Item 1: Business
General
Motorola is a global leader in providing integrated communications solutions and embedded electronic solutions. These include:
. Software-enhanced wireless telephone, two-way radio, messaging and satellite communications products and systems, as well as networking and Internet-access products, for consumers, network operators, and commercial, government and industrial customers.
. Embedded semiconductor solutions for customers in networking, transportation, wireless communications and imaging and entertainment markets.
. Embedded electronic systems for automotive, communications, imaging, manufacturing systems, computer and industrial markets.
. Digital and analog systems and set-top terminals for broadband cable television operators.
Motorola 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: 847-576-5000).
Business Segments
Personal Communications Segment
The Personal Communications Sector ("PCS" or the "segment") primarily designs, manufactures, sells and services wireless subscriber equipment including wireless telephones, iDEN(R) digital phones, and satellite radio- telephones, paging and advanced messaging devices and personal 2-way radios, with related software and accessory products. Products are marketed worldwide through carriers, distributors, dealers, retailers, and, in certain markets, through licensees.
Radio frequencies are required to provide wireless services. The allocation of frequencies is regulated in the United States and other countries throughout the world and limited spectrum space is allocated to wireless services. The growth of the wireless and personal communications industry may be affected if adequate frequencies are not allocated or, alternatively, if new technologies are not developed to better utilize the frequencies currently allocated for such use. Such occurrences might have an effect on the segment's results.
Generally, PCS carries reasonable product inventories in distribution centers to meet customer delivery requirements. However, during 1999, worldwide demand and production of wireless phones were greater than manufacturers and component suppliers had anticipated at the beginning of 1999. As a result, there were shortages of certain types of components used in manufacturing wireless phones, including those used by Motorola. While component shortages are expected to continue in the first and second quarters of 2000, the availability of components continues to improve sequentially.
Generally, PCS does not permit customers to return merchandise and does not grant extended payment terms, although exceptions may be made, primarily in the retail segments of the segment's business, if necessary to meet unique market conditions.
During 1999, in the Americas region, PCS and the wireless telephone market experienced a continued acceleration in the technology shift to digital phones and products from analog products. Asia and Europe had already substantially completed the transition to digital. PCS introduced a variety of new digital wireless products during 1999, with digital representing over 80% of unit shipments in 1999.
The segment experiences intense competition in worldwide markets from numerous global competitors including some of the world's largest companies. In particular, the segment has experienced significant competition in the market for digital wireless products. Competitive factors in the market for the segment's products include: technology offered; price; product performance, features, quality, delivery and warranty; the quality and availability of service; company image; relationship with key customers and time-to-market.
The segment's backlog amounted to $2.8 billion at December 31, 1999 and $1.3 billion at December 31, 1998. The 1999 order backlog is believed to be generally firm and 100% of that amount is expected to be shipped in 2000. The forward-looking estimates of the firmness of such orders is subject to future events which may cause the percentage of the 1999 backlog actually shipped to change.
Materials used in the segment's operations are generally second-sourced to ensure a continuity of supply. Occasionally, shortages or extended delivery periods have occurred in various component parts, such as those discussed above, the effects of which have generally been industry-wide and short in duration. Energy necessary for the segment's manufacturing facilities consists of electricity, natural gas and gasoline, all of which are currently in generally adequate supply. The segment's facilities are highly automated and, therefore, require a reliable source of electrical power. Labor is generally available in reasonable proximity to the segment's manufacturing facilities. Difficulties in obtaining any of the aforementioned items could affect the segment's results.
Patent protection is extremely important to the segment's operations. The segment has an extensive portfolio of patents relating to its products, technologies and manufacturing processes. Motorola is also licensed to use certain patents owned by others. The protection of these licenses is also important to the segment's operations. Reference is made to the material under the heading "General" for information relating to patents and trademarks, research and development activities and the seasonality and volatility of business with respect to this segment.
PCS's headquarters are located in Libertyville, Illinois. Its major facilities are located in Libertyville and Harvard, Illinois; Boynton Beach and Plantation, Florida; Easter Inch, Scotland; Dublin, Ireland; Flensburg, Germany; Tianjin, China; Penang, Malaysia; Singapore; Chihuahua, Mexico, and Jaguariuna, Brazil. PCS also has interests in two Korean cellular handset design and manufacturing firms, cellular joint ventures in Hangzhou and Shanghai, China, and a manufacturing licensee in China. PCS also uses several original equipment manufacturing ("OEM") contractors to support its worldwide manufacturing needs. Additional engineering, software development and administration offices are located in San Diego, California; Piscataway, New Jersey; Ft. Worth, Texas; Tokyo, Japan; Beijing, China, and Korea.
Network Systems Segment
The Network Systems Segment ("NSS" or the "segment") primarily designs, manufactures, sells, installs and services wireless cellular and personal communication infrastructure equipment. Also included in this segment is the satellite communications business, which markets, designs, builds, and operates and maintains space-based telecommunications systems.
NSS wireless infrastructure products include electronic exchanges (i.e., telephone switches), base site controllers and radio base stations for Code Division Multiple Access (CDMA), Personal Digital Cellular (PDC), Global System for Mobile Communications (GSM), iDEN(R) integrated digital enhanced network, wireless local loop, broadband fixed wireless, and analog technologies. Products are marketed worldwide through a direct sales force, licensees or agents.
The satellite communication business built and is operating and maintaining the Iridium(R) satellite communication system. Iridium is the first low-earth orbit, worldwide satellite-based communications network in existence for general public use. Since August 1999, Iridium LLC (Iridium LLC and its operating subsidiaries are
collectively referred to as "Iridium") has been operating as debtors-in- possession under the regulations of Chapter 11 of the U.S. Bankruptcy Code. For a more detailed discussion of Motorola's relationship with Iridium, see Note 8, "Commitments and Contingencies: Iridium" and Note 15, "Subsequent Events," of the Notes to Consolidated Financial Statements in the appendix to Motorola's Proxy Statement for the 2000 annual meeting of stockholders.
Radio frequencies are required to provide wireless services. The allocation of frequencies is regulated in the United States and other countries throughout the world, and limited spectrum space is allocated to wireless services. The growth of the wireless and personal communications industry may be affected if adequate frequencies are not allocated or, alternatively, if new technologies are not developed to better utilize the frequencies currently allocated for such use. Such occurrences might have an effect on the segment's results.
The nature of NSS's business is larger long-term contracts with major operators. Therefore, the individual loss of any large customer could have a material adverse affect on the segment's business.
For NSS, payment terms are particular to individual contracts, some of which provide for the holdback of certain residual amounts due to Motorola until system acceptance by the customer. In certain circumstances, NSS permits customer returns in accordance with specific contract terms. Increasingly, network operators are requiring suppliers, like NSS, to provide or arrange for long-term financing in connection with equipment purchases. Financing may cover all or a portion of the purchase price, as well as working capital and can be sizable. NSS may also assist customers in obtaining financing from banks or other sources. NSS expects that the need to provide this financing or arrange financing for its customers will continue, and may become increasingly important in this segment.
The segment experiences intense competition in worldwide markets from numerous competitors ranging in size from some of the world's largest companies to small, specialized firms. In particular, the segment has experienced significant competition in the market for digital products. Competitive factors in the market for the segment's products include: technology offered; price; availability of vendor financing; product and system performance, features, quality, delivery, availability and warranty; the quality and availability of service; company image; relationship with key customers and time-to-market. In the satellite communications business, the competitive factors are first-to- market, available geographic coverage, price, quality and reliability.
The segment's backlog amounted to $2.2 billion at both December 31, 1999 and December 31, 1998. No backlog relating to the Iridium program exists at December 31, 1999 as a result of the Iridium bankruptcy proceedings described above. If backlog relating to the Iridium program were removed from backlog at December 31, 1998, that number would decrease from $2.2 billion to $1.5 billion. The 1999 order backlog is believed to be generally firm and 100% of that amount is expected to be shipped in 2000. The forward-looking estimates of the firmness of such orders is subject to future events which may cause the percentage of the 1999 backlog actually shipped to change.
Materials used in the segment's operations are generally second-sourced to ensure a continuity of supply. Occasional shortages in purchased components do occur. Energy necessary for the segment's manufacturing facilities consists of electricity, natural gas and gasoline, all of which are currently in generally adequate supply. The segment's facilities are highly automated and, therefore, require a reliable source of electrical power. Labor is generally available in reasonable proximity to the segment's manufacturing facilities. Difficulties in obtaining any of the aforementioned items could affect the segment's results.
Patent protection is extremely important to the segment's operations. The segment has an extensive portfolio of patents relating to its products, systems, technologies and manufacturing processes. Motorola is also licensed to use certain patents owned by others. The protection of these licenses is also important to the segment's operations. Reference is made to the material under the heading "General" for information relating to patents and trademarks, research and development activities and the seasonality and volatility of business with respect to this segment.
NSS's headquarters are located in Arlington Heights, Illinois. Major design centers include Arlington Heights and Schaumburg, Illinois; Chandler, Arizona; Fort Worth, Texas; Cork, Ireland; Vancouver, British Columbia, and Swindon, England. NSS operates manufacturing facilities in Schaumburg, Illinois; Fort Worth, Texas; Plantation, Florida; Jaguariuna, Brazil; Hangzhou and Tianjin, China, and Swindon, England.
Commercial, Government and Industrial Systems Segment
The Commercial, Government and Industrial Solutions Sector ("CGISS" or the "segment") provides integrated information and communications solutions for commercial, government and industrial customers worldwide. Its Radio Solutions business primarily designs, manufactures, sells, installs and services analog and digital two-way radio voice and data communications products and systems to a wide range of public safety, government, utility, transportation and other worldwide markets. The Systems Solutions business develops advanced integration technologies and markets and delivers comprehensive solutions to government, defense, space and large-enterprise customers through the application of converged information and communications technologies. The business also provides platforms for smart card products using radio frequency identification (RFID). CGISS also provides network services for two-way radio subscribers in international markets through joint ventures.
The principal customers for two-way radio products and systems 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. These products are also sold and leased to various federal agencies for many uses. The principal customers for systems solutions include various departments within the U.S. and other governments, the National Aeronautics and Space Administration, municipal agencies and large commercial enterprises. There are a few customers that, collectively, the loss of, or a significant reduction in purchases by, could have a material adverse effect on CGISS's results.
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 Communication 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, 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 and results of this segment could 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 and results 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.
The products manufactured and marketed by CGISS are sold directly through its own distribution force or through independent authorized distributors and dealers, commercial mobile radio service operators and independent commission sales representatives. The direct distribution force also provides system engineering and installation and other technical and systems management 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. Subscriber units are sold directly and through indirect distribution channels.
Leasing and conditional sale arrangements are also made available to customers. The majority of the leases and conditional sale contracts entered into by CGISS are sold to several unaffiliated finance companies or banks on terms, which, in most instances, provide recourse to Motorola with certain limitations. In addition, a significant number of leases and conditional sale contracts are sold to a Motorola finance subsidiary. In certain circumstances, CGISS permits customers to return products in accordance with industry practices. CGISS's business includes providing custom products based on assembling basic units into a large variety of models or combinations. This requires the stocking of inventories and large varieties of piece parts and replacement parts, as well as a variety of basic level assemblies in order to meet short delivery requirements.
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. In addition, CGISS faces competition from numerous companies whose principal manufacturing
operations are located outside the United States, which may serve to reduce their manufacturing costs and enhance their brand recognition in their locale. Competitive factors for CGISS include: price; technology offered; product performance, quality, delivery and availability; and the quality and availability of service and systems engineering, with no one factor being dominant. An additional factor is the availability of vendor financing, as infrastructure customers continue to look to equipment vendors as an additional source of financing.
This segment's backlog amounted to $2.0 billion at December 31, 1999 and $1.4 billion at December 31, 1998. The 1999 backlog amount is believed to be generally firm, and approximately 76% of that amount is expected to be shipped during 2000. This forward-looking estimate of the firmness of such orders is subject to future events, which may cause the percentage of the 1999 backlog actually shipped to change.
Availability of the materials and components required by CGISS is relatively dependable and certain, but normal fluctuations in market demand and supply could cause temporary, selective shortages and affect results. Direct sourcing of materials and components from foreign suppliers is becoming more extensive. CGISS operates certain offshore subassembly plants, the loss of one or more of which could constrain its production capabilities and affect results. Natural gas, electricity and, to a lesser extent, oil are the primary sources of energy. Current supplies of these forms of energy are generally considered to be adequate for this segment's U.S. and foreign operations. However, difficulties in obtaining any of the aforementioned items could affect the segment's results.
Patent protection is very important to the segment's business. Reference is made to the material under the heading "General" for information relating to patents and trademarks, research and development activities and volatility with respect to this segment.
This segment's headquarters are located in Schaumburg, Illinois, with major manufacturing/assembly facilities in Schaumburg, Illinois; Plantation, Florida; Mount Pleasant, Iowa; Scottsdale, Arizona; Arad, Israel; Penang, Malaysia; Berlin, Germany, and Tianjin, China.
Semiconductor Products Segment
The Semiconductor Products Sector ("SPS" or the "segment") designs, produces and sells integrated semiconductor and software solutions for customers serving the networking and computing, transportation and wireless communication markets and for consumer applications in imaging and entertainment.
Semiconductors control and amplify electrical signals and are used in a broad range of electronic products, including consumer electronic products, computers, communications equipment, solid-state ignition systems and other automotive electronic products, major home appliances, industrial controls, robotics, aircraft, space vehicles, calculators and automatic controls.
SPS sells its products worldwide to original equipment manufacturers ("OEMs") and a network of industrial distributors through its own sales force, agents and distributors. Products manufactured by SPS are also supplied to other operating units of Motorola. Other businesses of Motorola collectively constitute the segment's largest customer and the volume of purchases by these businesses has affected, and could continue to affect, SPS's results.
Customers are allowed to return merchandise for the longer of (i) the product warranty period of the distributor or (ii) three years. The segment and its results are affected by the cyclical nature of the semiconductor industry. Available capacity, cyclical customer demands, new product introductions and aggressive pricing has and could continue to impact its business and results.
The segment's capacity for certain products is being increased to meet current market demand. In addition, the segment supplements its internal manufacturing capacity with joint venture manufacturing facilities and purchases of products from outside vendors. SPS has announced a goal to increase the use of foundry manufacturing for older and specialized technologies. By year-end 1999, SPS had outsourced 25% of its sales for 1999.
The semiconductor industry is subject to rapid changes in technology, and requires a high level of capital spending and an extensive research, development and design program to maintain state-of-the-art technology. Accordingly, SPS maintains an extensive research and development program in advanced semiconductor technology
and a significant portion of Motorola's capital expenditures have historically been, and are expected to continue to be, for semiconductor facilities.
SPS experiences intense competition from numerous competitors ranging from large companies offering a full range of products to small companies specializing in certain segments of the market. The competitive environment also is changing as a result of increased alliances between competitors. The segment competes in many semiconductor markets, including the telecommunications, personal computer/work station, industrial, transportation, consumer, computer, and distributor markets. Important factors in competition include: price; technology offered; product features, quality, availability and warranty; the quality and availability of service; time-to-market and company image. The ability to develop new products to meet customer requirements and to meet customer delivery schedules are also competitive factors.
The segment's backlog amounted to $1.7 billion at both December 31, 1999 and December 31, 1998. Backlog as of December 31, 1999 excluded the Semiconductor Components Group business, which was sold in the third quarter of 1999. Orders may be and are placed by customers for delivery up to 12 months in the future but for purposes of calculating backlog only the next 13 weeks requirements are reported. In the semiconductor industry, backlog quantities and shipment schedules under outstanding purchase orders are frequently revised to reflect changes in customer needs. Binding agreements calling for the sale of specific quantities at specific prices are, typically, contractually subject to price or quantity revisions and are, as a matter of industry practice, rarely formally enforced. Therefore, the segment believes that most of its order backlog is cancelable. For these reasons, the amount of backlog as of any particular date may not be an accurate indicator of future results.
The segment is not currently experiencing any shortages in obtaining raw materials. A significant portion of certain materials and parts used by SPS is supplied from a single country. With respect to these and other materials, the segment is constantly evaluating additional 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 segment's operations. All of these energy sources are available in adequate quantities for current needs. Electricity and oil are the primary energy sources for the segment'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 at certain facilities outside of the U.S. Difficulties in obtaining any of the aforementioned items could affect SPS's results.
Patent protection is very important to SPS's operations. In addition, Motorola is licensed to use certain patents owned by others. The protection of these licenses is also important to SPS's operations. Reference is made to the material under the heading "General" for information relating to patents and trademarks, research and development activities and seasonality of business with respect to this industry segment.
The Semiconductor Products segment's headquarters are in Austin, Texas. Its major facilities are located in Austin, Texas; Chandler, Mesa and Tempe, Arizona; Tianjin, China; Toulouse, France; Munich, Germany; Kwai Chung and Tai Po, Hong Kong; Sendai and Tokyo, Japan; Tel Aviv, Israel; Kuala Lumpur, Malaysia; Singapore, and East Kilbride and South Queensferry, Scotland. In connection with the sale of its Semiconductor Component Group, the segment sold manufacturing facilities located in Phoenix, Arizona; Aizu, Japan; Seremban, Malaysia; Guadalajara, Mexico, and Carmona, the Philippines. The segment also sold major facilities in Chung-Li, Taiwan and Paju, South Korea during 1999. SPS is consolidating its production network into fewer integrated "anchor" sites for economies of scale and improved efficiency.
Other Products Segment
Integrated Electronic Systems Sector
The Integrated Electronic Systems Sector ("IESS" or the "sector") designs, manufactures and sells automotive and industrial electronics systems and solutions, portable energy storage products and systems, multi-function embedded board and computer system products, and telematics products and solutions.
The Automotive and Industrial Electronics Group ("AIEG") uses its high-quality application and engineering expertise to design and sell custom electronic solutions for original equipment manufacturers ("OEMs") including foreign and domestic automobile manufacturers, heavy vehicle manufacturers, farm equipment manufacturers and industrial customers.
The Energy Systems Group ("ESG") delivers complete portable energy system solutions for many of today's leading brand-name mobile phones, notebooks, palm computers, and other portable electronic products. A significant portion of ESG sales is to other industry segments within Motorola, primarily the cellular telephone business.
The Motorola Computer Group ("MCG") specializes in embedded computing technology that is integrated by OEMs into a wide variety of products including the following applications: products and solutions utilized in telecommunications infrastructures; CAT scanners and MRI medical systems; flight simulators; and semiconductor manufacturing equipment.
The Telematics Communications Group ("TCG") provides automotive customers with integrated cellular phones as well as a variety of wireless Internet systems including navigation and driver safety, and hands-free Internet access.
A significant part of the sector's business is dependent upon the business of the other Motorola industry segments, collectively, and two external customers. Each of these key customers is served by more than one group within the sector, and with multiple product offerings within the groups. The loss of a significant portion of these customers' business could have a material adverse effect upon the sector. The sale of Motorola's Ceramic and Quartz Component Division was completed in the first quarter of 1999 and definitive agreements were signed in the fourth quarter to sell the Motorola Lighting Inc. division. That sale closed in the first quarter of 2000.
Demand for the products of AIEG and TCG is linked to automobile sales in the United States and other countries. Demand for ESG products is substantially linked to the sales of other industry segments within Motorola. Demand for MCG products is linked to manufacturing systems, imaging, and telecommunications in the United States and other countries. The sector experiences competition from numerous global competitors, including the automobile manufacturers' internal or affiliated electronic control suppliers. Competitive factors in the sale of IESS products include: price; product quality, performance and delivery; supply integrity; quality reputation; responsiveness; and design and manufacturing technology. An additional factor for MCG products is the availability of software. In certain circumstances, IESS permits customers to return products in accordance with industry practices.
The sector's backlog amounted to $356 million at December 31, 1999 and $315 million at December 31, 1998. The 1999 backlog for the sector is believed to be generally firm, and approximately 100% of that amount is expected to be shipped during 2000. This forward looking estimate of the firmness of such orders is subject to future events that may cause the percentage of the 1999 backlog actually shipped to change.
All materials used by IESS in its operations have good availability at this time. The sector uses electricity and gas in its operations, which are currently adequate in supply. However, difficulties in obtaining any of the aforementioned items could affect the results for IESS.
Patent protection is important to the sector's business. Reference is made to the material under the heading "General" for information relating to patents and trademarks and research and development activities with respect to this sector.
The sector's headquarters are located in Northbrook, Illinois. It also has manufacturing operations located in Tempe, Arizona; Atlanta, Georgia; Harvard and Elk Grove Village, Illinois; Elma, New York; Seguin, Texas; Tianjin, China; Stotfold, England; Angers, France; Dublin, Ireland, and Penang, Malaysia. The business has closed or sold its component manufacturing facilities in Schaumburg, Illinois, San Jose, Costa Rica and Carlisle, Pennsylvania. It transferred its Motorola Lighting Inc. facility in Lake Zurich to its new owner upon the division's sale in the first quarter of 2000.
Internet and Networking Group
The Internet and Networking Group ("ING" or the "group") manufactures and sells cable modems, cable access units, analog and digital transmission devices and other data communication devices, as well as wireline networking
products like routers for carrying converged voice and data traffic. ING's manufacturing occurs both inside and outside the United States. The majority of distribution and sales occurs outside of the United States.
There are a few customers that, collectively, the loss of, or a significant reduction in purchases by, could have a material adverse effect on the group's results.
This group experiences widespread, intense competition from numerous competitors ranging from some of the world's largest, diversified companies to small, specialized firms. Competitive factors for the group include: price; technology offered; product performance, features, quality, availability and warranty; the quality and availability of service; time-to-market and company image.
The group's backlog amounted to $164 million at December 31, 1999 and $166 million at December 31, 1998. The 1999 backlog is believed to be generally firm, and approximately 100% of that amount is expected to be shipped during 2000. This forward-looking estimate of the firmness of such orders is subject to future events, which may cause the percentage of the 1999 backlog actually shipped to change.
Materials and components required by this group are relatively dependable and certain, but normal fluctuations in market demand and supply could cause temporary, selective shortages. Occasionally, shortages or extended delivery periods have occurred in various component parts, the effects of which have generally been industry-wide and short in duration. Natural gas, electricity and oil are the primary sources of energy necessary for the segment's operations. These types of energy are currently readily available, but difficulties in obtaining any of the aforementioned items could affect the segment's results.
Patent protection is very important to the group's business. Reference is made to the material under the heading "General" for information relating to patents and trademarks, research and development activities and seasonality of business with respect to this group.
This group's headquarters are located in Mansfield, Massachusetts, with manufacturing facilities in Mansfield, Massachusetts and Singapore; additionally, research development and administration offices are located in Scotts Valley and Palo Alto, California; Arlington Heights and Naperville, Illinois, and Mansfield, Massachusetts.
Other Businesses
The Network Management Group ("NMG" or the "group"), part of the Communications Enterprise, is comprised of the Network Communications Division and the Satellite Ventures Division. NMG holds and manages investments in wireless operating systems in a number of international jurisdictions and in gateway companies for the Iridium(R) satellite communications network.
Merger with General Instrument Corporation
On January 5, 2000, Motorola and General Instrument Corporation completed their previously announced merger. The merger positions Motorola as a leader in the convergence of voice, video and data technologies. The new Broadband Communications Sector will focus on solutions that deliver interactive television, the Internet and cable modem business of Motorola's Internet and Networking Group. Through the merger Motorola also acquired a majority ownership in Next Level Communications, Inc., which completed an initial public offering in the fourth quarter of 1999. For this year-end reporting, Motorola continues to use the previous segments because management continued to make operating decisions and assess performance based on these segments. For a description of Motorola's 2000 segment realignment, see the information included under the "2000 Segment Realignment" section of "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in the appendix to Motorola's Proxy Statement for the 2000 annual meeting of stockholders.
Financial Information About Segments. The response to this section of Item 1 incorporates by reference Note 10, "Information by Segment and Geographic Region," of the Notes to Consolidated Financial Statements contained in the appendix to Motorola's Proxy Statement for the 2000 annual meeting of stockholders.
Customers. Motorola is not dependent for a material part of its overall business upon a single or a very few customers. Approximately 3.0 % of Motorola's total sales and revenues in 1999 were received from various branches and agencies, including the armed services, of the U.S. Government. All contracts with the U.S. 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 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. These audits and investigations could adversely affect Motorola and its results.
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, 1999............................... $9.20 billion December 31, 1998............................... $7.16 billion
No backlog relating to the Iridium program exists at December 31, 1999 as a result of the Iridium bankruptcy proceedings described elsewhere herein. If backlog relating to the Iridium program were removed from backlog at December 31, 1998, that number would decrease from $7.16 billion to $6.44 billion.
Except as previously discussed in this Item 1(c), the orders supporting the 1999 backlog amounts shown in the foregoing table are believed to be generally firm, and approximately 95% of orders on hand at December 31, 1999 are expected to be shipped during 2000. However, this is a forward-looking estimate of the amount expected to be shipped, and future events may cause the percentage actually shipped to change.
Motorola uses the percentage-of-completion method to recognize revenues and costs associated with most long-term contracts. For contracts involving certain technologies, revenues and profits, or parts thereof, are deferred until technological feasibility is established and 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.
Research and Development. Motorola's business segments participate in very competitive industries with constant changes in technology. 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 business segments on a regular basis. Management believes, looking forward, that Motorola's commitment to research and development programs, both to improve existing products and services and to develop new products and services, together with its utilization of state-of-the-art technology, should allow each of its segments to remain competitive.
Research and development expenditures relating to new product development or product improvement, other than customer-sponsored contracts, were approximately $3.44 billion in 1999, $2.89 billion in 1998 and $2.75 billion in 1997. In addition, research funded under customer-sponsored contracts amounted to approximately $108 million in 1999, $433 million in 1998 and $616 million in 1997.
Approximately 19,900 professional employees were engaged in such research activities (including customer-sponsored contracts) during 1999.
Patents and Trademarks. As of December 31, 1999, Motorola owned approximately 10,542 utility and design patents in the United States and 11,265 patents in foreign countries. These foreign patents are mostly counterparts of Motorola's U.S. patents, but an increasing number result from research conducted outside the United States and are originally filed in the country of origin. During 1999, Motorola was granted 1,271 U.S. utility and design patents. A number of U.S. and foreign patents previously owned by Motorola were assigned to the purchasers of certain businesses that were sold during 1999. Many of the patents owned by Motorola are used in its operations or licensed for use by 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.
Motorola has obtained registration of the "MOTOROLA" and "Stylized M Logo" trademarks throughout the world for many products and services. Worldwide recognition of these marks has resulted in their categorization as "famous" marks. These marks are valuable corporate assets. Certain other trademarks and service marks of Motorola are registered in relevant markets. Motorola's increasing focus on marketing products directly to consumers is reflected in an increasing emphasis on brand equity creation and protection. In the consumer brand arena, four separate target categories have been designated by the ACCOMPLI(TM), TALKABOUT(R), TIMEPORT(TM)
and V.SERIES(TM) brands. Global registration and support for these new brands is an ongoing priority. The DIGITAL DNA(TM) brand remains a strong and highly visible presence in the semiconductor branding strategy.
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 incorporates by reference the information contained under the caption "Environmental and Legal" in Note 9, "Commitments and Contingencies: Other," of the Notes to Consolidated Financial Statements contained in the appendix to Motorola's Proxy Statement for the 2000 annual meeting of stockholders.
Miscellaneous. At December 31, 1999, there were approximately 121,000 employees of Motorola and its subsidiaries. The business of Motorola and its industry segments has certain seasonal characteristics: the Semiconductor Products segment has tended to have stronger, seasonally-adjusted sales in the first half of the year; and sales of products, such as wireless telephones and pagers, in consumer markets tend to increase in the fourth quarter. An increase or decrease in large system orders in our infrastructure businesses could cause volatility in orders, revenues and profits recognized in any particular period.
Business Risk Factors. Except for historical matters, the matters discussed in this Form 10-K are forward-looking statements that involve risks and uncertainties. Forward-looking statements include, but are not limited to, statements under the following headings; (i) "Personal Communications Segment," about the allocation and regulation of frequencies, the impact from the loss of key customers, the expected component shortages during 2000, expected shipments during 2000, and the availability of supplies and labor; (ii) "Network Systems Segment," about the allocation and regulation of frequencies, the impact from the loss of key customers, expected shipments during 2000, and the availability of supplies and labor; (iii) "Commercial, Government and Industrial Solutions Segment," about the impact from the loss of key customers, the allocation and regulation of frequencies, expected shipments during 2000, and the availability of supplies; (iv) "Semiconductor Products Segment," about the impact from the loss of key customers, the impact of available capacity, cyclical customer demands, new product introductions and aggressive pricing, capital expenditures, expected shipments during 2000, backlog and the availability of supplies; (v) "Integrated Electronic Systems Sector," about the impact from the loss of key customers, expected shipments during 2000, and the availability of supplies and software; (vi) "Internet and Networking Group," about the expected shipments during 2000, the impact from the loss of key customers, expected shipments during 2000, and the availability of supplies; (vii) "General," about expected shipments during 2000, seasonality of business, large system orders and competitiveness through research and development and utilization of technology; (viii) "Item 2:
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, Harvard, Libertyville, Northbrook and Schaumburg, Illinois; Elma, New York; Phoenix, Chandler, Scottsdale, Mesa and Tempe, Arizona; Boynton Beach and Plantation, Florida; Lawrenceville, Georgia; Austin, Ft. Worth and Seguin, Texas; Mount Pleasant, Iowa; Mansfield, Massachusetts, and San Jose, California. Motorola also operates manufacturing facilities and sales offices in many other countries. (See "Item 1: Business" for information regarding the location of the principal manufacturing facilities for each industry segment.) Motorola owns 97 facilities (manufacturing, sales, service and office), 52 of which are located in North America and 45 of which are located in other countries. Motorola leases 511 such facilities, 245 of which are located in North America and 266 of which are located in other countries.
Motorola generally considers the productive capacity of the plants operated by each of its industry segments adequate and suitable for the requirements of each business group. New semiconductor product manufacturing facilities are under construction in Xi-Qing, China and an expansion of the semiconductor product manufacturing facility in Chandler, Arizona is currently underway and expected to be completed during the second quarter of 2000. A new manufacturing facility in Jaguariuna, Brazil was completed during the third quarter of 1999. This new facility is being shared by a number of Motorola business units within the Communications Enterprise. In addition to these new manufacturing locations, Motorola continues with the global expansion of software centers around the world. During 1999 we opened software centers in Montreal, Canada and Krakow, Poland and announced a planned expansion at the software center in Adelaide, Australia.
As part of Motorola's overall strategy to reduce operating costs and improve the financial performance of the corporation, a number of businesses and facilities were either sold or are currently up for sale. In connection with the sale of the Semiconductor Components Group of the Semiconductor Products Sector during 1999 Motorola sold facilities in Phoenix, Arizona; Aizu, Japan; Seremban, Malaysia; Guadalajara, Mexico, and Carmona, the Philippines. Semiconductor facilities in Chung-Li, Taiwan and Paju, South Korea were also sold during 1999. Facilities that have been shut down and are currently up for sale include facilities in Irvine, California; Research Triangle Park, North Carolina; San Jose, Costa Rica, and two start-up facilities in Jaguariuna, Brazil. Additional sites that were shut down in 1998 and sold during 1999 are located in Huntsville, Alabama and Carlisle, Pennsylvania.
The extent of utilization of such manufacturing facilities varies from plant to plant and from time to time during the year.
Item 3:
Item 3: Legal Proceedings
Motorola is currently a named defendant in seven cases arising out of alleged groundwater, soil and air pollution in Phoenix and Scottsdale, Arizona. McIntire et al. v. Motorola remains pending in the U.S. District Court for the District of Arizona, while Baker et al. v. Motorola et al., Lofgren et al. v. Motorola et al., Bentancourt et al. v. Motorola et al., Ford et al. v. Motorola et al., Wilkins et al. v. Motorola et al and Dawson et al. v. Motorola, et al. are pending in the Arizona Superior Court, Maricopa County. The McIntire lawsuit, filed on December 20, 1991, involves approximately 920 plaintiffs who allege that the operations of Motorola at several facilities in Phoenix and Scottsdale, Arizona have caused property damage and health problems by contaminating the soil, groundwater and air in the area surrounding those facilities. The Baker lawsuit, filed on February 11, 1992, is a class action, involving six representative individual named plaintiffs, alleging that Motorola and a number of 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 since 1987 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. Motorola is now the sole remaining defendant in the property claims in Scottsdale and East Phoenix.
The Lofgren, Bentancourt, Ford, Wilkins and Dawson lawsuits, filed on April 6, 1993, July 16, 1993, June 10, 1994, July 19, 1995 and August 7, 1997, respectively, were consolidated. The consolidated cases involved more than 200 plaintiffs, alleging that Motorola and a number of other defendants contaminated the soil, air and groundwater in the Phoenix/Scottsdale area, causing health problems. On June 1, 1998, the Lofgren court ruled inadmissible proffered testimony from each of the plaintiffs' medical causation experts and granted summary judgment on those personal injury claims in favor of Motorola and the other remaining defendants. An appeal is expected after the court formally enters final judgment.
All seven pending lawsuits described above 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. The consolidated Lofgren cases involve claims for personal injury.
A class action, In Re Nextel Communications Securities Litigation, against Nextel Communications, Inc., certain of its officers and directors and Motorola for alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, is pending in the United States District Court for the District of New Jersey. The pending complaint, a consolidation of cases previously filed against Nextel, was filed on July 11, 1995 and maintains that the defendants artificially inflated the price of Nextel common stock through a series of alleged misrepresentations and omissions. Plaintiffs propose a class period of July 22, 1993 through January 10, 1995 and seek an unspecified amount of monetary damages. On February 17, 2000, the parties entered into a stipulation of settlement. The hearing of the proposed settlement is scheduled for June 15, 2000.
Motorola and several of its officers and directors are named defendants in a consolidated class action, Kaufman, et. al. v Motorola, Inc., et. al., for alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act and SEC Rule 10b-5. The case was filed on May 19, 1995 and is pending in the U.S. District Court for the Northern District of Illinois. Plaintiffs claim that Motorola and the individual defendants inflated the price of Motorola stock by failing to timely disclose a buildup of cellular phone inventory with its distributors. The district court has certified a class consisting of purchasers of Motorola common stock during the period of November 4, 1994 through February 17, 1995. Plaintiffs seek an unspecified amount of damages. A recent trial date of March 6, 2000 was vacated and no new trial date has been set.
Motorola has been a defendant in several cases arising out of its manufacture and sale of portable cellular telephones. Jerald P. Busse, et al. v. Motorola, Inc. et al., filed on October 26, 1995 in the Circuit Court of Cook County, Illinois, Chancery Division, is a purported class action alleging that defendants have failed to adequately warn consumers of the alleged dangers of cellular telephones and challenging ongoing safety studies as invasions of privacy. All claims were dismissed on defendants' motion. Upon plaintiffs' motion for reconsideration, the Court allowed the plaintiffs to replead the invasion of privacy claims. Defendants have once again filed a motion for summary judgment. Kane, et al., v. Motorola, Inc., et al., filed on December 13, 1993 in the Circuit Court of Cook County, Illinois, alleges that plaintiffs' brain cancer was caused by or aggravated by a prototype communication device. Medica et al., v. Motorola, Inc., et el., filed September 7, 1999, alleges that use of a Motorola cellular phone caused plaintiff Phil Medica's malignant brain tumor.
On October 16, 1998, the plaintiffs in Pennsylvania Bancshares, Inc. et al. v. Motorola, Inc., et al., a purported class action filed on October 10, 1995 in the Court of Common Pleas, Montgomery County, Pennsylvania, filed a notice of voluntary dismissal with prejudice as to all claims for monetary relief and without prejudice as to all claims for equitable relief. Plaintiffs alleged that Motorola systematically engages in deceptive trade practices, including without limitation, intentionally misrepresenting the quality of certain types of cellular telephones. The dismissal is currently before the court for decision. Silber, et al. v. Motorola, Inc., et al., filed on August 1, 1995 in the Supreme Court of The State of New York, County of Suffolk, which was transferred from the County of New York, is an action wherein it is alleged that a traffic accident was caused by the use of a cellular phone. On April 27, 1999, Motorola obtained summary judgment on plaintiffs' claims. Plaintiffs have appealed.
Motorola has been named as one of several defendants in a number of nearly identical putative class action securities lawsuits arising out of alleged material misrepresentations or omissions regarding difficulties in the satellite communications business of Iridium World Communications, LTD, Iridium LLC and Iridium Operating LLC. Freeland v. Iridium World Communications, LTD, et al., Yong v. Iridium World Communications, LTD, et al., Kleinman v. Iridium World Communications, LTD, et al., Marshall v. Iridium World Communications, LTD, et al., Ackerman v. Iridium World Communications, LTD, et al., Hargrove v. Iridium World Communications, LTD, et al.,
Turner v. Iridium World Communications, LTD, et al., Astiazaran v. Iridium World Communications, LTD, et al., Coyle v. Iridium World Communications, LTD, et al., Demopoulos v. Iridium World Communications, LTD, et al., Evans v. Iridium World Communications, LTD, et al., Ginechese v. Iridium World Communications, LTD, et al., Hammerschmidt v. Iridium World Communications, LTD, et al., Hoyt v. Iridium World Communications, LTD, et al., Mace v. Iridium World Communications, LTD, et al., Mandelbaum v. Iridium World Communications, LTD, et al., Maytorena v. Iridium World Communications, LTD, et al., Phiel v. Iridium World Communications, LTD, et al., Strougo v. Iridium World Communications, LTD, et al., and Garvin v. Iridium World Communications, LTD, et al., have all been filed in the US District Court for the District of Columbia. The alleged classes consist of purchasers of Iridium securities during the period from July 14, 1998 to May 13, 1999. A motion to consolidate the cases is currently pending. As a result of bankruptcy proceedings regarding Iridium LLC and other Iridium business entities, these cases have been stayed as to the Iridium business defendants but are continuing as to Motorola and all other defendants. In addition, Motorola has been named as a defendant in Andrews, et al. v. Iridium World Communications, LTD, et al., in the Superior Court of California (San Diego). The approximately 42 plaintiffs were purchasers of Iridium securities and allege violations of California law relating to securities.
The information contained under the caption "Environmental and Legal" in Note 9, "Commitments and Contingencies: Other," of the Notes to Consolidated Financial Statements contained in the appendix to Motorola's Proxy Statement for the 2000 annual meeting of 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:
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 February 29, 2000, their ages as of January 1, 2000, their current titles and positions held during the last five years:
Christopher B. Galvin; age 49; Chairman of the Board since May 1999; Chief Executive Officer since January 1997; President and Chief Operating Officer from December 1993 to January 1997.
Robert W. Galvin; age 77; Chairman of the Executive Committee of the Board of Directors since January 1990.
Robert L. Growney; age 57; President and Chief Operating Officer since January 1997; Executive Vice President and President and General Manager, Messaging, Information and Media Sector from January 1994 to January 1997.
Keith J. Bane; age 60; Executive Vice President and President, Global Strategy and Corporate Development since August 1999; Executive Vice President and President, Americas Region from March 1997 to August 1999; Executive Vice President and Chief Corporate Staff Officer from February 1995 to March 1997; Senior Vice President and Chief Corporate Staff Officer from August 1994 to February 1995.
Robert L. Barnett; age 59; Executive Vice President and President, Commercial, Government and Industrial Solutions Sector, Communications Enterprise since July 1998; Executive Vice President and President, Land Mobile Products Sector from March 1997 to July 1998; Senior Vice President and President and General Manager, Land Mobile Products Sector from March 1996 to March 1997; Corporate Vice President and General Manager, iDEN Group, Land Mobile Products Sector from May 1995 to March 1996; independent consultant to the telecommunications industry from 1992 to May 1995.
Edward Breen; age 43; Executive Vice President and President, Broadband Communications Sector since January 2000; Chairman of the Board, President and Chief Executive Officer of General Instrument Corporation from December 1997 to January 2000; President, Broadband Networks Group of General Instrument Corporation from February 1996 to October 1997; Executive Vice President, Terrestrial Systems of General Instrument Corporation from October 1994 to January 1996.
Arnold S. Brenner; age 62; Executive Vice President and President, Global Government Relations since 1997; Acting President, Motorola Europe, Middle East and Africa, from April 1998 to January 1999; Executive Vice President and General Manager, Japan Group from November 1988 to 1997.
Glenn A. Gienko; age 47; Executive Vice President and Motorola Director of Human Resources since May 1996; Senior Vice President and Director of Human Resources from June 1995 to May 1996; Corporate Vice President - Human Resources, General Systems Sector from February 1994 to June 1995.
Merle L. Gilmore; age 51; Executive Vice President and President, Communications Enterprise since July 1998; Executive Vice President and Deputy to the Chief Executive Office for the Enterprise-Wide Communications Business Plan from April 1998 to July 1998; Executive Vice President and President, Motorola Europe, Middle East and Africa from March 1997 to April 1998; Executive Vice President and President and General Manager, Land Mobile Products Sector, from July 1994 to March 1997.
Joseph M. Guglielmi; age 58; Executive Vice President and President, Integrated Electronic Systems Sector ("IESS") since December 1998; Senior Vice President and President, IESS from October 1998 to December 1998; Senior Vice President and Office of the President, IESS from August 1998 to October 1998; Corporate Vice President and Office of the President, IESS from July 1998 to August 1998; Corporate Vice President and General Manager, Motorola Computer Group from September 1995 to July 1998; Chairman and Chief Executive Officer of Taligent, Inc., a software development company, from March 1992 to August 1995; Corporate Vice President, International Business Machines from April 1987 to February 1992.
Bo Hedfors; age 55; Executive Vice President and President, Network Solutions Sector, Communications Enterprise ("NSS") since February 1999; Senior Vice President and President, NSS from December 1998 to February 1999; Corporate Vice President and President, NSS from September 1998 to December 1998; President and Chief Executive Officer of Ericsson Inc., the U.S. subsidiary of Telefon AB LM Ericsson, from 1994 to August 1998.
Carl F. Koenemann; age 61; Executive Vice President and Chief Financial Officer since December 1991.
Ferdinand C. Kuznik; age 58; Executive Vice President and President, Motorola Europe, Middle East and Africa since July 1999; Executive Vice President and President, Personal Communications Sector, Communications Enterprise from July 1998 to July 1999; Executive Vice President and President, Cellular Subscriber Sector from August 1997 to July 1998; Senior Vice President and General Manager, Radio Network Solutions Group, Land Mobile Products Sector from 1994 to August 1997.
A. Peter Lawson; age 53; Executive Vice President, General Counsel and Secretary since May 1998; Senior Vice President, General Counsel and Secretary from November 1996 to May 1998; Senior Vice President and General Counsel from March 1996 to November 1996; Senior Vice President and Assistant General Counsel from November 1994 to March 1996.
James A. Norling; age 57; Executive Vice President and President, Personal Communications Sector, Communications Enterprise since July 1999; Executive Vice President, Deputy to the Chief Executive Office and President, Motorola Europe, Middle East and Africa from January 1999 to July 1999; Executive Vice President and Deputy to the Chief Executive Office and President, Global Telecom Solutions Group from July 1998 to January 1999; Executive Vice President and President, Messaging, Information and Media Sector from January 1997 to July 1998; Executive Vice President and President, Motorola Europe, Middle East and Africa from April 1993 to January 1997.
C. D. Tam; age 55; Executive Vice President and President, Asia Pacific Region since January 1, 1999; Senior Vice President and General Manager of the Transportation Systems Group, Semiconductor Products Sector from January 1997 to December 1998; Senior Vice President and General Manager, Asia Pacific Semiconductor Group, Semiconductor Products Sector from January 1991 to December 1996.
Frederick T. Tucker; age 59; Executive Vice President, Deputy to the Chief Executive Office and President, Semiconductor Products Sector since January 2000; Executive Vice President and Deputy to the Chief Executive Office from October 1998 to January 2000; Executive Vice President and President and General Manager, Integrated Electronic Systems Sector ("IESS") from July 1997 to October 1998; Executive Vice President and General Manager, IESS from September 1992 to July 1997.
Richard W. Younts; age 60; Executive Vice President and Senior Advisor on Asian Affairs since December 1998; Executive Vice President and President, Asia Pacific Region from 1997 to December 1998; Executive Vice President and Corporate Executive Director International-Asia and Americas from December 1993 to 1997.
The above executive officers will serve as officers of Motorola until the regular meeting of the Board of Directors in May 2000 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:
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 incorporates by reference the information under the caption "Quarterly and Other Financial Data" of Motorola's Consolidated Financial Statements contained in the appendix to Motorola's Proxy Statement for the 2000 annual meeting of stockholders.
Item 6:
Item 6: Selected Financial Data
The response to this Item incorporates by reference the information under the caption "Five Year Financial Summary" contained in the appendix to Motorola's Proxy Statement for the 2000 annual meeting of stockholders.
Item 7:
Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations
The response to this Item incorporates by reference the information under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in the appendix to Motorola's Proxy Statement for the 2000 annual meeting of stockholders.
Item 8:
Item 8: Financial Statements and Supplementary Data
The response to this Item incorporates by reference the information under the captions "Management's Responsibility For Financial Statements," "Independent Auditors' Report," "Consolidated Statements of Operations," "Consolidated Balance Sheets," "Consolidated Statements of Stockholders' Equity," "Consolidated Statements of Cash Flows," "Notes to Consolidated Financial Statements," "Five-Year Financial Summary" and "Quarterly and Other Financial Data" of Motorola's Consolidated Financial Statements contained in the appendix to Motorola's Proxy Statement for the 2000 annual meeting of stockholders.
Item 9:
Item 9: Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
PART III
Item 10:
Item 10: Directors and Executive Officers of the Registrant
The response to this Item required by Item 401 of Regulation S-K, with respect to directors, incorporates by reference the information under the caption "Nominees" on pages 2 through 5 of Motorola's Proxy Statement for the 2000 annual meeting of stockholders and, with respect to executive officers, is contained in Part I hereof under the caption "Executive Officers of the Registrant". The response to this Item required by Item 405 of Regulation S-K incorporates by reference the information under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" on page 23 of Motorola's Proxy Statement for the 2000 annual meeting of stockholders.
Item 11:
Item 11: Executive Compensation
The response to this Item incorporates by reference the information under the caption "Director Compensation" on pages 6 and 7 of Motorola's Proxy Statement for the 2000 annual meeting of stockholders and "Summary Compensation Table," "Stock Option Grants in 1999," "Aggregated Option Exercises in 1999 and 1999 Year-End Option Values," "Long-Term Incentive Plans - Awards in 1999," "Retirement Plans," and "Termination of Employment and Change in Control Arrangements" on pages 15 through 19 of Motorola's Proxy Statement for the 2000 annual meeting of stockholders.
Item 12:
Item 12: Security Ownership of Certain Beneficial Owners and Management
The response to this Item incorporates by reference the information under the caption "Ownership of Securities" on pages 13 and 14 of Motorola's Proxy Statement for the 2000 annual meeting of stockholders.
Item 13:
Item 13: Certain Relationships and Related Transactions
The response to this Item incorporates by reference the relevant information under the caption "Director Compensation" on pages 6 and 7 of Motorola's Proxy Statement for the 2000 annual meeting of stockholders.
PART IV
Item 14:
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 LLP with respect to the Financial Statement Schedule is located at page 19.
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 Share Option Plan of 1996 Motorola Elected Officers Supplementary Retirement Plan Executive Health Plan Accidental Death and Dismemberment Insurance for MEIP Participants Arrangement for Directors' Fees Retirement Plan for Non-Employee Directors Deferred Fee Plan for Outside Directors Motorola Non-Employee Directors Stock Plan Officers' Group Life Insurance Policy Form of Termination Agreement Policy Protecting Salary and Medical Benefits Insurance Policy for Non-Employee Directors Motorola Incentive Plan of 1998 Consultant Agreement with Gary L. Tooker Motorola Omnibus Incentive Plan of 2000
(b) Reports on Form 8-K.
Motorola filed no reports on Form 8-K during the last quarter of 1999.
(c) Exhibits:
See Item 14(a)3 above.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders Motorola, Inc.
Under date of January 17, 2000, except as to Note 15, which is as of March 17, 2000, we reported on the consolidated balance sheets of Motorola, Inc. and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1999, as contained in the 1999 proxy statement 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 ended December 31, 1999. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related financial statement schedule as listed in Part IV, Item 14(a)2. The financial statement schedule is the responsibility of Motorola'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, presents fairly, in all material respects, the information set forth therein
KPMG LLP
Chicago, Illinois January 17, 2000, except as to Note 15, which is as of March 17, 2000
SCHEDULE II MOTOROLA, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS Three Years Ended December 31, 1999 (In millions)
(1) Restructuring and other charges accrual usage (2) Uncollectable accounts written off (3) Warranty claims paid (4) Customer claims paid/reductions in reserves (5) Iridium reserves accrual usage (6) Reversal into income
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors Motorola, Inc.
We consent to incorporation by reference in the registration statements on Form S-8 (Nos. 33-59285, 333-03681, 333-12817, 333-51847, 333-65941, 333-82681, 333-94547 and 333-88735) of Motorola, Inc. of our reports dated January 17, 2000, except as to Note 15, which is as of March 17, 2000, with respect to the consolidated balance sheets of Motorola, Inc. and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of operations, stockholders' equity, and cash flows and the related financial statement schedule for each of the years in the three-year period ended December 31, 1999, 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, 1999.
KPMG LLP
Chicago, Illinois March 20, 2000
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Motorola, Inc. has duly caused this amended report to be signed on its behalf by the undersigned, thereunto duly authorized.
MOTOROLA, INC.
By: /s/ Christopher B. Galvin -------------------------------- Christopher B. Galvin Chairman of the Board and Chief Executive Officer
March 17, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this amended report has been signed below by the following persons on behalf of Motorola, Inc. and in the capacities and on the dates indicated.
EXHIBIT INDEX
Exhibit No. Exhibit - ----------- -------
3.1 Restated Certificate of Incorporation of Motorola, Inc., as amended (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).
3.2 Certificate of Designations, Preferences and Rights of Junior Participating Preferred Stock, Series B (incorporated by reference to Exhibit 3.3 to Motorola's Registration Statement on Form S-3 dated January 20, 1999 (Registration No. 333-70827)).
3.3 By-Laws of Motorola, Inc., revised as of February 17, 1999 (incorporated by reference to Exhibit 3.3 to Motorola's Annual Report on Form 10-K for the fiscal year ended December 31, 1998).
4.1 Rights Agreement dated November 5, 1998 between Motorola, Inc., and Harris Trust and Savings Bank, as Rights Agent (incorporated by reference to Exhibit 1.1 to Amendment No. 1 to Motorola's Registration Statement on Form 8-A/A dated March 16, 1999).
4.2 Instruments defining the rights of holders of long-term debt of the registrant and of all subsidiaries for which consolidated or unconsolidated financial statements are required to be filed are being omitted pursuant to paragraph (4)(iii)(A) of Item 601 of Regulation S- K. Registrant agrees to furnish a copy of any such instrument to the Commission upon request.
10.1 Motorola Executive Incentive Plan as amended through February 4, 1998, (incorporated by reference to Exhibit 10.1 to Motorola's Quarterly Report on Form 10-Q for the fiscal quarter ended June 27, 1998).
10.2 Motorola Long Range Incentive Plan of 1994, as amended through February 4, 1998 (incorporated by reference to Exhibit 10.2 to Motorola's Quarterly Report on Form 10-Q for the fiscal quarter ended June 27, 1998).
10.3 Share Option Plan of 1982, as amended through March 24, 1992 (incorporated by reference to Exhibit 10.3 to Motorola's Annual 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 August 7, 1995 (incorporated by reference to Exhibit 10.4 to Motorola's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 and Exhibit 10.4 to Motorola's Report on Form 10-K for the fiscal year ended December 31, 1995).
10.5 Resolutions Amending Sections 8 and 10(2) of the Share Option Plan of 1982, and Resolutions Amending Sections 7 and 9(b) of the Share Option Plan of 1991, effective August 15, 1996 (incorporated by reference to Exhibit 10.5 to Motorola's Annual Report on Form 10-K for the fiscal year ended December 31, 1996).
10.6 Share Option Plan of 1996, as amended through May 7, 1997 (incorporated by reference to Exhibit 10 to Motorola's Quarterly Report on Form 10-Q for the fiscal quarter ended June 28, 1997).
10.7 Motorola Elected Officers Supplementary Retirement Plan, as amended through February 6, 1995 (incorporated by reference to Exhibit 10.5 to Motorola's Annual Report on Form 10-K for the fiscal year ended December 31, 1994).
10.8 Executive Health Plan (incorporated by reference to Exhibit 10.8 to Motorola's Annual Report on Form 10-K for the fiscal year ended December 31, 1996).
10.9 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).
10.10 Arrangement for directors' fees and retirement plan for non-employee directors (description incorporated by reference from pages 5 and 6 of Motorola's Proxy Statement for the 2000 annual meeting of stockholders).
10.11 Deferred Fee Plan for Outside Directors, as amended February 6, 1996 (incorporated by reference to
Exhibit 10.9 to Motorola's Annual Report on Form 10-K for the fiscal year ended December 31, 1995).
10.12 Motorola Non-Employee Directors Stock Plan, as amended and restated on February 4, 1998 (incorporated by reference to Exhibit 10.12 to Motorola's Quarterly Report on Form 10-Q for the fiscal quarter ended June 27, 1998).
10.13 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).
10.14 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).
10.15 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).
10.16 Insurance policy covering non-employee Directors (incorporated by reference to the description on page 6 of Motorola's Proxy Statement for the 1999 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).
10.17 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).
10.18 Motorola Incentive Plan of 1998 (incorporated by reference to Exhibit 10 to Motorola's Quarterly Report on Form 10-Q for the fiscal quarter ended March 28, 1998).
10.19 Consultant Agreement dated September 30, 1999 between Motorola, Inc. and Gary L. Tooker (incorporated by reference to Exhibit 10 to Motorola's Quarterly Report on Form 10-Q for the fiscal quarter ended October 2, 1999).
10.20 Agreement and Plan of Merger dated September 14, 1999 between Motorola, Inc., Lucerne Acquisition Corp. and General Instrument Corporation (incorporated by reference to Exhibit 2.1 to Amendment No. 2 to Motorola's Registration Statement on Form S-4 dated November 29, 1999).
* 10.21 Motorola Omnibus Incentive Plan of 2000.
* 21 Subsidiaries of Motorola.
23 Consent of KPMG LLP. See page 21 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).
_______________________________ * Filed herewith