摩托罗拉公司1974年年报

Motorola Annual Report i<>74

"the mind to imagine.. .the skill to do"

THE MIND TO IMAGINE . . . THE SKILL TO DO Through the imagination of Motorola people worldwide, and their ability to apply skill in bringing their ideas to fruition, Motorola is able to build products to improve the quality of life around the world. For this reason, Motorola has adopted The mind to imagine... the skill to do" as its corporate theme. This harmonization of imagination and skill has made possible the many faceted technological advances that Motorola people have given their best to create. A sampling of these products appears on the cover of this report. Clockwise (starting upper left): (1) The 1/5-inch square microprocessor chip built by the Semiconductor Products Division has almost as much computing power as the central processor of a large computer. (2) Typical of the many markets served by the Communications Division, utility customers use Motorola mobile two-way radio to effectively control business costs. (3) This steerab beam antenna was designed by the Government Electronics Division for installation on a command aircraft to simultaneously control drones. (4) Entertainment centers are produced by the Automotive Products Division for Volkswagens new Rabbit.

( oillriils

Letter to Stockholders Financial Highlights

Directors and Officers

Communications Division Semiconductor Products Division

Automotive Products Division

Government Electronics Division

New Ventures & Other Businesses Financial Statements

Ten-Year Financial Summary

Major Facilities and Product Li

NET SALES (in millions of dollars)

1367.2

1203.2

901.9

717.2 670.2

To Our Stockholders and Friends: 1974 RESULTS Through the first nine months of 1974, Motorola had achieved 14 consecutive quarters of both sales and earnings increases over year earlier periods. Fourth quarter results, principally impacted bythe general recession in the U.S. and worldwide economies and almost incredibly sharp reductions in demand from our semiconductor and automotive customers, caused full-year earnings of $72,912,375 from continuing operations to lag 1973's $85,473,462 by 14.7 per cent. Sales and other revenues from continuing operations for the year were $1,367,170,948, up 13.6 per cent from $1,203,216,629. Fourth quarter sales of $325,210,202 were down one per cent from 1973's $329,455,611, while earnings of $4,199,395 declined 81 per cent from $22,089,482 a year earlier. These results, and our inability to have foreseen the abrupt changes in semiconductor and automotive demand, are severely disappointing to us. We are pleased to note, however, that the record performance of the Communications and Government Electronics Divisions continued through 1974, and the plans, backlogs and new order rates of these divisions posture them to achieve further gains in 1975. In the fourth quarter, the Semiconductor Products and Automotive Products Divisions each incurred operating losses aggravated by inventory revaluation charges, losses in our Italian and Japanese joint venture companies, costs of moth-balling facility construction in progress, closing the semiconductor division's Puerto Rican operation, layoff costs and other similar items.

The rate at which the general economic activity declined late in 1974, principal in November and December, is unprecedented in recent history, U.S. and worldwide. This phenomenon was felt most severely in the automotive and consumer durables industries. Suddenly, almost overnight in some cases, inventories at every stage in the pipeline between component parts manufacturing and the purchase of end products by the consumer became excessive. Previously firm, and even recently expedited, customer orders were abruptly and repeatedly rescheduled as the needed inventory-trimming reactions reverberated through the pipelines. As the semicon-

ductor and automotive divisions' sales outlooks for the balance of 1974 and the early quarters of 1975 were repeatedly lowered, several successive and large personnel reductions were unfortunately required. ENTERING 1975. Employment and expense budgets in all divisions and departments have been subjected to unusually intensive challenge. Task forces are at work in each division and across the corporation, directed toward the elimination of all unnecessary costs. In all of our divisions, however, careful attention is being given to maintaining, or increasing where appropriate, engineering and other strategic expenses associated with important products and markets of the future. Similarly vigorous company-wide programs are underway for inventory reduction, with significant results already being achieved.

PEOPLE. During the past four months, economic and market conditions have

necessitated the furloughing of approximately 12,000 Motorola people, worldwide. Additionally, about 4,000 are currently working less than full schedule These staff reductions were not easy actions to take, and careful effort was taken to ensure that the separations were determined with a high degree of fairness Eliminating the job or reducing the paycheck of even one Motorolan is difficult, and we earnestly look forward to the day on which we can begin calling these people back to work and, even more so, to the day when all of them will have bee offered re-employment on a full-time basis. FIFO us. IIFO During 1974, we carefully studied changing to a Last-In, First-Out (LIFO) method of valuing inventories.

We decided to remain with our present First-ln, First-Out (FIFO) method.

In our study, we first limited the sco of a possible change to U.S. inventories because the tax benefits of LIFO accounting are generally not available outside the United States. We then de-

NET EARNINGS (in millions of dollars)

85.5

72.

47.6

30.5 29.5

70 71 72 73 74

cided to stay with FIFO for semiconductor and government electronics inventories because of the consistently declining costs and unit values of semiconductor inventories, and because of particular government contract accounting requirements. We then reviewed the trend of unit values of the U.S. inventories in the other equipment-producing divisions and found that, with the exception of the

double digit inflationary environment in 1974, our inventory values have generally followed a level or deflationary trend even in earlier periods of only slightly less general inflation. Rather than cause a major change in our accounting for short-term and probably non-recurring reasons, we decided to stay with FIFO for 1974. Had we changed to LIFO for the year, the estimated impact would have been a reduction of approximately 11 cents per share on reported 1974 earnings, spread about equally over the first three quarters. Inventory values in the fourth quarter remained stable or, in some cases, declined as a result of lower commodity prices and increased competitive pressure among our suppliers.

DISPOSITION OF TELEVISION RECEIVER BUSINESS On May 28, 1974,

the sale of certain assets of Motorola's home television receiver business to a

subsidiary of Matsushita Electric Industr Co., Ltd. of Japan was concluded. The net cash proceeds received from Matsushita, plus the net proceeds of other assets and liabilities retained and liquidated by Motorola, reached

EARNINGS PER SHARE (in dollars)

3.07

2.60

1.74

1.15

70 71 72 73 74

$100 million at yearend. The final sales price of the assets sold to Matsushita i dependent in part on completion of certain audit and possible arbitration procedures. We do not expect any significant reduction in the sales price to result. The agreement with Matsushita also provides for their purchase of Motorola'

Quincy, Illinois facility in May 1976.

The financial position of the company remains strong, essentially the same as a year ago. At yearend, the current ratio was $2.31 of current asset to every dollar of current liabilities, total short and long term borrowings wer 29 per cent of borrowings plus stockholders' equity. We are disappointed tha the substantial cash proceeds from the disposition of the home television receiver business did not improve these ratios. The excessive automotive and semiconductor inventories which resulted from the abrupt sales declines discussed above, slightly slower collection of accounts receivable and fixed asset expenditures of $131 million vs. $84 million in 1973 represent major 1974 uses of cash. Inventories, as mentioned previously, and accounts receivable are now being given major corporate and

divisional attention toward improved turnover ratios.

1974 spending for engineering, research and development was $112 million, up from $89 million in 1973. While budgets for fixed asset expenditures and R & D spending for 1975 have not yet been finalized, we are, as

previously stated, giving careful attent to projects and programs important for the future.

-ihMENT RGANIZA

On Feb. 28, 1975, John F. Mitchell, senior vice president and general manager of the Communications Division, was named executive vice president and assistant chief operating officer of the corporation. John has become a full member of the chairman/president's office, and has the same basic authority and responsibilities to make overall company decisions as do the other two members

of the office. The position of executive vice president was first established in 1969, but has remained vacant, as planned, since 1970. The company's growth in size and complexity over the past several years, as well as the challenging current economic and business environment, requires that the chief office of the company again be increased to three persons.

On the same date, it was also announced that Joseph F. (Ted) Miller, a

23-year Motorolan, was named vice president and general manager of the Communications Division. The dynamic development and organization of other key executives also co tinued through 1974. Six vice presidents were named senior vice presidents, and several new officerships were established. The organization and assignment of all officers appears on page five of this report.

•. ^ k l In October A /~«/-\ i i I

1974, Motorola and the Phillip A. Hunt

Chemical Corporation announced an agreement in principle for Motorola to acquire Hunt Chemical subject to negotiation of a definitive agreement an

approval by the boards of both companies and the stockholders of Hunt. In January 1975, Hunt and Motorola management jointly announced the decision of the two companies not to proceed with their proposed merger. After careful review, the two companies concluded that the merger should not be undertaken in the current economic environment.

DIVISION COMMENTARIES. Other sections of this report summarize the activ ities of our various divisions during th year. Each of these divisional reports begins with a brief statement describing the major products of and markets served by the division.

The near-term prospects for the U.S. and international economies are uncertain. We do believe that our semiconductor and automotive results in the fourth quarter were substantially impacted by customers' inventory

reduction actions. This phenomenon, our delivering at lower rates than the associated end products are being purchased, will probably continue at least through the first quarter of 1975. Therefore, and despite continuing fine performance by our Communications and Government Electronics Divisions, we do not see significant opportunity for earnings gains in the early quarters of 1975. The balance of the year is obviously greatly dependent on external economic factors. We are budgeting

conservatively and with alternate plans for reacting to either further declines in demand, which we do not expect, or resumption in economic growth, which we do expect—but with uncertainty as

to timing. For the longer term we are more certain and positive. Motorola's strong product, market and technological bases, along with our financial strength and the skill of our people, provide excellent opportunity for resumption of our fine reco of sales and earnings growth.

1974 was a difficult year, but we believe that the actions taken and experiences gained have made major contributions to the strengthening of our organization and our people for whose continued dedication we are sincerely grateful.

For the Board of Directors,

ROBERT W.GALVIN Chairman of the Board

WILLIAM J.WEISZ President

March 13,1975

Financial 1974 1973

Sales and Other Revenues $ 1,367,171 $ 1,203,217

Earnings from Continuing Operations before United States (Federal and State} and Other Nations' Income Taxes 133,598 157,969

% to Sales 9.8% 13.1% United States (Federal and State) and Other Nations' 72,496 I ncome Taxes 60,686 85,473 Net Earnings from Continuing Operations 72,912 7.1% % to Sales 5.3% 3.07 Per Share of Common Stock 2.60 27,823,252 Weighted Average of C o m m o n Shares O u t s t a n d i n g . . . . 28,085,349 84,510 Capital Expenditures* 131,201 33,340 Depreciation 43,456 427,715 Working Capital* 412,335 2.43 Current Ratio* 2.31 523,481 Stockholders' Equity* 585,711 18.72 Book Value Per Common Share* 20.78 64,000 Yearend Employment (approx.)* 51,000 (Dollar amounts in thousands, except per share data) *1973 data has not been restated to exclude discontinued operations.

COMPARATIVE STOCK DATAThe table below sets forth the high and low sales price per share for Motorola Common Stock on the New York Stock Exchange and the dividends declared and paid for the periods indicated: Stock Prices Dividends 1973 High Low Declared Paid 1st Quarter $69.00* $51.25* $.075* $.075* 2nd Quarter 55.44* 45.25* .125 .075* 3rd Quarter 65.00 41.25 .125 .125 4th Quarter 68.75 43.88 .125 .125 1974 1 st Quarter 61.88 40.50 .125 .125 2nd Quarter 60.38 51.00 .125 .125 3rd Quarter 54.-2 5 35.12 .175 .125 4th Quarter 51.00 31.62 .175 .175 * Adjusted for May 1973 share-for-share distribution.

At the close of each fiscal year, 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, 5725 N. East River Road, Chicago, Illinois 60631.

Directors Officers

ROBERT W.GALVIN CORPORATE WILLIAM J.WEISZ Robert W. Galvin Chairman of the Board and Chief Executive Officer William J. Weisz President and Chief Operating Officer THOMAS J.CONNORS John F. Mitchell Executive Vice President and Assistant Chief Operating Officer JOHNT. HICKEY J. PAUL JONES FINANCE John T. Hickey Senior Vice President and Chief Financial Officer OSCAR P. KUSISTO Donald R. Jones Vice President and Assistant Chief Financial Offi STEPHEN L. LEVY Edward J. Harty Vice President and Controller Vincent J. Rauner Vice President for Patents, Trademarks and Licens HOMER L. MARRS Lewis D. Spencer Vice President, General Counsel and Secretary JOHN F. MITCHELL William P. Meehan Treasurer

ARTHUR C. NIELSEN, JR. President, A. C. Nielsen Company Carl E. Lindholm Senior Vice President and Director of Corporate S L. Curtis Foster Vice President and ARTHUR L. REESE Corporate Director of Engineering Retired, formerly Executive Earl R. Gomersall Vice President and Vice President, Motorola Inc. Corporate Director of Information Systems R. James Harring Vice President and Corporate Director of Planning ELMER H. SCHULZ C. Travis Marshall Vice President and Director, I.IT. Research Institute Corporate Director of Government Relations Walter B. Scott Vice President and WALTER B. SCOTT Corporate Director of Manufacturing and Facilit EDWIN P. VANDERWICKEN NEWVENTURES Chairman, Finance and Audit Stephen L. Levy Senior Vice President, New Ventures Committees, Motorola Inc. ELMER H. WAVERING HUMAN RELATIONS Retired, formerly Vice Chairman Benjamin W. Borne Vice President and and Chief Operating Officer, Corporate Director of Human Relations Motorola Inc. Robert N. Swift Vice President and Assistant Corporate Director of Human Relations KENNETH V. ZWIENER Retired, formerly Chairman and MULTINATIONAL Chief Executive Officer, Levy Katzir Vice President and Harris Trust and Savings Bank Corporate Director of Multinational Operations GROUP EXECUTIVES' OFFICE, Automotive Products and Government Electronics Divisions Homer L. Marrs Senior Vice President and Group Executive J. Paul Jones Vice President and Assistant Group Executive AUTOMOTIVE PRODUCTS DIVISION Oscar P. Kusisto Vice President and General Manager Robert J. Solem Vice President and Deputy General Manager James A. Torrence Vice President and Assistant General Manager Fred P. Hill Vice President and Division Director of Entertainment Product and International Operations Director Emeritus: GOVERNMENT ELECTRONICS DIVISION DANIEL E. NOBLE Chairman, Ralph W. Eisner Vice President and General Manager James R. Lincicome Vice President and Assistant General Manager Science Advisory Board, Motorola, Inc. COMMUNICATIONS Joseph F. Miller Vice President and General Manager Jack Germain Vice President and Assistant General Manager Martin Cooper Vice President and Division Director of Systems Operations RhesaS. Farmer, Jr. Vice President and Division Director of International Operations Arthur P. Sundry Vice President and Division Director of Domestic Distribution

SEMICONDUCTOR PRODUCTS DIVISION Thomas J. Connors Senior Vice President and General Manager John R. Welty Vice President and Assistant General Manager Patrick D. Lynch Vice President and U.S.A. General Manager Richard P. Abraham Vice President and U.S.A. Assistant General Manager Roderick J. O'Connor Vice President and Division Director of Marketing — U.S.A. Christian J. Goodman Vice President and Division Director of Business Resources Ernest H. Shrenzel Vice President and Division Director of International Operations

< ommtin i<-;iI ions Division PRODUCTS AND MARKETS. The manufacture and distribution of two-way mobile and portable radio communications systems, paging receivers, microwave instrumentation, component products, and complete command, control and monitoring systems, form the division's produ base. The scope of the division's activity is worldwide, as are the many markets it serves. The division's industrial, governmental, transportation and telephone customers, with their many sub-markets, provide a broad base which has traditionally served the division well in times of economic instability. This has resulted in a steady growth pattern for the divisio SALES AND EARNINGS SUMMARY. Both sales and earnings were up approximately 25 per cent over 1973, establishing new records. One of the primary reasons for this continued record growth, in spite of poor economic conditions during the latter part of the year, is the streng and diversity of the division's businesses and its markets. This strength was exemplified by the fourth quarter order input which exceeded that of the year earlier period by 15 per cent despite a generally weak economy. These results reflected some moderation in the very strong growth rate of approximately 30 per cent through the

In addition to the extensive land mobile and installed for the State of Pennsylva network into the state police's helicopt the year.

first nine months of the year. Total 197 order input increased by more than 25 per cent from 1973. Yearend backlog was up more than 20 per cent over last year, and bookings since yearend have resumed a seasonally strong upbeat pattern.

GROWTH. One key to the division's growth is its success in effectively recruiting and training high quality engi-

"Achievinganaverage annual growth rate of 15 per cent over the past 10 years is an enviable record for our division, and maintaining that growth rate in the face of poor economic conditions is the challenge we face in 1975. We believe that our breadth of product line, management of technology, sound financial controls and an in-depth understanding of our markets will enable us to meet this challenge." JOHN F.MITCHELL Executive Vice President and Assistant Chief Operating Officer, Motorola Inc., formerly Senior Vice President and General Manager, Communications Division

portable communications system designed Motorola incorporated a communications rime prevention and safety service during

neers to develop an ever-widening produc line which serves the growing communications needs of a mobile society, and i providing able distribution personnel in equate numbers to reach its many marketplaces. Radio frequency spectrum is another vital resource necessary for future growth, and the division's engineer ing efforts of the past decade have aide

in a breakthrough to the 900 MHz band which should allow continued industry growth for another generation.

Heart attack victims can be treated by paramedics on the scene with the help of COR (Coronary Observation Radio) duplex equipment, which transmits a patient's electrocardiogram to a hospital monitor for interpretation by a cardiologis who then can respond with medical instructions.

Recognizing that there is opportunity for continued growth, the division has adopted several strategies to make the most of this opportunity. First, its multitiered product line concept is continuing to develop, resulting in four price levels of mobile and two of portable and paging equipment. Second, the decision to invest more heavily in the world marketplace continued to produce significant results in 1974. The division's multi-tiered product line have enabled its mobile products in particular to become an inflation and cost fighting tool for business, worldwide.

Typical vehicle operating costs rose dramatically during 1974, making mobile

radio products, which make vehicles more productive, an even better business investment. With broad product lines, the division was able to penetrate deeply

into the many markets affected by rising fuel costs.

THE U.S. MARKET. While broadening its price ranges, the division also improve product features to meet specific requirements of its markets. A significant product advancement of this type in 1974 was the new COR (Coronary Observation Radio) duplex equipment, which transmits a patient's electrocardiogram to a hospital monitor for interpretation by a cardiologist who then can respond with

With.... . . . . n t r o d u c t i two PAGE ONE paging stores, users can now enter one of the stores for an immediate demonstration of how the system operates.

medical instructions to paramedics on the scene. New mobile equipment included a motorcycle radio and a new 8frequency MICOR radio. Emphasizing the breadth of the product line, closedcircuit television cameras designed for high temperature environments and new mobile telephone and paging control terminals were also introduced. The command and control communications system concept developed in previous years has been augmented by a vehicular data terminal which provides direct computer access from a vehicle. In addition, a more advanced computeraided dispatch system has been de-

signed. The first large system of this type was installed during the fourth

quarter in San Diego, California for a public safety agency.

The Pennsylvania State Police Radio Communications System, one of the most

complete, sophisticated police communications systems in the world, became operational in the fourth quarter. This system is unique in both its size and s

A major portion of the division's pag growth has been in large metropolitan markets requiring high capacity systems. The division began the sale of MetroPageboy II radio pagers at two Chicago area retail locations during 1974. These stores, known as PAGE ONE, represent

Better management coordination can be achieved with Motorola microwave systems which provide a fixed-path communications network for the petroleum industry. The system carries radio, closed-circuittelevision, data and several other forms of communication.

a new approach to marketing in which pagers are rented or sold directly to the general public. The portable two-way category remains one of the division's fastest growing businesses. The multi-tiered portable line now features nearly 400 separate models. The division's component products group had an outstanding year, with sales and earnings up substantially. This product operation is rapidly becoming a significant contributor to division earnings.

INTERNATIONAL MARKETS. For most of the last five years, the division's int national business has grown faster than

in the United States, with 1974s growth approximately equal to the U.S. market.

In the face of double digit inflation a local economic problems, the division deliberately moderated its European

growth policy, putting more emphasis on cost effective marketing and budget controls.

Canada, the division's major non-U.S. market, continued its excellent growth pattern of the last few years. Strong growth also continued in Mexico and Israel. Business in South America grew at a good pace while Australia, one of the

The electronics industry depends upon A division engineertests a 900 MHz radio which will serve the public when the recent quartz crystals to give its products the FCC decisions regarding that spectrum band are finalized. precision stability demanded by the very nature of its operation. The division A complete line of mobile and portable two-way radio products and systems are significantly increased its man-made manufactured and marketed in Canada. Here, control heads for two-way radios are quartz output in the last several years to produced at the division's new facilities near Montreal. Quebec. meet increased demand for its products and systems.

division's newer marketplaces, continues Totaling three times the amount of spec- for reconsideration. While there may be to offer great potential, particularly for trum currently available for the markets short-term delays and certain modificaradio paging. served by the division, the new allocation tions in various applications, 900 MHz offers the greatest opportunity for long- remains a major long-term opportunity. FACILITIES. The international and U.S. term growth in the history of the land growth experienced in 1974 was accom- mobile radio industry. This spectrum will - «ur«n |n e a r | y 1

panied by the announcement of new fa- significantly increase the competitive United States faced a severe fuel supply cilities, worldwide. Plans for a major pro- aspects of the entire business. Such in- crisis. Through its broad communications duction facility in Ft. Worth, Texas were creased competition is ultimately in the equipment offerings, the division was revealed. Smaller production facilities public good because of the multiplicity able to provide specific products and were also announced in Montreal, Canada; of systems and products that will be made services tailored to help its customers Warrington, England; and Nogales, available in the coming years. control fuel usage and costs. By early Mexico. A new U.S. distribution area was 1975, increased costs in all categories In response to this allocation, the divi- had joined fuel expenses in making efcreated, with headquarters in the Balti- sion is prepared to introduce 900 MHz more/Washington, D.C. area. In addition, ficiency progressively more difficult to radios which will operate in applications business or governmental agency. More ground was broken in May 1974 for a and systems similar to their lower fremajor manufacturing facility in Taunus- than ever, one- and two-way communicaquency equivalents. These radios and tions products and services have become stein, Germany, which will also be the systems should allow the division's division's European headquarters. important to business efficiency and growth to continue in the dense popula- effective resource utilization. « INCVV n c j u u r n / t . Of particular signif- tion areas that have started to suffer freicance for both immediate and long-term quency congestion. With business and government divisional growth was the Federal Com- However, Docket 18262 will also have searching for tools to control their opmunications Commissions Second Re- impact well beyond todays traditional erational costs, the division's technolo port and Order on Docket 18262, allo- businesses. Several new classes of sys- cal leadership and broad product line cating 115 MHz of radio spectrum in the tems, inwhich individual users share base will mean it can provide products to mee 900 MHz band. In its decision, the FCC station facilities, will now be practical, these needs. For Motorola, a total commade a great contribution to the public and the FCC has set aside spectrum in munications systems supplier directly interest by allocating this substantial blocks of 1 MHz for such systems. These to end users, 1975 presents unique opamount of urgently needed spectrum for systems could represent a new market- portunities. Combined with the breadth land mobile radio users. place for the division. of markets already served, the addition The FCC is still working out final rules of new markets and continued internaFor Motorola, these new rules can be tional growth should expand sales summarized by one word—opportunity. for the new service. Some aspects of the docket are being challenged via petitions opportunities, and thereby make 1975 another growth year.

Semiconductor Products Division PRODUCTS AND MARKETS. The division manufactures one of the industry's broadest ranges of semiconductor devices—miniature electronic components that are used in practically all types of electronic, or "solid-state," end products There are two major semiconductor product categories: (1) discrete devices, which are the transistors, rectifiers, diodes and other single semiconductor products which began supplanting vacuum tube functions in the 1950s, and (2) integrated circuits, which include hundreds or even thousands of discrete components combined in a single electronic device to perform a complete circuit function. Where technically and economically feasible, one integrated circuit can perform electronic tasks previously requiring a great many discrete devices. With increased miniaturization, semiconductors make possible an everwidening host of electronic controls for almost every facet of modern life, including applications in such equipments as TVs and tape decks, solid-state ignition and ant-iskid systems, variable speed drills, kitchen stoves with continuous heat control, communications systems and computers.

Whereas in the early 1960s the division served only the U.S. market, today it manufactures and markets a diverse line

of semiconductors throughout the world. The division's numerous sales offices and applications assistance centers in strategic marketplaces are backed by 10 manufacturing and assembly facilities worldwide. These include two new plants brought on line in 1974: the first phase

CMOS wafer fabrication began in June at dedicated to MOS integrated circuits pro

of an MOS integrated circuits facility i Austin, Texas, and an assembly plant in Kuala Lumpur, Malaysia for both discrete devices and integrated circuits.

WORLDWIDE SEMICONDUCTOR INDUSTRY. Industry sales were above

1973's record performance, in spite of a downward sales trend during the latter part of the year. This downward pressure resulted primarily from the slowing worl

"When a general economic upturn occurs, the keys to immediate sales growth will be highly reproducible product lines and mass production facilities ready for sharply increased demand. With our leadership position in many discrete and integrated circuit product lines, and with volume manufacturing capabilities, we will then have an excellent opportunity to increase our historically significant share of the worldwide market" THOMAS J.CONNORS Senior Vice President and General Manager

ivision's new Austin, Texas facility, on.

wide economy which caused semiconductor customers to quickly reduce production and inventory levels. Many firm had increased their inventories and ord for semiconductors during the shortage

environment of 1973 and early 1974.

The division expects the industry sa decline to continue through the first p

This tiny semiconductor chip contains as many bits of memory" as the 4,096 ferrite "Mini" wire bonders were installed during cores it replaces. Introduction of the new compact random-access memory chip signals the year to increase productivity in some a price-per-bit decline that should make the semiconductor memory directly cost of the division s plastic-packaged competitive with long-entrenched ferrite cores. integrated circuit production lines. The bonders connect each integrated circuit chip to the leads on its package with increased speed and efficiency.

of 1975, with some recovery toward year- mately the same net order input in the forexample, inventory revaluation charges, end. third quarter as in the second, while order personnel separation costs and the closSALES AND EARNINGS SUMMARY. input for the total industry was apparent- ing of the division's Puerto Rican operaThe division's sales were up approximately ly declining. This relatively positive in- tion. Barring further erosion in demand, seven per cent over 1973. This slowed dication, combined with an extremely such costs should not be a major factor growth resulted primarily from a very high order backlog, led to the division's in 1975's results. abrupt and steep decline in the division's plan to continue operating at a level pro- In its rapid and substantial fourth qua business activity during the fourth quar- duction rate. ter reduction of personnel and expense ter. Then, as the recession suddenly and costs, and in its associated plans for 197 While affecting all the division's major unexpectedly deepened, fourth quarter division and corporate management have product and market sectors, the primary order input declined sharply in reaction given major attention to the need for areas of decline were the automotive to reduced consumer demand com- maintaining, even in some instances inand consumer durable markets. As one pounded by then-required inventory ad- creasing, strategic engineering and preof the leaders in semiconductor device justments in all stages in the pipeline. production activities associated with imsales to those markets, the division was The division was forced to rapidly curtail portant products of the future probably more adversely impacted than operations in an attempt to correct production and employment levels as its end DISCRETE DEVICES. 1974 also saw a some of its competitors when these mar- continued market shift from discrete deket segments eroded rapidly and sub- customers repeatedly deferred delivery dates or cancelled orders. During the vices to integrated circuits, although dol stantially in the late 1974 downturn. lar sales of discrete semiconductors confourth quarter, the division experienced Mid-1974 division strategies were based the steepest and most abrupt decline in tinued to grow. The division plans to take on a forecast of only a modest recession, order input and shipments in its history. advantage of developing opportunities with an economic upturn in early or mid- Although the division did substantially in integrated circuits while maintaining 1975. This expectation was reinforced reduce its costs and production levels, its industry leadership position in the when the division experienced approxi- these reductions were not sufficient in more mature discrete components marextent or timing to avoid an operating ket. Such new developments as an AM loss in the quarter. These results were tuning diode, RF power devices for the aggravated by many one-time charges new 900 MHz band, and liquid crystal resulting from the dramatic reduction in displays—along with established discrete the division's operating level, including functions which cannot be duplicated with existing integrated circuit technology—should provide continued unit and

Because semiconductors are relatively very iiymweight and small for their value, the The now-standard 3-inch wafer contains division is able to take advantage of time-saving airfreight as a means of transportation 2 1/4 times as many semiconductors as between its Arizona plants and specialized assembly plants up to half a world away. its 2-inch predecessor. When scribed into its individual components, this particular type of wafer yields as many as 30.000 transistors.

dollar growth for the division's discrete only memory —have promising growth duction of one batch of semiconductor product lines. potential for the balance of the 1970s. devices), should allow the division to shi This potential is further backed by con- rapidly with significant changes in cusINTEGRATED CIRCUITS. In bipolar in- tinuing research and development efforts tomer demand. Currently, many of the tegrated circuits, the division's worldwide in such new integrated circuit technolo- division's major customers are taking desales in emitter-coupled logic dramatically gies as integrated-injection logic and the livery of semiconductors at rates subincreased over 1973. Five computer next generation of microprocessor de- stantially lower than their production usmainframe manufacturers introduced vices. age as they work down excess inventories. equipment using Motorola's MECL 10,000 The division is posturing itself to be abl devices. LOOKING AHEAL Forthefull year 1975, to efficiently respond to the increased At yearend, the division introduced the the division forecasts world semiconduc- demand which should occur when these semiconductor industry's first complete tor industry sales to be five to eight per excess inventories have been eliminated. family of associated microprocessor in- cent below 1974's total. And, despite antegrated circuits—possibly the most sig- ticipated continued softness in one of nificant product introduction in the divi- the division's strongest markets—the sion's history. Some equipment designers consumer market—the division does exexpect microprocessors to eventually be pect its overall market share to remain recognized as a technological advance unchanged in 1975. Reasons include a rivaling the importance of the vacuum diverse product line serving many diftube, the transistor or the integrated cir- ferent markets; continued dedication to cuit. In a mix-and-match compatibility researching new technologies; increascovering a broad range of system needs, ing sales of all integrated circuits as a thedivision's 8-bit NMOS microprocessor percentage of the division's total annual set provides attractive costs for compo- sales; and growing strength in internanents which will allow the design of table- tional sales. top products with computing power com- The division has established several parable to roomsful of equipment needed near-term alternate operating plans which, a decade ago. along with increased attention being given Other new bipolar and MOS integrated to improving production cycle times (the circuits—such as state-of-the-art 1-GHz elapsed time from start to finish of proMECL counters, general purpose interface bus linear components, a broad CMOS product line, NMOS 4,096-bit random-access memory and a 16K read-

Automotive Products Division PRODUr~- 1 MARKF The divi sion continues to serve the automotive marketplace through the design, manufacture and sale of car radios, stereo tape players, alternator charging systems, solid-state electronic ignition systems and automotive instruments. The division sells both aftermarket and original (factory installed) equipment to customers such as Ford, Chrysler, American Motors and Volkswagen. Truck, agricultural machinery, off-the-road equipment and other "non-passenger car" manufacturers are other customers. The division is active in the international marketplace with wholly owned subsidiaries in Canada, England and France; a majority-owned company in Italy; a joint venture company in Japan; and licensees and affiliated companies in other free world markets. SALtS AND EARNINGS SUMMARY Sales of the division approximately equalled last year's record level despite greatly depressed automobile sales in the United States and general worldwide economic retrenchments. The fourth quarter, in particular, was a period of sharpl reduced car sales, causing excessive

inventories throughout the distribution channel necessitating lengthy production

plant shutdowns by the major automakers. These conditions reduced the

division's level of business significantly for the quarter and also caused ex-

cessive Motorola inventories.

Earnings for the year declined substantially, and for the fourth quarter the

The Motorola-branded aftermarketelectron in passenger cars, as well as industrial

division operated at a loss. Increased material costs; rapid rescheduling of pr uct mix for original equipment customers

as buying trends shifted; customer and supplier strikes; and startup costs asso

ciated with the new Seguin, Texas and Angers, France facilities were adverse

factors in addition to the lower than expected sales volumes. Very poor local

economic conditions and automobile sales caused major losses at Autovox, the division's majority-owned Italian company, which also contributed

"The automotive industry is experiencing difficult times as car sales are greatly depressed, and the outlook for 1975 remains cloudy. Although we are adversely affected, our product and customer diversification puts us in a somewhat more favorable position than the degree of the passenger car market decline would indicate!' OSCAR P. KUSISTO Vice President and General Manager

ition system is designed for retrofitting les and engines.

significantly to the division's poor resu

ORIGINAL EQUIPMENT ENTERTAINVIENT PRODUCTS Original equipment

product sales decreased considerably during the year for the reasons described

above. The division received a two-year, multimillion dollar per year contract fro

the Ford Motor Company to supply AM radio/8-track tape player units as option

equipment on 1976 and 1977 Ford Granadas, Mustangs, Mavericks, Pintos and Mercury Monarch models. Another multimillion dollar contract was received from Ford to supply 4-channel discrete enter-

An employee in the divisions new Seguin, Texas facility inspects a radio subassembly. Product shipments from this new plant began in April.

tainment centers as optional equipment for top line 1976-1978 model year Ford automobiles. These entertainment centers are capable of receiving AM, FM and FM stereo radio broadcasts and will play both 8-track, 2-channel stereo and discrete 4-channel quadraphonic tapes as well.

MOTOROLA-BRANDED AUTO SOUND PRODUCTS. Sales to the aftermarket increased dramatically due particularly to improved distribution and the addition of many new products, including an extensive line of custom car radios designe specifically for many models of cars made by General Motors and Ford.

ALTERNATOR CHARGING SYSTEMS. Sales of alternator charging systems increased modestly during the year. Customers included American Motors, Volkswagen of America and manufacturers of trucks, heavy machinery, agricultural equipment and off-the-road machinery. Significant sales gains over 1973 were made in the aftermarket with Motorolabranded alternators sold as replacement units to fleets and other customers.

ELECTRONIC IGNITION PRODUCTS Electronic ignition product sales nearly

doubled over the 1973 level as a 19741976 Ford solid-state ignition module

contract began to show its full impact. The one millionth ignition was shipped to

Ford for the 1974 model year in August. In addition, a contract was received to supply ignition modules for a substantial

All new Motorola car radios, as well as ignit instrument subassemblies, will soon be tested assembly into a computer-controlled test syst a program for the testing.

share of Ford's 1975 Capris sold in the United States. A Motorola-branded solid-state ignition system was introduced into the aftermarket for retrofitting on cars with conventional ignitions as well as for sale to certain original equipment customers.

INSTRUMENTSANDCONTROLS. Sales in this minor product category rose substantially during 1974. The product line includes tachometers, electronic speedometers, hourmeters, ground speed indicators and several other instruments which are sold both as original equipment and as Motorola-branded units in the aftermarket. A new concept in battery testers was also introduced in 1974. Totally electronic, the new battery tester potentially obsoletes existing equipment used to test many parameters of 12-volt batteries with a current up to 600 amperes. Major potential customers are car dealers, service stations, fleet operators and others.

.,!,.--. The di vision's joint venture company in Japan, Alps-Motorola, designs and produces entertainment products for sale in the United States, Japan and other world

markets. Sales of this company declined moderately because of a slowdown in

demand from U.S. home entertainment manufacturers and depressed economic

conditions in Japan. The initial customer for the newly built

voltage regulator and automotive analyzed by inserting the subHere, a Motorola engineer perfects

Angers, France plant is Volkswagen in Germany, which began receiving alternator shipments in the fourth quarter. Sales in the United Kingdom declined because of major national strikes and the faltering local economy. As mentioned earlier, Autovox in Italy sustained major losses and contributed significantly to the division's decreased earnings.

FACILITIES. In anticipation of the phasing out of production in Quincy, Illinois in 1976, as a result of the sale of Motorol television business to a subsidiary of Matsushita Electric Industrial Co., Ltd. of Japan, an expansion of the division's new entertainment products manufacturing facility in Seguin, Texas is targete for mid or late 1975. Production in the new Seguin facility began in April 1974. Initial alternator shipments were made from the new Angers, France plant in October.

I O O K I M G AHEA To meet the challenges brought about by poor economic conditions, the division has substantially reduced production levels and overhead costs. It is closely monitoring inventory and product mix versus customer require-

ments. Significant long-term contracts with major customers, plus many years

of mutually beneficial rapport, should also provide the division of a solid base for

growth when the automobile industry recovers to more normal levels.

Government Electronics Division PRODUCTS AND MARKETS. The division specializes in research, development and production of advanced electronic systems and equipment for the U.S. Department of Defense, NASA and other government agencies, with limited sales internationally and to commercial markets in the United States. SALES AND EARNINGS SUMMARY. In 1974, the division again increased its sales and earnings, achieving record results. Fourth quarter results also increased from the same period last year. Backlog during most of the year, as well as at yearend, reached all-time highs. The division's growth has come from increased penetration of a relatively lev government electronics market. Among the factors contributing to this fine per formance are long experience in serving the needs of the U.S. military services and NASA, and depth of understanding of specific operational requirements. Defense and space systems become more complex each year, and therefore concentration on technical advancements to the state-of-the-art and simplificatio of equipment design is increasingly important.

COMMUNICATIONS SYSTEMS The division's space business, which began with the early days of U.S. involvement in space exploration, continues strong. An outstanding record of on-time and onbudget deliveries, coupled with years of perfect in-flight performance, have made Motorola a prime contender for

A Motorola engineer conducts final tests communications systems for the U.S. Navy currently being installed on all U.S. Na

new space electronics programs. In 1974, final deliveries of Motorola's Viking Or equipment were made to the Jet Propulsion Laboratory for its 1975 launch; and in August, a contract for the missioncritical radio frequency subsystem for the Mariner/Jupiter/Saturn spacecraft scheduled to be launched in 1977 was booked. Also in 1974 work began on the transponders for the tri-service global positioning satellite and, in addition, $1.5 million follow-on contract was re-

"Since state-of-the-art technology is our 'distinctive competence^ we intend to invest more in research and development programs in 1975 to further augment our high level of sophisticated technical know-how!' RALPH W.ELSNER Vice President and General Manager

new worldwide satellite-to-ship broadcast receiving terminals are ce ships.

ceived for a Japanese space program. A contract to provide the U.S. Navy with receiving terminals for a worldw satellite-to-ship communications syst demonstrated that, by working closely with the customer, simple equipment can be developed to solve complex pro lems and with savings in cost. While development of this system is now com pleted and delivery of production quantities has begun, the same fundamental techniques are being proposed for airborne applications.

Motorola communications equipment undfryues imai aujuatment at the Jet Propulsion Tne miegratea larget Control System Laboratory prior to integration into the Viking Orbiter spacecraft. console, designed to aid the U.S. Navy in training defensive forces, entered the An engineer checks the company slow-cost, all-weather, active radar guidance system pre-production phase during the year. for air-to-air missile"

Similar techniques have also been operatively worked out over the years the Semiconductor Products Division successful in troposcatter communica- by Motorola and the U.S. Army Electronics and the processing facilities of the cortions systems. Bell Canada put the divi- Command at Ft. Monmouth, New Jersey. porate integrated circuit advanced resion's equipment on-line during 1974 in The integrated target control system search laboratory, all within a few miles its long-hop telephone communications that Motorola is building for the U.S. Navy of each other, combine to provide the system to increase capacity and improve will allow pilots on the ground to control division with a unique capability in its the quality of its existing installations. drone aircraft remotely. These drones marketplace. This capability is particLate in 1974, a new contract for similar are used to simulate enemy planes and ularly important in the development of equipment was received from the U.S. missiles in training U.S. defensive forces. new large-scale integrated circuits Department of the Interior to be used in Several system elements of this multi- which form the fundamental building a communications link between the million dollar contract started into pro- blocks for many advanced systems. islands of Guam and Saipan. duction in 1974. Motorola's leadership position in the development and application of these RADAR SYSTEMS. Mini-Ranger III, a TACTICAL ELECTRONICS In addition circuits to solve specific customer probhorizontal positioning system for to introducing state-of-the-art circuit lems provides a sound base for future applications such as mineral explora- concepts to missile guidance packages, growth. tion, ship positioning and channel and countermeasures systems and ordnance harborsurveying, has been well received devices, the division has also initiated LOOKING AHEAD. Based on its present in U.S. and international markets. Sys- unique mechanical designs, introduced strong backlog, the division should be tems were sold in 18 different countries advanced antenna configurations and able to continue the steady growth patduring 1974. This third generation sys- applied new materials to meet the ever- terns established during recent years. tem has been tailored to fit specific mar- changing requirements of its customers. Investments planned for research and ket requirements for a relatively simplified, By precise matching of specific opera- development during 1975 will support inexpensive, accurate, short-range posi- tional requirements with the latest tech- an unusually high level of sophisticated tioning system. The price of a basic sys- nological advancements, Motorola has technology. It is upon this foundation of tem has been cut in half over the past introduced several new, more effective advanced technology that the division's several years. systems and devices to meet today's long-term growth plans are based. Included in a 1974 award of $9 million cost-conscious department of defense In 1975, the division also plans furth for side-looking airborne radar systems requirements. diversification of its product base in was the development of a new proces- several areas to serve a broader spectrum sor using dry silver film to provide near A UNIQUE CAPABILITY. The division's of government customers. real-time hard copy of radar imagery extensive in-house integrated circuit in the cockpit. With this equipment, facility for design and limited high techoperating costs will be reduced and mis- nology production, with support from sion duration can be extended. This is typical of the product improvements co-

"The current economic environment presents many opportunities for high

technology goods and services which can advance our standard of living. Product and service improvements are critical cornerstones in a progressive and productive society!' STEPHEN L. LEVY Senior Vice President, New Ventures

\ew Ventures and Other Businesses Motorola's New Ventures mission is to foster growth and leadership in related high technology areas beyond the company's existing divisional capabilities. Four types of expansion have been selected as most appropriate for company exploration, research and development: technological innovation, internally generated new businesses, cooperative new ventures and acquisitions.

i\!i. Motorola' program of seeking out enterpreneurs inside as well as outside the company, and providing a climate for the nurture and development of good ideas into new businesses, continued during the year. The aid of bankers, management consultants and centers of higher learning in management and technological fields in discovering outside entrepreneurs with innovative ideas in selected areas is being sought. Once an entrepreneur with a suitable idea capable of generation into a new business is identified, Motorola works with the venturer in setting up the business as an on-going enterprise partially owned by the venturer.

Motorola Teleprograms Inc., an inter nally generated business, is the leading

producer/distributor of training films f police agencies. The company's law enforcement training library contains more than 50 film titles, and the company added its 1000th customer during the year. Incorporation of Motorola Aerial Re mote Sensing Inc. (MARS) was com-

Utilizing Motorola's new STAT-SCAN computerized management system, any member of a medical practice staff can retrieve business summaries and patient information, or prepare billing statements by pressing the appropriate function key.

pleted in 1974 involving Motorola, acompanyemployeeand a non-Motorola venturer. MARS provides sophisticated geological survey capabilities to customers in the resources exploration market and to those planning construction over land which might involve a geological fault.

TPnHN0LC^ i r A | iMMO\/ATir»M Motorola's skills and capabilities in many electronics-related technologies, such as chemical and metallurgical processing, provide a base for exploration of new market opportunities. To build on these skills and to pursue opportunities beyond the division's interests, the two New Ventures laboratories were consolidated during 1974 into a single new development laboratory in Phoenix. Among the fields being studied are solar energy conversion and computer-based voice recognition systems.

;v_uuib : Acquisition studies hav covered both diversification opportunities and fields related to the businesses of Motorola's existing divisions. Objectives have been established whereby opportunities are sought in new, but related, high technology businesses which

would enable Motorola to selectively broaden its base of operations. While many business areas and companies have been evaluated, no diversificationoriented acquisition has yet been made. During 1974, two small acquisitions relating to Motorola's existing divisions were concluded. Both were in the materials processing and development field;

Installed on a MARS-owned aircraft, a specially configured side-looking airborne radar provides geological survey capabilities to the resources exploration and other markets.

one (Topsil A/S in Denmark) complements the silicon-producing technology of the Semiconductor Products Division, and the other (Optoceram, Inc. in Albuquerque, New Mexico) complements the ceramic materials technology of the Communications Division.

OTHER BUSINESSES. The Business Systems Unit—wholly owned by Motorola Inc.—introduced a computerized management system for group medical practitioners. This low-cost, modular system, marketed under the Motorola trademark STAT-SCAN, is based on INN-SCAN, a similar system developed and introduced to the lodging industry in 1973. Sales and leases of INN-SCAN units, while hampered slightly by the recent hotel-motel industry declines, are improving. The Institutional Electronics Unit mar kets Motorola's products in the U.S. commercial lodging industry, which has been adversely affected by the energy shortage and its resultant curtailing effect on th country's pleasure motoring habits. However, the unit continues as a prime supplier to such major chains as Holiday Inns Inc. and ITT Sheraton Corporation

of America.

The Display Products Unit had a good year as a leading manufacturer of cathode ray tube displays for computer peripheral and other applications. New systems applications are currently being develope for the leisure time and other industries

Accountants' Report PEAT, MARWICK, MITCHELL & CO. Certified Public Accountants 222 South Riverside Plaza Chicago, Illinois 60606

The Board of Directors and Stockholders of Motorola, Inc.:

We have examined the consolidated balance sheets of Motorola, Inc. and Subsidiaries as of December 31,1974 and 1973, and the related statements of consolidated earnings and retained earnings, additional paid-in capital and changes in financial position for the years then ended. Our examination was made in accordance with generally accepted auditing standards, and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. In our opinion, the aforementioned consolidated financial statements present fairly the financial position of Motorola, Inc. and Subsidiaries at December 31,1974 and 1973, and the results of their operations and changes in their financial position for the years then ended, in conformity with generally accepted accounting principles applied on a consistent basis, after restatement for the change, with which we concur, in the presentation of the statements of consolidated changes in financial position as described in note 1 to consolidated financial statements.

PEAT, MARWICK, MITCHELL & CO.

February 18,1975

17

Consolidated Balance Shorts

Motorola, Inc. and Subsidiaries as of December 31 1974 1973 (Thousands of dollars) ASSETS CURRENT ASSETS Cash 29,118 i 25,262 Short-term investments, at cost (approximating market) 23,336 21,982 Accounts receivable 278,299 294,276 Allowance for doubtful accounts (8,454) (7,520) Costs recoverable under United States government contracts, less progress billings 14,486 9,711 Inventories, at the lower of cost (first-in, first-out) or market Finished goods 108,333 106,264 Work in process and production materials 213,936 230,202 Future income tax benefits 19,221 26,341 Other current assets 49,062 20,873 Total Current Assets. 727,337 727,391

PLANT AND EQUIPMENT, AT COST Land 15,979 14,522 Buildings 205,657 175,966 Machinery and equipment 271,276 219,263 Accumulated depreciation (167,984) (159,160) Net Plant and Equipment 324,928 250,591 SUNDRY ASSETS, NET 20,724 15,539 $1,072,989 $993,521 See accompanying notes to consolidated financial statements.

18

1974 1973 (Thousands of dollars)

LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Notes payable—banks and other United States $ 41,115 $ 23,181 Other nations 46,470 40,907 Current maturities of long-term debt (note 3) 2,606 2,289 Accounts payable 103,032 98,818 Accrued compensation 18,335 19,974 United States (Federal and State) and other nations' income taxes (note 4).... 15,168 22,332 Other (including withheld) taxes 16,117 13,909 Contribution to employees' profit sharing funds (note 7) 18,060 21,906 Product and service warranties 7,338 16,780 Accrued expenses and other 46,761 39,580

Total Current Liabilities 315,002 299,676

LONG-TERM DEBT (NOTE 3) 147,810 150,338

OTHER NON-CURRENT LIABILITIES 23,923 17,971

MINORITY INTEREST IN MAJORITY-OWNED SUBSIDIARIES 543 2,055

STOCKHOLDERS' EQUITY Common stock, $3.00 par value (notes 3 and 5) Authorized: 40,000,000 shares Outstanding: 1974—28,188,185 shares; 1973—27,959,424 shares 84,565 83,878 Preferred stock, $100 par value issuable in series Authorized: 500,000 shares (none issued) — — Additional paid-in capital (notes 3 and 5) 135,898 128,210 Retained earnings (note 3) 365,248 311,393

Total Stockholders' Equity 585,711 523,481

$1,072,989 $993,521

19

Statements of Consolidated Earnings and Retained Earnings Motorola, Inc. and Subsidiaries, Years Ended December 31 1974 1973 (Thousands of dollars, except per share figures) SALES AND OTHER REVENUES $1,367,171 $1,203,217_ Manufacturing and other costs of sales 878,675 755,720 Selling, service and administrative expense (notes 6 and 7) 285,035 240,274 Depreciation of plant and equipment 43,456 33,340 Interest and amortization of debenture discount, expense and premium, net 27,201 16,194 Minority interest in losses of majority-owned subsidiaries (794) (280) Total costs and other expenses 1,233,573 1,045,248 Earnings from continuing operations before income taxes 133,598 157,969 United States and other nations' income taxes net of investment credit of $4,639 in 1974; $2,414 in 1973 (note 4) 55,082 66,324 State income taxes (U.S.) 5,604 6,172 Total income taxes 60,686 72,496 EARNINGS FROM CONTINUING OPERATIONS 72,912 85,473 Loss from operations of discontinued businesses (reduced by related tax benefits: 1974, $2,227; 1973, $5,272) (note 9) (2,184) (3,477) Net earnings 70,728 81,996 Retained earnings at beginning of year 311,393 283,610 Share-for-share distribution —par value of 13,889,899 shares transferred to common stock — (41,670) Cash dividends declared (per common share: 1974, $.60; 1973, $.45) (16,873) (12,543) Retained earnings at end of year (note 3) $ 365,248 $ 311,393

EARNINGS PER COMMON SHARE Continuing operations $ 2.60 $ 3.07 Operations of discontinued businesses (.08) (.12) Net earnings per share $ 2.52 $ 2.95

Slalcmcnls of Consolidated Additional Paid-in Capital Motorola, Inc. and Subsidiaries, Years Ended December 31 1974 1973 (Thousands of dollars) Balance at beginning of year $128,210 $114,645 Share option plans (note 5) 5,048 11,673 Conversion of 4/2% convertible guaranteed debentures, (principal amount: 1974, $3,579; 1973, $2,782) (note 3) 2,640 2,022 Equity change in affiliate — (130) Balance at end of year $135,898 $128,210 See accompanying notes to consolidated financial statements.

Statements of* Consolidated Changes in Financial Position Motorola, Inc. and Subsidiaries, Years Ended December 31 1974 1973 (Thousands of dollars) SOURCES OF FUNDS: Net earnings from continuing operations $ 72,912 $ 85,473 Add non-cash charges: Depreciation 43,456 33,340 Amortization of deferred debenture discount, expense and premium, net 362 426 Funds provided from continuing operations 116,730 119,239 Net losses of discontinued operations (2,184) (3,477) Add non-cash charge—depreciation 502 2,384 Funds used by discontinued operations (1,682) (1,093) Funds provided from operations 115,048 118,146 Increase in notes payable and current maturities of long-term debt 23,814 12,502 Decrease in receivables 16,911 — Decrease in inventories 14,197 — Disposals of plant and equipment 18,908 667 Issuance of common stock 8,375 14,417 Increase in long-term debt — 76,103 Other sources, net — 37,104 Total sources of funds 197,253 258,939

USES OF FUNDSFixed assets expenditures. (Includes subsidiaries acquired: 1974, $3,817; 1973, $462) 135,018 84,972 Decrease in long-term debt 2,528 6,067 Increase in receivables — 39,212 Increase in inventories — 119,033 Dividends 16,873 12,543 Other uses, net 37,624 — Total uses of funds 192,043 261,827 NET INCREASE (DECREASE) IN FUNDS 5,210 (2,888) Cash and short-term investments Beginning of year 47,244 50,132 End of year $ 52,454 $ 47,244 See accompanying notes to consolidated financial statements.

21

Notes to Consolidated Financial Statements ' ACCOUNTING POLICIES: Following is a summary of significant accounting policies followed in the preparation of these consolidated financial statements, which policies are in accordance with generally accepted accounting principles.

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

INTERNATIONALThe accounts of the company's operations outside the United States have been translated as follows: plant and equipment at currency rates prevailing when acquired; other assets and liabilities at yearend rates; and ope ating accounts at rates prevailing during the year except depreciation charges which are translated at the historic rate of the related assets. The net currency translation gain for the year was $339,000 ($2,443,000 in 1973) of which $89,000 ($1,661,000 in 1973) has been credited to earnings for the year and $250,000 ($782,000 in 1973) has been credited to deferred translation gains. At December 31, 1974, the total translation gain deferred and included in Accrued Expenses and Other is $1,250,000 ($1,000,000 in 1973). The company's equity in undistributed earnings of non-U.S. subsidiaries and affiliates included in consolidated retained earnings at December 31, 1974 amounted to $39,400,000 ($26,904,000 in 1973). Certain of these earnings may be taxable in the United States upon distribution; however, it is intended that these earnings be permanently invested in operations outside the United States and accordingly, no provision has been made for United States taxes.

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

INCOME TAXThe company provides for income taxes based on income reported for financial statement purposes. Certain charges to earnings differ as to timing from those deducted for tax purposes. The tax effects of these differences are reflected in the consolidated balance sheets as Future Income Tax Benefits. Investment tax credits are recorded as a reduction of income tax expense in the year that the related assets are placed into service.

PLANT AND EQUIPMENTPlant and equipment is stated at cost. The related cost and accumulated depreciation on property sold, retired or fully depreciated are cleared from the a counts with the net difference, less any amount realized from disposals, reflected in current operations. Depreciation is provided on the basis of the estimated useful lives generally by the declining-balance method for items acquired subsequent to December 31,1953, and by the straight-line method for items acquired prior to that date. For income tax purposes the company has elected the provisions of the Class Life Asset Depreciation Range System (ADR) permitting accelerated depreciation. The tax effect of the difference between book and tax depreciation has been provided as deferred income taxes in the accompanying consolidated financial statements.

DEBENTURE DISCOUNT, EXPENSE AND PREMIUM: Deferred debenture discount, expense and premium are included in Sundry Assets at unamortized cost. Amortization is being charged to expense over the terms of the debentures by the straight-line method.

SHARE OPTIONSWhen share options are exercised, the proceeds received are credited to the common stock account to the extent of the par value of shares issued, and the exces is credited to Additional Paid-in Capital. The tax benefit the company receivesfrom disqualifying dispositions by optionees of exercised qualified stock options is credited to Additional Paid-in Capital.

RESEARCH AND DEVELOPMENTExpenditures are charged to operations as incurred. PRODUCT AND SERVICE WARRANTIES: Anticipated costs related to product and service warranties are recorded at the time of the sale of the products. CHANGE IN PRESENTATION: As of December 31,1974, the company changed its presentation of the statements of consolidated changes in financial position from one which reflected changes in working capital to one which reflects changes in cash and short-term investments. The company believes that the new format is a more meaningful presentation of the changes in financial position. The statement of consolidated changes in financial position for the year ended December 31, 1973 has been restated to conform with the 1974 presentation.

2. At December 31,1974 and 1973, net assets of consolidated operations outside the United States aggregated $134,900,000 and $116,500,000, respectively. Export sales of U.S. companies, and sales and other revenues of continuing operations outside the United States, were 28% and 25%, respectively, of 1974 and 1973 consolidated amounts.

3. Long-term debt at December 31 consisted of the following: 1974 1973 (Thousands of dollars Debt outside the United States: 4!4% convertible guaranteed debentures due July 1, 1983 $ 12,487 $ 16,066 8% guaranteed sinking fund debentures due March 1, 1987 25,000 25,000 Notes payable (generally at prevailing prime rates) due in installments to 1985. 12,929 9,063

Debt in the United States: Revolving credit notes (at prevailing prime rates) 75,000 75,000 4%% debentures due April 1, 1986 (net of $1,000,000 in 1974, $989,000 in 1973 debentures held by the company for sinking fund payment) 24,000 25,011 4%% notes due in annual installments to 1976 1,000 1,500 Notes payable (generally at prevailing prime rates) — 987

150,416 152,627 Less current maturities, included in current liabilities 2,606 2,289 Net long-term debt $147,810 $150,338

The AV2% convertible guaranteed debentures (issued by Motorola International Development Corporation) are convertible into common stock of Motorola, Inc. at the rate of 25.2 shares for each $1,000 principal amount, subject to adjustment in certain events, and are guaranteed as to the payment of principal and interest by Motorola, Inc. The debentures are redeemable at various dates at redemption prices reducing from 103% to 100% of the principal amount thereof. In 1974, $3,579,000 in debentures ($2,782,000 in 1973) were converted into 90,176 shares (70,095 in 1973). At December 31, 1974, there were 314,729 shares (404,905 in 1973) of Motorola, Inc. common stock reserved for issuance upon the conversion of these debentures. The 8% guaranteed sinking fund debentures (issued by Motorola International Capital Corporation) are redeemable at various dates beginning after March 1, 1977, at redemption prices reducing from 102% to 100% of the principal amount thereof. Annual sinking fund payments are required beginning March 1, 1977, in progressive amounts sufficient to re-

tire 76% of the issue prior to maturity. The issue is guaranteed as to payment of principal and interest by Motorola, Inc. Under the terms of the revolving credit agreement, the company has the option of converting the notes to a fouryear term loan on, or prior to, December 31,1976 at the then prevailing prime commercial rate of interest plus %% for the first two years and Y2% for the last two years. It is the intent of the company to maintain the availability of the revolving credit during 1975 and therefore the debt is classified as longterm debt. The revolving credit agreement restricts the payment of cash dividends. At December 31, 1974, $86,094,754 of retained earnings was not restricted as to dividend payments. It also requires the company to maintain consolidated working capital (as defined) of not less than $275,000,000.

4. The provision for taxes on income from continuing operations includes $12,898,000 in 1974 ($8,760,000 in 1973) for other nations. The effective tax rate is summarized as follows:

1974 1973

U.S. Federal tax rate 48.0% 48.C Increase (reduction) in tax rate resulting from: Investment tax credit (3.5) (1.5 Taxes on earnings in other nations, net of tax benefits arising from net operating loss carryforwards, loss operations with no tax benefits and tax holidays 2.7 (3.0 Tax benefits arising from tax holidays in Puerto Rico (3.8) (1.6 State income taxes (U.S.) 2.2 2.0 Other (.2) 2.0 Effective tax rate. 45.4% 45.9%

5. Under the company's Employee Share Option Plans, shares of common stock have been made available for qualified or non-qualified option to employees of the company and certain subsidiaries. Options may be granted at not less than fair market value on the dates of grants, and become exercisable one year from the dates of original grants. Qualified options expire at the end of five years and non-qualified options expire at the end of ten years. During 1974, pursuant to written offers from optionees, existing options under the 1972 plan were cancelled, and replacement, non-qualified options (expiring November 11,1984) were granted for the same numbers of shares which were subject to the cancelled options.

The exercise prices of the replacement options were not less than the fair market value of the shares on the dates of grants. Data on share options are summarized below: 1974 1973

Options outstanding beginning of year. . 968,698 963,836 Additional options granted 6,850 333,215

Options exercised (138,585) (318,353 Options terminated for discontinued employment (45,180) (10,00 Options terminated for cancellation and regrant (611,575) — Options regranted 611,575 — Options expired (80) — Options outstanding end of year 791,703 968,698 Shares reserved for possible future option grants 564,775 526,365 Total shares reserved 1,356,478 1,495,06

Aggregate exercise price of outstanding options $36,053,000 $50,108,000

Aggregate exercise price of exercisable options $35,754,000 $32,231,000

Excess of the option price over the par value of shares issued $ 3,913,000 $ 9,216,000 Tax benefit resulting from disqualifying dispositions by optionees $ 1,135,000 $ 2,457,000

6. An Executive Incentive Plan provides that the company and certain subsidiaries may reserve up to 4% of their annual consolidated pre-tax earnings (as defined) for the payment of cash incentive awards. Such awards are payable, except for awards of $1,000 or less, generally in equal annual installments over a period of five years and are generally subject to the recipients'continued employment. Reserves of $1,000,000 and $4,114,000 (including $206,000 applicable to discontinued operations) were provided in 1974 and 1973 for such awards, representing 1.3% and 4.0%, respectively, of defined earnings. In 1974, awards of $3,176,000 were made for 1973 performance ($2,577,000 in 1973 for 1972 performance). Awards for 1974 performance have not yet been determined. At December 31, 1974, $3,207,000 was available for such awards ($5,383,000 in 1973).

7. The company and certain subsidiaries have contributory profit sharing plans in which all eligible employees participate The contributions to profit sharing funds in the United States

and other nations, based upon percentages of pre-tax earnings, as defined, were $18,060,000 (including $1,215,000-applicable to discontinued operations) in 1974 and $21,906,000 (including $3,154,000 applicable to discontinued operations) in 1973.

The company and certain subsidiaries have a voluntary, contributory pension plan. The company's policy is to fund pension costs accrued: $3,300,000 (including $54,000 applicable to discontinued operations) in 1974 and $2,995,000 {including $298,000 applicable to discontinued operations) in 1973. At December 31, 1973, date of the latest actuarial determination, vested benefits were fully funded. It appears that no material change in the funding or vestin provisions of the plan will be required by the Federal Pension Reform Act of 1974. In the event that the amount actually payable annually unde the plan does not amount to 40% or more of an officer's rate of salary at retirement, it is the intention of the company (subject to certain qualifications and conditions) to make supplementary payments so that the total annual payments will aggregate 40% (or 30% in the case of payments to widows) of the officer's rate of salary at retirement. The company also

provides for annual payments in the amount of 30% of the officer's salary rate to widows of officers who die while in active employment. The company is providing a reserve for these supplementary payments on a current basis.

i The company is one of 21 defendants named in a lawsuit commenced on September 20, 1974 by Zenith Radio Corporation ("Zenith") in the United States District Court for the Eastern District of Pennsylvania. All other defendants are either Japanese television manufacturers or United States subsidiaries of such Japanese corporations. Zenith's complaint alleges conspiracies and other violations of the U.S. antitrust and antidumping laws. The complaint also challenges, under the U.S. antitrust laws the purchase by subsidiaries of Matsushita Electric Industrial Co., Ltd. of Japan (collectively with such subsidiaries, "MEI") certain of the assets and business of Motorola's Consumer Products Division home television receiver business. (See note 9 relating to discontinued operations). Prior to the consummation of such purchase, the U.S. Department of Justice, at the request of Motorola and MEI, investigated the antitrust implications of the transaction. During such investigation, the Department of Justice was advised by Zenith of Zenith's objections to the sale. The Department of Justice took no legal action to prevent the sale.

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

plaintiff's attorneys fees. It also seeks divestiture by MEI of completed, but Matsushita has taken significant exception to the assets purchased from Motorola. the determination of the sales price, and if the parties are In the event a divestiture is ordered or litigation damages unable to resolve the dispute, the agreement provides for are assessed against MEI arising out of such purchase, Motor- arbitration of certain of the disagreements. The company ola has agreed to share to a limited extent certain of the dol- expects that after the sales price is finally determined (by lar loss, if any, incurred by MEI. The maximum loss for which negotiation, arbitration or otherwise) the net proceeds from Motorola could be responsible to MEI under this agreement is the disposition (including the net proceeds from the disposition $20 million. Management believes that the company has of certain assets not being sold to Matsushita), less operating acted properly throughout and will deny any conspiracy or losses from March 13,1974 thru May 25,1974, will result in a other violation of law alleged by Zenith. net gain which has been deferred pending final determination The company is a defendant in various other suits and of the sales price. claims which arise in the normal course of business and is obRental expense of continuing operations under all lease ligated under repurchase and other agreements principally commitments (including non-cancellable leases) totaled in connection with the financing of sales. $17,826,000 in 1974 and $15,021,000 in 1973. If all financing In the opinion of management, the ultimate disposition of leases were capitalized, the impact on net earnings would be these matters will not have a material adverse effect on the insignificant. Commitments related to non-cancellable leases business or financial position of the company. expire as follows: 9. The sale of certain of the assets of the home television re(Thousands of dollars) ceiver business to subsidiaries of Matsushita Electric Industrial Co., Ltd. of Japan was accomplished during May, 1974. 1975 $9,715 The loss from operations of the discontinued businesses 1976 7,144 includes all of the Consumer Products Division except for 1977 5,187 certain specialized products which are being continued. The 1978 3,707 loss of $2,184,000 in 1974 covers the period through March 1979 1,590 12, 1974. The loss shown for the year ended December 31, 1980—1984 689 1973 covers the entire year. Sales of the discontinued busi- 1985-1989 172 nesses were $37,861,000 through March 12, 1974, and 1990-1994 172 $244,551,000 for the entire year of 1973. Sales and Other 1995 and later. 2,576 Revenues from continuing operations include $10,669,000 TOTAL $30,952 resulting from sales of other divisions to the discontinued businesses for the entire year of 1973. The net assets of the television receiver business at December 31,1973 were: Current Assets Accounts receivable, net $ 49,401,000 Inventories 69,776,000 Other current assets 6,793,000 Total current assets 125,970,000 Total current liabilities 41.969,000 Net current assets 84,001,000 Plant and equipment, net 24,156,000 Other non-current, net 480,000 Net assets $108,637,000

The agreement with Matsushita provides for a sales price to be determined in part by an audit. The audit has been

25

Ten-lear Financial Summary ( Dollars in thousands, except per share figure

OPERATING RESULTS FROM CONTINUING OPERATIONS SALES AND OTHER REVENUES Manufacturing and other costs of sales Selling, service and administrative expenses Depreciation of plant and equipment Interest and amortization of debenture discount Minority interest in earnings (losses) of major Total costs & other expenses Earnings before taxes on income Total income taxes EARNINGS FROM CONTINUING OPERATIONS Discontinued operations—profit/(loss) Net earnings PER CUIAQC nATA

Earnings from continuing operations Net earnings from all operations Dividends declared BALANCE SHEET DATA Working capital* Property, plant and equipment* Long-term debt* Stockholders' equity* RATIOS AND OTHER DATA Current ratio* Return on equity {%) Return on sales from continuing operations (%) Employees (yearend)* Shares outstanding (avg. in thousands) *1965-1973 data has not been restated to exclud

$2.60 3.07 $2.52 2.95 $ .60 .45

MANAGEMENT DISCUSSION AND ANALYSIS OF STATEMENTS OF CONSOLIDATED EARNINGS Sales and other revenues from continuing operations increased 13.6% in 1974 and 33.4% in 1973 over the corresponding periods. The changes were due primarily to increases in unit volume in each of the four divisions as only modest price increases were implemented during these periods. Manufacturing and other costs of sales increased 16.3% in 1974 and 24.4% in 1973 over the previous years. The 1974 costs were adversely affected by increased payroll and prices of purchased material which rose more rapidly than usual in 1974 due to high inflation. In 1973, costs rose less rapid than the sales increase and, in addition, productivity gains tended to offset the more normal rate of inflation that occur in 1973. Selling, service and administrative expenses increased 18.6% in 1974 and 42.9% in 1973. Primary reasons for the increases in both years were expansion of the sales force and increased expenditures for engineering, research and development which were approximately $112,000,000 in 1974, $89,000,000 in 1973 and $71,000,000 in 1972. Depreciation of plant and equipment increased 30.3% in 1974 and 17.5% in 1973 over the previous periods. The change was due to a higher investment in plant and equipment which

totaled $324,928,000 at December 31, 1974 compared to $250,591,000 in 1973 and $200,980,000 in 1972. Expenditures for the purchase of fixed assets were $131,201,000, $84,510,000 and $48,008,000 in 1974, 1973 and 1972 respectively. Interest and amortization of debenture discount increased 68.0% in 1974 and 57.2% in 1973 due to increases in the rates of interest during 1974 and to increased debt. Total debt was $238,001,000 at December 31, 1974, up 9.8% from 1973 while 1973 debt increased 61.5% from yearend 1972. As the result of the above changes, earnings before taxes on income decreased 15.4% in 1974 while increasing 78.2% in 1973 from the previous periods. Taxes on income decreased 16.3% in 1974 and increased 76.4% in 1973 as a result of the changes in earnings before taxes. Earnings from continuing operations decreased 14.7% in 1974 and increased 79.7% in 1973 over the previous periods which is approximately the same as the pre-tax changes. Additional comments on the 1974 operations may be found in the Letter to Stockholders and other sections of the annual report.

Motorola Worldwide Major facilities in:

Australia Melbourne

Canada Midland and Willowdale, Ontari

Denmar: Frederikssund

France

Angers

Toulouse

West Germany Mainz-Kastel Wiesbaden

Great Britair East Kilbride, Scotland

Stotfold and Warrington, Engla

Motorola Products AUTOMOTIVE PRODUCTS DIVISION Car radios Stereo tape players Alternator charging systems Solid-state ignition systems

Electronic instrumentation

COMMUNICATIONS DIVISION Mobile and portable FM two-way

communications systems

Radio paging systems Communications control centers Visual communications systems Signaling and remote control s Car telephone systems Microwave communications syste Health care communications sys Precision instruments Component products Electronic command and control systems

Hong Kong Kowloon

Israel Tel-Aviv

iidiy

Rome

Korea Seoul

Malaysia

Kuala Lumpur

Mexico Guadalajara, Jalisco Mexico City Nogales, Sonora

Puerto Rico

Vega Baja South Africa Bramley, Transvaal

Switzerland

Geneva

GOVERNMENT ELECTRONICS DIVISION Fixed and satellite communications systems Space communications systems Tactical electronics systems

Radar surveillance and display

systems

Positioning and navigation systems

Countermeasures systems Missile guidance and drone control systems Missile and aircraft instrumentati Secure communications SEMICONDUCTOR PRODUCTS DIVISION MOS and bipolar integrated circuit Linear integrated circuits MSI/LSI integrated circuits Semiconductor chips Zener and tuning diodes RF modules Power and small signal transistors Field effect transistors (FETs) Microwave devices Optoelectronics Rectifiers Thyristors Varactors Triggers Suppressors Functional circuits Liquid crystal displays (LCDs)

United States Carol Stream

Chicago Franklin Park Lombard

Quincy and Schaumburg, Illinois Mesa

Phoenix Tempe and Scottsdale, Arizona

Fort Lauderdale, Florida

Arcade, New York

Austin and Seguin, Texas Webb City, Missouri Mount Pleasant, Iowa

Motorola Executive institute in: Oracle, Arizona

New production facilities were announced or under construction in 1974 in: Taunusstein, West Germany Penang, Malaysia

Fort Worth, Texas

NEW VENTURES AND OTHER BUSINESSES Training and educational films Hotel/motel and medical group practitioner electronic manage communications and entertainme systems

Aerial remote sensing

Solar energy research

CRT displays for computer periph coin-operated electronic games closed-circuit TV applications

MOTOROLA

Motorola Inc. World Headquarters 5725 N. East River Rd. Chicago, III. 60631 Motorola and (W) are registered trademarks of Motorola Inc.

ANNUAL MEETING OF STOCKHOLDERS. The annual meeting will be held on Monday, May 5, 1975. A notice of the meeting, tog ether with a form of proxy and a proxy statement, will be mailed to stockholders on or about March 25,1975, at which time proxies will be solicited by management. TRANSFER AGENTS AND REGISTRARS. Harris Trust and Savings Bank 111 W. Monroe St., Chicago, III. 60690 First National City Bank, 111 Wall St., New York, N.Y. 10015 AUDITORS. Peat, Marwick, Mitchell & Co., 222 S. Riverside Plaza, Chicago, III. 60606

MOTOROLA