摩托罗拉公司1973年年报

Motorola Annual Report 1973

Contents

Financial Highlights

Qommunications Division iconductor Products Divisf

Consumer Products Division Automotive Products Division

i Government Electronics Divisf

New Ventures Activity Directors and Officers Financial Statement Ten-Year Financial Sumrri!

Major Facilities and Product Lines,

To Our Shareholders And Friends: 1973 was the best year in the company's To keep the company at the technological proposed to be increased from 13 to 16. 45-year history as sales and dollar forefront, we anticipate a further The shareholders will be asked to elect earnings in every quarter, and for the full significant increase in 1974. corporate vice presidents Thomas J. year, established records. Connors, John T. Hickey and John F. Share Distribution Mitchell to the Board of Directors at the Sales and other revenues for the year company's annual meeting on May 6,1974. amounted to $1,437,098,629, an increase At the company's annual meeting in May, of 23.5 per cent from last year's shareholders approved a share-for-share It is our policy to constantly review the $1,163,315,088. distribution which was subsequently organization structure and modify it from implemented on June 1. The quarterly time to time, in line with our long range Earnings for the year increased at an even dividend rate was raised to 12.5 cents per plans, and for rotation of executives. In greater rate. They totalled $81,995,862, share now outstanding, commencing with an increase of 57.6 per cent over the line with this policy, several organizational the July dividend distribution. The changes and executive assignments $52,038,120 earned in 1972. Earnings per shareholders also approved share were $2.95, compared to last were announced. reincorporation of the company in year's $1.91. We are gratified with this Delaware. On January 25, 1974, the following improved earnings performance. changes were implemented: The However, since our margins are only communications division, under the American Regitel beginning to approach an acceptable level general managership of John F. Mitchell, for a technology-oriented company such In early 1974, General Instrument now reports directly to the Chairman/ as Motorola, which must make large Corporation contracted to acquire the President's office. investments in the future, it is our objective assets and business of our American to achieve continued improvements. Regitel subsidiary. The final closing of The office of group executive in charge of the acquisition is expected to take place the automotive products, government Four of the five operating divisions in March, 1974. All losses associated with electronics and consumer products participated in the establishment of the the disposition of the subsidiary have divisions was established. Homer L. Marrs, sales and earnings records. Sales for the been provided for in 1973, particularly in vice president and former general consumer products division were less than the 4th quarter. No additional charges manager, equipment divisions, became anticipated at the outset of 1973, and an are expected in 1974. vice president and group executive. J. Paul operating loss was recorded for the year. Jones, vice president and former director Management Organization of corporate staff, became vice president Financial and assistant group executive. The Board of Directors initiated action in The company's financial position late February, 1974 to add the general Carl E. Lindholm, vice president and remained strong during the year, as managers of the communications and former assistant general manager of the indicated by our current ratio of $2.43 of semiconductor products divisions and the communications division, was named vice current assets to every dollar of current chief financial officer to the board. The president and director of liabilities. Our total borrowings—short and number of company directors was corporate staff. long-term—are 29 per cent of borrowings plus shareholders' equity. In order to reduce short-term debt and enable us to better meet our forecast capital requirements, we entered into an agreement with five major banks in December for a revolving credit of $75 million at the prime interest rate until December 31,1976. We have the option to convert the revolving credit notes to four- year term notes, at a slightly higher interest rate, any time during the period. Fixed asset expenditures in 1973 were $85 million, up considerably from the $48 million spent in 1972. As we enter 1974, we are anticipating the largest increase in capital spending in the company's history, with 1974 expenditures approximating $125 million. This large amount is required not only to alleviate production capacity limitations currently being experienced in several of our divisions, but also to facilitize major U.S. and non-U.S. factories coming on-stream during 1974, both for current and new products. While details of various expansion programs can be found in the divisional sections of this report, it should be noted here that these planned expenditures are a clear indication of our confidence in the future of our worldwide markets.

Our spending for research and development totalled $95 million in 1973, up from $76 million the previous year.

Joseph F. Miller, vice president and Each division and the corporate staff have questions we receive throughout the year former director of distribution for the conducted thorough studies of potentially from shareholders, financial analysts and communications division, was named critical materials, including the effect of other interested parties. We hope you will assistant general manager of the the energy problem on our key suppliers find their answers to be candid, interesting communications division. —both in terms of cost and their ability to and informative. supply. Such materials have been During 1973 and early in 1974, the 1973's excellent results are due in a major identified, as well as sources for following other changes were made. way, to the dedicated efforts and actions substitutes which could be used if Patrick D. Lynch, vice president and former of all members of the Motorola family. We shortages should develop. Here again, we director of operations, Bipolar ICs, was acknowledge their contributions with are reasonably confident that our named general manager, U.S.A., for the sincere appreciation. production should not be inhibited by semiconductor products division. major shortages. For the Board of Directors, Robert J. Solem, vice president and The chairman/president's office has set as former assistant general manager of the a corporate objective the reduction of government electronics division, was power and fuel consumption in our named assistant general manager of the facilities by approximately 25 per cent. automotive products division. Thus far, we have achieved an average Robert N. Swift, vice president and cutback of about 20 per cent by the Robert W. Galvin former director of marketing for the careful utilization and conservation of Chairman of the Board communications division, was named energy in all forms. We will have to assistant director of human relations for modify some operations in order to reach the corporation. our objective, but the program should not significantly affect production output. Jack C. Haenichen, vice president and Standby energy sources are being former director of operations, MOS, was arranged for plants which might named vice president and director of experience cutbacks in natural gas university relations for the semiconductor William J. Weisz supplies. Studies at operating locations products division. President around the world indicate that we should Several additional officerships were also be able to operate reasonably everywhere established during the year. Donald R. with the possible exception of parts of Jones was named vice president and the United Kingdom. treasurer; Vincent J. Rauner became vice We have also launched campaigns in most president for patents, trademarks and of our plant locations to encourage car licensing; and Edward J. Harty was pooling and other energy-saving activities promoted to controller. by our employees. In many cases, preferential parking and other incentives Richard P. Abraham became vice for car poolers are being employed. president for discrete products operations, semiconductor products division; Rhesa S. Farmer, Jr. was elected vice president Outlook for mobile and base products, later Despite the energy and economic becoming vice president and director of difficulties being faced in many of the international operations, communications industrial countries of the world, we division. believe that sales and earnings of the corporation will increase in 1974, although In the consumer products division, at a more modest rate than in 1973. Four Richard A. Kraft was elected vice president of the five divisions should participate in for product development, later becoming this continuing growth pattern. Since a vice president and director of color decline in U.S. industry color television operations; and Robert C. Warren became sales is anticipated, we do not expect the vice president for marketing, later sales performance of the consumer changing to vice president and director products division to improve over last year. of black-and-white operations. W. Lee Shevel came to Motorola in March as Our current outlook for the year is based vice president and assistant general on consideration of the individual markets manager of the consumer products served by the divisions; the variety of division. energy-saving products manufactured by the company, such as communications Energy products which sharply increase the efficiency of vehicles in which they are Since early in the fourth quarter, our used; and on a careful and continuing managers have been keeping closely in evaluation by our managers of the possible touch with customers to improve our effect of the energy shortage and the sensitivity to changes in demand which economy in general on our customers, might occur as'a result of the energy suppliers, employees and on our ability to shortage. To date, the only weakening in maintain scheduled production. demand which has been detected involves color TV and the requirements of certain of our automotive customers. Current Divisional Summaries backlogs are at record high levels in the For the remaining sections of this report, communications, semiconductor products we have asked the senior managers of the and government electronics divisions. divisions to respond to some of the March 25,1974 2

Financial Highlights 1973 1972

Sales and Other Revenues $1,437,099 1,163,315

Income before United States and Other Nations' Income Taxes 143,523 92,462

% to Sales 10.0% 7.9%

United States and Other Nations' Income Taxes 61,527 40,424

Net Earnings 81,996 52,038

% to Sales 5.7% 4.5%

Per Share of Common Stock 2.95 1.91

Weighted Average of Common Shares Outstanding 27,823,252 27,296,886

Capital Expenditures 84,510 48,008

Depreciation.-. 35,724 30,529

Working Capital 427,715 323,544

Current Ratio 2.43 2.36

Shareholders' Equity 523,481 439,611

Book Value Per Common Share 18.72 15.94

Yearend Employment (approx.) 64,000 56,000

(Dollar amounts in thousands, except per share data)

Additional Information Available

At the close of each fiscal year, Motorola submits a report on Form 10-K to the Securities and Exchange Commission containing additional information concerning its business.

As part of our continuing effort to keep all of our shareholders as fully informed as possible concerning the corporation's activities, we intend to distribute the document to interested shareholders.

Any shareholder who would like a copy of the report may obtain one upon request to the treasury department, 5725 N. East River Road, Chicago, Illinois 60631.

Communications Division During the past decade, the communications division has achieved an annual growth rate of about 15 per cent. In 1973, the division established new records in both sales and earnings, and substantially exceeded its traditional growth rate. Sales were up more than 25 per cent, while earnings increased substantially faster than sales. Despite uncertainties in the general economy, John F. Mitchell, vice president and general manager, anticipates improved performance in both the U.S. and international markets in 1974.

A product truly ahead of its time, the DYNA- T.A.C. portable radiotelephone system, first demonstrated by Motorola in 1973, is similar to a normal dial telephone, but can be carried with the subscriber and used anywhere within the area of coverage.

Can your division maintain its traditional Did your division add production Has the division's growth in international growth rate during 1974 and beyond? capacity in 1973? markets kept pace with its growth in the U.S.? We plan to continue our historic rate of Yes, we have had to add additional growth during the coming year and over capacity in order to keep pace with our Over the past several years, the the next five years as well. We have been sales growth. In some cases this has international sales growth rate has actually able to grow steadily by broadening our meant the addition of new facilities, and in been greater than in the U.S. In particular, product lines into new areas such as others, additions to existing facilities. we are experiencing rapid growth in command and control, and by our During 1973, we announced plans for Canada and Europe. We anticipate that continued dedication to the marketplaces additions at our facilities in Ft. Lauderdale, our non-U.S. growth rate will continue to that currently use our products, and we Florida, and Willowdale, Ontario, Canada. surpass the U.S. rate for both the short and intend to continue to do so. Also, we are Our subsidiary in Germany announced long terms. We are currently operating supplying total systems software along that construction on its new European production facilities in Canada, Germany with our hardware so that our customers headquarters and production facility in and Australia; have joint ventures in actually get the benefits they seek, and this Taunusstein, Germany would begin early Argentina, Israel and South Africa, and a is helping us keep ahead of competition. in 1974. Also during 1973, we began licensee agreement in Brazil. production at the Mt. Pleasant, Iowa But perhaps the most important factor in Since we have a major stake in the future facility, which we leased early in the year. maintaining our growth rate has been the of world trade, we have recently expressed In addition, the quartz production facility in tremendous versatility and continued our concern about the upcoming European Carlisle, Pennsylvania was modernized development of our people. We are proud Economic Community Trade Negotiations. of the response and the accomplishments and expanded to help meet the growth expected in the coming years. Specifically, we see a trend developing to of our division in 1973, and it's our people restrict or place a heavy duty on products who made these fine results possible. A moving between E. E. C. countries if the major challenge in the future will be to products include a high percentage of maintain versatility by being able to shift non-E. E. C. components. Such resources at appropriate times to take restrictions would certainly have an advantage of new markets as they adverse affect on world trade. develop. We've done this well in the past, and we're confident that we will continue to do so.

Continued emphasis on research and A business using the Pageboy II radio pager development enables the division to expand Motorola mobile radios like the MOCOM 70 will remain in touch with its employees in the into new market areas as well as improve have enabled users to overcome rising field. Its small size means the unit can be existing product lines. Here, a photographic operational costs and fuel scarcities by making attached to a belt or carried in a pocket or master for hybrid devices is being designed. more efficient use of vehicles. purse.

Is the division facing increased What factors might affect the division's How can the energy problem have competition from other U.S. or non-U.S. opportunities for future growth? a positive effect on your marketing producers of communications efforts? No one knows yet, of course, what the full equipment? impact of the energy shortage will be. As a From a sales and marketing standpoint, Yes we are. Our traditional competitors in negative, the energy problem may impinge the use of two-way radio has always the land mobile radio business are on our ability to produce. However, it contributed to the efficiency and remaining active on both the U.S. and could well produce some significant profitability of our customers. With non-U.S. fronts. The size of our positive benefits in our markets, especially gasoline prices continually going higher, competitors runs the gamut from some of since the use of our products frequently and the consequent cost of operating the world's corporate giants to some small, enables our customers to use their vehicles going up, we expect to experience specialized electronics companies. We vehicles more efficiently and, increased demand for our products. have also seen the entrance of entirely consequently, use relatively less gasoline. Two-way radio can pay for itself more new competitors into highly sophisticated quickly and easily than ever before. If our segments of the marketplace. During 1973, we also became concerned communications products were about the possible shortage of critical In markets outside the U.S., we have seen economically justifiable when gasoline materials and components, and we increased competition from some conducted an in-depth, division-wide was 35 cents a gallon, then they must be Japanese companies, particularly in Latin study. The results indicated that, at our an even greater value to our customers as America and with point-to-point products. planned production levels, we should be gasoline is priced well above that amount, Some of our traditional European able to continue to obtain the required and becomes increasingly difficult to competitors have also increased their material support. However, this is an area obtain. efforts, but on a selective basis. we're continuing to watch very closely. Shortages of gasoline and electrical power could also have an adverse affect on our employees, and on our ability to produce. Consequently, we have made a major effort to conserve energy at all our facilities around the world. Our plants in Schaumburg, Illinois, and Ft. Lauderdale, Florida, for example, had reduced fuel and power consumption by 20 per cent by yearend. As 1974 begins, we are also exploring and implementing a variety of methods to conserve gasoline. Car pooling, busing and the use of other incentives to reduce usage of gasoline by our employees are all being analyzed and evaluated.

Motorola now offers a unique pay TV package to many hotels and motor inns, providing them with movies and selected live telecasts on Production of Motorola two-wsy radios in the individual room sets. Toronto, Canada facility.

Has the availability of frequency Frequency congestion has not yet the neighborhood plumber and a city-wide spectrum to the land mobile services affected the division's performance in public transit operation. In addition, new limited divisional growth in the past, markets outside the U.S. However, the families of shared user systems which and even more importantly, might it rules and regulations established by have never been offered before on a large limit future opportunities? various local governments can have a scale basis will be possible. One of these profound influence on this growth. The exciting opportunities is the DYNA-T.A.C. The availability of adequate spectrum in division has established an international portable radiotelephone system first the U.S. and throughout the world has frequency management liaison office to demonstrated during 1973. The been an essential ingredient in the support these local governments with DYNA-T.A.C. system will ultimately permit successful growth of the division. We have technological and marketing background personal radiotelephone service to be historically exercised technological to permit optimum growth of this important offered to hundreds of thousands of leadership in developing new circuits, industry in each country. individuals in a given city, but will also be devices and systems. In the past, we have economically viable in its early stages with led the way toward the efficient use of just a few thousand subscribers. The allocated spectrum. A past example of this Is the division presently involved in the generation of any new businesses? service offered by the DYNA-T.A.C. system is the 450 MHz channel splits which made is similar to that of a normal dial more channels available in this band. We A major long-range opportunity sought by telephone, but the radio can be carried have anticipated for some years that more the communications division is the with the subscriber and used anywhere spectrum would be required to fulfill the development of the newly allocated 900 within the area of coverage. ever increasing public demand for new MHz band we just discussed. This band services. The FCC has responded to those presents an opportunity to expand the We are also presently engaged in the needs by reallocating to land mobile radio growth of the increasingly sophisticated hotel/motel pay TV business, and are some of the lower UHF TV channels in and complex individual dispatch systems providing movies in approximately 25 the iargest cities in the U.S. Of more which today serve such diverse users as hotels in Chicago and Washington, D.C. importance, long term, the Commission We plan to expand this service during now plans to allocate 115 MHz in the 900 1974 to more hotels in other cities. MHz band to Land Mobile Services. This will provide almost three times today's The division is also a major producer of number of land mobile channels. These quartz crystal resonators for electronic new allocations, combined with our timepieces. This market is expanding, and continuing efforts to use the spectrum the division's expertise in manufacturing more efficiently, will enhance rather than the heart of the quartz watches is hinder the division's future growth. unparalleled worldwide. We plan to expand our efforts in this field during 1974 as the demand for these precision devices increases.

From this military policeman in Thailand to police and fire departments around the world, This Command and Control system, installed equipment ranging from Motorola's Command by Motorola in Huntington Beach, Calif., and Control systems to the division's HT-220 combines voice and data transmission to portable radios are helping to fulfill serve both police and fire departments. communications needs.

Semiconductor Products Division Worldwide industry sales of semiconductors totalled about $4,635 billion, or an increase of 37 per cent over 1972. Motorola's worldwide sales were up more than 45 per cent over the previous year, according to Thomas J. Connors, vice president and general manager, while earnings more than doubled to an all-time high.

Motorola's high-frequency RF module permits a number of solid-state components to be placed on a single surface to serve the expanding CATV market. 8

What is the worldwide outlook for In light of this slower industry growth The importance of this data lies not in the semiconductors in 1974? rate, how do you think your division minimal shifts detected over the 1973-75 will perform in 1974? period, but rather in the fact that all end- We currently expect an additional 10 per While 1973's increases were extremely user markets continue their simultaneous cent increase in 1974 in worldwide gratifying, we can't expect such a growth growth. This pattern should help the industry sales to $5,087 billion. The rate to continue unabated. Our people industry avoid the sharp fluctuations expected growth in worldwide and our equipment, already operating well caused in the sixties when the cyclically consumption for 1974 breaks down into a over known capacity limits, simply cannot of the then-dominant computer and 14 per cent increase in the U.S., 10 per run at this rate indefinitely. In light of the government markets easily swung the cent for Europe, 8 per cent in Japan and anticipated worldwide semiconductor fortunes of the semiconductor industry. 17 per cent for the rest of the world's growth rate of about 10 per cent in 1974, Such abrupt peaks and valleys have little markets. we expect to continue our recent better- prospect in the now vastly more mature than-industry performance, and therefore, solid-state industry. Today's demand our sales should grow by more than 15 comes from a wide variety of users, and per cent this year. We expect this rate to proliferation of applications should increase in 1975, and we're planning on increase dramatically through the strong and profitable growth for the foreseeable future. balance of the decade. The reason for this optimism is that new markets and new applications for all of our products, coupled with the increasing solid-state penetration of the existing markets, is rapidly turning semiconductors into an all-pervasive, industrial commodity.

The semiconductor industry is basically dependent on the prospects of each of the end-user segments of the market. How have these segments performed and what is the near term outlook? U.S. factory sales, for which pertinent data has been estimated, give us the following comparison for each of the major industry segments, 1973 and 1975: 1973 (%) 1975 (%) Consumer 22.6 22.1 Computer 28.3 26.9 Industrial 27.6 29.5 Government 21.5 21.5 100.0% 100.0% With just five Motorola packages in the microprocessor family, a customer can build Completion of initial buildings a subsystem that would require at least 250 of a major MOS production facility in packages with standard integrated circuits. Austin, Texas is expected in mid-1974

Have there been increases in your There appears to be a shift to non-U.S. Has Motorola continued its leadership production capacity to meet this markets in the worldwide demand position in the discrete device product accelerated worldwide semiconductor for semiconductors. Is Motorola line? demand? participating in this international Contrary to many forecasts, the discrete growth? In 1973 we dedicated three new facilities: market grew at a record rate during 1973, an MOS plant in East Kilbride, Scotland; Five years ago, U.S. consumption of primarily because of the lower-than- a wafer processing plant in Vega Baja, semiconductors was 52 per cent of world expected vulnerability of discrete products Puerto Rico; and the second module of consumption. Today, U.S. consumption to replacement by integrated circuits. our discrete product plant in Guadalajara, has dropped to about 42 per cent of the To extend Motorola's worldwide Mexico, more than doubling the size of world total, and we believe it will shrink leadership in the discrete product area, that facility. We also effectively added over further—to less than 39 per cent—by 130 new products were introduced in 1973. 100,000 square feet of production floor 1978. During the past five years we have These new products, together with cost space in Phoenix by transferring some taken aggressive strides to keep up with reduction programs and capacity in-plant support operations to leased the international market's growth rate. We expansion, all contributed to record sales, quarters. In addition, ground was broken intend, through our global network of profits and backlogs, further strengthening for two additional plants: a major MOS production and marketing facilities, to not our leadership position in discrete devices. production operation in Austin, Texas, and only grow along with non-U.S. markets but an assembly plant in Kuala Lumpur, to continue capturing an increasingly Malaysia. Further, in mid-year we received larger share of those markets. the necessary government approval for a joint venture in Japan, with Alps Electric What is the trend in the relative mix of Co., for the manufacture and marketing of demand for the major semiconductor semiconductors in the Japanese market. device categories? Despite these moves, mostly catch-up for While our dollar sales and unit volumes capacity expansion which was deferred in have both increased quite significantly in the 1970-72 period, it may take until early discrete devices, their overall market 1975 before we have sufficient capacity percentage has declined as the newer on-stream to start back toward more integrated circuit technologies expanded. normal scheduling of people, equipment In 1968, discrete dollar volume accounted and orders. for 76 per cent of industry demand. Today, we estimate they have shrunk to 60 per cent of the industry product mix. By 1978, we believe discretes should command about 44 per cent, and integrated circuits the remaining 56 per cent;—comprised of 36 per cent bipolar and 20 per cent MOS devices.

Motorola's 4,096-bit MOS RAM (Random Access Memory) integrated circuit should Motorola produces red, yellow and green become a truly cost-effective alternative to Light-Emitting Diodes (LEDs)Jor a variety of magnetic cores for computer memory. indicator applications.

While the division has improved its Motorola produces the broadest line of Does the division feel the position with more mature discrete linear integrated circuits in the microprocessor market represents a products, what has been its recent semiconductor industry. We are active in new business opportunity for the experience with the newer bipolar virtually every consumer and industrial semiconductor industry? If so, to what integrated circuits? linear market, and hold a front position in degree will Motorola participate? the automotive and TV portions of the We are continuing a high rate of technical consumer market. We continue to increase The burgeoning microprocessor market is development in large scale integration our share of the linear market because of presenting the industry with a radical (LSI), and our exclusive "gate array" our ability to respond quickly to design opportunity to engineer into electronic concept in bipolar LSI makes it possible changes and production requirements. systems significant benefits not previously now to achieve higher circuit density than possible. The true extent to which previously available in the bipolar industry. During the past two years the division microprocessors will be adopted is not yet With it, 400-gate complexities can be has emphasized its metal oxide apparent, even though the current picture provided on a one-eighth inch square semiconductor (MOS) integrated circuit indicates a possibly phenomenal market chip. The process offers a simple method product family. Have results to date whose growth rate could eclipse that of for custom interconnection, and at least a confirmed this decision, and is the future today's fastest growing semiconductor 10-to-1 reduction in the number of outlook favorable? categories. Motorola has a major packages required for a given application. commitment to the microprocessor The early commitment to complementary market, and we intend to secure a We have enjoyed increasing success in MOS (CMOS) and N-channel MOS significant share. Development in this area the emitter coupled logic (ECL) market (NMOS) has resulted in our possessing an has reached an advanced stage. with our MECL 10,000 line, which has outstanding capability for exploiting the become an accepted standard in the long range growth potential of these industry. Motorola has a large lead on technologies. In the case of CMOS, competition in this important area, and we Motorola started 1972 with 7 standard plan to increase this lead through the products. At the end of 1973, 80 CMOS addition of new devices to the product products were available in what has line. In addition, we are currently become the largest standard product developing the next generation of MECL range in CMOS in the industry. The devices. development of several key NMOS In two older digital logic lines, RTL and memories, including a 4,096-bit random DTL, we are continuing to enjoy both high access memory, together with a volumes and good profits. comprehensive microprocessor program, has provided an excellent product base. A In transistor-transistor logic (TTL), we rapidly rising sales curve in the newer increased our sales volume in 1973. This technology areas has served to business is also profitable now that we demonstrate positive results. We believe have improved our yield and rounded out that the future market in MOS, in particular the product line. CMOS and NMOS, provides considerable long term potential. The development of a suitable product and process base indicates that Motorola is in an excellent position to exploit this long range Processing on a 3-inch wafer gives Motorola opportunity. 21/4 times as much surface on which to build semiconductors than with processing on a Wire-bonding integrated circuits at the 2-inch wafer. division's facility in Guadalajara, Mexico.

Consumer Products Division While 1973 distributor-to-dealer unit sales of color TV for Motorola's consumer products division were slightly ahead of the 1972 total, the division's sales growth trailed the industry growth pattern for the first time in three years. Edward P. Reavey, vice president and general manager of the division, anticipates decreased color TV sales for both the industry and Motorola in 1974.

With Quasar "Works-in-a-Drawer" color TV, Motorola was one of the first American manufacturers to introduce a solid-state modular chassis, followed by Insta-Matic color tuning. 12

How many color TV receivers were sold How were 1973 industry sales for Does non-U.S. competition continue to by the industry in 1973? black-and-white television sets? have a significant impact on the industry's performance? Distributor-to-dealer unit sales in the U.S. Total industry distributor-to-dealer unit totalled about 9.5 million in 1973, sales in the U.S. for black-and-white The changes in currency exchange rates establishing a new industry record. This television sets declined by some 13 per that took place in 1973 overcame some of compared with total industry unit sales in cent from the previous year's level, the selling price advantage enjoyed by the U.S. of 8.5 million the previous year. dipping to about 7.2 million units, non-U.S. manufacturers in the black-and- While the industry's long-term trend in compared with about 8.3 million units in white TV marketplace in the U.S. over the color TV unit sales has been up, the 1972. past several years. Consequently, non- general growth pattern is expected to be U.S. label black-and-white TV sales were down somewhat in 1974, with total industry Did your division also trail the industry down somewhat in 1973. Sales of non- unit sales easing off to approximately in black-and-white set sales? U.S. label color receivers, however, 8.8 million units. Even so, such a rate continue to increase, primarily because would represent the second highest No, we actually out-performed the industry of the continued growth of the color TV industry volume in color TV sales in in black-and-white unit sales. We market in this country. Non-U.S. label history. The growth pattern should resume achieved a distributor-to-dealer unit sales import brands have generally been very in 1975, according to industry estimates. increase of some 20 per cent over 1972. competitive in the growing portable sector of the U.S. market, but they have not yet How does that compare with Motorola's Did your division earn a profit in 1973? achieved a substantial percentage of the results? No, it did not. Because of our less-than- total color TV market. anticipated volume, because of drastically We trailed the industry growth rate for the increasing costs in many parts of our Is the consumer preference shift from first time in three years, although our operation, and because of the continued console to portable color receivers color TV unit sales were slightly ahead of shift to lower margin portable and small continuing? 1972. The leveling off of our Quasar color screen color as well as black-and-white TV sales was partially due to suggested Yes, it is. It's a gradual shift that began TV receivers, we recorded a loss for the list prices that were somewhat higher than three orfour years ago, but more and more year. many competitive brands in the customers are turning away from big marketplace. We had increased prices on screen console sets in favor of smaller certain color models late in 1972, within portable and table models. This definite the price guidelines, but our move was trend is adversely impacting both average not generally followed by the industry. unit selling prices and profit margins. It is also having a particularly severe Also, our advertising budget in 1973 was effect on Motorola's performance because reduced from the previous year, and we have traditionally enjoyed a relatively probably contributed to the slow-down of larger share of the industry's large screen the momentum we had built up with the and console color TV sales. Quasar color TV program.

As data is transmitted from a centralized computer to this Motorola display monitor, the Intermediate color TV testing in the division's operator punches out a reply on the keyboard Canada facility. controller.

Has the division experienced any Careful planning between the division's The department of technology represents shortages of key materials during purchasing department and suppliers, a new unit in our division, and has prime the year? with back-stop sources arranged in many responsibility for strategic planning, instances, should result in adequate advanced engineering, advanced product Yes, we have. In fact, a major and severe material support for 1974, contingent upon development and new business cost factor that emerged in 1973 centers our suppliers receiving sufficient fuel to development. From this group, we expect around steep price rises for materials and operate their own plants. new extensions of existing products as components that were in increasingly short supply. well as the emergence of new types of In terms of fuel requirements of the business for the division. It is our hope to A very critical shortage developed in division's plants, a concentrated program enter at least one such new business in plastics near the end of 1972. During the of energy conservation was enacted early 1974. first half of 1973, similar shortages arose last Fall, and secondary fuel supplies are in wood and wood products, steel and being obtained where considered Incidentally, display products are a good steel products, high grade aluminum and necessary. example of a new extension of an existing copper used in wire. product line. The strategy behind the What is the outlook for future formation of this group was to extend the Typical price increases in the U.S. which expansion into new products by the solid-state technology, developed for TV confronted the division included 30 per consumer products division? products, into new uses in computer cent for wood solids and 47 per cent for peripheral equipment, closed-circuit TV base copper. Raw polystyrene prices were It is our objective to enter new businesses systems and the new electronic games increased about 16 per cent and kraft in the future. With that mind, and to market. This business has done very well, paper was higher by about 13 per cent. optimize the concentration of our with dollar and unit sales showing a Prices for these same materials, when resources, we restructured the division marked increase during 1973. purchased abroad, were up even more during 1973. drastically. Separate operations organizations were created for color TV, black-and-white TV, display and international. Each of these businesses is now a profit center and each has its own engineering, marketing, manufacturing and business management resources. Additionally, five major support functions were established with responsibility across the entire division. These include manufacturing, materials, services and branches, business management and technology.

Subassembly operations in CPD's Taiwan Motorola black-and-white TV*s currently being facility. merchandised as an impulse item.

Automotive Products Division Since 1970, sales of the automotive products division have tripled, including since 1971,100 per cent of the Autovox subsidiary. Sales for 1973, according to Oscar P. Kusisto, vice president and general manager, established a new record. The future outlook is for continued growth and diversification.

Moving with the trend to smaller cars, APD provides factory-installed AM/FM stereo radios to American Motors for 1974 Gremlins and Hornets.

Did your division also set an earnings Another reason is that each new vehicle, What percentage of the division's sales record in 1973? whether large or small, requires an are derived from the international alternator charging system and an ignition marketplace? Yes, our earnings set a record in absolute system, both of which we also supply to dollars, but our margins were less than Our international sales, which include certain auto manufacturers. expected. This was due to changes in both exports and the sale of products currency rates, material supply problems Sales of imported cars are also faring well, manufactured outside the U.S. and which caused lost production and and we expect this to represent an provided to non-U.S. auto manufacturers, inefficiencies, price increases from U.S. important segment of our 1974 business. accounted for about 25 per cent of our suppliers, new product introduction costs For example, our division supplies total sales in 1973. We expect our and production capacity limitations. entertainment products and alternators for international activity to continue to expand Volkswagens sold in North America, and rapidly in the future. What is the outlook for the U.S. our subsidiary in Italy is a major supplier of We now have manufacturing subsidiaries automotive industry in 1974? entertainment products to Fiat. in Canada, the United Kingdom and Italy. Primarily because of the energy crisis, our Our sales and profits in Canada recorded What major contracts did your division a healthy growth in 1973. Our subsidiary outlook for the automotive industry is receive in 1973? mixed and cautious. Many people are in the U.K. achieved record sales and expecting a 10 to 15 per cent industry We received several major contracts earnings for the year, and barring decrease in unit sales. Another important which, in some cases, reach beyond the continued severe problems in the British consideration is the shift in product mix, 1974 model year, and provide one basis economy, the outlook for 1974 is for with perhaps 50 per cent of the demand for our optimistic sales outlook for 1974. continued progress. Autovox, our majority- this year for compact and sub-compact These include, for example, a three-year, owned subsidiary in Italy, increased sales models. multimillion dollar contract to supply and showed a profit in 1973, and we also entertainment centers and FM radios to expect further improvements in 1974, How do you expect your division to Ford for selected 1974, 1975 and 1976 provided the energy problem eases in models. We are also the sole outside Europe. perform in this environment? supplier of entertainment products for Despite these industry trends, we're Chrysler's 1974 models, and the principal Alps-Motorola, our 50/50 joint venture looking for both increased sales and supplier of entertainment products and company in Japan, greatly increased sales improved margins in 1974. One of the alternators to American Motors. We in 1973 and anticipates a similar major reasons is that the trend to smaller received a three-year contract from Ford incremental increase in 1974. Profits for cars has not diminished the demand for for electronic ignition modules, which we this activity, however, were down slightly higher priced options such as expect to account for several million from a year ago, primarily because of the entertainment centers with AM/FM stereo dollars of annual sales. dramatic increase in costs being radios and 8-track tape players. If experienced in Japan. We expect margins anything, the demand for sophisticated to improve in 1974. electronic entertainment systems—which we provide in large volume to three of the Also, we signed licensing agreements top four automotive manufacturers— with many Japanese 8-track and car radio should continue to grow in the future. manufacturers in 1973, which will bring us additional royalty revenue in 1974 and beyond. Motorola-produced entertainment centers supplied to Ford Motor Company for selected 1974 models include AM, FM, FM stereo radios Motorola is presently market-testing a new and 8-track stereo tape players in compact, generation electronic battery taster with a instrument panel mounted units. capacity up to 1,000 amperes.

Are you currently increasing your Incidentally, there are also many as ours, where the technologies and production capacity? opportunities for innovation in our markets are in a dynamic and fast moving existing product lines, and we're paying state. Yes, we're currently making major equal attention to them. We believe, for investments in additional production Aside from auto radios and tape players, instance, that 4-channel discrete car capacity both inside and outside the U.S. what are the division's other products? radios and tape players are on the horizon. One of our serious problems with Although some discrete 4-channel tape Our two largest volume products, other entertainment products in 1973 was the players are already on the market, than entertainment products, are alternator fact that our sales were limited by our 4-channel radios will not appear until the charging systems and electronic ignition production capacity. This problem will be FCC approves changes in existing FM systems. These two products currently somewhat alleviated when our new broadcast standards to permit discrete represent about 20 per cent of the 175,000 square foot car radio and tape 4-channel transmission. However, we are division's total sales. Ford, Volkswagen player plant in Seguin, Texas comes now proceeding with the development and and American Motors are our largest on-stream in 1974. design work necessary to put the division customers for these underhood products, In addition, we're building a plant in in a favorable technical position when the but they are also sold extensively in the Angers, France, also 175,000 square feet, FCC does approve 4-channel discrete aftermarket to commercial fleet operators which will be completed in 1974. This broadcast standards. and to other smaller OEM customers. facility will provide voltage regulators, Automotive instruments, as noted earlier, In the automotive instrument segment of alternators and electronic ignition systems is our newest and smallest family of our business, we are market-testing a new for European auto manufacturers. products. generation 12-volt battery tester with a capacity up to 1,000 amperes. We also It might also be indicated here that a Is the division exploring any new plan to accelerate the growth of this growing portion of entertainment products products in the automotive field? is sold to non-automotive OEM customers. business through such products as Yes, we certainty are. The day may come electronic speedometers and sensor For example, we supply private label tape when electronics could account for 20 per tachometers. decks to many major home entertainment cent of the manufactured cost of an manufacturers, in both 8-track and automobile. This should provide us many Is the division being adversely affected 4-channel versions. Private label sales are new product opportunities. Electronic by vertical integration by U.S. car steadily increasing each year. ignition, fuel injection, anti-skid systems, manufacturers? Sales of Motorola-branded aftermarket alternators, voltage regulators, digital No, I don't believe so. Although there is automotive entertainment products are clocks and a variety of instruments and continuous movement by some of our also increasing steadily. We are greatly sensors all represent present or future customers to produce more of their own expanding this activity and have entered possibilities. We are currently devoting a requirements, especially entertainment new markets, such as direct sales to major lot of time, talent and money to research products, we are and intend to continue retail accounts, the recreational vehicle and development programs in several of being a major supplier to the automotive market and the marine market. Motorola- of these areas. industry. The major contracts we continue branded entertainment products sales to receive are a testimony to that fact. doubled between 1972 and 1973. More importantly, we believe that the major auto manufacturers recognize the This model of a computerized instrument necessity and desirability of maintaining panel/display was built to study the feasibility outside sources, at least for products such of replacing current truck instrument panels. A new facility in Angers, France will be The unit monitors 22 operating functions such operational in 1974 and will produce as mileage, oil pressure and transmission oil alternators and electronic voltage regulators for temperature. European automakers.

Government Electronics Division While the total military and space electronics market has not grown over the past several years, Motorola's government electronics division in Scottsdale, Arizona has been able to consistently improve its sales and earnings performance. In 1973, the division attained record sales and dollar earnings. According to Ralph W. Eisner, vice president and general manager, the division continues to look forward to sound, stable growth.

To what do you attribute the division's successful performance, not only last year, but over the past several years? There is, of course, no single reason why any company leads in its particular field of endeavor. In our case, I think there are three primary reasons. The first is organization, the second is concentration, and the third is what I call "self-imposed limitation."

How is your division organized, and why is that a key factor? We're organized into three separate operations: radar, communications and tactical electronics. Each of these is small enough that its director can be directly involved with the problems, progress and results of every program. Also, the director of each operation has his own senior managers in charge of marketing, program management and engineering, respectively. This allows us to provide our customers the quick reaction, understanding and dedication to individual needs offered by small companies. At the same time we offer the stability, financing, depth and breadth of technology, facilities and financial resources of a large corporation.

How does "concentration" affect your division's performance? We concentrate our efforts in areas where high technology is critical for development or production. We simply choose not to compete with organizations having only minimal facilities, poorly trained people, or which provide practically no engineering resources. We do choose to compete with the half a dozen or so top companies in each of our various business areas which are the only ones capable of meeting the requirements of a sophisticated system or advanced equipment.

Deliveries of tri-service systems for simultaneous command and control of multiple drones continue under Navy contract. 18

What do you mean by "self-imposed Does the division engage in both contract from the U.S. Navy for receiving limitation"? development and production contracts terminals for a satellite-to-ship and, if so, to what extent in each? communications system. By that I mean we will not allow more than 20 per cent of our capability to be So much emphasis is often placed on our dedicated to any single program. We will advanced military and space R&D What percentage of your billings comes not allow more than 50 per cent of our from each of the armed services? activities that it is easy to lose sight of the capability to be dedicated to any one of fact that about 60 per cent of our dollar In 1973, about 10 per cent of our contracts our principal customers—the Army, the volume is manufacturing. Our came from the Army; 30 per cent from the Navy, the Air Force or NASA. manufacturing activities, like our Navy; 30 per cent from the Air Force; 10 engineering, involve high technology and per cent from NASA, and about 20 per What's the purpose of such limitations? extremely diversified products. It's a cent from other customers. natural follow-on since our manufacturing They have proven to be valuable in two is almost exclusively devoted to products Are any of your products being used in ways. First, by avoiding single, very large we previously developed. civilian applications? programs we minimize the likelihood of major employment variations in case the Yes, there are an increasing number of government should terminate a single Would you cite some examples of civilian uses of our equipment. A good program. Second, we force customer manufacturing programs? example is the side-looking airborne radar diversity which in turn provides a wide Our manufacturing programs range from (SLAR), which we developed for use in base of technology. We also avoid heavy building a dozen or so devices under military surveillance. This equipment can dependency on any single government "clean room" conditions to the automated see through any weather or darkness agency. production of thousands of units. Typical while "recording" radar maps of a wide of the systems and equipment we build area of terrain. It is now used in surveying Have you found these restrictions are space communications and data flood damage, plotting ice floes and growth-limiting? handling equipment, computer interactive iceberg movements in shipping lanes, These restrictions do not limit sound displays, drone, missile and spacecraft locating geologic faults, detecting oil growth. Each time we have approached an tracking and control systems, slicks and for many other purposes. Also, upper limit we have been successful in transponders, UHF air traffic control our proprietary positioning systems are adding new business in other areas or systems, target detecting devices, vehicle being used in a variety of applications with other customers in order to keep the positioning systems, electronic jammers which require accurate positioning of division within the prescribed balance. and satellite terminal equipment. dredging or oil survey vessels. The primary tools in achieving this are Among the major contract awards we strategic planning, careful channeling of What is the outlook for continued growth received in 1973 was a $3.1 million award research and development and a in the government electronics market? from the National Space Development concentration of marketing effort. Agency of Japan for advanced space We are looking forward to continued telemetry tracking and command sound, stable growth. At the end of 1973, electronic units for scientific research the division had established a new satellites. This equipment will be business backlog record exceeding 1972's manufactured in Scottsdale, Arizona, and all-time high by 14 per cent. exported to Japan. I might also mention our $14 million Air Force contract for ordnance devices, and a $14 million

Off-the-shelf Totalscope II performs a variety Motorola is building a major portion of the of computer-interactive display functions . . . In 1973, GED won a multimillion dollar Bell electronics for the NASA/JPL Viking Orbiter simply by adding or removing plug-in modules. Canada contract for troposcatter radios. spacecraft scheduled to orbit Mars in 1975.

New Ventures Activity When organized in January 1972, the What criteria do you use in evaluating Is Motorola expanding its line of new ventures activity was charged with acquisition candidates? products and services to the lodging the responsibility to seek out, encourage, industry? There are several criteria that are significant test, monitor and foster the growth of to us in selecting an acquisition candidate, Yes. We introduced the Inn-Scan 400 internally generated new businesses dealing primarily with the nature of the computerized management system for and to also seek out, evaluate and business, growth, sales volume, the lodging industry last year. This system, recommend opportunities for growth management depth, profit potential and which aids hotel operators in recording through external acquisitions. Stephen market position. In general, however, the room status, reservations, housekeeping L. Levy, vice president and former two most significant factors are that the and billing, has already been introduced in business should fit well with Motorola's about 20 hotels in the U.S. general manager of the semiconductor background as a high-technology products division, is in charge of the company, and that the profit and growth In addition, sales of Motorola television activity, which includes a research potential should be consistent with sets and a variety of communications laboratory in Phoenix. Motorola's overall objectives. equipment to the lodging industry increased approximately 40 per cent last year over 1972 and, thus, has established Have any acquisitions yet been made Motorola as one of the major suppliers under the new ventures activity? to this market. Although our group has reviewed a substantial number of candidates over the Are there any other applications for past year, for a variety of reasons we have Inn-Scan beyond those in the lodging not made any acquisitions. industry? Our systems designers currently have one Has the new ventures activity developed pilot program in the health care industry any new business opportunities and another in early development. We generated by Motorola employees? based much of our original software While several ideas have been evaluated, programming on a computer logic that and some of them given in-depth study, would have universal applications, only one new business has been formalized rather than narrowly defined for just one to date, and a second has reached an use. Lodging was the first market selected advanced stage of evaluation. The because of our depth of knowledge in that formalized venture is called Motorola market, but now we are exploring other Teleprograms Inc., and has been areas where similar data bases can operating for nearly a year. This be used. company's main product line is a library of law enforcement training films designed for police agencies, and industrial and institutional security organizations. The company has sold one or all of its 20 film titles to more than 500 customers to date. Several other new business ideas are currently in various stages of development. Motorola is the only major supplier which can With pushbutton ease, the Inn-Scan 400 provide watch manufacturers a complete kit of computerized management system aids hotel What is the present status of the electronic components—CMOS integrated operators to quickly record room status, circuits, rotary motors and quaftz crystals—for reservations, housekeeping status and billing. electronic timepiece program? analog watches. During 1973, the timepiece electronics unit expanded its capability to serve the broad range of market demands for electronic watch and clock componentry. At present, Motorola is the only major supplier which can provide watch manufacturers a complete kit of electronic components—CMOS integrated circuits, rotary motors and quartz crystals—for analog watches (those with conventional faces and hands). The three components can be purchased separately as well. Of significance during the year, Motorola developed an advanced digital timekeeping system—one that gives continuous readout of numbers to tell time. Digital systems, we feel, are going to have a substantial impact on the market as suppliers begin to meet the already high existing demand. Industry projections for these all-solid-state watches call for a modest one per cent of total free world market production in 1974, growing to 12.5 per cent in 1978.

20

Directors Officers Years of Service

Robert W. Galvin Robert W. Galvin Chairman of the Board and Chief Executive Officer 51 33 William J. Weisz President and Chief Operating Officer 47 26 J. Paul Jones Benjamin W. Borne Vice President, Human Relations 49 2 Edward J. Harty Controller 58 22 Oscar P. Kusisto John T. Hickey Vice President for Finance and Secretary 48 26 Stephen L. Levy Donald R. Jones Vice President and Treasurer 44 23 J. Paul Jones Vice President and Assistant Group Executive 50 22 Homer L. Marrs Stephen L. Levy Vice President, New Ventures 52 10 Carl E. Lindholm Vice President and Director of Corporate Staff 45 7 Arthur C. Nielsen, Jr. Homer L. Marrs 57 36 Vice President and Group Executive Arthur L. Reese Vincent J. Rauner Vice President for Patents, Trademarks and Licensing 46 4 Walter B. Scott Vice President and Director of Manufacturing 58 28 Elmer H. Schulz and Facilities Lewis D. Spencer Vice President and General Counsel 57 23 Walter B. Scott Robert N. Swift Vice President and Assistant Director of Human Relations 50 22 Edwin P. Vanderwicken Communications Division Chairman, Finance and John F. Mitchell Vice President and General Manager 46 21 Audit Committees Joseph F. Miller Vice President and Assistant General Manager 49 22 Elmer H. Wavering Martin Cooper Vice President and Director of Systems Operations 45 20 RhesaS. Farmer, Jr. Vice President and Director of International Operations 47 16 William J. Weisz Jack Germain Vice President and Director of Product Operations 47 24

Kenneth V. Zwiener Semiconductor Products Division Thomas J. Connors Vice President and General Manager 44 10 John R. Welty Vice President and Assistant General Manager 51 16 Richard P. Abraham Vice President for Discrete Products Operations 44 6 Christian J. Goodman Vice President and Director of Business Resources 53 12 Jack C. Haenichen Vice President and Director of University Relations 38 15 Patrick D. Lynch Vice President and General Manager—U.S.A. 40 14

Consumer Products Division Edward P. Reavey, Jr. Vice President and General Manager 50 7 W. Lee Shevel Vice President and Assistant General Manager 41 1 Herbert D. DeBorde Vice President and Director of Materials 54 7 Richard A. Kraft Vice President and Director of Color Operations 45 24 Robert C. Warren Vice President and Director of Black-and-White 48 5 Operations

Automotive Products Division Oscar P. Kusisto Vice President and General Manager 60 25 Robert J. Solem Vice President and Assistant General Manager 44 17 James A. Torrence Vice President and Assistant General Manager 43 21 Fred P. Hill Vice President and Director of Entertainment Products 53 35 Director Emeritus: and International Operations Daniel E. Noble Chairman, Government Electronics Division Science Advisory Board Ralph W. Eisner Vice President and General Manager 53 25

21

Consolidated Balance Sheets Motorola, Inc. and Subsidiaries as of December 31 1973 1972

(Note 11) (Thousands of dollars) Assets Current Assets Cash $25,262 20,040 Short-term investments, at cost (approximating market) 21,982 30,092 Accounts receivable 294,276 254,387 Allowance for doubtful accounts (7,520) (6,843) Costs recoverable under United States government contracts, less progress billings • 9,711 8,766 Inventories, at the lower of cost (first-in, first-out) or market Finished goods 106,264 59,520 Work in process and production materials 230,202 157,913 Future income tax benefits 26,341 21,392 Other current assets 20,873 16,626

Total Current Assets 727,391 561,893

Plant and Equipment, at Cost Land 14,522 12,481 Buildings 175,966 152,784 Machinery and equipment 219,263 179,175 Accumulated depreciation (159,160) (143,460)

Net Plant and Equipment 250,591 200,980

Sundry Assets, net 15,539 12,631

$993,521 775,504

See accompanying notes to consolidated financial statements

22

1973 1972

(Note 11) (Thousands of dollars) Liabilities and Shareholders' Equity Current Liabilities Notes payable—banks and other United States $23,181 31,376 Other nations 40,907 19,473 Current maturities of long-term debt (note 3) 2,289 3,026 Accounts payable 98,818 87,262 Accrued compensation 19,974 17,555 United States and other nations' income taxes (note 4).. 19,235 12,593 Other (including withheld) taxes 17,006 12,272 Contribution to employees' profit sharing funds (note 7) 21,906 13,897 Product and service warranties 16,780 14,070 Accrued expenses and other 39,580 26,825

Total Current Liabilities Liabilities.... 299,676 238,349

Long-Term Debt (note 3)) . . 150,338 80,302

Other Non-Current Liability Liabilities (note 11) 17,971 14,382

Minority Interest in Majority Majority-Owned Subsidiaries 2,055 2,860

Shareholders' Equity (note 9) Common stock, $3.00 par value (notes 3 and 5) Authorized: 1973,40,000,000 shares; 1972, 20,000,000 shares Outstanding: 1973, 27,959,424 shares; 1972,13,785,488 shares 83,878 41,356 Preferred stock, $100 par value issuable in series Authorized: 500,000 shares (none issued) ; Additional paid-in capital (notes 3 and 5) 128,210 114,645 Retained earnings (notes 2 and 3) 311,393 283,610 Total Shareholders' Equity 523,481 439,611 $993,521 775,504

Statements of Consolidated Earnings and Retained Earnings Motorola, Inc. and Subsidiaries, Years ended December 31 1973 1972

(Thousands of dollars, / except per share figures) Sales and Other Revenues $1,437,099 / 1,163,315

Manufacturing and other costs of sales 945,005 ^ / 808,286 Selling, service and administrative expense (notes 6 and 7) 296,81 V ^ 222,888 Depreciation of plant and equipment 35,724 30,529 Interest and amortization of debenture discount, expense and premium, net /16.316 10,417 Minority interest in earnings (losses) of majority-owned subsidiaries (280) (1,267)

Total Costs and Other Expenses 1,293,576 1,070,853

Income before United States and other nations' income taxes 143,523 92,462 United States and other nations' income taxes net of investment credit of $2,506,000 in 1973, $1,922,000 in 1972 (note 4) 61,527 40,424

Net Earnings 81,996 52,038 Retained earnings at beginning of year 283,610 240,106 Share-for-share distribution—par value of 13,889,899 shares transferred to common stock (note 9) (41,670) — Cash dividends declared (per common share: 1973, $.45; 1972, $.312) (note 9) (12,543) (8,534)

Retained Earnings at End of Year (note 3) $ 311,393 283,610

Earnings Per Weighted Average Common Share Outstanding During the Year (note 9) $ 2.95 1.91

See accompanying notes to consolidated financial statements

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Statements of Consolidated Changes in Financial Position Motorola, Inc. and Subsidiaries, Years ended December 31 1973

(Note 11) (Thousands of dollars) Working Capital Provided Net earnings $ 81,996 Add expenses not requiring outlay of working capital: Depreciation 35,724 Amortization of deferred debenture discount, expense and premium, net 426 Minority interest in earnings (losses) of majority-owned subsidiaries (280)

Working capital provided from operations 117,866 Disposals and other changes of plant and equipment (and tooling, net) 667 Increase in long-term debt (note 3) 76,103 Proceeds from issuance of common stock 14,417 Increase in other non-current liabilities 3,589

Total Working Capital Provided 212,642

Working Capital Used Additions to plant and equipment (includes subsidiaries acquired: 1973, $462,000; 1972, $1,126,000) 84,972 Equipment rented toothers, at cost 1,030 Reduction of long-term debt 6,067 Cash dividends 12,543 Increase (decrease) in sundry assets (exclusive of debenture amortization reflected above) 3,334 Decrease (increase) in minority interest in majority-owned subsidiaries (exclusive of current year's earnings) 525

Total Working Capital Used 108,471

Increase in working capital $104,171

Increase (Decrease) in Components of Working Capital Cash $ 5,222 Short-term investments (8,110) Accounts receivable, net 39,212 Costs recoverable — United States government contracts 945 Inventories 119,033 Future income tax benefits 4,949 Other current assets 4,247

Total Current Assets 165,498

Notes payable and current maturities of long-term debt 12,502 Accounts payable 11,556 Accrued compensation 2,419 United States and other nations' income taxes 6,642 Other (including withheld) taxes 4,734 Contribution to employees' profit sharing funds 8,009 Product and service warranties 2,710 Accrued expenses and other 12,755

Total Current Liabilities 61,327

Increase in working capital $104,171

See accompanying notes to consolidated financial statements

Statements of Consolidated Additional Paid-in Capital Motorola, Inc. and Subsidiaries, Years ended December 31 1973 1972

(Thousands of dollars) Balance at beginning of year $114,645 95,349 Share option plans (note 5) 11,673 12,848 Conversion of 41/2 % convertible guaranteed debentures, (principal amount: 1973, $2,782,000; 1972, $8,786,000) (note 3) 2,022 6,448 Equity change in affiliate (130) —

Balance at end of year $128,210 114,645

See accompanying notes to consolidated financial statements

Notes to Consolidated Financial Statements

1 Accounting policies. Following is a summary of significant accounting policies followed in the preparation of these consolidated financial statements which policies are in accordance with generally accepted accounting principles.

Consolidation. The consolidated financial statements include the accounts of the company and all majority-owned subsidiaries. All other investments in which the company ownership is 20% to 50% (affiliates) are carried on the equity method of accounting, and investments of less than 20% ownership (not material in amount) are carried at cost unless a permanent decline in value is deemed to have occurred. All significant interqompany accounts and transactions have been eliminated in consolidation.

International. The accounts of the company's operations outside the United States have been translated as follows: plant and equipment at currency rates prevailing when acquired; other assets and liabilities at yearend rates; and operating accounts at rates prevailing during the year except depreciation charges which are translated at the historic rates of the related assets. The net currency translation gain for the year was $2,443,000 (1972 was a loss of $56,000) of which $1,661,000 has been credited to earnings for the year and $782,000 has been credited to deferred translation gains. At December 31, 1973 the total translation gains deferred was $1,000,000 which amount is included in Accrued expenses and other.

The company's equity in undistributed earnings of non-U.S. subsidiaries and affiliates included in consolidated retained earnings at December 31, 1973 amounted to $26,904,000 ($11,814,000 in 1972). Certain of these earnings may be taxable in the United States upon distribution; however, it is intended that these earnings be permanently invested in operations outside the United States and accordingly, no provision has been made for United States taxes.

Inventories. Inventories are valued at the lower of cost (first-in, first-out) or market. Market value of work in process and production materials is represented by replacement cost and for finished goods by net realizable value.

Income taxes. The company follows the practice of providing income taxes based on income reported for financial statement purposes. Certain charges to earnings differ as to timing from those deducted for tax purposes. The tax effects of these differences are reflected as Future income tax benefits. Investment tax credits are recorded as a reduction of income tax expense in the year that the related assets are placed into service.

Plant and equipment. Plant and equipment is stated at cost. The related cost and accumulated depreciation on property sold, retired or fully depreciated are cleared from the accounts with the net difference, less any amount realized from disposals, reflected in current operations. Deprecia- tion is provided on the basis of the estimated useful lives generally by the declining-balance method for items acquired subsequent to December 31, 1953, and by the straight-line method for

26

items acquired prior to that date. For income tax purposes, the company has elected the provisions of the Class Life Asset Depreciation Range System (ADR) permitting accelerated depreciation. The tax effect of the difference between book and tax depreciation has been provided as deferred income taxes in the accompanying consolidated financial statements.

Debenture discount, expense and premium. Deferred debenture discount, expense and premium are included in Sundry assets at unamortized cost. Amortization is being charged to expense over the terms of the debentures by the straight-line method.

Share options. When share options are exercised, the proceeds received are credited to the common stock account to the extent of the par value of shares issued, and the excess is credited to additional paid-in capital. The tax benefit the company receives from disqualifying dispositions by optionees of exercised qualified share options is credited to additional paid-in capital.

Research and development. R & D expenditures are charged to operations as incurred.

Advertising and sales promotion. The costs of advertising and promotional programs are charged to operations during the year generally in relation to sales, and are fully expensed by the end of the year. Anticipated future promotional costs on current sales are also charged against opera- tions in the current year.

Product and service warranties. Anticipated costs related to product and service warranties are recorded at the time of the sale of the products.

2 At December 31, 1973 and 1972 net assets of consolidated operations outside the United States aggregated $116,500,000 and $98,000,000, respectively.

Export sales of U.S. companies, and sales and other revenues of operations outside the United States were 23% and 20%, respectively, of 1973 and 1972 consolidated amounts.

3 Long-term debt at December 31 consisted of the following: 1973 1972 Debt outside the United States: (Thousands of dollars) 41/a% convertible guaranteed debentures due July 1, 1983 $ 16,066 18,848 8% guaranteed sinking fund debentures due March 1, 1987 25,000 25,000 Notes payable (generally at prevailing prime rates) due in installments to 1981 9,063 10,224 Debt in the United States: Revolving credit notes (at prevailing prime rates) 75,000 — 4 % % debentures due April 1,1986 (net of $989,000 in 1973, $1,000,000 in 1972 debentures held by the company for sinking fund payment) 25,011 26,000 4 % % notes due in annual installments to 1976 1,500 2,000 Notes payable (generally at prevailing prime rates) due in installments to 1977 987 1,256

152,627 83,328 Less current maturities, included in current liabilities 2,289 3,026

Net long-term debt $150,338 80,302

The 41/2% convertible guaranteed debentures (issued by Motorola International Development Cor- poration) are convertible into common stock of Motorola, Inc. at the rate of 25.2 shares for each $1,000 principal amount, subject to adjustment in certain events, and are guaranteed as to the payment of principal and interest by Motorola, Inc. The debentures are redeemable at various dates at redemption prices reducing from 1031/2% to 100% of the principal amount thereof. In 1973, $2,782,000 in debentures ($8,786,000 in 1972) were converted into 70,095 shares (221,386

27

in 1972). At December 31, 1973, there were 404,905 shares (475,000 in 1972) of Motorola, Inc. common stock reserved for issuance upon the conversion of these debentures.

The 8% guaranteed sinking fund debentures (issued by Motorola International Capital Corpora- tion) are redeemable at various dates beginning after March 1, 1977, at redemption prices reduc- ing from 102% to 100% of the principal amount thereof. Annual sinking fund payments are required beginning March 1, 1977 in progressive amounts sufficient to retire 76% of the issue prior to maturity. The issue is guaranteed as to payment of principal and interest by Motorola, Inc.

Under the terms of the revolving credit agreement, the company has the option of converting the notes to a four-year term loan on or prior to December 31, 1976 at the then prevailing prime com- mercial rates of interest plus 1A % for the first two years and Vi % for the last two years. It is the intention of the company to maintain the availability of the revolving credit during 1974 and therefore the debt is classified as long-term debt.

The revolving credit agreement restricts the payment of cash dividends which are not to exceed $25,000,000 plus earnings (as defined) after December 31, 1973. It also requires the company to maintain consolidated working capital (as defined) of not less than $275,000,000.

\ The provision for taxes on income includes $9,030,000 in 1973 ($4,077,000 in 1972) for other nations. The effective tax rate is computed as follows: 1973 1972 United States federal tax rate 48.0% 48.0% Increase (reduction) in tax rate resulting from: Investment tax credit (1.8) (2.1) Taxes on earnings in other nations, net of tax benefits arising from operating loss carryforwards, loss operations with no tax benefits and tax holidays (3.7) (2.2) Other 4 —

Effective tax rate 42.9% 43.7%

5 Under the company's Employee Share Option Plans, shares of common stock have been made available for qualified or non-qualified option to employees of the company and certain subsidi- aries. Options may be granted at not less than fair market value on the dates of grant, and become exercisable one year from date of grant. Qualified options expire at the end of five years and non-qualified options expire at the end of ten years. Data on share options are summarized as follows: 1973 1972 Options outstanding beginning of year 963,836 1,029,690 Options granted 333,215 329,140

Options exercised (318,353) (387,994) Options terminated (10,000) (7,000)

Options outstanding end of year 968,698 963,836 Shares reserved for possible future options 526,365 849,580

Total shares reserved 1,495,063 1,813,416

Aggregate option price of outstanding options $50,108,000 42,753,000

Aggregate option price of exercisable options $32,231,000 21,804,000

Excess of the option price over the par value of shares issued $ 9,216,000 10,201,000 Tax benefit resulting from disqualifying dispositions by optionees $ 2,457,000 2,647,000

(See note 9.) 28

6 An Executive Incentive Plan provides that the company and certain subsidiaries may reserve up to 4% of their annual consolidated pre-tax earnings (as defined) for the payment of cash incentive awards. Such awards are payable, except for awards of $1,000 or less, generally in equal annual installments over a period of five years and are generally subject to the recipients' continued employment. Reserves of $4,114,000 and $2,642,000 representing 4% of defined earnings were provided in 1973 and 1972, respectively, for such awards. Awards of $2,577,000 were made in 1973 ($1,632,000 in 1972), and $5,383,000 (limited to approximately $3,000,000 for United States employees because of Cost of Living Council restrictions under the Economic Stabilization Act of 1970) was available for awards at December 31, 1973 ($3,846,000 in 1972).

7 The company and certain subsidiaries have contributory profit sharing plans in which all eligible employees participate. The companies' contributions to profit sharing funds in the United States and other nations, based upon percentages of pre-tax earnings, were $21,906,000 in 1973 and $13,897,000 in 1972.

The company and certain subsidiaries have a voluntary contributory pension plan. The company's policy is to fund pension costs accrued, 1973, $2,995,000, 1972, $2,416,000. At December 31, 1972, date of the latest actuarial determination, vested benefits were fully funded. In the event that the amount actually payable annually under the plan does not amount to 40% or more of an officer's rate of salary at retirement, it is the intention of the company (subject to certain qualifica- tions and conditions) to make supplementary payments so that the total annual payments will aggregate at least 40% (or 30% in the case of payments to widows) of the officer's rate of salary at retirement. The company also provides for annual payments in the amount of 30% of the officer's salary rate to widows of officers who die while in active employment. The company is providing a reserve for these supplementary payments on a current basis.

8 The companies are obligated under repurchase and other agreements principally in connection with the financing of sales of products to consumers, and are defendants in suits and claims, which management believes will have no material effect on the business of the companies.

9 During the year, the Board of Directors and the shareholders approved an increase in the author- ized common shares of the company from 20,000,000 shares to 40,000,000 shares and a share- for-share distribution. Comparative per common share data for prior years has been restated to give effect to this distribution. In addition, 500,000 shares of $100 par value preferred stock were authorized, none of which had been issued as of December 31, 1973.

10 Rental expense under all lease commitments (including noncancellable leases) totaled $15,613,000 in 1973 and $12,553,000 in 1972. Minimum rental commitments related to the non- cancellable leases are not material, and if all financing leases were capitalized the impact on net earnings would be insignificant.

11 During 1973 the company adopted the practice of segregating non-current items on its consoli- dated balance sheet. The 1972 balance sheet presentation has been restated to conform with 1973.

12 On March 12, 1974, the company announced that it had reached an agreement in principle to sell the home television receiver business in April, 1974 to a subsidiary of Matsushita Electric Industrial Co. Ltd. of Japan, subject to certain approvals, terms and other conditions, for cash. The company expects its net proceeds from the disposition of the home television receiver business (including the net proceeds from the disposition of certain assets not being sold to Matsushita) to be slightly in excess of book value.

29

The operations of the television receiver business are summarized as follows: 1973 1972 (Thousands of dollars) Sales and other revenues $241,073 255,721

Earnings (loss) before the following items (3,128) 13,787 Interest expense 3,014 2,041 Employees' profit sharing and executive incentive 2,894 2,143

Earnings (loss) before income taxes (9,036) 9,603 Income taxes (see note 4) (5,220) 3,767

Net earnings (loss) $ (3,816) 5,836

Net earnings (loss) per common share $ (.14) .21

Interest is charged to the business on the basis of borrowed funds required. Employees' profit sharing and executive incentive contributions are determined on the basis of pretax earnings (as defined) of the companies but are charged to the business on the basis of eligible employees serving that business.

The net assets of the television receiver business at December 31, 1973 are: (Thousands of dollars) Current assets $125,970 Current liabilities 41,969

Net current assets 84,001 Plant and equipment—net 24,156 Other non-current—net 480

Net assets $108,637

Accountants' Report Peat, Marwick, Mitchell & Co. Certified Public Accountants 222 South Riverside Plaza Chicago, Illinois 60606

The Board of Directors and Shareholders of Motorola, Inc.: We have examined the consolidated balance sheets of Motorola, Inc. and Subsidiaries as of December 31, 1973 and 1972, and the related statements of consolidated earnings and retained earnings, additional paid-in capital and changes in financial position for the years then ended. Our examinations were made in accordance with generally accepted auditing standards, and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.

In our opinion, the aforementioned consolidated financial statements present fairly the financial position of Motorola, Inc. and Subsidiaries at December 31, 1973 and 1972, and the results of their operations and changes in their financial position for the years then ended, in conformity with generally accepted accounting principles applied on a consistent basis.

r Q ^ ; DO February 5, 1974, except as to note 12 which is as of March 12, 1974. 30

Financial Summary

Motorola, Inc. and Subsidiaries

Sales Income Net Earnings Working Net Share- and before Earnings Per Capital Investment holders Other United Common in Equity Revenues States Share* Plant and and Other Equipment Nations' Income Taxes

1973 $1,437,099 $143,523 $81,996 $2.95 $427,715 $250,591 $523,481

1972 1,163,315 92,462 52,038 1.91 323,544 200,980 439,611

1971 926,593 62,055 31,750 1.18 256,150 184,219 375,897

1970 796,418 51,813 25,663 .96 222,117 174,530 344,085

1969 873,224 71.843 33,793 1.37 235,593 167,500 326,134

1968 775,124 57,376 28,261 1.15 176,414 145,582 238,778

1967 629,975 34,571 18,816 .77 131,358 136,963 206,286

1966 682,375 60,013 32,953 1.35 128,159 127,219 192,598

1965 516,973 57,839 31,839 1.31 118,015 81,083 165,002

1964 419,067 38,927 20,667 .86 107,626 67,837 137,533

Thousands of dollars, except per share figures

• Earnings per common share are based on the weighted average common shares outstanding

during the respective years, adjusted for share distributions. The conversion of 41/2% debentures and the exercise of outstanding share options would not result in a significant dilution of earnings per common share. Earnings per common share shown above do not include $.05 of non-recurring charge from discontinuance of color TV picture tube manufacturing operation in 1970.

31

Motorola Worldwide Motorola Products Major facilities in: Automotive Products Division Car radios Canada Stereo tape players Markham Alternator charging systems Midland and Willowdale, Ontario Solid-state ignition systems Electronic instrumentation France Toulouse Communications Division Mobile and portable FM two-way radio West Germany communications systems Wiesbaden Radio paging systems Great Britain Communications control centers East Kilbride, Scotland Visual communications systems Stotfold, England Signaling and remote control systems Hong Kong Car telephone systems Kowioon Microwave communications systems Health care communications systems Israel Precision instruments Tel-Aviv Component products Italy Electronic command and control systems Rome Consumer Products Division Korea Quasar color television Seoul Monochrome television Display products Mexico Guadalajara, Jalisco Mexico City Government Electronics Division Nogales, Sonora Fixed and satellite communications systems Tactical electronics systems Puerto Rico Radar surveillance and display systems Vega Baja Range positioning and navigation systems Switzerland Undersea electronics Geneva Space communications systems Countermeasures systems Taiwan Missile guidance and drone control systems Taipei Electronic ordnance devices United States Chicago Semiconductor Products Division Franklin Park MOS and bipolar integrated circuits Pontiac Linear integrated circuits Quincy and MSI/LSI integrated circuits Schaumburg, Illinois Semiconductor chips Mesa Phoenix Zener and tuning diodes Tempe and Scottsdale, Arizona RF modules Fort Lauderdale, Florida Power and small signal transistors Arcade, New York Field effect transistors (FETs) Seguin, Texas Microwave devices Webb City, Missouri Mount Pleasant, Iowa Optoelectronics Rectifiers Motorola Executive Institute in: Thyristors Oracle, Arizona Varactors Triggers New production facilities were announced or under construction Suppressors in 1973 in: Functional circuits Tempe, Arizona Angers, France New Ventures Activity and Other Businesses Kuala Lumpur, Malaysia Training and educational films Joplin, Missouri Hotel/motel electronic management, Austin, Texas Seguin, Texas communications Taunusstein, West Germany and entertainment systems Timepiece electronics 32

MOTOROLA INC. be held on Monday, May 6,1974. A notice of the meeting, together with a form of proxy and a proxy statement, will be mailed to shareholders on or about March 26,1974, at which time proxies will be solicited by management.

larris Trust and Savings Bank, 111 W. Monroe St., Chicago, III. 60690 First National City Bank, 111 Wall St., New York, N.Y. 10015

Peat, Marwick, Mitchell & Co., 222 S. Riverside Plaza, Chicago, III. 60606

Motorola Inc. World Headquarters 5725 N. East River Rd. Chicago, III. 60631

Motorola and @ are registered trademarks of Motorola Inc.