiaries have profit sharing plans, principally contributory, in
which all eligible employees participate. The Company makes contributions to
profit sharing plans in the United States and other nations, which are
generally based upon
percentages of pretax earnings, as defined, from those
operations. Company contributions during 1999, 1998 and 1997 were $72 million,
$71 million and $108 million,
respectively.
Motorola Executive Incentive Plan: The
Company may provide up to 7% of its annual consolidated pretax earnings
after deducting 5% of capital employed, each defined in the Motorola
Executive Incentive Plan, for the payment of cash incentive awards to key
employees. The provision for incentive awards in 1999 was $11 million. In
1998, there was no provision for incentive awards. The provision for
incentive awards in 1997 was $56 million.
Long Range Incentive Program: The
Company has a Long Range Incentive Program to reward participating elected
officers for the Company’s achievement of outstanding long-range
performance, based on four performance objectives measured over four-year
cycles. These objectives are benchmarked and evaluated against both
similar-industry companies and internal Motorola objectives. The provision
for long-range incentive awards in 1999 was $3 million. During both 1998 and
1997, $21 million was provided for long-range incentive awards.
Stakeholders Plan and Incentive Pay
Plans: The Stakeholders Plan was a program available to eligible
Motorola employees who were not participating in the Motorola Executive
Incentive Plan or certain other incentive plans. Awards were earned and paid
annually to participants in the form of 50% in cash and 50% in the Company
’s common stock where legally permitted or practicable depending upon
certain performance measures. During 1999 and 1998, there were no provisions
for stakeholders awards. The provision for stakeholders awards in 1997 was
$188 million. The program was retired in 1999.
In 1999, the Company introduced incentive pay
plans providing eligible employees with an annual payment, calculated as a
percentage of an employee’s eligible earnings, in the year after the
close of the current calendar year if specified business goals are met. The
provision for incentive pay plans in 1999 was $181 million.
Motorola Employee Stock Purchase Plan of
1999 (MOTshare): MOTshare allows eligible participants to
purchase shares of the Company’s common stock through payroll
deductions of up to 10% of compensation on an after-tax basis. The price an
employee pays per share is 85% of the lower of the fair market value of the
Company’s stock on the close of the first trading day or last trading
day of the purchase period. The plan has two purchase periods, the first one
from October 1 through March 31 and the second one from April 1 through
September 30. The plan became effective in October of 1999 with the first
share purchases to occur after March 31, 2000.
Stock Options: Under the Company’s
stock option plans, options to acquire shares of common stock have been made
available for grant to certain employees and non-employee directors. Each
option granted has an exercise price of 100% of the market value of the
common stock on the date of grant. The contractual life of each option is
generally 10 years. Substantially all of the options vest in one
year.
MOTOROLA, INC. AND
SUBSIDIARIES
NOTES TO
(Dollars in millions,
except as noted)
CONSOLIDATED
FINANCIAL STATEMENTS
F-43
Pursuant to Statement of Financial Accounting
Standards No. 123 “Accounting for Stock-Based Compensation”, the
Company has elected to account for its stock option plans under the
provisions of APB Opinion No. 25 “Accounting for Stock Issued to
Employees”. Accordingly, no compensation cost has been recognized for
the stock option plans. The Company has evaluated the pro forma effects of
Statement 123 and as such, net earnings (loss), basic earnings (loss) per
common share and diluted earnings (loss) per common share would have been as
follows:
| |
|
1999 |
|
1998 |
|
1997 |
|
| Net earnings
(loss) |
|
|
|
|
|
|
|
|
As reported |
|
$817 |
|
$
(962 |
) |
|
$1,180 |
|
Pro forma |
|
$809 |
|
$(1,072 |
) |
|
$1,114 |
Basic earnings
(loss) per
common share |
|
|
|
|
|
|
|
|
As reported |
|
$1.35 |
|
$
(1.61 |
) |
|
$
1.98 |
|
Pro forma |
|
$1.33 |
|
$
(1.79 |
) |
|
$
1.87 |
Diluted earnings
(loss) per
common share |
|
|
|
|
|
|
|
|
As reported |
|
$1.31 |
|
$
(1.61 |
) |
|
$
1.94 |
|
Pro forma |
|
$1.30 |
|
$
(1.79 |
) |
|
$
1.83 |
|
The fair value of each option was estimated on
the date of grant using the Black-Scholes option pricing model with the
following assumptions:
| |
|
1999 |
|
1998 |
|
1997 |
|
| Risk-free interest
rate |
|
5.53% |
|
4.52% |
|
5.71% |
| Dividend
yield |
|
0.56% |
|
0.80% |
|
0.77% |
| Expected
volatility |
|
33.63% |
|
31.33% |
|
29.83% |
| Expected life in
years |
|
5 |
|
5 |
|
5 |
| Per option fair
value |
|
$33 |
|
$18 |
|
$16 |
|
Stock option activity was as
follows:
(in thousands,
except exercise price
and employee data) |
|
1999
|
|
1998
|
|
1997
|
| |
Shares
subject to
options |
|
Wtd. avg.
exercise
price |
|
Shares
subject to
options |
|
Wtd. avg.
exercise
price |
|
Shares
subject to
options |
|
Wtd. avg.
exercise
price |
|
| Options outstanding
at January 1 |
|
41,650 |
|
|
$49 |
|
33,273 |
|
|
$46 |
|
30,646 |
|
|
$39 |
| Additional options
granted |
|
1,125 |
|
|
$87 |
|
10,380 |
|
|
$54 |
|
6,862 |
|
|
$65 |
| Options
exercised |
|
(11,162 |
) |
|
$42 |
|
(1,703 |
) |
|
$24 |
|
(3,867 |
) |
|
$27 |
| Options terminated,
cancelled or expired |
|
(320 |
) |
|
$53 |
|
(300 |
) |
|
$59 |
|
(368 |
) |
|
$49 |
|
| Options outstanding
at December 31 |
|
31,293 |
|
|
$52 |
|
41,650 |
|
|
$49 |
|
33,273 |
|
|
$46 |
|
| Options exercisable
at December 31 |
|
26,197 |
|
|
$50 |
|
30,778 |
|
|
$47 |
|
26,131 |
|
|
$41 |
|
| Approx. number of
employees granted options |
|
1,500 |
|
|
|
|
16,100 |
|
|
|
|
14,800 |
|
|
|
|
The following table summarizes information
about stock options outstanding and exercisable at December 31,
1999:
| Exercise price
range: |
|
Options
Outstanding
|
|
Options
Exercisable
|
| |
No. of
options |
|
Wtd. avg.
exercise
price |
|
Wtd. avg.
contractual
life (in yrs.) |
|
No. of
options |
|
Wtd. avg.
exercise
price |
|
| $ 9
–$ 15 |
|
2,250 |
|
$
14 |
|
1.6 |
|
2,250 |
|
$14 |
| $ 16–$
30 |
|
2,442 |
|
$
26 |
|
2.9 |
|
2,442 |
|
$26 |
| $ 31–$
45 |
|
1,748 |
|
$
44 |
|
4.2 |
|
1,672 |
|
$44 |
| $ 46–$
60 |
|
18,819 |
|
$
55 |
|
7.4 |
|
14,995 |
|
$55 |
| $ 61–$
75 |
|
4,857 |
|
$
65 |
|
7.9 |
|
4,605 |
|
$65 |
| $ 76–$
90 |
|
961 |
|
$
85 |
|
8.8 |
|
233 |
|
$80 |
| $ 91
–$105 |
|
152 |
|
$
97 |
|
9.6 |
|
— |
|
$— |
| $106
–$120 |
|
19 |
|
$115 |
|
9.9 |
|
— |
|
$— |
| $121
–$135 |
|
45 |
|
$124 |
|
9.9 |
|
— |
|
$— |
| |
|
|
|
|
|
|
|
|
|
|
| |
|
31,293 |
|
|
|
|
|
26,197 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
MOTOROLA, INC. AND
SUBSIDIARIES
NOTES TO
(Dollars in millions,
except as noted)
CONSOLIDATED
FINANCIAL STATEMENTS
8. Commitments and
Contingencies: Iridium
At December 31, 1999, the Company owned,
directly and indirectly, approximately 18% of the equity interests in
Iridium LLC and its operating subsidiaries (Iridium LLC and its operating
subsidiaries are collectively referred to as “Iridium”) and a
significant portion of a series of Iridium bonds. Since August 1999, Iridium
operated as debtors-in-possession under Chapter 11 of the U.S. Federal
Bankruptcy Code.
The Company recorded $2.1 billion, $360
million and $178 million of charges in 1999, 1998 and 1997 respectively,
related to the Iridium program. The Company recorded a special charge during
1999 of $2.0 billion to: (i) increase its reserve related to its financial
exposure to the Iridium project, (ii) to write-down the value of the Iridium
bonds it holds and (iii) to reserve for assets at risk and other potential
contractual obligations. These reserves and write-downs are believed by
management to be sufficient to cover the Company’s current exposure,
but do not include additional special charges that may arise as a result of
litigation related to the Iridium project. There were no special charges
recorded in 1998 or 1997 related to the Iridium project.
The following table presents the Company
’s provisions for bond investment write-down and development and
commercialization reserves, and the Company’s share of Iridium net
losses for the years ended December 31, 1999, 1998 and 1997 and where on the
consolidated statements of operations these items are recorded:
Classification of
Iridium Charges in Statements of Operations
($ in
Millions)
| |
|
1999
|
|
1998
|
|
1997
|
| |
|
SG
&A
|
|
Cost
of
Sales
|
|
1999
Total
|
|
SG
&A
|
|
Cost
of
Sales
|
|
1998
Total
|
|
SG
&A
|
|
Cost
of
Sales
|
|
1997
Total
|
| Special
Charges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bond Investment wirte-down |
|
$
157 |
|
$
— |
|
$
157 |
|
$
— |
|
$— |
|
$
— |
|
$— |
|
$
— |
|
$
— |
Development & Commercialization
provisions |
|
1,019 |
|
806 |
|
1,825 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Special Charges |
|
$1,176 |
|
$806 |
|
$1,982 |
|
$
— |
|
$— |
|
$
— |
|
$— |
|
$
— |
|
$
— |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other
Charges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development & Commercialization
provisions |
|
$
56 |
|
$
31 |
|
$
87 |
|
$
14 |
|
$81 |
|
$
95 |
|
$— |
|
$132 |
|
$132 |
|
Company’s share of Iridium net losses |
|
50 |
|
— |
|
50 |
|
265 |
|
— |
|
265 |
|
46 |
|
— |
|
46 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Charges |
|
$
106 |
|
$
31 |
|
$
137 |
|
$279 |
|
$81 |
|
$360 |
|
$46 |
|
$132 |
|
$178 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total
Charges |
|
$1,282 |
|
$837 |
|
$2,119 |
|
$279 |
|
$81 |
|
$360 |
|
$46 |
|
$132 |
|
$178 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company had equity investments and notes
receivable in several Iridium gateway companies, accounts receivable from
Iridium, capital call obligations and contractual commitments and other
obligations in the amount of $1.8 billion all of which had been reserved or
written-off as of December 31, 1999. The amounts are detailed in the tables
that follow.
MOTOROLA, INC. AND
SUBSIDIARIES
NOTES TO
(Dollars in millions,
except as noted)
CONSOLIDATED
FINANCIAL STATEMENTS
F-45
| |
|
Dec. 31,
1999
|
|
Dec. 31,
1998
|
| Company
Assets: |
|
|
|
|
|
Investments: |
|
|
|
|
|
Equity investment in
Iridium |
|
$
— |
|
$
50 |
|
Bond investment in Iridium |
|
— |
|
157 |
Investments in and notes
receivable from Iridium
gateway
companies |
|
39 |
|
56 |
| |
|
|
|
|
| Total |
|
$
39 |
|
$
263 |
| |
|
|
|
|
| Accounts
Receivable: |
|
|
|
|
Operations & Maintenance
contract |
|
|
|
|
Deferred amount due to
Company |
|
$
400 |
|
$
— |
Other amounts due to
Company |
|
179 |
|
176 |
| |
|
|
|
|
| |
|
$
579 |
|
$
176 |
|
Other contracts |
|
82 |
|
88 |
| |
|
|
|
|
| Total |
|
$
661 |
|
$
264 |
| |
|
|
|
|
| Company
Guarantees and Other: |
|
|
|
|
Bank Guarantees and Other
Financial Commitments: |
|
|
|
|
Senior Secured Credit
Agreement Capital
Call |
|
$
50 |
|
$
50 |
Senior Guaranteed Credit
Agreement |
|
— |
|
750 |
Conditional Commitment to
Provide
Guarantee |
|
See
Below |
|
See
Below |
| |
|
|
|
|
| Total |
|
$
50 |
|
$
800 |
| |
|
|
|
|
Contractual
Commitments and
Other Obligations: |
|
|
|
|
|
Obligations to subcontractors |
|
$
85 |
|
$
109 |
Assets as risk and other
estimated potential contractual
obligations |
|
963 |
|
791 |
| |
|
|
|
|
| Total |
|
$
1,048 |
|
$
900 |
| |
|
|
|
|
Total Company
Assets and
Guarantees |
|
$
1,798 |
|
$
2,227 |
| |
|
|
|
|
Company
Development and
Commercialzation |
|
|
|
|
|
Reserves (See table that follows) |
|
$
1,798 |
|
$
649 |
| |
|
|
|
|
The Company accounted for its investment in
Iridium under the equity method of accounting due to its financial influence
on Iridium in the form of guarantees of Iridium’s indebtedness, its
contract with Iridium for the operation and maintenance of the global
communications system and the other financial commitments more fully
discussed below. The Company’s equity investment in Iridium reached
zero due to recording its share of Iridium net losses in the first quarter
of 1999 but the Company continued to record provisions to establish reserves
related to its financial commitments and debt guarantees to Iridium. The
Company’s equity investments in several Iridium gateway companies as
well as the contra asset related to a valuation reserve was
included in other
assets in the consolidated balance sheets. The Company’s portion of
Iridium bonds was included in other assets and the bond write-down was
included as a contra-asset in other assets, in the consolidated balance
sheets.
The Company had several contracts with
Iridium, primarily for the operation and maintenance of the global personal
communications system. The Company stopped recognizing revenue on the
operations and maintenance contract with Iridium after the second quarter of
1999, and continued to perform its services under that contract throughout
1999 without being paid currently, although the Company has not waived its
right to receive payment. The Company had previously agreed to permit
Iridium to defer up to $400 million of amounts owed under its operations and
maintenance contract with the Company. As of December 31, 1999, the Company
had accounts receivable from Iridium relating to the operations and
maintenance contract of $579 million and accounts receivable for other
contracts with Iridium of $82 million. All of these amounts have been
reserved as of December 31, 1999.
The repayment by Iridium of the contractually
deferred amounts owed under the operations and maintenance contract with the
Company and the amount of borrowings by Iridium under the Guaranteed Credit
Agreement were subordinated to repayment of Iridium’s Secured Credit
Agreement, as was the repayment to the Company by Iridium of any other
amounts the Company paid to the lenders under its guarantees and certain
other obligations owed to the Company. As a result of the Chapter 11 filing,
Iridium was believed unlikely to be able to repay in full to the Company
amounts previously deferred under its various contracts with the Company and
was unlikely to be able to pay amounts which accrued after the filing and
which had not been paid.
The Company has subcontracts for portions of
the system, for which it generally remained obligated in the amount of $85
million as of December 31, 1999. In addition, the Company had investments in
assets related to these contracts which were at risk, such as inventory,
manufacturing equipment and buildings, as well as other potential
obligations in connection with these contracts, the value of which the
Company estimated to be approximately $963 million as of December 31, 1999.
The Company will incur substantial costs in winding down operations related
to the Iridium program, therefore these obligations and assets were written
down or reserved to zero as of December 31, 1999.
MOTOROLA, INC. AND
SUBSIDIARIES
NOTES TO
(Dollars in millions,
except as noted)
CONSOLIDATED
FINANCIAL STATEMENTS
The following table presents
the activity of the Company’s development and commercialization
reserves for the years ended December 31, 1999, 1998 and 1997 related to the
Iridium project:
| |
|
Dec. 31,
1999
|
|
Dec. 31,
1998
|
|
Dec. 31,
1997
|
Development and
Commercialization
Reserves |
|
|
|
|
|
|
|
| Provisions: |
|
|
|
|
|
|
|
|
Special Charges |
|
$1,825 |
|
|
$ — |
|
$
— |
|
Other Charges |
|
87 |
|
|
95 |
|
132 |
| |
|
|
|
|
|
|
|
| Total
Provisions |
|
$1,912 |
|
|
$
95 |
|
$132 |
| Amounts
Used |
|
|
|
|
|
|
|
Payments under
Guaranteed Credit
Agreement |
|
(743 |
) |
|
— |
|
— |
Interim Funding to
Iridium |
|
(20 |
) |
|
— |
|
— |
| |
|
|
|
|
|
|
|
Development and
Commercialization
Reserves |
|
$1,798 |
|
|
$649 |
|
$554 |
| |
|
|
|
|
|
|
|
The development and commercialization
provisions for the years ended December 31, 1999, 1998 and 1997 are shown in
the above table. During 1999 the Company used $763 million of the
development and commercialization reserve including payment by the Company
of $743 million to the banks as payment of guaranteed amounts under the
Senior Guaranteed Credit Agreement and $20 million in additional funding to
Iridium while Iridium sought to attract additional investment and achieve
its financial restructuring.
The development and commercialization reserve
as of December 31, 1999 was $1.8 billion of which $869 million was included
in accrued liabilities, $734 million was included as a contra asset, in
inventories, $79 million was included as a contra asset, in property, plant
and equipment, $72 million was included as a contra asset, in other assets,
$39 million was included in other liabilities, $4 million was included in
accounts payable, and $1 million was included as a contra asset, in accounts
receivable, in the consolidated balance sheets. The reserve as of December
31, 1998 was $649 million of which $529 million was included in accrued
liabilities and $120 million was included in other liabilities in the
consolidated balance sheets. The related reserves for 1997 were $554 million
and were included in accrued liabilities in the consolidated balance
sheets.
Additionally in 1999, the Company wrote down
its investment in Iridium bonds. The bond write-down of $157 million is
reflected in selling, general and administrative expenses in the
consolidated statements of operations. The bond write-down of $157 million
is reflected as a contra-asset, in other assets, in the consolidated balance
sheets as of December 31, 1999.
Iridium’s only outstanding bank facility
as of December 31, 1999 was an $800 million Senior Secured Credit Agreement
(the “Secured Credit Agreement”). Iridium was in default under the
Secured Credit Agreement and on approximately $1.4 billion of public
debt.
During most of 1999, Iridium had outstanding a
$750 million Senior Guaranteed Credit Agreement (the “Guaranteed Credit
Agreement”). The Guaranteed Credit Agreement was guaranteed by the
Company and Iridium had borrowed all of the funds available. On November 15,
1999, the Company paid the banks approximately $743 million to satisfy its
guarantee under the Guaranteed Credit Agreement. With that payment, the
Company believes it satisfied all of its guarantee obligations under this
Agreement. By satisfying its guarantee obligations, the Company avoided
paying additional interest and substantial monthly fees to the
banks.
Subject to the automatic stay provisions of
Chapter 11, the lenders under the Secured Credit Agreement could have
accelerated Iridium’s obligations under the Secured Credit Agreement
and sought to foreclose on their security interests in substantially all of
Iridium’s assets. Iridium was subject to a court order (the “Court
Order”) which permitted it to make only a limited use of some of the
assets subject to these security interests. The Court Order generally
permitted Iridium, during the term of the Court Order, to pay only specified
budgeted amounts and prohibited Iridium from making any payments to
Motorola. The Court Order was effective through March 17, 2000. In addition,
under the Court Order, Motorola has no obligation to continue providing
those services to Iridium after March 17, 2000 since it is not being paid
for those services.
The Company had agreed under a Memorandum of
Understanding to provide a guarantee of up to an additional $350 million of
Iridium debt for Iridium’s use, subject to certain conditions. Iridium
requested Motorola to provide this guarantee during the third quarter of
1999, however, Motorola believes it was not obligated to do so. 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 asserted that Iridium failed to have the Company provide such
guarantee as required, and that the Company was obligated to provide them
with this $300 million guarantee. The Company believes that it was not
obligated to do so. Iridium has also stated that it believed it was not
obligated to have the Company provide this $300 million guarantee to these
lenders. The lenders under the Secured Credit Agreement have also demanded
that the investors in Iridium comply with their capital call requirements.
In the Company’s case, this could require an additional equity
investment of $50 million.
During the fourth quarter of 1999, Motorola
led a group of investors in providing a $20 million funding commitment to
Iridium. It was used by Iridium to fund its on-going operations through
February 15, 2000 while it sought to attract additional investment and
achieve its financial restructuring. Iridium continued discussions with its
lenders and creditors regarding plans to restructure its debt and Motor
ola worked with Iridium and its other investors to find viable restructuring
options. Also see Note 15, Subsequent Events, for further information
relating to Iridium.
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. A number
of purported class action lawsuits alleging securities law violations have
been filed naming Iridium, certain current and former officers of Iridium,
other entities and the Company as defendants.
9. Commitments and
Contingencies: Other
Financial. At December 31, 1999, the
Company’s percentage ownership in Nextel Communications, Inc. (Nextel)
was approximately 16%. The cost basis and fair value of the Nextel
investment were $807 million and $5.2 billion, respectively, at December 31,
1999. The investment is included in Other Assets in the Consolidated Balance
Sheets. The off-balance sheet commitment to Nextel for equipment financing
aggregated $457 million at December 31, 1999. This amount represents the
maximum available commitment and may not be completely utilized by Nextel.
At December 31, 1999, approximately $254 million of this commitment was
outstanding.
Excluding Iridium and Nextel, the Company has
other off-balance sheet financial guarantees aggregating approximately $825
million of which approximately $609 million was outstanding at December 31,
1999.
As of December 31, 1999, approximately $797
million of the $1.7 billion in long-term finance receivables relates to one
customer. Except as stated in this Note and in Note 8, the Company has no
other significant concentrations of credit risk as of December 31,
1999.
Environmental and Legal. Under the
Comprehensive Environmental Response Compensation and Liability Act of 1980,
as amended (CERCLA, or Superfund) and equivalent state law, the Company has
been designated as a potentially responsible party by the United States
Environmental Protection Agency with respect to certain waste sites with
which the Company may have had direct or indirect involvement. Such
designations are made regardless of the extent of the Company’s
involvement. These claims are in various stages of administrative or
judicial proceedings. They include demands for recovery of past governmental
costs and for future investigations or remedial actions. In many cases, the
dollar amounts of the claims have not been specified and have been asserted
against a number of other entities for the same cost recovery or other
relief as was asserted against the Company. The Company accrues costs
associated with environmental matters when they become probable and
reasonably estimable, and these totaled $87 million and $86 million at
December 31, 1999 and 1998, respectively. The amount of such charges to
earnings was $15 million, $12 million and $36 million in 1999, 1998 and
1997, respectively. However, due to their uncertain nature, the amounts
accrued could differ, perhaps significantly, from the actual costs that will
be incurred. These amounts assume no substantial recovery of costs from any
insurer. The remedial efforts include environmental cleanup costs and
communication programs. These liabilities represent only the Company’s
share of any possible costs incurred in environmental cleanup sites, since
in most cases, potentially responsible parties other than the Company may
exist.
The Company is a defendant in various suits,
including environmental and product-related suits, and is subject to various
claims which arise in the normal course of business. In the opinion of
management, the ultimate disposition of these matters will not have a
material adverse effect on the Company’s consolidated financial
position, liquidity or results of operations.
10. Information by
Segment and Geographic Region
In July 1998, the Company’s
communications-related businesses began realigning into the Communications
Enterprise, a structure intended to enable integrated solutions and improved
responsiveness to the needs of distinct customer segments. For the 1998
year-end reporting, the Company continued to use the previous segments
because the Company’s management made operating decisions and assessed
performance based on these segments. With the completion of the realignment
in 1999, the Company changed its segment reporting. Therefore, the Company
has restated previously reported segment information to reflect the
realignment and to conform to the management approach of Statement of
Financial Accounting Standards No. 131 “Disclosures about Segments of
an Enterprise and Related Information”, which the Company implemented
as of January 1, 1998.
The Company’s new reportable segments
have been determined based on the nature of the products offered to
customers. The Personal Communications Segment focuses on delivering
integrated voice, video and data communications solutions to consumers. This
segment includes subscriber products and accessories for cellular, iDEN®
radios, paging, and satellite and consumer two-way radio markets. The
Network Systems Segment focuses on providing total system solutions for
telecommunications carriers and operators. This segment includes the Company
’s cellular infrastructure, iDEN infrastructure and satellite
communications infrastructure businesses. The Commercial, Government and
Industrial Systems Segment focuses on the commercial, governmental and
industrial markets, providing integrated communications solutions, including
infrastructure and non-consumer two-way radio products. The Semiconductor
Products Segment continues to focus on the design, manufacture and
distribution of integrated semiconductor solutions and components. The Other
Products segment is comprised primarily of the Integrated Electronic Systems
Sector (which primarily manufactures and sells automotive and industrial
electronics); the Internet and Networking Group (which focuses on the
development of servers, applications and internet solutions); the Network
Management Group (which continues to hold and manage investments in
terrestrial and satellite-based network operators); and other corporate
programs.
MOTOROLA, INC. AND
SUBSIDIARIES
NOTES TO
(Dollars in millions,
except as noted)
CONSOLIDATED
FINANCIAL STATEMENTS
The accounting policies of the segments are
the same as those described in Note 1 Summary of Significant Accounting
Policies. Segment operating results are measured based on profit (loss)
before income tax adjusted, if necessary, for certain segment specific items
and corporate allocations. Intersegment and intergeographic sales are
accounted for on an arm’s length pricing basis. Intersegment sales
included in adjustments and eliminations were $2.7 billion, $2.8 billion and
$3.2 billion for the years ended December 31, 1999, 1998 and 1997,
respectively. These sales were primarily from the Semiconductor Products
Segment and the Integrated Electronic Systems Sector. Intersegment sales
from the Semiconductor Products Segment were $1.6 billion for the years
ended December 31, 1999 and 1998, and $1.8 billion for the year ended
December 31, 1997. For these same periods, intersegment sales from the
Integrated Electronic Systems Sector were $0.8 billion, $0.9 billion and
$1.0 billion, respectively. Net sales by geographic region are measured by
the location of the revenue-producing operations.
Domestic export sales to third parties were
$2.4 billion, $3.1 billion and $4.0 billion for the years ended December 31,
1999, 1998 and 1997, respectively. Domestic export sales to affiliates were
$6.6 billion, $5.0 billion and $6.9 billion for the years ended December 31,
1999, 1998 and 1997, respectively.
Identifiable assets (excluding intersegment
receivables) are the Company’s assets that are identified with classes
of similar products or operations in each geographic region. General
corporate assets primarily include cash and cash equivalents, marketable
securities, cost- and equity-based
investments, the fair value adjustment of certain cost-based investments and
the administrative headquarters of the
Company.
In 1999, 1998 and 1997, no single customer or
group under common control represented 10% or more of the Company’s
sales.
MOTOROLA, INC. AND
SUBSIDIARIES
NOTES TO
(Dollars in millions,
except as noted)
CONSOLIDATED
FINANCIAL STATEMENTS
F-49
Segment
information
| Years ended
December 31 |
|
Net
Sales
|
|
Operating Profit
(Loss) Before Taxes
|
| |
1999 |
|
1998 |
|
1997 |
|
1999 |
|
1998 |
|
1997 |
|
Personal
Communications
Segment |
|
$11,932 |
|
|
$10,132 |
|
|
$11,026 |
|
|
$
608 |
|
|
5.1% |
|
|
$
(373 |
) |
|
(3.7% |
) |
|
$
1,122 |
|
|
10.2% |
|
| Network Systems
Segment |
|
6,544 |
|
|
7,064 |
|
|
6,061 |
|
|
(479 |
) |
|
(7.3% |
) |
|
819 |
|
|
11.6% |
|
|
618 |
|
|
10.2% |
|
Commercial,
Government and
Industrial Systems Segment |
|
4,068 |
|
|
4,079 |
|
|
4,037 |
|
|
609 |
|
|
15.0% |
|
|
412 |
|
|
10.1% |
|
|
345 |
|
|
8.5% |
|
Semiconductor
Products
Segment |
|
7,370 |
|
|
7,314 |
|
|
8,003 |
|
|
619 |
|
|
8.4% |
|
|
(1,225 |
) |
|
(16.7% |
) |
|
168 |
|
|
2.1% |
|
| Other Products
Segment |
|
3,736 |
|
|
3,623 |
|
|
3,855 |
|
|
(261 |
) |
|
(7.0% |
) |
|
(896 |
) |
|
(24.7% |
) |
|
(318 |
) |
|
(8.2% |
) |
Adjustments and
Eliminations |
|
(2,719 |
) |
|
(2,814 |
) |
|
(3,188 |
) |
|
(4 |
) |
|
0.1% |
|
|
15 |
|
|
(0.5% |
) |
|
(48 |
) |
|
1.5% |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment totals |
|
$30,931 |
|
|
$29,398 |
|
|
$29,794 |
|
|
1,092 |
|
|
3.5% |
|
|
(1,248 |
) |
|
(4.2% |
) |
|
1,887 |
|
|
6.3% |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| General
corporate |
|
|
|
|
|
|
|
|
|
|
76 |
|
|
|
|
|
(126 |
) |
|
|
|
|
(71 |
) |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before
income taxes |
|
|
|
|
|
|
|
|
|
|
$
1,168 |
|
|
3.8% |
|
|
$(1,374 |
) |
|
(4.7% |
) |
|
$
1,816 |
|
|
6.1% |
|
|
|
| Years ended
December 31 |
|
Assets
|
|
Capital
Expenditures
|
|
Depreciation
Expense
|
| |
1999 |
|
1998 |
|
1997 |
|
1999 |
|
1998 |
|
1997 |
|
1999 |
|
1998 |
|
1997 |
|
Personal
Communications
Segment |
|
$
6,411 |
|
|
$
5,476 |
|
|
$
6,105 |
|
|
$
450 |
|
|
$
442 |
|
|
$
749 |
|
|
$
398 |
|
|
$
422 |
|
|
$
539 |
|
| Network Systems
Segment |
|
7,414 |
|
|
6,177 |
|
|
4,655 |
|
|
262 |
|
|
345 |
|
|
415 |
|
|
260 |
|
|
222 |
|
|
249 |
|
Commercial,
Government and
Industrial Systems Segment |
|
2,509 |
|
|
2,110 |
|
|
2,102 |
|
|
152 |
|
|
224 |
|
|
180 |
|
|
170 |
|
|
146 |
|
|
161 |
|
Semiconductor
Products
Segment |
|
7,872 |
|
|
8,232 |
|
|
7,947 |
|
|
1,505 |
|
|
1,783 |
|
|
1,153 |
|
|
1,131 |
|
|
1,178 |
|
|
1,169 |
|
| Other Products
Segment |
|
4,117 |
|
|
3,393 |
|
|
3,062 |
|
|
183 |
|
|
162 |
|
|
111 |
|
|
146 |
|
|
184 |
|
|
163 |
|
Adjustments and
Eliminations |
|
(1,396 |
) |
|
(420 |
) |
|
(458 |
) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment totals |
|
26,927 |
|
|
24,968 |
|
|
23,413 |
|
|
2,552 |
|
|
2,956 |
|
|
2,608 |
|
|
2,105 |
|
|
2,152 |
|
|
2,281 |
|
| General
corporate |
|
10,400 |
|
|
3,760 |
|
|
3,865 |
|
|
132 |
|
|
265 |
|
|
266 |
|
|
77 |
|
|
45 |
|
|
48 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated totals |
|
$37,327 |
|
|
$28,728 |
|
|
$27,278 |
|
|
$
2,684 |
|
|
$
3,221 |
|
|
$
2,874 |
|
|
$2,182 |
|
|
$
2,197 |
|
|
$2,329 |
|
|
|
| Years ended
December 31 |
|
Interest
Income
|
|
Interest
Expense
|
|
Net
Interest
|
| |
1999 |
|
1998 |
|
1997 |
|
1999 |
|
1998 |
|
1997 |
|
1999 |
|
1998 |
|
1997 |
|
Personal
Communications
Segment |
|
$
17 |
|
|
$
21 |
|
|
$
21 |
|
|
$
61 |
|
|
$
73 |
|
|
$
48 |
|
|
$
(44 |
) |
|
$
(52 |
) |
|
$
(27 |
) |
| Network Systems
Segment |
|
1 |
|
|
— |
|
|
—
|
|
|
30 |
|
|
33 |
|
|
12 |
|
|
(29 |
) |
|
(33 |
) |
|
(12 |
) |
Commercial,
Government and
Industrial Systems Segment |
|
— |
|
|
2 |
|
|
4 |
|
|
15 |
|
|
17 |
|
|
14 |
|
|
(15 |
) |
|
(15 |
) |
|
(10 |
) |
Semiconductor
Products
Segment |
|
6 |
|
|
12 |
|
|
12 |
|
|
81 |
|
|
116 |
|
|
71 |
|
|
(75 |
) |
|
(104 |
) |
|
(59 |
) |
| Other Products
Segment |
|
2 |
|
|
6 |
|
|
2 |
|
|
33 |
|
|
30 |
|
|
14 |
|
|
(31 |
) |
|
(24 |
) |
|
(12 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment totals |
|
26 |
|
|
41 |
|
|
39 |
|
|
220 |
|
|
269 |
|
|
159 |
|
|
(194 |
) |
|
(228 |
) |
|
(120 |
) |
| General
corporate |
|
124 |
|
|
44 |
|
|
46 |
|
|
85 |
|
|
32 |
|
|
57 |
|
|
39 |
|
|
12 |
|
|
(11 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated totals |
|
$
150 |
|
|
$
85 |
|
|
$
85 |
|
|
$
305 |
|
|
$
301 |
|
|
$
216 |
|
|
$
(155 |
) |
|
$
(216 |
) |
|
$
(131 |
) |
|
|
| Geographic area
information |
|
| Years ended
December 31 |
|
Net
Sales
|
|
Assets
|
|
Property,
Plant, and
Equipment, Net
|
| |
1999 |
|
1998 |
|
1997 |
|
1999 |
|
1998 |
|
1997 |
|
1999 |
|
1998 |
|
1997 |
|
| United
States |
|
$19,956 |
|
|
$20,397 |
|
|
$21,809 |
|
|
$14,135 |
|
|
$14,932 |
|
|
$14,000 |
|
|
$5,142 |
|
|
$
5,294 |
|
|
$5,661 |
|
| United
Kingdom |
|
6,221 |
|
|
5,709 |
|
|
5,254 |
|
|
2,186 |
|
|
2,083 |
|
|
2,098 |
|
|
947 |
|
|
999 |
|
|
887 |
|
| Other
nations |
|
20,686 |
|
|
12,812 |
|
|
12,778 |
|
|
13,244 |
|
|
8,804 |
|
|
7,966 |
|
|
2,638 |
|
|
3,221 |
|
|
2,901 |
|
| Adjustments and
Eliminations |
|
(15,932 |
) |
|
(9,520 |
) |
|
(10,047 |
) |
|
(2,638 |
) |
|
(851 |
) |
|
(651 |
) |
|
(88 |
) |
|
(134 |
) |
|
(111 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic totals |
|
$30,931 |
|
|
$29,398 |
|
|
$29,794 |
|
|
26,927 |
|
|
24,968 |
|
|
23,413 |
|
|
8,639 |
|
|
9,380 |
|
|
9,338 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| General
corporate |
|
|
|
|
|
|
|
|
|
|
10,400 |
|
|
3,760 |
|
|
3,865 |
|
|
607 |
|
|
669 |
|
|
518 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated totals |
|
|
|
|
|
|
|
|
|
|
$37,327 |
|
|
$28,728 |
|
|
$27,278 |
|
|
$9,246 |
|
|
$10,049 |
|
|
$9,856 |
|
|
MOTOROLA, INC. AND
SUBSIDIARIES
NOTES TO
(Dollars in
millions, except as noted)
CONSOLIDATED
FINANCIAL STATEMENTS
| Years ended
December 31 |
|
1999 |
|
1998 |
|
1997 |
|
| Income
(Expense) |
|
|
|
|
|
|
|
|
|
Personal
Communications
Segment |
|
|
|
|
|
|
|
|
|
|
Iridium Related |
|
$
(97 |
) |
|
$
— |
|
|
$
— |
|
|
Restructuring & Other |
|
112 |
|
|
(597 |
) |
|
— |
|
Sales of Investments and
Businesses |
|
10 |
|
|
118 |
|
|
24 |
|
In-Process Research and
Development |
|
(7 |
) |
|
— |
|
|
— |
|
|
Miscellaneous |
|
— |
|
|
— |
|
|
(44 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
18 |
|
|
(479 |
) |
|
(20 |
) |
| Network Systems
Segment |
|
|
|
|
|
|
|
|
|
|
Iridium Related |
|
$
(1,325 |
) |
|
$
— |
|
|
$
— |
|
|
Restructuring & Other |
|
67 |
|
|
(159 |
) |
|
— |
|
In-Process Research and
Development |
|
(14 |
) |
|
— |
|
|
— |
|
|
Miscellaneous |
|
— |
|
|
(8 |
) |
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
(1,272 |
) |
|
(167 |
) |
|
— |
|
Commercial,
Government and
Industrial Systems Segment |
|
|
|
|
|
|
|
|
|
|
Iridium Related |
|
$
(8 |
) |
|
$
— |
|
|
$
— |
|
|
Restructuring & Other |
|
— |
|
|
(127 |
) |
|
— |
|
Sales of Investments and
Businesses |
|
198 |
|
|
90 |
|
|
10 |
|
In-Process Research and
Development |
|
(4 |
) |
|
— |
|
|
— |
|
|
Miscellaneous |
|
— |
|
|
(9 |
) |
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
186 |
|
|
(46 |
) |
|
10 |
|
Semiconductor
Products
Segment |
|
|
|
|
|
|
|
|
|
|
Restructuring & Other |
|
$
— |
|
|
$
(731 |
) |
|
$(170 |
) |
Sales of Investments and
Businesses |
|
373 |
|
|
— |
|
|
23 |
|
In-Process Research and
Development |
|
(42 |
) |
|
— |
|
|
— |
|
|
Miscellaneous |
|
— |
|
|
(21 |
) |
|
(27 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
331 |
|
|
(752 |
) |
|
(174 |
) |
| Other Products
Segment |
|
|
|
|
|
|
|
|
|
|
Iridium Related |
|
$
(552 |
) |
|
$
— |
|
|
$
— |
|
|
Restructuring & Other |
|
47 |
|
|
(366 |
) |
|
(157 |
) |
Sales of Investments and
Businesses |
|
410 |
|
|
38 |
|
|
59 |
|
In-Process Research and
Development |
|
— |
|
|
(109 |
) |
|
— |
|
|
Miscellaneous |
|
— |
|
|
18 |
|
|
4 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
(95 |
) |
|
(419 |
) |
|
(94 |
) |
| |
|
| Segment
totals |
|
(832 |
) |
|
(1,863 |
) |
|
(278 |
) |
| General
Corporate |
|
|
|
|
|
|
|
|
|
Sales of Investments and
Businesses |
|
$
148 |
|
|
$
4 |
|
|
$
12 |
|
|
Miscellaneous |
|
— |
|
|
(10 |
) |
|
(40 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
148 |
|
|
(6 |
) |
|
(28 |
) |
| |
|
| Total special
items |
|
$
(684 |
) |
|
$(1,869 |
) |
|
$(306 |
) |
|
11. Stockholder
Rights Plan
On November 5, 1998, the Company’s Board
of Directors adopted a new Preferred Share Purchase Rights Agreement to
replace the existing stockholder rights plan that expired November 20,
1998. Under the new plan, rights will attach to existing shares of common
stock, $3 par value, of the Company at the rate of one right for each share
of common stock. The rights will expire on November 20, 2008.
Each right entitles a shareholder to buy,
under certain circumstances, one unit of a share of preferred stock for
$200. The rights generally will be exercisable only if a person or group
acquires 10 percent or more of the Company’s common stock or begins a
tender or exchange offer for 10 percent or more of the Company’s
common stock. If a person acquires beneficial ownership of 10% or more of
the Company’s common stock, all holders of rights other than the
acquiring person, will be entitled to purchase the Company’s common
stock (or, in certain cases, common equivalent shares) at a 50% discount.
The Company may redeem the new rights at a price of one cent per
right.
MOTOROLA, INC. AND
SUBSIDIARIES
NOTES TO
(Dollars in
millions, except as noted)
CONSOLIDATED
FINANCIAL STATEMENTS
F-51
12. Reorganization of Businesses
In the second quarter of 1998, the Company
recorded, as a separate line in the consolidated statements of operations,
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 (“1998
Program”). Restructuring costs included 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 tables display rollforwards of the accruals
established during the second quarter of 1998 for the year ended December
31, 1999, and from June 27, 1998, to December 31, 1998:
1998
Program
| |
|
Accruals at
Dec. 31, 1998 |
|
1999 Amounts
Used |
|
Fourth
Quarter
1999 Reversals
Into Income |
|
Accruals at
Dec. 31, 1999 |
|
Consolidation of
manufacturing
operations |
|
$155 |
|
$(143 |
) |
|
$
— |
|
|
$12 |
| Business
exits |
|
137 |
|
(31 |
) |
|
(102 |
) |
|
4 |
| Employee
separations |
|
187 |
|
(136 |
) |
|
(40 |
) |
|
11 |
| |
|
|
|
|
|
|
|
|
|
|
|
Total restructuring |
|
$479 |
|
$(310 |
) |
|
$(142 |
) |
|
$27 |
| |
|
|
|
|
|
|
|
|
|
|
| Asset impairments
and other charges |
|
161 |
|
(77 |
) |
|
(84 |
) |
|
— |
|
|
Totals |
|
$640 |
|
$(387 |
) |
|
$(226 |
) |
|
$27 |
|
| |
|
Second
Quarter 1998
Initial Charges |
|
1998
Reclassifi-
cations |
|
Initial Charges
As Adjusted |
|
1998 Amounts
Used |
|
Accruals at
Dec 31,
1998 |
|
Consolidation of
manufacturing
operations |
|
$
361 |
|
$
(35 |
) |
|
$
326 |
|
$
(171 |
) |
|
$155 |
| Business
exits |
|
453 |
|
(162 |
) |
|
291 |
|
(154 |
) |
|
137 |
| Employee
separations |
|
461 |
|
197 |
|
|
658 |
|
(471 |
) |
|
187 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring |
|
$1,275 |
|
$
— |
|
|
$1,275 |
|
$
(796 |
) |
|
$479 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Asset impairments
and other charges |
|
705 |
|
— |
|
|
705 |
|
(544 |
) |
|
161 |
|
|
Totals |
|
$1,980 |
|
$
— |
|
|
$1,980 |
|
$(1,340 |
) |
|
$640 |
|
The 1998 Program reached its planned
completion at December 31, 1999. At that time, the Company reversed into
income $226 million, shown as a separate line in the consolidated
statements of operations, for accruals no longer required. The remaining
$27 million in accruals at
December 31, 1999, represent cash payments to be made by the end of the first
quarter of 2000.
The 1999 amount used of $387 million reflects
approximately $189 million in cash payments and $198 million in write-offs.
The 1998 amount used of $1.34 billion reflects approximately $600 million
in cash payments and $740 million in write-offs.
Amounts in the 1998 Reclassifications column
represent the reallocation of accruals in 1998 between restructuring
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 employee severance
costs originally accrued for in consolidation of manufacturing operations
and business exits. These reallocations were also offset by higher than
anticipated severance costs from special voluntary termination
benefits.
In connection with its review of the
continued propriety of the Company’s restructuring accrual, management
determined that certain amounts previously accrued for consolidation of
manufacturing operations and business exits were no longer necessary given
the revisions to the timing and nature of disposal for those operations.
Similarly, management had additional information in the fourth quarter of
1998 related to the acceptance of special voluntary termination benefits.
Recognizing that additional accruals were necessary to reflect the special
voluntary termination benefits and that based upon the requirement under
Statement of Financial Accounting Standards (SFAS) No. 88 to accrue for
these benefits upon acceptance by the employees, management reclassified
$142 million of accruals from the consolidation of manufacturing operations
and business exits portion of the restructuring accrual to the employee
separations portion in the fourth quarter of 1998. In addition, management
reclassified $55 million of employee separations costs originally accrued
for in the consolidation of manufacturing operations and business exits to
employee separations in the fourth quarter of 1998.
MOTOROLA, INC. AND
SUBSIDIARIES
NOTES TO
(Dollars in
millions, except as noted)
CONSOLIDATED
FINANCIAL STATEMENTS
In July 1998, the Company’s
communications-related businesses began realigning into the Communications
Enterprise, a structure intended to enable the development of integrated
communications technology solution offerings to customers and improved
responsiveness to customers’ needs. This realignment resulted in the
formation of some new reportable segments. The following table displays by
category the restructuring and other charges, as adjusted, according to the
revised reportable segments and included in the segments’ restated
operating profit (loss) before tax for the year ended December 31, 1998.
The segment amounts also include the allocation of $55 million in
restructuring and other charges recorded at the corporate
level.
| |
|
Restructuring
Charges
|
|
Other
Charges
|
| Segment |
|
Consol of
mfg. ops. |
|
Business
exits |
|
Employee
separations |
|
Asset
Impair-
ments |
|
Other |
|
Total |
|
| Personal
Communications |
|
$113 |
|
$
38 |
|
$149 |
|
$175 |
|
$122 |
|
$
597 |
| Network
Systems |
|
11 |
|
— |
|
44 |
|
— |
|
104 |
|
159 |
Commercial,
Government and
Industrial Systems |
|
18 |
|
— |
|
104 |
|
5 |
|
— |
|
127 |
| Semiconductor
Products |
|
163 |
|
101 |
|
282 |
|
159 |
|
26 |
|
731 |
| Other
Products |
|
21 |
|
152 |
|
79 |
|
41 |
|
73 |
|
366 |
|
|
Total |
|
$326 |
|
$291 |
|
$658 |
|
$380 |
|
$325 |
|
$1,980 |
|
Consolidation of
manufacturing operations
Consolidation of manufacturing operations
charges related to the closing of production and distribution facilities
and selling or disposing of the machinery and equipment that was no longer
needed and, in some cases, disposing of excess assets that had no net
realizable value. The buildings associated with these production
facilities, in many cases, were sold to outside parties. Severance costs
incurred for terminating employees at these production facilities were also
originally included in the consolidation of manufacturing operations line
item but were subsequently reclassified to the employee separations line
item. Also included in this restructuring category were costs related to
shutting down or reducing the capacity of certain production lines. In most
cases, older facilities with older technologies or non-strategic products
were closed. Machinery and equipment write downs related to equipment that
would no longer be utilized comprised the majority of these costs. These
assets have been deemed to be held for use until such time as they are
removed from service and, therefore, no longer utilized in manufacturing
products. An assessment was made as to whether or not there was an asset
impairment related to the valuation of these assets in determining what the
amount of the write down included in the restructuring charge should be for
this machinery and equipment. This assessment utilized the anticipated
future undiscounted cash flows generated by the equipment as well as its
ultimate value upon disposition.
The charges in this restructuring category do
not include any costs related to the abandonment or sub-lease of
facilities, moving expenses, inventory disposals or write downs, or
litigation or environmental obligations.
The consolidation of manufacturing operations
was primarily focused in the Semiconductor Products and Personal
Communications segments. Semiconductor facilities in North Carolina,
California, Arizona and the Philippines were closed as planned, while in
other areas, production facilities were consolidated into fewer integrated
factories to achieve economies of scale and improved efficiencies and to
capitalize on newer technologies that reduced operating costs. As a result
of excess global manufacturing capacity, the paging facility in Vega Baja,
Puerto Rico was closed. Paging facilities in Singapore and Canada and
cellular facilities in Northern Illinois were realigned. Since 1998,
approximately $255 million was used for these consolidation activities. The
remaining $12 million accrual, included in accrued liabilities in the
consolidated balance sheets, as of December 31, 1999, for this
restructuring category relates to the finalization of plant closings in
both of these segments.
Business
exits
Business exit charges included costs
associated with shutting down businesses that no longer fit the Company
’s strategic direction. In many cases, these businesses used older
technologies that produced non-strategic products. Included in these
business exit costs were the costs for terminating technology agreements
and for selling or liquidating interests in joint ventures. Severance costs
included in this category were reclassified to the employee separations
line item in the fourth quarter of 1998. Similar to consolidation of
manufacturing operations, the charges in this restructuring category
did not include any costs related to the abandonment or sub-lease of
facilities, moving expenses, inventory disposals or write downs, or
litigation or environmental obligations.
Business exit costs were primarily focused in
the Integrated Electronic Systems sector. During the third quarter of 1998,
the Integrated Electronic Systems Sector sold its printed circuit board
business. The Sector also sold its non-silicon component manufacturing
business to CTS Corp in the first quarter of 1999. The loss of operating
income from these businesses was not significant to the Company’s
results of operations.
MOTOROLA, INC. AND
SUBSIDIARIES
NOTES TO
(Dollars in
millions, except as noted)
CONSOLIDATED
FINANCIAL STATEMENTS
F-53
The Company reversed into income in the
fourth quarter of 1999 approximately $102 million for accruals no longer
required for the contract requirements and contingencies related to the
sales of its printed circuit board business and non-silicon component
manufacturing business and the business pruning activities of the
Semiconductor Products segment. The remaining $4 million accrual, included
in accrued liabilities in the consolidated balance sheets, as of
December 31, 1999, for this restructuring category relates to the payment of
final shut down costs for these actions, expected to occur early in
2000.
Employee
separations
Employee separation charges represent the
costs of involuntary severance benefits for the 20,000 positions identified
as subject to severance under the restructuring plan. Employee separation
costs of $55 million were also included in the consolidation of
manufacturing operations and business exits line items. These costs were
subsequently reclassified to the employee separations line item in the
fourth quarter of 1998. In implementing the restructuring plan, the Company
offered, beginning in the third quarter of 1998, special voluntary
termination benefits in addition to the planned involuntary termination
benefits previously communicated to employees pursuant to the plan. The
special voluntary termination benefits provided for one week of pay for
each year of service between years 1–10, two weeks of pay for each
year of service between years 11–19, and three weeks of pay for each
year of service for year 20 and greater. The special voluntary termination
program expired at the end of the fourth quarter of 1998, although
severance payments related to this program were not completed at that time.
To the extent that employees accepted special voluntary termination
benefits in future periods, additional accruals, under a new program, would
be necessary and recognized in expense at the date of acceptance by the
employees. No new programs were implemented during 1999.
Management had additional information in the
fourth quarter of 1998 related to the acceptance of special voluntary
termination benefits. Recognizing that additional accruals were necessary
to reflect the special voluntary termination benefits and that based upon
the requirement under Statement of Financial Accounting Standards (SFAS)
No. 88 to accrue for these benefits upon acceptance by the employees,
management reclassified $142 million of accruals from the consolidation of
manufacturing operations and business exits portion of the restructuring
accrual to the employee separations portion in the fourth quarter of
1998.
The Company’s successful redeployment
efforts reduced the severance requirement in the fourth quarter of 1999.
Therefore, the Company reversed into income in the fourth quarter of 1999
approximately $40 million of accruals no longer required for a cancelled
separation plan involving approximately 500 employees. As of December 31,
1999, approximately 19,400 employees have separated from the Company
through a combination of voluntary and involuntary severance programs. Of
these 19,400 separated employees, approximately 12,400 were direct
employees, and 7,000 were indirect employees. Direct employees are
primarily non-supervisory production employees, and indirect employees are
primarily non-production employees and production managers. In addition,
4,200 employees separated from the Company 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 $11 million accrual, included in accrued liabilities in the
consolidated balance sheets, as of December 31, 1999, relates to severance
payments still to be completed in the Semiconductor Products Segment,
Integrated Electronic Systems Sector, and Internet and Networking Group
bringing the total employees separated to 19,500.
Asset impairments
and other charges
As a result of then current and projected
business conditions, the Company wrote down operating assets that became
impaired. All impaired asset write downs were reflected as contra-assets in
the consolidated balance sheets at December 31, 1998. This action reduced
the carrying value of the related asset balances by $380 million. The
assets written down were primarily used manufacturing equipment and
machinery. Other assets written down were buildings and joint venture
investments.
The amount of the impairment charge for the
assets written down was based upon an estimate of the future cash flows
expected from the use of the assets, as well as upon their eventual
disposition. These undiscounted cash flows were then compared to the net
book value of the equipment, and impairment was determined based on that
comparison. Cash flows were determined at the facility level for certain
production facilities based upon the anticipated sales value of the
products to be produced and the costs of producing the products at those
facilities. In cases in which sufficient cash flows were not going to be
generated by the equipment at those facilities, the assets were written
down to their estimated fair value. These estimated fair values were based
upon what the assets could be sold for in a transaction with an unrelated
third party. Since the majority of these assets were machinery and
equipment, the Company was able to utilize current market prices for
comparable equipment in the marketplace in assessing what would be the fair
value upon sale of the equipment. Building writedowns were based on
marketability factors of the building in the particular location. The
amount of the write down assigned to joint venture investments and
intangibles was $75 million. Valuations for joint venture investments and
intangibles were based on prevailing market conditions. The
intangibles were patents, communication frequencies and licenses, and
goodwill related to the Personal Communications segment.
The segments primarily impacted by these
asset writedowns were Personal Communications, Network Systems and
Semiconductor Products. Assets held for use continue to be depreciated
based on an evaluation of their remaining useful lives and their ultimate
values upon disposition. There were no assets held for sale at December 31,
1998 nor were any impaired assets disposed of prior to that
date.
MOTOROLA, INC. AND
SUBSIDIARIES
NOTES TO
(Dollars in
millions, except as noted)
CONSOLIDATED
FINANCIAL STATEMENTS
The other charges of $325
million were not restructuring charges, but rather were primarily comprised
of contract termination costs related to agreements that were associated
with businesses in which the Company was no longer making investments,
losses recorded on cellular infrastructure contracts, and an in-process
research and development write-off of $42 million related to the NetSpeak
transaction that occurred in the second quarter of 1998. The Company
reversed into income in the fourth quarter of 1999 approximately $84
million of accruals no longer required for contract termination costs
previously deemed probable to occur.
1997
Programs
During 1997, the Company recorded
restructuring charges of $327 million resulting from decisions to exit
several unprofitable businesses that no longer had long-term strategic
value to the Company. The following tables display rollforwards of the
accruals established by business exit for the years ended December 31,
1999, 1998 and 1997:
| |
|
|
|
Accruals
at
Dec. 31,
1998 |
|
Adjust-
ments |
|
Amounts
Used |
|
Accruals
at
Dec. 31,
1999 |
|
| Q2
1997: |
|
Semiconductor
Products Segment |
|
|
|
|
|
|
|
|
|
|
|
|
Exit from DRAM
market |
|
$
8 |
|
$(3 |
) |
|
$(5 |
) |
|
$
— |
|
| Q3
1997: |
|
Other Products
Segment |
|
|
|
|
|
|
|
|
|
|
|
|
Exit from
MacOS-compatible
computer systems business |
|
15 |
|
— |
|
|
(2 |
) |
|
13 |
|
| Q4
1997: |
|
Former
Messaging, Information and
Media Products Segment |
|
|
|
|
|
|
|
|
|
|
|
|
Exit from retail
analog modem business |
|
3 |
|
(3 |
) |
|
— |
|
|
— |
|
| Grand
Total |
|
|
|
$26 |
|
$(6 |
) |
|
$(7 |
) |
|
$13 |
|
| |
|
|
|
1997
Initial
charges |
|
Adjust-
ments |
|
Amounts
Used |
|
Accruals
at
Dec. 31,
1997 |
|
Adjust-
ments |
|
Amounts
Used |
|
Accruals
at
Dec. 31,
1998 |
|
| Q2
1997: |
|
Semiconductor
Products Segment
Exit from DRAM market |
|
$170 |
|
$(9 |
) |
|
$(131 |
) |
|
$
30 |
|
$(12 |
) |
|
$
(10 |
) |
|
$
8 |
|
| Q3
1997: |
|
Other Products
Segment
Exit from MacOS-compatible
computer systems business |
|
95 |
|
— |
|
|
(28 |
) |
|
67 |
|
(10 |
) |
|
(42 |
) |
|
15 |
|
| Q4
1997: |
|
Former
Messaging, Information and
Media Products Segment
Exit from retail analog modem
business |
|
62 |
|
— |
|
|
— |
|
|
62 |
|
— |
|
|
(59 |
) |
|
3 |
|
| Grand
Total |
|
|
|
$327 |
|
$(9 |
) |
|
$(159 |
) |
|
$159 |
|
$(22 |
) |
|
$(111 |
) |
|
$26 |
|
In the second quarter of 1997, the Company
’s Semiconductor Products Segment announced its decision to phase out
its participation in the dynamic random access memory (DRAM) market. The
decision to exit this business was made primarily because the business did
not meet strategic and profitability objectives, rather than to generate
significant future cost savings. As a result of this decision, the segment
incurred a $170 million charge to write off technology development
costs and to provide for the write-down of manufacturing equipment which
could not be retrofitted for other production. In the fourth quarter of
1997 and in the first quarter of 1998, the segment sold some of this
manufacturing equipment to its joint venture partner and thus
reversed into income
$9 million and $12 million, respectively, of accruals no longer needed. The
amounts used in 1997 reflect write-offs. The amounts used in 1998 reflect
$3 million in cash payments for exit fees and $7 million in write-offs. The
amounts used in 1999 reflect $4 million in cash payments for exit fees and
$1 million in write-offs. The remaining $3 million was reversed into income
in the third quarter of 1999.
In the third quarter of 1997, the Company
announced its decision to exit the MacOS-compatible computer systems
business, a business included in the Other Products Segment. The decision
was made in response to a decision by Apple Computer to limit the
introduction of its new technology and phase out future licenses and
because the business did not meet strategic and profitability objectives,
rather than to generate significant future cost savings. As a result of
this decision, the Company incurred a $95 million charge primarily for the
write-down of inventory and the cost of terminat
ing contractual commitments. In the second quarter of 1998, the exposures on
these contractual commitments were determined to be less than previously
anticipated, thus resulting in the reversal into income of $10 million. The
amounts used in 1997 reflect $3 million in employee severance payments and
$25 million in write-offs. The amounts used in 1998 reflect $3 million in
employee severance payments and $39 million in write-offs. The amounts used
in 1999 reflect $2 million in write-offs. The remaining $13 million accrual
as of December 31, 1999, relates to contractual commitments and warranty
liability and may extend past the 2000 year end.
In the fourth quarter of 1997, the Company
announced its decision to exit the retail analog modem business based in
Huntsville, AL. This business was formerly part of the Messaging,
Information and Media segment. The decision was made primarily because the
business was not meeting the Company’s strategic and profitability
objectives, rather than to generate significant future cost savings. As a
result of this decision, the segment incurred a $62 million charge for the
write-down of inventory and fixed assets, severance costs and certain other
costs relating to the realignment process. The amounts used in 1998 reflect
$37 million in employee severance payments and $22 million in write-offs.
The remaining $3 million accrual as of December 31, 1998, was reversed into
income in the first quarter of 1999.
The results of operations of each of these
exited businesses were not material to the Company’s consolidated
financial statements.
13. Acquisitions
and Dispositions of Businesses
The following table summarizes the major
business dispositions and acquisitions involving acquired in-process
research and development write-offs that the Company made during
1999:
| (in
millions) |
|
Quarter
Acquired/Disposed |
|
Consideration |
|
Form of
Consideration |
|
In-Process
Research and
Development
Charge |
|
| Acquisitions: |
|
|
|
|
|
|
|
|
| Digianswer
A/S |
|
Q4 1999 |
|
$
45 |
|
Cash |
|
$14 |
| |
|
|
|
|
|
Assumed
Liabilities |
|
|
|
| Software
Corporation of America, Inc. |
|
Q4 1999 |
|
$
28 |
|
Cash |
|
$
4 |
|
| Metrowerks,
Inc. |
|
Q3 1999 |
|
$
98 |
|
Cash |
|
$35 |
|
Bosch Telecom,
Inc./SpectraPoint Wireless
LLC |
|
Q3 1999 |
|
$
45 |
|
Cash |
|
$14 |
|
| Dispositions: |
|
|
|
|
|
|
|
|
| Semiconductor
Components Group |
|
Q3 1999 |
|
$1,600 |
|
Cash |
|
Not
Applicable |
| |
|
|
|
|
|
Notes |
|
|
| |
|
|
|
|
|
Common
Stock |
|
|
|
| North American
Antenna Sites |
|
Q3 1999 |
|
$
255 |
|
Cash |
|
Not
Applicable |
| |
|
|
|
|
|
Common
Stock |
|
|
|
| Component Products
Group |
|
Q1 1999 |
|
$
136 |
|
Cash |
|
Not
Applicable |
| |
|
|
|
|
|
Transfer of
Debt |
|
|
|
The Company’s acquisitions of Digianswer
A/S, Software Corporation of America, Inc., Metrowerks, Inc. and Bosch
Telecom, Inc./SpectraPoint Wireless LLC in 1999 resulted in a total of
approximately $67 million in acquired in-process research and development
charges. These charges were recorded in selling, general and administrative
expenses in the Company’s consolidated statements of operations.
Historical pricing, margins, and expense levels were used in the valuation
of the in-process products. The allocation of value to in-process research
and development was determined using expected future cash flows discounted
at average risk adjusted rates. The rate used for Digianswer, Software
Corporation of America and Metrowerks was 22%, and the rate used for Bosch
Telecom, Inc./SpectraPoint Wireless LLC was 20%. These rates reflect
technological and market risk and the time value of money.
In addition to the acquired in-process
research and development charges, the Company recorded a total of
approximately $126 million in goodwill and other intangibles which are to
be amortized over a period of five years. The goodwill and other
intangibles were recorded in other assets in the Company’s
consolidated balance sheets.
Each acquisition was accounted for under the
purchase method and accordingly, the results of operations for each
acquiree have been included in the Company’s consolidated financial
statements since the date of acquisition or formation in the case of
Spectrapoint. The pro forma effects of the acquisitions on the Company
’s financial statements were not material.
MOTOROLA, INC. AND
SUBSIDIARIES
NOTES TO
(Dollars in
millions, except as noted)
CONSOLIDATED
FINANCIAL STATEMENTS
Digianswer
A/S
In December of 1999, the Company acquired
from Olicom A/S an 83% ownership interest in Digianswer A/S for
approximately $45 million in cash and assumed liabilities. Digianswer A/S
specializes in developing short-range connectivity solutions based on the
Bluetooth open specification. This technology allows users to make
effortless and instant connections between a wide range of communication
devices. At the acquisition date, a total of 7 projects were in process and
were in various stages of completion ranging from 40% to 74%. The
in-process research will have no alternative future uses if the products
are not feasible. Revenues from in-process products are estimated primarily
beginning in the third quarter of 2000, with projected research and
development costs-to-complete of approximately $3 million.
Software
Corporation of America, Inc.
In October of 1999, the Company acquired
Software Corporation of America, Inc. (SCA) for approximately $28 million
in cash. SCA develops and markets application software and middleware
communications tools to provide wireless data solutions for law enforcement
and other public safety personnel for real-time access to federal, state
and local databases. SCA’s software enables access to legacy host
systems, integrates with various Computer Aided Dispatch (CAD) and Records
Management Systems (RMS), and provides two-way messaging between dispatch
and the vehicle, in-vehicle report writing with wireless transmission,
in-vehicle mapping, GPS and Automatic Vehicle Location (AVL) integration,
and text-to-voice capabilities. At the acquisition date, 3 projects were in
process and were in various stages of completion ranging from 20% to 65%.
The in-process research will have no alternative future uses if the
products are not feasible. Revenues from in-process products are estimated
primarily beginning in the second quarter of 2000, with projected research
and development costs-to-complete of approximately $1 million.
Metrowerks,
Inc.
In September and October of 1999, the Company
purchased all of the outstanding common shares of Metrowerks, Inc. for
approximately $98 million. Metrowerks, Inc. designs, develops, markets, and
supports professional software development tools used by programmers to
create software applications. Its flagship product line is called
CodeWarrior®. A total of 32 projects were in process at the acquisition
date. These projects were related to the development of software
development tools for the desktop and embedded markets. This in-process
research will have no alternative future uses if the products are not
feasible. Revenues from in-process products are estimated primarily
beginning in the first quarter of 2000, with projected research and
development costs-to-complete of approximately $12 million.
Bosch Telecom,
Inc./SpectraPoint Wireless LLC
In July, 1999, the Company and Cisco Systems,
Inc. purchased the fixed wireless assets of Bosch Telecom, Inc. and created
a new, jointly owned company called SpectraPoint Wireless LLC. The Company
paid approximately $45 million in cash for its 81% ownership. SpectraPoint
Wireless LLC is in the process of developing a point-to-multipoint (PMP)
broadband wireless access system using 28 GHz radio frequency (RF)
equipment. Combining RF equipment with advanced ATM processing and modem
technology yields a flexible system that delivers network services to Local
Multi-Point Distribution System (LMDS) customers. The system couples a
shared broadband downstream carrier with dedicated Frequency Division
Multiple Access (FDMA) carriers operating in the range of 2-10 Mbps
upstream. The system development was approximately 70% complete at the
acquisition date. The in-process research will have no alternative future
uses if the products are not feasible. Revenues from in-process products
are estimated primarily beginning in the second quarter of 2000, with
projected research and development costs-to-complete of approximately $14
million.
Semiconductor
Components Group
In August, 1999, the Company completed the
sale of the Semiconductor Components Group (SCG). The Company received
approximately $1.6 billion in cash, notes and approximately 9% of the stock
of the new company. The sale resulted in a $360 million gain included in
selling, general and administrative expenses in the consolidated statements
of operations. Through the date of disposition, SCG had 1999 net sales and
operating profits of approximately $894 million and $113 million,
respectively.
North American
Antenna Sites
In August, 1999, the Company completed the
sale of its North American antenna site business to Pinnacle Towers for
$245 million in cash and $10 million in common stock of Pinnacle Holdings.
The sale resulted in a $198 million gain included in selling, general and
administrative expenses in the consolidated statements of operations. The
transaction involved all the assets and operations of the business, which
included a portfolio of approximately 1,850 wireless communications
facilities located throughout the U.S. and Canada that were owned, managed
or leased by the Company. Through the date of disposition, this business
had 1999 net sales and operating profits of approximately $56 million and
$8 million, respectively.
Component
Products Group
In February, 1999, the Company completed the
sale of its non-silicon component manufacturing business to CTS Corp. for
$136 million in cash and release from a debt obligation. The sale resulted
in no gain or loss. Through the
date of disposition, this business had 1999 net sales of approximately $27
million and no operating profit or loss.
The following table summarizes the major
business acquisitions involving acquired in-process research and
development write-offs that the Company made during 1998:
| (in
millions) |
|
Quarter
Acquired |
|
Consideration |
|
Form of
Consideration |
|
In-Process
Research and
Development
Charge |
|
| Appeal Telecom
Comp., Ltd. |
|
Q4 1998 |
|
$
49 |
|
Cash |
|
$
16 |
|
| Starfish Software,
Inc. |
|
Q3 1998 |
|
$253 |
|
Cash |
|
$109 |
| |
|
|
|
|
|
Common
Stock |
|
|
| |
|
|
|
|
|
Assumed Options
and Liabilities |
|
|
|
| NetSpeak
Corp. |
|
Q2 1998 |
|
$
82 |
|
Cash |
|
$
42 |
|
The Company’s acquisitions of Appeal
Telecom Company, Ltd. (Appeal), Starfish Software, Inc. (Starfish) and
NetSpeak Corp. (NetSpeak) in 1998 resulted in a total of approximately $167
million in acquired in-process research and development charges. The
charges for Appeal and Starfish were recorded in selling, general and
administrative expenses in the Company’s consolidated statements of
operations. The charge for NetSpeak was recorded in restructuring and other
charges in the consolidated statements of operations as it represented a
charge arising from an investment in an equity investee as opposed to a
consolidated subsidiary. Historical pricing, margins, and expense levels
were used in the valuation of the in-process products. The allocation of
value to in-process research and development was determined using expected
future cash flows discounted at average risk adjusted rates. The rate used
for Appeal and Netspeak was 18%, and the rate used for Starfish was 22%.
These rates reflect technological and market risk and the time value of
money.
In addition to the acquired in-process
research and development charges, the Company recorded a total of
approximately $195 million in goodwill and other intangibles which are to
be amortized over a period of three years for Appeal and five years for
Starfish and NetSpeak. The goodwill and other intangibles were recorded in
other assets in the Company’s consolidated balance sheets.
The acquisitions of Appeal and Starfish were
accounted for under the purchase method and accordingly, the results of
operations for each acquiree have been included in the Company’s
consolidated financial statements since the date of acquisition. The
Company applies the equity method of accounting for its investment in
NetSpeak. The pro forma effects of these acquisitions on the Company’s
consolidated financial statements were not material.
Appeal Telecom
Company, Ltd.
During the fourth quarter of 1998, the
Company acquired a 51% ownership interest in Appeal Telecom Company, Ltd.
(Appeal) for $48.9 million in cash. Appeal’s technology focuses on
small size/low cost product for the Code Division Multiple Access (CDMA)
market. A variety of developmental CDMA phones and accessories were in
progress at the date of acquisition, and none of them were completed at
that time. At the acquisition date, developmental products in Appeal’s
in-process portfolio were not technologically feasible, and there were no
identifiable future uses for the related research and development.
Completion of in-process projects was targeted throughout 1999, with
projected research and development costs-to-complete of approximately $1.4
million.
Starfish
Software, Inc.
During the third quarter of 1998, the Company
acquired all the outstanding shares of Starfish Software, Inc. (Starfish).
The total acquisition cost was $253 million consisting of cash, 1.8 million
shares of the Company’s common stock, and the assumption of Starfish
stock options and other liabilities.
Starfish’s technology for the Connected
Information Device market involves synchronization for cellular, paging and
telecommunications devices. Starfish is involved in development of a
portfolio of in-process projects for this market. A total of fifteen
different projects were in progress at the acquisition date. These projects
were at different stages of completion. Those projects included developing
personal information manager capability for certain of the Company’s
wireless phones; REX technology for mobile devices; synchronization for
pagers; PC-based synchronization for the Company’s products;
over-the-air synchronization; Internet connect to mobile devices;
Telematics server platforms; short-messaging technology; web-based
application using server technology; and wireless information devices. One
project was estimated to be 70% complete, and all other projects were less
than 50% complete. This in-process research will have no alternative future
uses if the planned products are not feasible. No major product completion
for these developmental products is estimated until 2000, with projected
research and development costs-to-complete of approximately $34
million.
NetSpeak
Corp.
During the second quarter of 1998, the
Company announced a cash tender offer for 3 million shares of NetSpeak
Corporation (NetSpeak) at a price of $30 per share. On April 22, 1998, the
Company consummated its tender offer by acquiring 2.7 million shares,
increasing its
ownership percentage from approximately 8.3% to 31.7%. The Company
also purchased 35,000 shares from two officers of NetSpeak at the tender
offer price upon the consummation of the transaction.
NetSpeak’s technology enables
interactive voice, video, and data transmission over networks such as the
Internet and local area/wide area networks. Developmental products were not
in commercial distribution at the date of acquisition, and uncertainty
existed as to final product configuration, cost, and timing. There are no
alternative future uses for the in-process work if planned products are not
feasible. Revenues from in-process products are estimated primarily
beginning in 2000, with projected research and development
costs-to-complete for NetSpeak of approximately $8 million.
Developmental products for the companies
acquired in 1999 and 1998 have varying degrees of timing, technology,
costs-to-complete and market risks throughout final development. If the
products fail to become viable, it is unlikely that the Company would be
able to realize any value from the sale of incomplete technology to another
party or through internal re-use. There are also risks of market acceptance
for the products under development, as well as potential reductions in
projected sales volumes and related profits in the event of delayed market
availability for any of the products. Efforts to complete all development
products for these companies continue, and there are no known delays to
company-forecasted plans.
14. Merger with
General Instrument Corporation
On January 5, 2000, the Company and General
Instrument Corporation completed their previously announced merger. The
merger positions the Company as a leader in the convergence of voice, video
and data technologies. The new Broadband Communications Sector will focus
on solutions that deliver interactive television, the Internet and
telephone services over wired networks. The new sector combines the
operations of General Instrument with the cable modem and cable telephony
businesses of the Company’s Internet and Networking Group. Through the
merger the Company also acquired a majority ownership in Next Level
Communications, Inc., which completed an initial public offering in the
fourth quarter of 1999. The Company issued 100.6 million shares to effect
the merger and will account for the merger under the pooling-of-interests
method of accounting. The following tables present combined operating
results for the three years ending December 31, 1999, 1998 and 1997, and
combined balance sheets as of December 31, 1999 and 1998 as if the merger
had occurred on January 1, 1997. The Company will record a charge in the
first quarter of 2000 for costs associated with the merger and expected
integration costs.
Combined
Operating Results (Unaudited)
| |
|
Years Ended
December 31
|
| (In millions,
except per share amounts) |
|
1999 |
|
1998 |
|
1997 |
|
| NET
SALES |
|
$33,075 |
|
|
$31,340 |
|
|
$31,498 |
|
| COSTS AND
EXPENSES |
|
|
|
|
|
|
|
|
|
Manufacturing and other costs of sales |
|
20,631 |
|
|
19,396 |
|
|
18,532 |
|
Selling, general and administrative expenses |
|
5,446 |
|
|
5,656 |
|
|
5,373 |
|
Restructuring and other charges |
|
(226 |
) |
|
1,980 |
|
|
327 |
|
Research and development expenditures |
|
3,560 |
|
|
3,118 |
|
|
2,930 |
|
Depreciation expense |
|
2,243 |
|
|
2,255 |
|
|
2,394 |
|
Interest expense, net |
|
138 |
|
|
215 |
|
|
136 |
|
| TOTAL COSTS AND
EXPENSES |
|
31,792 |
|
|
32,620 |
|
|
29,692 |
|
| EARNINGS (LOSS)
BEFORE INCOME TAXES |
|
1,283 |
|
|
(1,280 |
) |
|
1,806 |
|
| INCOME TAX
PROVISION (BENEFIT) |
|
392 |
|
|
(373 |
) |
|
642 |
|
| NET EARNINGS
(LOSS) |
|
$
891 |
|
|
$
(907 |
) |
|
$
1,164 |
|
| BASIC EARNINGS
(LOSS) PER COMMON SHARE |
|
$
1.26 |
|
|
$
(1.31 |
) |
|
$
1.71 |
|
| DILUTED EARNINGS
(LOSS) PER COMMON SHARE |
|
$
1.22 |
|
|
$
(1.31 |
) |
|
$
1.67 |
|
| BASIC WEIGHTED
AVERAGE COMMON SHARES OUTSTANDING |
|
706.5 |
|
|
690.3 |
|
|
680.3 |
|
| DILUTED WEIGHTED
AVERAGE COMMON SHARES OUTSTANDING |
|
734.0 |
|
|
690.3 |
|
|
697.6 |
|
MOTOROLA, INC. AND
SUBSIDIARIES
NOTES TO
(Dollars in
millions, except as noted)
CONSOLIDATED
FINANCIAL STATEMENTS
F-59
Combined Balance
Sheets (Unaudited)
| |
|
December
31
|
| (In millions,
except per share amounts) |
|
1999 |
|
1998 |
|
| ASSETS |
|
|
|
|
| Current
assets |
|
|
|
|
| Cash and cash
equivalents |
|
$
3,537 |
|
$
1,602 |
| Short-term
investments |
|
699 |
|
171 |
| Accounts
receivable, net |
|
5,627 |
|
5,393 |
| Inventories |
|
3,707 |
|
4,026 |
| Deferred income
taxes |
|
3,247 |
|
2,463 |
| Other current
assets |
|
768 |
|
766 |
| |
|
|
|
|
| Total current
assets |
|
17,585 |
|
14,421 |
| |
|
|
|
|
| Property, plant
and equipment, net |
|
9,591 |
|
10,286 |
| Other
assets |
|
13,313 |
|
6,244 |
| |
|
|
|
|
| TOTAL
ASSETS |
|
$40,489 |
|
$30,951 |
|
| LIABILITIES AND
STOCKHOLDERS’ EQUITY |
|
|
|
|
| Current
liabilities |
|
|
|
|
| Notes payable and
current portion of long-term debt |
|
$
2,504 |
|
$
2,909 |
| Accounts
payable |
|
3,285 |
|
2,568 |
| Accrued
liabilities |
|
7,117 |
|
6,412 |
| |
|
|
|
|
| Total current
liabilities |
|
12,906 |
|
11,889 |
| |
|
|
|
|
| Long-term
debt |
|
3,089 |
|
2,633 |
| Deferred income
taxes |
|
3,719 |
|
1,203 |
| Other
liabilities |
|
1,598 |
|
1,313 |
| |
|
|
|
|
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 |
|
2,140 |
|
2,095 |
| Additional paid-in
capital |
|
4,145 |
|
3,255 |
| Retained
earnings |
|
8,890 |
|
8,290 |
| Non-owner changes
to equity |
|
3,518 |
|
273 |
| |
|
|
|
|
| Total stockholders
’ equity |
|
18,693 |
|
13,913 |
| |
|
|
|
|
| TOTAL LIABILITIES
AND STOCKHOLDERS’ EQUITY |
|
$40,489 |
|
$30,951 |
|
15. Subsequent
Events
Iridium
On February 17, 2000, the Company and Eagle
River Investments, LLC provided an additional $5 million of funding which
Iridium used to fund its on-going operations through March 6, 2000 while
Eagle River Investments, LLC developed a follow-up financing plan for
submission to the bankruptcy court. Eagle River Investments, LLC
subsequently did not submit that plan and, on March 6, 2000, the lenders
under the Secured Credit Facility allowed Iridium to use $3 million of
funds for permitted expenses while Iridium sought a qualified bid for their
assets.
On March 17, 2000, Iridium began winding down
and liquidating its operations, because no qualified bid to purchase the
Iridium satellites was received.
Stock
Options
On January 31, 2000, the Company granted
approximately 16.5 million options to approximately 30,000 eligible
employees. Traditionally, grants of stock options are made in November or
December of each year. The Compensation Committee of the Company’s
Board of Directors elected to delay the 1999 grant until January 31, 2000,
so that it could fully assess the Company’s 1999
performance.
The options, with a contractual life of 15
years, were granted at fair market value and vest and become exercisable at
25% increments over the four years after the grant date.
MOTOROLA, INC. AND
SUBSIDIARIES
NOTES TO
(Dollars in
millions, except as noted)
CONSOLIDATED
FINANCIAL STATEMENTS
Stock Split
On February 29, 2000, the Company’s
Board of Directors approved a 3-for-1 common stock split in the form of a
stock dividend, subject to approval by stockholders of an increase in the
Company’s authorized common shares. If the Company’s stockholders
approve the increase of authorized common shares from 1.4 billion to 4.2
billion at their Annual Meeting on May 1, 2000, the stock dividend will be
distributed on June 1, 2000, to common stockholders of record on May 15,
2000.
MOTOROLA, INC. AND
SUBSIDIARIES
NOTES TO
(Dollars in
millions, except as noted)
CONSOLIDATED
FINANCIAL STATEMENTS
F-61
FIVE YEAR
FINANCIAL SUMMARY
(Dollars in
millions, except as noted)
Motorola, Inc.
and Subsidiaries
| Years ended
December 31 |
|
1999 |
|
1998 |
|
1997 |
|
1996 |
|
1995 |
|
| Operating |
|
Net
sales |
|
$30,931 |
|
|
$29,398 |
|
|
$29,794 |
|
|
$27,973 |
|
|
$27,037 |
|
| Results |
|
Manufacturing and
other costs of sales |
|
19,169 |
|
|
18,043 |
|
|
17,283 |
|
|
16,610 |
|
|
15,361 |
|
| |
|
Selling, general
and administrative expenses |
|
5,045 |
|
|
5,443 |
|
|
5,160 |
|
|
4,701 |
|
|
4,629 |
|
| |
|
Restructuring and
other charges |
|
(226 |
) |
|
1,980 |
|
|
327 |
|
|
— |
|
|
— |
|
| |
|
Research and
development expenditures |
|
3,438 |
|
|
2,893 |
|
|
2,748 |
|
|
2,394 |
|
|
2,197 |
|
| |
|
Depreciation
expense |
|
2,182 |
|
|
2,197 |
|
|
2,329 |
|
|
2,308 |
|
|
1,919 |
|
| |
|
Interest expense,
net |
|
155 |
|
|
216 |
|
|
131 |
|
|
185 |
|
|
149 |
|
| |
|
Total costs and
expenses |
|
29,763 |
|
|
30,772 |
|
|
27,978 |
|
|
26,198 |
|
|
24,255 |
|
| |
|
Net gain on Nextel
asset exchange |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
443 |
|
| |
|
Earnings (loss)
before income taxes |
|
1,168 |
|
|
(1,374 |
) |
|
1,816 |
|
|
1,775 |
|
|
3,225 |
|
| |
|
Income tax
provision (benefit) |
|
351 |
|
|
(412 |
) |
|
636 |
|
|
621 |
|
|
1,177 |
|
| |
|
Net earnings
(loss) |
|
$
817 |
|
|
$
(962 |
) |
|
$
1,180 |
|
|
$
1,154 |
|
|
$
2,048 |
|
| |
|
Net earnings
(loss) as a percent of sales |
|
2.6 |
% |
|
(3.3 |
)% |
|
4.0 |
% |
|
4.1 |
% |
|
7.6 |
% |
|
| Per
Share |
|
Diluted earnings
(loss) per common share |
|
$
1.31 |
|
|
$
(1.61 |
) |
|
$
1.94 |
|
|
$
1.90 |
|
|
$
3.37 |
|
| Data |
|
Diluted weighted
average common shares outstanding |
|
624.7 |
|
|
598.6 |
|
|
612.2 |
|
|
609.0 |
|
|
609.7 |
|
| |
|
Dividends
declared |
|
$
0.480 |
|
|
$
0.480 |
|
|
$
0.480 |
|
|
$
0.460 |
|
|
$
0.400 |
|
|
| Balance |
|
Total
assets |
|
$37,327 |
|
|
$28,728 |
|
|
$27,278 |
|
|
$24,076 |
|
|
$22,738 |
|
| Sheet |
|
Working
capital |
|
4,087 |
|
|
2,091 |
|
|
4,181 |
|
|
3,324 |
|
|
2,717 |
|
| |
|
Long-term debt and
redeemable preferred securities |
|
3,573 |
|
|
2,633 |
|
|
2,144 |
|
|
1,931 |
|
|
1,949 |
|
| |
|
Total debt and
redeemable preferred securities |
|
6,077 |
|
|
5,542 |
|
|
3,426 |
|
|
3,313 |
|
|
3,554 |
|
| |
|
Total stockholders
’ equity |
|
$16,344 |
|
|
$12,222 |
|
|
$13,272 |
|
|
$11,795 |
|
|
$10,985 |
|
|
| Other
Data |
|
Current
ratio |
|
1.33 |
|
|
1.18 |
|
|
1.46 |
|
|
1.42 |
|
|
1.35 |
|
| |
|
Return on average
invested capital |
|
5.5 |
% |
|
(6.2 |
)% |
|
8.4 |
% |
|
8.4 |
% |
|
16.7 |
% |
| |
|
Return on average
stockholders’ equity |
|
5.9 |
% |
|
(7.6 |
)% |
|
9.4 |
% |
|
10.0 |
% |
|
20.2 |
% |
| |
|
Capital
expenditures |
|
$
2,684 |
|
|
$
3,221 |
|
|
$
2,874 |
|
|
$
2,973 |
|
|
$
4,225 |
|
| |
|
% to
sales |
|
8.7 |
% |
|
11.0 |
% |
|
9.6 |
% |
|
10.6 |
% |
|
15.6 |
% |
| |
|
Research and
development expenditures |
|
$
3,438 |
|
|
$
2,893 |
|
|
$
2,748 |
|
|
$
2,394 |
|
|
$
2,197 |
|
| |
|
% to
sales |
|
11.1 |
% |
|
9.8 |
% |
|
9.2 |
% |
|
8.6 |
% |
|
8.1 |
% |
| |
|
Year-end
employment (in thousands) |
|
121 |
|
|
133 |
|
|
150 |
|
|
139 |
|
|
142 |
|
|
QUARTERLY AND
OTHER FINANCIAL DATA
(Dollars in
millions, except per share amounts; unaudited)
Motorola, Inc.
and Subsidiaries
| |
|
1999 |
|
1998 |
| |
|
1st |
|
2nd |
|
3rd |
|
4th |
|
1st |
|
2nd |
|
3rd |
|
4th |
|
| Operating |
|
Net
sales |
|
$7,232 |
|
|
$7,513 |
|
|
$
7,688 |
|
|
$
8,498 |
|
|
$6,886 |
|
|
$
7,023 |
|
|
$7,152 |
|
|
$8,337 |
|
| Results |
|
Gross
profit |
|
2,980 |
|
|
3,124 |
|
|
2,766 |
|
|
2,892 |
|
|
2,759 |
|
|
2,705 |
|
|
2,721 |
|
|
3,170 |
|
| |
|
Net earnings
(loss) |
|
171 |
|
|
206 |
|
|
91 |
|
|
349 |
|
|
180 |
|
|
(1,328 |
) |
|
27 |
|
|
159 |
|
| |
|
Net earnings
(loss) as a
percent of sales |
|
2.4 |
% |
|
2.7 |
% |
|
1.2 |
% |
|
4.1 |
% |
|
2.6 |
% |
|
(18.9 |
)% |
|
0.4 |
% |
|
1.9 |
% |
|
Per Share
Data |
|
Basic earnings
(loss) per
common share |
|
$
0.28 |
|
|
$
0.35 |
|
|
$
0.14 |
|
|
$
0.58 |
|
|
$
0.30 |
|
|
$
(2.22 |
) |
|
$
0.05 |
|
|
$
0.26 |
|
| (in
dollars) |
|
Diluted earnings
(loss) per
common share |
|
$
0.28 |
|
|
$
0.33 |
|
|
$
0.14 |
|
|
$
0.56 |
|
|
$
0.30 |
|
|
$
(2.22 |
) |
|
$
0.04 |
|
|
$
0.26 |
|
|
| |
|
Dividends
declared |
|
$0.120 |
|
|
$0.120 |
|
|
$
0.120 |
|
|
$
0.120 |
|
|
$0.120 |
|
|
$
0.120 |
|
|
$0.120 |
|
|
$0.120 |
|
| |
|
Dividends
paid |
|
$0.120 |
|
|
$0.120 |
|
|
$
0.120 |
|
|
$
0.120 |
|
|
$0.120 |
|
|
$
0.120 |
|
|
$0.120 |
|
|
$0.120 |
|
| |
|
Stock
prices |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
High |
|
$77.38 |
|
|
$99.13 |
|
|
$101.50 |
|
|
$149.50 |
|
|
$65.88 |
|
|
$
61.63 |
|
|
$55.00 |
|
|
$64.31 |
|
| |
|
Low |
|
$62.56 |
|
|
$73.75 |
|
|
$
82.00 |
|
|
$
85.00 |
|
|
$52.00 |
|
|
$
48.19 |
|
|
$39.88 |
|
|
$38.38 |
|
|
|
The number of
stockholders of record of Motorola common stock on January 31, 2000 was
49,984.
|
Location for the
Annual Meeting of Stockholders:
Hyatt Regency
Woodfield
1800 E. Golf
Road, Schaumburg, Illinois 60173, (847) 605-1234
Time and Date of
Meeting: 5:00 P.M., local time, May 1, 2000
Map to the Hyatt
Regency Woodfield
[MAP]
__ __ __ __ __ __ __ __ __
__ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __
__ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __
__ __ __ __ __ __ __ __ __ __
__ __ __ __ __ __ __
[MOTOROLA
LOGO]
2000
P
R
O
X
Y
THIS PROXY IS SOLICITED
BY THE BOARD OF DIRECTORS
for the Annual Meeting of
Stockholders, May 1, 2000
The
undersigned hereby appoints Christopher B. Galvin, Robert L. Growney, Carl
F. Koenemann, Garth L. Milne and Anthony M. Knapp, and each of them, as the
undersigned’s Proxies (with power of substitution) to represent and to
vote all the shares of common stock of Motorola, Inc., which the
undersigned would be entitled to vote, at the Annual Meeting of
Stockholders of Motorola, Inc. to be held May 1, 2000 and at any
adjournments thereof, subject to the directions indicated on the reverse
side hereof.
In
their discretion, the Proxies are authorized to vote upon any other matter
that may properly come before the meeting or any adjournments
thereof.
THIS PROXY WILL BE VOTED IN
ACCORDANCE WITH SPECIFICATIONS MADE, BUT IF NO CHOICES ARE INDICATED, THIS
PROXY WILL BE VOTED FOR ALL NOMINEES LISTED, FOR PROPOSAL 2
AND FOR PROPOSAL 3.
IMPORTANT—This Proxy
must be signed and dated on the reverse side.
__ __ __ __ __ __ __ __ __
__ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __
__ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __
__ __ __ __ __ __ __ __ __ __
__ __ __ __ __ __ __
VOTE YOUR SHARES BY PHONE
OR OVER THE INTERNET
We encourage you to vote by telephone or over the
Internet. These are two quick and easy methods to vote your shares that are
available 24 hours a day, seven days a week, and your vote is recorded as
if you mailed in your proxy card. On the reverse side of this card are
instructions on how to vote by telephone and over the Internet. Voting by
one of these convenient methods will also save the Company
money.
We also ask you to notify the Company if you are
receiving multiple copies of the Summary Annual Report at your household.
You can do so by checking the box under the signature block of the proxy
card if you are mailing in your proxy card, by following the prompt if you
are voting by telephone, or by checking the appropriate box on the
electronic Internet proxy card. If you do so, the Company can save money by
reducing the number of Summary Annual Reports it must print and
mail.
Location for the Annual
Meeting of Stockholders
Map to the Hyatt Regency
Woodfield
1800 E. Golf Road,
Schaumburg, Illinois 60173, (847) 605-1234
[MAP]
| PLEASE MARK VOTE IN OVAL
IN THE FOLLOWING MANNER USING DARK INK ONLY.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES LISTED
BELOW, FOR PROPOSAL 2 AND FOR PROPOSAL 3.
|
| 1. |
Election of Directors
—
Nominees: 01 R. Chan, 02 H. Fuller, 03 C. Galvin, 04 R.
Galvin,
05 R. Growney, 06 A. Jones, 07 J. Lewent,
08 W. Massey, 09 N. Negroponte, 10 J. Pepper, Jr.,
11 S. Scott III, 12 G. Tooker, 13 B. West, 14 J. White
(Except nominee(s)
written above) |
For
All
[_]
|
Withheld
All
[_]
|
For All
Except
[_]
|
2. |
Approval of Increase in
Authorized Common Stock |
For
[_] |
Against
[_] |
Abstain
[_] |
| |
|
|
|
3. |
Adoption of the
Motorola Omnibus Incentive Plan of 2000 |
For
[_] |
Against
[_] |
Abstain
[_] |
| |
|
|
|
|
| |
|
|
|
|
Signature
Date |
| |
|
|
|
|
Signature if jointly held
Date |
| |
[___] |
Please vote, date, sign
and mail promptly this proxy in the enclosed envelope. When there is more
than one owner, each should sign. When signing as an attorney,
administrator, executor, guardian or trustee, please add your title as
such. If executed by a corporation, the full corporation name should be
given, and this proxy should be signed by a duly authorized officer,
showing his or her title.
Do not mail future Summary Annual Reports for this account. Another is
received at this household. |
| IF YOU WISH TO VOTE BY
TELEPHONE OR INTERNET PLEASE SEE INSTRUCTION CARD BELOW |
|
Control
Number
[LOGO OF
MOTOROLA]
TELEPHONE VOTING
INSTRUCTIONS
On a touch-tone
telephone call the toll-free number 1-888-457-2960, 24 hours per day, seven
days a week.
|
Enter your
6-digit Control Number found in the box above.
|
|
Press 1 to vote
FOR the recommendations of the Board of Directors, or press 9 if you
do not wish to vote for the recommendations of the Board of
Directors.
|
|
Press 1 if you
receive more than one Summary Annual Report in your household and do not
wish to receive a Summary Annual Report on this account.
|
If you wish to withhold authority to vote or
vote against some but not all of the recommendations of the Board of
Directors, you must do so by signing, dating and returning the proxy card
in the envelope provided or by voting via the Internet.
INTERNET VOTING
INSTRUCTIONS
Go to the following website:
www.harrisbank.com/wproxy. Enter the information requested on your proxy
screen, including your 6-digit Control Number found in the box
above.
If you vote by
telephone or the Internet, do not mail back your proxy
card.
ADMISSION TICKET TO
MOTOROLA’S 2000 ANNUAL MEETING OF STOCKHOLDERS
[LOGO OF
MOTOROLA]
This is your
admission ticket to gain access to Motorola’s 2000 Annual Meeting of
Stockholders to be held at the Hyatt Regency Woodfield, 1800 E. Golf Road,
Schaumburg, Illinois on Monday, May 1, 2000, at 5:00 P.M. A map showing
directions to the meeting site is shown on the reverse side of this
admission ticket. Please present this ticket at one of the registration
stations. Please note that a large number of stockholders may attend the
meeting, and seating is on a first come, first served basis.
THIS TICKET IS NOT
TRANSFERABLE
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