摩托罗拉公司1977年年报

MOTOROLA INC. Annual Report 1977

The Cover

New and expanded product lines in 1977 helped conserve energy, explore space, save lives and keep the peace. Motorola products helped people keep in touch and stay in tu through communications and automotive electronics. Through semiconductor technology, we helped people measure, control and compute. As Motorola grows larger, our products help the world grow smaller.

The Company

Motorola. Inc., one of the world's leading manufacturers of electronic equipment and components, is engaged in the design, manufacture and sale, principally under the Motorola brond, of a diversified line of products. These products include two-way radios and other forms of electronic communications systems; semiconductors, including integrated circuits and microprocessor units; electronic equipment for military and aerospace use; automobile radios, stereo tape players, citizens band radios and other automotive electronic equipment; and data communications products such as high speed modems, multiplexers and network processors. Motorola's products are manufactured for both United States ond international markets.

Microprocessors Portable FM rwo-woy radios Radio paging systems

Electronic engine controls Electronic instrumentation Load management systems

Data security modules Citizens band radios

Communications control centers Space communications systems Microwave communications systems

Semiconductors Doto communications equipment Mobile FM two-way radios

Solar energy components

Cor telephone systems

Financial Highlights

(Dollars in thousands, except per share data)

1977 1976

Sales and Other Revenues $1,848,395 $1,534,881

Earnings from Continuing Operations before Income Taxes 190,415 167,367

% to Sales 10.3% 10.9°/<

Income Taxes 84,150 75,534

Earnings from Continuing Operations 106,265 91,833

% to Sales 5.7% 6.0°/

Earnings Per Share from Continuing Operations 3.50 3.04

Research and Development 109,729 96,407

Fixed Asset Expenditures 123,844 97,789

Depreciation 72,699 57,873

Working Capital 565,883 438,529

Current Ratio 2.47:1 2.27:1

Return on Average Invested Capital (stockholders' equity plus 11.8% 11.7% long- and short-term debt net of short-term investments)

% of Total Debt (long- and short-term) to Total Debt plus Equity 26.1% 19.0%

Book Value Per Common Share 25.87 23.24

Yearend Employment (approximate) 60,000 56,000

Contents

1 Financial Highlights

3 Letter to Stockholders

6 Where We're Heading

8 Communications Group

10 Semiconductor Group

10 Automotive Products Division

14 Government Electronics Division

16 Data Products

17 Codex

18 Financial Review

19 Financial Statements

30 Ten Year Financial Summary

32 Directors and Officers 33 Major Facilities/Product Lines

Annual Meeting of Stockholders The annual meeting will be held on Monday, May 1,1978. A notice of the meeting, together with a form of proxy and a proxy state ment, will be mailed to stockholders on or about March 21,1978, at which time proxies will be solicited by management.

Transfer Agents and Registrars Harris Trust and Savings Bank 111 W. Monroe St., Chicago, III. 60690 Citibank, N.A.

111 Wall Street, New York, N.Y. 10015

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

At the close of each fiscal year, Motorola submits a report Form 10-K to the Securities and Exchange Commission containing certain additional information concerning its business. A copy of this report may be obtained by addressing your request to the Secretary, Motorola Inc., Corporate Offices, Motorola Center, 1303 E. Algonquin Rd., Schaum-

burg, III. 60196.

To Our S

1977 was a year of progress for Motorola. Key new products were successfully introduced by each of our major operations, and the market positions of many existing products improved. Sales and other revenues set records in every quarter of the year. For the 12 months, sales exceeded $1.8 billion. This represents a 20 per cent improvement over the $1.5 billion recorded in 1976.Earnings,while nor up as much as sales, also reached a new high. Earnings from continuing operations totaled $106 million, or 5.7 per cent of sales, compared with $92 million, or 6.0 per cent of sales, in 1976. This translates into earnings pe share from continuing operations of $3.50 for 1977 vs. $3.04 a year earlier. Details of both 1977 and 1976 results appear in the Financial Highlights on page 1.

Return on average invested capital (stockholders' equity plus long- and short-term debt net of marketable securities) was 11.8 per cent compared with 11.7 per cent in 1976. Operational Overview In an exceptionally strong performance, the Communications Group achieved record sales, earnings and new orders in 1977. Virtually all

holders and Friends

market sectors showed improvement, and an aggressive new product introduction schedule expanded the group's broad lines of mobile, portable and paging equipment. The Semiconductor Group's sales growth outperformed the industry in 1977. Worldwide sales, earnings and new orders were up as the group increased its share of market in both discrete semiconductors and integrated circuits. The Automotive Products Division achieved record sales in 1977. Profit margin, while improved, remained below the division's margin standard due to losses in the citizens band (CD) radio operation and in certain international markets. The division's traditional product lines sold well and earned at an acceptable level in the U.S.

Sales by the Government Electronics Division showed modest improvement in 1977. Earnings were below 1976 due to planned additional investment in bid and proposal activity and Motorola-funded research and development. The division's new order bookings and backlog were up sharply. Start-up costs and operating losses in the CD, watch module and crystal

programs plus continued difficulties at Autovox, an Italian subsidiary, were major problems faced during 1977. Each of these operations lost money, and their combined impact reduced profit margin for the year despite gains elsewhere in the corporation. These and other operations' 1977 results are detailed later in this repo

Codex Acquisition In addition to the active pursuit of internal growth opportunities, in May, 1977, Motorola acquired Codex Corporation, a leading supplier of data communications equipment and systems. The Codex acquisition represents implementation of our strategy to expand activity in this are of electronic technology. We believe the data communications field represents both a synergistic addition to our existing skills and an important growth opportunity for Motorola. We welcome the men and women of Codex to the Motorola organization.

Public Financing In October, 1977, Motorola sold publicly $100 million of 30-year debentures. Proceeds were applied

to the reduction of short-term debt (approximately $76 million) and used to prepay the debentures of Motorola International Capital Corporation, o consolidated subsidiary. Motorola's financial condition remained strong in 1977 with total long- and short-term borrowings at yearend 26.1 per cent of debt plus stockholders' equity. A more detailed discussion of financial matters can be found on page 18 of this report.

Research and Development High technology electronics continues to offer substantial opportunities for investment in research an development. In 1977, Motorola spent $ 110 million, or about 6 per cent of our total sales, on corporatefunded R&D. In addition, a portion of the revenue from the Government Electronics Division was devoted to government-funded R&D. Motorola's research and development efforts cover many promising technologies. The 1977 program included, among many projects, a high-capacity cellular radiotelephone system; digital-data communications; advancements in large scale integration (LSI) semiconductor technology; electronic engin* man-

Robert W. Golvin

agement; and sophisticated missile launch and guidance systems for the U.S. government.

Management Changes Several officer appointments and promotions were made during 1977. In the Semiconductor Group, John R. Welty, vice president and general manager of the group, was elected a senior vice president. Pasquale Pistorio, director of European operations, was elected a corporate vice president and director of world marketing for the group. On the corporate staff, Richard H Weise, deputy general counsel, was elected a corporate vice president and promoted to general counsel and secretary of the corporation. William P. Meehan, treasurer, was also elected a corporate vice president; and Robert N. Swift was named vice president and director of human relations.

Dividend As reflected in the January, 1978, payment, we have increased our dividend rate by 19 per cent from 21 cents to 25 cents per quarter. This December, 1977, declaration represents the eighth consecutive year in

William J.Weisz John F. M

which the declared dividend has been increased.

Outlook 1978 will mark our fiftieth year of business. We expect growth in the U. S. and other major world economies, along with anticipated correction of the problem operations mentioned earlier, to sustain our objectives for further increases in sa and earnings. We acknowledge with appreciation the collective commitment and individual contributions of Motorolans worldwide. Motorola's 50 years of service and achievement are testimony to their gifted capabilities.

Yours very tru

Robert W. GoJyin Chairman

William J. Wjeisz Presiden)

John F. Mitchell Executive Vice

ell

Motorola... Where We're Heading

Motorola today is in the forefront of the most exciting technological frontier of our time. Electronics. Electronics has permitted us to respond in uncountable ways to people's needs to communicate, to measure, to control and to compute. The scope of our business is

focused. Our corporate purpose is

clear: Motorola is in the business of

designing, manufacturing and mar-

keting electronic and electronically-

related products, systems and services. Historically, we have doubled our sales about every five or six years. We believe we can continue to do so. This would result in about $3 billion in sales by 1981. How are we going to get there? First, Motorola will stay exclusively in electronics. We will not become a conglomerate. The fact is that we're experts in three major commercial fields: land mobile radio communications, semiconductor technology and automotive electronics. We hold leadership positions in significant port of each of these high growth markets. Equally important, Motorola is one of the very few commercial endequipment manufacturers which have accomplished capabilities in both

Total

semiconductor technology and government electronics. It's this com bined expertise of end-equipment, semiconductor and government electronics that gives Motorola a dis tinctive competence which few in the electronics industry possess.

We think it mokes sense to build

on our strengths and continue to

allocate the major portion of our

resources to those products and

markets, new and old, which derive from or extend our established, mainline enterprises.

Where appropriate, we shall also expand into associated fields of elec tronic technology. Our acquisition of Codex Corporation, a leading supplier of data communications equipment and systems, is an example. Another cose in point is our Data Products Unit where Motorola's cathode ray tube displays and basic integrated circuit technology are combined with key utilization of microprocessor techniques. As a result. Data Products has become a major supplier of systems and subsystems to computer and computer peripheral manufacturers.

1967

Communications

es $630 Million

Over the past ten years, Motorola's business mix has changed considerably. From our original position as primarily o consumer prodi >r.\s company, we have evolved in.o a high technology electronics firm with major emphasis in the commercial, government and industrial markets.

There, we think, is where the greatest

potentials exist for increased sales

for the corporation and improved

earnings for stockholders.

In 1977, for example, the Communications Group accounted for 44 per cent of the corporation's total sales. The Semiconductor Group contributed 30 per cent of our sales dollars followed by the Automotive Products Division with 11 percent. Th Government Electronics Division and other operations accounted for the remaining 15 per cent. Look to the charts below, and you can clearly see how Motorola's business mix has changed in the last ten years. Motorola's mix of markets today is broadly diversified with 71 per cent our revenues in the U.S. and 29 per cent in the rest of the world. Doth d mestically and internationally, our market mix is comprised primarily of commercial, industrial and govern-

1967 68 69 70

merit customers os well as automotive applications. Turning again to our ten year performance picture (including discontinued operations), profit margins held relatively level between 1968 and 1971, rose to 4.5 percent in 1972, and to 5.7 per cent in 1973. With the onset of recession in the la quarter of 1974, our margin declined, and it dropped to 3.1 per cent in the full recessionary year of 1975. We returned to a more acceptable 5.8 per cent margin in 1976 and achieved 5.7 per cent in 1977. Taking a broader look, we see that Motorola's profit margin averaged 3.8 per cent of sales in the five year period from 1968 through 1972. In the last five years, 1973-77, our margin averaged 5.2 percent. Among Motorola's 60,000 employees are many of the most dedicated and skilled scientists, engineers, technicians and managers to be found anywhere; and the stake we share in the continued progress and profitability of the company is great. Through effort and enterprise. Motorola intends to remain a world leader in advanced electronics.

00 76 77

74 75 7

"The sales and margin information in these graphs reflects Motorola's results for the appropriate reporting periods and has not been adjusted for the sale of the home television business in 1974 or the acquisitio of Codex in 1977. Sales and earnings in the Ten Year Financial Summary, on page 30, have been adjusted for these transactions.

Million

Communications Group

The Communications Group continued to set records in soles and earnings in 1977. Each successive quarter reflected an improved rate of sales growth over the comparable 1976 period, resulting in a 20 per cen increase in total sales over lost year Earnings for the year rose at close to the same rate, equaling the fine margin achieved in 1976. New equipment orders booked worldwide by the group grew 25 per cent over last year's level as increases were recorded in every major market sector. Internationally, new orders climbed at a faster rate than in the U These results are attributable to continued dedication to market specialization and an aggressive new product announcement schedule which further expanded the group's product lines during the year. As customers have become more sophisticated in their use of communications equipment, new and potential customers have become increasingly aware of the benefits. 1977's growth rate effectively demonstrated that, even after 25

8

years of continuous growth, the market remains far from saturation.

The Communications Group's marketing organization has become increasingly specialized over the years. Along with the groups geographic coverage of commercial markets, special nationwide marketing teams have been developed to serve unique customer sectors. Ten years ago, for example, these teams covered the telephone, railroad and industrial sectors. In 1977, addition marketing teams covered the federal government, state and local government, radio common carrier, petroleum, utility, health care, marine, trucking, airlines and urban transit sectors. In the geographic markets, which include small to medium-sized businesses with relatively modest system requirements, management also enlarged the sales force to serv the increasingly varied needs of customers. Specialized marketing teams were organized to cover the mining and educational sectors, and particular attention was devoted to bringing FM communications to people in rural America. One of the group's new product lines introduced during the year

The Cenrrocom"" desk top model gives smaller radio system users the same flexibility and features of the larg freestanding model.

The MT 500 series Handie-Talkie® portable radio, introduced rhisy combines high performance hybrid circuits with competitive pricin systems capability. T

was the MOXY™ mobile radio line. In the health care field, there was a depended upon high-frequency MOXY™ mobile radio, which provides growing appreciation of the need single sideband radio links for longhigh-quality FM communications at for two-way radio in emergency range communications. Motorola the lowest price ever offered by situations. Motorola's new high-power microwave radio systems also served Motorola, enabled many users of citi- Coronary Observation Radio helped the long distance communications zens band radio to upgrade to more save lives in 1977 by enabling needs of operators of pipelines sophisticated FM communications. paramedics at the scene of a heart carrying oil from Alaska and other The group also enlarged its attack to talk to hospital personnel as areas. New, proposed gas pipelines already extensive hand-held radio the victim's electrocardiogram was offer continued opportunities. product line with the MT 500 series transmitted and displayed to doctors The Communications Group s Hondie-Talkie® portable radio. in the hospital. understanding of customers' needs to 1977 saw a resurgence of growth In the industrial marketplace, conserve energy also contributed to in the state and local government new plant construction and facility growth in 1977. In the utility market, marketplace. Responding to a need expansion during the year contributed the group's Load Management for higher sophistication in public to increased sales. Industrial users System1", in which radio switches are sector communications, the group were among those customers need- used to help electric utilities shave expanded its Digital Voice Protection ing the flexibility of a portable radio peak power demands, continued to System in 1977 to include portable with the performance and range attract widespread interest. Arkansas radios as well as mobile radios and of a mobile radio. To help fill this need, Power and Light purchased a Load base stations. This highly advanced the group introduced a new mobile Management System™ which communications system is designed to repeater system. These mobile eventually will include the installation scramble voice signals, making it repeaters permit customers to leave of 100,000 radio switches on home air impossible for unauthorized people their vehicles while continuing to conditioners. Elsewhere in the country, to intercept private messages. talk on a portable radio through the similar systems helped control mobile unit in the vehicle. commercial and residential water Motorola's Multi-Line Data Terminal, heaters. which permits direct computer access Two-way radio communication from a vehicle, gained increased became an essential ingredient in the Continued high growth of areaacceptance in 1977 as large industrial worldwide search for new energy wide paging resulted in increased and commercial, as well as govern- sources in 1977. Refineries continued sales of radio pagers and paging ment, customers continued to moke to use portable radios designed terminals to telephone companies extensive use of data communi- for rugged environments while off- and radio common carriers. The cations technology. shore and land-based drilling rigs group expanded its already exten-

Designed for remote site utilizations, Starpoint™, a 2 GHz microw communications system, offers modular plug-in construction for simplified field repair.

The Triton® VHF-FM marine radio is complemented by the introducti of a Triton® 24-channel SSD (single sideband) radio for commercia applications.

sive paging products by two lines to begin until 1979 or 1980, techno- manufacturing, office and laboratory during the year. In tone and voice logical innovations associated with the complex in Fort Worth, Texas, and a paging, new entries were the system began to appear in the group's new building on the Schaumburg, Dimension IV™ and Spirit™ radio radiotelephone product lines in 1977. Illinois, campus to house the Parts pagers. Doth pagers, each about half The groups international strategy in Department and Chicago area sales the size of older units, offer quality 1977 focused on the developed force neared completion. A new performance in the medium countries inasmuch as these countries area sales office was opened in San price range. had the greatest immediate need for Diego, California, and in Libertyvil high-quality communications Illinois, the group purchased 87 acr Late in the year, a major goal of the equipment and systems. The strategy of land to support future expansion Communications Group was reached paid off particularly well in the the Chicago area. when the Federal Communications European, Canadian and Australian Commission granted a develop- group where new orders were mental license to a radio common considerably above the international carrier for the field testing at 800 MHz average. Semiconductor Group of a Motorola-designed and produced In order to serve rapid growth high-capacity radiotelephone system. in the United Kingdom and the rest of The Semiconductor Group achieved The Motorola system, which will be the European Economic Community, solid growth in 1977. Worldwide owned and operated by American the group began production of mobile sales were up nearly 23 per cent ove Radio-Telephone Service, Inc., will be radios and radio pagers in a newly 1976, reflecting several technical, capable of accommodating upwards acquired facility at Basingstoke, product, market and organizational of 50,000 mobile telephone subEngland. achievements. 1977 earnings also inscribers in the Washington-Baltimore corridor. Heretofore, only a very lim- In the less developed countries the creased over last year with improveited number of people in any given need for communications also ment in profit margin. service area could enjoy the advan- continued to grow. In Africa and South America, demand was particularly Gains in both domestic and intertage of car telephones. national markets combined to boost strong for communications for energy-related applications. For new order bookings by the group 13 The Motorola system, with potenexample, in Peru a microwave radio per cent over 1976. Backlog was up tial applications worldwide, will system was ordered to support 10 per cent over last year. utilize both mobile and portable radiotelephones in the developmen- pipeline operations. Based on industry estimates, the tal tests. While commercial service in Several facility plans matured during Semiconductor Group's sales in 1977 Washington-Baltimore is not expected 1977. A major integrated grew at nearly twice the rate of the

Motorola Load Management Systems™ permit utilities to level peak loads by selectively turning off some appliances for shortperiods with no inconvenience to users. Dimension IV™ personal pagers are tone and voice units »incorporating advanced electronic design with high power and excellent audio quality.

competition, and the group increased quality in 1977 led to the lowest per- both expanded old markets and its shore of the world market served centage of quality-related returns for created new ones. by U.S. industry by one full percent- any year on record. As projected last year, new deflecage point. 1977 also saw continued emphasis tion power transistors for the television Although industry sales of discrete placed on development of discrete market were put into production in products were about level with last process and production technologies. 1977. As a result of this effort. year. Motorola's discrete product Introduction of Motorola's new Pow- Motorola received purchase comsales were up 10 per cent over 1976. erbase™ technology allowed the de- mitments from every major U.S. TV None of the group's major discrete velopment of more rugged power manufacturer in 1977 as well as from product lines experienced a sales de- transistors capable of operating in several European TV manufacturers. cline; and market share increases applications having higher power re- In addition, Schottky rectifiers and were achieved in mature product quirements. This gives Motorola the switch-mode power transistors, which lines, such as small signal transistors ability to supply devices for applica- offer both size reduction and effiand rectifiers, as well as in newer tions which previously used single ciency improvement to customers, product lines, including field effect diffused products. were introduced for rapidly growing transistors and tuning diodes. A program to convert to larger applications in the computer, indusContinued investment in major wafer sizes in many product families trial and military markets. Field effect mechanization programs during the enabled further cost and price reduc- transistors were also introduced for year led to lower manufacturing costs tions in "1977 as expanded use of ion such applications as smoke detectors and improved yields and productivity implantation provided better uniform- in the consumer market. in many segments of discrete opera- ity from wafer to wafer, resulting in in- Motorola's line of radio frequency tions. Automated assembly equip- creased yields. power devices and modules was exment, for example, was purchased Motorola's proprietary gloss passi- panded for use in communications and put to work in several product vation process, in which a thin layer of products which operate in the new areas such as small signal transistors, glass protects open junctions, im- 800 MHz frequency range. The intropower transistors and zener diodes. proved yields and reliability in both duction of thyristors in a standard Focus on improved criteria for relia- power transistors and thyristors during industry package at lower prices in bility and quality control during the the year. 1977 contributed to a significant inyear resulted in dramatic reductions in Motorola's leadership position in crease in market share for this importhe in-line assembly reject rate and in the discrete component industry was tant product line. the field failure rate of all discrete further solidified in 1977 with the ad- Ion implantation technology perproducts. Overall, improved product dition of many new products which mitted the development during the

Every major U.S. television manufacturer Active for several years in solor ene has given purchase commitments for research of silicon materials, Motoro Motorola's deflection power transistors. now producing solar cells, panels and complete solar energy systems.

year of a full line of AM tuning diodes for the automobile industry. Several major orders were received for this exciting product line which will allow the development of much smaller car radios.

Also introduced in 1977 was a line

ofMiniDloc™ standardized compo-

nents for the hybrid marketplace.

These high-quality, miniature transistor

packages provide a low-priced alter-

native to the conventional "chip and

wire" hybrid assembly techniques pre-

valent in the industry.

Since 1975, Motorola has been actively involved in the solor energy fiel through both company-funded and government-funded research and development programs. In 1977, Motorola received several major contracts from the Department of Energy for research in silicon material as well as a contract for a large number of

Motorola-developed solar cells from

Jet Propulsion Laboratories. At

yearend, 36- and 48-solarcell panels

and complete solar energy systems

were available for purchase.

In integrated circuits (IC), 1977 was a year of resurgence and achievement for the group. IC sales were up 40 per cent over 1976 compared with

Tri Cad M68

12

estimated industry growth of 24 per cent. More new products were introduced than in any previous year, and the group expanded its share of market by aggressively pursuing new products on several fronts. A complete line of low power

Schottky transistor-transistor digital

circuits, acquired through a technolog

exchange, was put into volume pro-

duction expanding Motorola's product

line in this significant portion of th

market. A new generation of memory

components and subsystems, which

represent the fastest growing segment of the IC market, was also developed and introduced during the year. Many new linear interface circuits were introduced to facilitate coupling memories and microprocessor (MPU) chips to each other, to input sensors and other output actuators or terminal in microprocessor applications.

Motorola also expanded its mi-

croprocessor line in 1977, making it

the broadest in the industry. The new

line covers four major technologies:

complementary metal-oxide-

semiconductor (CMOS) for applications requiring minimum power consumption; transistor-transistor logic (TTL computer and industrial control systems design applications; emitter-

mputer, available in the 1978 c Seville, utilizes the versatile icrocomputer system. A

coupled logic (ECL) involving highspeed logic performance; and metal-oxide-semiconductor (MOS) which involves maximum complexity at a reasonable price. These products are completely supported by software and design aids such as the EXOR-

CISER® system produced by Motorola's

microsystem unit. The microsystem

line, too, was expanded with the

introductions of floppy disc systems;

cathode ray tube systems; micro-

modules and systems for process au-

tomation; and automobile electronics

development. Teamwork and technical excellence in 1977 paid off with notable wins in several fiercely competitive major procurements. The combined requirements for improved pollution control and increased mileage performance in cars caused auto manufacturers to look to electronic engine management systems for solutions. Motorola's

MOS and linear integrated circuit de-

signs for engine control modules won

major contracts from both General

Motors Corporation and the Ford Motor

Company for use in many of their cars

in the coming model years. Motorola was also a principal supplier of advanced circuits for electronic watches to Timex. *-

AM tuning diodes (larger pieces) for th auto industry will permit development o smaller radios or radios located in are otherthan the dashboard; and a line of MiniDloc® standardized components provide a low-priced alternative to con tional hybrid assembly techniques.

In 1977, Motorola's large scale nute finished goods inventory, order radios to Ford Motor Company and integration (LSI) products contained status and product pricing informa- American Motors Corporation, as well as many as 36,000 discrete devices tion, was installed in 30 field sales as to many truck, tractor, recreational on a single chip of silicon. This repre- offices. Sales offices, in turn, can now vehicle and motor home manufacsents a 250 per cent increase in LSI instantaneously enter new order turers. In addition, the division was circuit density over 1976. This trend is and order change information via chosen as a supplier of both radios expected to continue as research and CRT terminals to the group's central and alternators to Volkswagen for development efforts provide for very computer system in Phoenix. their new U.S. manufacturing large scale integration (VLSI) of operations. 100,000 and more devices per chip. Automotive Among new products introduced Research and development ex- Products Division into the aftermarket was a line of penditures were increased substan- professional quality automotive tially in IC operations during the year, 1977 was the third best year in speakers and two automotive stereo and factory operations for MOS pro- history for U. S. passenger car produc- amplifiers. Several entertainment duction were expanded at the tion and the second best year on re- centers, incorporating AM/FM stereo group's Austin, Texas, plant. cord for combined car and truck pro- radio, 8 track stereo tape and CD In order to better serve the world duction. Record sales by the Automo- radio, were also introduced for the semiconductor market, which is ex- tive Products Divison reflected this "custom line," installed by autopanding rapidly in geographic and strong industry performance with a 21 mobile dealers into new cars, and for product complexity os well as in per cent increase over 1976. Earnings the retail line purchased over the number and variety of customers, the also increased over last year; but counter. Semiconductor Group unified its profit margin, while up, remained 1977 was clearly a year of massive worldwide marketing and product below the division's standard due to oversupply in the entire CD industry. operations in 1977. Several man- operating losses in the citizens band Responding to the soft market, agement and structural realignments (CD) radio operation and in certain Motorola consolidated all CD producwere made during the year to permit non-U.S. markets. tion at the division's Seguin, Texas, worldwide coordination of marketing Sales of original equipment enter- manufocturing plant which additionand manufacturing strategies while tainment products, including AM ally produces automotive entertainmaintaining regional decentralization radio, AM/FM and FM stereo radios, ment products for the original equipof decision making at the operating and 8 track stereo tape players, re- ment market and aftermarket installevel. mained strong throughout the year. lation. This move will provide In addition, an on-line information The division continued to be a economies of scale in production as system, which provides up-to-the-mi- major supplier of original equipment well as in organization.

Motorola's electronic engine control is microprocessor-based and designed to increase engine performance and efficiency.

While consolidating its manufacturing base, Motorola expanded its

original line of four underdash CD radios to include a dual monitor underdash transceiver which monitors the emergency channel 9, a single sideband underdash transceiver, a self-contained CD base station, two indash CD radios combining AM/FM stereo and 8 track tape, and an expanded line of CD antennas. In addition to its traditional afte market distribution operations. Motorola also provided CD product for Ford and Bell Canada. Other original equipment contract awards were received with deliveries to be made in 1978. A key technological development during the year was highlighted when Motorola submitted to the Federal Communications Commission (FCC) an approach to AM stereo broadcasting. Field tests of three systems, including the one submitted by Motorola, were begun in 1977. If the service is approved by the FCC, Motorola can be a prime participant in the new AM stereo marketplace. Sales of electronic systems products, which include alternators, sensors, electronic ignitions and other

Motorola's outosound business continues to develop well with newly added lines professional-quality automobile speaker and stereo amplifiers as well as indash entertainment centers with 40-channel CD, AM-FM stereo radio and cassette or 8-track tape player.

electronic modules and instruments, continued strong in 1977 and were

ahead of last year. The company reinforced its strong position in the automotive engine electronics business when the Automotive Products Division, in cooperation with the Semiconductor Group, won a competitive design award from Ford for an electronic engine control (EEC). Under terms of the award. Motorola will supply to Ford at least 25 per cent of their EEC require ments for the 1980 model year. This award, along with key awards from other customers for both development and production contracts, demonstrated the division's ability to play a major role in the fast emerging engine electronics business. Internationally, all of the divisio operations improved their operating performances in 1977. Of particular note were development efforts by the division with several European car manufacturers for Motorola's engine electronic products, offering still further growth opportunities in the coming years.

Government Electronics Division

The Government Electronics Division continued to grow and perform well in 1977. Although sales were up a modest 5 per cent over 1976, new orders booked by the division climbed more than 40 per cent over last year, setting an all-time high. Earnings of the division were below 1976 due primarily to planned increased expenditures for independent research and new business development. Communications equipment built by the division was launched on its way to Jupiter, Saturn and beyond in 1977 on NASA's Voyager I and II spacecraft. Designed to withstand the rigors of deep space flight, the Motorola equipment will provide the only two-way communications link for radio communications and television signals which will relay still pictur Jupiter and Saturn in 1979-80. The division was also awarded contracts totaling $13.5 million to d sign and build electronic subsystems for NASA's Tracking and Data Relay Satellite System. This system will pr

New applications of the Mini-Range position determining system includ positioning offshore oil platforms guiding crop and forest air fertil operations.

vide tracking, command, and data acquisition services for NASA's manned and unmanned Earth orbit missions through the 1980s. Also during the year, the division introduced a new series of Infoguard™ data security products which are designed to protect data transmissions between computers or between computers and terminals. These products include both off-theshelf and custom modules to fill a wide range of data security requirements for government, business and industry. Major military contracts for the y included an award from the Navy for target detecting devices for use with the Navy standard missile; an Army contract to upgrade data link equipment for use with an airborne surveillance system; and another Army contract for the development of a modification to minimize jamming of their Side-Looking Airborne Radar system. The division's international opera tions made excellent progress in 1977. New applications coupled with improved penetration of existing markets made the Mini-Ranger III™ position determining system line the

Unrerouched photos show how Motorola system slips TV pictures through pow electronicjomming signals.

Photo A—Normal video taken directly from airborne camera as shown during simulation tests.

front runner in international sales growth during the year. In new products, the SYNCOM-10™, a 9600 channel VHF emergency radio operating in the government and public service bands, showed promise of good future sales in overseas markets as an encouraging number of orders was received upon the product's introduction. During 1977, the first contract wa received from Canada for portable UHF and VHF Emergency Transceivers. This new product will be introduced worldwide in 1978 and is expected to contribute strongly to internation bookings. The first sale outside the U.S. of Side-Looking Airborne Radar for civil applications was also recorded during the year. The system will be used in Canada for detection of ice pack movements off the coasts. In order to capitalize on the increasing importance of missile guidance equipment to the division's future, a separate internal organizatio was formed in 1977. The consolidated activities encompass all electronic, mechanical and aerodynamic technologies which relate to missile guidance programs.

Photo D—Same video image subjected to simulated enemy signal jamming.

Photo C—Same video and same jamming as in photo D showing how Motorola's processing techniques almost eliminate jamming signals.

The Government Electronics Division, os well os Motorola's Semiconductor Group, was active in the development of solar energy in 1977. Under a proposal to the U.S. Deportment of Energy from the Arizona Public Service Company and the State of Arizona, both the Government Electronics Division and the Semiconductor Group would participate in development of one of the world's largest solar cell power plants for Phoenix's Sky Harbor Airport. If approved for funding by the Deportment of Energy, Motorola will design and supply the plant's solar electric generating equipment which represents on unprecedented opportunity to bring space age technology down to Earth.

More than 14,000 of Motorola's Meinel • optical concentrators may be utilized in

solar photovoltaic system proposed for a solar cell power plant in Phoenix, Arizo

Continuing a long association with NASA space missions, communications equipment built by the Government Electronics Division is aiding in the exploration of our solar system on Voyager I and II spacecraft launched las summer.

Data Products Unit

Motorola's Data Products Unit realized sharply increased sales and earnings in 1977. Profit margin also improved, signaling a solid recovery from heavy plant start-up costs incurred last year. Major growth occurred in the display products operation which sells cathode ray tube display modules to manufacturers of computer terminals and coin-operated video games. Display products introduced two new products in 1977. The first was a low-priced, medium performance display for the low-end, high-volume data entry and small business terminal markets. The other was an ultrahigh performance full page display for the burgeoning word processor terminal market.

The unit's systems products operation also experienced fine growth in 1977. Microprocessor-based information display systems, which are distributed through Motorola's Communications Group, ended the year

with substantial backlog as markets for this product line were broadened from transportation and healthcare to

A Data Products CRT (cathode ray tub display is designed for use by the w processing market.

other markets served by the Communications Group. A new closed circuit television system for use in hig temperature environments was also developed for introduction in the fir quarter of 1978.

Codex

Codex achieved record revenues and earnings in 1977. Revenues were up more than 40 per cent over 1976 with profit margin about equal to last year. New order bookings, up 60 per cent over last year, also set a record. Among major new orders for the year was a multimillion dollar contra with the Defense Communications Agency, an arm of the U.S. government, for the worldwide channel packing system which concentrates multiple data communications between the United States and other countries into high speed circuits across both the Atlantic and Pacific oceans. The channel packing system is designed to reduce leased circuit costs for the government by several million dollars each year. Another agreement in excess of $1 million was signed with Overseas

Two of Codex's advanced data communications products, the 6030 Intelligent Network Processor and the Circuit Quality Monitoring System utilize Motorola 6800 microprocessor technology.

Fixed Telecommunications Service (OFTS) for Codex's 6000 Series of Intelligent Network Processors and other system products. OFTS is a worldwide telecommunications network managed by British Airways and Qantas Airways for the airlines of th Commonwealth countries. Codex expanded its worldwide customer base in 1977 by more than 50 per cent over the previous year with increased market penetration of the banking, finance, manufacturing, transportation, retailing, communications, insurance and computer services markets.

Other Programs

Start-up costs associated with Motorola's watch module program did not permit profitable operation in 1977. In the second half, this progr was transferred to the Semiconductor Group from the Communications Systems Division in order to take advantage of the Semiconductor Group's high volume, component-oriented •capabilities. Production of watch modules steadily increased in volume and two new, advanced watch modules were introduced. Customer re-

sponse was highly favorable, and thi program is expected to be profitable in 1978. Motorola's watch crystal program experienced severe product and pricing pressures in 1977. Japanese suppliers, using excess capacity resulting from market and technical changes in the citizens band radio business, aggressively entered this product market early in the year. As result. Motorola's market share eroded, and this program lost money. In January, 1978, the watch crystal program was also transferred to the Semiconductor Group where high volume process and production capabilities, together with planned reduction in overhead costs, should result in improved performance in 19

Financial Review

Key elements in Motorola's corpo- surement is not practical, we believe techniques were further strengthened rate policy and financial strategy are a the quality of Motorola's reported and now cover the anticipation of strong balance sheet and conserva- earnings, and its stated net worth, inter-currency transactions and the tively stated asset and earnings fig- compares favorably with other corpo- consolidation of payments between ures. This policy, we believe, impor- rations. The near total absence of currencies. tantly contributed to the recent actions inflation in the value of inventories by Moody's Investors Service and and the use of accelerated deprecia- Segment Reporting Standard & Poors, the major corporate tion of fixed assets essentially elimi- Footnote No. 10 to the financial bond rating agencies, in assigning Aa nate from our earnings, as we have statements contains our compliance ratings to Motorola's long-term debt. previously reported, the type of unreal with the Statement of Financial AcAccordingly, the $100 million, 30-year inflation factor which is of concern to counting Standards No. 14(SFAS-14) public debenture issue sold in Octo- many investors and economists. Addi- issued by the Financial Accounting ber, 1977, was priced to yield 8.027 tionally, our policy continues to cause Standards Board in December, 1976. per cent. This rate at the time was appropriate provisions to be made for The Statement requires, among other within 0.25 per cent of the then current potential losses from accounts receiv- things, information on revenues, yield on U.S. Treasury issues of com- able, identifiable future liabilities and operating profit and identifiable asparable maturity and compares very inventory valuation. The absence of sets in industry segments and similar favorably with the yields of other unfunded vested retirement benefits information concerning non-U.S. high-quality corporate bond issues, and the use of a modest 5 percent operations. both for the previous several years and earnings assumption in determining Although Motorola continues to since October. current retirement fund accruals are regard its operations as being preThe debenture sale lengthened the other significant elements in Motorola's dominantly in one industry—elecaverage maturity of Motorola bor- good "quality of earnings." tronic equipment and comporowings from three years to ten years, nents—the data required by SFAS-14 with but modest increase in cost re- is presented for communications lated to current and anticipated Currency Valuations products, semiconductor products short-term interest rates. Despite continuing, almost violent, and automotive products. Working capital of $566 million and fluctuations in world currency values, SFAS-14 provides for presentation a current ratio of 2.5:1 further indicate again in 1977 Motorola avoided a of segment profit at the "operating" the strength of Motorola's financial net translation loss, recording a net level, before additions or deductions position. gain of $2.5 million. Continuous and of general corporate expenses, interEarlier in this report we stated that careful monitoring of the consolidated est expense and income taxes. Certotal borrowings at yearend, long- exposure position in each of the cur- tain of these expenses are not uniand short-term, were 26.1 per cent of rencies in which we deal, along with formly apportionoble, related either total borrowings plus stockholders' the policy of not speculating, and at- to revenues or assets. Therefore, any equity. While this figure is higher than tempting to keep our exposure posi- allocation of these expenses to the the 19 percent of a year ago, we be- tions as near neutral as economically company's classes of similar products lieve it is still within the bounds of pru- and legally feasible, have produced is necessarily subjective, and comdence. If marketable securities of this record, of which we are proud. parisons to segments of other $86 million, largely the result of During 1977 our monitoring enterprises may not be meaningful. accumulated profits in Puerto Rican subsidiaries, were offset against Current Ratio* Total Debt to Total Debt plus Equity* borrowings, the yearend debf-to- (As of Year End) (As of Year End) debt plus equity ratio would be 19.6 per cent vs. 12.9 per cent last year. Times 3.0 2.75 Quality of Earnings 2.50 Much has been written recently con2.25 cerning the "quality of earnings" re2.0 ported by corporations, especially in periods of significant and continuing 1970 74 75 76 77 inflation. While an objective mea'Current Assets D Toral ^ _ Net of Marketable Securitie Current Liabilities *Long- and Short-Term Debt 18 Long- and Short-Term Debt plus Stockh

Consolidated Balance Sheets

(Dollars in thousands)

Motorola, Inc. and Subsidiaries as of December 31 1977 1976 ASSETS • CURRENT ASSETS Cash $ 29,981 $ 22,118 Short-term investments, at cost (approximating market) 85,681 60,972 Accounts receivable, less allowance for doubtful accounts (1977, $13,513; 1976, $10,631) 380,156 315,618 Inventories Finished goods 133,452 97,521 Work in process and production materials 251,917 232,402 Future income tax benefits 32,190 24,145 Other current assets 36,395 30,690 TOTAL CURRENT ASSETS 949,772 783,466 PROPERTY, PLANT AND EQUIPMENT Land 21,183 20,468 Buildings 263,335 246,371 Machinery and equipment 423,099 351,622 Accumulated depreciation (269,273) (235,461) PROPERTY, PLANT AND EQUIPMENT, NET 438,344 383,000 SUNDRYASSETS.NET 28,617 22,871 TOTAL ASSETS $1,416,733 $1J 89,337

LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Notes payable—banks and other $ 73,936 $ 62,708 Current maturities of long-term debt 3,730 1,695 Accounts payable 135,013 116,558 Accrued expenses 131,572 114,895 Income taxes payable 39,638 49,081 TOTAL CURRENT LIABILITIES 383,889 344,937 LONG-TERM DEBT 199,742 101,052 OTHER NONCURRENT LIABILITIES 46,543 37,661 STOCKHOLDERS' EQUITY Common stock, $3.00 par value Authorized: 40,000,000 shares Outstanding: 1977—30,407,463 shares; 1976—30,365,098 shares 91,222 91,095 Preferred stock, $100.00 par value issuable in series Authorized: 500,000 shares (none issued) — — Additional paid-in capital 153,769 152,932 Retained earnings 541,568 461,660 TOTAL STOCKHOLDERS' EQUITY 786,559 705,687 TOTAL LIABILmES AND STOCKHOLDERS' EQUITY $1,416,733 $1J 89,337

See accompanying notes to consolidated financial statements.

Statements of Consolidated Earnings and Retained Earnings

(Dollars in thousands, except per share data)

Motorola, Inc. and Subsidiaries, Years Ended December 31 1977 1976

SALES AND OTHER REVENUES $1,848,395 $1,534,881 Manufacturing and other costs of sales 1,138,047 939,105 Selling, service and administrative expense 424,333 353,603 Depreciation of plant and equipment 72,699 57,873 Interest and amortization of debenture discount, expense and premium, net.. 22,901 16,933 Total costs and other expenses 1,657,980 1,367,514 Earnings from continuing operations before income taxes 190,415 167,367 Income taxes 84,150 75,534 EARNINGS FROM CONTINUING OPERATIONS TTT7T 106,265 91,833 Loss from discontinued operations — (2,470 Net earnings 106,265 89,363 Retained earnings at beginning of year 461,660 393,186 Cash dividends declared (per common share: 1977, $.880; 1976, $.735) (26,357) (20,889 Retained earnings at end of year $ 541,568 $ 461,660 EARNINGS PER SHARE FROM CONTINUING OPERATIONS $ 3.50 3.04 Net earnings per share 3.50 2.96 Average shares outstanding (in thousands) 30,393 30,175

Statements of Consolidated Additional Paid-in Capital

(Dollars in thousands)

Motorola, Inc. and Subsidiaries, Years Ended December 31 1977 1976

Balance at beginning of year $ 152,932 $ 143,062 Share option plans 751 8,124 Conversion of 41/2% convertible guaranteed debentures 86 1,746 Balance at end of year $ 153,769 $ 152,932

See accompanying notes to consolidated financial statements.

20

Statements of Consolidated Changes in Financial Position

Motorola, Inc. and Subsidiaries, Years Ended December 31 SOURCES OF FUNDS Net earnings from continuing operations Add noncash charges Depreciation Amortization of deferred debenture discount, expense and premium, ne Funds provided from continuing operations Net loss from discontinued operations Add noncash charge—depreciation Funds used by discontinued operations Funds provided from operations Increase in notes payable and current maturities of long-term debt Disposals and other changes of plant and equipment (and tooling), net Increase in long-term debt Issuance of common stock Increase in income taxes payable Other sources, net Total sources of funds USES OF FUNDS Increase in receivables Increase in inventories Fixed asset expenditures (includes subsidiary acquired in 1977, $29) Increase in equipment rented to others, at cost Decrease in long-term debt Dividends Decrease in income taxes payable Total uses of funds NET INCREASE IN FUNDS Cash and short-term investments Beginning of year EndI ofyear ... .TTTT 7777777.

See accompanying no

Accountants' Report

PEAT, MARWICK, MITCHELL & CO. Certified Public Accountants 222 South Riverside Plaza, Chicago, Illinois 60606 The Board of Directors and Our examinations were made in Stockholders of Motorola, Inc.: accordance with generally acWe have examined the con- cepted auditing standards, and solidated balance sheets of accordingly included such tests Motorola, Inc. and Subsidiaries of the accounting records and as of December 31,1977 and such other auditing procedures 1976 and the related statements as we considered necessary in of consolidated earnings and re- the circumstances. tained earnings, additional paid- In our opinion, the aforemenin capital and changes in financial tioned consolidated financial position for the years then ended. statements present fairly the fi

(Dollars in thousand

1977 197

$106,265 $ 91,833

83,090 64,521 $115,662 I f 83,090

to consolidated financial statements.

nancial position of Motorola, Inc. and Subsidiaries at December 31, 1977 and 1976 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.

PEAT, MARWICK, MITCHELL & CO. February 10,1978

Notes to Consolidated Financial Statements

1. ACCOUNTING POLICIES: Following is a summary of significant accounting policies used in the preparation of these consolidated financial statements, which policies are in accordance with generally accepted accounting principles.

CONSOLIDATIONThe consolidated financial statements include the accounts of the company and all majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

INTERNATIONALThe company follows the method of foreign

currency translation recommended in Statement No. 8 of the

Financial Accounting Standards Board. Assets and liabilities

expressed in foreign currencies, other than principally fixed as-

sets and inventories, are translated at the approximate period ending rates of exchange; inventories and fixed assets are translated at approximate rates in effect when the assets were acquired. The earnings statements are translated at rates prevailing during the year except for depreciation, amortization and cost of sales, which are translated at historical rates. Gains and losses from currency realignments have been reflected in earnings as incurred.

INVENTORIESInventories are valued at the lower of average cost (which approximates computation on a first-in, first-out basis) or market. Market value of work in process and production materials is represented by replacement cost and for finished goods by net realizable value.

INVESTMENT TAX CREDITSInvestment tax credits are recorded as a reduction of income tax expense in the year in which the related assets are placed in service. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment is stated at cost. The cost and accumulated depreciation of items of property, plant and equipment sold, retired or fu depreciated are removed from the related accounts and any gain or loss on disposition is reflected in earnings. Maintenance and repairs are expensed as incurred, while major renewals or betterments are capitalized.

The cost of buildings, machinery and equipment is depreciated generally by the declining balance method, over the estimated

useful lives of such assets, as follows: buildings and building

equipment, 5-50 years; machinery and equipment, 2-12 years. For income tax purposes, the company has selected the provisions of the Class Life Asset Depreciation Range System (ADR)

permitting accelerated depreciation. The tax effect of the differ

ence between book and tax depreciation has been provided as deferred income taxes.

SHARE OPTIONSWhen 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 that the company receives from disqualifying dispositions by optionees of exercised qualified share options, and from the exercise of nonqualified share options is credited to additional paid-in capital

22

EARNINGS PER SHAREEarnings per share are calculated on average daily shares outstanding.

2. BUSINESS COMBINATION: On May 25, 1977, Motorola exchanged 1,839,957 shares of its common stock for all the common stock of Codex Corporation, a supplier of data communications equipment and systems. This combination has been accounted for as a pooling-of-interests and accordingly, the accompanying consolidated financial statements include the re-

sults of operations of Codex for all periods prior to the combina-

tion. During the six months ended July 2, 1977, Codex contri-

buted sales and other revenues and net earnings of $19,445,000

and $2,423,000, respectively.

Sales and other revenues and net earnings for the year ended December 31,1976 have been restated as follows:

Sales and Net other revenues earnin (Dollars in thousands) Motorola (as previously reported) . . . $1,504,431 $85,397 Codex 30,450 3,966 Combined (as restated) $1,534,881 $89,363

This combination also caused beginning balances in retained earnings and additional paid-in capital for 1976 to increase by $6,585,000 and $3,558,000, respectively. Prior to the combination, the fiscal year of Codex ended on September 30. The financial information for Codex has been adjusted to conform with the calendar year used by Motorola.

3. INTERNATIONAL OPERATIONS: Net foreign currency exchange gains of $2,544,000 and $840,000 are included in earnings for 1977 and 1976, respectively. The company's equity in net assets of non-U.S. subsidiaries and affiliate at December 31 consisted of the following:

1977 1976 (Dollars in thousands)

Current assets $237,112 $187,954 82,390 Property, plant and equipment, net 93,401 Current liabilities (114,393) (116,735) Other assets (liabilities), net (17,722) (14,764)

Equity in net assets of non-U.S.

subsidiaries and affiliate $198,398 $138,845

The company's equity in undistributed earnings of non-U.S. subsidiaries and affiliate included in consolidated retained earnings at December 31, 1977, amounted to $67,813,000 ($42,613,000 at December 31,1976). Export sales of the company's domestic operations, and sales and other revenues from operations outside the United States accounted for approximately 29% of both 1977 and 1976 consolidated sales and other revenues.

4. LONG-TERM DEBT: Long-term debt at December 31 consisted of the following: 1977 1976 (Dollars in thousands) Debt outside the United States: 41/2% convertible guaranteed debentures due July 1, 1983 $ 6,908 $ 7,016 8% guaranteed sinking fund debentures

due March 1, 1987 (net of debentures held by the company for sinking fund

payments, none at December 31,1977: $1,090 at December 31, 1976) 200 23,910 Notes payable (generally at prevailing prime rates) due in installments to 1991 18,341 13,01 Debt in the United States: Commercial paper supported by revolving credit commitments from banks 56,000 30,215 4%% debentures due April 1, 1986

(net of debentures held by the company

for sinking fund payments, $2,480 at December 31,1977; $1,609 at December 31, 1976) 19,020 21,391 8% sinking fund debentures due October 1, 2007 99,702 — Notes payable bank (outstanding under Codex revolving loan agreement, terminated June, 1977) — 3,35 9V2% industrial revenue bonds due

December 1, 1991 — 3,84

Capitalized lease obligations 3,301 —

203,472 102,74 Less current maturities, included in current liabilities 3,730 1,69

Net long-term debt $199,742 $101,052

The 41/2% convertible guaranteed debentures (issued by Motorola International Development Corporation) are convertible into common stock of Motorola, Inc., at the rate of 25.2 shares for each one thousand dollar 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 101.5% to 100% of the principal amount thereof. For the year ended December 31, 1977, $108,000 in debentures ($2,245,000 for the year ended December 31, 1976) were converted into 2,720 shares (56,554 in 1976). At December 31, 1977, there were 174,170 shares (176,890 at December 31,1976) of Motorola, Inc. common stock reserved for issuance upon conversion of these debentures. The 8% sinking fund debentures due October 1, 2007, are redeemable at various dates at redemption prices reducing from 107.7% to 100% of the principal amount thereof. Annual sinking fund payments are required beginning October 1,1988 in installments of $5 million sufficient to retire 95% of the issue prior to maturity. The net proceeds from the sale of the debentures were used to reduce outstanding domestic commercial paper and re-

deem the 8% guaranteed sinking fund debentures (issued by Motorola International Capital Corporation) due March 1,1987. On November 10, 1977, the company prepaid all the outstanding industrial revenue bonds (issued by Codex Corporation). In addition, substantially all of the 8% guaranteed sinking fund debentures due March 1, 1987 were redeemed on December 28, 1977 (debentures outstanding at December 31,

1977, have been subsequently redeemed). The premium for pre-

payment and cost of redemption of the aforementioned issues were not considered material. The full amount of the revolving credit agreement ($56 million) extends through March 31, 1980, with $7 million in equal semiannual reductions thereafter. Under the terms of the agreement, any borrowings through September 30, 1979, will be at the prevailing prime commercial rate of interest, for the next two years at the prevailing prime commercial rate of interest plus 1A%, and for the last two years at the prevailing prime commercial rate of interest plus 1/2%. It is the intention of the company to maintain the

availability of the revolving credit agreement during 1978, and

therefore, the debt is classified as long-term.

The revolving credit agreement restricts retained earnings available for payment of cash dividends. At December 31,1977, approximately $237 million ($157 million at December 31,1976) of retained earnings was not restricted as to dividend payments. The revolving credit agreement also requires the company to maintain a ratio of consolidated current assets to consolidated current liabilities at not less than 1.75:1.00 and consolidated net

working capital (as defined) of not less than $225 million.

The aggregate maturities and sinking fund requirements for

long-term debt during the next five years are as follows:

1978 $ 3,730,000 1979 3,908,000 1980 18,685,000

1981 18,247,000 1982 18,168,000 The 1980, 1981 and 1982 aggregate maturities and sinking fund requirements each include $14 million of commercial paper supported by revolving credit commitments.

5. INCOME TAXES: The company provides for income taxes based on earnings reported for financial statement purposes. The components of the provision for income taxes are as follows: 1977 197 (Dollars in thousands Currently payable: United States $63,336 $59,069 Other nations 12,232 7,814 State income taxes (U.S.) 7,617 7,014 Total currently payable 83,185 73,897 Deferred 965 1,637 Total income tax expense $84,150 $75,534

Income tax expense differs from amounts currently payable because certain charges are made to earnings in periods other than the periods in which the charges are deducted for tax purposes. The tax effects of these differences are reflected in the

23

consolidated balance sheets primarily as future income tax benefits. The principal items are as follows:

1977 (Dollars in thous

Difference between depreciation recorded

for income tax purposes and financial reporting purposes

$ 4,625 Income taxes deferred on profits of Domestic International Sales Corporations 2,411

(Increase) decrease in: (628)

Future warranty obligations Inventory valuations (7,201) Future employee benefits 3,051 Other—net (1,293)

Total. $ 965

Total income taxes differ from the U.S. Federal income tax rate of 48%. The principal reasons for this difference are reflected

below:

1977 1976 Statutory U.S. Federal rate 48.0% Increase (decrease) in tax rate resulting from: Taxes on earnings in other nations, net of loss operations with no tax benefits and tax holidays 2.4 Tax benefits arising from tax holiday in Puerto Rico (4.8) Investment tax credits ,. . (3.8) State income taxes 2.1 Other .3

Effective tax rate 44.2% 4

Income taxes have been provided on aggregate earnings of the company's Domestic International Sales Corporations. Income taxes have not been provided on the company's share of certain of the undistributed earnings of non-U.S. subsidiaries. It is intended that these earnings be permanently invested in operations outside of the United States. At December 31, 1977 certain non-U.S. subsidiaries of the company had loss carryforwards of approximately $9 million, exclusive of Autovox S.p.A., an Italian subsidiary. The company's Federal income tax returns have been examined and settled through 1973 by the Internal Revenue Service.

6. SHARE OPTION PLANS: Under the company's employee share option plans, shares of common stock have been made available for grant to employees of the company and certain subsidiaries. The exercise price of options granted may not be less than 100% of market value on date of grant. The Share Option Plan of 1972 permitted granting of qualified (all of which have been cancelled and replaced with non-qualified options, or have expired) or non-qualified options, exercisable one year from date of grant. Non-qualified options expire ten years from date of grant. Authority to grant options under the 1972

24

plan was suspended upon implementation of the Share Option Plan of 1977. The Share Option Plan of 1977 permits the grant of nonqualified options only, which are exercisable in installments

commencing one yearfrom the date of grant and expire ten years from such date.

In 1977, outstanding options previously granted to employees

of Codex Corporation and its subsidiaries pursuant to the Codex

Corporation Qualified Stock Option Plan and the Codex Corporation 1975 Qualified Stock Option Plan were assumed by Motorola. All of the options currently outstanding may be exer-

cised in installments commencing six months after the date of

grant, and expire five years from such date. Information on share options is summarized below:

1977 1976

Options outstanding beginning of year 1,198,462 1,147,321 Additional options granted 295,765 334,770 Options exercised (33,870) (228,463) Options terminated for discontinued

employment (31,266) (49,370 Options expired — (5,796 Options outstanding end of year 1,429,091 1,198,462 Shares reserved for possible future option grants 767,912 32,411

Total shares reserved 2,197,003 1,230,873 Total options exercisable 1,114,572 837,017

Aggregate exercise price of outstanding options $67,321,000 $54,938,000

Aggregate exercise price of exercisable options $52,593,000 $39,106,000

In addition, 5,775 warrants to purchase common stock were exercised by employees of Codex in 1977 (10,653 in 1976). Options exercised during 1977, including options previously granted to employees of Codex, were at per share prises of $8.57 to $46.25 ($6.93 to $52.56 in 1976). Options outstanding at December 31,1977, were at per share prices of $9.53 to $63.75. On January 30,1978, the company authorized the Compensation Committee to request the mutual cancellation of certain of the company's share options previously granted, and the granting of replacement share options at 100% of market price on date of grant. Qualifying tendered share options will be replaced with share options at the rate of three shares for every four shares offered for cancellation, which are exercisable to the extent, at the times, and in the manner of the cancelled share options. Also, it i the intention of the Compensation Committee that share options for the one share out of every four shares offered for cancellation which were not regranted, will be granted to eligible employees in a new share option grant at the earliest possible date following the regrant.

7. CONTINGENCIES: The company is one of 23 defendants named i n a lawsuit commenced on September 20,1974 by Zenith Radio Corporation ("Zenith") in the United States District Court

for the Eastern District of Pennsylvania. Zenith's complaint alleges conspiracies and other violations of the U.S. antitrust and antidumping laws. The complaint also challenges, under the U.S. antitrust laws, the purchase by subsidiaries of Matsushita Electric Industrial Co., Ltd. of Japan (collectively with such subsidiaries, "MEI") of certain of the assets and business of Motorola's Consumer Products Division home television receiver business. Prior to the consummation of such purchase, the U.S. Department of Justice, at the request of Motorola and MEI, investigated the antitrust implications of the transaction. During such investigation, the Department of Justice took no legal action to prevent the sale.

For all such alleged violations Zenith claims monetary damages in the aggregate of more than $300 million (and the trebling of that amount). It seeks judgment against the defendants jointly

and individually in that amount plus costs and plaintiff's attorney fees. It also seeks divestiture by MEI of the assets purchased from Motorola.

In the event a divestiture is ordered or litigation damages are assessed against MEI arising out of such purchase, Motorola has agreed to share to a limited extent certain of the dollar loss, if incurred by MEI. The maximum loss for which Motorola could be responsible to MEI under this agreement is $20 million. Management believes that the company has acted properly throughout and has denied any conspiracy or other violation of law alleged by Zenith. The company is a defendant in various other suits and claims which arise in the normal course of business and is obligated under repurchase and other agreements principally in connection with the financing of sales.

The company's business under certain United States Government contracts is subject to the provisions of the Renegotiation Act of 1951. Renegotiation has been completed through 1970, and it is the opinion of management that no excessive profits were realized in subsequent years. The company is contesting a U.S. Equal Employment Opportunity Commission (EEOC) determination on November 4, 1977, that there is reasonable cause to believe that the company has engaged in a pattern and practice of employment discrimination at its facilities in the Phoenix, Arizona area. The company is participating in statutorily mandated conciliation discussions with th EEOC staff. If resolution through those discussions should fail, the EEOC could file suit. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the business or financial position of the company.

8. DISCONTINUED OPERATIONS: On May 28, 1974, Motorola

sold to certain subsidiaries of Matsushita Electric Industrial Co.,

Ltd., a Japanese corporation, certain of the assets of Motorola's

Consumer Products Division home television receiver business.

Because of disagreements between the parties, the sales price of the business could not be finally determined until such disagreements (including those applicable to product and service warranty obligations, which were the subject of an arbitration pro-

ceeding) were resolved. All such disagreements were finally resolved in January of 1977, and the loss from discontinued operations from the date of the announcement of the sale (March 12, 1974) to the closing date (May 28,1974) has been reflected as a non-recurring net loss in the company's 1976 operations. The 1976 loss from discontinued operations (including the net proceeds from disposition of certain assets not sold to Matsushita) is comprised as follows: Income Pre-Tax Taxes Net (Dollars in thousands) Operating losses incurred during the period March 13,1974 to May 28, 1974 $(11,878) $(5,587) $(6,291 Gain on disposal 1,505 (2,316) 3,821

Loss from discontinued operations $(10,373) $(7,903) $(2,470

The net gain after tax on the sale and disposition of the assets has been reduced by an estimate of remaining costs applicable to litigation against Motorola brought by Zenith Radio Corporation, which litigation was instituted as a result of the sale to Matsushit Income taxes applicable to the gain on disposal vary from the normal corporate Federal income tax rate of 48%, principally because certain assets sold at a gain receive capital gains treatment for income tax purposes, whereas other assets sold at a loss result in a tax benefit at the 48% rate.

9. EMPLOYEE BENEFIT PLANS: As specified in the Motorola Executive Incentive Plan, amended in 1977, the company may provide up to 7% of its annual consolidated pre-tax earnings, as defined, for the payment of cash incentive awards. Awards made in 1978 for 1977 performance and in 1977 for 1976 performance are payable in full or in installments, or may be otherwise deferred at the option of the participant and with approval of the Compensation Committee. Awards granted in 1976 and prior years are payable generally in equal annual installments over a period of five years and are generally subject to the recipient's continued employment. Amounts of $7,625,000 and $4,091,000 were provided in 1977 and 1976 for such awards, representing 7% and 4% of earnings from total operations as defined in the respective years. In 1977 awards of $3,985,000 were made for 1976 performance ($2,202,000 in 1976 for 1975 performance). Awards for 1977 performance have not yet been determined. At December 31,1977, $8,061,000 was available for such awards. The company and certain subsidiaries have contributory profit sharing plans in which all eligible employees participate. The contributions to profit sharing funds in the United States and other nations, based upon percentages of pre-tax earnings from total operations, as defined, were $24,062,000 in 1977 and

$18,665,000 in 1976. The company's domestic profit sharing plan

was amended effective January 1,1978, to provide among other

things, an increased company contribution which will result in ad-

ditional company costs in future years.

Prior to January 1,1978, the company and certain subsidiaries had a voluntary and contributory domestic pension plan. The company's policy is to fund pension costs as accrued: $6,612,000

in 1977 and $6,126,000 in 1976. At December 31, 1977 vested benefits were fully funded as determined by the December 31, 1976 actuarial valuation. As amended, effective January 1,1978, the domestic pension plan is non-contributory and substantially all domestic employees are automatically covered under the plan upon the completion of at least one year of service. Changes in the company's domestic pension plan will result in increased company costs in future years. In the event that the amount actually payable annually under the plan does not amount to 40% or more of an elected officer's rate of salary at retirement, it is the intention of the company (subject to certain qualifications and conditions) to make supplementary payments so that the total annual payments will aggregate 40% (or 30% in the case of payments to the surviving spouse) 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 the surviving spouse of an officer who die while in active employment. The company is accruing for these supplementary payments on a current basis. In addition, certain foreign subsidiaries have varying types of retirement plans providing benefits for substantially all of their employees. Essentially all of the cost of these plans is borne by the company. Amounts charged to earnings for the plans were $4,200,000 in 1977 and $3,100,000 in 1976.

10. INFORMATION BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA: The Financial Accounting Standards Board in December, 1976 issued Statement of Financial Accounting Standards No. 14, "Financial Reporting for Segments of a Business Enterprise" which requires, among other things, that financial

Communication Products

Sales and other revenues—unaffiliated customers .. $821,496 Interproduct sales and other revenues 1,999 Equity in net earnings of 50% owned affiliate Total sales and other revenues $823,495 Operating profit $130,890

General corporate expenses Interest expense Earnings before income taxes

Identifiable assets $571,984

Investment in net assets of 50% owned affiliate Corporate assets Total assets Depreciation and amortization $ 25,948 Fixed asset expenditures $ 55,445

26

statements for fiscal periods beginning after December 15, 1976 include information about a company's operations in different industry segments, and information about a company's foreign operations. The following disclosures disaggregate elements of the company's financial statements according to the guidelines established by Statement No. 14. However, management in its measurement and review of the company's activities may, from time to time, aggregate or disaggregate operations, or allocate costs among operations as necessary to satisfy internal requirements. In addition, comparisons of the company's product operations to similar operations of other enterprises may not be meaningful. Motorola operates predominately in one industry, electronic equipment and components. Operations involve the design, manufacture and sale of a diversified line of electronic products, which includes, but is not limited to, two-way radios and other forms of electronic communications; semiconductors, including integrated circuits and microprocessor units; automobile radios, stereo tape players, citizens band radios and other automotive electronic equipment. Within this industry, communications product, semiconductor product, and automotive product sales account for approximately 85% of total revenues from unaffiliated customers. The company operates manufacturing and distribution facilities outside the United States. No single facility, country or geographic region outside the United States accounts for more than 10% of consolidated sales and other revenues or total assets. Information about the company's operations in different classes of similar products, as of, and for the twelve months ended December 31,1977 is summarized below:

Adjustments miconductor Automotive Other and Products Products Products Eliminations Consolidated (Dollars in thousands) $551,111 $196,906 $277,995 $ - *$1,847,508 31,189 2,021 5,690 (40.899) 887 887 $582,300 $198,927 $283,685 $(40,012) $1,848,395 $ 79,977 $ 11,237 $ 9,914 $ (604) $ 231,414

(18,098 (22,901 $ 190,415

$389,946 $144,282 $193,145 $ (3,550) $1,295,807

2,395 118,531 $1,416,733 $ 31,498 $ 8,532 $ 53,137 $ 9,676

Information about the company's operations in different geographic regions, asof, and forthe twelve months ended December

31, 1977 is summarized below:

United St

Sales and other revenues—unaffiliated customers $1,424,04 Intergeographic sales and other revenues 244,82 Equity in net earnings of 50% owned affiliate Total sales and other revenues $1,668,86 Operating profit $ 201,044 General corporate expenses Interest expense Earnings before income taxes Identifiable assets $ 975,822 Investment in net assets of 50% owned affiliate . . . Corporate assets Total assets

Operating profit was computed as total revenues less operating expenses. In computing operating profit, none of the following items have been added or deducted: general corporate expenses, interest expense, income taxes, and equity in net earnings of a 50% owned affiliate. Identifiable assets are those assets of the company that are identified to classes of similar products or operations in each geographical area, excluding internal receivables. Corporate assets are principally cash and marketable securities, the corporate administrative headquarters, and future income tax benefits. Interproduct and intergeographic transfers are accounted for on an arm's length pricing basis and are consistent with rules and regulations of domestic and foreign taxing authorities. Sales to United States Federal government agencies aggregated $194,044,000 during the twelve month period ended

December 31, 1977. No other single customer (or group of customers under common control) accounted for 10% or more of the company's sales.

11. LEASE COMMITMENTS: Although the company owns most of its major facilities, it does lease certain office, factory and warehouse space, in addition to data processing and other sundry equipment.

The company classifies and accounts for leases entered into subsequent to December 31,1976 in accordance with the provisions of Statement of Financial Accounting Standards No. 13, "Accounting for Leases." This statement requires that a lease that transfers substantially all of the benefits and risks incident to the ownership of the property be accounted for as an acquisition of an asset and incurrence of an obligation. Accordingly, certain computer equipment leases have been capitalized. At December

31, 1977, the gross amount of assets recorded under those

capitalized leases was $3,540,000. Associated accumulated

\

lease amortization was $260,000. Amortization of property under capital leases is included in depreciation of plant and equipment. The net investment in capitalized leases is included in sundry assets. The company has determined that the effect of retroactive application of Statement No. 13 to leases entered into prior to January 1,1977 is insignificant. Total rental expense (including taxes, insurance and maintenance when included in rent) for all non-capital leases (including those with terms of less than one year) reduced by sublease rental income, was $22,739,000 in 1977 and $21,159,000 in 1976. Minimum future obligations on all noncancelable leases with initial terms of one year or more in effect at December 31,1977 are as follows for the periods ending December 31:

Capital Operatin (Dollars in thousands)

Total minimum obligation 4,610 $44,586

Less executory costs 595 Net minimum obligation 4,015 Less amount representing interest . . . 714 Present value of net minimum obligation 3,301 Less current portion 767

Long-term obligation at

December 31 1977 $2,534

2

12. SUPPLEMENTARY DATA: Company funded research and development expenditures, which are charged against operations as incurred, were $109,729,000 in 1977 and $96,407,000 in 1976. In 1977, the company further refined its procedures for defining research and development expenditures. Accordingly, 1976 research and development expenditures have been restated.

13. QUARTERLY FINANCIAL DATA (Unaudited): Selected unaudited quarterly financial data for 1977 and 1976 are as follows: (Dollars in thousands, except per share data)

THREE MONTHS ENDED 1977 April 2 July 2 Oct. 1 Dec. 31

Sales and other revenues $419,164 $459,696 $445,664 $523,871

Gross profit before depreciation (a) 165,807 183,007 161,480 200,054 Netearnings $ 24,018 $ 27,817 $ 24,291 $ 30,139

Net earnings per share. $ .79 $ .92 $ .80 $ .99

THREE MONTHS ENDED April 3 July 3 Oct. 2 Dec. 31

1976

Sales and other revenues $353,726 $390,848 $369,720 $420,587

Gross profit before depreciation (a) 136,370 154,313 143,322 161,771

Earnings per share from continuing operations $ .59 $ .76 $ .80 $ .89

Net earnings per share. $ .59 $ .76 $ .80 $ .81

(a) Profit after manufacturing and other costs of sales exclusive of depreciation expense. (b) The effect of recognizing the final adjustments on the disposition of the home television receiver business. (See Note 8 of the Notes to Consolidated Financial Statements.)

Peat, Marwick, Mitchell & Co. made a limited review of the 1977 and 1976 quarterly data in accordance with standards established by the American Institute of Certified Public Accountants. Since Peat, Marwick, Mitchell & Co. did not audit the quarterly data for either year, they express no opinion on such data.

28

14. ESTIMATED REPLACEMENT COST INFORMATION (Unaudited): Requirements of the Securities and Exchange Commission direct the calculation of cost of sales and depreciation expense based on the estimated replacement costs of inventories and fixed assets. The company's annual review of stated inventory values, confirms level or slightly declining input costs, which coupled with productivity increases traditionally experienced in the electronics industry, indicate that stated costs of inventories and cost of sal approximate a replacement cost basis. Consequently, the company's stated inventory value and cost of sales have not been restated. While the replacement cost of the company's fixed assets would be substantially higher than the stated acquisition cost, and

while depreciation charges (straight-line) based on such higher replacement costs would be greater than the 1977 depreciation charge in the consolidated financial statements, management

believes (but cannot definitively quantify) that lower costs of operation would result from using newer and more efficient fixed assets and that the savings, which would result from these efficiencies, would at least offset the higher depreciation indicated. Because the SEC's requirements exclude the effect of price level

changes on assets and liabilities other than inventories and fixed assets, the data cannot be used to estimate the effect of inflation

on the company's operation. Also, because of the inherent sub-

jectivity of the replacement cost disclosure requirements and the consequent differences of interpretation between different com-

panies, management believes that this information has limited significance.

The company's annual report to the SEC on Form 10-K, a copy of which is available upon request, will contain the prescribed SEC disclosure.

MANAGEMENT DISCUSSION AND ANALYSIS ucts in 1976 was solely the result of increased unit volume as an OF STATEMENTS OF CONSOLIDATED EARNINGS overall decline in average selling prices was experienced. Price declines are typical for these products due to continual improve1977 versus 1976 ments in productivity which yield lower unit costs which are, in Sales and other revenues from continuing operations for the turn, passed on to the customer. In 1976 the demand for these year were $1,848.4 million compared with $1,534.9 million in products also expanded, in part as a result of increased applica1976. Substantially all of the 20.4% increase was due to improved tions of semiconductor devices in areas such as automotive enunit sales volume. gine monitoring systems, citizens band radios and new high The sale of communications products increased approximately speed microcomputers. Sales of automotive products increased 20% in 1977 and accounted for more than 40% of the increase in $36 million (28%) in 1976, a result of the rebound of the automoconsolidated sales and other revenues. This increase was at- tive industry from the depressed levels of 1975. Only modest tributable to an increase in demand with virtually no price in- price increases were implemented during this period. Sales of creases. Worldwide sales of semiconductor products were up communications products increased $66 million (11%) in 1976, 23% over 1976. This increase was due solely to improved vol- attributable principally to an increase in demand for certain of ume, as price decreases made possible because of the continued these products. improvements in productivity, which yield lower unit costs, were Manufacturing and other costs of sales increased $81.1 million passed on to customers. Sales of automotive products increased (9.5%) in 1976. This change is slightly less than the sales change, by approximately 21% reflecting increased demand from the au- and reflected improved productivity and strengthened cost tomotive industry. controls. Manufacturing and other costs of sales increased $198.9 mil- Selling, service and administrative expense increased $34.8 lion (21.2%) in 1977. This increase was consistent with the 20.4% million (10.9%) in 1976 due in part to an increase in sales personincrease in sales and other revenues. nel compared to 1975. This increase was less than the sales inSelling, service and administrative expense increased $70.7 crease of 14.8% and reflected the impact of strengthened cost million (20.0%) over 1976. This increase was consistent with the controls which were the result of increased management atten20.4% increase in sales and reflected significantly higher em- tion to the internal budgeting process. ployment costs due to both an increase in personnel and in- Depreciation of plant and equipment increased $5.0 million creases in certain employee benefits. (9.4%) in 1976. Interest and amortization expense declined $4.0 Depreciation of plant and equipment increased $14.8 million million (19.2%) in 1976 due to reductions in debt and to declining (25.6%) over 1976, the result of fixed asset expenditures during interest rates. the past three years of $124 million in 1977, $98 million in 1976 The overall effective tax rate decreased from 47.9% in 1975 to and $75 million in 1975. 45.1% in 1976, due primarily to earnings of international operaInterest and amortization expense increased $6.0 million tions that were in a loss position in 1975. (35.2%) over 1976. This change reflected an increase in both Net earnings from continuing operations increased $46.9 millong- and short-term debt and higher interest rates. lion (104.5%) in 1976 due principally to the earnings contribution The company's overall effective tax rate decreased from 45.1 % of semiconductor and automotive products, which incurred in 1976 to 44.2% in 1977, due principally to increased investment losses in 1975 and returned to profitable positions in 1976. tax credits. Net earnings from continuing operations increased $14.4 mil- SALES BY SIMILAR CLASSES OF PRODUCTS lion (15.7%) in 1977. This increase reflected level or increased 1977 1976 1975 1974 1973 profit margins on the sale of communications, semiconductor and (Dollars in millions) automotive products, offset by start-up costs and operating Communications Products $821 $680 $614 $584 $468 losses in citizens band radio, watch module and crystal proSemiconductor Products 551 447 348 454 419 grams, and certain international operations which reduced con- 197 Automotive Products 162 126 144 144 solidated profit margins. The sales shown in the foregoing table do not include products 1976 versus 1975 manufactured by the company and incorporated into other prodSales and other revenues from continuing operations in- ucts manufactured and sold by the company. In addition, the creased $198.1 million (14.8%) in 1976. Improved unit sales vol- sales of Autovox S.p.A., a wholly-owned subsidiary incorporated ume accounted for substantially all of the sales increase. in Italy, are not included as part of the sales of automotive prodA $99 million (28%) increase in sales of semiconductor prod- ucts reported above.

29

Ten Year Financial Summary

(Dollars in thousands, except per share data)

Operating Results from Continuing Operations(1) 1977 1976 1975 SALES AND OTHER REVENUES $1,848,395 $1,534,881 $1,336,793 Manufacturing and other costs of sales 1,138,047 939,105 857,999 Selling, service & administrative expense 424,333 353,603 318,771 Depreciation of plant and equipment 72,699 57,873 52,922 Interest & amortization of debenture discount, expense and premium, net 22,901 16,933 20,953

Total costs and other expenses 1,657,980 1,367,514 1,250,645

Earnings from continuing operations before income taxes 190,415 167,367 86,148 Income taxes 84,150 75,534 41,244

EARNINGS FROM CONTINUING OPERATIONS 106,265 91,833 44,904 RETURN ON SALES 5.7% 6.0% 3.4%

Discontinued operations—profit (loss) (2,470)

Net earnings $ 106,265 $ 89,363 $ 44,904

Per Share Data Earnings from continuing operations $ 3.50 $ 3.04 $ 1.50 Net earnings 3.50 2.96 1.50 Dividends declared .88 .735 .70

Balance Sheet and Other Data (2) Working capital $ 565,883 $ 438,529 $ 407,843 Current ratio 2.47:1 2.27:1 2.62:1

Short-term debt $ 77,666 $ 64,403 $ 54,424 Long-term debt 199,742 101,052 124,058 Stockholders' equity 786,559 705,687 626,456 Less short-term investments 85,681 60,972 38,116

Total invested capital $ 978,286 $ 810,170 $ 766,822

Return on average invested capital 11.8% 11.7% 5.7°/ Return on average stockholders' equity 14.3% 13.8% 7.4°/

Yearend employment (approximate) 60,000 56,000 47,000 Average shares outstanding (in thousands) 30,393 30,175 29,864

(1) All periods have been retroactively restated to include the results of (2) All periods have been retroactively restated to include the Codex Coroperation of Codex Corporation, acquired in 1977 in a business combina- poration. The 1968 through 1973 data has not been restated to exclude tion accounted for as a pooling-of-interests (See Note 2 of the Notes to the home television receiver business. Consolidated Financial Statements). In May, 1974, Motorola sold its home television receiver business. Consequently, the 1968 through 1973 operating results have been adjusted to remove the effect of the television business.

30

(2,184) (3,477) 4,477 2,202 (6,277) (1,833) 1,048

$ 424,574 $ 431,405 $326,315 $255,478 $222,395 $237,560 $179,387 2.33:1 2.42:1 2.36:1 2.32:1 . 2.38:1 2.47:1 2.10:1

$ 815,115 $ 728,201 $548,169 $485,117 $440,996 $409,037 $348,251

STOCK PRICE AND DIVIDEND DATA The table below sets forth the high and low sales price per share for Motorola Common Stock on the New York Stock Exchange and the dividends declared and paid for the periods indicated: Stock Prices Dividends Stock Prices Dividends 1977 High Low Declared Paid 1976 High Low Declared Paid 1st Quarter $56.88 $43.50 $.210 $.210 1st Quarter $51.00 $41.25 $.175 $.175 2nd Quarter 46.75 36.25 .210 .210 2nd Quarter 59.00 43.50 .175 .175 3rd Quarter 47.25 39.25 .210 .210 3rd Quarter 58.25 51.00 .175 .175 4th Quarter 45.37 33.63 .250 .210 4th Quarter 57.00 47.50 .210 .175 $.880 $.840 $.735 $.700

31

Directors Officers Motorolo, Inc.

DIRECTORS CORPORATE Robert W. Galvin Chairman of the Board and Chief Executive Officer ROBERT W. GALVIN William J. Weisz President and Chief Operating Officer WILLIAM J. WEISZ John F. Mitchell Executive Vice President and Assistant Chief Operating Officer JOHN F. MITCHELL FINANCE JAMES W. DIRKENSTOCK JohnT. Hickey Senior Vice President and Chief Financial Officer President, Inrercol Inc. Donald R. Jones Vice President and Assistant Chief Financial Offi Edward J. Harry Vice President and Controller JOHN T. HICKEY William P. Meehan Vice President and Treasurer STEPHEN L LEVY VincentJ. Rauner Vice President for Patents, Trademarks and Licens Richard H. Weise Vice President, General Counsel and Secretary HOMER L MARRS STAFF ARTHUR C. NIELSEN, JR. Stephen L. Levy Senior Vice President and Chief Corporate Staff O Chairman of the Board L Curtis Foster Vice President and Corporate Director of Engineer A. C. Nielsen Company R. James Harring Vice President and Corporate Director of Planning ARTHUR L. REESE Vice President and Corporate Director of C. Travis Marshall Retired, formerly Executive Government Relations Vice President, Motorola Inc. Walter B. Scott Vice President and Corporate Director of ELMER H. SCHULTZ Manufacturing and Facilities Director Emeritus, HUMAN RELATIONS I.I.T. Research Institute Robert N. Swift Vice President and Director of Human Relations WALTER D. SCOTT MULTINATIONAL EDWIN P. VANDERWICKEN Levy Katzir Vice President and Director of Multinational Ope Chairman, Finance and Audit DATA PRODUCTS AND NEW VENTURES Committees, Motorola Inc. Homer LMarrs Senior Vice President D. KENNETH WEST AUTOMOTIVE PRODUCTS DIVISION Executive Vice President Carl E. Lindholm Senior Vice President and General Manager Harris Trust and Savings Dank Automotive Products Division COMMUNICATIONS GROUP Joseph F. Miller, Jr. Senior Vice President and General Manager Communications Group Directors Emeritus: Jack Germain Vice President and Assistant General Manager DANIEL E. NOBLE Communications Group Chairman, Science Advisory Board, Arthur P. Sundry Vice President and General Manager Motorola Inc. Communications Distribution Division Ira W. Walker Vice President and Assistant General Manager ELMER H. WAVERING Communications Distribution Division Retired, formerly Vice Chairman Rhesa S. Farmer, Jr. Vice President and General Manager and Chief Operating Officer, Communications International Division Motorola, Inc. Claude G. Davis Vice President and General Manager Communications Products Division John M. Duich Vice President and Assistant General Manager Communications Products Division Martin Cooper Vice President and General Manager Communications Systems Division GOVERNMENT ELECTRONICS DIVISION Ralph W. Eisner Vice President and General Manager Government Electronics Division James R. Lincicome Vice President and Assistant General Manager Government Electronics Division SEMICONDUCTOR GROUP Senior Vice President and General Manager John R. Welty Semiconductor Group Vice President and Assistant General Manager Robert R. Heikes Semiconductor Group Vice President and Director of Manufacturing and Earl R. Gomersall Production Technology, Semiconductor Group Vice President and Director of World Marketing Pasquale Pistorio Semiconductor Group Vice President and General Manager Gary L. Tooker Discrete Semiconductor Division Vice President and General Manager Alfred J. Stein Integrated Circuits Division

32

Motorola Products

AUTOMOTIVE PRODUCTS DIVISION GOVERNMENT ELECTRONICS DIVISION Power and small signal transist Car radios Fixed and satellite communications systems Field effect transistors (FETs) Stereo tope players Space communications systems Microwave devices Automotive p o w e r amplifiers Tactical electronics systems Optoelectronics Automotive speaker systems Rodor surveillance and display systems Rectifiers Alternotor charging systems Positioning and navigation systems Thyristors Solid-state ignition systems Countermeasures systems Varactors Electronic instrumentation Missile guidance systems Triggers Electronic engine controls Drone control systems Suppressors Citizens band radios and antennas Data security modules Solar energy components Missile and aircraft instrumentation Watch modules COMMUNICATIONS GROUP Secure communications OTHER BUSINESSES Mobile and portable FM t w o - w a y radio Radar mapping service communications systems Educational films ond materials Radio paging systems SEMICONDUCTOR GROUP CRT display modules Communications control centers MOS and bipolar integrated circuits Closed circuit TV systems Signaling and remote control systems Microprocessors Microprocessor rest equipment Cor telephone systems Micro-components and systems Information display systems Microwave communications systems Semiconductor chips Industrial process controls Health care communications systems Zener and tuning diodes Dara communications equipment ( Precision instruments RF modules multiplexers, network proces Component products test equipment) Electronic c o m m a n d ond control systems Plasma processing systems Mobile daro communications systems

Motorola Worldwide

Major facilities in: Israel Switzerland New Mexico Tel-Aviv Geneva Albuquerque Australia Italy United States New York Melbourne Rome Arizona Arcode Delgium Japan Mesa Texas Brussels Tokyo Phoenix Austin Canada Korea Scottsdole Fort Worth Willowdale, Ontario Seoul Tempe Seguin Denmark Malaysia Florida Missouri Frederikssund Kuala Lumpur Fort Lauderdale Webb Ciry France Penang Illinois Iowa Angers Mexico Corol Stream Mount Pleasant Toulouse Guadalajara, Jalisco Chicago Pennsylvania Great Dritain Mexico City, D.F. Franklin Park Carlisle Dasingstoke and Nogales, Sonora Lombard West Germany Stotfold, England Puerto Rico Schaumburg Munich East Kilbride, Scotland Arecibo Massachusetts Tounusstein Vego Boja Mansfield Motorola Executive Institute in Hong Kong South Africa Newton Oracle, Arizona Kowloon Dramley. Transvaal

Motprolo is on Equal Employment Opportuniry/Afftrmotive Action Employer

Motorola and (M) ore registered trademarks of Motorola,lnc.