-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KsObUVJKXrm/4KCfoMfIuydrdrAIBxJwah4EsExgnLI99QvbPCDH+vwSSM5t3Rg/ 2PCfV2yziIX/1vUm96CYLQ== 0000068505-96-000016.txt : 19961113 0000068505-96-000016.hdr.sgml : 19961113 ACCESSION NUMBER: 0000068505-96-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960928 FILED AS OF DATE: 19961112 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MOTOROLA INC CENTRAL INDEX KEY: 0000068505 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 361115800 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07221 FILM NUMBER: 96657763 BUSINESS ADDRESS: STREET 1: 1303 E ALGONQUIN RD CITY: SCHAUMBURG STATE: IL ZIP: 60196 BUSINESS PHONE: 7085765000 FORMER COMPANY: FORMER CONFORMED NAME: MOTOROLA DELAWARE INC DATE OF NAME CHANGE: 19760414 10-Q 1 3RD QUARTER 10-Q 1996 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the period ending September 28, 1996 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from __________ to _________ Commission file number: 1-7221 MOTOROLA, INC. (Exact name of registrant as specified in its charter) Delaware 36-1115800 (State of Incorporation) (I.R.S. Employer Identification No.) 1303 E. Algonquin Road, Schaumburg, Illinois 60196 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (847) 576-5000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The number of shares outstanding of each of the issuer's classes of common stock as of the close of business on September 28, 1996: Class Number of Shares Common Stock; $3 Par Value 592,895,581 MOTOROLA, INC. AND CONSOLIDATED SUBSIDIARIES INDEX PART I FINANCIAL INFORMATION PAGE Item 1 Financial Statements Statements of Consolidated Earnings Three-Month and Nine-Month Periods ended September 28, 1996 and September 30, 1995 3 Condensed Consolidated Balance Sheets at September 28, 1996 and December 31, 1995 4 Statements of Condensed Consolidated Cash Flows Nine-Month Periods ended September 28, 1996 and September 30, 1995 5 Notes to Condensed Consolidated Financial Statements 6 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 7 PART II OTHER INFORMATION Item 1 Legal Proceedings 14 Item 2 Changes in Securities 14 Item 3 Defaults Upon Senior Securities 14 Item 4 Submission of Matters to a Vote of Security Holders 14 Item 5 Other Information 14 Item 6 Exhibits and Reports on Form 8-K 14 PART I - FINANCIAL INFORMATION MOTOROLA, INC. AND CONSOLIDATED SUBSIDIARIES STATEMENTS OF CONSOLIDATED EARNINGS (Unaudited) (In millions, except per share amounts) Three Months Ended Nine Months Ended Sept. 28, Sept. 30, Sept. 28, Sept. 30, 1996 1995 1996 1995 Net sales $ 6,498 $ 6,851 $20,288 $19,739 Costs and expenses Manufacturing and other costs of sales 4,489 4,388 13,792 12,660 Selling, general and administrative expenses 1,041 1,131 3,239 3,430 Depreciation expense 609 496 1,708 1,405 Interest expense, net 42 48 140 103 Total costs and expenses 6,181 6,063 18,879 17,598 Earnings before income taxes 317 788 1,409 2,141 Income taxes provided on earnings 111 292 493 792 Net earnings $ 206 $ 496 $ 916 $1,349 Net earnings per common and common equivalent share (1) Fully diluted: Net earnings per common and common equivalent share $ .34 $ .81 $ 1.51 $ 2.21 Average common and common equivalent shares outstanding, fully diluted (in millions) 609.1 611.1 609.1 611.1 Dividends paid per share $ .12 $ .10 $ .32 $ .30 (1) Average primary common and common equivalent shares outstanding for the three months and nine months ended September 28, 1996 and September 30, 1995 were 609.0 million and 609.6 million, respectively. Primary earnings per common and common equivalent share were $1.51 and $2.22 for the nine months ended September 28, 1996 and September 30, 1995, respectively, and $.34 and $.81 for the third quarters ended September 28, 1996 and September 30, 1995, respectively. See accompanying notes to condensed consolidated financial statements. MOTOROLA, INC. AND CONSOLIDATED SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In millions) Sept. 28, December 31, 1996 1995 ASSETS Cash and cash equivalents $ 1,182 $ 725 Short-term investments 325 350 Accounts receivable, less allowance for doubtful accounts (1996, $129; 1995, $123) 4,036 4,081 Inventories 3,422 3,528 Other current assets 1,850 1,826 Total current assets 10,815 10,510 Property, plant and equipment, less accumulated depreciation (1996, $9,389; 1995, $8,110) 9,746 9,356 Other assets (1) 3,331 2,935 Total Assets $23,892 $22,801 LIABILITIES AND STOCKHOLDERS' EQUITY Notes payable and current portion of long-term debt $ 1,830 $ 1,605 Accounts payable 1,822 2,018 Accrued liabilities 4,208 4,170 Total current liabilities 7,860 7,793 Long-term debt 1,926 1,949 Other liabilities (1) 2,233 2,011 Stockholders' equity (1) 11,873 11,048 Total liabilities and stockholders' equity $23,892 $22,801 (1) SFAS No. 115 "Accounting for Certain Investments in Debt and Equity Securities" requires the carrying value of certain investments to be adjusted to their fair value which resulted in the Company recording an increase to stockholders' equity, other assets and deferred taxes of $439 million, $727 million and $288 million as of September 28, 1996; and $328 million, $543 million, and $215 million as of December 31, 1995. See accompanying notes to condensed consolidated financial statements. MOTOROLA, INC. AND CONSOLIDATED SUBSIDIARIES STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS (Unaudited) (In millions) Nine Months Ended Sept. 28, Sept. 30, 1996 1995 NET CASH PROVIDED BY OPERATIONS $ 2,541 $ 1,988 INVESTING Payments for property, plant and equipment (2,138) (3,172) (Increase) decrease in short-term investments 25 (10) (Increase) in other investing activities (203) (304) Net cash used for investing activities (2,316) (3,486) FINANCING Net increase in commercial paper and short-term borrowings 213 807 Proceeds from issuance of debt 23 794 Repayment of debt (33) (19) Payment of dividends to stockholders (190) (177) Other financing activities 219 18 Net cash provided by financing activities 232 1,423 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 457 $ (75) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR $ 725 $ 741 CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,182 $ 666 See accompanying notes to condensed consolidated financial statements. MOTOROLA, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. BASIS OF PRESENTATION The Condensed Consolidated Balance Sheet as of September 28, 1996, the Statements of Consolidated Earnings for the three-month and nine-month periods ended September 28, 1996 and September 30, 1995, and the Statements of Condensed Consolidated Cash Flows for the nine-month periods ended September 28, 1996 and September 30, 1995 have been prepared by the Company. In the opinion of management, all adjustments (which include reclassifications and normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows at September 28, 1996 and for all periods presented, have been made. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the appendix of the Company's proxy statement for the 1996 Annual Meeting of Shareholders of the Corporation. The results of operations for the three and nine-month periods ended September 28, 1996, are not necessarily indicative of the operating results for the full year. 2. INVENTORIES Inventories consist of the following (in millions): Sept. 28, Dec. 31, 1996 1995 Finished goods $ 907 $ 1,026 Work in process and production materials 2,515 2,502 Inventories $ 3,422 $ 3,528 3. INCOME TAXES The Internal Revenue Service (IRS) has examined the federal income tax returns for Motorola, Inc. through 1987 and has settled the respective returns through 1985. 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. 4. SUPPLEMENTAL CASH FLOWS INFORMATION Cash payments for income taxes were $355 million during the first nine months of 1996 and $818 million for the same period a year earlier. Cash payments for interest expense (net of amount capitalized) were $173 million and $145 million for the first nine-month periods of 1996 and 1995, respectively. MOTOROLA, INC. AND CONSOLIDATED SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This commentary should be read in conjunction with the sections of the following documents for a full understanding of Motorola's financial condition and results of operations: from Motorola, Inc.'s 1995 Summary Annual Report to Stockholders, the Letter to Stockholders on page 2; and from the Proxy Statement for the 1996 Annual Meeting of Stockholders of the Company, Management's Discussion and Analysis of Financial Condition and Results of Operations, pages F-1 through F-11, and the Consolidated Financial Statements and Footnotes to the Consolidated Financial Statements, pages F-13 through F-28; and from Motorola, Inc.'s Quarterly Report on Form 10-Q for the period ending September 28, 1996, of which this commentary is a part, the Condensed Consolidated Financial Statements and Notes to the Condensed Consolidated Financial Statements, pages 3 through 6. RESULTS OF OPERATIONS: Motorola, Inc. reported lower sales and earnings for the third quarter of 1996. Third quarter sales declined 5 percent to $6.5 billion in 1996 from $6.9 billion in the third quarter of 1995. In the first nine months, sales reached $20.3 billion, up 3 percent from $19.7 billion a year ago. Earnings for the third quarter of 1996 were $206 million, compared with $496 million in the third quarter of 1995. Fully diluted net earnings per common and common equivalent share for the third quarter of 1996 were 34 cents, down from 81 cents in the year-earlier period. Earnings in the first nine months were $916 million, compared with $1.35 billion in 1995. Fully diluted net earnings per common and common equivalent share were $1.51, compared to $2.21 a year earlier. Motorola's net margin on sales (net earnings divided by net sales) during the third quarter of 1996 was 3.2 percent compared to 7.2 percent a year ago, while in the first nine months, net margin was 4.5 percent, compared to 6.8 percent in the year- earlier period. During the past several quarters, a variety of factors have continued to slow the Company's rate of growth in sales and orders. These factors have also had an adverse effect on net earnings. They include: (1) competition and a weakening of demand within the semiconductor industry which has resulted in pricing pressures; (2) increased depreciation associated with adding new semiconductor manufacturing capacity primarily during 1995 and early 1996; (3) the continuation of competitive pressures and price declines in the cellular telephone, paging and modem businesses; (4) a moderating growth rate of the cellular subscriber base in the U.S.; (5) continued expenditures associated with the development and introduction of new technologies; and (6) a slow-down of economic growth within the European market. Motorola expects these factors, which have affected 1996 earnings, to continue into the fourth quarter of 1996. In addition, the third-quarter earnings comparison is even less favorable due to a substantial net gain on the sale of certain assets in the third quarter of 1995, which favorably affected the results in the year-ago quarter. The Company is expanding its cost-cutting actions already under way, including manufacturing and work force adjustments. Specific actions are expected to be finalized during the fourth quarter and will have a material adverse effect on 1996 fourth-quarter earnings. General Systems Sector's segment sales declined to $2.6 billion, a decrease of 2 percent from the third quarter of 1995. Orders increased 13 percent and operating profits were lower than in the third quarter of 1995. Cellular Subscriber Group (CSG) orders increased while sales were lower as the effect of higher unit shipments was offset by declining prices. Sales and orders were higher in Pan America and Europe but lower in all other regions. Cellular Infrastructure Group (CIG) sales were higher and orders increased significantly. Sales were higher in Japan, Europe and other international markets outside of Asia-Pacific. Sales were lower in the Asia-Pacific and Pan America regions. Orders were higher in all regions except Asia-Pacific where they were essentially flat. Computer Group sales were lower, but orders increased. Segment sales in the Semiconductor Products Sector decreased 19 percent from the third quarter of 1995 to $1.8 billion. Orders decreased 33 percent, and operating profits were significantly lower, essentially at break-even, in comparison to the third quarter of 1995. Orders were lower in all geographic regions. Among major market segments, only automotive orders were higher. Distributor orders declined. Orders were lower in all of the sector's technology groups. All product categories experienced weaker orders except sensor products, where orders were higher. A broad weakening of demand for semiconductor products and resulting pricing pressures have had the greatest negative effects on operating profits. The sector has progressively implemented and is expanding a range of cost-cutting actions which commenced in early 1996 and include, in part, reducing operating expenses and fixed asset expenditures, halting various building expansion and new construction projects, reducing the labor workforce, and re-evaluating manufacturing run rates. In September, the sector began phasing down pilot production at the COM 1 start-up facility in Phoenix, Arizona and on one of the wafer production lines in East Kilbride, Scotland. It is anticipated that year-to-year semiconductor sales and order growth comparisons are likely to remain negative for a few more quarters, although the rates of decline are expected to lessen. This will continue to place significant pressures on semiconductor profitability, as order backlog has decreased significantly compared to 1995. In the Messaging, Information and Media segment, sales increased 8 percent to $1.0 billion and orders decreased 2 percent compared with the third quarter of 1995. Operating profits were lower compared with the third quarter of 1995 largely because of the substantial net gain recorded in the year-ago quarter from the sale of an investment. Sales were higher in all business units. Paging orders were flat compared with a year ago, as lower orders in Asia, particularly China, offset increased orders in Pan America and Europe. While the growth of the paging subscriber business in China continues, distribution channels have reduced their inventory levels as the sector has made considerable improvements in delivery time. The overall paging backlog is higher than a year ago. Orders were lower in the Information Systems Group, reflecting a continuation of a very competitive pricing environment for modems. In the Land Mobile Products Sector business segment, sales increased 2 percent to $929 million and orders advanced 18 percent compared with the third quarter of 1995. Operating profits were higher. Equipment sales for iDEN (Trademark symbol inserted here) products were higher and orders were up significantly. Nextel Communications, Inc. placed orders for more than $200 million in iDEN infrastructure and subscriber equipment as part of the continued roll-out of its nationwide network in the U.S. In the Automotive, Energy and Controls Group (AECG), sales decreased 13 percent, orders decreased 12 percent and operating profits were lower from the third quarter of 1995. Pricing pressures and reduced demand for components and rechargeable batteries were the primary factors in the group's performance versus a year ago. The Automotive and Industrial Electronics portion of the group's business reported increased sales, orders and profits. AECG has implemented a series of cost-cutting measures and, in September 1996, announced a voluntary severance program for its component businesses and headquarters employees. The results for this group are reported as part of the "Other Products" segment. In the Space and Systems Technology Group (SSTG), group sales increased 3 percent and orders were 437 percent higher. The group recorded an operating profit compared with a loss a year ago. The significant increase in orders reflects recognition of order bookings that had been delayed pending completion by Iridium L.L.C. of a $750 million short-term credit facility that enabled it to continue to make contractual payments to Motorola. Development of the IRIDIUM(R) global telecommunications system continued on schedule, as Motorola met all contractual milestones during the quarter. The short-term credit facility is expected to provide Iridium L.L.C. with funding until February 1997. At that time, Iridium L.L.C. will require further funding to continue to make contractual payments to Motorola. As previously reported, Iridium L.L.C. is continuing to negotiate a permanent credit facility. There can be no assurances as to the outcome of these negotiations. Motorola has guaranteed Iridium L.L.C.'s short-term facility and may agree to extend that guarantee during the time period of the initial technology deployment and regulatory approval phases of the IRIDIUM program. As planned, the start of the satellite deployment phase of the IRIDIUM program will result in much higher expenses being reported by Iridium L.L.C., of which Motorola will record in its financial results its pro-rata share (approximately 25 percent equity ownership interest of Iridium L.L.C.). These increased expenses are largely due to satellite depreciation expense before the system enters commercial service in late 1998. Depreciation expense will commence upon the first launch (which is currently expected in late 1996 or early 1997) and will increase as additional satellites of the 66 satellite constellation are placed into orbit. The group changed its name from the Government and Space Technology Group to reflect its emphasis on becoming a premier systems developer and integrator. Results are reported as part of the "Other Products" segment. Motorola's manufacturing and other costs of sales during the third quarter of 1996 and 1995 were $4.5 billion, 69.1 percent of net sales, and $4.4 billion, 64.0 percent of net sales, respectively. The increase as a percent of net sales was a result of a continuation of a more competitive pricing environment for: semiconductors, especially memory products as industry growth has slowed; cellular telephones; pagers and modems. While all major operations are continuing to invest in key programs for the future, the Company intends to focus on controlling budgeted costs in response to slowing demand and competitive pricing. Manufacturing run rates continue to be adjusted in response to changing demands. Motorola's selling, general and administrative expenses during the third quarter of 1996 were $1.0 billion, 16.0 percent of sales, versus $1.1 billion, 16.5 percent of sales, during the year-earlier period. Major transitions to new technologies continue in Motorola's equipment businesses. These are very important to the Company's long-term growth and are already beginning to result in significant new businesses. These technologies include two-way and voice paging, CDMA (code divisional multiple access) for cellular and PCS (personal communications systems), wireless local loop, telephony and high speed data modems for cable systems, integrated dispatch radios, and flat-panel display products. As new technologies enter the Company's revenue base, their early life cycle levels of profitability are low until markets mature and manufacturing economies of scale develop to reduce unit costs. The tax rate for the quarter was 35 percent compared with 37 percent in the third quarter of 1995 and 36 percent for the full year ended 1995. LIQUIDITY AND CAPITAL RESOURCES: Inventories at September 28, 1996 decreased by 3 percent or $106 million, compared to inventories at December 31, 1995. Property, plant and equipment, less accumulated depreciation, increased $390 million since December 31, 1995, largely due to adding new capacity within the Semiconductor Products Sector and the General Systems Sector during the first half of 1996. Currently the Company is selectively deferring capacity expansion programs. Depreciation expense increased 22.8 percent to $609 million for the third quarter of 1996 in comparison with $496 million for the year-earlier period. Motorola's notes payable and current portion of its long-term debt increased $225 million, or 14.0 percent from the amount at December 31, 1995. Long-term debt decreased slightly from $1.95 billion at December 31, 1995 to $1.93 billion at September 28, 1996, or 1.2 percent. Net debt (notes payable and current portion of long-term debt plus long-term debt less short-term investments and cash equivalents) to net debt plus equity decreased to 18.1 percent at September 28, 1996 from 19.8 percent at December 31, 1995. The Company's total domestic and foreign credit facilities aggregated $4.0 billion at September 28, 1996, of which $341 million were used and the remaining amount was not drawn, but was available to back up outstanding commercial paper which totaled $1.5 billion at September 28, 1996. The Company uses financial instruments to hedge, and therefore help reduce, its overall exposure to the effects of currency fluctuations on cash flows of foreign operations and investments in foreign countries. The Company's strategy is to offset the gains or losses of the financial instruments against losses or gains on the underlying operational cash flows or investments based on the operating business units' assessment of risk. Motorola does not speculate in these financial instruments for profit on the exchange rate price fluctuations alone. Motorola does not trade in currencies for which there are no underlying exposures, and the Company does not enter into trades for any currency to intentionally increase the underlying exposure. Essentially all the Company's non-functional currency receivables and payables denominated in major currencies which can be traded on open markets are hedged. Some of the Company's exposure is to currencies which are not traded on open markets, such as those in Latin America and China, and these are addressed, to the extent reasonably possible, through managing net asset positions, product pricing, and other means, such as component sourcing. Currently, the Company primarily hedges firm commitments. The Company expects that there could be hedges of anticipated transactions in the future. As of September 28, 1996, and September 30, 1995, the Company had net outstanding foreign exchange contracts totaling $1.3 billion for each year respectively. The following schedule shows the five largest foreign exchange hedge positions as of September 28, 1996, and the corresponding positions at September 30, 1995: Millions of U.S. Dollars Buy (Sell) Sept. 28, Sept. 30, 1996 1995 Japanese Yen (344) (424) British Pound Sterling (299) (302) Spanish Peseta (103) (52) Italian Lire (98) (59) Singapore Dollar 73 90 As of September 28, 1996 and September 30, 1995, outstanding foreign exchange contracts primarily consisted of short-term forward contracts. Net deferred losses on these forward contracts which hedge designated firm commitments were immaterial at September 28, 1996. The foreign exchange financial instruments which hedge various investments in foreign subsidiaries are marked to market monthly as are the underlying investments and the results are recorded in the financial statements. Motorola's research and development expense was $617 million in the third quarter of 1996, compared with $562 million in the third quarter of 1995. Research and development expenditures for the year ended December 31, 1995 were $2.2 billion. The Company continues to believe that a strong commitment to research and development drives long-term growth. At September 28, 1996, the Company's fixed asset expenditures for the third quarter totaled $579 million, compared with $1.1 billion in the third quarter of 1995. The Company is currently anticipating that fixed asset expenditures incurred during 1996 could total approximately $3.1 billion, significantly lower than fixed asset expenditures incurred during 1995 which aggregated $4.2 billion. The decrease in expected fixed asset expenditures for 1996 reflects management's commitment to adjusting investment levels to better match current industry conditions, particularly with respect to the semiconductor industry. Return on average invested capital (net earnings divided by the sum of stockholders' equity, long-term debt, notes payable and the current portion of long-term debt, less short-term investments and cash equivalents) was 9.8 percent based on the performance of the four preceding fiscal quarters ending September 28, 1996, compared with 16.3 percent based on the performance of the four preceding fiscal quarters ending September 30, 1995. Motorola's current ratio (the ratio of current assets to current liabilities) was 1.38 at September 28, 1996, compared to 1.35 at December 31, 1995. "Safe Harbor" statement under the Private Securities Litigation Reform Act of 1995: Statements that are not historical facts, including statements about (i) the factors affecting the Company's growth rate in the beginning of "Results of Operations"; (ii) the Company's anticipated cost-cutting actions and the impact thereof; (iii) Semiconductor Products Sector's anticipated cost-cutting actions and the impact thereof; (iv) semiconductor industry anticipated sales and order growth; (v) Iridium L.L.C. financing negotiations; (vi) the effect of transitions to new technologies and research and development activities; and (vii) fixed asset expenditures, are forward looking statements based on current expectations and involve risks and uncertainties. Motorola wishes to caution the reader that the factors below, along with the factors set forth in the Company's 1996 proxy statement in Management's Discussion and Analysis on pages F-10 and F-11 and in the Company's other documents filed with the SEC, in some cases have affected and could affect Motorola's actual results causing results to differ materially from those in any forward looking statement. These factors include: continued or increased competition and/or pricing pressure on the Company's businesses including the cellular telephone, paging and modem businesses; continued or increased weakening demand for semiconductors, industry wide or Company specific and the resulting pricing pressures on semiconductors; the effects of underutilization of plants and facilities, including Semiconductor Product Sector's wholly owned and joint venture facilities (some of which are not controlled by Motorola), General System Sector's and Automotive, Energy and Controls Group's facilities; the outcome of Iridium L.L.C.'s financing negotiations and the Company's guarantee negotiations for such financing; product development risks, including technological difficulties, and commercialization and regulatory factors; demand and market acceptance risks for new and existing products, technologies and services, including new cellular phones, PCS systems, CDMA systems, digital technology, paging products including two-way and voice paging, computer products, automotive products, telephony and high speed data modems for cable systems, and the flat-panel display products; risks related to the IRIDIUM (Registered trademark symbol inserted here) project, including regulatory approvals, software technological or market acceptance issues and performance failures; unexpected expenditures, including fixed asset expenditures; continued or increased moderating growth rate in the cellular subscriber base in the U.S.; cellular subscriber growth rates in other regions; and the impact of world-wide economic conditions, particularly Europe, on growth and demand for wireless communications. IRIDIUM (Registered trademark symbol inserted here) is a registered trademark and service mark of Iridium L.L.C. MOTOROLA, INC. AND CONSOLIDATED SUBSIDIARIES INFORMATION BY INDUSTRY SEGMENT (UNAUDITED) Summarized below are the Company's segment sales as defined by industry segment for the three months and nine months ended September 28, 1996 and September 30, 1995: Segment Sales for the Three Months Ended Sept. 28, Sept. 30, (Dollars In millions) 1996 1995 % Change General Systems Products $2,584 $2,648 (2) Semiconductor Products 1,849 2,275 (19) Messaging, Information and Media Products 1,021 944 8 Land Mobile Products 929 912 2 Other Products 765 807 (5) Adjustments and eliminations (650) (735) (12) Industry segment totals $6,498 $6,851 (5) Segment Sales for the Nine Months Ended Sept. 28, Sept. 30, 1996 1995 % Change General Systems Products $8,066 $7,877 2 Semiconductor Products 5,975 6,241 (4) Messaging, Information and Media Products 3,082 2,627 17 Land Mobile Products 2,693 2,574 5 Other Products 2,450 2,526 (3) Adjustments and eliminations (1,978) (2,106) (6) Industry segment totals $20,288 $19,739 3 PART II - OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS. There are currently eight cases pending in Phoenix, Arizona arising out of alleged groundwater, soil and air pollution in Phoenix and Scottsdale, Arizona. Two plaintiffs in the McIntire lawsuit, pending in United States District Court for the District of Arizona stipulated to dismissal of their claims with prejudice. There remain approximately 920 plaintiffs in McIntire. In the consolidated Lofgren/Betancourt/Ford/Wilkins v. Motorola lawsuits pending in the Arizona Superior Court, Maricopa County, plaintiffs filed a Fifth Amended Complaint on June 27, 1996. These consolidated cases involve claims by approximately 225 plaintiffs alleging that Motorola and approximately 30 other defendants contaminated the soil, air and groundwater in the Phoenix/Scottsdale area, causing health problems. In the Camelhead case, Motorola had won a motion for summary judgment dismissing it from the suit in November 1995. The plaintiff filed a motion for re-consideration, but the decision was re-confirmed by the trial court in August 1996. The plaintiff has filed an appeal in the Ninth Circuit. (See Item 3 of the Company's Annual Report on Form 10-K for the year ended 1995 and Form 10-Q for the second quarter of 1996 for additional disclosures regarding cases arising out of alleged groundwater, soil and air pollution in Phoenix and Scottsdale, Arizona). In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the consolidated financial condition, liquidity or results of operations of Motorola. ITEM 2 - CHANGES IN SECURITIES. Not applicable. ITEM 3 - DEFAULTS UPON SENIOR SECURITIES. Not applicable. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. ITEM 5 - OTHER INFORMATION. Not applicable. ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits 11 Motorola, Inc. and Consolidated Subsidiaries Primary and Fully Diluted Earnings Per Common and Common Equivalent Share for the Three Months Ended September 28, 1996 and September 30, 1995. 11.1 Motorola, Inc. and Consolidated Subsidiaries Primary and Fully Diluted Earnings Per Common and Common Equivalent Share for the Nine Months Ended September 28, 1996 and September 30, 1995. 27 Financial Data Schedule (filed only electronically with the SEC) (b) Reports on Form 8-K No reports on Form 8-K were filed during the third quarter of 1996. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MOTOROLA, INC. (Registrant) Date: Nov. 8, 1996 By: /s/ Kenneth J. Johnson Kenneth J. Johnson Senior Vice President and Controller (Chief Accounting Officer and Duly Authorized Officer of the Registrant) EXHIBIT INDEX NUMBER DESCRIPTION OF EXHIBITS PAGE NO. 11 Motorola, Inc. and Consolidated Subsidiaries Primary and Fully Diluted Earnings Per Common and Common Equivalent Share for the Three Months Ended September 28, 1996 and September 30, 1995. 17 11.1 Motorola, Inc. and Consolidated Subsidiaries Primary and Fully Diluted Earnings Per Common and Common Equivalent Share for the Nine Months Ended September 28, 1996 and September 30, 1995. 18 27 Financial Data Schedule (filed only electronically with the SEC) -- EX-11 2 EXHIBIT 11 TO 10Q Exhibit 11 Motorola, Inc. and Consolidated Subsidiaries Primary and Fully Diluted Earnings Per Common and Common Equivalent Share Three Months Ended September 28, 1996 and September 30, 1995 (In millions, except per share amounts) Three Months Ended Sept. 28, Sept. 30, 1996 1995 Net Income $ 206 $ 496 Add: Interest on Zero coupon notes due 2009 and 2013, net of tax and effect of executive incentive and employee profit sharing plans 1 1 Adjusted net income $ 207 $ 497 EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE - PRIMARY: Weighted average common shares outstanding 592.2 589.3 Common equivalent shares: Stock options 10.2 13.1 Zero coupon notes due 2009 and 2013 6.6 7.2 Common and common equivalent shares - primary (in millions) 609.0 609.6 Net earnings per share - primary $ .34 $ .81 EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE - FULLY DILUTED: Weighted average common shares outstanding 592.2 589.3 Common equivalent shares: Stock options 10.3 14.6 Zero coupon notes due 2009 and 2013 6.6 7.2 Common and common equivalent shares - fully diluted (in millions) 609.1 611.1 Net earnings per share - fully diluted $ .34 $ .81 EX-11.1 3 EXHIBIT 11.1 TO 10Q Exhibit 11.1 Motorola, Inc. and Consolidated Subsidiaries Primary and Fully Diluted Earnings Per Common and Common Equivalent Share Nine months Ended September 28, 1996 and September 30, 1995 (In millions, except per share amounts) Nine months Ended Sept. 28, Sept. 30, 1996 1995 Net Income $ 916 $ 1,349 Add: Interest on Zero coupon notes due 2009 and 2013, net of tax and effect of executive incentive and employee profit sharing plans 3 4 Adjusted net income $ 919 $ 1,353 EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE - PRIMARY: Weighted average common shares outstanding 592.2 589.3 Common equivalent shares: Stock options 10.2 13.1 Zero coupon notes due 2009 and 2013 6.6 7.2 Common and common equivalent shares - primary (in millions) 609.0 609.6 Net earnings per share - primary $ 1.51 $ 2.22 EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE - FULLY DILUTED: Weighted average common shares outstanding 592.2 589.3 Common equivalent shares: Stock options 10.3 14.6 Zero coupon notes due 2009 and 2013 6.6 7.2 Common and common equivalent shares - fully diluted (in millions) 609.1 611.1 Net earnings per share - fully diluted $ 1.51 $ 2.21 EX-27 4 EXHIBIT 27 TO 10Q
5 The schedule contains summary financial information extracted from the consolidated Balance Sheet as of 9/28/96 and the Statement of Consolidated Earnings for the quarter ended 9/28/96 as is qualified in its entirety by reference to such financial statements. 1,000,000 3-MOS DEC-31-1996 JAN-01-1996 SEP-28-1996 1,182 325 4,165 (129) 3,422 10,815 19,135 (9,389) 23,892 7,860 1,926 0 0 1,779 10,094 23,892 20,288 0 13,792 17,030 1,708 0 140 1,409 493 0 0 0 0 916 1.510 1.509 Total cost includes: cost of goods sold, selling and administrative expense, total exchange (gain)/loss Other expense includes: depreciation expenses
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