10-K405 1 FORM 10-K405 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) FOR THE TRANSITION PERIOD FROM _________ TO _________ COMMISSION FILE NUMBER 1-7221 MOTOROLA, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 36-1115800 (STATE OF (I.R.S. EMPLOYER INCORPORATION) IDENTIFICATION NO.)
1303 EAST ALGONQUIN ROAD, SCHAUMBURG, ILLINOIS 60196 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) REGISTRANT'S TELEPHONE NUMBER (708) 576-5000 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE ON TITLE OF EACH CLASS WHICH REGISTERED -------------------------------------------- ----------------------------- Common Stock, $3 Par Value per Share New York Stock Exchange Chicago Stock Exchange Liquid Yield Option Notes due 2009 New York Stock Exchange Liquid Yield Option Notes due 2013 New York Stock Exchange Rights to Purchase Junior Participating New York Stock Exchange Preferred Stock, Series A Chicago Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE ------------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ___ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] The aggregate market value of voting stock held by non-affiliates of the registrant as of January 31, 1995 was approximately $34.9 billion (based on closing sale price of $59.25 per share as reported for the New York Stock Exchange-Composite Transactions). The number of shares of the registrant's Common Stock, $3 par value per share, outstanding as of January 31, 1995 was 588,266,574. DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT LOCATION IN FORM 10-K ------------------------------------------------------------------------------------------- --------------------- Portions of Registrant's Proxy Statement for 1995 Annual Meeting of Stockholders Part III Portions of Registrant's 1994 Annual Report to Stockholders Parts I, II and IV
-------------------------------------------------------------------------------- -------------------------------------------------------------------------------- PART I Item 1: Business (a) General development of business. Motorola, Inc. is a corporation organized under the laws of the State of Delaware as the successor to an Illinois corporation organized in 1928. Motorola's principal executive offices are located at 1303 East Algonquin Road, Schaumburg, Illinois 60196 (telephone number: 708-576-5000). Motorola, Inc., one of the world's leading providers of electronic equipment, systems, components and services for worldwide markets, is engaged in the design, manufacture and sale, principally under the Motorola brand, of a diversified line of such products. These products include two-way land mobile communication systems, paging and wireless data systems and other forms of electronic communication systems; subscriber and infrastructure equipment for the telephone market; cellular mobile and portable telephones and systems; semiconductors, including integrated circuits, discrete devices and microprocessor units; information systems products such as modems, multiplexers and network processors; electronic equipment for military and aerospace use; electronic engine controls, and other automotive and industrial electronic equipment; and multifunction computer systems for distributed data processing and office automation applications. Motorola also provides services for paging, cellular telephone, shared mobile radio and wireless data. The term "Motorola" as used hereinafter means Motorola, Inc. or Motorola, Inc. and its subsidiaries, as the context requires. (b) Financial information about industry segments. The response to this section of Item 1 is incorporated by reference to Note 7 of the Notes to Consolidated Financial Statements of Motorola's 1994 Annual Report to Stockholders. (c) Narrative description of business. - 2 - SEMICONDUCTOR PRODUCTS Semiconductors control and amplify electrical signals and are used in a broad range of electronic products, including television receivers and other consumer electronic products, solid-state ignition systems and other automotive electronic products, major home appliances, industrial controls, robotics, aircraft, missiles, space vehicles, communications equipment, computers, calculators and automatic controls. The semiconductor products manufactured by Motorola's Semiconductor Products Sector include integrated circuit devices (metal-oxide semiconductor and bipolar) such as dynamic and static random access memories, microcontrollers, microprocessors, microcomputers, gate arrays, standard cells, digital signal processors, mixed signal and other logic and analog components. In addition, the Sector manufactures a wide variety of discrete devices including zener and tuning diodes, RF devices, power and small signal transistors, field effect transistors, microwave devices, optoelectronics, rectifiers and thyristors. The Sector sells its products worldwide to original equipment manufacturers through its own sales force. Products also are sold through a network of industrial distributors in the United States. Sales outside the United States are made through the Sector's own sales staff and through independent distributors. Products manufactured by the Sector are also supplied to other operating units of Motorola. The Sector is affected by the cyclical nature of the semiconductor industry. Available capacity, cyclical customer demands, new product introduction and aggressive pricing can have a significant impact on its business. The Sector's capacity is being increased to meet current strong market demand, but the Sector is still experiencing capacity constraints. In addition to the Sector's factory expansion program, it is actively pursuing additional capacity through the sourcing of products from outside vendors. Because of the strong market demand, the available quantity of some products have been allocated among customers, including other Motorola operating units, from time to time. - 3 - The semiconductor industry is subject to rapid changes in technology, requires a high level of capital spending and an extensive research, development and design program to maintain state-of-the-art technology. Accordingly, the Sector maintains an extensive research and development program in advanced semiconductor technology. The Sector's backlog amounted to $2.68 billion at December 31, 1994 and $2.12 billion at December 31, 1993. The 1994 backlog amount is believed to be generally firm, and approximately 100% of that amount is expected to be shipped during 1995. However, in the past, the Sector has experienced abrupt and repeated rescheduling of previously firm and even expedited orders. The estimate of the firmness of such orders is subject to future events which may cause the percentage of the 1994 backlog actually shipped to change. The Semiconductor Products Sector experiences intense competition from numerous competitors, including Japanese companies and several other companies around the world, ranging from large companies offering a full range of products to small companies specializing in certain segments of the market. The competitive environment is also changing as a result of increased alliances between competitors. The Sector competes in many markets, including the telecommunications, personal computer/work stations, industrial, automotive, consumer, computer, government and distributor markets. The Sector announced that it will withdraw from its military business, which is expected to take approximately eighteen months. Due to the multitude of competitors, price, service, technology and product quality are important factors in competition. The ability to develop new products to meet customer requirements and to meet customer delivery schedules are also competitive factors. Management believes that Motorola's commitment to research and development of new products combined with utilization of state-of-the-art technology should allow the Sector to remain competitive. The Sector is not currently experiencing, nor does it anticipate, any shortages in obtaining raw materials. However, it is experiencing some extended lead times on certain raw materials due to strong industry demand, but this is not currently expected to have any material impact on the Sector's business. A significant portion of certain materials and - 4 - parts used by the Sector is supplied from a single country. The Sector is actively seeking new sources of supply to decrease this dependency. With respect to other materials, the Sector is constantly seeking new sources of supply to minimize the risk of obtaining materials from only a few sources. Electricity, oil and natural gas are used extensively in the Sector's operations. All of these energy sources are available in adequate quantities for current and foreseeable future needs. Electricity and oil are the primary energy sources for the Sector's foreign operations, and presently, there are no shortages of these sources although the reliability of electrical power has been a problem from time to time. Reference is made to the material under the heading "General" for information relating to patents and trademarks and seasonality of business with respect to this industry segment. The Semiconductor Products Sector's headquarters are in Phoenix, Arizona, with manufacturing facilities in Phoenix, Mesa, Tempe and Chandler, Arizona; Irvine, California; Research Triangle Park, North Carolina, Austin, Texas; Tianjin, China; Toulouse, France; Munich, Germany; Kwai Chung and Tai Po, Hong Kong; Aizu and Sendai, Japan; Seoul, Korea; Kuala Lumpur and Seremban, Malaysia; Guadalajara, Mexico; Singapore; East Kilbride, Scotland; Carmona and Manila, the Philippines; and Chung-Li, Taiwan. COMMUNICATIONS PRODUCTS Communications products are designed, manufactured and sold by Motorola's Land Mobile Products Sector ("LMPS") and its Paging Products and Wireless Data Groups ("PWDG"). In 1994, both operations comprised the Company's Communications Products segment. Also, in January 1994, Motorola's Information Systems Group (consisting of Codex Corporation and Universal Data Systems, Inc.) was combined with PWDG to form the Messaging, Information and Media Sector. During 1994, this new Sector did not constitute a separate reportable industry segment, and the results of operations of the Information Systems Group were reported under - 5 - "Other Products". For 1995, the Messaging, Information and Media Sector will be reported as a separate industry segment. As a principal supplier of mobile and portable FM two-way radio and radio paging and wireless data systems, LMPS and PWDG provide equipment and systems to meet the communications needs of individuals and many different types of business, institutional and governmental organizations. Products of LMPS and certain products of PWDG provide voice and data communication between vehicles, persons and base stations. PWDG designs, manufactures and distributes paging, data and gateway communications products on a worldwide basis. PWDG also provides network services for paging and data subscribers through wholly-owned and operated businesses and domestic and international joint ventures. LMPS provides network services for two-way radio subscribers in international markets through joint ventures. The principal customers for two-way radio and radio paging products include public safety agencies, such as police, fire, highway maintenance departments and forestry services; petroleum companies; gas, electric and water utilities; telephone companies; diverse industrial companies; mining companies; transportation companies such as railroads, airlines, taxicab operations and trucking firms; institutions, such as schools and hospitals; and companies in the construction, vending machine and service businesses. Also, there is a growing base of paging and wireless data customers using the products for personal and family communication needs. These products are also sold and leased to various federal agencies for many uses. No one customer or a few customers represent a material part of the business of the Communications Products segment. However, PWDG and LMPS each has a few customers that collectively may be material to their respective businesses. Users of two-way radios are regulated by a variety of governmental and other regulatory agencies throughout the world. In the United States, users of two-way radios are licensed by the Federal Communications Commission ("FCC") which has broad authority to make rules and regulations and prescribe restrictions and conditions to carry out the provisions of the Communications Act of 1934. The FCC's authority includes, among other things, the power to classify radio stations, - 6 - prescribe the nature of the service to be rendered by each class of station, assign frequencies to the various classes of stations and regulate the kinds of equipment which may be used. Regulatory agencies in other countries have similar types of authority. Consequently, the business of this segment and other segments may be affected by the rules and regulations adopted by the FCC or regulatory agencies in other countries from time to time. Motorola has developed products using trunking and data communications technologies to enhance spectral efficiencies. The growth of the two-way radio communications industry may be affected, however, by the regulations of the FCC or other regulatory agencies relating to the allocation of frequencies for land mobile communications users, especially in urban areas where such frequencies are heavily used. LMPS also manufactures and sells signaling and control systems and communication control centers used in two-way radio operations. This segment carries on an extensive product development program. Its products make substantial use of solid-state semiconductor components, including large- scale integrated circuits. The products manufactured and marketed by LMPS are sold directly through its own distribution force, or through independent authorized distributors and dealers, commercial radio service operators and independent commission sales representatives. Leasing and conditional sale arrangements are also made available to customers. The direct distribution force also provides systems engineering and technical services to meet the customer's particular needs. The customer may choose to install and maintain the equipment with its own employees, or may obtain installation, service and parts from a network of Motorola authorized service stations (most of whom are also authorized dealers) or from other non-Motorola service stations. The majority of the leases and conditional sale contracts entered into by LMPS are sold to several unaffiliated finance companies and banks on terms which, in most instances, provide recourse to Motorola with certain limitations. Some leases and conditional sale contracts are sold to a Motorola finance subsidiary. Subscriber units are sold directly and through indirect - 7 - distribution channels. Personal wireless communicators in the U.S. market are distributed through resellers and computer retailers. Pagers are sold directly and to service providers. This segment's backlog amounted to $2.02 billion at December 31, 1994 and $1.71 billion at December 31, 1993. The 1994 backlog amount is believed to be generally firm, and approximately 96% of that amount is expected to be shipped during 1995. The estimate of the firmness of such orders is subject to future events which may cause the percentage of the 1994 backlog actually shipped to change. This segment experiences widespread, intense competition from numerous competitors ranging from some of the world's largest, diversified companies to foreign state-owned telecommunications companies to many small, specialized firms. The principal manufacturing operations of many competitors are located outside of the United States. Competitive factors for LMPS include: price, product performance, product quality, quality and availability of service, and quality and availability of systems engineering, and for PWDG include: price, quality, volume, service and technology, with no one factor being dominant. Management believes that Motorola's commitment to research and development programs for improving existing products and developing new products and its utilization of state-of-the-art technology should allow this segment to remain competitive. Availability of materials and components required by this segment is relatively dependable and certain, but normal fluctuations in market demand and supply could cause temporary, selective shortages. Direct sourcing of materials and components from foreign suppliers is becoming more extensive. LMPS operates certain offshore subassembly plants, the loss of one or more of which could constrain its production capabilities. Natural gas, electricity and, to a lesser extent, oil, are the primary sources of energy. Current supplies of these forms of energy are considered to be adequate for this segment's United States and foreign operations. PWDG carries significant amounts of paging production inventory to help reduce delivery cycle time. LMPS provides custom products based on assembling basic units into a large variety of models or combinations. This requires stocking of inventories and large varieties of - 8 - piece parts as well as a variety of basic level assemblies to meet short delivery requirements. Reference is made to the material under the heading "General" for information relating to patents and trademarks with respect to this segment. Information with respect to transfer of LMPS's 800 MHz specialized mobile radio service businesses, systems and licenses in the United States is incorporated by reference to the information under "Communications Products" under the caption "Financial Review" and in Note 6 of the Notes to Consolidated Financial Statements of Motorola's 1994 Annual Report to Stockholders. This segment's headquarters are located in Schaumburg, Illinois, with manufacturing facilities in Schaumburg, Illinois; Boynton Beach and Plantation, Florida; Mount Pleasant, Iowa; Ft. Worth, Texas; Tianjin, China; Bangalore, India; Dublin, Ireland; Arad, Israel; Penang, Malaysia; Vega Baja, Puerto Rico; Taunusstein, Germany; and Singapore. GENERAL SYSTEMS PRODUCTS General systems products are designed, manufactured and sold by Motorola's General Systems Sector which includes the Cellular Subscriber Group, the Cellular Infrastructure Group, the Network Ventures Division, Personal Communications Systems Division ("PCS") and the Motorola Computer Group. The Cellular Subscriber and Infrastructure Groups manufacture, sell, install and service cellular infrastructure and radiotelephone equipment. In addition, the Cellular Subscriber Group resells cellular line service in the U.S., New Zealand, Germany, France and the U.K. markets. The Network Ventures Division is a joint venture partner in cellular and telepoint operating systems in Argentina, Uruguay, Hong Kong, Israel, Chile, Mexico, Thailand, Pakistan, Nicaragua, Dominican Republic, Russia, Honduras, Jordan, Lithuania and Japan. The Cellular Infrastructure Group products - 9 - include electronic exchanges (i.e., telephone switches), base site controllers and radio base stations. Radiotelephone products include mobile, portable, personal and transportable radiotelephones with various options, personal communications equipment and cordless telephones. PCS products include subscriber and infrastructure equipment for the telephone market. Products are marketed worldwide through original equipment manufacturers, carriers, distributors, dealers, retailers and, in certain countries, through a direct sales force. Financing of cellular and personal communications infrastructure equipment is sometimes offered to qualifying customers. Radio frequencies are required to provide cellular service. The allocation of frequencies is regulated in the United States and other countries throughout the world, and limited spectrum space is allocated for cellular services. The growth of the cellular and personal communications industry may be affected if adequate frequencies are not allocated for its use, or alternatively, if new technology is not developed to increase capacity on presently allocated frequencies. The Motorola Computer Group develops, manufactures, sells and services multi- function computer systems and board level products, together with operating systems and system enablers based on the Motorola 68000, 88000 and Power PC series microprocessors. These products are sold worldwide to a variety of customers, some of whom produce computer products which compete with the Group. The Computer Group's products are marketed to end-users, original equipment manufacturers, value added resellers and distributors throughout the world. The Motorola Computer Group also markets computer products and peripherals that it does not manufacture. General Systems products are subject to constant changes in technology. Consequently, the Sector has an extensive research and development program. The Sector's backlog amounted to $1.7 billion at December 31, 1994 and $1.2 billion at December 31, 1993. The 1994 backlog is believed to be generally firm, and approximately 100% of that amount is expected to be shipped during 1995. The estimate of the firmness of such orders is - 10 - subject to future events which may cause the percentage of the 1994 backlog actually shipped to change. The General Systems Sector experiences intense competition from numerous competitors ranging from some of the world's largest companies to small, specialized firms. The Sector competes in markets worldwide. Competitive factors in the market for the products are price, service, delivery, technological capability, product quality and product and system performance. An additional factor for the Motorola Computer Group products is the availability of software products to address specific user applications. Participation in a very competitive industry requires a continuing high level of investment in technology. Management believes that Motorola's commitment to research and development programs for improving existing products and developing new products and its utilization of state-of-the-art technology should allow the General Systems Sector to remain competitive. Materials used in the Sector's operations are generally second-sourced to ensure a continuity of supply. Occasionally, there are shortages of required purchased components. Energy necessary for the Sector's operations consists of electricity, natural gas and gasoline, all of which are currently adequate in supply. The Sector's factories are highly automated and therefore, dependent upon a steady supply of electrical power. Patent protection is very important to the cellular business. Also, reference is made to the material under the heading "General" for information relating to patents and trademarks and seasonality of business with respect to this industry segment. The General Systems Sector's headquarters are located in Arlington Heights, Illinois. The Sector operates manufacturing facilities in Tempe, Arizona; Arlington Heights, Grayslake, Harvard and Libertyville, Illinois; Swindon, England; Penang, Malaysia; Easter Inch, Scotland; Flensburg, Germany; Arad, Israel; and Tianjin, China. The Sector also has a joint venture manufacturing operation in Austria. - 11 - GOVERNMENT AND SPACE TECHNOLOGY PRODUCTS The Government and Space Technology Group (formerly the Government and Systems Technology Group) is engaged in the design, development and production of electronic systems and products, and it competes for a variety of United States Government projects and commercial business. The Group is attempting to expand the application of its core capabilities to support global growth opportunities within other Motorola businesses. The Group produces products related to electronic and communications equipment that has various applications based upon customer requirements of the Group's three business segments: government, commercial and Satellite Communications. The government business segment, known as the Government Electronics Division, primarily does research, development and production work under contracts with governmental agencies, but also conducts independent research and development programs. The government business segment produces products such as diversified military and space electronic equipment, including aerospace telecommunications systems, military communications equipment, radar systems, data links, display systems, positioning and navigation systems, instrumentation products, countermeasures systems, missile guidance equipment, electronic ordnance devices and drone electronic systems. The government business segment has been predominantly dependent upon the United States Government as its main customer, acting as either a prime contractor or a subcontractor to other prime contractors. The total loss of all of this business could have a material adverse effect on the Group. Contracts are secured from United States Government agencies and their suppliers by negotiation and competitive bidding. The government procurement environment is becoming more competitive and is highly regulated. Competition has increased substantially in all aspects of the government business due to a slowdown in procurement resulting from a lower defense budget. Competitors include large and small technically competent firms. Some competitors from whom the segment procured subcontract work in the past are becoming more vertically integrated and are performing the work previously subcontracted. This segment currently expects to continue to meet competition on the basis of price and quality of product performance. - 12 - The Group diversified by applying its core technologies to other non-federal government and commercial opportunities. During 1993, the Group organized its commercial business thrusts into the Diversified Technologies Division ("DTD") which marketed products in the secure telecommunications and commercial test equipment markets. It also developed products for positioning and navigation systems, and personal alarm and reporting systems markets. However, these businesses have not grown as rapidly as expected and will be pursued less actively in 1995. The resources within DTD are expected to be re-deployed to meet the growing need for design and development services within other Motorola Sectors beginning in 1995. DTD had in place during 1994 distribution agreements with the Land Mobile Products Sector ("LMPS") for the commercial test equipment and secure telecommunications markets. However, during 1994, DTD was able to expand its own distribution network for commercial test equipment to reduce reliance on LMPS. The Group's Satellite Communications Division (SATCOM) is developing the IRIDIUM[REGISTERED TRADEMARK] satellite-based communication system. The IRIDIUM system is a space-based wireless communications system that is being designed to provide global digital service to hand-held telephones and related equipment. The IRIDIUM system involves four components: (1) a constellation of low earth orbit satellites, (2) a centralized system control center, (3) gateways distributed throughout the world and (4) individual subscriber units including, for example, voice, data, facsimile and paging. SATCOM is the prime contractor under contracts with Iridium, Inc. to provide and launch the satellites, control the ground stations and maintain the system. During the last three years, this contract for development effort has become a significant portion of the Group's business and is expected to remain a major contributor to the Group's sales for the next few years. The loss of these contracts could have a material adverse effect on the Group. SATCOM has entered into significant subcontracts for portions of the system for which it will generally remain obligated even if Iridium, Inc. is unable to satisfy the terms of its contracts with SATCOM, including funding. IRIDIUM is a registered trademark and service mark of Iridium, Inc. - 13 - Total sales for the Group include sales made to a number of free world governments and corporations. Products of the Group are marketed outside the United States by a few distributors, by independent representatives and by the Group's own sales force. In 1994, a small percentage of the Group's business was conducted internationally, primarily through the government business sector. The Group's backlog amounted to $1.1 billion at December 31, 1994 and $634 million at December 31, 1993. The 1994 backlog is believed to be generally firm and approximately 73% of that amount is expected to be shipped during 1995. All contracts with the United States Government are subject to cancellation at the convenience of the Government, and the contracts with Iridium, Inc. may be terminated by Iridium, Inc. pursuant to the terms set forth in the contracts. The estimate of the firmness of the 1994 backlog is subject to future events which may cause the percentage actually shipped to change. Materials used by the Group in its operations are generally available. Natural gas and electricity are the principal types of energy used, and availability of both to the Group is currently more than adequate. Patents are becoming more important as competition increases in a declining U.S. Government market and as the Group expands quasi-government and commercial opportunities. Also, reference is made to the material under the heading "General" for information relating to patents and trademarks with respect to this industry segment. The Group has its headquarters in Scottsdale, Arizona, with manufacturing facilities in Scottsdale and Chandler, Arizona. INFORMATION SYSTEMS PRODUCTS Information systems products are designed, manufactured and sold by the Information Systems Group ("ISG"), which consisted of Codex Corporation and Universal Data Systems, Inc., which were wholly owned subsidiaries - 14 - of Motorola. These two corporations have been dissolved and their businesses have been combined with other operations of Motorola. ISG manufactures and sells high-speed leased-line and dial modems, digital transmission devices, data/voice, time division and statistical multiplexers, network management and control systems, X.25 networking equipment and local area network interconnection products. These products are offered alone, and increasingly in systems, which have been configured to transmit information among personal computers, terminals, other peripheral devices and host computers. ISG also manufactures and sells a broad line of analog and digital data communications equipment, including modems and DDS (Digital Dataphone Services) service units for dedicated and switched networks, multiplexers, ISDN (Integrated Services Digital Network) terminal adaptors, network management systems and LAN (Local Area Network) products. ISG markets a few data communication products it does not manufacture. ISG products are sold through both domestic and international sales organizations which sell through direct and indirect channels, such as distributors and value added resellers. Information systems products are subject to constant changes in technology. Consequently, the Group has an extensive research and development program. ISG experiences intense competition from numerous competitors ranging from some of the world's largest companies, including AT&T and IBM, to small, specialized firms. Competitive factors in the market for these products are product quality and performance, customer service and price. Management believes that Motorola's commitment to research and development programs for improving existing products and developing new technologies and its utilization of state-of-the-art technology should allow the Group to remain competitive. Materials used in the Group's business consist primarily of electronic components and assemblies which are generally available from multiple sources. Occasionally, shortages or extended delivery periods occur in various component parts, the effects of which have been industry-wide - 15 - and short in duration. The Group requires commercially available electrical energy for manufacturing and administrative operations. Facilities are temperature controlled with oil or gas heat and electrical power. These types of energy are currently readily available. Reference is made to the material under the heading "General" for information relating to patents and trademarks with respect to this industry segment. ISG is headquartered in Mansfield, Massachusetts where it has separate product engineering and marketing facilities. Manufacturing operations are located in Mansfield, Massachusetts and Huntsville, Alabama. AUTOMOTIVE, ENERGY AND CONTROLS PRODUCTS The Automotive, Energy and Controls Group manufactures and sells products in three major categories: automotive and industrial electronics; energy storage products and systems; and ceramic and quartz electronic components. The Group also includes operations which manufacture electronic ballasts for fluorescent lighting and radio frequency identification devices. The Group is involved in several joint ventures. Manufacturing facilities are located at both domestic and foreign locations. The Group sells its automotive and industrial electronics products to original equipment manufacturers, including foreign and domestic automobile manufacturers, heavy vehicle manufacturers, farm equipment manufacturers and industrial customers. A large part of its business is dependent upon two customers, the loss of either of which could have a material adverse effect on the business of the Group. Demand for products is linked to automobile sales in the United States and other countries where the Group sells its products. The Group experiences competition from numerous global competitors including automobile manufacturers. - 16 - The energy storage products business and the ceramic and quartz products business sell primarily to other industry segments within Motorola, principally the Communications and General Systems Products segments. All materials used by the Group have good availability at this time. The Group uses electricity and gas in its operations, which are currently adequate in supply. Competitive factors in the sale of all of the Group's products include price, product quality and performance, supply integrity, quality reputation, experience, responsiveness and design and manufacturing technology. Reference is made to the material under the heading "General" for information relating to patents and trademarks with respect to this industry segment. The Group's headquarters is located in Northbrook, Illinois. It has manufacturing operations located in Scottsdale, Arizona; San Jose, California; Atlanta, Georgia; Northbrook, Buffalo Grove, Schaumburg and Vernon Hills, Illinois; Albuquerque, New Mexico; Elma, New York; Carlisle, Pennsylvania; Seguin, Texas; Angers, France; Stotfold, England; Tuas, Singapore; Tianjin, China; Chung-Li, Taiwan; Penang, Malaysia; Vega Baja, Puerto Rico; Dublin, Ireland; and San Jose, Costa Rica. GENERAL CUSTOMERS. Motorola is not dependent for a material part of its business upon a single or a very few customers. Approximately 3% of Motorola's total sales and revenues in 1994 were received from various branches and agencies, including the armed services, of the United States Government. All contracts with the United States Government are subject to cancellation at the convenience of the Government. Government contractors, including Motorola, are routinely subjected to numerous audits and investigations, which may be either civil or criminal - 17 - in nature. The consequences of these audits and investigations may include administrative action to suspend business dealings with the contractor and to exclude it from receiving new business. In addition, Motorola, like other contractors, is internally reviewing aspects of its government contracting operations, and, where appropriate, taking corrective actions and making voluntary disclosures to the Government. From time to time, these audits and investigations may adversely affect Motorola. BACKLOG. Motorola's aggregate backlog position, including the backlog position of subsidiaries through which some of its business units operate, as of the end of the last two fiscal years, was approximately as follows: December 31, 1994. . . $7.594 billion December 31, 1993. . . $6.006 billion The orders supporting the 1994 backlog amounts shown in the foregoing table are believed to be generally firm, and approximately 95% of orders on hand at December 31, 1994 are expected to be shipped during 1995. However, future events may cause the percentage actually shipped to change. Motorola has a general policy of including in its reported orders only those contracts or commitments which are written and firm, and which it believes will result in a sale within one year. For long-term contracts, only the portion to be funded within a year generally is recorded as an order. For products and contracts involving certain new technologies, and some new combinations of technologies, Motorola's general practice is to defer recognition of either revenues or profits or both revenues and profits until technological feasibility is established or customer acceptance is obtained. RESEARCH AND DEVELOPMENT. Throughout its history, Motorola has relied, and continues to rely primarily on its research and development programs for the development of new products and its production engineering capabilities for the improvement of existing products. Technical data and product application ideas are exchanged among Motorola's industry segments on a regular basis. Research and development expenditures - 18 - relating to new product development or product improvement, other than customer-sponsored contracts, were approximately $1,860 million in 1994, $1,521 million in 1993 and $1,306 million in 1992. In addition, research funded under customer-sponsored contracts amounted to approximately $601 million in 1994, $324 million in 1993 and $37 million in 1992. Approximately 16,500 professional employees were engaged in such research activities (including customer-sponsored) during 1994. PATENTS AND TRADEMARKS. Motorola owns 6,604 patents in the United States and 5,177 in foreign countries. These foreign patents are counterparts of Motorola's United States patents. Many of the patents owned by Motorola are licensed to others, and Motorola is licensed to use certain patents owned by others. In some instances, certain of the patents licensed by Motorola to others have generated significant amounts of revenue to Motorola. During 1994, Motorola was granted 940 United States patents. Many of Motorola's patents are used in its operations or licensed for use by others. Motorola considers its trademark "MOTOROLA" and the "M" symbol to be valuable assets. These are protected through trademark registrations. Other trademarks of Motorola are protected and registered in the relevant markets, but are used only on limited product lines. CORPORATE MISSION. Motorola's corporate mission is to grow rapidly, in each of its chosen arenas of the electronics industry, by providing its worldwide customers what they want, when they want it, with six sigma quality (virtually zero defects, i.e., no more than 3.4 parts per million defective) and best-in- class cycle time, as it strives to achieve its fundamental objective of total customer satisfaction and to achieve its stated goals of increased global market share; best-in-class people, marketing, manufacturing, technology, service and product software, hardware and systems; and superior financial results. To try to fulfill this mission, Motorola has concentrated on five key operational initiatives: first, designing products that will accept reasonable - 19 - variation in component parts, developing manufacturing processes that will produce minimum variation in final output product and designing systems that will achieve six sigma performance; second, examining the total product system to reduce the cycle time from when an order is placed or a product is conceived until it is delivered; third, emphasizing the need for product development, environmental and manufacturing disciplines to work together; fourth, attempting to improve profits through implementing a long-term, customer-driven approach that shows it where to commit its resources to give customers what they want; and fifth, empowerment for all, in a participative, cooperative and creative workplace to achieve more synergy, greater efficiency and improved quality within and among organizations. In addition, it has tried to develop the following key attributes or elements of a successful quality program: leadership; communications; training; establishing high goals and high expectations; providing for recognition; and developing a participative, cooperative, creative and receptive culture. Motorola strives to build on the skills of its people and its growing portfolio of technologies to create the platforms upon which whole new global industries are born. In doing so, Motorola draws on the creativity and wealth of experience of its people in all cultures. ENVIRONMENTAL QUALITY. Motorola operations are from time to time the subjects of investigations, conferences, discussions and negotiations with various federal, state and local environmental agencies with respect to the discharge or cleanup of hazardous waste and compliance by those operations with environmental laws and regulations. The balance of the response to this section of Item 1 is incorporated by reference to Note 6 of the Notes to Consolidated Financial Statements under the caption "Environmental and Legal" and the information contained in Motorola Management's Discussion and Analysis of Financial Condition and Results of Operations under the caption "Environmental Matters" in Motorola's 1994 Annual Report to Stockholders. MISCELLANEOUS. At December 31, 1994, there were approximately 132,000 employees of Motorola and its subsidiaries. The business of Motorola and its industry segments is not seasonal to any significant extent overall, although the Semiconductor Products Sector has tended to have stronger, seasonally-adjusted sales in the first half of the year, and sales of - 20 - products in consumer markets tend to increase in the fourth quarter. Also, as the market for paging products in China has matured, a seasonal pattern has developed in which orders decline in the fourth and first quarters. The increase in large system orders in the Cellular Infrastructure Group and the Land Mobile Products Sectors could increase the volatility of orders, revenues and profits recognized in any particular period. Radio frequencies are required to use many of Motorola's products and services. These frequencies and their use are regulated by a variety of agencies throughout the world. The growth in cellular and other wireless communications products could be affected if adequate frequencies are not allocated for their use, or through regulation or regulatory changes. In the United States, the Federal Communications Commission has broad authority to make the rules and regulations and prescribe restrictions and conditions on the use of radio frequencies. Many countries, including the United States, are currently in the process of making available a significant number of additional licensed radio frequencies. (d) Financial information about foreign and domestic operations and export sales. Domestic export sales to third parties were $2.97 billion in 1994, $1.83 billion in 1993 and $1.14 billion in 1992. Domestic export sales to affiliates were $4.40 billion in 1994, $3.16 billion in 1993 and $2.32 billion in 1992. The remainder of the response to this section of Item 1 is incorporated by reference to Note 7 of the Notes to Consolidated Financial Statements and the "Results of Operations" section of Motorola's 1994 Annual Report to Stockholders. Item 2: Properties Motorola's principal executive offices are located at 1303 East Algonquin Road, Schaumburg, Illinois 60196. Its other major facilities in the United States are located in Arlington Heights, Buffalo Grove, Grayslake, Libertyville, Northbrook, Schaumburg and Vernon Hills, Illinois; Elma, New - 21 - York; Phoenix, Chandler, Scottsdale, Mesa and Tempe, Arizona; Boynton Beach and Plantation, Florida; Atlanta, Georgia; Austin, Ft. Worth and Seguin, Texas; Mount Pleasant, Iowa; Mansfield, Massachusetts; Huntsville, Alabama; Research Triangle Park, North Carolina; Albuquerque, New Mexico; Carlisle, Pennsylvania; and Irvine and San Jose, California. Motorola also operates manufacturing facilities or sales offices in 39 other countries. (See "Narrative Description of Business" for information regarding the location of the principal manufacturing facilities for each industry segment.) The United States facilities (both manufacturing and administrative) owned by Motorola contain approximately 16.9 million square feet. Motorola also leases facilities in the United States containing approximately 4.5 million square feet. Motorola's facilities outside the United States contain approximately 8.3 million square feet of which approximately 3.1 million square feet are leased. Motorola generally considers the productive capacity of the plants operated by each of its industry segments adequate and suitable for the requirements of each of such segments, except for the Semiconductor Products Sector which is engaged in a factory expansion program to meet the strong market demand for its products. Motorola is also adding production capacity for its General Systems Sector and its Paging Products Group. The extent of utilization of such manufacturing facilities varies from plant to plant and from time to time during the year. Item 3: Legal Proceedings Motorola is a named defendant in six cases arising out of alleged groundwater, soil and air pollution in Phoenix and Scottsdale, Arizona. MCINTIRE ET AL. V. MOTOROLA and CAMELHEAD EQUITIES ET AL. V. MOTOROLA ET AL. are pending in the U.S. District Court for the District of Arizona, and BAKER ET AL. V. MOTOROLA ET AL., LOFGREN ET AL. V. MOTOROLA ET AL., BENTANCOURT ET AL. V. MOTOROLA ET AL. and FORD ET AL. V. MOTOROLA ET AL. are pending in the Arizona Superior Court, Maricopa County. The MCINTIRE lawsuit, filed on December 20, 1991, involves over 900 plaintiffs who allege that the operations of Motorola at several facilities in Phoenix and Scottsdale, - 22 - Arizona have caused property damage and health problems by contaminating the soil, groundwater and air in the area surrounding those facilities. CAMELHEAD EQUITIES, filed on June 1, 1993, is a suit for business losses by four failed real estate development limited partnerships alleging that groundwater contamination caused property damage and the failure of their real estate development. The BAKER lawsuit, filed on February 11, 1992, is also a class action, involving six representative individual named plaintiffs, alleging that Motorola and other defendants contaminated the soil, air and groundwater in the Phoenix/Scottsdale area, diminishing property values and exposing members of the class to possible adverse health effects. On August 24, 1994, the BAKER court certified two classes, a property damage class consisting of all persons who were residents, property owners or lessees of property which overlies, or is adjacent to, the alleged groundwater pollution, and a medical monitoring class consisting of all persons who resided in Phoenix and/or Scottsdale for more than one year continuously during the years between 1955 and 1989, and who received potable drinking water containing trichloroethylene at a level equal to or exceeding 2.0 parts per billion, on average. The LOFGREN, BENTANCOURT and FORD lawsuits, filed on April 6, 1993, July 16, 1993 and June 10, 1994, respectively, have been consolidated. The consolidated cases involve approximately 190 plaintiffs, alleging that Motorola and other defendants contaminated the soil, air and groundwater in the Phoenix/Scottsdale area, causing health problems. All six lawsuits seek compensatory and punitive damages. The MCINTIRE complaint includes personal injury and property damage claims and seeks injunctive relief. The BAKER complaint seeks damages for medical monitoring and alleges claims for property, business and economic loss and seeks declaratory and injunctive relief. In December 1994, an agreement in principal was reached to settle the FELDMAN ET AL. V. MOTOROLA, INC. ET AL., securities law class action, subject to court approval. FELDMAN was filed on May 1, 1991 in the U.S. District Court for the Northern District of Illinois as a class action against Motorola and several of its officers for alleged violations of Section 10(b), 20(a) and 20A of the Securities Exchange Act of 1934 and SEC Rule 10b-5. - 23 - Motorola's declaratory judgment action filed on October 8, 1993 against InterDigital Communications Corporation ("IDC") is being tried by jury trial in the United States District Court for the District of Delaware. IDC claims that Motorola's TDMA technology (used in cellular products, MIRS and other areas) infringes one or more of IDC's patents. Motorola believes that the IDC patents are invalid; and if valid, that Motorola does not infringe them. If Motorola loses, the jury could award damages for past infringement. The amount of such an award cannot be predicted but could be significant. The jury could also impose royalties on future sales. Also, Motorola could be enjoined from selling infringing products. A number of Motorola's competitors have now signed licenses with IDC. Motorola and several of its directors and officers are named defendants in three alleged class actions for alleged violations of Section 10(b) and 20(a) of the Securities Exchange Act and SEC Rule 10b-5, KAUFMAN, ET AL. V. MOTOROLA, INC. ET AL.; HOFFMAN IRA ROLLOVER ACCOUNT ET AL. V. MOTOROLA, INC., ET AL.; and MILLER V. MOTOROLA, INC., ET AL. Each proposed action is pending in the U.S. District Court for the Northern District of Illinois, and each maintains that Motorola and the individual defendants committed a fraud on the securities market by artificially inflating the price of Motorola stock. Plaintiffs propose a class period of January 9, 1995 through February 17, 1995, and seek an unspecified amount of damages. Motorola is a defendant in several cases arising out of the Company's manufacture and sale of portable cellular telephones. VERB, ET AL. V. MOTOROLA, INC., ET AT., Circuit Court of Cook County, Illinois, 93 CH 00969, is a purported class action by purchasers of portable cellular phones against the Company and seven other corporate defendants, alleging economic loss; the trial court's dismissal of the case on legal grounds is on appeal to the Illinois Court of Appeals. SCHIFFNER V. MOTOROLA, INC., Circuit Court of Cook County, Illinois, 95 CH 1879, is another economic loss purported class action by portable cellular phone purchasers. CRIST V. MOTOROLA, INC. ET AL., Circuit Court of Cook County, Illinois, 93 CH 00969, HOFFMAN V. MOTOROLA, INC., ET AL., Circuit Court of Cook County, Illinois, 94 L 13713, WARD V. MOTOROLA, INC., ET AL., State Court of Fulton County, Georgia, 94 VS 91470 A, and WRIGHT V. MOTOROLA, INC., ET AL., Circuit Court of Cook County, Illinois, 95 L 04929, are individual personal injury cases - 24 - alleging portable cellular telephone use caused and/or aggravated the plaintiffs' brain cancers. KANE V. MOTOROLA, INC., ET AL., Circuit Court of Cook County, Illinois, 93 L 15256, is an individual personal injury case brought by a Motorola employee alleging that testing of a prototype cellular telephone antenna caused his brain cancer. The information contained in Motorola Management's Discussion and Analysis of Financial Condition and Results of Operations under the caption "Environmental Matters" and in Note 6 of the Notes to Consolidated Financial Statements under the caption "Environmental and Legal" in Motorola's 1994 Annual Report to Stockholders is incorporated herein by reference. Motorola is a defendant in various other suits, claims and investigations which arise in the normal course of business. In the opinion of management, the ultimate disposition of these matters, including those matters described above in this Item 3, will not have a material adverse effect on the consolidated financial position, liquidity or results of operations of Motorola. Item 4: Submission of Matters to a Vote of Security Holders Not applicable. Executive Officers of the Registrant Following are the persons who were the executive officers of Motorola as of December 31, 1994, their ages as of December 31, 1994 and their current titles and positions held during the last five years: Gary L. Tooker; age 55; Vice Chairman of the Board and Chief Executive Officer since December 1993; President and Acting Chief Executive Officer from October 1993 to December 1993; President and Chief Operating Officer from January 1990 to October 1993; and Chief Operating Officer and Senior Executive Vice President from January 1988 to January 1990. - 25 - Christopher B. Galvin; age 44; President and Chief Operating Officer since December 1993; Senior Executive Vice President and Assistant Chief Operating Officer from January 1990 to December 1993; and Executive Vice President and Chief Corporate Staff Officer from May 1989 to January 1990. Robert W. Galvin; age 72; Chairman of the Executive Committee of the Board of Directors since January 1990; and Chairman of the Board of Directors from November 1959 to January 1990. John F. Mitchell; age 66; Vice Chairman of the Board and Officer of the Board since January 1988. Keith J. Bane; age 55; Executive Vice President and Chief Corporate Staff Officer since February 1995; Senior Vice President and Chief Corporate Staff Officer from August 1994 to February 1995; Senior Vice President and Motorola Director of Strategy, Technology and External Relations from October 1993 to August 1994; and Senior Vice President and Motorola Director of Strategy from November 1988 to October 1993. Arnold S. Brenner; age 57; Executive Vice President and General Manager, Japan Group since November 1988. James Donnelly; age 55; Executive Vice President and Motorola Director of Human Resources (name changed from Personnel to Human Resources in 1993) since December 1987. Thomas D. George; age 54; Executive Vice President, and President and General Manager, Semiconductor Products Sector since April 1993; Executive Vice President and Assistant General Manager, Semiconductor Products Sector from November 1992 to April 1993; and Senior Vice President and Assistant General Manager, Semiconductor Products Sector from July 1986 to November 1992. Merle L. Gilmore; age 46; Executive Vice President, President and General Manager, Land Mobile Products Sector ("LMPS"), since July 1994; Senior Vice President and President and General Manager, LMPS, from June 1994 to July 1994; Senior Vice President and Assistant General Manager, LMPS, - 26 - from July 1992 to June 1994; Senior Vice President and General Manger, Worldwide Radio Products Group, LMPS, from May 1991 to July 1992; Corporate Vice President and General Manager, Worldwide Radio Products Group, Communications Sector, from January 1991 to May 1991; and Corporate Vice President and General Manager, Portable Products Division, Communications Sector, from April 1989 to January 1991. Robert L. Growney; age 52; Executive Vice President, and President and General Manager, Messaging, Information and Media Sector since January 1994; Executive Vice President and General Manager, Paging and Wireless Data Group from September 1992 to January 1994; Senior Vice President and General Manager, Paging and Telepoint Systems Group from January 1991 to September 1992; and Senior Vice President and General Manager, Radio Technologies Group, Communications Sector from May 1989 to January 1991. Carl F. Koenemann; age 56; Executive Vice President and Chief Financial Officer since December 1991; Senior Vice President and Assistant Chief Financial Officer from May 1990 to December 1991; Corporate Vice President and Assistant Chief Financial Officer from January 1990 to May 1990; and Corporate Vice President and Director of Finance, General Systems Group, from May 1987 to January 1990. James A. Norling; age 52; Executive Vice President, and President, Motorola Europe, Middle East and Africa since April 1993; and Executive Vice President, and President and General Manager, Semiconductor Products Sector from December 1989 to April 1993. Edward F. Staiano; age 58; Executive Vice President, and President and General Manager, General Systems Sector since December 1989. Frederick T. Tucker; age 54; Executive Vice President and General Manager, Automotive, Energy and Controls Group (name changed from Automotive and Industrial Electronics Group in 1993) since September 1992; and Senior Vice President and General Manager, Automotive and Industrial Electronics Group from April 1988 to September 1992. - 27 - Richard H. Weise; age 59; Senior Vice President, General Counsel and Secretary since November 1985. David G. Wolfe; age 59; Executive Vice President and General Manager, Government and Space Technology Group (name changed from Government and Systems Technology Group in 1994) since November 1990; and Senior Vice President and General Manager, Government Electronics Group from January 1988 to November 1990. Richard W. Younts; age 55; Executive Vice President and Corporate Executive Director International-Asia and Americas since December 1993; Senior Vice President and Corporate Executive Director, International-Asia and Americas from July 1991 to December 1993; Senior Vice President and President, Nippon Motorola Ltd., Japanese Group from May 1991 to July 1991; and Corporate Vice President and President, Nippon Motorola Ltd. from August 1987 to May 1991. The above executive officers will serve as officers of Motorola until the regular meeting of the Board of Directors in May 1995 or until their respective successors shall have been elected. Christopher B. Galvin is a son of Robert W. Galvin. There is no family relationship between any of the other executive officers listed above. PART II Item 5: Market for Registrant's Common Equity and Related Stockholder Matters Motorola's Common Stock is listed on the New York, Chicago, London and Tokyo Stock Exchanges. The remainder of the response to this Item is incorporated by reference to the information under the caption "Quarterly and Other Financial Data" of Motorola's 1994 Annual Report to Stockholders. - 28 - Item 6: Selected Financial Data The response to this Item is incorporated by reference to the information under the caption "Five Year Financial Summary" of Motorola's 1994 Annual Report to Stockholders. Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations The response to this Item is incorporated by reference to the information under the captions "Financial Review", the "Financial Results" section of the Letter to Stockholders and "Review of Operations" of Motorola's 1994 Annual Report to Stockholders. Item 8: Financial Statements and Supplementary Data The response to this Item is incorporated by reference to the information under the captions "Management's Responsibility For Financial Statements", "Independent Auditors' Report", "Statements of Consolidated Earnings", "Statements of Consolidated Stockholders' Equity", "Consolidated Balance Sheets", "Statements of Consolidated Cash Flows", "Supplemental Cash Flow Information", "Notes to Consolidated Financial Statements", "Quarterly and Other Financial Data" and "Five Year Financial Summary" of Motorola's 1994 Annual Report to Stockholders. Item 9: Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None. PART III Item 10: Directors and Executive Officers of the Registrant - 29 - The response to this Item required by Item 401 of Regulation S-K, with respect to directors, is incorporated by reference to the information under the caption "Nominees" on pages 2 through 12 of Motorola's Proxy Statement for the 1995 annual meeting of stockholders and with respect to executive officers, is contained in Part I hereof under the caption "Executive Officers of the Registrant". Item 11: Executive Compensation The response to this Item is incorporated by reference to the information under the caption "Director Compensation" on pages 14 and 15 of Motorola's Proxy Statement for the 1995 annual meeting of stockholders and "Summary Compensation Table," "Stock Option Grants in 1994," "Aggregated Option Exercises in Last Fiscal Year and FY-End Option Values," "Long-Term Incentive Plans - Awards in Last Fiscal Year," "Pension and Supplementary Retirement Plans," and "Termination of Employment and Change in Control Arrangements" on pages 19 through 23 of Motorola's Proxy Statement for the 1995 annual meeting of stockholders. Item 12: Security Ownership of Certain Beneficial Owners and Management The response to this Item is incorporated by reference to the information under the captions "Security Ownership of Management of the Company" and "Principal Shareholders" on pages 17, 18 and 19 of Motorola's Proxy Statement for the 1995 annual meeting of stockholders. Item 13: Certain Relationships and Related Transactions The response to this Item is incorporated by reference to the information under the caption "Director Compensation" on pages 14 and 15 of Motorola's Proxy Statement for the 1995 annual meeting of stockholders. - 30 - PART IV Item 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) 1. Financial Statements See Part II, Item 8 hereof. 2. Financial Statement Schedule and Auditors' Report Title Schedule ----- -------- Valuation and Qualifying Accounts. . . . . . . . II All schedules omitted are inapplicable or the information required is shown in the consolidated financial statements or notes thereto. The auditors' report of KPMG Peat Marwick LLP with respect to the Financial Statement Schedule is located at page 32. 3. Exhibits Exhibits required to be attached by Item 601 of Regulation S-K are listed in the Exhibit Index attached hereto, which is incorporated herein by this reference. Following is a list of management contracts and compensatory plans and arrangements required to be filed as exhibits to this form by Item 14(c) hereof: Motorola Executive Incentive Plan ("MEIP") Motorola Long Range Incentive Plan of 1994 Share Option Plan of 1982 Share Option Plan of 1991 Motorola Elected Officers Supplementary Retirement Plan Officers Supplemental Medical Plan Accidental Death and Dismemberment Insurance for MEIP Participants Arrangement for Directors' Fees Retirement Plan for Non-employee Directors - 31 - Deferred Fee Plan for Outside Directors Officers' Group Life Insurance Policy Consultant Agreements with William J. Weisz, John T. Hickey, Gardiner L. Tucker, Donald R. Jones and Erich Bloch Form of Termination Agreement Policy Protecting Salary and Medical Benefits Insurance Policy for Non-employee Directors (b) Reports on Form 8-K. Motorola filed no reports on Form 8-K during the last quarter of 1994. (c) Exhibits See Item 14(a)3 above. - 32 - KPMG PEAT MARWICK LLP Certified Public Accountants Peat Marwick Plaza 303 East Wacker Drive Chicago, IL 60601-9973 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders of Motorola, Inc.: Under date of January 9, 1995, we reported on the consolidated balance sheets of Motorola, Inc. and consolidated subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of earnings, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1994, as contained in the 1994 annual report to stockholders. These consolidated financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year 1994. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the related financial statement schedule as listed in Part IV, Item 14(a)2. The financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. /s/ KPMG Peat Marwick LLP January 9, 1995 - 33 - Motorola, Inc. and Subsidiaries Schedule II Valuation and Qualifying Accounts Three Years Ended December 31, 1994 (In millions)
----------------------------------------------------------------------------------------------------- Column A Column B Column C Column D Column E ----------------------------------------------------------------------------------------------------- Additions Balance at ---------------------------- Balance beginning Charged to Charged to at end of period costs & expenses other accounts Deductions of period ------------------------------------------------------------------------------------------------------ 1994 ---- Allowance for doubtful accounts $ 91 $ 48 --- $ 21 (1) $118 Product and service warranties 166 195 --- 78 (2) 283 1993 ---- Allowance for doubtful accounts $ 69 $ 54 --- $ 32 (1) $ 91 Product and service warranties 117 110 --- 61 (2) 166 1992 ---- Allowance for doubtful accounts $ 79 $ 20 --- $ 30 (1) $ 69 Product and service warranties 92 64 --- 39 (2) 117 (1) Uncollectible accounts written off (2) Warranty claims paid
- 34 - KPMG PEAT MARWICK LLP Certified Public Accountants Peat Marwick Plaza 303 East Wacker Drive Chicago, IL 60601-9973 CONSENT OF INDEPENDENT AUDITORS The Board of Directors of Motorola, Inc.: We consent to incorporation by reference in the registration statements on Form S-8 (Nos. 33-40876 and 33-58714) and Form S-3 (Nos. 33-30662, 33-59252, 33-50207 and 33-56055) of Motorola, Inc. and consolidated subsidiaries of our reports dated January 9, 1995, relating to the consolidated balance sheets of Motorola, Inc. and consolidated subsidiaries as of December 31, 1994 and 1993 and the related statements of consolidated earnings, stockholders' equity, and cash flows and related financial statement schedule for each of the years in the three-year period ended December 31, 1994, which reports appear in or are incorporated by reference in the Annual Report on Form 10-K of Motorola, Inc. for the year ended December 31, 1994. /s/ KPMG Peat Marwick LLP March 22, 1995 - 35 - SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Motorola, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. March 3, 1995 MOTOROLA, INC. By: /s/ Gary L. Tooker ----------------------------------------- Gary L. Tooker Vice Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Motorola, Inc. and in the capacities and on the dates indicated. SIGNATURE TITLE DATE --------- ----- ---- /s/ Gary L. Tooker Director and Principal 3/3/95 ------------------------------ Executive Officer Gary L. Tooker /s/ Carl F. Koenemann Principal Financial 3/20/95 ------------------------------ Officer Carl F. Koenemann /s/ Kenneth J. Johnson Principal Accounting 3/1/95 ------------------------------ Officer Kenneth J. Johnson - 36 - SIGNATURE TITLE DATE --------- ----- ---- /s/ Erich Bloch Director 3/2/95 ------------------------------ Erich Bloch /s/ David R. Clare Director 3/5/95 ------------------------------ David R. Clare /s/ Wallace C. Doud Director 3/2/95 ------------------------------ Wallace C. Doud /s/ H. Laurance Fuller Director 3/6/95 ------------------------------ H. Laurance Fuller /s/ Christopher B. Galvin Director 3/3/95 ------------------------------ Christopher B. Galvin /s/ Robert W. Galvin Director 3/3/95 ------------------------------ Robert W. Galvin /s/ John T. Hickey Director 3/3/95 ------------------------------ John T. Hickey /s/ Anne P. Jones Director 3/10/95 ------------------------------ Anne P. Jones /s/ Donald R. Jones Director 3/5/95 ------------------------------ Donald R. Jones - 37 - SIGNATURE TITLE DATE --------- ----- ---- /s/ Walter E. Massey Director 3/4/95 ------------------------------ Walter E. Massey /s/ John F. Mitchell Director 3/6/95 ------------------------------ John F. Mitchell /s/ Thomas J. Murrin Director 3/6/95 ------------------------------ Thomas J. Murrin /s/ John E. Pepper, Jr. Director 3/21/95 ------------------------------ John E. Pepper, Jr. /s/ Samuel C. Scott III Director 3/2/95 ------------------------------ Samuel C. Scott III /s/ Gardiner L. Tucker Director 3/9/95 ------------------------------ Gardiner L. Tucker /s/ William J. Weisz Director 3/3/95 ------------------------------ William J. Weisz /s/ B. Kenneth West Director 3/1/95 ------------------------------ B. Kenneth West - 38 - EXHIBIT INDEX EXHIBIT NO. EXHIBIT ----------- ------- 3(i) Restated Certificate of Incorporation of Motorola, Inc., including Certificate of Designation, Preferences and Rights for Junior Participating Preferred Stock, Series A (incorporated by reference to Exhibit 3(i)(b) to Motorola's Quarterly Report on Form 10-Q for the fiscal quarter ended April 2, 1994). 3(ii) By-Laws of Motorola, Inc., revised as of May 3, 1994 (incorporated by reference to Exhibit 3(ii) to Motorola's Quarterly Report on Form 10-Q for the fiscal quarter ended April 2, 1994). 4.1 Rights Agreement dated November 9, 1988 (incorporated by reference to Exhibit (1) to Motorola's Registration Statement on Form 8-A dated November 15, 1988). 4.2 Amendment to Rights Agreement dated August 7, 1990 (incorporated by reference to Exhibit 2 to Motorola's Form 8 dated August 9, 1990 amending Motorola's Registration Statement on Form 8-A dated November 15, 1988). 4.3 Amendment No. 2 on Form 8 dated December 2, 1992 amending Motorola's Registration Statement on Form 8-A dated November 15, 1988 (incorporated by reference to Motorola's Form 8 dated December 2, 1992). 4.3(a) Amendment No. 3 on Form 8-A/A dated February 28, 1994 amending Motorola's Registration Statement on Form 8-A dated November 15, 1988 (incorporated by reference to Motorola's Amendment No. 3 Form 8-A/A dated February 28, l994). 4.4 LYONs Indenture dated September 1, 1989 (incorporated by reference to Exhibit 4(a) to Motorola's Registration Statement on Form S-3, Registration No. 33-30662). - 39 - EXHIBIT NO. EXHIBIT ----------- ------- 4.5 Indenture dated as of March 15, 1985 between Motorola, Inc. and Harris Trust and Savings Bank, as Trustee, and specimen of 8.40% Debentures due August 5, 2031 under the Indenture (incorporated by reference to Exhibits 4(C) and 4(B), respectively, to Motorola's Current Report on Form 8-K dated August 12, 1991). 4.6 Indenture dated as of October 1, 1991 between Motorola, Inc. and Harris Trust and Savings Bank, as Trustee (incorporated by reference to Exhibit 4.5 to Motorola's Annual Report on Form 10-K for the fiscal year ended December 31, 1991). 4.7 Specimen of 7.60% Notes due January 1, 2007 (incorporated by reference to Exhibit 4.6 to Motorola's Annual Report on Form 10-K for the fiscal year ended December 31, 1991). 4.8 Specimen of 6 1/2% Notes due March 1, 2008 (incorporated by reference to Exhibit 4(B) to Motorola's Current Report on Form 8-K dated March 1, 1993). 4.9 LYONs Indenture dated September 1, 1993 (incorporated by reference to Exhibit 4(v) to Motorola's Quarterly Report on Form 10-Q for the quarter ended October 2, 1993. 10.1 Motorola Executive Incentive Plan, as amended through November 23, 1993, including the Long Range Incentive Program (incorporated by reference to Exhibit 10.1 to Motorola's Annual Report on Form 10-K for the fiscal year ended December 31, 1993). 10.2 Motorola Long Range Incentive Plan of 1994 (incorporated by reference to Exhibit 10.2 to Motorola's Annual Report on Form 10-K for the fiscal year ended December 31, 1993). 10.3 Share Option Plan of 1982, as amended through March 24, 1992 (incorporated by reference to Exhibit 10.3 to Motorola's Annual - 40 - EXHIBIT NO. EXHIBIT ----------- ------- Report on Form 10-K for the fiscal year ended December 31, 1990, Exhibit 10.2(a) to Motorola's Annual Report on Form 10-K for the fiscal year ended December 31, 1991 and Exhibit 10.3 to Motorola's Annual Report on Form 10-K for the fiscal year ended December 31, 1992). 10.4 Share Option Plan of 1991, as amended through December 16, 1993 (incorporated by reference to Exhibit 10.4 to Motorola's Annual Report on Form 10-K for the fiscal year ended December 31, 1993). 10.5 Motorola Elected Officers Supplementary Retirement Plan, as amended through February 6, 1995. 10.6 Officers supplemental medical plan (incorporated by reference to Exhibit 10.6 to Motorola's Annual Report on Form 10-K for the fiscal year ended December 31, 1990). 10.7 Accidental death and dismemberment insurance for MEIP participants (incorporated by reference to Exhibit 10.7 to Motorola's Annual Report on Form 10-K for the fiscal year ended December 31, 1990). 10.8 Arrangement for directors' fees and retirement plan for non-employee directors (description incorporated by reference from page 14 of Motorola's Proxy Statement for the 1995 annual meeting of stockholders). 10.9 Deferred Fee Plan for Outside Directors. 10.10 Officers' Group Life Insurance Policy (incorporated by reference to Exhibit 10.10 to Motorola's Annual Report on Form 10-K for the fiscal year ended December 31, 1990). - 41 - EXHIBIT NO. EXHIBIT ----------- ------- 10.11 Consultant Agreement dated February 15, 1994 between Motorola, Inc. and William J. Weisz (incorporated by reference to Exhibit 10.11 to Motorola's Annual Report on Form 10-K for the fiscal year ended December 31, 1993). 10.12 Consultant Agreement dated January 27, 1994 between Motorola, Inc. and John T. Hickey (incorporated by reference to Exhibit 10.12 to Motorola's Annual Report on Form 10-K for the fiscal year ended December 31, 1993). 10.13 Consultant Agreement dated January 27, 1994 between Motorola, Inc. and Dr. Gardiner L. Tucker (incorporated by reference to Exhibit 10.13 to Motorola's Annual Report on Form 10-K for the fiscal year ended December 31, 1993). 10.14 Consultant Agreement dated January 27, 1994 between Motorola, Inc. and Donald R. Jones (incorporated by reference to Exhibit 10.14 to Motorola's Annual Report on Form 10-K for the fiscal year ended December 31, 1993). 10.15 Consultant Agreement dated January 27, 1994 between Motorola, Inc. and Erich Bloch (incorporated by reference to Exhibit 10.15 to Motorola's Annual Report on Form 10-K for the fiscal year ended December 31, 1993). 10.16 Form of Termination Agreement in respect of a change in control (incorporated by reference to Exhibit 10.15 to Motorola's Annual Report on Form 10-K for the fiscal year ended December 31, 1989). 10.17 Policy protecting salary and medical benefits of employees in the event of an unsolicited change in control (incorporated by reference to Exhibit 10.16 to Motorola's Annual Report on Form 10-K for the fiscal year ended December 31, 1990). - 42 - EXHIBIT NO. EXHIBIT ----------- ------- 10.18 Insurance policy covering non-employee Directors (incorporated by reference to the description on pages 14 and 15 of Motorola's Proxy Statement for the 1995 annual meeting of stockholders and to Exhibit 10.16 to Motorola's Annual Report on Form 10-K for the fiscal year ended December 31, 1989). 10.19 Iridium Space System Contract between Motorola, Inc. and Iridium, Inc., as amended to date, and Iridium Communications Systems Operations and Maintenance Contract between Motorola, Inc. and Iridium, Inc., as amended to date (incorporated by reference to Exhibits 99.2 and 99.3, respectively, to Motorola's Current Report on Form 8-K dated August 2, 1993 and Exhibits 99(a) and 99(b), respectively, to Motorola's Quarterly Report on Form 10-Q for the quarter ended October 1, 1994). 11 Motorola, Inc. and Consolidated Subsidiaries Primary and Fully Diluted Earnings Per Common and Common Equivalent Share. 13 Portions of Motorola's 1994 Annual Report to Stockholders. 21 Subsidiaries of Motorola. 23 Consent of KPMG Peat Marwick. See page 34 of the Annual Report on Form 10-K of which this Exhibit Index is a part. 27 Financial Data Schedule (filed only electronically with SEC). 99.1 Agreement and Plan of Contribution and Merger Among Nextel Communications, Inc., Motorola, Inc., ESMR, Inc. and ESMR Sub, Inc. dated August 4, 1994 (incorporated by reference to Exhibit 5.1 to Motorola's Current Report on Form 8-K dated August 5, 1994). 99.2 Amendment to Agreement and Plan of Contribution and Merger among Nextel Communications, Inc., Motorola, Inc., ESMR, Inc. and ESMR Sub, Inc. dated February 12, 1995. EX-10.5 2 EXHIBIT 10.5 Exhibit 10.5 MOTOROLA ELECTED OFFICERS SUPPLEMENTARY RETIREMENT PLAN AS AMENDED February 6, 1995 Motorola, Inc. (the "Company") heretofore established the Elected Officers Supplementary Retirement Plan (the "Plan"). Effective November 9, 1988, the Board of Directors of the Company approved extensive amendments to the Plan. This document sets forth the Plan as amended on November 9, 1988 and includes all additional amendments through June 21, 1993. The Plan and the Trust created to fund the Company's obligations under the Plan are not intended to be qualified under Sections 401(a) and 501(a) of the Internal Revenue Code. Section 1. DEFINITIONS. Where the following words and phrases appear in this Plan, they shall have the respective meanings set forth below, unless the context clearly indicates to the contrary: 1.1 ACTUARIAL (OR ACTUARIALLY) EQUIVALENT: Equality in value of the aggregate amounts expected to be received under different forms of payment, and except as provided below, based on the actuarial assumptions, tables and interest rates which are adopted by the Committee from time to time for this purpose and are set forth in Appendix A hereto. 1.2 AFFILIATED EMPLOYER: Any corporation which is a member of a controlled group of corporations (as defined in Section 414 (b) of the Internal Revenue Code) which includes the Company. 1.3 ANNUITY STARTING DATE: As defined in Section 8.1 hereof. 1.4 AVERAGE MEIP AWARD: As defined in Section 6 hereof. 1.5 BOARD OF DIRECTORS: The Board of Directors of the Company, and shall also mean any committee of the Board of Directors which has been delegated authority to exercise the powers and authority of the Board of Directors with respect to the Plan. 1.6 CHANGE IN CONTROL: A change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended ("Exchange Act") whether or not the Company is then subject to such reporting requirement; provided that, without limitation, such a change in control shall be deemed to have occurred if (A) any "person" or "group" (as such terms are used in Section 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13-d3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities (other than the Company, any employee benefit plan of the Company, any "person" who is a natural person and who was shown as the "beneficial owner", directly or indirectly, of securities of the Company representing more than 5% of the combined voting power of the Company's securities in the Company's Proxy Statement dated earlier than, but closest to, the Effective Date; and, for purposes of the Plan, no change in control shall be deemed to have occurred as a result of the "beneficial ownership," or changes therein, of the Company's securities by any of the foregoing), (B) there shall be consummated (i) any consolidation or merger of the Company in which the Company is not the surviving or continuing corporation or pursuant to which shares of the Company's Common Stock would be converted into cash, securities or other property, other than a merger of the Company, in which the holders of the Company's Common Stock immediately prior to the merger have (directly or indirectly) at least an 80% ownership interest in the outstanding Common Stock of the surviving corporation immediately after the merger, or (ii) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company, (C) the stockholders of the Company approve any plan or proposal for the liquidation or dissolution of the Company, or (D) as the result of, or in connection with, any cash tender offer, exchange offer, merger or other business combination, sale of assets, proxy or consent solicitation (other than by the Board), contested election or substantial stock accumulation (a "Control Transaction"), the members of the Board immediately prior to the first public announcement relating to such Control Transaction shall thereafter cease to constitute a majority of the Board. 1.7 COMMITTEE: The persons appointed pursuant to Section 12 to assist the Company in the administration of the Plan in accordance with said Section. 1.8 COMPANY: Motorola, Inc., a corporation organized and existing under the laws of the State of Delaware or its successor or successors. 1.9 DISABILITY; DISABLED: The Committee shall determine, in its reasonable discretion, whether any Participant has a Disability or is Disabled. 1.10 EARLY RETIREMENT DATE: The first day of the calendar month coincident with or immediately following the Participant's 60th birthday. 1.11 EARLY RETIREMENT AGE: The Participant's 60th birthday. 2 1.12 EFFECTIVE DATE: November 9, 1988, the date on which the provisions of this Plan as amended on November 9, 1988 become effective. 1.13 ERISA: The Employee Retirement Income Security Act of 1974, as amended from time to time. 1.14 ERISA EXCESS FORMULA: As defined in Section 6 hereof. 1.15 HOUR OF SERVICE: (a) each hour for which an employee is paid, or entitled to payment, for the performance of duties for the Company. These hours will be credited to the employee for the computation period in which the duties are performed; (b) each hour for which an employee is paid, or entitled to payment, by the Company on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including Disability), layoff, jury duty, military duty or leave of absence. No more than 501 Hours of Service will be credited under this paragraph for a single computation period (whether or not the period of time during which no duties are performed occurs in a single computation period). Hours under this paragraph will be calculated and credited pursuant to section 2530.200b-2 of the Department of Labor Regulations which are incorporated herein by this reference; and (c) each hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by the Company. The same Hours of Service will not be credited both under paragraph (a) or paragraph (b), as the case may be, and under this paragraph (c). These hours will be credited to the employee for the computation period or periods to which the award or agreement pertains rather than the computation period in which the award, agreement, or payment is made. Solely for purposes of determining whether a One Year Break in Service for vesting purposes has occurred in a computation period, an employee who is absent from work for maternity or paternity reasons shall receive credit for the Hours of Service which would otherwise have been credited to such employee but for such absence, or in any case in which such hours cannot be determined, 8 hours of service per day of such absence. For purposes of this paragraph, an absence from work for maternity or paternity reasons means an absence (1) by reason of the pregnancy of the employee, (2) by reason of a birth of a child of the employee, (3) by reason of the 3 placement of a child with the employee in connection with the adoption of such child by such employee, or (4) for purposes of caring for such child for a period beginning immediately following such birth or placement. The Hours of Service credited under this paragraph shall be credited (1) in the computation period in which the absence begins if the crediting is necessary to prevent a One Year Break in Service in that period, or (2) in all other cases, in the following computation period. The total Hours of Service Required to be credited for maternity or paternity reasons shall not exceed 501 hours. As used in this definition, the term Company includes all Affiliated Employers. 1.16 NORMAL FORMULA: As defined in Section 6 hereof. 1.17 NORMAL RETIREMENT AGE: The Participant's 65th birthday. 1.18 NORMAL RETIREMENT DATE: A Participant's Normal Retirement Date is the first day of the calendar month coincident with or immediately following the Participant's 65th birthday. 1.19 OFFICER: An officer of the Company elected by the Board of Directors. 1.20 ONE YEAR BREAK IN SERVICE: An employee shall incur a One Year Break in Service if in any computation period, as described in the definition of a Year of Service, he does not complete more than five hundred (500) Hours of Service. In the case of an employee who is absent from work for maternity or paternity reasons, as described in Section 1.15, Hours of Service shall be credited to such employee in accordance with Section 1.15. 1.21 PBGC: Pension Benefit Guaranty Corporation, a body corporate within the Department of Labor established under the provisions of Title IV of ERISA. 1.22 PARTICIPANT: An Officer participating in the Plan in accordance with the provisions of Section 3. 1.23 PENSION PLAN: The Motorola, Inc. Pension Plan. 1.24 PLAN: Motorola Elected Officers Supplementary Retirement Plan, the plan set forth herein, as amended from time to time. 1.25 PLAN YEAR: The 12-month period commencing on January 1 and ending on December 31. 4 1.26 QUALIFIED JOINT AND SURVIVOR ANNUITY: As defined in Section 8.1 hereof. 1.27 QUALIFIED PRE-RETIREMENT ANNUITY: As defined in Section 8.2 hereof. 1.28 RETIREMENT BENEFIT: As defined in Section 6 hereof. 1.29 SALARY: The amount paid to an Officer by the Company as annual basic compensation, excluding awards under the Motorola Executive Incentive Plan and Long Range Incentive Program, moving expense reimbursements, the imputed fair market value of a Company provided automobile or excess group-term life insurance coverage and similar imputed income items. 1.30 SCRP: The Motorola Supplementary Contributory Retirement Plan. 1.31 SERVICE CREDIT: As defined in Section 6 hereof. 1.32 SUBSIDIARY: Any corporation more than fifty percent (50%) of the outstanding voting stock of which (other than directors' qualifying shares) is at the time directly or indirectly owned by the Company or by one or more Subsidiaries or by the Company and one or more Subsidiaries. 1.33 SURVIVOR ANNUITY STARTING DATE: As defined in Section 8.2 hereof. 1.34 TRUST: Any trust established for receiving, holding, investing and disposing of the Trust Fund and for implementing and carrying out the provisions of the Plan. 1.35 TRUSTEE: The person or entity named as trustee herein or in any separate Trust forming part of this Plan, and any successors. 1.36 TRUST AGREEMENT: As defined in Section 14.1 hereof. 1.37 TRUST FUND: The Plan assets held by the Trustee under the Trust. 1.38 YEAR OF SERVICE: A twelve (12) consecutive month period (computation period) during which period the employee has completed at least one thousand (1,000) Hours of Service. the computation period of an employee shall begin with the date he commences employment with the Company and additional computation periods shall begin on each succeeding anniversary of the date the employee commences employment with the Company. In the event an employee's employment with the Company is terminated and such employee has a One Year Break in Service following the termination 5 of his employment, and if such employee is later reemployed by the Company, the computation period shall begin with the date such employee is reemployed by the Company, and additional computation periods shall begin on each succeeding anniversary of the date the employee was reemployed by the Company. All Years of Service (both pre-break and post-break) will be counted for vesting purposes and for calculating the Retirement Benefit under the Normal Formula. Years of Service with any Affiliated Employer shall be counted as Years of Service with the Company. Section 2. CONSTRUCTION. The masculine gender, where appearing in the Plan, shall be deemed to include the feminine gender, and the singular may include the plural, unless the context clearly indicates to the contrary. The words "hereof," "herein," "hereunder," and other similar compounds of the word "here" shall mean and refer to the entire Plan, not to any particular provision or Section. Section headings are included for convenience of reference and are not intended to add to, or subtract from, the terms of the Plan. Section 3. PARTICIPATION. Each Officer who is age 55 or older on the Effective Date shall become a Participant in the Plan, as amended, on the Effective Date. After the Effective Date, an Officer shall become a Participant in the Plan upon the earlier of (i) his designation as a Participant by the Committee at any age under age 55, (ii) attaining age 55, (iii) his election as an Officer if age 55 or older at that time, (iv) a Change in Control or (v) his Disability. Section 4. VESTING. A Participant's right to a Retirement Benefit shall be vested and nonforfeitable as follows: (a) For a Participant who has not attained age 60, when he has completed at least five Years of Service; (b) For a Participant who is age 60 or older but who has not attained age 65, when he has completed at least two Years of Service; (c) Upon attainment of age 65 (Normal Retirement Age) regardless of his Years of Service; (d) Upon a Change in Control of the Company regardless of the Participant's age or number of Years of Service; (e) At the time he becomes Disabled regardless of the Participant's age or number of Years of Service. Section 5. ELIGIBILITY FOR RETIREMENT BENEFITS. To be eligible for a Retirement Benefit under the Plan, a Participant must also be a participant in the Pension Plan if eligible for 6 participation, or the pension plan of a Subsidiary if the Subsidiary has a pension plan and the Participant is eligible to participate in it, and he must meet the other eligibility requirements stated herein. A Participant who is vested and who retires on or after age 60 shall be eligible to receive an unreduced Retirement Benefit upon retirement. A Participant who retires at any age because of Disability shall be eligible to receive an unreduced Retirement Benefit upon retirement. A Participant whose employment with the Company terminates at any age because of a Change in Control shall be eligible to receive an unreduced Retirement Benefit upon retirement at or after age 55. A Participant who is vested and ceases to be an Officer or ceases to be employed by the Company for any reason (other than Disability or a Change in Control) before he has attained age 57 shall be eligible to receive a deferred unreduced Retirement Benefit upon retirement at or after age 60 or, subject to the condition stated hereinbelow, a deferred Actuarially reduced Retirement Benefit determined as provided in this Section 5 upon retirement at or after age 57. A Participant who is vested and who retires at or after age 57 but prior to age 60 shall, subject to the condition stated hereinbelow, be eligible to receive an Actuarially reduced Retirement Benefit upon retirement determined as follows: (a) With respect to the lump sum payment option, the lump sum amount to be paid to the Participant will be equal to the cost to purchase (from an insurance company selected by the Company) a deferred annuity for the Participant at retirement which would provide the full Retirement Benefit with payments commencing at age 60. (b) With respect to the lifetime income payments option, such payments will be determined by the amount of lifetime income which could be provided by purchasing an annuity with the lump sum amount determined in (a) above. The other optional forms of payment under the Plan will also be available to the Participant on an actuarially reduced basis. Notwithstanding the foregoing, as a condition to the availability of a Retirement Benefit at or after age 57 but prior to age 60, the Participant shall enter into an agreement not to compete with the Company. Section 6. DETERMINATION OF AMOUNT OF RETIREMENT BENEFIT. A benefit for each Participant shall be calculated under the Normal Formula. A benefit for each Participant who participates in the Pension Plan shall also be calculated under the ERISA Excess Formula. The formula which produces the greater benefit will be the applicable formula for Participants who participate in the Pension Plan. The benefit so calculated for each Participant, whether determined under the Normal Formula or the ERISA Excess 7 Formula, shall be reduced by the amount (computed on a life annuity basis) payable to such Participant under the Pension Plan (but not including SCRP payments), the pension plan of any Subsidiary, the Company's Long Term Disability Plan, and the disability plan of any Subsidiary, whichever plan or plans is or are at the time applicable to such Participant. The result so obtained shall be the Participant's "Retirement Benefit", provided, however, that the Retirement Benefit payable annually to any Participant shall not exceed seventy percent (70%) of his Salary as of the date immediately prior to retirement. NORMAL FORMULA. The monthly benefit under the Normal Formula expressed as lifetime income shall be calculated as follows: One-Twelfth (1/12) times the sum of (i) Salary as of the date immediately prior to retirement (or as of such earlier date as may be mutually agreed upon by the Company and the Officer affected) or in the case of a deferred vested Retirement Benefit, as of the date of the Participant's termination of employment plus (ii) the five year Average MEIP Award paid to the Officer under the Motorola Executive Incentive Plan times forty percent (40%) plus an additional percentage ("Service Credit") equal to one-fourth (1/4) of one percent (1%) for each Year of Service of the Officer in excess of ten (10) Years of Service, subject to the following maximums:
Age At Age At Retirement Maximum Retirement Maximum ---------- ------- ---------- ------- 55 42.50% 61 44.00% 56 42.75% 62 44.25% 57 43.00% 63 44.50% 58 43.25% 64 44.75% 59 43.50% 65 & over 45.00% 60 43.75%
If the Service Credit determined as above is less than the Early Service Credit calculated under the Plan as it existed prior to the Effective Date for any Participant, the Early Service Credit shall be used for such Participant in lieu of the Service Credit determined as above. "Average MEIP Award" shall mean and shall be calculated as follows: (i) For each of the eight full calendar years prior to retirement, each year's MEIP award is calculated as a percentage of that year's actual earnings from Salary. (ii) The five calendar years which produce the highest percentages are then determined. 8 (iii)The average of the percentages for those five years is then determined. (iv) The average of the percentages so determined is then applied to the Officer's Salary at retirement (or at such earlier date as may be mutually agreed upon by the Company and the Officer affected) to determine the Average MEIP Award amount for purposes of this Plan. Following is an example of the calculation:
Actual MEIP Award as % Earnings from MEIP of Actual Earnings Year Salary Award from Salary ---- ------------- ----- ------------------ 1 $ 190,000 $57,000 30.0%* 2 180,000 36,000 20.0%* 3 170,000 30,600 18.0%* 4 160,000 20,800 13.0% 5 150,000 48,000 32.0%* 6 140,000 -0- 0 7 130,000 28,600 22.0%* 8 110,000 17,600 16.0% * Average MEIP rate for five years which 24.4% produces the highest percentage
Final Salary = $200,000 Average MEIP Award (24.4% of $200,000 final Salary) = $48,800 Payments made under the Long Range Incentive Program shall not be taken into account in determining the Average MEIP Award. ERISA EXCESS FORMULA. The monthly benefit under the ERISA Excess Formula expressed as lifetime income shall be calculated in the same manner as the Normal Retirement Benefit is calculated under Section 6.1(b) of the Pension Plan. The benefit calculated under this formula shall not be subject to the limitations of Sections 401(a)(17) and 415 of the Internal Revenue Code. Notwithstanding the method prescribed above for calculating Average MEIP Award, if, under extraordinary circumstances which are in the interest of the Company, as determined by the Company (acting through the Board of Directors or any committee thereof to whom authority has been delegated) in its sole discretion, an Officer extends his or her employment beyond his or her planned retirement date at the request of the Company, the Company may, with the consent of the Officer affected, calculate the Officer's Average MEIP Award by using the MEIP awards for the calendar years 9 that would have been used if the Officer had retired on the date originally planned. Section 7. PAYMENT OF RETIREMENT BENEFITS. A Participant's Retirement Benefit shall be paid in monthly installments commencing as follows: (i) in the case of a vested Participant who retires prior to or on or after his Early Retirement Age, on the first day of the month coinciding with or immediately following the date of his retirement, (ii) in the case of a Participant who retires before his Early Retirement Age because of Disability, on the first day of the month coinciding with or immediately following the date of Disability, and (iii) in the case of a Participant who has a deferred vested Retirement Benefit, on the first day of the month selected by the Participant after he has attained his Early Retirement Age, or if a Change in Control has occurred, after he has attained age 55 rather than his Early Retirement Age. Such payments shall continue on the first day of each succeeding month until the benefit terminates as provided in the Plan for the type of benefit being paid to the Participant. Unless the Participant elects otherwise, in writing, payment of benefits under the Plan will begin not later than the 60th day after the latest of the close of the Plan Year in which: (1) the Participant attains Normal Retirement Age; (2) occurs the 10th anniversary of the year in which the Participant commenced participation in the Plan; or (3) the Participant terminates his service with the Company. 7.1 FACILITY OF PAYMENT: If, in the Committee's judgment, any person to whom benefits are payable hereunder is under a legal disability or unable to care for his affairs because of illness, accident, or other incapacity, any payment due (unless prior claim therefor shall have been made by a duly qualified guardian, committee, or other legal representative) may be paid to his spouse, parent, brother or sister, or any other person as the Committee may determine. Any such payment shall be a payment for the account of such person and shall, to the extent thereof, be a complete discharge of any liability under the Plan to such person. Section 8. QUALIFIED JOINT AND SURVIVOR ANNUITY AND QUALIFIED PRE- RETIREMENT SURVIVOR ANNUITY. 8.1 QUALIFIED JOINT AND SURVIVOR ANNUITY. (a) Unless otherwise elected as provided below, a Participant who is married on the Annuity Starting Date and who does not die before the Annuity Starting Date shall receive the value of his benefit in the form of a Qualified Joint and Survivor Annuity. An unmarried Participant shall 10 receive the value of his benefit in the form of a life annuity. Such unmarried Participant, however, may elect in writing to waive the life annuity. The election must comply with the provisions of this Section as if it were an election to waive the joint and survivor annuity by a married Participant, but without the spousal consent requirement. The joint and survivor annuity and the life annuity form of distribution shall be the Actuarial Equivalent of the benefits due the Participant. (b) Any election to waive the Qualified Joint and Survivor Annuity must be made by the Participant in writing during the election period, must be consented to in writing by the Participant's spouse and must indicate that the Participant alone is to receive the benefit or designate a specific beneficiary or beneficiaries, including any class of beneficiaries or a contingent beneficiary and a form of benefit payment which may not be changed (except back to a Qualified Joint and Survivor Annuity) without spousal consent, unless the consent of the spouse expressly permits designations by the Participant without any requirement of further consent by the spouse. Such spouse's consent shall be irrevocable and must acknowledge the effect of such election and be witnessed by a Plan representative or a notary public. A consent that permits designations by the Participant without any requirement of further consent by such spouse must acknowledge that the spouse has the right to limit consent to a specific beneficiary and a specific form of benefit, where applicable and that the spouse voluntarily elects to relinquish either or both of such rights. Such consent shall not be required if it is established to the satisfaction of the Committee that the required consent cannot be obtained because there is no spouse, the spouse cannot be located, or other circumstances that may be prescribed by Treasury regulations. The election made by the Participant and consented to by his spouse may be revoked by the Participant in writing without the consent of the spouse at any time during the election period. The number of revocations shall not be limited. Any new election must comply with the requirements of this paragraph. A former spouse's waiver shall not be binding on a new spouse. (c) The election period to waive the joint and survivor annuity and to revoke an election shall be the ninety (90) day period ending on the Annuity Starting Date. (d) "Annuity Starting Date" means the first day of the first period for which an amount is paid as an annuity, or, in the case of a Retirement Benefit not payable in the form of an annuity, the first day on which all events have occurred which entitles the Participant to such Retirement Benefit. 11 (e) "Qualified Joint and Survivor Annuity" means a reduced annuity for the life of the Participant with a survivor annuity for the life of the spouse which is either 50 percent (50%), 75 percent (75%) or 100 percent (100%) (as selected by the Participant, and if no selection is made, it will be 50%) of the amount of the annuity which is payable during the joint lives of the Participant and the spouse and which is the Actuarial Equivalent of the normal form of benefit. (f) With regard to the election, the Committee shall provide the Participant no less than thirty (30) days and no more than ninety (90) days prior to the Annuity Starting Date (and consistent with Treasury regulations), a written explanation of: (i) the terms and conditions of the Qualified Joint and Survivor Annuity, (ii) the Participant's right to make and the effect of an election to waive the Qualified Joint and Survivor Annuity, (iii)the right of the Participant's spouse to consent to any election to waive the Qualified Joint and Survivor Annuity, (iv) the right of the Participant to revoke such election, and the effect of such revocation, and (v) the relative values of the various optional forms of benefit under the Plan. (g) The distribution of a benefit in the form of a Qualified Joint and Survivor Annuity shall not require the consent of the Participant's spouse if such distribution commences prior to the later of his Normal Retirement Age or age 62. 8.2 QUALIFIED PRE-RETIREMENT SURVIVOR ANNUITY. In the case of a vested Participant who dies before the Annuity Starting Date, whether or not separated from service with the Company at the time of death, and who has a surviving spouse, a Qualified Pre-Retirement Survivor Annuity shall be paid to the surviving spouse of such Participant. This form of benefit may not be waived nor may another beneficiary be selected. Under this form of benefit, the Participant's surviving spouse will receive a lifetime annuity payable in monthly installments equal to fifty percent (50%) of the Retirement Benefit calculated for the deceased Participant as of the date immediately prior to his death. For purposes of this Section 8.2, a surviving spouse will begin to receive payments on the fist day of the month immediately 12 following the date of the Participant's death unless such surviving spouse elects a later date. A surviving spouse's benefit will be paid in a lump sum upon such spouse's written request made prior to the date benefit payments begin. The date on which a surviving spouse begins to receive payments as an annuity or receive a lump sum payment under this Section 8.2 shall be referred to as the "Survivor Annuity Starting Date". Section 9. OPTIONAL METHODS OF PAYMENT. If a married Participant has duly waived the Qualified Joint and Survivor Annuity form of benefit or if an unmarried Participant has duly waived the life annuity form of benefit in accordance with the requirements of Section 8.1, upon the written request of such a Participant filed with the Committee before the Annuity Starting Date in accordance with the rules governing such requests, the Committee shall provide for him an optional form of Retirement Benefit, in one of the forms set forth below, which shall be the Actuarial Equivalent of the Retirement Benefit to which he would be otherwise entitled hereunder except that no optional form shall be granted which would reduce the value of the Participant's Retirement Benefit payable to him personally by more than fifty percent (50%): (i) a lump sum payment; (ii) in the case of a married Participant, in the form of a life annuity; or (iii) a life-ten years certain form as set forth in Section 6.7 (b) of the Pension Plan. Section 10. LIMITATIONS ON BENEFITS. All rights and benefits, including elections, provided to a Participant in the Plan shall be subject to the rights afforded to any alternate payee under a qualified domestic relations order as those terms are defined in Section 206 (d) of ERISA. Section 11. NONALIENATION OF BENEFITS. No benefit which shall be payable out of the Trust Fund to any person (including a Participant or his beneficiary), or any other amount or asset set aside or purchased under Section 13 to fund a Participant's Retirement Benefit, shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge, and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, or charge the same shall be void; and no such benefit shall in any manner be liable for, or subject to, the debts, contracts, liabilities, engagements, or torts of any such person, nor shall it be subject to attachment or legal process for or against such person, and the same shall not be recognized by the Trustee, except to such extent as may be required by law. This provision shall also apply to the creation, 13 assignment or recognition of a right to a benefit payable with respect to a Participant pursuant to a domestic relations order as defined in Section 206(d) of ERISA unless such order is determined to be a qualified domestic relations order as defined in Section 206(d) of ERISA; provided, however, a domestic relations order entered prior to January 1, 1985 may, in the discretion of the Officers Plan Committee or its delegate, be treated as a Qualified Domestic Relations Order, even though the order does not satisfy the requirement of Section 206(d) of ERISA. The Committee shall establish a written procedure to determine the qualified status of domestic relations orders and to administer distributions under such qualified orders. Section 12. ADMINISTRATION. 12.1 OFFICERS PLAN COMMITTEE: The Board of Directors shall appoint a committee to be known as the Officers Plan Committee to administer the Plan. The Committee shall be the Named Fiduciary for purposes of Section 402(a) of the Act. The Committee shall consist of one or more persons appointed by the Board of Directors, and each member shall serve until his resignation or removal or until his successor is appointed. Each member may, but need not, be a director, officer or employee of the Company. A member of the Committee may resign by delivering his written resignation to the Board of Directors. Any member of the Committee may be removed, with or without cause, by the Board of Directors. 12.2 POWERS AND DUTIES OF THE COMMITTEE: The Committee shall carry out the duties assigned to it under the Plan and shall administer the Plan in accordance with its terms. The Committee shall have all powers as may be necessary to carry out its duties under the Plan, including, but not by way of limitation, the following: to construe and interpret the provisions of the Plan; to decide any disputes which may arise under the Plan; to decide all questions that shall arise under the Plan, including questions as to the eligibility to become Participants, and the amount, manner and time of payment of any benefits under the Plan; to decide questions submitted by the Trustee on all matters necessary for it to properly discharge its duties, powers and obligations; to employ or appoint legal counsel, accountants, actuaries, consultants or any person to assist in the administration of the Plan and any other agents it deems advisable. The Committee shall also have the power to allocate and delegate fiduciary responsibilities. The Committee shall have the power and authority to direct the investment of the Trust Fund, and in connection with such power, may delegate in writing authority to manage assets of the Trust Fund to one or more investment managers. The Committee may adopt from time to time written investment policies and guidelines which shall govern the manner in which the assets of the Trust Fund are to be invested, which 14 policies and guidelines shall be followed by the investment managers. With respect to Retirement Benefits funded under Section 13.1(b) or (c) hereof, the Committee shall have the discretion to appoint such agents as are necessary to act on its behalf and shall have the authority to direct the investment of amount held to fund such Retirement Benefits. 12.3 MEETINGS OF THE COMMITTEE: The Committee shall act by a majority of its members at the time in office, and such action may be taken either by a vote at a meeting or in writing without a meeting. The Committee may authorize any person or persons, who may but need not be a member or members of the Committee, to execute any document or documents on behalf of the Committee, in which event the Committee shall notify the Trustee in writing of such action and the name or names of such person or persons so designated. The Trustee thereafter may accept and rely upon any document executed by such person or persons as representing action by the Committee until the Committee shall file with the Trustee a written revocation of such designation. 12.4 ADOPTION OF RULES BY THE COMMITTEE: The Committee may adopt such rules as it deems necessary, desirable or appropriate. All rules and decisions of the Committee shall be uniformly and consistently applied to all Participants in similar circumstances. When making a determination or calculation, the Committee shall be entitled to rely upon information furnished by a Participant or beneficiary, the Company, the legal counsel of the Company, or the Trustee. 12.5 INSTRUCTIONS TO TRUSTEE: The Committee shall advise the Trustee in writing with respect to all benefits which become payable under the terms of the Plan and shall direct the Trustee to pay such benefits from the Trust Fund. 12.6 REPORTS AND RECORDS: The Committee shall keep a record of all its proceedings and acts and shall keep all such books of account, records, and other data as may be necessary for the proper administration of the Plan. The Committee shall file or cause to be filed all such annual reports, financial and other statements as may be required by any federal or state statute, agency or authority within the time prescribed by the law or regulations for filing said documents. The Committee shall furnish such reports, statements and other documents to Participants and Beneficiaries of the Plan as may be required by any federal or state statute or regulation within the time prescribed for furnishing such documents. 12.7 INSPECTION OF RECORDS OF THE COMMITTEE: The Committee's records and books of account shall be open to inspection at all reasonable times by the Company or the Board of 15 Directors, or both, or any person designated from time to time by the Company or Board of Directors. 12.8 INDEMNIFICATION: The Company shall indemnify each member of the Committee, and the directors, officers and employees of the Company involved in the operation and administration of the Plan against any and all claims, losses, damages, expenses and liabilities arising from any action or failure to act, except when the same is determined by the Board of Directors to be due to gross negligence or willful misconduct of such member. 12.9 CLAIMS PROCEDURE: The Committee shall make all determinations as to the right of any person to a benefit. Any denial by the Committee of the claim for benefits under the Plan by a Participant or beneficiary shall be stated in writing by the Committee and delivered or mailed to the Participant or beneficiary. Such notice shall set forth the specific reasons for the denial, written in a manner that may be understood without legal or actuarial counsel. In addition, the Committee shall afford a reasonable opportunity to any Participant or beneficiary whose claim for benefits has been denied for a review of the decision denying the claim. Section 13. FUNDING OF RETIREMENT BENEFITS. 13.1 DISCRETION OF COMMITTEE ON FORM OF FUNDING: The Plan is intended to be a funded plan for purposes of ERISA, and is intended to be a permanent as distinguished from a temporary program. Provided that the minimum funding standards of ERISA are met, the Committee shall have the discretion to fund the payment of each Participant's vested Retirement Benefit through one or more of the following: (a) making contributions on such Participant's behalf to the Trust; (b) purchasing a commercial annuity contract or contracts and, to the extent the Committee deems advisable, transferring the annuity contract or contracts to such Participant; or (c) implementing any other funding method which the Committee, in its sole discretion, shall consider appropriate. The Committee's decision to use one method for funding one Participant's Retirement Benefit shall not in any way limit the Committee's discretion to use any other method for funding another Participant's Retirement Benefit. Similarly, the Committee's decision to use one method for funding a portion of a particular Participant's Retirement Benefit shall not limit the Committee's 16 discretion with respect to the funding of the remainder of such Participant's Retirement Benefit. Moreover, the Committee shall have the discretion to change, to the extent practicable, the method for funding any Participant's Retirement Benefit. If at any time a Participant's Retirement Benefit is funded through one or more methods which do not require the use of the Trust, all references herein to the Trust, the Trust Fund and the Trustee shall, with respect to such Participant, be disregarded. 13.2 EARLY DISTRIBUTION: Under Section 13.1, the Committee may select a method of funding that provides for distributions to be made to a Participant or beneficiary before the Annuity Starting Date or the Survivor Annuity Starting Date, as the case may be; provided, however, that to the extent ERISA requires the consent of the Participant, his spouse, a beneficiary, or any combination thereof, to any such distribution, no distribution shall be made unless such consent or consents have been given. 13.3 EMPLOYEE CONTRIBUTIONS: Under Section 13.1, the Committee may select a method of funding that permits Participants to make contributions to fund Retirement Benefits. 13.4 PAYMENTS FOR TAXES: To the extent that the Committee's funding of a Participant's Retirement Benefit pursuant to Section 13.1 results in adverse foreign (non-United States), federal, state or local tax consequences to such Participant which would not have resulted if such Participant's Retirement Benefit had not been funded, the Committee may, in its discretion, authorize the payment to such Participant, either by the Company or out of the Trust Fund, of an amount sufficient to indemnify such Participant against some or all of such adverse tax consequences. 13.5 OVERFUNDING OF BENEFITS: The funding of Retirement Benefits under Section 13.1 is intended solely to allow the Committee to establish a fund from which the Company's liability to pay Retirement Benefits to Participants may be satisfied, and not to increase in any way the Retirement Benefit to which a Participant is entitled. Accordingly, to the extent the Committee funds a Participant's Retirement Benefit pursuant to Section 13.1 based on certain assumptions, but the actual payments resulting from such funding would exceed such Participant's Retirement Benefit as determined under Section 6, the Committee may, in its discretion, reallocate the excess among other Participants who are presently covered by the Plan or who may be so covered in the future. The Company shall have no right, title or interest in or to amounts or assets used to fund Retirement Benefits, and no part of any such amounts or assets shall revert to the Company except that any amounts or assets remaining, because of overpayments, after satisfaction of all liabilities of the Plan with regard to 17 Participants may revert to the Company. Any amounts or assets contributed to fund Retirement Benefits under a mistake of fact shall be returned to the Company, to the extent practicable, upon request within one (1) year after such funding. 13.6 UNDERFUNDED BENEFITS: The Committee's funding of some or all of a Participant's Retirement Benefit under Section 13.1 shall not reduce the Company's liability to provide to a Participant the Retirement Benefit to which he is entitled under Section 6; provided, however, that if as a result of the funding method adopted by the Committee any Participant or his beneficiary (i) receives any distribution of cash from the Trust or any other entity prior to the Annuity Starting Date or the Survivor Annuity Starting Date, as the case may be, and (ii) fails to recontribute the after-tax amount of such distribution (as defined in the following sentence) in order to fund a portion of such Participant's Retirement Benefit, then the Committee may reduce such Participant's Retirement Benefit by the sum of such after-tax amounts not recontributed and the investment income the Trust would have earned thereon. For purposes of this Section 13.6, the after-tax amount of a distribution shall be the amount of such distribution reduced by the amount of any federal, state and local taxes incurred by the Participant because of such distribution; provided, however, that no such reduction will be made to the extent that the Participant receives a payment from the Company indemnifying him for such taxes. Section 14. TRUST FUND. 14.1 TRUST AGREEMENT: As a part of the Plan, the Company may enter into a Trust Agreement under which the Trustee would receive contributions of the Company to the Trust Fund. The provisions of and benefits under the Plan are subject to the terms and provisions of such Trust Agreement. 14.2 CONTRIBUTIONS TO THE TRUST FUND: Subject to Section 13.4 hereof, no contribution shall be required from any Participant. An individual account will be established in the Trust Fund for each Participant whose Retirement Benefit is funded, in whole or in part, through the Trust. Section 15. BENEFITS OF RETIRED OFFICERS AND SPOUSES OF DECEASED OFFICERS. 15.1 FUNDING OF BENEFITS: The benefits payable to Officers who retired prior to the Effective Date shall continue to be paid by the Company under the Plan provisions as they existed prior to the Effective Date; provided, however, that on or before December 31, 1988, the Retirement Benefit of each retired Officer shall be funded through the Trust; and, provided further, that effective January 1, 1989, the Retirement Benefit of each 18 retired Officer will be recalculated under the formulas set forth in Section 6 of the Plan. Each retired Officer will be given the right to elect, within a time period to be set by the Committee, payment of the recalculated Retirement Benefit in a lump sum or in the form of a Qualified Joint and Survivor Annuity or one of the optional methods of payment specified in Section 9 of the Plan. If a retired Officer elects to receive payment other than in a lump sum, the Committee will direct the Trustee to purchase an annuity contract from the Trust Fund to fund the benefit. The benefit currently being paid to a spouse of a deceased Officer shall remain the same except that (i) on or before December 31, 1988 the benefit payable to each such spouse shall be funded through the Trust and (ii) each such spouse shall, within a reasonable time period to be set by the Committee, be allowed to elect to receive a lump sum payment from the Trust or to continue to receive installment payments. If a surviving spouse elects to continue to receive installment payments, the Committee will direct the Trustee to purchase an annuity contract from the Trust Fund to fund the benefit. 15.2 UNDERFUNDING OF BENEFITS: The Committee's funding of some or all of a retired Officer's or surviving spouse's benefit under Section 15.1 shall not reduce the Company's liability to provide such retired Officer or surviving spouse with the benefit to which he otherwise is entitled. 15.3 PAYMENT FOR TAXES: To the extent the funding of a retired Officer's or surviving spouse's benefit (either through the funding of the Trust or the purchase of an annuity) results in adverse federal, state, or local tax consequences to such retired Officer or surviving spouse which would not have resulted if such retired Officer's or surviving spouse's benefit had not been funded, the Committee may, in its discretion, authorize the payment to such retired Officer or surviving spouse, either by the Company or out of the Trust Fund, of an amount sufficient to indemnify such retired Officer or surviving spouse against some or all of such adverse tax consequences. Section 16. MERGER OR CONSOLIDATION OF PLAN; TRANSFER OF ASSETS. In the event of any merger or consolidation of the Plan with another retirement or pension plan, or in the event of any transfer of assets or liabilities from the Plan to another retirement or pension plan, provision shall be made so that each Participant in the Plan on the date thereof (if the Plan then terminated), would receive a benefit immediately after the merger, consolidation or transfer which is equal to or greater than the benefit he would have been entitled to receive immediately prior to the merger, consolidation or transfer (if the Plan had then terminated). 19 Section 17. AMENDMENTS. The Board of Directors shall have the right at any time to amend the Plan, the Trust Agreement and any other document entered into as a result of a funding method adopted by the Committee under Section 13.1 hereof. However, no such amendment shall authorize or permit any part of the Trust Fund or any other asset purchased or amount set aside to fund Participants' Retirement Benefits (other than such part as is required to pay administration expenses) to be used for or diverted to purposes other than for the exclusive benefit of the Participants, either current or future, or their beneficiaries or estates. No such amendment shall cause any reduction in the vested accrued benefit of any Participant. The Company further reserves the right to discontinue or suspend the payment of contributions to any fund held under the Trust Agreement or under any other funding method adopted under Section 13.1 hereof. Section 18. TERMINATION. The Board of Directors shall have the right to terminate the Plan at any time. Upon termination the amount credited to the account of each Participant shall become fully vested and shall not thereafter be subject to forfeiture. Upon termination of the Plan, the Company, by written notice to the Trustee, may direct either: (i) continuation of the Trust and the distribution of benefits at such time and in such manner as though the Plan had not been terminated; or (ii) complete distribution of the assets in the Trust Fund to the Participants in a manner consistent with the Plan. In such case, the Trustee shall distribute to each Participant in the Plan and to each retired Participant, the amount then credited to his account in the Trust Fund, subject to provision for expenses of administration or liquidation. The balance, if any, of the assets due to erroneous actuarial computation held by the Trust Fund after such distribution shall be returned to the Company, but only after satisfaction of all liabilities with respect to Participants and Retirement Benefits under the Plan. Section 19. MISCELLANEOUS. 19.1 NO ENLARGEMENT OF RIGHTS: The Plan is strictly a voluntary undertaking on the part of the Company and shall not be deemed to constitute a contract between the Company and any Officer, or to be consideration for, or an inducement to, or condition of, the employment of any Officer. Nothing contained in the Plan shall be deemed to give any Officer the right to be retained in the employment of the Company or to interfere with the right of the Company to discharge any Officer at any time regardless of the effect which such discharge shall have upon him 20 as a Participant of the Plan. No Officer, prior to his retirement under conditions of eligibility for retirement benefits or prior to his acquiring vested rights, shall have any right or interest in or to any portion of any funds arising from Company contributions under the Plan, and no person shall have any right to Retirement Benefits, except to the extent provided in the Plan. 19.2 NOTICE OF ADDRESS: Each person entitled to benefits under the Plan must file with the Committee, in writing, his post Office address and each change of post office address. Any communication, statement, or notice addressed to such a person at his latest post office address as filed with the Committee will be binding upon such person for all purposes of the Plan, and neither the Trustee nor the Company shall be obliged to search for or ascertain the whereabouts of any such person. 19.3 DATA: All persons entitled to benefits under the Plan must furnish to the Committee or Trustee such documents, evidence, or information as the Committee or Trustee considers necessary or desirable for the purpose of administering the Plan, or to protect the Committee or Trustee, and it shall be a condition of the Plan that each such person must furnish promptly true and complete data, evidence, or information and sign such documents as the Committee or Trustee may require before any benefits become payable under the Plan. In the event that any data so furnished is found by the Company to be incorrect, any payments thereafter due shall be adjusted on an actuarial basis to correct for any previous overpayments or underpayments, as the case may be. After such adjustment is made, all future payments shall be based on the corrected data. 19.4 GOVERNING LAW: The Plan shall be governed by and construed in accordance with ERISA and the laws of the State of Illinois to the extent not preempted by ERISA. 21 EX-10.9 3 EXHIBIT 10.9 Exhibit 10.9 MOTOROLA, INC. DEFERRED FEE PLAN FOR OUTSIDE DIRECTORS 1. Purpose: The purpose of the Motorola Deferred Fee Plan For Outside Directors (the "Plan") is to permit Directors who are not regular employees of Motorola, Inc. ("Motorola") to elect to defer receipt of all or a portion of the annual retainer and per meeting fees they receive as compensation for membership on Motorola's Board of Directors. 2. Definitions: (a) The term "Company" shall mean Motorola, a Delaware corporation, and all of its subsidiaries. (b) The term "Board" shall mean the Board of Directors of Motorola. (c) The term "Director" shall mean a person (a) who is serving as a member of the Board and (b) who is not a regular employee of the Company or its subsidiaries. (d) The term "Beneficiary" shall mean such individual(s) or such executor or trustee(s) of a trust as may be designated by a Director pursuant to paragraph 4(c) of Section 4 hereof. 3. Participation: A Director may elect to defer receipt of either or both of the following: (i) The annual fees for services as a Director and as a member or as chairman of the Board's audit committee. (ii) The fees for attending regular or special meetings of the Board and committees of the Board. The Director may elect on or before December 31st of any year to defer for succeeding calendar years the receipt of all or a specified 2 percentage of his/her Director's fees. An election to defer the receipt of fees continues for succeeding years unless the Director provides the Company with written notice filed with the Company on or before December 31st of a year for which an election is in effect that for succeeding years he/she elects to terminate his/her election or to modify his/her election by either changing the percentage of fees to be deferred, changing the designated beneficiary(ies) or by changing the manner in which deferred fees are to be paid to him/her at the end of the deferral period. 4. Method of Deferment: Fees, the receipt of which a Director has elected to defer, shall be treated in the following manner: (a) The Company shall accrue such deferred fees to a separate memorandum account on its books in the name of the electing Director. The memorandum account shall be credited with interest as of the last day of each of the Company's fiscal quarters. The amount of such interest shall be one-fourth of the annual discount rate of ninety-day United States Treasury bills issued during the week in which the last business day of the Company's fiscal quarter happens to fall. (b) Commencing with the first day of the month of the calendar year immediately following the year in which the Director has ceased to be a Director, has become disabled or has attained the age designated on his/her Election to Defer Director's Fees, whichever date(s) the Director selected at the time of making his/her deferral election, the Company shall pay the Director his/her deferred Director's fees and interest which has accumulated thereon. The Company shall make the payment in either a lump sum or in annual installments over a period not exceeding ten years, whichever method of payment the Director selected at the time of making his/her deferral election. The Company may, in its discretion, accelerate the date upon which payment(s) to the Director shall begin. (c) Upon the death of a Director prior to distribution of the entire amount accrued to his/her account, any such undistributed amount 3 shall be paid in a lump sum to the Director's estate, to a trust or to such Beneficiary or Beneficiaries as the Director shall have previously designated in writing. Each Director who elects to defer the receipt of fees pursuant to this Plan may designate upon such form or instrument as may be provided for that purpose, a Beneficiary or Beneficiaries who are to receive payments pursuant to this Section 4(c). If the Director has not designated a Beneficiary in writing or if there shall be no Beneficiary designated or in existence at the time of the Director's death, any undistributed amount shall be paid to the Director's estate. (d) If a Director or his/her Beneficiary who is entitled to receive payments under the Plan is a minor, or is ill, or is disabled due to any cause which in the judgment of the Company renders him/her unable to apply such amount to his/her own best interest and advantage, the Company may, in its discretion, pay all or part of the amount in one or a combination of the following ways as the Company may determine to be for the individual's best interest: (i) directly to him/her; (ii) to his/her legal or natural guardian or the conservator of his estate; (iii) to any person having his/her care or custody, or (iv) directly for his/her care, support or education. Such payment shall completely discharge all of the Company's obligations under the Plan. (e) Amounts which a Director has deferred and any interest which has accumulated thereon shall constitute an unfunded general obligation of the Company until such time(s) as they are paid. 5. Nonassignability: No Director or Beneficiary shall have any power to commute, encumber, sell or otherwise dispose of the rights provided herein and such rights shall not be subject to anticipation, alienation, assignment, pledge or charge. 6. Amendment or Termination: This Plan may be amended by the Board at any time and from time to time provided that no such amendment shall 4 result in changing the provisions of paragraph 4(a) of Section 4 hereof. Paragraphs 4(b) and 4(c) of Section 4 hereof can be amended only to change the date after retirement upon which payments to a Director or Beneficiary shall commence and the time, or times, at which such payments shall be made. This Plan may be terminated by the Board at any time, except that such termination shall have no effect on deferred fees and interest thereon which have accrued to the account of any Director at the time of termination. EX-11 4 EXHIBIT 11 Exhibit 11 Motorola, Inc. and Consolidated Subsidiaries Primary and Fully Diluted Earnings Per Common and Common Equivalent Share (In millions, except per share amounts)
For the Years Ended ------------------------ Dec. 31, Dec. 31, 1994 1993 ------------------------ Net Income $ 1,560 $ 1,022 Add: Interest on Zero coupon notes due 2009 and 2013, net of tax and effect of executive incentive and employee profit sharing plans 12 15 ------- -------- Adjusted net income $ 1,572 $ 1,037 ------- -------- ------- -------- EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE - PRIMARY: Weighted average common shares outstanding 564.9 548.8 Common equivalent shares: Stock options 13.4 12.9 Zero coupon notes due 2009 and 2013 13.4 20.9 Common and common equivalent shares-primary (in millions) 591.7 582.6 ------- -------- Net earnings per share - primary $ 2.66 $ 1.78 ------- -------- ------- -------- EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE - FULLY DILUTED: Weighted average common shares outstanding 564.9 548.8 Common equivalent shares: Stock options 14.4 14.0 Zero coupon notes due 2009 and 2013 13.4 20.9 Common and common equivalent shares-fully diluted (in millions) 592.7 583.7 -------- -------- Net earnings per share - fully diluted $ 2.65 $ 1.78 -------- -------- -------- --------
EX-13 5 EXHIBIT 13 AR FINANCIAL RESULTS Sales and earnings again set records, with all three of Motorola's major business segments contributing to the continuing growth. Sales increased 31% to $22.2 billion from $17.0 billion in 1993. Earnings were $1.56 billion, compared with $1.02 billion a year earlier. Fully diluted earnings per share were $2.65, up 49% from $1.78 in 1993. Net margin on sales was 7.0% for the full year 1994 compared with 6.0% a year ago. Detailed operating and financial results of our various businesses in 1994 appear on pages 20-43. REVIEW OF OPERATIONS MOTOROLA, INC. AND CONSOLIDATED SUBSIDIARIES ------------------------------------------------------------------------------- GENERAL SYSTEMS SECTOR (GSS) Segment sales advanced 64% to $8.6 billion and orders rose 58%. Segment operating profits were higher. Worldwide cellular sales grew rapidly for both subscriber and infrastructure equipment. In the cellular industry, the number of subscribers at the end of 1994 exceeded 50 million worldwide, an increase of more than 50% from 1993. Customers throughout the world chose Motorola's cellular infrastructure systems. Contracts for digital GSM (Global System for Mobile) Communications systems were awarded to us in Andorra, France, Hong Kong, Jordan, Kuwait, Lebanon, Lithuania, Morocco, Nigeria, Russia, South Africa, Sweden, Thailand, Turkey and the United Kingdom. We now have more than 30 contracts for GSM systems worldwide. New contracts for analog systems came from the Philippines, Kazakhstan, Russia and several countries in Africa. In China, Motorola has been awarded more than 140 cellular infrastructure contracts for analog and digital systems in 23 of China's 27 provinces, including the country's largest GSM system in Beijing and an analog system expansion in Shanghai. Three customers in Japan began offering digital phone service using Motorola equipment and technology. We also reached an agreement with Nippon Idou Tsushin to expand the service area for the Motorola Total Area Communication System (TACS) in the Tokyo and Nagoya areas. In the United States, Sprint announced plans to deploy Code Division Multiple Access (CDMA) technology from Motorola in its Las Vegas, Nev., cellular system. AirTouch Communications agreed to purchase CDMA networks for use in California and Georgia, and U.S. West New Vector Group awarded a CDMA infrastructure contract for its entire Arizona network. Motorola also has contracts to supply commercial CDMA systems in Hong Kong and the Philippines. Argentina plans to conduct the first trial of CDMA in Latin America. We announced the INReach -TM- radiotelephone system, which enables a person to use a cellular phone as a desk phone extension or in place of a desk phone, within a building or campus-like setting. The new IN2 -TM- Solution Center uses open architecture and industry standards to quickly bring to market advanced intelligent network services for the wireless industry. Five new base stations were announced for analog and digital cellular and Personal Communications Service (PCS) standards. New subscriber equipment included the MicroTAC [REGISTERED TRADEMARK] Elite -TM- personal cellular telephone. Weighing 3.9 ounces, it is the lightest such phone available in the world. A special edition of the MicroTAC International 8200 GSM phone, the lightest digital pocket phone, also was introduced. To meet rapidly increasing demand, the Cellular Subscriber Group began construction of a new manufacturing, engineering and administrative facility in Harvard, Ill. Motorola's CableComm -TM- technology is to be used in a trial system in which Teleport Communications Group will offer telephone service in Arlington Heights, Ill., on the same coaxial cable that carries programming on the cable television distribution network of Tele-Communications Inc. (TCI). The Computer Group introduced a family of board-level products based on the PowerPC -TM- 603 and PowerPC 604 microprocessors. The group also announced entry into the PowerPC motherboard market with its Ultra -TM- and Atlas -TM- motherboards used in desktop personal computers. The PowerStack -TM- family of computers, capable of supporting a variety of operating environments, was announced. Based on the PowerPC 603 and 604 microprocessors, the family will be available with IBM's AIX -TM- and Microsoft's Windows NT 3.5 -TM- operating systems. The Computer Group plans to develop products based on the new PowerPC Hardware Reference Platform specification by Apple Computer, IBM and Motorola. The new platform defines an architecture that is expected to support a number of industry operating systems and can be used by any hardware or software vendor to build compatible PowerPC-based computer products. SEMICONDUCTOR PRODUCTS SECTOR (SPS) Segment sales advanced 22% to $6.9 billion, achieving 24 consecutive quarters of growth. Orders rose 19% and operating profits were higher. The results reflect the sector's focus on providing customers with systems solutions based on leadership products. Double-digit order growth was recorded in all regions except Asia-Pacific. Increases in all major market segments were paced by automotive, followed by communication, indirect distributors, computer, personal computer/workstation, industrial and consumer. In communications, bipolar complementary metal oxide semiconductor, or BiCMOS, technology, fully emerged as a vital addition to our portfolio. 20 MOTOROLA, INC. AND CONSOLIDATED SUBSIDIARIES ------------------------------------------------------------------------------- Using gallium arsenide, we introduced a chip set of three integrated circuits for cordless phone applications that will reduce power consumption, product cost and size and increase talk time. A family of advanced CMOS gate arrays was introduced for high-performance communications and computing applications. In automotive markets, we provide 13 of the top 14 manufacturers worldwide with microcontrollers that power engine management systems. Propelling the growth of this market is the need for cleaner-burning engines and improvements in fuel economy and vehicle safety. Our new System Chip integrates all functions of a multiplex module into one chip, saving cost, space and paving the way for further power train management integration. The embedded PowerPC MC500 microcontroller series promises even greater enhancements. In computing, support continued to build for the PowerPC family of reduced instruction set computing (RISC) microprocessors being developed with IBM and Apple Computer. Motorola is committed to making the PowerPC architecture an open industry standard. Volume production was achieved on the PowerPC 603 chip (for portable and entry-level desktop computers) and sampling of the 604 chip (for high-end desktop systems, midrange servers and high-performance graphics workstations) was under way at the end of 1994. First silicon was achieved for the first 64-bit implementation of PowerPC architecture, the 620, for servers and high-end workstations. Motorola will manufacture all three chips. The port of Microsoft's Windows NT 3.5 "Daytona" operating system to PowerPC platforms was completed, and suites of software development tools for numerous platforms enhanced programming productivity by software and hardware vendors and original equipment manufacturers. Some 225 independent software vendors are developing hundreds of native PowerPC applications for a variety of operating systems and PowerPC platforms. More than 60 native PowerPC applications were demonstrated at the industry's fall COMDEX computer show, and in January 1995, Apple Computer announced shipment of its 500th native Power Macintosh [REGISTERED TRADEMARK] application. Key consumer applications were announced, including use of embedded PowerPC microprocessors to drive CD-ROM multimedia players from Apple Computer and Bandai Co., 3DO's Interactive Multiplayer systems, and Microware's tools used to develop leading interactive television applications. Demand for cache memory in workstations and personal computers fueled rapid growth in fast static random access memories. In the networking arena, we announced OPTOBUS -TM-, an optical link technology that allows an inexpensive fiber optic assembly to link computer systems over short distances, with a data transfer rate of 3 billion bits per second. We added a new 32-bit product line to our 68000 family of microprocessors and unveiled the FlexCore -TM- system, a program to enable customers to create custom processors based on 68000 and PowerPC architectures. Microcontroller introductions included 10 versions of low-voltage, 8-bit products for telecommunication applications, and a new 8-bit family featuring a more powerful processor that offers attractive price-performance benefits. In the consumer, entertainment and multimedia arena, we introduced a fifth generation of radio frequency (RF) amplifiers for cable television applications. The industry is adopting the 68000 and PowerPC architectures for set-top applications. Eurodec, General Instrument, Hewlett-Packard, Philips, Scientific Atlanta and Tee-Com are among our customer partners. For audio, we announced an alliance with Dolby, Onkyo and Lucas Film to bring advanced digital sound technology to home and theater applications using our digital signal processors. We sampled a chip set developed with BT (British Telecom) that brings teleconferencing to the desktop. We provided a second-generation compact-disc-interactive (CD-I) chip set to Philips. Philips also received shipment of the world's most highly integrated color picture-in-picture integrated circuit for consumer television applications. We continued development of a high-definition television chip set that will meet proposed Federal Communications Commission standards. In the industrial segment, we developed low-pressure sensors for appliances and in-home and building environmental controls. We continued to expand hybrid power module offerings to improve energy efficiency in motors and other equipment. In network control technology, LonBuilder -TM- development systems were shipped to several major customers. A second generation Neuron [REGISTERED TRADEMARK] Chip was introduced for LonWorks -TM- systems. COMMUNICATIONS SEGMENT In this segment, composed of the Land Mobile Products Sector (LMPS) and the Paging Products and Wireless Data Groups, sales rose 19% to $5.8 billion and orders rose 7%. Segment operating profits were higher. In LMPS, new orders were higher, led by North American and European markets. Orders increased in 1994 for the Motorola Integrated Radio 21 MOTOROLA, INC. AND CONSOLIDATED SUBSIDIARIES ------------------------------------------------------------------------------- System (MIRS -TM-), which offers voice dispatch, wireless phone, text messaging and future data capabilities, as MIRS-based systems became operational in several U.S. cities and in Japan and Israel. MIRS orders were, however, weak in the fourth quarter. LMPS received several contracts for systems using its Astro -TM- digital products and signed agreements with three companies to license Motorola's digital technology to develop and produce public safety communications products that comply with standards of the Association of Public Safety Communications Officials International, Inc. The State of Michigan issued a contract for the first phase of a $187 million award for Astro digital technology for a statewide public safety communications system. Other major Astro awards were received in Switzerland and the United States. Contracts for wide-area trunking systems were awarded in Russia and the UK. Other major orders were received in Colombia, El Salvador, Mexico and Poland. In Ecuador, Motorola formed a joint venture with Isaias Group to offer shared trunked radio services in that country. We introduced the LINGO -TM- digital portable and mobile phones. Designed to operate with the MIRS system, LINGO phones provide the ability to switch from functioning as a dispatch two-way radio to a wireless phone with the touch of a button. The new SP50 portable two-way radio, designed for price-sensitive and emerging markets, was announced at Motorola's first-ever worldwide dealer conference, which included dealer and distributor representatives from over 20 countries. The line of VISAR [REGISTERED TRADEMARK] portable two-way radios also was expanded with a trunked version for shared system applications in Asia. A major order for VISAR radios was received in Thailand. LMPS continued to expand its worldwide network of distributors, dealers, and resellers in Asia, Eastern Europe, and Latin America. The sector expanded its distribution network to reach new users in the light commercial and the outdoor recreation markets. Products to serve these markets are now sold in various retail outlets and outdoor sports catalogs. In the Paging Products Group, orders continued to set records. Strong U.S. growth was fueled by retail products such as the Memo Express -TM- pager, the first alphanumeric model designed for the consumer market. We announced the Pro Encore -TM- numeric display pager for use with the Flex -TM- paging protocol, which increases channel capacity five times over the current standard. China continued to be a major market for paging. The Scriptor LX2 -TM- and Instinct -TM- pagers were launched during the year. We also began producing pagers in India, where 93 licenses for paging systems have been awarded in 27 major cities. In Europe, the "calling party pays" concept was introduced in various countries and stimulated demand at the retail level. In Japan, the Ministry of Posts and Telegraph selected Motorola's Flex coding system as the base of a standard for the next-generation paging system. Deregulation of the paging market in Japan, expected during 1995, will enable customers to own equipment for the first time. We demonstrated two-way paging using our ReFlex -TM- protocol. Motorola also plans to supply equipment that will function as a portable wireless answering machine. Paging Network Inc. announced plans to introduce the VoiceNow [REGISTERED TRADEMARK] personal communications service based on new voice technology being developed by Motorola. The Wireless Data Group introduced the Envoy -TM- wireless communicator, based on General Magic, Inc. software, and the Marco -TM- wireless communicator, based on Apple Computer's Newton [REGISTERED TRADEMARK] platform. The devices allow users to exchange messages with their work groups, access information, send wireless messages to fax machines and receive news and stock market updates. Sprint Cellular Co. began a field trial of Motorola's CelTAC -TM- Cellular Digital Packet Data (CDPD) system. The field trial will allow an oil and gas company to control and monitor its wellheads through Sprint's cellular network channels. The Personal Messenger -TM- 100D, a wide-area wireless data pocket-sized PC modem card, was introduced in the Asia-Pacific market. The group also introduced two new versions of the InfoTAC -TM- two-way messenger. GOVERNMENT AND SPACE TECHNOLOGY GROUP (GSTG) Segment sales declined 3% to $829 million and orders rose 36%. The group recorded a larger loss than in 1993. GSTG increased its presence in the space industry while continuing its government and defense business. Development of the IRIDIUM [REGISTERED TRADEMARK] global wireless personal communications system continued with all scheduled contractual milestones achieved during the year. Iridium, Inc., the global consortium of companies funding the system, completed its planned equity financing activity by raising an 22 MOTOROLA, INC. AND CONSOLIDATED SUBSIDIARIES ------------------------------------------------------------------------------- additional $733 million in equity commitments. Total capital committed to the IRIDIUM system from all investors now equals $1.57 billion. Motorola owns about 26% of Iridium, Inc. The IRIDIUM system is expected to be the first operational global wire-less telecommunications network enabling subscribers to make or receive telephone calls over handheld subscriber equipment worldwide. The IRIDIUM system is expected to become commercially available worldwide by the end of 1998. GSTG received contracts from the Federal Aviation Administration for the Portable Emergency Transceiver-2000 (PET-2000) backup ground-to-air radio and the CM-50/51 linear power amplifier. The transceivers will provide comprehensive communications if standard ground-to-air communications systems are unavailable due to power outages, natural disaster or other emergency conditions. The amplifiers will provide for air traffic control communications beyond normal ranges. The Department of Defense awarded a contract for development of the 21st Century Land Warrior Generation II Soldier system. The Generation II Soldier is an advanced head-to-toe fighting system with data, communication and protective equipment designed for ground forces. The Kansas Turnpike Authority selected the Motorola/Amtech Intellitag Products joint venture for installation of an electronic toll collection system. Intellitag [REGISTERED TRADEMARK] 2000 toll collection equipment will record and process vehicle transactions automatically. AUTOMOTIVE, ENERGY AND CONTROLS GROUP (AECG) Sales were 64% higher and orders rose 68%. Operating profits were higher. AECG's performance was led by strong demand for component and energy products for Motorola's wireless communications equipment, including quartz and ceramic components, batteries and chargers, as well as electronic ballasts. The group's results are reported as part of the "Other Products" segment. Demand for automotive electronics products also remained strong. Major automotive orders included programs for engine control modules, body electronics and sensors. This year the group launched two families of body control modules for Ford Motor Company that include lighting, seat and door controls as well as a remote keyless entry system, and are featured on four of Ford's large luxury car platforms. This year the group also began manufacturing PC desktop video conferencing hardware for BT (formerly British Telecom). Indala Corp., a wholly owned subsidiary and manufacturer of radio frequency identification (RFID) cards, introduced a number of new and enhanced RFID products to the proximity and access control markets. Motorola Lighting, Inc., expanded its distribution network, signed a 10-year supply agreement with General Electric Lighting and introduced a dimming ballast that can control fluorescent lamps from 100% to 10% light output. The joint venture formed by Motorola and Schlumberger Ltd. began field trials for its automated utility meter reading systems in North America and Europe. Motif, Inc., a joint venture of Motorola and In Focus Systems, restructured in 1994 to focus on the development of Active Addressing -TM- technology for liquid crystal displays. INFORMATION SYSTEMS GROUP (ISG) Group sales declined 5% and orders were 8% lower. Operating profits were lower. The group's results are reported as part of the "Other Products" segment. ISG moved into the retail market with the launch of the Power Class -TM- and Lifestyle -TM- Series PC modem cards for small office and home office environments. They operate at up to 14.4 kilobits per second for cellular and wireline applications. ISG also introduced the industry's first V.34 modem designed for high performance in traditional corporate markets. The Motorola V.3400 won several industry awards. A number of new digital transmission products were launched, including a hybrid modem capable of combining Integrated Services Digital Network (ISDN) data, high-speed analog modem and fax capabilities in a single platform. Also introduced were several new ISDN terminal adapters as well as a new data service unit boosting Motorola's T1 and fractional T1 capabilities. Customer response has been strong, and Ameritech has teamed with ISG, standardizing on the TA210 for its expanding ISDN service. The Vanguard -TM- family of Frame Relay Access Devices (FRADs) was brought to market in 1994, strengthening Motorola's market leadership in this rapidly growing market. U.S. carriers using Vanguard FRADs in their frame relay services include USWest, MCI and Pacific Bell. POWERPC -TM- IS A TRADEMARK OF INTERNATIONAL BUSINESS MACHINES CORP. IRIDIUM [REGISTERED TRADEMARK] IS A REGISTERED TRADEMARK AND SERVICE MARK OF IRIDIUM, INC. MACINTOSH [REGISTERED TRADEMARK], POWER MACINTOSH [REGISTERED TRADEMARK], NEWTON [REGISTERED TRADEMARK] AND APPLE [REGISTERED TRADEMARK] ARE REGISTERED TRADEMARKS OF APPLE COMPUTER, INC. NEURON [REGISTERED TRADEMARK] IS A REGISTERED TRADEMARK OF ECHELON CORPORATION. VOICENOW [REGISTERED TRADEMARK] IS A REGISTERED SERVICE MARK OF PAGING NETWORK, INC. INTELLITAG [REGISTERED TRADEMARK] IS A REGISTERED TRADEMARK OF AMTECH CORPORATION. ACTIVE ADDRESSING -TM- IS A TRADEMARK OF MOTIF, INC. 23 FINANCIAL REVIEW MOTOROLA, INC. AND CONSOLIDATED SUBSIDIARIES ------------------------------------------------------------------------------- Motorola Management's Discussion and Analysis of Financial Condition and Results of Operations include the Financial Results section of the Letter to Stockholders on pages 2-3 and the Review of Operations on pages 20-23, in addition to the following commentary. This commentary should be read in conjunction with the Consolidated Financial Statements and Notes, presented on pages 30-43, for a full understanding of Motorola's financial position and results of operations. RESULTS OF OPERATIONS MOTOROLA, INC. 1994 COMPARED WITH 1993 Sales increased 31% to $22.2 billion from $17.0 billion in 1993. International market sales, as measured by the locale of the end customer, represent 56% of total sales in 1994, compared to 54% in 1993. The highest regional growth rates were achieved in Japan, Latin America and Europe, followed by the rest of the Asia-Pacific region, China and Canada. Segment operating profits were $2.87 billion in 1994 compared to $1.94 billion in 1993. The Company's increased profitability continued to be primarily affected during 1994 by significant volume increases combined with its efforts to contain costs. Net earnings in 1994 were $1.56 billion, or $2.65 per fully diluted common and common equivalent share, compared to $1.02 billion in 1993, or $1.78 per fully diluted common and common equivalent share. Net margin on sales was 7.0%, compared with 6.0% during 1993. Sales in the fourth quarter of 1994 were $6.5 billion, up 29% from $5.0 billion in the fourth quarter of 1993. Earnings in the fourth quarter were $515 million, or $0.86 per fully diluted common and common equivalent share, compared with $340 million, or $0.58 cents per fully diluted common and common equivalent share during the fourth quarter of 1993. Motorola's selling, general and administrative expenses during 1994 were $4.4 billion or 20% of sales, compared to $3.8 billion or 22% of sales in the same period a year ago. By comparison to 1993, expenditures during 1994 included a significantly lower level of expenses for charges resulting from the Company's ongoing evaluation of its operations, organizational structure and asset valuations. Motorola routinely reviews its business strategies, organizational structure and asset valuations, and implements changes deemed appropriate by management. 24 MOTOROLA, INC. AND CONSOLIDATED SUBSIDIARIES ------------------------------------------------------------------------------- Property, plant and equipment, less accumulated depreciation, increased $1.5 billion since December 31, 1993, primarily due to the expansion of the Company's semiconductor business. Depreciation expense increased 30% in 1994 in comparison to 1993 due to increased fixed asset expenditures, and is expected to increase significantly in 1995 over 1994 levels. Fixed asset expenditures for 1994 were $3.3 billion, compared to $2.2 billion in 1993, and are expected to increase to $4.5 billion in 1995, although that amount is an estimate and may differ from the amount actually spent. The effective tax rate for 1994 of 36% was up from the 1993 rate of 33%, principally due to comparatively more rapid profit growth in countries with high tax rates, including the United States. The Company's expectation is that this trend will continue, resulting in an expected 37% effective tax rate for 1995. In recent years, a large and increasing portion of the Company's net sales, operating profits and growth have come from its international operations. As a result, the Company's business activities and its results could be significantly affected by the policies of foreign governments and prevailing social and economic conditions, such as unstable governments, inflation rates, monetary fluctuations, balance of payments, foreign exchange rates and trade restrictions or prohibitions. 1993 COMPARED WITH 1992 Sales increased 28% to $17.0 billion from $13.3 billion in 1992. International market sales, as measured by the locale of the end customer, represented 54% of sales in 1993, compared to 52% in 1992. During 1993, a significant portion of the Company's growth was in the People's Republic of China/ Hong Kong and the rest of the Asia-Pacific region. Segment operating profits were $1.94 billion, up from $1.14 billion in 1992. During 1993, the Company's profitability was primarily affected by significant volume increases driven by demand for its products. Net earnings in 1993 were $1.02 billion, or $1.78 per fully diluted common and common equivalent share, compared with $576 million before the cumulative effect of the change in accounting principle, or $1.05 per fully diluted common and common equivalent share a year earlier. During 1992, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." Net margin on sales for 1993 was 6.0%, compared with 4.3% in 1992, before the cumulative effect of the change in accounting principle. 25 MOTOROLA, INC. AND CONSOLIDATED SUBSIDIARIES ------------------------------------------------------------------------------- MOTOROLA, INC. SEGMENTS The following commentary should be read in conjunction with the financial results of each reporting segment as detailed in note 7, "Information by Industry Segment and Geographic Region," to the Consolidated Financial Statements in this Annual Report. GENERAL SYSTEMS PRODUCTS The General Systems Products segment primarily develops, manufactures, sells, installs and services cellular infrastructure and cellular telephone subscriber units. The Motorola Computer Group, within this segment, develops, manufactures, sells and services multi-function computer systems and board level products, together with operating systems and system enablers. The segment also includes the Network Ventures Division and Personal Communications Systems Division. Competition is worldwide across all the segment's businesses and includes price competition. During 1994, price competition has been a contributing factor to the segment's lower gross margins, and is expected to continue into 1995. The segment continues to focus efforts on reducing the overall unit cost to counter this trend. Despite lower gross margins, the segment's operating margin increased overall during 1994 as a result of its emphasis on efficiency in its processes and its ability to control selling, general and administrative expenses. Other competitive factors in the market for the products are service, delivery, technological capability, and product quality and performance. The segment's infrastructure sales and profit performance is becoming increasingly focused on large system orders, which increases the volatility of orders, revenues and profits recognized during any particular period. The segment's shipments of cellular telephones were extremely strong during the fourth quarter of 1994 because of holiday demand from carriers and retailers. During that quarter, the Company believes that U.S. carriers and distributors built up their Motorola cellular telephone inventory to a level several weeks in excess of their near-term requirements and that their inventories of these products should be gradually reduced to more normal levels during the early part of 1995, as reduced shipments to them by Motorola continue. The segment's fixed costs and production facility capacity increased when compared to 1993. The segment was able to meet, during 1994, a portion of the demand for additional volume through expanded production lines, expanded work weeks and emphasis on quality and efficiencies in its production processes. During 1994, the segment began the construction of a major new facility for manufacturing cellular telephones which is expected to begin production in 1996. SEMICONDUCTOR PRODUCTS The Semiconductor Products segment manufactures a broad line of semiconductor devices for both consumer and industrial applications. Prices for the segment's existing products continued to decline overall, an historical trend in the industry that is expected to continue. The segment's revenue growth was achieved through higher sales volumes and the introduction of new products. When compared to 1993, segment operating profits were higher, even though gross margins were lower. The gross margins were lower because the segment has experienced higher costs during 1994 resulting from the startup costs associated with adding new manufacturing capacity, which is expected to continue into 1995. During 1994, the segment was generally able to offset higher costs by improving yields, increasing factory utilization rates, higher worker productivity and its ability to control selling, general and administrative expenses. The segment has seen a decline in orders for the 68000 microprocessor family of products, primarily as the result of Apple Computer Corporation's transition to the PowerPC -TM- 601 product, which they are presently purchasing from IBM. The segment is expected to manufacture the PowerPC 603, 604 and 620 products in 1995, and sell them to a group of customers including Apple Computer Corporation. Some of the devices produced by the Semiconductor Products segment represent the main source of supply of these devices to other operating units of Motorola. The segment has, at times, experienced capacity constraints on some key device types. The Company's ability to manufacture cellular telephones and other products may be affected by changes in the available mix of semiconductor devices supplied by this segment. If overall customer demand for semiconductors remains strong, Motorola does not expect that these capacity constraints will ease until sufficient wafer 26 MOTOROLA, INC. AND CONSOLIDATED SUBSIDIARIES ------------------------------------------------------------------------------- fabrication capacity becomes available, which possibly could begin during 1995. In addition, the fourth quarter inventory build-up of cellular telephones and the weak demand for Motorola Integrated Radio Systems (MIRS -TM-) products should moderate the rate of internal shipments of semiconductors for cellular telephones and MIRS products until the build-up is eliminated and demand for MIRS products increases. During 1994, the segment purchased a wafer fabrication facility from Harris Corporation in Research Triangle Park, North Carolina, and has agreed to purchase an existing manufacturing facility in South Queensferry, Scotland, from Digital Equipment Corporation. The segment has announced the expansion of facilities in East Kilbride, Scotland, and Toulouse, France, and opened a new research center in Toulouse and a new design center in Sendai, Japan. In addition to the segment's factory expansion program, it is actively pursuing additional capacity through the sourcing of products from outside vendors. Because of the strong market demand, the available quantity of some products has been allocated between customers, including other Motorola operating units, from time to time. COMMUNICATIONS PRODUCTS The Communications Products segment is composed of the Land Mobile Products Sector and the Paging Products and Wireless Data Groups. The business of the Land Mobile Products Sector has become increasingly focused on large system awards and their associated subscriber equipment, which could increase the volatility of orders, revenues and profits recognized during any particular period. The sector's revenue growth during 1994 was primarily driven by the introduction of MIRS products. Competition is worldwide and no single factor is dominant. Competitive factors include price, product performance, product quality, and service and systems quality and availability. In August 1994, Motorola executed an agreement with Nextel Communications, Inc. under which Motorola will receive shares of Nextel stock in exchange for most of the segment's 800 MHz specialized mobile radio service (SMRS) businesses, systems and licenses in the continental United States. Details of the Nextel Agreement, including the various conditions to closing, and the related financing commitments, are included in note 6 to the Consolidated Financial Statements. During the fourth quarter of 1994, sales and orders of MIRS products were weak and that weakness is expected to continue for some time due to a variety of factors, including the need by Nextel Communications, Inc. and other customers to conclude the Nextel Agreement and other transactions, as well as financing and system optimization and build-out issues. The Paging Products and Wireless Data Groups design, manufacture and distribute paging, data and gateway communications products on a worldwide basis. The groups also have businesses which provide network services for paging and data subscribers that are wholly owned and operated, and also through domestic and international joint ventures. The groups' 1994 revenue growth has primarily resulted from volume increases and new product deliveries. The groups do business in the competitive, global telecommunications markets. Competition is based primarily on quality, technology, service and price. Price competition, especially in paging products, is expected to continue in 1995. Markets in the Peoples' Republic of China were the source of a significant amount of the Paging Products Group's revenue during 1994 and 1993. As the China market for paging products has matured, a seasonal pattern has developed in which orders decline in the fourth and first quarters. A significant number of new products were introduced in each of the various operations during 1994. GOVERNMENT AND SPACE TECHNOLOGY PRODUCTS The Government and Space Technology Group is engaged in the design, development and production of electronic systems and products for U.S. government projects. The group's Satellite Communications Division is developing the IRIDIUM [REGISTERED TRADEMARK] satellite-based communication system. The group's revenues and profits have been adversely affected by the decrease in the United States federal defense budgets. The group is expanding the application of its core capabilities to support global growth opportunities within other Motorola businesses. Competition for the IRIDIUM system is building, as at least five other companies have announced intentions to create low-earth-orbit satellite systems. On January 31, 1995 the Federal Communications Commission (FCC) issued a license to a Motorola subsidiary to construct, operate and launch the IRIDIUM system, although additional authorizations are required in the U.S. and other countries in which the IRIDIUM service is to be offered. 27 MOTOROLA, INC. AND CONSOLIDATED SUBSIDIARIES ------------------------------------------------------------------------------- OTHER PRODUCTS The Other Products segment includes the Automotive, Energy and Controls Group where performance was led by strong demand for component and energy products for use primarily within Motorola's wireless communications businesses. The fourth quarter inventory build-up of cellular telephones and the weak demand for MIRS products should moderate the rate of internal shipment of some of the Automotive, Energy and Controls Group products used in connection with cellular telephones and MIRS products until the build-up is eliminated and demand for MIRS products increases. The Other Products segment also includes the Information Systems Group, where sales were 5% lower and operating profits were lower. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operations reached a record $2.55 billion in 1994 compared with $2.31 billion in 1993 and $1.96 billion in 1992. During 1994, the Company experienced a significant increase in its cash requirements because of higher fixed asset expenditures, especially for the Semiconductor segment, purchased material requirements, increasing federal income tax payments and funding of the Motorola Profit Sharing and Pension trusts. During November 1994, the Company completed a public offering of 17.1 million shares of common stock. The net proceeds of $973 million from the offering were used to reduce notes payable. On November 1, 1994, the Company's Board of Directors approved a 43% increase in the quarterly dividend on common stock. The Directors declared a regular quarterly dividend of 10 cents per share, payable on January 16, 1995 to stockholders of record on December 15, 1994. The previous dividend was 7 cents per share. The increased dividend follows a 2-for-1 stock split that was distributed on April 18, 1994. At that time, the dividend was increased to 7 cents from 5.5 cents per share. The number of weeks that accounts receivable were outstanding increased to 6.8 for 1994 compared to 6.1 for 1993. Accounts receivable weeks for 1992 were 7.1. The main reason for the increase was a general shift towards large system orders, which tend to have higher balances and longer customer-approval processes. Inventory turns decreased slightly to 5.7 in 1994 from 5.8 in 1993. The Company's ratio of net debt to net debt plus equity was 12.1% at December 31, 1994 compared with 11.9% in 1993 and 15.2% in 1992. During 1994, the Company and its finance subsidiary entered into a one- and a five-year revolving domestic credit agreements totaling $1.5 billion with a group of banks. These agreements replaced $800 million of bilateral domestic credit facilities of the Company and its finance subsidiary and contain various conditions, covenants and representations. At December 31, 1994, the Company's total domestic and foreign credit facilities aggregated $2.6 billion, of which $151 million were used and the remaining amount was not drawn, but was available to back up outstanding commercial paper which totaled $745 million at December 31, 1994. Total domestic and foreign credit facilities at December 31, 1993 totaled $1.9 billion, of which $83 million were used and the remaining amount was not drawn, but was available to back up outstanding commercial paper which totaled $293 million at December 31, 1993. During 1994, the Company filed, and had declared effective, a universal shelf registration statement with the Securities and Exchange Commission covering up to $800 million of debt and equity securities. No securities have been issued under this shelf registration. Fixed asset expenditures required to support current and long-term growth increased to $3.3 billion from $2.2 billion in 1993. The 1992 expenditures totaled $1.4 billion. The Semiconductor Products segment continues to comprise the largest portion of fixed asset expenditures, with 49% of all such investments. IRIDIUM [REGISTERED TRADEMARK] IS A REGISTERED TRADEMARK OF IRIDIUM, INC. OTHER MATTERS ENVIRONMENTAL MATTERS: Regulating agencies are proposing regulations and interpreting legislation in a manner that allows retroactive imposition of remedial requirements. A discussion of the Company's environmental matters is detailed in note 6 to the Consolidated Financial Statements. RESEARCH AND DEVELOPMENT: Expenditures increased to $1.86 billion in 1994, up from $1.52 billion in 1993 and $1.31 billion in 1992. Over the past three years, the Company has invested 8% to 10% of every sales dollar in product development and technological advances, and continues to believe that a strong commitment to research and development is required to drive long-term growth. 28 MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS MOTOROLA, INC. AND CONSOLIDATED SUBSIDIARIES ------------------------------------------------------------------------------- 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 Peat Marwick 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 includes 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 Committee, which consists entirely of independent non-management Board members. The Audit 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. /s/ Gary L. Tooker /s/ Carl F. Koenemann Gary L. Tooker Carl F. Koenemann Vice Chairman and Executive Vice President Chief Executive Officer and Chief Financial Officer INDEPENDENT AUDITORS' REPORT ------------------------------------------------------------------------------- The Board of Directors and Stockholders of Motorola, Inc.: We have audited the accompanying consolidated balance sheets of Motorola, Inc. and consolidated subsidiaries as of December 31, 1994 and 1993, and the related statements of consolidated earnings, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1994. 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 consolidated subsidiaries at December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1994 in conformity with generally accepted accounting principles. As discussed in notes 2 and 5 to the consolidated financial statements, the Company adopted the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," and SFAS No. 109, "Accounting for Income Taxes," in 1992. /s/ KPMG Peat Marwick LLP KPMG Peat Marwick LLP Chicago, Illinois January 9, 1995 29 STATEMENTS OF CONSOLIDATED EARNINGS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS) MOTOROLA, INC. AND CONSOLIDATED SUBSIDIARIES --------------------------------------------------------------------------------------------------------- Years ended December 31 1994 1993 1992 --------------------------------------------------------------------------------------------------------- NET SALES $22,245 $16,963 $13,303 --------------------------------------------------------------------------------------------------------- COSTS AND EXPENSES Manufacturing and other costs of sales 13,760 10,351 8,395 Selling, general and administrative expenses 4,381 3,776 2,951 Depreciation expense 1,525 1,170 1,000 Interest expense, net 142 141 157 --------------------------------------------------------------------------------------------------------- Total costs and expenses 19,808 15,438 12,503 --------------------------------------------------------------------------------------------------------- EARNINGS BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 2,437 1,525 800 --------------------------------------------------------------------------------------------------------- INCOME TAXES PROVIDED ON EARNINGS 877 503 224 --------------------------------------------------------------------------------------------------------- NET EARNINGS BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE $ 1,560 $ 1,022 $ 576 --------------------------------------------------------------------------------------------------------- CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE, NET OF TAX -- -- (123) --------------------------------------------------------------------------------------------------------- NET EARNINGS $ 1,560 $ 1,022 $ 453 --------------------------------------------------------------------------------------------------------- FULLY DILUTED NET EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE(1),(2) --------------------------------------------------------------------------------------------------------- Net earnings before cumulative effect of change in accounting principle $ 2.65 $ 1.78 $ 1.05 --------------------------------------------------------------------------------------------------------- Cumulative effect of change in accounting principle -- -- (0.22) --------------------------------------------------------------------------------------------------------- Net earnings $ 2.65 $ 1.78 $ 0.83 --------------------------------------------------------------------------------------------------------- FULLY DILUTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 592.7 583.7 567.1 --------------------------------------------------------------------------------------------------------- (1) PRIMARY EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE WERE THE SAME AS FULLY DILUTED FOR ALL YEARS SHOWN, EXCEPT IN 1994 WHEN THEY WERE ONE CENT HIGHER THAN FULLY DILUTED. AVERAGE PRIMARY COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING FOR 1994, 1993 AND 1992 WERE 591.7, 582.6 AND 565.6, RESPECTIVELY (WHICH INCLUDES THE DILUTIVE EFFECTS OF THE CONVERTIBLE ZERO COUPON NOTES AND THE OUTSTANDING STOCK OPTIONS). (2) INCLUDES ADJUSTMENTS FOR THE 1994 AND 1992 TWO-FOR-ONE STOCK SPLITS EFFECTED IN THE FORMS OF 100 PERCENT STOCK DIVIDENDS.
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
Common Stock and (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) Additional Paid-in Capital(1) Retained Earnings ------------------------------------------------------------------------------------------------------------------------------- Years ended December 31 1994 1993 1992 1994 1993 1992 ------------------------------------------------------------------------------------------------------------------------------- Balances at January 1 $1,875 $1,510 $1,343 $4,534 $3,634 $3,287 Net earnings -- -- -- 1,560 1,022 453 Conversion of zero coupon notes 251 216 11 -- -- -- Stock issuance(2) 973 -- -- -- -- -- Stock options exercised and other 80 149 156 -- -- -- Dividends declared ($.310 per share in 1994, $.220 in 1993 and $.198 in 1992) -- -- -- (177) (122) (106) ------------------------------------------------------------------------------------------------------------------------------- Balances at December 31 $3,179 $1,875 $1,510 $5,917 $4,534 $3,634 ------------------------------------------------------------------------------------------------------------------------------- (1) 1994 AND 1992 STOCK SPLITS: AN AMOUNT EQUAL TO THE PAR VALUE OF THE ADDITIONAL SHARES ISSUED HAS BEEN TRANSFERRED FROM ADDITIONAL PAID-IN CAPITAL TO COMMON STOCK DUE TO THE TWO-FOR-ONE STOCK SPLITS EFFECTED IN THE FORMS OF 100 PERCENT STOCK DIVIDENDS. ALL REFERENCES TO SHARES OUTSTANDING, DIVIDENDS AND PER SHARE AMOUNTS HAVE BEEN ADJUSTED ON A RETROACTIVE BASIS. (2) DURING NOVEMBER 1994, THE COMPANY COMPLETED A PUBLIC EQUITY OFFERING OF 17.1 MILLION SHARES OF COMMON STOCK. SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
30
CONSOLIDATED BALANCE SHEETS (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) MOTOROLA, INC. AND CONSOLIDATED SUBSIDIARIES -------------------------------------------------------------------------------------- December 31 1994 1993 -------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 741 $ 886 Short-term investments 318 358 Accounts receivable, less allowance for doubtful accounts (1994, $118; 1993, $91) 3,421 2,476 Inventories 2,670 1,864 Future income tax benefits 928 675 Other current assets 847 454 -------------------------------------------------------------------------------------- Total current assets 8,925 6,713 -------------------------------------------------------------------------------------- Property, plant and equipment, net 7,073 5,547 Other assets 1,538 1,238 -------------------------------------------------------------------------------------- Total assets $17,536 $13,498 -------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Notes payable and current portion of long-term debt $ 916 $ 555 Accounts payable 1,678 1,338 Accrued liabilities 3,323 2,496 -------------------------------------------------------------------------------------- Total current liabilities 5,917 4,389 -------------------------------------------------------------------------------------- Long-term debt 1,127 1,360 Deferred income taxes 509 433 Other liabilities 887 907 -------------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY Common stock, $3 par value Authorized shares: 1994, 1,400; 1993, 700 Issued and outstanding shares: 1994, 588.0; 1993, 557.2(1) 1,764 836 Preferred stock, $100 par value issuable in series Authorized shares: 0.5 (none issued) -- -- Additional paid-in capital 1,415 1,039 Retained earnings 5,917 4,534 -------------------------------------------------------------------------------------- Total stockholders' equity 9,096 6,409 -------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $17,536 $13,498 -------------------------------------------------------------------------------------- (1) INCLUDES ADJUSTMENT FOR THE 1994 TWO-FOR-ONE STOCK SPLIT EFFECTED IN THE FORM OF A 100 PERCENT STOCK DIVIDEND. SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
31
STATEMENTS OF CONSOLIDATED CASH FLOWS (IN MILLIONS) MOTOROLA, INC. AND CONSOLIDATED SUBSIDIARIES ---------------------------------------------------------------------------------------------------------------------------------- Years ended December 31 1994 1993 1992 ---------------------------------------------------------------------------------------------------------------------------------- OPERATING Net earnings $ 1,560 $ 1,022 $ 453 Add (deduct) non-cash items Cumulative effect of change in accounting principle -- -- 123 Depreciation 1,525 1,170 1000 Net change in deferred income taxes (177) 50 (23) Amortization of debt discount and issue costs 22 26 29 Gain on disposition of investments in affiliated companies (9) (9) (12) Change in assets and liabilities, net of effects of acquisitions and dispositions Accounts receivable, net (945) (439) (82) Inventories (806) (539) (77) Other current assets (328) (44) (67) Accounts payable and accrued liabilities 1,134 927 675 Other assets 595 (95) (16) Other liabilities (19) 245 (42) ---------------------------------------------------------------------------------------------------------------------------------- Net cash provided by operations 2,552 2,314 1,961 ---------------------------------------------------------------------------------------------------------------------------------- INVESTING Acquisitions and advances to affiliated companies (894) (408) (117) Dispositions of investments in affiliated companies 23 67 28 Payments for property, plant and equipment (3,320) (2,187) (1,442) Other changes to property, plant and equipment, net 183 126 59 (Increase) decrease in short-term investments 40 (105) (22) ---------------------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (3,968) (2,507) (1,494) ---------------------------------------------------------------------------------------------------------------------------------- FINANCING Net increase (decrease) in commercial paper and short-term borrowings less than 90 days 517 (38) (345) Proceeds from issuance of debt 32 521 330 Repayment of debt (190) (74) (114) Issuance of common stock 1,061 113 137 Payment of dividends (149) (120) (100) ---------------------------------------------------------------------------------------------------------------------------------- Net cash provided by (used for) financing activities 1,271 402 (92) ---------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents $ (145) $ 209 $ 375 ---------------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents, beginning of year $ 886 $ 677 $ 302 ---------------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents, end of year $ 741 $ 886 $ 677 ---------------------------------------------------------------------------------------------------------------------------------- SUPPLEMENTAL CASH FLOW INFORMATION (IN MILLIONS) MOTOROLA, INC. AND CONSOLIDATED SUBSIDIARIES ---------------------------------------------------------------------------------------------------------------------------------- Years ended December 31 1994 1993 1992 ---------------------------------------------------------------------------------------------------------------------------------- NON-CASH ACTIVITIES Conversion of zero coupon notes due 2009 $251 $216 $11 Issuance of common stock for investment acquisition $ -- $ 36 $19 ---------------------------------------------------------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements.
32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN MILLIONS, EXCEPT AS NOTED) MOTOROLA, INC. AND CONSOLIDATED SUBSIDIARIES ------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION: The consolidated financial statements include the accounts of the Company and those majority-owned subsidiaries where the Company has control. All significant intercompany accounts and transactions are eliminated in consolidation. CASH EQUIVALENTS: The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. MARKETABLE SECURITIES: Effective January 1, 1994, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities," which decreased other assets and stockholders' equity as of December 31, 1994 by immaterial amounts. 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 technologies, profits and revenues are deferred until technological feasibility is established or customer acceptance is obtained. 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. INVENTORIES: Inventories are valued at the lower of average cost (which approximates computation on a first-in, first-out basis) or market (i.e., net realizable value or replacement cost), less progress payments on long-term contracts. 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, 5-50 years; machinery and equipment, 2-12 years). FOREIGN CURRENCY TRANSLATION: Effective January 1, 1994, the Company's European operations commenced using the local currency, instead of the U.S. dollar, as the functional currency. The change did not have a material effect on the Company's statement of financial position, liquidity and results of operations as of January 1, 1994. Operations in Japan continue to use the Japanese yen 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 are included in stockholders' equity. The effects of foreign currency transactions and of remeasuring the financial position and results of operations into the functional currency are included in the statement of earnings. The Company uses financial instruments to hedge, and therefore attempt to reduce, its overall exposure to the effects of currency fluctuations on cash flows of foreign operations and investments in foreign countries. The Company's policy is not to trade these instruments for profit on the exchange rate price fluctuation alone, nor to trade in currencies for which there are no underlying exposures, nor to enter into trades for any currency to intentionally increase the underlying exposure. While these financial instruments are subject to market risks resulting from exchange rate movements, any transaction gains and losses on these instruments are generally expected to offset losses and gains on the underlying operational cash flows or investments. Gains and losses on hedges of existing assets or liabilities are marked to market on a monthly basis. Other gains or losses on financial instruments that do not qualify as hedges are recognized immediately as income or expense. Gains and losses on financial instruments which hedge firm future commitments are deferred until such time as the underlying transactions are recognized or immediately when the transaction is no longer expected to occur. RECLASSIFICATIONS: Certain amounts in prior years' financial statements and related notes have been reclassified to conform to the 1994 presentation. 2. INCOME TAXES The Company adopted, in 1992, SFAS No. 109, "Accounting for Income Taxes." The impact of this accounting change was not material. COMPONENTS OF EARNINGS BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
1994 1993 1992 --------------------------------------------------------------------------- United States $1,140 $ 360 $146 Other nations 1,297 1,165 654 -------------------------- Total $2,437 $1,525 $800 ---------------------------------------------------------------------------
COMPONENTS OF INCOME TAXES PROVIDED ON EARNINGS
1994 1993 1992 --------------------------------------------------------------------------- Current: United States $ 728 $197 $ 75 Other nations 254 234 147 State income taxes (U.S.) 72 22 7 --------------------------- 1,054 453 229 Deferred (177) 50 (5) --------------------------- Income taxes before cumulative effect of change in accounting principle $ 877 $503 $224 ---------------------------------------------------------------------------
33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN MILLIONS, EXCEPT AS NOTED) MOTOROLA, INC. AND CONSOLIDATED SUBSIDIARIES ------------------------------------------------------------------------------- Income tax payments were $962 million in 1994, $286 million in 1993 and $132 million in 1992. Income taxes are generally not provided on cumulative undistributed earnings of certain non-U.S. subsidiaries. Such undistributed earnings aggregated $2.9 billion and $2.3 billion at December 31, 1994 and 1993, respectively. It is intended that these earnings will be permanently reinvested in operations outside the U.S. Should these earnings be distributed, foreign tax credits would 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, 1994, certain non-U.S. subsidiaries had loss carryforwards for income tax reporting purposes of $39.7 million, with expiration dates starting in 1995. DIFFERENCES BETWEEN INCOME TAX EXPENSE COMPUTED AT THE U.S. FEDERAL STATUTORY TAX RATE OF 35% FOR 1994 AND 1993 AND 34% FOR 1992 AND INCOME TAXES PROVIDED ON EARNINGS
1994 1993 1992 --------------------------------------------------------------------------- Income tax expense at statutory rate $853 $534 $272 Taxes on non-U.S. earnings 13 (21) (31) State income taxes 46 14 7 Foreign Sales Corporation (46) (29) (18) Tax credits (6) (4) (2) Other 17 9 (4) ------------------------ Income taxes before cumulative effect of change in accounting principle $877 $503 $224 ---------------------------------------------------------------------------
SIGNIFICANT DEFERRED TAX ASSETS (LIABILITIES)
December 31 1994 1993 --------------------------------------------------------------------------- Depreciation $(135) $(134) Deferred taxes on non-U.S. earnings (165) (108) Inventory reserves 255 201 Employee benefits 248 193 Capitalized items 91 71 Other deferred income taxes 125 19 ----------------- Net deferred tax asset $ 419 $ 242 ---------------------------------------------------------------------------
Gross deferred tax assets were $1,320 million and $993 million at December 31, 1994 and 1993, respectively. Gross deferred tax liabilities were $901 million and $751 million at December 31, 1994 and 1993, respectively. The deferred tax assets are considered realizable considering past income and estimates of future income. These include, but are not limited to, carrybacks, earnings trends and tax planning strategies. The Internal Revenue Service (IRS) has examined the federal income tax returns for Motorola, Inc. through 1985 and the returns have been settled through that year. The settlement did not result in a material adverse effect on the consolidated financial position, liquidity or results of operations of the Company. The IRS has completed its field audit of the years 1986 and 1987. In connection with these audits, the IRS has proposed adjustments to the Company's income and tax credits for those years which would result in additional tax. The Company disagrees with most of the proposed adjustments and is contesting them. In the opinion of the Company's management, the final disposition of these matters, and proposed adjustments from other tax authorities, will not have a material adverse effect on the consolidated financial position, liquidity or results of operations of the Company. 3. DEBT AND CREDIT FACILITIES LONG-TERM DEBT
December 31 1994 1993 --------------------------------------------------------------------------- 12% Eurodollar notes due 1994 $ -- $ 68 11.5% Eurodollar notes (retired during 1994) -- 93 7.6% notes due 2007 300 300 6.5% debentures due 2008 199 199 Zero coupon notes due 2009 55 294 Zero coupon notes due 2013 316 309 6.75% industrial revenue bonds due 2014 20 20 8.4% debentures due 2031 (redeemable at the holders' option in 2001) 200 200 Other long-term debt 48 42 ----------------- 1,138 1,525 Less current maturities 11 165 ----------------- Long-term debt $1,127 $1,360 ---------------------------------------------------------------------------
SHORT-TERM DEBT
December 31 1994 1993 --------------------------------------------------------------------------- Notes to banks $147 $ 83 Commercial paper 745 293 Other short-term debt 13 14 ----------------- 905 390 Add current maturities 11 165 ----------------- Notes payable and current portion of long-term debt $916 $555 ---------------------------------------------------------------------------
WEIGHTED AVERAGE INTEREST RATES ON SHORT-TERM BORROWINGS --------------------------------------------------------------------------- Commercial paper 4.6% 3.2% Other short-term debt 7.5% 7.7% ---------------------------------------------------------------------------
As of December 31, 1994, the outstanding zero coupon notes due 2009, referred to as Liquid Yield Option -TM- Notes ("LYONs" -TM-), had a face value at maturity of $130 million. The 2009 LYONs were priced at a 6% yield to maturity and are now convertible into 18.268 shares of Motorola common stock for each $1,000 note. During 1994, various holders of the 2009 LYONs exercised conversion rights for approximately 614,000 notes ($614 million face value; $251 million net carrying value). 34 (IN MILLIONS, EXCEPT AS NOTED) MOTOROLA, INC. AND CONSOLIDATED SUBSIDIARIES ------------------------------------------------------------------------------- In 1993, the Company issued additional LYONs due 2013, having a face value of $480 million at maturity, for net cash proceeds of $301 million. The 2013 LYONs were priced to yield 2.25% to maturity and are now convertible into 11.178 shares of Motorola common stock for each $1,000 note. Both LYONs issues are subordinated to all existing and future senior indebtedness of the Company, rank on a parity with each other, and may be put back to the Company by the holders on specific dates prior to the stated maturities. During 1993, the Company issued $200 million in aggregate principal amount of 6.5% debentures due 2008. During February 1993, the Company called, at a rate of 103.1%, $45 million of the 8% sinking fund debentures due 2007 with the remaining balance of $13 million being called at par during September 1993. During March 1994, the Company called, at a rate of 101%, its 11.5% Eurodollar notes due 1997 with a carrying value totaling $93 million. Aggregate requirements for long-term debt maturities, in millions, during the next five years are as follows: 1995, $11; 1996, $10; 1997, $7; 1998, $6; 1999, $5. During 1994, the Company and its finance subsidiary entered into one- and five-year revolving domestic credit agreements totaling $1.5 billion with a group of banks. These agreements replaced $800 million of bilateral domestic credit facilities of the Company and its finance subsidiary and contain various conditions, covenants and representations. At December 31, 1994, the Company's total domestic and foreign credit facilities aggregated $2.6 billion, of which $151 million were used and the remaining amount was not drawn, but was available to back up outstanding commercial paper which totaled $745 million at December 31, 1994. During 1994, the Company filed and had declared effective a universal shelf registration statement for $800 million of debt and equity securities with the Securities and Exchange Commission. As of December 31, 1994, no securities had been issued under this universal shelf statement. Outstanding letters of credit aggregated approximately $426 million and $189 million at December 31, 1994 and 1993, respectively. LYON -TM- IS A TRADEMARK OF MERRILL LYNCH & CO., INC. 4. OTHER FINANCIAL DATA INCOME STATEMENT AND BALANCE SHEET INFORMATION INCOME STATEMENT INFORMATION
1994 1993 1992 --------------------------------------------------------------------------- Research and development $1,860 $1,521 $1,306 --------------------------- Maintenance and repairs 276 267 236 --------------------------- Foreign currency losses 25 18 34 --------------------------- Interest expense, net: Interest expense 192 182 196 Interest income (50) (41) (39) --------------------------- Interest expense, net $ 142 $ 141 $ 157 ---------------------------------------------------------------------------
The Company's cash payments for interest expense were $209 million in 1994, $126 million in 1993 and $121 million in 1992. BALANCE SHEET INFORMATION
December 31 1994 1993 --------------------------------------------------------------------------- Inventories: Finished goods $ 699 $ 584 W.I.P. and production materials 1,971 1,280 ------------------ Total $2,670 $1,864 ------------------ Property, plant and equipment: Land $ 169 $ 151 Buildings 3,504 2,475 Machinery 9,728 6,690 Equipment leased to others 329 391 ------------------ 13,730 9,707 Less accumulated depreciation 6,657 4,160 ------------------ Total $7,073 $5,547 ------------------ Accrued liabilities: Compensation $ 613 $ 491 Deferred revenue 219 223 Accrued warranties 283 166 Taxes other than income 162 137 Income taxes payable 76 158 Contribution to employees' profit sharing funds 176 107 Dividends payable 59 31 Other 1,735 1,183 ------------------ Total $3,323 $2,496 ---------------------------------------------------------------------------
DERIVATIVE FINANCIAL INSTRUMENTS As of December 31, 1994 and 1993, the Company had net outstanding foreign exchange contracts totaling $1.2 billion and $1.0 billion, respectively. Most of the hedge contracts, which are over-the-counter instruments, were scheduled to mature within three months with the longest maturity extending out 39 months. Management believes that these forward contracts 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, 1994, deferred gains and losses totaled $1.2 million and $0.2 million, respectively. The following schedule shows the five largest net foreign exchange hedge positions as of December 31, 1994: FOREIGN EXCHANGE NET HEDGE POSITIONS AT DECEMBER 31 IN MILLIONS OF U.S. DOLLARS
Buy (Sell) 1994 1993 --------------------------------------------------------------------------- Japanese Yen $(578) $(338) British Pound Sterling (227) (215) German Deutsche Mark (162) (143) Italian Lira (53) (73) French Franc (41) (44) ---------------------------------------------------------------------------
35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN MILLIONS, EXCEPT AS NOTED) MOTOROLA, INC. AND CONSOLIDATED SUBSIDIARIES ------------------------------------------------------------------------------- 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. The Company's finance subsidiary has outstanding floating to fixed interest rate commercial paper swaps totaling $50 million at December 31, 1994. These instruments mature at a rate of $25 million per year in 1995 and 1996. Amounts receivable or payable and gains or losses realized under swap agreements are recognized as yield adjustments over the life of the related debt. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's financial instruments include accounts receivable, short-term investments, long-term receivables, accounts payable, notes payable, long-term debt, foreign currency contracts and other financing commitments. The fair values of such financial instruments have been determined based on quoted market prices and market interest rates, as of December 31, 1994. At December 31, 1994, the fair value of the convertible zero coupon notes due 2009 was $138 million compared to the carrying value of $55 million. Such notes, however, are callable by the Company at the carrying value at any time. The fair values of all other financial instruments were not materially different than their carrying (or contract) values. FINANCE SUBSIDIARY The Company's finance subsidiary purchases customer obligations under long-term contracts from the Company at net carrying value. The finance subsidiary's interest revenue is included in the Company's consolidated net sales. Interest expense totaling $15 million in 1994, $12 million in 1993 and $11 million in 1992 is included in manufacturing and other costs of sales. In addition, long-term finance receivables of $257 million in 1994 and $282 million in 1993 are included in other assets. FINANCIAL DATA OF CONSOLIDATED FINANCE SUBSIDIARY
1994 1993 1992 --------------------------------------------------------------------------- Total revenue $ 40 $ 37 $ 29 --------------------------- Net earnings 16 16 12 --------------------------- Total assets 339 361 295 --------------------------- Total liabilities (285) (298) (248) --------------------------- Stockholder's investments and advances $ 54 $ 63 $ 47 ---------------------------------------------------------------------------
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 noncancellable operating leases. Rental expense, net of sublease income, was $185 million in 1994, $152 million in 1993 and $149 million in 1992. At December 31, 1994, future minimum lease obligations, net of minimum sublease rentals, for the next five years and beyond are as follows: 1995, $118; 1996, $95; 1997, $73; 1998, $49; 1999, $37; beyond, $139. 5. EMPLOYEE BENEFIT AND INCENTIVE PLANS PENSION BENEFITS: The Company's noncontributory 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. 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 $68 million in 1994, $41 million in 1993 and $33 million in 1992. The Company uses a three-year, 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 10 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 1994 and 1993 were as follows:
1994 1993 --------------------------------------------------------------------------- Discount rate for obligations 8.50% 7.25% Future compensation increase rate 5.50% 5.00% Investment return assumption (regular) 9.00% 9.25% Investment return assumption (elected officers) 7.75% 8.00% ---------------------------------------------------------------------------
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 were settled at the measurement date, would provide the necessary future cash flows to pay the benefit obligation when due. The Company has increased the discount rate in determining the pension obligation from 7.25% to 8.50% to comply with these guidelines. As of December 31, 1994, the investment portfolio was predominantly long-term bonds and equity investments, which have historically realized annual returns at or significantly above the assumed investment return rate. The Company believes that discount rate fluctuations are short term in nature and should not adversely affect the Company's long-term obligation. 36 (IN MILLIONS, EXCEPT AS NOTED) MOTOROLA, INC. AND CONSOLIDATED SUBSIDIARIES ------------------------------------------------------------------------------- COMPONENTS OF NET U.S. PENSION EXPENSE FOR THE REGULAR PENSION PLAN
1994 1993 1992 --------------------------------------------------------------------------- Service costs $119 $ 92 $ 84 Interest cost on projected obligation 83 67 55 Actual return on plan assets 7 (80) (53) Net amortization and deferral (113) (11) (25) --------------------------- Net pension expense $ 96 $ 68 $ 61 ---------------------------------------------------------------------------
The net U.S. pension expense for the elected officers' supplemental retirement benefit plan was $27 million in 1994, $19 million in 1993 and $17 million in 1992. 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 reach normal retirement age while working for the Company. During 1992, the Company adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." SFAS No. 106 requires that the cost of postretirement benefits be accrued during the years that the employees render service. Prior to 1992, costs of retiree health care were recognized as expenses when claims were paid. The Company chose to implement SFAS No. 106 by recognizing as expense in 1992 the entire accumulated postretirement benefit obligation as of January 1, 1992. The Company's policy is to fund the maximum amount allowable based on funding limitations of the Internal Revenue Code. U.S. FUNDED PENSION PLANS
December 31 1994 1993 -------------------------------------------------------------------------------------------------------------------------------- Elected Elected Regular Officers Regular Officers -------------------------------------------------------------------------------------------------------------------------------- Actuarial present value of: Vested benefit obligation $ (831) $(40) $ (754) $(42) --------------------------------------------- Accumulated benefit obligation (904) (76) (821) (73) --------------------------------------------- Projected benefit obligation for service rendered to date (1,239) (96) (1,117) (82) Plan assets at fair value, primarily bonds, stocks and cash equivalents 1,090 56 991 45 --------------------------------------------- Plan assets less than projected benefit obligation (149) (40) (126) (37) Unrecognized net loss 127 28 106 36 Unrecognized prior service cost 1 33 1 21 Unrecognized net transition (asset) liability (46) 7 (57) 8 Adjustment required to recognize minimum liability -- (47) -- (56) --------------------------------------------- Pension liability recognized in balance sheet $ (67) $(19) $ (76) $(28) --------------------------------------------------------------------------------------------------------------------------------
37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN MILLIONS, EXCEPT AS NOTED) MOTOROLA, INC. AND CONSOLIDATED SUBSIDIARIES ------------------------------------------------------------------------------- The assumptions used to develop the accumulated postretirement benefit obligation for the retiree health care plan for 1994 and 1993 were as follows:
1994 1993 --------------------------------------------------------------------------- Discount rate for obligations 8.50% 7.25% Investment return assumption 9.00% 9.25% ---------------------------------------------------------------------------
Net retiree health care expenses recognized in 1994 were $26 million, $23 million in 1993 and $21 million in 1992. U.S. FUNDED RETIREE HEALTH CARE PLAN
December 31 1994 1993 --------------------------------------------------------------------------- Actuarial present value of accumulated postretirement benefit obligation $(281) $(263) Plan assets at fair value, primarily listed stocks, bonds and cash equivalents 64 33 Unrecognized net loss 49 55 --------------- Retiree health care liability recognized in balance sheet $(168) $(175) ---------------------------------------------------------------------------
The health care trend rate used to determine the pre-age-65 accumulated postretirement benefit obligation was 9.33% for 1994, decreasing to 6% by the year 2000 and beyond. A flat 5% rate per year is used for the post-age-65 obligation. Increasing the health care trend rate by one percentage point would increase the accumulated postretirement benefit obligation by $32 million as of December 31, 1994 and would increase the 1994 net retiree health care expense by $6 million. There are 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 funds in the United States and other nations, which are generally based upon percentages of pretax earnings, as defined, from those operations. Company contributions to all profit sharing plans totaled $176 million, $107 million and $59 million in 1994, 1993 and 1992, respectively. MOTOROLA EXECUTIVE INCENTIVE PLAN: The Company may provide up to 7% of its annual consolidated pretax earnings, as defined in the Motorola Executive Incentive Plan, for the payment of cash incentive awards to key employees. During 1994, $129 million was provided for incentive awards, as compared to $78 million and $29 million in 1993 and 1992, respectively. LONG RANGE INCENTIVE PLAN: During 1994, the shareholders approved the adoption of a new Long Range Incentive Plan (LRIPL) which was established to reward participating elected officers for the Company's achieving outstanding long-range performance, based on four preestablished performance objectives measured over a four-year cycle starting in 1994. These objectives are benchmarked and evaluated against companies within industries similar to Motorola's, and with similar internal objectives. The maximum amount to be awarded to an individual participant under this plan during any cycle cannot exceed the lesser of $5 million or 200 percent of each participants' respective base salary. Payouts under the LRIPL will occur subsequent to 1997 at which time the current Long Range Incentive Program (LRIPR) will terminate. During 1994, $12 million was provided for incentive awards. RONA INCENTIVE PROGRAM: The RONA (Return On Net Assets employed) Incentive Program is available to eligible employees who are not participating in the Motorola Executive Incentive Plan. RONA awards are earned and paid semiannually to participants and depend, first, on the Company and, in most cases, the major business unit for which the participant works, exceeding a minimum RONA percentage (as determined by the Company) during the six-month period and, second, the extent to which such minimum percentage was exceeded. During 1994, $269 million was provided for RONA awards, as compared to $205 million and $87 million in 1993 and 1992, respectively. STOCK OPTIONS: Under the Company's employee stock option plans, shares of common stock have been made available for grant to key employees. The exercise price of each option granted is 100% of market value on the date of the grant. Options exercised during 1994 were at per share prices ranging from $7.96 to $46.16. Options outstanding at December 31, 1994 were at per share prices ranging from $7.79 to $59.81. There are approximately 8,700 total current stock option holders. All share amounts and prices have been adjusted to reflect the 1994 and 1992 two-for-one stock splits. SHARES SUBJECT TO OPTIONS
(In thousands, except employee data) 1994 1993 1992 --------------------------------------------------------------------------- Options outstanding at January 1 22,906 26,018 29,980 Additional options granted 3,972 3,530 6,696 Options exercised (2,654) (6,326) (10,500) Options terminated, cancelled or expired (120) (316) (158) ---------------------------- Options outstanding at December 31 24,104 22,906 26,018 Shares reserved for future option grants 13,602 17,454 20,668 ---------------------------- Total shares reserved 37,706 40,360 46,686 ---------------------------- Total options exercisable 20,137 19,376 19,344 ---------------------------- Approximate number of employees granted options 7,300 5,100 4,600 ---------------------------------------------------------------------------
38 (IN MILLIONS, EXCEPT AS NOTED) MOTOROLA, INC. AND CONSOLIDATED SUBSIDIARIES ------------------------------------------------------------------------------- 6. COMMITMENTS AND CONTINGENCIES FINANCIAL: In August 1994, Motorola signed an agreement, now expiring June 14, 1995, with Nextel Communications, Inc. under which Motorola will receive up to 59.5 million shares of Nextel in exchange for most of Motorola's 800 MHz specialized mobile radio service (SMRS) businesses, systems and licenses in the continental United States. The agreement is subject to various conditions, including regulatory approvals, approval by Nextel stockholders and approval by Nextel public debt holders or satisfaction of provisions of Nextel's debt indentures. Nextel has agreed to purchase substantial quantities of MIRS -TM- equipment over a five-year period, and Motorola has agreed to provide up to $260 million of secured vendor financing for such equipment and related services, conditioned upon and following the closing of the Nextel agreement. The financing would be in addition to the $260 million secured credit arrangement previously provided by Motorola to Nextel subsidiaries. Motorola has also agreed to provide up to $165 million in secured vendor financing for OneComm upon completion of the planned merger of OneComm into Nextel. Nextel has indicated that it will require additional financing in order to complete its currently planned networks and acquisitions. This funding need, delays in closing the transactions under the Nextel agreement and delays in other transactions and system optimization and build-out issues, among others, could affect sales and orders of MIRS equipment to Nextel and others. Early in 1995, the Company made a short-term loan commitment of $55 million to OneComm, secured by its MIRS equipment sold to OneComm, which will become payable upon completion of the OneComm-Nextel merger. During 1995, concentrations of credit risk may be affected by the outcome of the Nextel agreements; however, as of December 31, 1994, the Company had no significant concentrations of credit risk. The Company further advanced its strategic investment in the IRIDIUM [REGISTERED TRADEMARK] global communications system. At December 31, 1994, the Company's equity investment in and commitments to make equity investments in Iridium, Inc. was approximately $413 million; additionally, it has committed, subject to action by the Iridium, Inc. Board, to additional equity investments totaling approximately $60 million. The Company's investment in Iridium, Inc. is included in the Consolidated Balance Sheet category "Other Assets." Iridium, Inc. will require additional funding from various sources in order to complete the global communications system, which is expected to take place over the next four years. The Company has executed two contracts with Iridium, Inc. for the construction and operation of the global communications system, providing for approximately $6.3 billion in payments by the consortium over a ten-year period which began in 1993. The Company has in turn entered into significant subcontracts for portions of the system, for which it will generally remain obligated even if Iridium, Inc. is unable to satisfy the terms of the contracts with the Company, including funding. Separately, the Company is making significant investments to produce ancillary products for the system, such as subscriber units. On January 31, 1995, the Federal Communications Commission (FCC) issued a license to a Motorola subsidiary to construct, operate and launch the IRIDIUM system. However, other authorizations are still required for the IRIDIUM system to begin commercial service in the U.S. and in other countries in which service will be provided. The Company has entered into arrangements with a non-consolidated affiliate whereby the Company may increase, for an amount up to approximately $420 million, its percentage interest in the affiliate at the option of the affiliate or Motorola at various dates starting during 1995 which are not to extend beyond June 1997. Other off-balance-sheet commitments to extend or guarantee financing and recourse obligations under receivable sales arrangements which represent firm obligations at December 31,1994, aggregated approximately $273 million. Commitments to extend or guarantee financing include commitments for customer financing and for the financing of non-consolidated affiliates. Customer financing commitments require the customer to meet certain conditions established in the financing arrangements. Commitments represent the maximum amounts available under these arrangements and may not be completely utilized. ENVIRONMENTAL AND LEGAL: Under the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended (CERCLA, or Superfund), 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, which totaled $70 million as of December 31, 1994. The amount of such charges to earnings, which did not include potential reimbursements from insurance coverage, was $20 million, $36 million and $17 million in 1994, 1993 and 1992, 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 ones, 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 consolidated financial position, liquidity or results of operations of the Company. 39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN MILLIONS, EXCEPT AS NOTED) MOTOROLA, INC. AND CONSOLIDATED SUBSIDIARIES ------------------------------------------------------------------------------- 7. INFORMATION BY INDUSTRY SEGMENT AND GEOGRAPHIC REGION The Company operates predominantly in the wireless communication, semiconductor technology and advanced electronic industries. Operations involve the design, manufacture and sale of a diversified line of products, which include, but are not limited to, two-way radios, pagers, cellular telephones and systems; semiconductors, including integrated circuits and microprocessor units; data communication and distributive data processing equipment and systems; and electronic equipment and industrial electronic products. Manufacturing and distribution operations in any one foreign country do not account for more than 10% of consolidated net sales or total assets. Operating profit (revenues less operating expenses) excludes general corporate expenses, net interest and income taxes. Intersegment and intergeographic transfers are accounted for on an arm's length pricing basis. Identifiable assets (excluding intersegment receivables) are the Company's assets that are identified with classes of similar products or operations in each geographic area. Corporate assets primarily include cash, marketable securities, equity investments and the administrative headquarters of the Company. In 1994, no single customer or group under common control represented 10% or more of the Company's sales. The equity in net assets of non-U.S. subsidiaries amounted to $4.21 billion at December 31, 1994 and $3.28 billion at December 31, 1993. INDUSTRY SEGMENT INFORMATION
Net Sales Operating Profit ---------------------------------------------------------------------------------------------------------------------------------- Years ended December 31 1994 1993 1992 1994 1993 1992 ---------------------------------------------------------------------------------------------------------------------------------- General Systems Products $ 8,613 $ 5,236 $ 3,662 $1,214 14.1% $ 718 13.7% $ 420 11.5% Semiconductor Products 6,936 5,707 4,475 996 14.4% 801 14.0% 464 10.4% Communications Products 5,776 4,834 3,906 589 10.2% 354 7.3% 192 4.9% Government and Space Technology Products 829 858 650 (55) (6.6)% (17) (2.0)% (7) (1.1)% Other Products 2,434 1,762 1,452 156 6.4% 95 5.4% 77 5.3% Adjustments and eliminations (2,343) (1,434) (842) (29) -- (11) -- (4) -- ---------------------------- ------ ------- ------- Industry segment totals $22,245 $16,963 $13,303 2,871 12.9% 1,940 11.4% 1,142 8.6% ---------------------------- General corporate expenses (292) (274) (185) Interest expense, net (142) (141) (157) ------ ------- ------- Earnings before income taxes and cumulative effect of change in accounting principle $2,437 11.0% $1,525 9.0% $ 800 6.0% ----------------------------------------------------------------------------------------------------------------------------------
Assets Fixed Asset Expenditures Depreciation Expense ---------------------------------------------------------------------------------------------------------------------------------- Years ended December 31 1994 1993 1992 1994 1993 1992 1994 1993 1992 ---------------------------------------------------------------------------------------------------------------------------------- General Systems Products $4,740 $ 3,223 $ 2,108 $ 621 $ 453 $ 334 $ 327 $ 227 $ 171 Semiconductor Products 5,886 4,507 3,618 1,640 1,120 666 683 529 429 Communications Products 4,319 3,202 2,925 451 363 263 265 238 207 Government and Space Technology Products 565 304 312 41 31 24 35 33 33 Other Products 905 957 826 315 120 101 152 89 106 Adjustments and eliminations (72) (24) (32) -- -- -- -- -- -- --------------------------- --------------------------- --------------------------- Industry segment totals 16,343 12,169 9,757 3,068 2,087 1,388 1,462 1,116 946 General corporate 1,193 1,329 872 254 100 54 63 54 54 --------------------------- --------------------------- --------------------------- Consolidated totals $17,536 $13,498 $10,629 $3,322 $2,187 $1,442 $1,525 $1,170 $1,000 ---------------------------------------------------------------------------------------------------------------------------------- 1993 AND 1992 HAVE BEEN RECLASSIFIED TO REFLECT THE REALIGNMENT OF VARIOUS BUSINESS UNITS.
40 (IN MILLIONS, EXCEPT AS NOTED) MOTOROLA, INC. AND CONSOLIDATED SUBSIDIARIES ------------------------------------------------------------------------------- GEOGRAPHIC AREA INFORMATION(1)
Net Sales Operating Profit ---------------------------------------------------------------------------------------------------------------------------------- Years ended December 31 1994 1993 1992 1994 1993 1992 ---------------------------------------------------------------------------------------------------------------------------------- United States $16,297 $12,924 $10,232 $1,932 11.9% $ 970 7.5% $ 624 6.1% Other nations 12,758 10,066 8,017 1,292 10.1% 1,164 11.6% 706 8.8% Adjustments and eliminations (6,810) (6,027) (4,946) (353) -- (194) -- (188) -- ---------------------------- ------ ------- ------ Geographic totals $22,245 $16,963 $13,303 2,871 12.9% 1,940 11.4% 1,142 8.6% ---------------------------- General corporate expenses (292) (274) (185) Interest expense, net (142) (141) (157) ------ ------- ------ Earnings before income taxes and cumulative effect of change in accounting principle $2,437 11.0% $1,525 9.0% $ 800 6.0% ----------------------------------------------------------------------------------------------------------------------------------
Assets ---------------------------------------------------------------------------------------------------------------------------------- December 31 1994 1993 1992 ---------------------------------------------------------------------------------------------------------------------------------- United States $10,750 $ 7,731 $ 6,297 Other nations 5,943 4,674 3,668 Adjustments and eliminations (350) (236) (208) ----------------------------- Geographic totals 16,343 12,169 9,757 General corporate assets 1,193 1,329 872 ----------------------------- Consolidated totals $17,536 $13,498 $10,629 ---------------------------------------------------------------------------------------------------------------------------------- (1) AS MEASURED BY THE LOCALE OF THE REVENUE-PRODUCING OPERATIONS. 1993 AND 1992 HAVE BEEN RECLASSIFIED TO REFLECT THE REALIGNMENT OF VARIOUS BUSINESS UNITS.
8. STOCKHOLDER RIGHTS PLAN Each outstanding share of the Company's common stock carries with it one-quarter of a preferred share purchase right. Each right becomes exercisable for one-thousandth of a share of the Company's junior participating preferred stock, series A, at an exercise price of $150 per one-thousandth of a share (subject to adjustment) if a person or group acquires 20% or more of the Company's common stock or announces a tender or exchange offer for 30% or more of the Company's common stock. If a person or group acquires 20% or more of the Company's common stock and in certain other circumstances, each right (except, in some instances, those held by an acquiror) becomes exercisable for an amount of the Company's common stock (or that of an acquiror) having a market value of twice the exercise price. In some cases, the Board of Directors may exchange rights for four shares (subject to adjustment) of the Company's common stock (or the equivalent) and may suspend the exercisability of the rights. The rights have no voting power, expire on November 20, 1998, and may be redeemed for $.05 per right prior to a public announcement that 20% or more of the Company's shares have been accumulated by a person or group. 41 FIVE YEAR FINANCIAL SUMMARY
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND OTHER DATA) MOTOROLA, INC. AND CONSOLIDATED SUBSIDIARIES ---------------------------------------------------------------------------------------------------------------------------------- Years ended December 31 1994 1993 1992 1991 1990 ---------------------------------------------------------------------------------------------------------------------------------- OPERATING RESULTS Net sales $22,245 $16,963 $13,303 $11,341 $10,885 Manufacturing and other costs of sales 13,760 10,351 8,395 7,134 6,787 Selling, general and administrative expenses 4,381 3,776 2,951 2,579 2,509 Depreciation expense 1,525 1,170 1,000 886 790 Interest expense, net 142 141 157 129 133 Total costs and expenses 19,808 15,438 12,503 10,728 10,219 Earnings before income taxes and cumulative effect of change in accounting principle 2,437 1,525 800 613 666 Income taxes provided on earnings 877 503 224 159 167 Net earnings before cumulative effect of change in accounting principle $ 1,560 $ 1,022 $ 576 $ 454 $ 499 Net earnings $ 1,560 $ 1,022 $ 453 $ 454 $ 499 Net earnings before cumulative effect of change in accounting principle as a percent of sales 7.0% 6.0% 4.3% 4.0% 4.6% Net earnings as a percent of sales 7.0% 6.0% 3.4% 4.0% 4.6% ---------------------------------------------------------------------------------------------------------------------------------- PER SHARE DATA (in dollars)(1),(2) Fully diluted Net earnings before cumulative effect of change in accounting principle $ 2.65 $ 1.78 $ 1.05 $ 0.84 $ 0.93 Cumulative effect of change in accounting principle -- -- (0.22) -- -- Net earnings $ 2.65 $ 1.78 $ 0.83 $ 0.84 $ 0.93 Average common and common equivalent shares outstanding 592.7 583.7 567.1 558.5 555.7 Dividends declared per share $ 0.310 $ 0.220 $ 0.198 $ 0.190 $ 0.190 ---------------------------------------------------------------------------------------------------------------------------------- BALANCE SHEET Total assets $17,536 $13,498 $10,629 $ 9,375 $ 8,742 Working capital 3,008 2,324 1,883 1,424 1,404 Long-term debt 1,127 1,360 1,258 954 792 Total debt 2,043 1,915 1,695 1,806 1,787 Total stockholders' equity $ 9,096 $ 6,409 $ 5,144 $ 4,630 $ 4,257 ---------------------------------------------------------------------------------------------------------------------------------- OTHER DATA Current ratio 1.51 1.53 1.56 1.46 1.46 Return on average invested capital before cumulative effect of change in accounting principle 17.5% 15.3% 9.4% 7.8% 9.4% Return on average invested capital 17.5% 15.3% 7.5% 7.8% 9.4% Return on average stockholders' equity before cumulative effect of change in accounting principle 21.0% 17.8% 11.7% 10.2% 12.3% Return on average stockholders' equity 21.0% 17.8% 9.4% 10.2% 12.3% Fixed asset expenditures $ 3,322 $ 2,187 $ 1,442 $ 1,387 $ 1,371 % to sales 14.9% 12.9% 10.8% 12.2% 12.6% Research and development expenditures $ 1,860 $ 1,521 $ 1,306 $ 1,133 1,030 % to sales 8.4% 9.0% 9.8% 10.0% 9.5% Year-end employment (in thousands) 132 120 107 102 105 ---------------------------------------------------------------------------------------------------------------------------------- (1) ALL EARNINGS PER SHARE, DIVIDENDS AND OUTSTANDING SHARES DATA HAVE BEEN RESTATED TO REFLECT THE 1994 AND 1992 TWO-FOR-ONE STOCK SPLITS. (2) PRIMARY EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE WERE THE SAME AS FULLY DILUTED FOR ALL YEARS SHOWN EXCEPT IN 1994 AND 1991 WHEN PRIMARY EARNINGS PER SHARE WERE ONE CENT HIGHER THAN FULLY DILUTED. AVERAGE PRIMARY COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING FOR 1994, 1993, 1992, 1991 AND 1990 WERE 591.7, 582.6, 565.6, 555.6 AND 555.7, RESPECTIVELY.
42 QUARTERLY AND OTHER FINANCIAL DATA
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS; UNAUDITED) 1994 1993 ---------------------------------------------------------------------------------------------------------------------------------- Quarterly 1ST 2ND 3RD 4TH 1st 2nd 3rd 4th ---------------------------------------------------------------------------------------------------------------------------------- OPERATING RESULTS Net sales $4,693 $5,439 $5,660 $6,453 $3,626 $ 3,936 $4,408 $4,993 Gross profit 1,785 2,060 2,121 2,519 1,391 1,556 1,696 1,969 Net earnings 298 367 380 515 204 224 254 340 Net earnings as a percent of sales 6.4% 6.7% 6.7% 8.0% 5.6% 5.7% 5.8% 6.8% ---------------------------------------------------------------------------------------------------------------------------------- PER SHARE DATA (in dollars)(1) Primary net earnings per common and common equivalent share $ 0.51 $ 0.63 $ 0.65 $ 0.87 $ 0.36 $ 0.40 $ 0.44 $ 0.58 Fully diluted net earnings per common and common equivalent share $ 0.51 $ 0.63 $ 0.65 $ 0.86 $ 0.36 $ 0.40 $ 0.44 $ 0.58 ---------------------------------------------------------------------------------------------------------------------------------- Dividends declared $0.070 $0.070 $0.070 $0.100 $0.055 $ 0.055 $0.055 $0.055 Dividends paid $0.055 $0.070 $0.070 $0.070 $0.055 $ 0.055 $0.055 $0.055 STOCK PRICES High $54.83 $54.00 $55.75 $61.13 $33.56 $ 44.31 $52.56 $53.75 Low $43.25 $42.13 $43.38 $49.00 $24.31 $ 31.63 $41.25 $42.38 ---------------------------------------------------------------------------------------------------------------------------------- (1) ALL EARNINGS PER SHARE, DIVIDEND AND STOCK PRICE DATA HAVE BEEN RESTATED TO REFLECT THE 1994 TWO-FOR-ONE STOCK SPLIT. THE NUMBER OF STOCKHOLDERS OF RECORD OF MOTOROLA COMMON STOCK ON JANUARY 31, 1995, WAS 39,624.
43 EX-21 6 EXHIBIT 21 Exhibit 21 SUBSIDIARIES OF MOTOROLA The following subsidiaries are wholly-owned, directly or indirectly through wholly-owned subsidiaries of Motorola. Jurisdiction Name of Subsidiary of Incorporation ------------------ ---------------- Motorola Australia Proprietary Limited Australia Motorola Canada Limited/Motorola Canada Limitee Canada Motorola (China) Electronics Ltd. China Motorola de Puerto Rico, Inc. Delaware Motorola Credit Corporation Delaware Motorola International Capital Corporation Delaware Motorola International Development Corporation Delaware Motorola International Sales, Inc. Delaware Motorola Lighting, Inc. Delaware Motorola A/S Denmark Motorola Limited England Motorola Electronique Automobile France Motorola S.A. France Motorola Semiconducteurs S.A. France Motorola Electronic G.m.b.H. Germany Motorola G.m.b.H. Germany Motorola B.V. Holland Motorola Asia Limited Hong Kong Motorola Semiconductors Hong Kong, Limited Hong Kong Motorola Communications Israel Limited Israel Motorola Israel Limited Israel Motorola Pelephone Cellular Communications Ltd. Israel Motorola S.p.A. Italy Nippon Motorola, Limited Japan Motorola Korea Limited Korea Motorola Electronics Sdn. Bhd. Malaysia Motorola Malaysia Sdn. Bhd. Malaysia Motorola Semiconductor Sdn. Bhd. Malaysia Motorola de Mexico, S.A. Mexico Embarc Communication Services, Inc. Nevada Motorola Philippines, Inc. Philippines Motorola Electronics Pte. Ltd. Singapore Motorola Espana S.A. Spain Motorola A. B. Sweden Motorola Electronics Taiwan, Ltd. Taiwan Motorola Foreign Sales Corporation Virgin Islands The names of other subsidiaries have been omitted because, considered in the aggregate as a single subsidiary, they would not constitute a significant subsidiary. EX-27 7 EXHIBIT 27
5 1,000,000 YEAR DEC-31-1994 JAN-01-1994 DEC-31-1994 741 318 3539 118 2669 8925 13730 6657 17536 5917 1127 1764 0 0 7332 17536 22245 0 13760 18116 1525 0 142 2437 877 0 0 0 0 1560 2.66 2.65 Total cost includes cost of goods sold and selling, general and administrative expenses. Other expenses include depreciation expense.
EX-99.2 8 EXHIBIT 99.2 Exhibit 99.2 AMENDMENT TO AGREEMENT AND PLAN OF CONTRIBUTION AND MERGER THIS AMENDMENT TO AGREEMENT AND PLAN OF CONTRIBUTION AND MERGER (hereinafter called this "Amendment"), is entered into as of February 12, 1995, among Nextel Communications, Inc., a Delaware corporation (the "Company"), Motorola, Inc., a Delaware corporation ("Motorola"), ESMR, Inc., a Delaware corporation and a Wholly-Owned Subsidiary of Motorola ("New Sub"), ESMR Sub, Inc., a Delaware corporation and a Wholly-Owned Subsidiary of New Sub ("ESMR Sub"), and the other Subsidiaries of Motorola listed as signatories hereto (the "Motorola SMR Subsidiaries"), and is made with reference to that certain Agreement and Plan of Contribution and Merger dated August 4, 1994 (as heretofore amended by letters between the Company and Motorola dated October 5, 1994 and January 31, 1995, the "Contribution and Merger Agreement") among the Company, Motorola, New Sub, ESMR Sub and the Motorola SMR Subsidiaries (collectively, the "Parties"). Capitalized terms used herein shall have the meanings assigned in the Contribution and Merger Agreement unless otherwise defined herein. WHEREAS, the Parties desire to amend the Merger Agreement to amend and add certain provisions therein. NOW, THEREFORE in consideration of the premises and of the agreements herein contained and for other good and valuable consideration, the parties hereto agree as follows: 1. PRE-CLOSING ACTIONS. Section 2.2(a) of the Contribution and Merger Agreement is hereby amended to replace the language set forth following (i) and preceding (ii) with the following language: "(i) change the name of New Sub to "Nextel Communications, Inc." and provide that the authorized capital stock of New Sub shall consist of 430,000,000 shares of capital stock, consisting of 400,000,000 shares of New Sub Class A Common Stock, 20,000,000 shares of New Sub Class B Common Stock and 10,000,000 shares of preferred stock, par value $.01 per share, of New Sub and". 2. TERMINATION. Section 9.2 of the Contribution and Merger Agreement is hereby amended to replace "March 31, 1995" with "June 14, 1995." The extension hereunder is expressly conditioned upon the mailing of the Proxy Statement/Prospectus to stockholders of the Company no later than May 2, 1995. 3. PROXY STATEMENT/PROSPECTUS. Pursuant to Sections 7.3 through 7.5 of the Contribution and Merger Agreement the Parties confirm their mutual understanding and objective to expeditiously finalize the Proxy Statement/Prospectus that will be used in conjunction with the Nextel Merger reflecting an updated financial and business plan, including plans for existing debt and future financing, prepared by the Company and substantiated to the reasonable satisfaction of Motorola. 4. PUBLIC ANNOUNCEMENTS. Motorola and the Company will agree upon the timing and content of the initial press release describing this Amendment and will not make statements prior to or following such release that are inconsistent therewith. 5. COUNTERPARTS. This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the Parties hereto have caused this Amendment to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. NEXTEL COMMUNICATIONS, INC. By: /s/ Brian McAuley --------------------------------- 2 MOTOROLA, INC. By: /s/ R.D. Severns ----------------------------------- ESMR, INC. By: /s/ R.D. Severns ----------------------------------- ESMR SUB, INC. By: /s/ R.D. Severns ----------------------------------- METRACOM TRUNKED RADIO COMMUNICATIONS SYSTEMS, INC. By: /s/ R.D. Severns ----------------------------------- MIJAC ENTERPRISES, INC. By: /s/ R.D. Severns ----------------------------------- MOTOROLA SF, INC. By: /s/ R.D. Severns ----------------------------------- MOTOROLA SMR, INC. By: /s/ R.D. Severns ----------------------------------- 3 NATIONAL TOWER TRUNKING SYSTEMS, INC. By: /s/ R.D. Severns ----------------------------------- AIRWAVE COMMUNICATIONS CORP. By: /s/ R.D. Severns ----------------------------------- MOTOROLA CANADA LIMITED By: /s/ Joyce Reed ----------------------------------- 4