摩托罗拉公司1979年年报

Poised for the Eighties 1979 Annual Report (M) MOTOROLA INC.

Daniel E. Noble On February 16, 1980, Dr. Daniel E. Noble died in his Scottsdale, Arizona, home at the age of 78. Teacher, inventor, engineer, technological pioneer, leader, artist, colleague, friend, Dan Noble was for four decades, a giant in the electronics industry and in the heart and the spirit of Motorola. His role in our history is n itself history. But his legacy heart and spirit and genius endures and will endure. We are all in Dan's debt. We won't forget.

Contents 1 Financial Highlights 2 Letter to Stockholders 4 Communications Group 5 Semiconductor Group 6 Automotive and Display Systems Group 7 Government Electronics Division 8 Data Communications 9 Poised for the Eightie 21 Financial Review 23 Financial Statements 26 Notes to Consolidated Financial Statements 34 Ten-Year Financial Summary 36 Directors and Officers 37 Major Facilities and Products

Annual Meeting of Stockholders The annual meeting will be held on Monday, May 5,1980. A notice of the meeting, together with a form of proxy and a prox statement, will be mailed to stockholders on or about March 20,1980, at which time proxies will be solicited by the Board Directors.

Transfer Agents and Registrars Harris Trust and Savings Bank 111 W. Monroe Street Chicago, III. 60690

Citibank, N.A. 111 Wall Street New York, N.VM0015

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

Form 10-K At the close of each fiscal yea Motorola submits a report on 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 Road, Schaumburg, 111.60196.

Financial Highlights

(Amounts in thousands, except per share data) 1979 1978 Sales and Other Revenues $2,713,795 $2,219,744 Earnings before Special Charge and Income Taxes 269,606 220,390 % to Sales 9.9% 9.9% Special Charge 10,286 — Income Taxes 105,024 95,208 Net Earnings 154,296 125,182 % to Sales 5.7% 5.6% Net Earnings per Share before Special Charge 5.21 4.04 Net Earnings per Share 4.96 4.04 Research and Development 167,000 133,000 Fixed Asset Expenditures 265,072 146,377 Depreciation 110,827 83,340 Working Capital 708,551 619,930 Current Ratio 2.35:1 2.20:1 Return on Average Invested Capital (stockholders' equity plus long- and short-term debt net of short-term investments) 13.5% 12.3% % of Total Debt (long- and short-term) to Total Debt plus Equity 23.0% 24.1% Book Value per Common Share 32.22 28.49 Year-end Employment (approximate) 75,000 68,000

The Company Motorola, Inc., one of the world's croprocessor units; electronic leading manufacturers of elec- equipment for military and tronic equipment and compo- aerospace use; automobile nents, is engaged in the design, radios; stereo tape players, citimanufacture and sale, princi- zens band radios and other aupally under the Motorola brand, tomotive electronic equipment of a diversified line of products. and data communications These products include two- products such as high speed way radios and other forms of modems, multiplexers and netelectronic communications sys- work processors. Motorola's tems; semiconductors, includ- products are manufactured for ing integrated circuits, discrete both United States and internasemiconductors and mi- tional markets.

1979 was another year of fine formance is return on average The Government Elecprogress for Motorola with all invested capital (stockholders' tronics Division reported subbut one of our major opera- equity plus long- and short- stantial growth in its sales, tions showing strong growth in term debt net of marketable bookings and backlog levels, sales and earnings. Of particu- securities). For 1979, this re- up more than 20 percent, 50 lar note were the continuing turn on capital reached 14.1 percent and 60 percent rehigh level of demand for percent before the special spectively. Operating profits semiconductor components charge and 13.5 percent after were improved over 1978. and the surpassing of $1 billion the special charge compared The Automotive Products milestones by the net worth of with 12.3 percent in 1978. Division, however, reported an the corporation and the year's In December we increased operating loss with sales sales of the Communications the company's dividend rate slightly below its 1978 level. Group. per share from 30 cents to 35 These unsatisfactory results For the fourth consecutive cents per quarter. This is the were primarily due to a reducyear, sales, earnings and divi- tenth consecutive year that the tion in automobile entertaindends reached record highs. declared dividend has been in- ment and citizens band radio Sales and other revenues for creased. Any future dividend in- sales volume which, in turn, 1979 were $2.7 billion, a 22 creases will, of course, depend necessitated inventory and percent increase over $2.2 on the company's operating pricing adjustments. In addibillion in 1978. results and its financial needs. tion, the division continued to Earnings in the year were Operations Overview invest in new businesses and $162.2 million, or $5.21 per The Communications technologies. share, before a special charge Group's sales increased by 17 The company's data comof $7.9 million, or 25 cents per percent and operating profit munications operations, for share, to provide for the ter- margins were improved. New which Codex has prime remination of the electronic equipment orders rose by 15 sponsibility, continued to show timepiece component busi- percent and backlog was strong growth. Sales and ness, as well as certain other ahead of the yearend 1978 bookings for 1979 were up peripheral activities of the level. more than 40 percent, reflectSemiconductor Group. Of the The Semiconductor Group, ing the sharp rise in demand in special charge, $1.2 million, or helped by a continuing high the U.S. for data communicafour cents per share, had been level of worldwide demand for tions equipment. Because of recorded in earlier 1979 quar- semiconductor components Codex's strategic investments, ters. Net margin on sales in and by the introduction of sev- operating margin, as planned, 1979 was 6.0 percent before eral major metal oxide silicon was down from its 1978 level. the special charge. (MOS) products, had an out- Senior Management In 1979, after the special standing year. Sales were up Promotions charge, earnings were $154.3 38 percent with an improve- In January 1980 the Board of million, or $4.96 per share, ment shown in the group's Directors elected William J. compared with $125.2 million, operating profit margin. New Weisz vice chairman of the or $4.04 per share, in 1978. order bookings and backlog board and John F. Mitchell Net margin for 1979, after the improved significantly over president of Motorola, Inc. special charge, was 5.7 per- their 1978 levels, up more than Both gentlemen continue in cent compared with 5.6 per- 40 percent and 70 percent re- their roles as chief operating cent for the year earlier. spectively. Growth in inte- officer and assistant chief Another important indicator grated circuits, in particular, operating officer respectively. of the company's earnings per- was excellent. The board's announcement

recognizes the long service and superior leadership and achievements of both men who have served Motorola in various positions from engineering to top management for their entire working careers. Bill Weisz, who has been president and chief operating officer of Motorola, Inc., forthe past ten years, will now have an additional responsibility, the management of strategy as a primary factor in the management of Motorola's business and operations. Associated with this is responsibility to ef fect new business directions and strategies. John Mitchell, who has been executive vice president and assistant chief operating officer for the past five years, will continue to con centrate his activities in the supervision of direct operations and the implementation of strategy. New Directors During the year two new members were elected to the Board of Directors, Mr. M. Joseph Lambert and Mrs. Charlotte T. Reid. Mr. Lambert is the chief financial officer o

Kraft, Inc., and Mrs. Reid is a former member of the House of Representatives and former commissioner of the Federal Communications Commission. Management and Organization Changes

In the third quarter the Communications and Semiconductor Groups announced important changes in their respective organizations in order to better serve grow-

ing markets and manage unprecedented technological change. This resulted in the Communications Group now having eight divisions in its structure and the Semiconductor Group six divisions. Also announced with these changes was the election of seven executives as vice presidents of Motorola, Inc., by th Board of Directors. These included Bradford K. Krohafrom the Communications Group, and Geno Ori, James A. Norling, Dr. James Fiebiger, Henri A. Jarrat, Andre Borrel and Charles E. Thompson, all from the SemiconductorGroup. The board also elected Arthur Carr, president of Codex Corporation, as a vice president of Motorola, Inc. Research and Development Major investments in research and development are necessary to maintain a competitive edge in a dramatically expanding electronics industry. In 1979 Motorola spent $167 million on R&D, exclusive of government funded work, compared to $133 million in 1978.

Outlook Since early in the 1970s, Motorola's corporate strategy for profitable growth has

undergone some fundamental changes. We have divested ourselves of certain opera-

tions that have not met profit standards and are investing in businesses that would benefit from our expertise in semiconductor technology and our direct marketing skills.

The most significant changes that have occurred are the substantially greater share of current sales revenues that are derived from the Communications and Semiconductor Groups and our entry into the rapidly expanding data communications market. We believe that today's mix of businesses positions Motorola well for the future. Looking ahead into 1980 and beyond, we are optimistic about Motorola's prospects although, in the short term, ther are many uncertainties in the economic climate. Maintaining profit margins with the current severe inflation of costs is an increasingly difficult task, which is receiving our constant attention. We do believe that the dynamics of the major markets we serve will provide the corporation the opportunity for further growth in reve nues and earnings in 1980.

Yours very truly,

Robert W. Galvin Chairman

US) William J. Weisz Vice Chairman

John F Mitchell President

Communications Group

In 1979 the Communications Group's sales passed the billion dollar mark, an increase of 17 percent over 1978's level. This is the first time a Motorola division o group has reached this milestone which is approximately equivalent to the company's entire sales in 1973. This fine performance also included an improved operating profit margin compared to 1978. The group's backlog level at yearend was 15 percent higher than the previous yearend and worldwide new equipment orders have continued to grow, up 15 percent over last year. Domestic order growth was particularly strong in the radio common carrier, industrial and telephone markets. Among the notable orders received were a contract from the City of Chicago Transit Authority Board for an above and below the ground radio communications system and from Amoco Production Company for a special 800 MHz wide area trunked system that uses simulcast technology to cover, by mobile radio, two of the company's petroleum production districts. In the state and local government market, among the orders received was one from the City of Mesa, Ariz., for a computer aided dispatch system for its police and fire departments and another from the State of Virginia for vehicular repeater system that will facilitate communications with state policemen when they are out of their vehicles. Orders from the Communications Group's international markets continued to grow at a faster rate than its domestic markets. Orders in Canada were up 17 percent over last year, which reflected improvements in the Canadian economy. In Europe the group had an excellent year with orders up by 61 percent above last year. Mexico and Australia also had strong growth compared to 1978.

Among the international contracts received during the year were a multimillion dollar add-on order for eight-function LED readout pagers from the Dutch Post, Telegraph and Telecommunications system, an improved mobile telephone service system from the Ivory Coast Government and an order from the Metro/ Toronto ambulance system that included mobile radios, radio repeaters and mobile data terminal display units. An underlying strength of the Communications Group's successful growth continues to be the extensive scope of its mobile radio, portable radio and paging product lines. Several new products were introduced for both the domestic and international markets which have excellent potential for the future. The Mitrek'" mobile radio line was expanded by three new models so that it now includes nearly all bands and all powers for domestic and international markets.. A dual function digital tone radio pager was introduced to the market. This pager has two separate tones enabling the user to receive messages from two locations. Two new hand-held portable radios were also unveiled. The group manufactures several product lines for use primarily in its international markets. During the year new product introductions included an FM two-way mobile radio, the European version of the Maxar® 80 mobile radio, an ultrahigh frequency hand-held portable two-way radio, and a mobile radio that has long distance communications capabilities. In addition to its more traditional prod uct lines, the Communications Group introduced three new data communications systems for the fire department, transit authority and fleet management markets. The fire dispatch processor, the general status processor and the transit dispatch software are tailored to meet the require-

merits of each of these markets, enabling dispatchers to know, among other things, the status of vehicles and their movements. Significant structural changes were made to the Communications Group's divisional organization during the year. The former Communications Products Division was divided into three divisions—the Portable Products Division, the Mobile Products Division and the Communications Fixed Products Division. In addition two other divisions were formed—the European Communications Division and the Communications Distribution Service Division.

Semiconductor Group

The Semiconductor Group's performance in 1979 was outstanding. This was due to the increased worldwide demand for semiconductor components, which remained at a high level throughout the year and to Motorola's introduction of many additional state-of-the-art products, including several metal oxide silicon (MOS) devices which serve the needs of new applications and markets. Sales were up 38 percent over last year with an improvement shown in operating profit margin. New order bookings increased by more than 40 percent over 1978 while backlog was up by more than 70 percent. Demand remained particularly strong in the U.S. automotive, computer, communications and industrial sectors. In two major international markets, Europe and Japan, the strongest segments were the telecommunications and business equipment markets. The group made major changes in its divisional structure. The former Integrate Circuits Division was divided into two divisions—the MOS Integrated Circuits Di-

vision and the Bipolar Integrated Circuits Division. The former Discrete Semiconductor Division was also divided into two divisions—the High Frequency and Optical Products Division and the Power Products Division. A European Semiconductor Division was also created. To meet the expanding demand for semiconductor components the Semiconductor Group is increasing its production capacity. The MOS plant in Austin, Texas, has been doubled in size to nearly half a million square feet and work has begun on the construction of an 85,000 square foot automated warehouse at the 52nd Street plant in Phoenix, Ariz. The bipolar and MOS integrated circuit (IC) wafer fabrication facilities in Mesa, Ariz., are also being enlarged. Two building sections have been refurbished and occupied this year and another two unfinished sections will be completed in 1980. Internationally, new capacity has been added to the facilities in East Kilbride, Scotland; in Seremban, Malaysia; and in Manila, Philippines. A new automotive laboratory to support sales to the Japanese automotive industry and an MOS final test facility were opened in Tokyo, Japan. IC sales were at an all-time high and bookings showed substantial gains over last year. There was a significant increa in backlog levels. Of particular importance in 1979 was the announcement of several new MOS products. Motorola's 64K dynamic random access memory (RAM) was evaluated by customers and is now in the early stages of production. The group also announced the 16K, 32K and 64K five volt erasable, programmable read only memories (EPROM). The 64K EPROM is believed by Motorola to be the first such device produced by the industry. Major advances have been made in mi-

croprocessor design and development. Four new devices were introduced during the year which included the MC68000 and MC6809. The 16-bit MC68000 is probably the most complex microprocessor of its kind and greatly expands the processing capabilities of these devices to some two million calculations a second. The MC6809 microprocessor is an 8-bit device which, because of its internal 16-bit capabilities, bridges the gap between 8-bit and 16-bit microprocessors. Production of the 16K RAM was begun in the last quarter of the year at the East Kilbride plant in Scotland. This additional production capability will help meet growing demand for this product in Europe. Market demand for low power Schottky devices has continued to grow and, consequently, sales of this product rose signi icantly during the year. This line of logic products was also expanded with the introduction of 18 new devices. In addition, the Macrocell Array I, an advanced bipolar very large scale integrated (VLSI) device, has been well received by both mainframe and mini-computer manufacturers. Discrete semiconductor sales, bookings and backlog levels increased in 1979. The discrete operation continued its emphasis on yield improvements and cost reduction programs during the year. The quality of product shipped to customers improved over the previous year and was a result of further investment in mechanized assembly and testing systems. Developments by Motorola in discrete component technology led to the introduction during the year of products for the consumer, communications, industrial and military markets. These included eight different microwave pulse-power transistors with an output power of up to 150 watts, expansion of a family of Switchmode power transistors, IC opto-

couplers used in the rapidly growing industrial controls markets and fiber optics components for such markets as computer, telecommunications and industrial controls.

Automotive and Display Systems Group

Automotive Products Division The general downturn in U.S. new car sales and a further reduction in entertainment equipment business from original equipment manufacturers caused a significant reduction in sales of Autosound and citizens band radio products which was not fully offset by the Automotive Products Division's other activities. a result, the division's sales volume was slightly below the 1978 level. The division incurred an operating loss for the year primarily due to the reduced Autosound and citizens band sales volume which, in turn, necessitated inventory and pricing adjustments. In addition, the division continued to invest in new businesses and technologies. While continuing to serve its tradition markets, the division has been developing new businesses. In one of these, automobile engine electronics, production began in 1979 on an electronic engine controller for the Ford Motor Company. In addition, Ford has awarded a portion of its 1981 feedback carburetor module business to Motorola, the only outside vendor participating in this program. Sales of alternators and instruments continued to grow, particularly in the aftermarket and the agricultural and industrial markets. A family of two alternators in the industrial market was introduced during the year. These 90 and 62 amp alternators have a high output and a substantially longer life than the conventiona alternators their size.

The division's international markets, particularly in Europe, continued to play an important role in its overall sales performance. Sales of charging and ignition systems from the division's Angers, France, facility grew significantly in 1979 and that operation recorded an operating profit for the year. An agreement was reached with a major German car manufacturer to supply 65 amp alternators for vehicles exported to the U.S. This same customer will use the division's all-electronic entertainment centers in its U.S. cars. In addition, a co tract was awarded by another European manufacturer for the development and production of a four cylinder distributorless ignition system. In another new business, the first shipments of digital appliance controls have been made to two major appliance manufacturers. Consumer demand for microwave ovens remained strong throughout the year and, as a result, shipments of controls for this equipment were substantially ahead of plan. Further production contracts have been negotiated with these manufacturers for 1980.

Display Systems Unit The Display Systems Unit's sales increased moderately over 1978. New order bookings and backlog levels were down somewhat for the year, caused by a softening in the unit's cathode ray (CRT) tube display business. This, combined with investment in new product design and the start-up of the production facility in Jop Mo., has resulted in a lower operating profit margin than last year. In spite of the softening in new orders and backlog, sales of CRT displays to .computer terminal manufacturers continued to grow during the year. A new 12" display module, introduced in 1979, has been well received by the manufacturers

of small home and business computer terminals and has provided Motorola with an important foothold in the low cost display market.

Government Electronics Division

The Government Electronics Division has completed a fine year with sales, bookings and backlog levels up substantially from 1978. Sales for the year rose more than 20 percent with bookings and backlog up by more than 50 percent and 60 percent respectively. Operating profits also increased. While the development of specific equipment has continued, one of the keys to the division's growth in recent years ha been the expansion of its subsystems and systems business. The success of this strategy was particularly borne out this year when the U.S. Army awarded the division a $55 million contract for the development of its Stand-Off Target Acquisition System (SOTAS). This is the single largest defense or space contract ever awarded to Motorola and has funding potential for follow-on production business. Development of equipment for the U.S. space program continues to be an important feature of the division's business. Among the contracts received in 1979 were a Tracking and Data Relay Satellite System transponder for the Space Telescope Program due for launch in 1983; airborne command receivers and ground communications equipment for the Space Shuttle; and a radio frequency subsystem for the Galileo space orbiter and the radi transmitter for the probe to be sent deep into the atmosphere of Jupiter. Motorola's traditional defense contract business also made an important contribution to the division's excellent results Among the major contracts awarded were

development of an optical target detector for high velocity anti-radiation missiles; production of MK-29 antenna assemblies for the Navy's Standard and Shrike Missiles; and development of an improved scoring system for use at the Pacific MissileTest Center at Point Mugu,California. Several defense contracts received this year are likely to have long-term production potential in the 1980s. These include an award from the U.S. Army for the development of an 155mm projectile fuze and from the U.S. Air Force for the development of a protective countermeasures system and solid state transmitters for the defense avionics system for the B-52 strategic bomber. The Department of Energy selected Motorola and the Arizona Public Service Company to build a 200 kilowatt solar power plant at the Phoenix Sky Harbor Airport. More than 5,000 photovoltaic solar concentrators will be manufactured for installation on 18 large arrays for the program. In the international markets, the MiniRanger® position determining and navigation equipment is pacing the division's sales, although military radios and computer interactive displays are also findin increasing acceptance.

Data Communications

In 1979, Motorola consolidated its data communications operations under the management of Codex. These operations include ESE Limited (in Canada), a manufacturer of data communications subsystems, data modems and network control products; Universal Data Systems, Inc., a supplier of low and medium speed modems and data communications test equipment; and a new Codex operation in Phoenix which manufactures micro-

processor-based intelligent terminals and terminal subsystems. Motorola's data communications operations had another strong year. Sales and bookings increased by more than 40 percent over 1978, reflecting sharp growth in demand for data communications equipment in the domestic market. International markets showed satisfactory growth although not at the same high rate as the domestic markets. Codex's business strategy calls for combining Motorola's corporate-wide distinctive competence in semiconductor technology, communications technology, and those technologies gained through its own product and field experience, to provide quality data communications products and systems. In 1979 Codex began to demonstrate the successful implementation of this strategy through changes in it organizational responsibilities, new product introductions and expansion of its facilities. As a result of these strategic i vestments, operating profit margin for Motorola's data communications operations was down, as planned, from its 1978 level. In line with its expansion plans, Code broadened its equipment base by marketing several new products. Among these were an advanced network control system, a data security system, a voice digitizer and a family of "intelligent" terminals. Construction of additional office and production facilities to meet current and future growth requirements was begun in July at Codex's Mansfield, Mass., headquarters. This 150,000 square foot addition is scheduled for completion in 1980.

Poised for the Eighties: a special report

On the 1980s... As the electronics industry and world markets grow during the '80s, Motorola will be putting its major emphasis on the management of strategies... which calls for the best mix of products that can be managed and earn optimum company profit over multi-years, generate a competence distinctive from competition, and provide convincing benefits to worldwide customers. • There will be special demands on managing capital resources productively, on sourcing of materials, and dealing with shortages. Fixed asset needs will intensify. Profit margins must increase to meet all of these requirements of the '80s. Governments with an interest in future prosperity must appreciate the need for creating a healthier investment climate. • More than 75 percent of sales in 1979 came from products that have been developed within the past ten years, and as we move into the new decade, our technology has taken a turn into the realm of super sophistication affecting both hardware and software. It is accompanied by a much higher level of customer expectation of quality and reliability. • Allowing for normal interruptions, there will be substantial growth opportunities in our types of businesses in the non-U.S. marketplaces. Therefore, during the '80s, we must be successful in influencing governments to apply the new international trade regulations fairly so there will be reciprocal foreign trade and investment opportunities. • There will be vigorous attention to the training and development of people. Programs of participation on the part of all employees in the conduct of their company work will be expanded. • One compelling element that has brought us to our present size and competency has been adherence to a philosophy which respects the dignity of each individual and which demands that every act and transaction of the corporation be governed to the highest standard of integrity. This will continue. y • • ' • Robert W. Galvin

Poised for the Eighties As we move into the '80s, Motorola is a premier company in a premier industry, electronics. One characteristic of a premier industry is a positive re sponse to the ever expanding needs of society. Another is the opportunity to serve these needs with distinctive competence and with unique specialization. This has been the history of the electronics industry, and the history of Motorola. What lies before us in

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the '80s is a continuation of the process that develops technology to serve people, but the pace will be quicker and the specialties more sophisticated. Predictions abound today that we are entering a decade of stunning electronic innovation brought about mainly by the continuing rapid expansion and development of semiconductor technology, which has advanced more in the past five or six years than in the previous two decades combined. There is no doubt that elec-

(Above) As part of the photoresist process of wafer fabrication in the Mesa, Ariz., HMOS clean room, the critical dimensions of individual c on the wafer are measured. (Right) One of the final phases of wafer fabrication is metallization. During metal evaporation, an interconnect metal is deposited on the wafer.

tronics will continue to evolv and serve the world's needs to communicate, to measure, to control, and to compute. Motorola's hundreds of products in the communications, semiconductor, automotive electronics, government electronics, and data communications businesses serve directly or indirectly almost of the possible functions of electronics. We are the leader, or among the leaders, in many product and market areas of this diverse industry. But more than

that, Motorola is in a unique class of the industry because of the synergism developed within the company between semiconductor technology and equipment designed with microelectronic components and produced in huge volume. This specific distinctive competence makes even greater the opportunities and challenges of the '80s. It may wel be, too, that the evolution in technology, and the exploding applications of complex and inexpensive electronic functions in the '80s, will make t

decade a pivotal period in his- next decade and an overview construct a complex complete croprocessors together actory for industrialized society of how Motorola's people, computer system on a tiny chip count for about 30 percent of as a whole. products and technology are of silicon, are incalculable to total IC sales at present, but so With continued growth at poised for the'80s. society. Critical world needs of rapid is the growth rate that the least equivalent of our historic the '80s and beyond in com- two devices are expected to rate, and with associated high The Microelectronic munications, transportation, make up about two-thirds of all standards of profit, turnover Revolution energy savings, ecology, in- IC sales at the end of the '80s. and return on net assets, we Today, the driving force be- formation processing and For Motorola, this technolexceeded $2.7 billion in sales hind the electronic technology productivity will all be im- ogy revolution provides opporin 1979 and expect to exceed revolution is unquestionably pacted by rapid change, as tunities and challenges both $10 billion by the turn of the large scale integration, of electronics becomes more per- extensive and exciting. next decade. We expect to which the integrated circuit vasive to the needs of society. generate attractive, consistent known as the microprocessor Integrated circuits at pres- Electronic Systems for Cars earnings. And, we expect to is but one outstanding ent are about two-thirds of all For example, in 1980 continue the process of example. semiconductor sales, and Motorola has become a leadinnovation. The implications of this growing, according to industry ing designer and supplier of What follows is a look at the technology, which in 1980 can sources. Memories and mi- engine managment elec-

Products of microprocessor-based technology are helping the automotive industry build cars for the '80s.

In Ahwatukee, the House of the Future near Phoenix, Ariz., a microprocessor-based home management computer system, designed and built by Motorola, handles information storage, electrical load switching, environmental control, energy conservation and security functions. This experimental house is open to the public for viewing.

tronics for General Motors Corp., through the Semiconductor Group, and for Ford Motor Co., through the Automotive Products Division. In Europe, where auto manufacturers are not as yet subject to rigid air pollution and fue economy improvement regulations, Motorola is already d livering sophisticated devices to a major European auto manufacturer. The automotive industry is one of the largest immediate markets for semiconductors, and is expected to be using

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about $1 billion worth annually by the mid-'80s. This surge in microelectronics and the enthusiasm of the world's auto manufacturers for electronic systems of increasing sophistication, should not diminish during the next ten years. It is supported at Motorola by developmental programs already in place forthe future, and by a long-term commitment to being a major designer and supplier to the industry. For the Automotive Products Division, experience in electronic engine manage-

(Above) Electron microscopy makes it possible to pinpoint material flaws, imperfections that earlier would hav escaped detection except by stress testing and that could grow into fai mechanisms under severe stress. (Right) A recently installed process performs operating life forzener diodes. With this equipment, one operator can perform operating life and test about one million zener diodes a year.

ment and in developing and manufacturing high volume, high reliability, low cost ele tronic controls for use in adverse environments has opened up another opportunity. The industrial and agricultural off-the-road vehicle market, where the demand for electronic controls and instru mentation is growing, represents an important market potential for the future.

Semiconductor Technology Key Advancements in industries

other than automotive electronics—telecommunications, instrumentation, entertainment products, and information processing to name just a few—will all move along in future years at a quickened pace because of that highly complex, mass-produced, extremely reliable and low cost wonder, the microprocessor. And Motorola is at the lead ing edge of this technology. In 1979, the company introduced the MC68000, a stateof-the-art microprocessor which, when combined with

peripheral parts, such as a vehicles; and the radio tele- needs. The strategy of custom scale and very large scale memory unit, can perform phone business, where the sales, service, and manufac- integrated circuitry. For insome two million calculations cellular radio-telephone sys- turing to meet special sophisti- stance, providing mobile in a single second. It is be- tem will become a reality dur- cated communications needs two-way radio users the ability lieved to be the most powerful ing the '80s. is particularly pertinent to the to interface with computers and most complex of these '80s because of its thrust to- while in their vehicles is an devices on the market. Advances in Mobile Radio wards energy saving and important need solved by In the communications Technology productivity. In effect, markets microprocessor technology. business, the microelectronic Motorola's Communications continue to broaden—in part Mobile terminals and printers revolution will impact almost all Group is one of the world's because effective means to are already available, but the of the two-way radio products leading producers of two-way communicate both data and advanced microprocessors, of the future. Two examples of radio systems and it has built voice cut transportation costs, such as Motorola's MC68000, the more innovative uses will its business in part over the and help manage human re- have the capability of providbe microelectronic applica- years by applying mobile radio sources more efficiently. ing more efficient use, and tions in computer aided dis- technology to those segments Most of the mobile and port- more innovative and flexible patching together with radio of the marketplace that have able radio and paging prod- access to computers in user access to computers from unique communications ucts are impacted by large the future. It is possible that

(Above) Public safety control centers employ computers in the assembly of information necessary to protect communities. State-of-the-art two-way communications systems, with computer aided dispatch and digital voice protection (shown here in the Salt Lake City, Utah, Police Department control center), help provide efficient, highly secure environments for these law enforcement services. (Left) New economic feasibilities for energy exploration are assisting increasing energy independence. The use of mobile radios in remote areas provides economic advantages, enabling efficient use of time and fuel in these operations.

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voice recognition and voice synthesis technology will permit the vehicle operator to talk to, and receive information in voice form from computers. This radio technology will be a primary tool for creating new Motorola products in the '80s, and will hasten the era widespread digital signal processing which converts signals (voice and data) into digits or numbers and modifies them for transmisssion via a particular communications link.

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Cellular Systems Cellular systems will be an extremely effective way to meet the growing demand for mobile telephones, and in 1975 the Federal Communications Commission (FCC) allocated 40 MHz of spectrum for the development of a nationwide mobile telephone system. A cellular system employs the technique of frequency re-use, and at the heart of th cellular system are computers which handle various signalling, supervision and control functions. Re-use permits two

or more conversations to take place simultaneously in different parts of the city on the same channel. The DynaT'AC® portable telephone, designed and demonstrated by Motorola some years ago, will accelerate even more the use of the radio telephone by providing communications for people on the move, in or out of a vehicle. Two companies, Motorola and AT&T, have designed cellular systems. The Motorola system, which is being developed for the Washington,

These antennas are used in Motorola's Dyna TAC experimental cellular system, which supports t use of Dyna VAC®portable telephones.

D.C./Baltimore, Md.area, will be operated by American Radio Telephone Service. Operational development installations and tests are currently underway and full service is expected to commence in 1981-82. The FCC has begun the regulatory process leading to final rules for cellular system Major questions are being addressed, including the services to be provided, limitations on the role of the wire line telephone companies, the degree of competition between cellu-

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lar systems and in the supply of subscriber equipment, technical standards for nationwide compatibility, and t required spectrum allocation.

WARCSome Changes The world's radio equipment market is significantly impacted periodically by the general World Administrative Radio Conference which meets to review the world's available radio spectrum and allocate its usage. In the fall of 1979, WARC held its meeting in Geneva,

• n"'»M»iii.,!

Switzerland, and for eleven weeks the world community reviewed and revised as necessary the radio regulations of the International Tele communications Union. The conference reviewed the allocations of all portions of the radio spectrum and determined the amount of spectrum that will be available for each the radio services. As one of the world's larges designers and manufacturers of land mobile equipment, Motorola was pleased that the majority of countries of the

world expressed the need for expanded radio frequency allocations for both domestic and international mobile services. Specifically, the conference decided to increase mobile service allocations in all three regions of the world, Europe/Africa, Western Hemisphere, and the Far East.

By-Products of Space Age Motorola's Government Electronics Division has had equipment on every manned and every major unmanned U.S. space mission since the

(Above) The World Administrative Radio Conference, held in Geneva in 1979 and attended by Motorola representatives, reviewed the world's available radio spectrum and allocated its usage for the future. (Left) For the upcoming Galileo probe of Jupiter, Motorola is buildin electronic subsystems to keep the spacecraft in two-way communication with NASA. In the Galileo clean room at the Government Electronics Division, modules for the radio frequency subsystem are being prepared for tests.

program began in the 1950s. For instance, the first voice from the Moon and the first pictures of Mars and Jupiter were transmitted to Earth by Motorola communications systems. From this experience the company has derived expertise in a variety of technolo and disciplines. There are many examples of commercial products or competences that have come directly from this leading edge technology exposure: the Info-Guard® encryption device for secure da

applications; a sophisticated Communications System Analyzer; applications of side looking radar technology to aerial mapping and resource management; and the MiniRanger®, a radar positioning device used by oil explorers and others. Less visible are other spin off benefits from both space and military contracts which will, in the long term, affect lives. Satellite communications is but one example. Tomorrow's ultra-sophisticated satellites, employing digital

16

technology and utilizing advanced data processing techniques with electronic switching and coding plus high speed data transmission, could be used to bypass ground telephone networks and go directly from user to user anywhere on Earth. Transmission of up to several billion bits of data per second is now possible compared to a tenth of that a decade ago. And microprocessors will help provide the high speed electronic switching and digitizing capability required for these

The transportation industry represents a major market opportunity for data communications equipment. In the communications room of the Chicago Transit Authori Board, sophisticated monitoring and control equipment ensures network reliability.

future "switchboards in the sky."

High Growth Opportunity The dramatic growth in the numbers of computers and remote terminals used in busi ness, industry and other organizations has created an equally dramatic demand for these computers and terminals to communicate with each other. When the Codex Corporation joined Motorola several years ago and was followed by Universal Data Systems, Inc.,

^

it led to the formation of a da communications activity which is managed by Codex, and which broadens Motorola's technology portfolio by providing distinctive competence in this field. Data communications is another industry where electronics is all important to the needs of an informationoriented society. Up until recently, communications networks were extensions of basic data processing application functions—accounting, record keeping, the normal

transactions of business. In the very near future, a single network will carry data and voice and facsimile. It can now carry word processing information which becomes, in a sense, electronic mail, where there is communications between two geographically separated word processors within a network. There will also be increasing use of teleconferencing and video conferencing. For example, there are computer networks dedicated to health care information, and networks which connect police stations throughout a state int one single data communications system. Practically every major industry in the world depends upon reliable computer networks to run its business efficiently. Motorola's growing opportunity in data communications is to become a supplier of systems and network elements, with the exception of the transmission media itself.

International Trade No discussion of the '80s would be complete without focusing on international trade practices, which promise to be an increasingly critical

issue from the competitive, economic and political points of view. International pressures acting to squeeze fair trade, and governments acting in their perceived individual national interests to optimize economic advantage, will meet head on with the philosophy of open, free and fair trade. We begin the '80s, however, with an encouraging sign for businesses engaged in world trade. During the latter half o the '70s, more than 100 countries of the world participated in multi-lateral trade negotiations that were intended to reduce tariffs, eliminate nontariff barriers, prevent unfair trade practices and improve the remedies available for

violations. Motorola executives were among industry advisors who participated in these negotiations. The negotiations produced far-reaching agreements that have been enacted into law by the U.S. Congress and which should, if properly enforced, help ensure fairer trade in th '80s. But, even though the negotiations produced certain substantial tariff reductions overall, the reductions achieved in high technology industries, such as the semiconductor industry, were unsatisfactory. Motorola will continue to seek further reductions of tariffs in order t provide true equivalency in commerce between trading partners. The agreements, which are designed to halt such unfair export practices as dumping, predatory pricing, government subsidies of exports; and import barriers, such as stepped-up customs valuations, unique specifications, quotas, and restrictions on government procurement, will solve problems only if backed by constant monitoring and firm enforcement. Motorola has urged the U.S.

Government to assign to its economic attaches in the U.S. embassies and consulates around the world, the specific task of dealing direc with the host governments regarding those violations of th trade agreement that limit exports of the United States. Further, in the public arena, will pressforthe establishment of more efficient on-going agencies at the world level so that business and government can continue to work on certain of the unsolved or inadequately solved parts of the trading problem.

A Worldwide Identity Non-U.S. markets have never been viewed at Motorola as an alternative to a lagging domestic economy. Rather,

the world demands for electronic products and technology and the company's longterm plans and objectives fo growth have expanded our participation in the international arena to the position in 1979 where almost one-third of all sales are international. We have made substantial investments required for lon term operations outside of t U.S., and now have 27 major facilities located around th world in Europe, Asia, Australia, the Middle East, Afr

Mexico, Latin America and Canada, and approximately 85 non-U.S., sales offices. The cultural and business practices of our host countrie and the vitality of Motorola employees worldwide (who speak at least 25 different languages as their native tongues) have done much to broaden our perspective. As the world of internationa marketing grows smaller, emphasis on research, product adaptation, price competition, and service grows larger. Being price competitive in

Motorola products leave O'Hare International Airport in Chica Flying Tigers 747, destined fo customers abroad.

markets outside of the U.S., People: The Real The electronic development volvement within the company and managing domestic costs Leading Edge pace will continue to acceler- which recognizes the human requires unique business During the '80s, the key to ate, and therein lies the his- need to know oneself and management skills, and, maintaining leadership in high toric difference between the function effectively within a ideally, a healthy and viable technology electronics will lie '80s and previous decades. chosen working environment. economy. But adherence to with the expertise and re- Our greatest resource, At the heart of managethe basic tenets in the free en- sourcefulness of the people therefore, is the people who ment's commitment to peoterprise system of free and fair who work in the industry. On work at Motorola. ple involvement is the need trade that are a deciding factor the surface, this is not so dif- There are approximately for effective communications, between success and failure, ferent than it has always been. 75,000 Motorolans around the broadening a dialogue among is where governments and But, a good many people now world, each with his or her own all Motorolans. business must work together, realize that the ever widening talent, ideas and ambitions. not at odds, for general eco- range of consumer and indus- As we enter the '80s, we are Formalizing Dialogues nomic well being. Nowhere is trial applications of electronic committed to meeting their ex- This two-way process was that task more urgent than in functions will put ever greater pectations of job satisfaction begun in 1951 by Motorola's the area of international trade demands on management and and career growth. There will founder Paul V. Galvin, when practices. technical skills. be a broadening of people in- he set up the first advisory

Engineering talent currently emanating from universities is at a premium as the world demand for the products of advanced technology increases.

18

council composed of employees. This council, still i existence and now expanded, makes suggestions and recommendations to the Board of Directors on improvements to various aspects of Motorola's businesses. Since 1951, the number of employee councils and committees has been greatly expanded at all levels within the company to include groups concentrating on profit sharing, employee benefits, personnel policies, affirmativ action, and compensation, among others. In addition to formal organizations which function routinely, employees are encouraged to speak out on company matters and personal concerns through department "rap" sessions and "speak out" and telephone programs, where the company gives quick answers to things people want to know. Senior managers of groups/divisions hold regular briefing sessions and Motorola has approximately 40 plant newspapers and other publications which communicate broadly across company lines. Throughout the company, too, career counseling and posting of job opportunities and associated salary benefits are maintained. Ten years ago, a Science Advisory Board (SAB) comprised of senior members of the technical staff, was forme to foster innovative engineering. SAB's primary goal is to develop support for original and innovative ideas and to identify and single out exceptional individual achievement. Among its activities, SAB communicates significant technical developments among groups and divisions, publishes a quarterly newsletter and technical magazine, and organizes technical seminars.

Our Learning Process During the '80s, education

and training at all levels of t corporation will be expanded. Training programs will range from management development, strategic planning and manufacturing to supervisory management, materials management and sales and marketing training. This decade at Motorola will also bring more emphasis on the participative management program (PMP) started in 1974. PMP involves employees in the management of their work, and through PMP, an employee can receive productivity sharing bonuses based on a percentage of costs saved through improving the output of products, reducing costs or improving quality and delivery. The program puts employees squarely in the decision-making process pertinent to their work.

Skills Needed One of the major concerns of the '80s and beyond is the limited number of skilled people available who can contribute to the continuing growt of technology around the world. The U.S. Department of Labor, for instance, forecasts that there will be a minimum increase of 146,250 jobs in engineering and science technician fields by 1985. These statistics, put against the cur rent shortage of experienced engineers, is causing increasing concern in the advanced technology industries. The electronics industry, which by the end of the decade may equal the size of the giant automotive and steel industries, needs a large infusion o bright technology-oriented people to take advantage of the almost limitless opportunities ahead. Clearly, the problem will require an approach led by educators and backed by industry. Motorola is already working with many universities on various programs to prepare students for

future science careers.

Equal The '80s will see vigorous attention to the employment and promotion of minorities and women. The programs, and, importantly, the commitments are in place and moving rapidly forward. But, it is not attention t social shifts in society, or compliance with the law, that motivates the company to take this path. Nor do we maintain that nothing has changed. There is at Motorola, how-

ever, an historic tradition of equitable treatment of all employees; people have not been defined by their differences. The reality of today and tomorrow is that what is just must b made real in conjunction with the changing cultural expectations people have for their own future. It is the company's commitment to provide the climate for coalition and opportunity for men and women, majority and minority, and to do it with the historic principle of equal opportunity that has not changed

1

fundamentally at Motorola The '80s will see more em- cause the stakes are high for from decade to decade. phasis on this synergism, more people everywhere, and the development of distinctive opportunities for the elecThe 1980s: competences. tronics industry are almost The Journey Continues The '80s, like all preceding limitless. Motorola's competitive dis- decades, will also be ajourney And, no small point, there tinction over the years has through problems as yet un- is the sheer adventure of been state-of-the-art technol- identified. As the social, eco- being part of the electronic ogy, quality products, service nomic, political and competi- revolution. to our customers, and the tive imbalances in the world ability to create a high level of become more pronounced, synergism among Motorola's the need will increase to give operating entities. This partic- close attention to strategies ular combination of strengths and to concentrate on longis what makes us different range objectives. from most of our competitors All in all, it is a journey well around the world. worth taking for Motorola be-

The computer-assisted design of integrated circuits is expected to contribute to the innovation and accuracy of electronic products in the '80s.

20

Financial Review

Balance Sheet As discussed with the stockholders in prior annual reports strong financial condition and conservatively stated asset and earnings figures are important elements in Motorola's culture and operating policy. At December 31,1979, total borrowings, long and short term, were $299 million, up from $281 million a year earlie and represented 23.0% (down from 24.1% in 1978) of total borrowings plus stockholders' equity. The current ratio at year-end 1979 was 2.35 vs. 2.20 for 1978. During the year working capital increased to $709 million from $620 million. Despite sales and other revenue increasing by 22%, dividend payments up by 21 %, and 1979 fixed asset expenditures of $265 million vs. depreciation of $111 million, the above indicators of financial strength were achieved because of several actions taken and programs pursued during the year, as follows. ... Increased emphasis on the management of assets, particularly accounts receivable and inventories. While inventories grew apace with sales volume, accounts receivable were up only 8.3% on a 22% increase in sales and, at year-end, represented 8.4 weeks of sales (vs. 9.2 weeks a year earlier), the best rece able turnover Motorola has

achieved in over a decade. This was a particularly noteworthy accomplishment considering 1979's high interest rates, and the fact that cur rently 26% of our sales are outside the United States where payment practices are typically somewhat slower. For 1980 we intend to continue this asset management emphasis and expect to see improvement in inventory turns. ... During the year, and as the pace of fixed asset commitments accelerated, we negotiated increases in our revolving credit agreement with seven U.S. banks from $56 million to $220 million, and also negotiated increases in our U.S. short-term lines of credit from $95 million to $111 million. At the start of 1980, $265 million of U.S. credit facilities were not being used fo borrowing or for commercial paper backup. Additionally, $100 million of unused nonU.S. bank lines were available. ... In 1979 we accomplished repatriation of $81 million of the accumulated earnings of subsidiaries in Puerto Rico. Adequate provision for the Puerto Rican withholding (tollgate) tax having previousl been made in our accrued tax accounts, the 1979 repatriation had no direct impact on earnings. Accruals for other expected repatriations have also been made.

Exposure Management The foreign exchange exposure management figures in Note 3 include for the first time in this report the after-tax foreign currency translation loss as well as management's estimate of the gains realized during each year and to be realized in subsequent years as non-U.S. inventories flow through the cost of sales. Statement of Financial Accounting Standards No. 8 (SFAS-8) provides, incorrectly we believe, that non-U.S. inventories be translated into U.S. dollars at historical rates even though such inventories have already been sold or are destined for sale at exchange rates in effect at the time of sale. It is our objective to neutral ize, insofar as feasible—economically and otherwise— foreign currency exposure on a total, or "economic", basis including the estimated gain or loss on inventories. Accordingly, we present the foreign exchange translation data both as SFAS-8 provides and with indication of the total economic gain or loss resulting from non-U.S. assets and liabilities held when currency rates change. We continue to support the Financial Accounting Standards Board's indicated intent of studying signifi cant modification of SFAS-8.

2

Price Change Reporting Note 14 to the financial statements contains Motorola's compliance with Statement of Financial Accounting Standards No. 33 (SFAS-33) issued by the Financial Accounting Standards Board in September 1979. SFAS-33 requires large publicly reporting companies to disclose certain information adjusted for the effects of infla tion and thereby indicate the effect of changing prices on the net asset values as well as stated sales, earnings and dividends of the reporting corporations. Unfortunately, we believe that the data in Note 14, which is furnished as prescribed in SFAS-33, seriously fails to meet this objective and, in some instances, suggests incorrect conclusions. SFAS-33 provides for disclosure of data adjusted both for the effects of general inflation ("Constant Dollar") and for replacement cost of inven-

tories and fixed assets ("Current Cost"). Because the "Cur-

rent Cost" method properly includes an adjustment for the

expected increased productivity of replacement fixed as-

sets, which is very difficult for many large companies, includ-

ing Motorola, to calculate,

SFAS-33 only requires that the "Constant Dollar" data be supplied in 1979 reports. The rapid rate of technological

22

change in the electronics industry does cause substantial productivity improvements in many of the new fixed assets Motorola acquires—making the task of calculating the "Current Cost" data extremely difficult to accomplish with reasonable accuracy. Accordingly, Note 14 in this report o contains the "Constant Dollar" information. SFAS-33 requires that the adjustments in "Constant Dollar" data all be made by using the U.S. Consumer Price Index for All Urban Consumers (CPI-U), which index we believe has very limited relation ship to the effects of changing prices on Motorola's net asset values, sales and/or earnings. For but one example, declining prices and inventory unit costs have long been characteristic of semiconductor products as

Current Ratio*

(As of Year End)

*Current Assets Current Liabilities Times 3.0

2.50

2.0

1.50

1.0

1975 1976 197

productivity improvements yield cost savings which are passed on to the customer. The data furnished in Note 14 is based on the assumption (false, we believe) that the inflation rate reflected in the CPI-U represents the effect of changing prices on semiconductor products, when in reality the effect has been substantially opposite. Accordingly, we state our opinion that the data in Note 14, furnished in accordance with SFAS-33, seriously fails to indicate the effects of changing prices on the asset values, sales and/or earnings of Motorola, Inc. Since dividend distributions to some stockholders do, directly or indirectly, become consumer income, the adjusted dividend figures in Note 14 may be thusly somewhat meaningful.

Total Debt to Total Debt pl

(As of Year End)

• Total • Net of Marketable Securit *Long- and Short-Term Debt Long- and Short-Term Debt plus Stockholders Equity

40

30

1975 1976 1977 1

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

Assets (Dollars in thousands) 1979 1978 Current Assets: Cash and short term investments, at cost (approximating market) $ 99,630 $ 157,405 Accounts receivable, less allowance for doubtful accounts (1979, $30,14$ 1978, $23,775) 491,857 454,245 Inventories: Finished goods 156,893 146,117 Work in process and production materials 390,819 292,724 Future income tax benefits 40,169 43,762 Other current assets 54,340 40,739 Total Current Assets 1,233,708 1,134,992 Property, Plant and Equipment: Land 25,499 23,651 Buildings 349,714 287,249 Machinery and equipment 666,674 503,499 Accumulated depreciation (388,146) (310,602) Property, Plant and Equipment, Net 653,741 503,797 Sundry Assets, Net 16,047 17,768 Total Assets $1,903,496 $1,656,557

Liabilities and Stockholders' Equity Current Liabilities: Notes payable—banks and other $ - $ 78,502 Current maturities of long-term debt 3,549 4,461 Accounts payable 230,233 183,339 Accrued expenses 240,828 188,378 Income taxes payable 50,547 60,382 Total Current Liabilities 525,157 515,062 Long-Term Debt 295,628 198,091 Other Noncurrent Liabilities 78,835 57,866 Stockholders' Equity: Common stock, $3.00 par value Authorized: 40,000,000 shares Outstanding: 1979—31,157,719 shares; 1978—31,085,178 shares 93,473 93,256 Preferred stock, $100.00 par value issuable in series Authorized: 500,000 (none issued) Additional paid-in capital 159,104 156,376 Retained earnings 751,299 635,906 Total Stockholders' Equity 1,003,876 885,538 Total Liabilities and Stockholders' Equity $1,903,496 $1,656,557 See accompanying notes to consolidated financial statements

Statements of Consolidated Earnings and Retained Earnings Motorola, Inc., and Subsidiaries, Years Ended December 31

(Dollars in thousands, except per share data) 1979 1978 Sales and Other Revenues $2,713,795 $2,219,744 Manufacturing and other costs of sales 1,624,966 1,339,806 Selling, general and administrative expense 672,282 548,667 Depreciation of plant and equipment 110,827 83,340 Interest and amortization of debenture discount, expense and premium, net 36,114 27,541 Special charge (see Note 2) 10,286 — Total Costs and Other Expenses 2,454,475 1,999,354 Earnings before income taxes 259,320 220,390 Income taxes 105,024 95,208 Net Earnings 154,296 125,182 Retained earnings at beginning of year 635,906 542,899 Cash dividends declared (per common share: 1979, $1.25; 1978, $1.05) (38,903) (32,175) Retained earnings at end of year $ 751,299 $ 635,906 Net Earnings Per Share based on average daily shares outstanding (seeNote 2) $ 4.96 $ 4.04 Average shares outstanding (in thousands) 31,112 31,019

Statements of Consolidated Additional Paid-in Capital Motorola, Inc., and Subsidiaries, as of December 31

(Dollars in thousands) 1979 1978 Balance at beginning of year $ 156,376 $ 152,322 Share option plans 1,847 2,962 1 Conversion of 4 /2% convertible guaranteed debentures 881 1,092 Balance at end of year $ 159,104 $ 156,376

See accompanying notes to consolidated financial statements

24

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

(Dollars in thousands)

Sources of Funds

Net earnings from operations Add non-cash charges: Depreciation

Amortization of deferred debentures discount, expense and Funds provided from operations

Increase in accounts payable

Increase in accrued expenses Increase in notes payable and current maturities of long-te

Disposals and other changes of plant and equipment (and too

Issuance of common stock Increase in income taxes payable

Decrease in future income tax benefit Increase in long-term debt

Decrease in sundry assets, net

Other sources, net Total Sources of Funds

Uses of Funds

Increase in receivables Increase in inventories

Fixed asset expenditures

Increase in equipment rented to others, at cost Decrease in long-term debt

Decrease in notes payable and current maturities of long-te Dividends

Decrease in income taxes payable

Increase in future income tax benefits Total Uses of Funds

Net lncrease/(Decrease) of Funds Cash and short-term investments beginning of period End of Period

See accompanying notes to consolidated financial statements

Accountants' Report

1978 Peat, Marwick, Mitchell & Co.

Certified Public Accountants 125,182 222 South Riverside Plaza Chicago, Illinois 60606 83,340 The Board of Directors and 204 Stockholders of Motorola, Inc.: 08,726 We have examined the consoli48,079 dated balance sheets of Motorola

Inc., and Subsidiaries as of De56,405 cember 31,1 979 and 1978 and the 5,245 related statements of consolidated earnings and retained earn 12,113 ings, additional paid-in capital 4,487 changes in financial position fo 20,340 the years then ended. Our examinations were made in accordance — with generally accepted auditing — standards, and accordingly 7,599 included such tests of the ac-

counting records and such other 6,783 auditing procedures as we 69,777 considered necessary in the circumstances.

In our opinion, the aforemen73,080 tioned consolidated financial 52,340 statements present fairly the financial position of Motorola, 146,377 Inc., and Subsidiaries at De10,418 cember 31, 1979 and 1978 and 2,188 the results of their operations and changes in their financial — position for the years then 32,175 ended, in conformity with gen— erally accepted accounting

principles applied on a consis11,607 tent basis. 328,185 Peat, Marwick, Mitchell & Co. 41,592 February 14,1980 115,813 157,405

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. Consolidation: The 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. Inventories: Inventories are valued at the lower of average cost (which approximates 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 Credits: Investment 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 full 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 an 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 difference between book and tax depreciation has been provided as deferred income taxes.

2. Special Charge: During 1979, the company decided to terminate operations in its electronic timepiece components business as well as certain other peripheral activities of the

semiconductor products group. A special charge was recorded during the year of $10,286,000 before applicable tax benefit of $2,404,000 for termination of these operations. The effect on earnings per share of the special charge was a reduction of $.25.

3. Foreign Exchange: It is the company's policy to attempt to neutralize its exposure to exchange rate fluctuations including the value of non-U.S. inventory destined for sale in foreign currencies where it is both practical and economically justifie to do so. Under Statement of Financial Accounting Standards No. 8 (SFAS-8) sales and other revenue are translated from

other currencies into U.S. dollars at prevailing exchange rates while inventory must be translated at the rates in effect at the time of purchase. The inventory gains separately indicated below reflect management's best estimates of the impact of currency rate changes on manufacturing and other cost of sales. The effects of foreign currency exchange rate changes, after applicable income taxes, occurring in 1979 and 1978 were as follows: (Dollars in thousands) 1979 1978

Exchange (loss) included in earnings

from operations before income taxes $(3,573) $(1,126

Related income taxes 236 (964) Loss included in net earnings as determined in accordance with SFAS-8 (3,337) (2,090 Management's estimate of the gain on non-U.S. inventories due to exchange rate changes arising only in the respective years (unaudited): Estimated amount realized during the year included in manufacturing and other costs of sales 2,091 5,003 Estimated amount to be realized on yearend inventory in the subsequent year in manufacturing and other costs of sales 1,308 414 Total estimated gain (unaudited) 3,399 5,417 Result of the company's foreign currency exposure management (unaudited) $ 62 $ 3,327

4. International Operations: The net earnings from non-U.S. subsidiaries included in earnings from operations are $25,824,000 and $22,232,000 for 1979 and 1978, respectively. The company's equity in net assets of non-U.S. subsidiaries at December 31 consisted of the following:

(Dollars in thousands) 1979 1978

Current assets $ 345,046 $ 291,722 Property, plant and equipment, net 150,964 109,621 Current liabilities (117,990) (162,721

Other assets (liabilities), net (109,663) (40,911 Equity in net assets of non-U.S. subsidiaries $ 268,357 $ 197,711

The company's equity in undistributed earnings of profitable non-U.S. subsidiaries at December 31,1979, amounted to $130,466,000 ($91,525,000 at December 31,1978).

5. Long-Term Debt: Long-term debt at December 31 con- The 8% sinking fund debentures due October 1, 2007, are sisted of the following: redeemable at various dates at redemption prices reducing (Dollars in thousands) from 107.1 % to 100% of the principal amount thereof. Annual 1979 1978 sinking fund payments are required beginning October 1, Debt outside the United States: 1988, in installments of $5 million sufficient to retire 95% of the Notes supported by revolving credit issue prior to maturity. commitments from banks Under the terms of the revolving credit agreement, which (generally at prevailing prime rates) $ 78,387 $ 14,632 were amended in 1979, the full amount of the agreement ($220 Notes payable (generally at prevailing million) extends through June 30,1983, with $31 million in prime rates) due in installments to 1991 29,957 22,924 equal semi-annual reductions thereafter. Any borrowings 1 4 /2% convertible guaranteed through June 30,1982, will be at the prevailing prime commerdebentures due July 1,1983 4,540 5,583 cial rate of interest, for the next two years at the prevailing Debt in the United States: prime commercial rate of interest plus 1A% and for the last two years at the prevailing prime commercial rate of interest plus 8% sinking fund debentures due 1 /2%. It is the intention of the company to maintain the October 1,2007 $ 99,723 $ 99,713 availability of the revolving credit agreement during 1980, and Commercial paper supported by revolving therefore the debt, both domestic and foreign, is classified as credit commitments from banks 66,423 41,368 long-term. Domestic debt refers to outstanding commercial Notes (generally at prevailing prime paper and other short-term borrowings, whereas foreign debt rates) supported by revolving credit refers to short-term borrowings undertaken for interest arbicommitments from banks 6,889 trage or foreign currency exposure management considera4%% debentures due April 1,1986 tions, the repayment of which is not subject to domestic or (net of debentures held by the foreign exchange control limitations. company for sinking fund payments: The revolving credit agreement restricts retained earnings $5,242 at December 31,1979; available for payment of cash dividends. At December 31, $4,739 at December 31,1978) 13,258 15,261 1979, approximately $445 million ($329 million at December Capitalized lease obligations retired in 1979 — 3,071 31,1978) of retained earnings were not restricted for dividend 299,177 202,552 payments. The revolving credit agreement also requires the company to maintain a ratio of consolidated current assets to Less current maturities, included in consolidated current liabilities of not less than 1.75:1.00 (actual current liabilities 3,549 4,461 was 2.35:1.00 at December 31,1979) and consolidated net Net long-term debt $295,628 $198,091 working capital (as defined) of not less than $325 million (actual was $709 million at December 31,1979). The 41/2% convertible guaranteed debentures (issued by The aggregate maturities and sinking fund requirements for Motorola International Development Corporation) are conver- long-term debt during the next five years are as follows: tible into common stock of Motorola, Inc., at the rate of 25.2 shares for each one thousand dollar principal amount, subject 1980 1981 1982 1983 1984 to adjustment in certain events, and are guaranteed as to the $3,549 $4,971 $5,103 $9,351 $32,444 payment of principal and interest by Motorola, Inc. The debentures are redeemable at various dates at redemption prices In 1984 maturities and sinking fund requirements include reducing from 100.5% to 100% of the principal amount thereof. $24.7 million of commercial paper and foreign notes payable For the year ended December 31,1979, $1,043 thousand in supported by revolving credit commitments. debentures ($1,325 thousand for the year ended December 31, 6. Income Taxes: The company provides for income taxes 1978), were converted into 26,279 shares (33,386 in 1978). At based on earnings reported for financial statement purposes. December 31,1979, there were 114,505 shares (140,784 at Income tax expense differs from amounts currently payable December 31,1978) of Motorola, Inc., common stock reserved because of timing differences in the recognition of certain for issuance upon conversion of these debentures. income and expense items for tax and financial statement

27

purposes. The components of the provision for income taxes company had loss carryforwards of approximately $13.9 million. are as follows: The company's federal income tax returns have been exam(Dollars in thousands) 1979 1978 ined and settled through 1973 with the Internal Revenue Taxes currently payable: Service. United States $ 60,815 $70,720 A reconciliation of the statutory corporate tax rate with the financial statement effective income tax rate is as follows: Other countries 19,798 18,526 1979 1978 State income taxes (U.S.) 9,640 7,539 Statutory U.S. Federal rate 46.0% 48.0% Total currently payable 90,253 96,785 Increase (decrease) in tax rate resulting from Deferred taxes arising from: Taxes on earnings in other countries Difference between depreciation and possessions (3.9) (3.2) recorded for income tax purposes Investment tax credits (5.5) (4.1) and financial statement purposes 4,096 2,767 State income taxes 2.0 1.8 Income tax on profits of Domestic International Sales Corporations 5,848 2,387 Other 1.9 .7 Withholding tax on Puerto Rican earnings Effective tax rate 40.5% 43.2% anticipated to be repatriated in the future (included in currently payable for 1978) 8,938 7. Contingencies: The company is one of 23 defendants named in a lawsuit commenced on September 20,1974, by Current earnings of foreign subsidiaries anticipated to be repatriated in the future 4,179 5,035 Zenith Radio Corporation ("Zenith") in the United States District Court for the Eastern District of Pennsylvania. Zenith's (Increase) decrease in: complaint alleged conspiracies and other violations of the Future warranty obligations (799) (1,215) United States antitrust and anti-dumping laws. Inventory valuations (2,634) (8,088) The complaint also challenges, under the U.S. antitrust laws, the purchase by subsidiaries of Matsushita Electric InFuture employee benefits (1,639) (1,022) dustrial Co., Ltd., of Japan (collectively with such subsidiaries, Allowance for doubtful accounts (1,859) (3,827) "MEI") of certain assets and business of Motorola's Consumer Other countries (1,269) 2,739 Products Division home television receiver business. Prior to Other—net (90) (353) the consummation of such purchase, the U.S. Department of Justice, at the request of Motorola and MEI, investigated the Total deferred 14,771 (1,577) antitrust implications of the transaction. During such investigaTotal income tax expense $105,024 $95,208 tion, the Department of Justice took no legal action to prevent the sale. Income taxes have been provided on aggregate earnings of For all such alleged violations, Zenith claims monetary the company's Domestic International Sales Corporations. damages in the aggregate of more than $300 million (and the Income taxes have been provided on that portion of the com- trebling of that amount). It seeks judgment against the defenpany's share of the undistributed earnings of subsidiaries that dants jointly and individually in that amount plus costs and are anticipated to be repatriated in the future. Income taxes plaintiff's attorney's fees. It also seeks divestiture by MEI of the have not been provided on the company's share of other assets purchased from Motorola. undistributed earnings of subsidiaries ($105,078,000 and In the event a divestiture is ordered or litigation damages are $82,179,000 at December 31,1979 and 1978, respectively), assessed against MEI arising out of such purchase, Motorola where it is intended these earnings will be permanently in- has agreed to share to a limited extent the loss, if any, incurred vested in operations outside the United States. Should these by MEI. The maximum loss for which Motorola could be reearnings be distributed, foreign tax credits would reduce the sponsible to MEI under this agreement is $20 million. additional U.S. income tax which would be payable. Management believes that the company has acted At December 31,1979, certain non-U.S. subsidiaries of the properly throughout and has denied any conspiracy or other

28

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. In October 1979, the Federal Court for the Northern District of Illinois issued its Final Order and Decree in favor of the Equal Employment Opportunity Commission and a certified class plaintiff that they had prevailed upon the issue of liabili for all blue-collar positions (operative, crafts workers, laborer and service workers) with respect to hiring of blacks at Motorola locations in that District from November 6,1968, to December 31,1975, except as to one manufacturing facility in 1972. The Court's order permanently enjoined Motorola in that District from discriminating on the basis of race in hiring prac tices , provided for notice to the members of the class, guidelines for damage hearings at a later date, and certain

recordkeeping requirements. On February 1,1980, Motorola

filed a Notice of Appeal, seeking a reversal by the U.S. Court of Appeals, Seventh Circuit, of the lower Court's order and decision and entry of judgment for Motorola. The plaintiffs have filed cross appeals. Subsequent to the filing of the Notice of Appeal, the U.S. Court of Appeals, Seventh Circuit, granted Motorola's motion to stay, during the pendency of the appeal,

the District Court's order enjoining Motorola and providing for notice to the members of the class.

Motorola is currently defending two other certified class actions, together with a lawsuit brought by the EEOC, in the Federal Court for the Northern District of Illinois. These suits allege discrimination in the hiring of females and persons of Spanish surname for certain jobs and the promotion and certain employment practices relating to blacks in the Northern District of Illinois for various time segments beginning in 1965. These suits have not been tried. Motorola employs approximately 10,500 persons in northern Illinois. Motorola is also defending a suit brought as a class action in Federal Court for the Northern District of Georgia wherein the plaintiff claims discrimination with respect to maternity leaves of absence. On February 7,1980, the court certified the class to include past or present female employees whose employment was involuntarily terminated between February 9,1972 and August 7,1972 at the conclusion of a mandatory maternity leave or whose mandatory maternity leave ended either by reinstatement or cessation of employment between February 9,1972 and August 7,1972. In each of these class actions the plaintiffs are seeking

injunctive relief together with damages in the form of back pay. 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. Share Option Plans: Under the company's employee share option plans, shares of common stock have been made available for grant to key 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. Shares subject to option under these plans during 1979 and 1978 are shown: 1979 1978 Options outstanding beginning of year (shares) 1,295,369 1,449,849 Additional options granted 375,605 1,340,640 Options exercised (46,262) (110,712

Options terminated for cancellation and

regrant and discontinued employment (59,669) (1,382,55

Options expired — (1,85 Options outstanding end of year 1,565,043 1,295,369 Shares reserved for possible future option grants 489,360 811,680

Total shares reserved 2,054,403 2,107,049

Total options exercisable (shares) 843,778 785,808

Options exercised during 1979 were at per share prices of $9.96 to $38.25 ($2.00 to $53.81 in 1978). Options outstanding at December 31,1979, were at per share prices of $21.00 to $53.13. In 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 the market price on the date of grant. Qualifying tendered share options were 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. Share options for the one share out of every four shares offered for cancellation that was not regranted were granted to eligible employees in a new share option grant. 9. Employee Benefit Plans: The company may provide up to 7% of its annual consolidated pre-tax earnings, as defined in the Motorola Executive Incentive Plan, for the payment of cash incentive awards to key employees. The awards are payable in full or in installments, or may be otherwise deferred at the

option of the participant and with approval of the Compensa- the Pension Plan to any officer of the company elected by the tion Committee. Amounts of $12,171,000 in 1979 and Board of Directors does not amount to a specified percentage, $8,426,000 in 1978 were provided for incentive awards for as defined, of such elected officer's rate of salary at retirethose years. The amounts awarded under this plan are subject ment, it is the intention of the company (subject to certain to the guidelines established by the Council on Wage and qualifications and conditions), to make supplementary payPrice Stability. ments so that the total annual payments to such officer will The company and certain subsidiaries have contributory aggregate a maximum of 50% of such officer's rate of salary at profit sharing plans in which all eligible employees participate. retirement, or a minimum of 40% of such officer's rate of salary The contributions to profit sharing funds in the United States at retirement, depending upon such officer's seniority as of and other nations, based upon percentages of pre-tax earn- January 1,1978, and the year in which such officer attains age ings from total operations, as defined, were $39,954,000 in 60 (or 30%, in the case of payments to the surviving spouse, 1979 and $36,123,000 in 1978. of an elected officer's rate of salary upon the officer's death The company has a non-contributory pension plan covering during employment by the company or after retirement from substantially all domestic employees after one year of service. such employment). The company is accruing for these The company's policy is to fund pension costs as accrued. supplementary payments on a current basis. Expense for the plan was $16,579,000 in 1979 and Certain foreign subsidiaries have varying types of retire$14,114,000 in 1978. Vested benefits for the domestic plan ment plans providing benefits for substantially all of their emwere fully funded as determined by the latest actuarial valua- ployees. Essentially all of the cost of these plans is borne by tion, December 31,1978. the company. Amounts charged to earnings for these plans In the event that the amount actually payable annually under were $2,818,000 in 1979 and $2,118,000 in 1978.

10. Information by Industry Segment and Geographic Region. Information about the company's operations in different industry segments for the years ended December 31,1979,1978 and 1977 is summarized below:

REVENUES OPERATING PROFIT For the years ended December 31 For the years ended December 31 Total Sales and Other Revenues 1979 1978 1977 1979 1978 1977 Communications products $1,127,221 $ 964,930 $ 823,495 $ 148,514 $ 110,954 $ 130,890 Semiconductor products 992,439 718,055 582,300 172,012 107,346 79,977 Automotive products 203,018 205,452 198,927 (16,338) 9,511 11,237 Other products 452,186 376,422 288,804 33,682 41,548 11,161 Adjustments and eliminations (61,069) (45,115) (40,899) (3,246) 318 (1,491) Industry Totals $2,713,795 $2,219,744 $1,852,627 $ 334,624 $ 269,677 $ 231,774

General corporate expenses (28,904) (21,746) (18,098) Interest expense (36,114) (27,541) (22,943) Special charge (10,286) Equity in net earnings of 50% owned affiliate $ 887 887 Consolidated Totals $ 259,320 $ 220,390 »$ 191,620

ASSETS PROPERTY, PLANT AND EQUIPMENT For the years ended December 31 For the years ended December 31 Fixed Asset Expenditures 1979 1978 1977 1979 1978 1977 Communications products $ 744,726 $ 703,052 $ 598,463 $ 57,110 $ 45,633 $ 55,445 Semiconductor products 643,726 474,793 389,946 158,751 72,062 53,137 Automotive products 146,577 145,291 144,282 11,200 13,022 9,676 Other products 302,845 225,661 196,271 Adjustments and eliminations (8,044) (5,034) (3,550) Industry Totals 1,829,830 1,543,763 1,325,412 General corporate assets 73,666 112,794 92,052 Equity in net assets of 50% owned affiliate 2,395 Consolidated Totals $1,903,496 $1,656,557 $1,419,859

Depreciation 1979 1978 1977 Communications products $ 31,602 $ 25,667 $ 21,275 Semiconductor products 50,387 33,820 28,237 Automotive products 10,138 8,785 8,532

30

Information about the company's operations in different geographic regions for the years ended December 31,1979,1978 and 1977 is summarized below: REVENUES OPERATING PROFIT For the years ended December 31 For the years ended December 31 Total Sales and Other Revenues 1979 1978 1977 1979 1978 1977 United States $2,448,588 $2,039,857 $1,673,984 $277,590 $234,426 $202,291 Foreign 1,060,244 815,793 598,092 69,241 49,678 41,170 Adjustments and eliminations (795,037) (635,906) (419,449) (12,207) (14,427) (11,687) Geographic Totals $2,713,795 $2,219,744 $1,852,627 $334,624 $269,677 $231,774

General corporate expenses (28,904) (21,746) (18,098) Interest expense (36,114) (27,541) (22,943) Special charge (10,286) Equity in net earnings of 50% owned affiliate $ 887 887 Consolidated Totals $259,320 $220,390 $191,620

ASSETS segment and intergeographic transfers are accounted for on For the years ended December 31 an arm's length pricing basis and are consistent with rules and 1979 1978 1977 regulations of domestic and foreign taxing authorities. SalestoUnited States federal government agencies aggreUnited Statas $1,346,469 $1,159,015 $1,005,427 gated $291 million during the year ended December 31,1979. Foreign 541,736 428,227 346,775 No other single customer (or group of customers under comAdjustments and eliminations (58,375) (43,479) (26,790) mon control) accounted for 10% of the company's sales. Geographic Totals 1,829,830 1,543,763 1,325,412 With respect to the years 1976 and 1975, the following table sets forth sales and other revenue information for each class General corporate assets 73,666 112,794 92,052 of similar products or services which accounted for 10% or Equity in net assets of 50% more of the total sales and revenues of Motorola for those owned affiliate 2,395 years. Consolidated Totals $1,903,496 $1,656,557 $1,419,859 Sales and Other Revenues (in millions) 1976 1975 Communications products $680 $614 Motorola operates predominantly in one industry, electronic equipment and components. Operations involve the design, Semiconductor products 447 348 manufacture and sale of a diversified line of electronic products, Automotive products 162 126 which includes, but is not limited to, two-way radio and communication systems; semiconductors, including integrated The sales shown in the foregoing table do not include prodcircuits and microprocessor units; data communication ucts manufactured by Motorola and incorporated into other equipment and systems; electrical components and designs products manufactured and sold by Motorola. for the U.S. government; display products and automotive The classes of products indicated above for lines of busielectronic equipment. Within this industry, communications ness information are essentially equivalent to those used to product, semiconductor product and automotive product present the industry segment information for 1979,1978 sales account for approximately 84% of total revenues from and 1977. unaffiliated customers. 11. Lease Commitments: Although the company owns most The company operates manufacturing and distribution fa- of its major facilities, it does lease certain office, factory and cilities outside the United States. No single facility or country warehouse space, land, data processing and other sundry outside the United States accounts for more than 10% of equipment. consolidated sales and other revenues or total assets. Total rental expense (including taxes, insurance and Operating profit was computed as total revenues less maintenance when included in rent) for all non-capital leases operating expenses. In computing operating profit, none of the (including those with terms of less than one year) reduced by following items have been added or deducted: general corpo- sublease rental income (not considered to be material) was rate expenses, interest expenses, income taxes, equity in net $32,836,000 in 1979 and $25,727,000 in 1978. earnings of a 50% owned affiliate in 1977, which equity was Minimum future obligations on all noncancelable leases, net sold in 1978 and a special charge for termination of certain of minimum sublease rentals, with initial terms of one year or operations (see Note 2) in 1979. Included in operating profit more in effect at December 31,1979, are as follows for the and sales and other revenue for the automotive segment was periods ending December 31: a gain on the sale of the interest in the aforementioned affiliate. (Dollars in thousands) Identifiable assets are those assets of the company that are $17,406 1980 identified to classes of similar products or operations in each geographical area, excluding internal receivables. Corporate 1981 13,677 assets are principally cash and marketable securities, the 1982 10,624 corporate administrative headquarters, and future income tax 1983 5,492 benefits. Intersegment sales were principally semiconductor 1984 3,177 components, which amounted to $49,271,000 for 1979, $31,276,000 for 1978 and $31,189,000 for 1977. Inter-industry Later 21,202

31

Some of the leases contain renewal options for varying periods. Certain leases include options to purchase during or at the end of the lease term. 12. Quarterly Financial Data (unaudited): Selected unaudited quarterly financial data for 1979 and 1978 are as follows: (Dollars in thousands, except per share data) Three Months Ended 1979 March 31 June 30 Sept. 29 Dec. 31 Sales and other revenues $612,561 $676,931 $661,529 $762,774 Gross profit before depreciation (a) $247,487 $281,577 $260,419 $299,346

Net earnings (b) $ 36,135 $ 43,408 $ 38,494 $ 36,259

Net earnings per share (b) $ 1.16 $ 1.40 $ 1.24 $ 1.16

Three Months Ended 1978 April 1 July 1 Sept. 30 Dec. 31 Sales and other revenues $495,976 $551,031 $537,179 $635,558 Gross profit before depreciation (a) $199,495 $225,808 $212,301 $242,334 Net earnings $ 27,997 $ 33,366 $ 30,342 $ 33,477 Net earnings per share $ .90 $ 1.08 $ .98 $ 1.08

(a) Profit after manufacturing and other costs of sales exclusive of depreciation expense. (b) During the year the company recorded a special charge to net

earnings of $7,882,000 (see Note 2) or $.25 per share. $6,641,000 of

this amount, or $.21 per share, was recorded in the fourth quarter. Peat, Marwick, Mitchell & Co., made a limited review of the 1979 an 1978 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.

13. Research and Development Expenditures: Company

funded research and development expenditures, which are

charged against operations as incurred, were $167 million in

1979 and $133 million in 1978.

14. Information on the Effects of Changing Prices (unaudited): The Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 33 (SFAS-33) requiring disclosure of selected information describing certain effects of changing prices on companies' financial statements. For the current year, SFAS-33 prescribes presentation of certain information adjusted for the effects of

(In thousands of average 1979 dollars except per share data) Sales and other revenue $1,8 Historical cost information adjusted by the CPI-U: Income from continuing operations Income from continuing operations per common share Net assets at year-end Other information: Cash dividends declared per common share Market price per common share at year-end Average consumer price index

In addition to the above, the company has included in its annual rep a copy of which is available upon request, information on estimated re SEC requirements.

general inflation as measured by the United States Consumer Price Index for All Urban Consumers (CPI-U). Unfortunately, the methods prescribed for presentation of this information contradict the experience of the company. Productivity gains in the production of semiconductor products have more than offset increased input costs and have resulted in price declines, and productivity gains in Motorola's other businesses have substantially reduced the effects of increased input costs, resulting in price increases at rates significantly less than general inflation. Principally for these reasons, management believes that the information presented below and in the five year comparison afterwards, with the exception of the dividends declared per common share adjusted by the CPI-U,

does not describe the effects of changing prices on the operations of the company.

Statement of Income From Continuing Operations Adjusted, as Required, by Changes in the CPI-U Applied to Certain Costs Year ended December 31,1979 (Dollars in thousands) Earnings before income taxes as reported in the statement of consolidated earnings $259,320 Adjustments to restate costs for changes in the CPI-U: Manufacturing and other costs of sales (57,329 Depreciation (532

Earnings before income taxes adjusted for changes in the CPI-U applied to certain costs 201,459 Income taxes (105,024)

Net earnings adjusted for changes in the

CPI-U applied to certain costs $ 96,435

Gain from decline in purchasing power of net amounts owed $ 6,425

The company uses accelerated methods of depreciation in

its historical cost financial statements in part to conservatively

value earnings as a result of the increasing prices the com-

pany will have to pay to replace these assets. The depreciation

adjustment above is based on calculations made using the

straight line method with asset lives grouped to approximate those used in the historical cost presentation. Also, historical cost income tax expense has not been adjusted. Below is a five year summary of selected information which has been denominated in dollars of average purchasing power for the year 1979. Five-Year Comparison of Certain Supplementary Financial Data Adjusted for the Effects of Changing Prices

to the Securities and Exchange Commission on form 10-K, ement costs of inventories and fixed assets pursuant to

Management's Discussion and Analysis of Statements of Consolidated Earnings

1979 Versus 1978 Sales and other revenues for 1979 increased by $494.1 million (22.3%) from 1978. Increased unit sales volume accounted for most of this change. Sales and other revenue of communications products increased $165.2 million (17.2%) with orders fn the international markets outpacing the domestic sector and sales and other revenue of semiconductor products increased $256.4 million (37.3%) following a continuing high level of worldwide demand for semiconductor components plus the introduction of several major metal oxide silic products. Automotive products sales were essentially unchanged from their 1978 level. Manufacturing and other costs of sales increased $285.2 million (21.3%), thus keeping pace with the higher level of sales. Selling, general and administrative expenses increased $123.6 million (22.5%) due to the consistent and expected rise in selling expenses associated with higher sales level and the inflationary pressures on general and administrative expenses. Depreciation of plant and equipment increased $27.5 million (33.0%) as a result of fixed asset expenditures of $265 million, reflecting the company's continued investment required to keep pace with the rising volume of sales. Interest and amortization for 1979 increased $8.6 million (31.1 %) principally due to increased interest rates, althoug total borrowing did increase $18 million. The company's overall effective tax rate decreased from 43.2% in 1978 to 40.5% for 1979, principally as a result of th reduction of the U.S. statutory rate from 48% to 46%, additional investment tax credit arising from the increased level of equipment expenditures and additional tax benefits i the United Kingdom emanating from a change in tax laws. Net earnings increased $29.1 million (23.3%) despite a special charge of $7.9 million for termination of electronic timepiece components business and other peripheral activities of the semiconductor products segment. The increase in net earnings was principally a result of increased volume and margin on both semiconductor and communications products which more than offset the loss incurred by the automotive products segment and the aforementioned special charge.

1978 versus 1977 Sales and other revenues for 1978 increased by $366.2 million (19.8%) over 1977. Improved unit sales volume accounted for substantially all of the sales increase. This sales increase was primarily due to the sales of communications products and semiconductor products which increased approximately 16.8% and 24.6%, respectively, over 1977. Sales of automotive products increased 2.8% reflecting business mix changes in demand from the automotive industry. Manufacturing and other costs of sales increased $199.9 million (17.5%) over 1977. This increase reflects the mixed effects of increases in gross margins for the semiconductor segment and data communications business offset by a decline in the gross margin for the communications segment. The decline in the communications segment's gross margin is attributable to additional write-offs for cost overruns evident certain systems contracts, extra unanticipated warranty obligations, additional technical and manufacturing problems incurred in starting production of certain advanced state-of-theart new products, and a continuing high rate of engineering and other costs invested in major new business opportunities. Selling, service and administrative expense for 1978 increased $122.4 million (28.7%) over 1977. This change was higher than the 19.8% increase in sales and was attributable t higher distribution costs, higher costs associated with improved pension and profit sharing programs for the company, and a greater than normal adjustment in the communications segment for additional accounts receivable write-offs that became apparent during the year. Depreciation of plant and equipment for 1978 increased $10.6 million (14.5%) over 1977, as a result of fixed asset expenditures during the past three years of $146 million in 1978, $128 million in 1977 and $98 million in 1976. Interest and amortization for 1978 increased $4.6 million (20.0%) over 1977. This change was the result of increased borrowings and higher interest rates. The company's overall effective tax rate decreased from 44.2% in 1977 to 43.2% in 1978, due principally to significant reduction in losses from certain foreign operations which had provided no tax benefit. Net earnings from continuing operations increased $18.2 million (17.0%) in 1978. The increased earnings were due primarily to higher sales volume, improved margins in the semiconductor segment and data communications business, and significantly improved operating results for citizens band radio, watch module and watch crystal programs and Autovox, an Italian subsidiary.

Ten Year Financial Summary (Dollars in thousands, except per share data)

Operating Results from Continuing Operations (1) Sales and other revenues Manufacturing and other costs of sales Selling, general & administrative expense Depreciation and amortization of plant and equipment Interest & amortization of debenture discount, expense and premium, n Special charge (3) Total costs and other expenses Earnings from continuing operations before income taxes Income taxes Earnings from continuing operations Return on sales Discontinued operations—profit (loss) Net earnings Per Share Data Earnings from continuing operations Net earnings Dividends declared Balance Sheet and Other Data (2) Working capital Current ratio Short-term debt Long-term debt Stockholders' equity Less short-term investments Total invested capital Return on average invested capital Return on average stockholders' equity from continuing operations Year-end employment (approximate) Average shares outstanding (in thousands)

(1) In May 1974, Motorola sold its home television receiver business. Consequently, the 1970 through 1973 operating results have been adjus remove the effect of the television business. (2) The 1970 through 1973 data has not been restated to exclude the h television receiver business.

34

(3) During 1979, the company decided to terminate operations in its electronic timepiece components business as well as certain other peripheral activities of the semiconductor products segment. A special charge was recorded during the year of $10,286,000 before applicable tax benefit of $2,404,000 for termination of these operations. The effect on earnings per share of the special charge was a reduction of $.25.

Stock Prices Dividends Stock Prices Stock Price and Dividend Data 1979 High Low Declared Paid 1978 High Low The table (right) sets forth the high and 1st Quarter $42.00 $36.00 $ .300 $ .300 1 st Quarter $39.38 $35.00 low sales price per share for Motorola Common Stock on the New York Stock 2nd Quarter 46.38 38.25 .300 .300 2nd Quarter 51.88 38.0 Exchange and the dividends declared 3rd Quarter 52.50 40.00 .300 .300 3rd Quarter 54.88 44.8 and paid for the periods indicated: 4th Quarter 55.50 42.63 .350 .300 4th Quarter 45.63 38.3 $1,250 $1,200

Directors Officers Motorola, Inc.

CORPORATE ROBERT W. GALVIN Robert W. Galvin Chairman of the Board and Chief Executive Officer WILLIAM J. WEISZ William J. Weisz Vice Chairman and Chief Operating Officer John F. Mitchell President and Assistant Chief Operating Officer JOHN F. MITCHELL Homer L. Marrs Senior Vice President and JOHN J. ANTALEK, Assistant to the Chief Operating Office Retired Ralph W. Eisner Vice President and Deputy to the Chief Executive Office JAMES W. BIRKENSTOCK President, Intercal, Inc., a management FINANCE consulting firm John T. Hickey Senior Vice President and Chief Financial Officer JOHN T. HICKEY Donald R. Jones Vice President and Assistant Chief Financial Offi Edward J. Harty Vice President and Controller M.JOSEPH LAMBERT William R Meehan Vice President and Treasurer Senior Vice President and Chief Financial Officer, Richard H. Weise Vice President, General Counsel and Secretary Kraft, Inc. STAFF STEPHEN L. LEVY Stephen L. Levy Senior Vice President and Chief Corporate Staff O HOMER L MARRS Martin Cooper Vice President and Corporate Director of Research and Development ARTHUR C. NIELSEN, JR. L. Curtis Foster Vice President and Corporate Director of Engineer Chairman of the Board, A.C. Nielsen Company, Earl R. Gomersall Vice President and Corporate Director of a market research organization Operational Support CHARLOTTE T. REID R. James Harring Vice President and Corporate Director of Planning Retired C. Travis Marshall Vice President and Corporate Director of Government Relations WILLIAM G. SALATICH Vincent J. Rauner Vice President for Patents, Trademarks and Licens Part owner and Director of Advance Cable and Broadcast Television Corporation; business Walter B. Scott Vice President and Corporate Director of consultant Sourcing and Supplier Relations ELMER H. SCHULZ PERSONNEL Director Emeritus, I.I.T. Research Institute Robert N. Swift Vice President and Corporate Director of Personne WALTER B. SCOTT AUTOMOTIVE AND DISPLAY SYSTEMS GROUP B. KENNETH WEST Carl E. Lindholm Senior Vice President and General Manager, Executive Vice President, Harris Trust and Automotive and Display Systems Group Savings Bank Levy Katzir Vice President and General Manager, Automotive Products Division COMMUNICATIONS GROUP Senior Vice President and General Manager, Joseph F. Miller, Jr. Communications Group Directors Emeritus DANIEL E. NOBLE Vice President and Assistant General Manager, Jack Germain Communications Group Chairman, Science Advisory Board, Motorola, Inc.' Vice President and General Manager, John W. Battin Communications Systems Division ELMER H. WAVERING Vice President and General Manager, Former Vice Chairman and Rhesa S. Farmer Chief Operating Officer, Motorola. Inc. Communications International Division Vice President and General Manager, Bradford K. Kroha European Communications Division 'Deceased February 16, 1980. Vice President and General Manager, Arthur P. Sundry Communications Distribution Division Vice President and General Manager, Ira W.Walker Communications Distribution Service Division GOVERNMENT ELECTRONICS DIVISION James R. Lincicome Vice President and General Manager, Government Electronics Division SEMICONDUCTOR GROUP John R. Welty Senior Vice President and General Manager, Semiconductor Group Alfred J. Stein Vice President and Assistant General Manager, Semiconductor Group Andre Borrel Vice President and General Manager, European Semiconductor Division James R. Fiebiger Vice President and General Manager, MOS Integrated Circuits Division Henri A. Jarrat Vice President and General Manager, Bipolar Integrated Circuits Division James A. Norling Vice President and General Manager, Power Products Division Geno Ori Vice President and General Manager, High Frequency and Optical Products Division Pasquale Pistorio Vice President and General Manager, International Semiconductor Division Charles E. Thompson Vice President and Director of World Marketing, Semiconductor Group Gary L. Tooker Vice President and General Manager, Discrete Electronic Components Divisions and Materials DATA COMMUNICATIONS Arthur Carr Vice President and President of Codex Corporation 36

Motorola Products

Communications Group Car telephone systems Communications control centers Component products Electronic command and control syste Health care communications systems Microwave communications systems Mobile and portable data communicati Mobile and portable FM two-way radio communications systems Precision instruments Radio paging systems Signaling and remote control systems Semiconductor Group Bipolar and MOS integrated circuits Bipolar VLSI macrocell arrays Custom MOS and bipolar circuits Electronic materials Fiber-optic devices Field-effect transistors Hobby components Memory systems

Microprocessor support systems Microprocessors

Microwave components NMOS, CMOS and bipolar memories Optoelectronics Power and small signal transistors Rectifiers RF modules

RF power and small signal transistor Semiconductor chips Solar energy components Solar energy systems Surge suppressors Thyristors Triggers Varactors

Zener and tuning diodes

Automotive and Display Systems Group Alternator charging systems AM. AM/FM antennas AM, AM/FM car radios Automotive power amplifiers Automotive sensors (pressure and position) Automotive sound equalizers Automotive speaker systems Automotive stereo 8-track tape and cassette players Citizens band radios and antennas Closed circuit TV systems CRT display modules Digital appliance controls Electronic engine controls Engine management systems Information display systems Regulators Solid-state ignition systems Tachometers, speedometers, odometers, hourmeters

Government Electronics Division Advanced seeker systems

Data security products Drone communications control and scoring sy Electronic countermeasures systems Energy systems, including solar photovoltai Fixed and satellite communications systems Fuze systems

Intelligent display terminals and systems Military radios Missile and aircraft instrumentations Missile guidance systems Positioning, navigation and tracking system Radar surveillance systems Secure communications Space communications systems

Data Communications

Data communications equipment

(modems, multiplexers, intelligent

network processors, network control equip

terminals)

Other Businesses Industrial process controls Plasma processing systems