摩托罗拉公司1976年年报

MOTOROLA

ANNUAL REPORT 1976

MARS MARS (Science Fiction, 1940) (Science Reality, 1976)

Our Cover Mars (Science Fiction, 1940) "Often, as we gaze into the night sky, we wonder if the other planets that circle our sun are populated as is our own world. Are there cities on them? If so, what are they like? Artist Paul here depicts an imaginative, yet scientifically accurate conception of a typical city on Mars." From 'Amazing Stories,' December 1940.

Mars (Science Reality, 1976)

The first color photo from the planet Mars is one of 3,000 pictures sent back over a Motorola 2-way radio link from the Viking Orbiter 1 from July 20,1976 through August 30,1976. This photo was sent through the Orbiter relay over a distance of approximately 215 million miles. It took about 19 minutes for the signals to travel from the Orbiter to Earth (radio signals travel at the speed of light, 186,300 miles per second).

Financial Highlights (Dollars in thousands, except pershare data)

1976 1975

Sales and Other Revenues $1,504,431 $1,311,771

Earnings from Continuing Operations before Income Taxes 159,689 78,470

% to Sales 10.6% 6.0%

Income Taxes 71,822 37,343

Earnings from Continuing Operations 87,867 41,127

% to Sales 5.8% 3.1%

Earnings Per Share from Continuing Operations 3.10 1.46

Research and Development 101,536 98,479

Fixed Asset Expenditures 96,073 70,100

Depreciation 54,631 50,546

Working Capital 419,768 395,493

Current Ratio 2.23 2.60

Return on Average Invested Capital (stockholders' equity plus short- and long-term debt net of short-term investments) (%) 11.6% 5.3%

% of Total Debt (short- and long-term) to Total Debt plus Equity 18.8% 22.1%

Book Value Per Common Share 24.03 21.59

Yearend Employment (approx.) 56,000 47,000

Stock Price and Dividend Data The table below sets forth the high and low sales price per share for Motorola Common Stock on the New York Stock Exchange and the dividends declared and paid for the periods indicated: Stock Prices Dividends 1976 High Low Declared Paid 1st quarter $51.00 $41.25 $.175 $.175 2nd quarter 59.00 43.50 .175 .175 3rd quarter 58.25 51.00 .175 .175 4th quarter 57.00 47.50 .210 .175 $.735 $.70

Stock Prices Dividends 1975 High Low Declared Paid 1st quarter $53.88 $33.75 $.175 $.175 2nd quarter 57.88 44.62 .175 .175 3rd quarter 54.25 40.75 .175 .175 4th quarter 48.50 38.00 .175 .175 $.70 $.70

Annual Meeting of Stockholders The annual meeting will be held on Monday, May 2,1977. A notice of the meeting, together with a form of proxy and a proxy statement, will be mailed to stockholders on or about March 22,1977, at which time proxies will be solicited by management.

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

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

At the close of each fiscal year, Motorola submits a report 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 Rd., Schaumburg, III. 60196.

Contents

Financial Highlights

Letter to Stockholders P. 13

Communciations 10 Group

Semiconductor 14 Group

Automotive 18 Products Division

Government 21 Electronics Division

Financial 24 Review

Financial 25 Statements

Ten-Year 32 Financial Summary

Directors 34 and Officers

Staff Activities/ 35 New Ventures

P. 21 Major Facilities/ 35 Product Lines P. 24

To Our Stockholders and Friends: 1976: 1976 was a good year for Motorola. The year marked both an impressive "A Good recovery from clearly unsatisfactory 1975 results and many technical,

Year" product, market and organizational achievements which are detailed later in this letter and throughout this report. These should have important and favorable impact on Motorola's future. Sales and other revenue set records in each of the four quarters. For the full year, sales exceeded $1.5 billion as compared with $1.3 billion in 1975. Record earnings from continuing businesses were achieved in both the fourth quarter and for the full year. Earnings per share for the year were $3.10 vs. $1.46 a year earlier. Details of both 1976 and 1975 results appear in the Financial Highlights on page 3.

We are pleased to report that profit margin in 1976 increased to 5.8 per cent from 1975's depressed 3.1 per cent and return on average invested capital (stockholders' equity plus long and short term debt net of marketable securities) increased to 11.6 per cent from 1975's 5.3 per cent. As we have previously reported, this latter calculation acknowledges the importance of prudent use of assets and is used extensively within the company to assess operating management performance. Our goals for both profit margin and return on capital ar higherthan 1976's results. Also, we again call attention to ou policy of not stating percentage comparisons between current earnings and those of the year-earlier period—in spite of the fact that such comparisons for Motorola would now be very impressive. We believe that these percentage comparisons often create an impression of far greater than actual earnings and are only meaningful when considered with full understanding of the quality of performance in the previous year. Thus, we emphasize profit margin and return on average invested capital instead. In January 1977, pricing and other financial issues arising out of the 1974 sale of certain assets of Motorola's home television receiver business to Matsushita Electric Industrial Co., Ltd. of Japan, were finally resolved. Therefore, we are recording, in the year 1976, a non-recurring after-tax loss of $2.5 million, nine cents per share, which reflects the

difference between the net proceeds from the disposition (including the net proceeds from the disposition of certain assets not sold to Matsushita less operating losses and expenses incurred in winding up the discontinued business, and including provision for the anticipated cost of defending the lawsuit commenced in September 1974 by Zenith Radio Corporation. The net cash proceeds from the sale and disposition of the assets exceeded $100 million. While the Communications Group encountered some softening in certain of its non-U.S. markets, the domestic markets generally gained strength through 1976, and enabled the group to achieve record sales and earnings. As detailed elsewhere in this report, many new and competitively attractive products and market applications were introduced during the year. 1976 not only saw the return to so idly profitable operations from its 1 loss by the Semiconductor Group but also the resurgence of its Integrated Circuits business which operated profitably during the final two quarters of the year and which saw many significant positive achievements, particularly in the MOS and microprocessor lines.

The Automotive Products Division's sales and profit recovery from 1975 was slowed in the fourth quarter by a strike at the Ford Motor Company, one of its major customers. The Government Electronics Division experienced a changing mix in its business with relatively lower production billings and a higher proportion of research and development programs. The latter category, while somewhat less profitable, does, we believe, bode well for the division's future. The division's earnings and return on asset performance ranks very favorably among its major competitors. As further detailed in the preceding and following figures and as discussed on page 24 of this report, the company's financial condition remained strong; and total debt, long and short term, domestic and nonU.S., decreased by $15 million, despite 16 per cent higher sales in the fourth quarter than a year ago.

Dividend As reflected in the payment to stockholders on January 11, 1977, the Board of Directors decided, in its December 1976 meeting, to increase the dividend rate by 20 per cent from 17.5 cents to 21 cents per quarter.

Management Through the year an evolutionary pattern of organizational change and management staffing continued. Particular emphasis was placed on increasing the depth of leadership of the divisions established within the Communications and Semiconductor Groups in late 1975. Alfred J. Stein joined Motorola as vice president and general manager of the Integrated Circuits Division, a position which Robert R. Heikes,

assistant general manager of the

Semiconductor Group, had been

temporarily filling since creation of

the IC division.

John D. Mueller also joined Motorola as vice president and director of marketing in the Automotive Products Division. Within the Communications Group, Joseph F. Miller, Jr., vice president and general manager of the group, was elected a senior vice president. Ira W. Walker and John M. Duich were elected vice presidents and named assistant general mangers of the Communications Distribution Division and the Communications Products Division, respectively. In January 1977 the group's former systems operations was designated a division of the corporation. Vice pre ident Martin Cooper, and Eugene L. Simpson, who have led this activity f several years, were named general manager and assistant general manager, respectively, of the new division. As an additional means of strengthening upper management and providing appropriate recognition, a new class of appointed vice presidents was created and eight senior division, group and corporate staff executives were initially name to this officership.

Board of Directors At the May 1976 stockholders' meeting, B. Kenneth West, senior vice president of the Harris Trust & Savings Bank, was elected a director. In another important Board matter, we note with great appreciation for his Motorola service that, Elmer H. Wavering will not be standing for reelection to the Board at the forthcoming stockholders' meeting. Mr. Wavering's total Motorola service, includin the past four years as a director only spans more than 46 years. Recognizing the extreme value of his many contributions to the corporation over this almost half century, the Board in tends at its first meeting after the stockholders' meeting to name Mr. Wavering director emeritus.

The Future

At this point, early in 1977, pros-

pects are improving for growth in the

U.S. economy through the year. The

international outlook is less clear, and it varies from nation to nation. W are continuing to carefully monitor and thoughtfully consider all the signs, especially our own orders and bookings. We currently expect that the year will provide each of our major operations the opportunity for increased sales and profit. Looking beyond 1977, the foundation of our increasingly well-defined corporate strategy is Motorola's unique position in the electronics industry. We are one of a very few equipment manufacturers with both excellent semiconductor technology, the core of the electronic art, and a strong base in advanced government electronics where many frontier applications can be first afforded. We believe that the distinctive competence provided by this combination of strengths, as well as our leadership positions in the markets we currently serve, will continue to provide us opportunities for growth not only in our existing activities but in related fields.

In closing, we thank for their splendid dedi which neither the achie 1976 northe potential o could be realized.

Robert W. Galvin Chairman

William J. Weisz President

John F. Mitchell

Executive Vice Presiden

The People Who Made it Happen ...morethan " -,i~ 50,000 Motorolans in 50 countries

10

( M ) Communications Group

In the

beginning

there was

the shout...

Today increasingly sophisti-

cated custom communications

systems are keeping everybody

in touch with everybody else!

People have always reached for closer communication with other people. Yet, while human beings dreamed of flight centuries before the Wright brothers, no citizen of the Middle Ages ever dreamed of the telegraph or the telephone—much less a mobile radio, a personal paging system or an emergency medical data link between paramedics and hospitals. The entire science of electronics wasn't even conceived until the last half of the nineteenth century. Mysteri ously glowing scientific curiosities called Crookes tubes demonstrated

what electricity was made of and

opened the door to instantaneous

voice and visual communication.

But the basic need to communicate

exists across the total spectrum of bus

iness, industry, public safety, govern

ment and the general public. Motorola

technology is continuously growing in

our efforts to serve a continuously gr

ing and remarkably segmented market.

We are nowhere near saturation.

The Communications Group achieved its twenty-fifth consecutive

year of sales growth in 1976. The demands of the market, the continuing re covery of the economy and strategic investment spending were directly responsiblefor yet another successful ye This record strong performance by the Communications Group in 1976 resulted in net sales up 14 per cent, worldwide new orders booked up 11 per cent and profit margin about level with the fine results achieved last year.

Domestically, an important development in the year was that all major U.S. customer markets were

growing by the third quarter, and continued their positive growth

through the fourth quarter. Thus, 1977 began with a domestic mar-

ketplace that has returned to a healthy and constructive environment.

Internationally, the Canadian,

European and Australian markets

showed the most strength. New

order input in Canada and Australia

was well ahead of last year.

Year-to-year comparisons of European orders, however, are down from 1975. This is attributed to two unusually large orders which came in just before the end of '75 and tend to put a healthy 1976 growth curve in less than accurate perspective. The gains in these parts of the world were offset by weakness in Mexico, South Africa and some of the lesser developed parts of the world. All in all, the net orders in the i ternational market were about level with 1975. The group's great strength continue to lie in its ability to identify and satisfy the widely diversified needs o

its widely different kinds of customer

Through the years there has de-

veloped a sophisticated internal or-

ganization to analyze customer needs

and design products that specifically

meet them. From the communications

aspect, the group gets to know a cus-

tomer's business better than the cus-

tomer does himself. Then a determina-

tion is made as to which of the group'

current products present the best

solution—and what products should be created in anticipation of emerging

needs. Product offerings are continu-

ously being reevaluated and updated. To meet the demands of increased

growth, a massive search for more bright young engineers was launched.

Divisional vice presidents personally visited universities and colleges across the country to recruit the new

talent needed to assure the future technological leadership and con-

tinued growth in a highly competitive

and changing marketplace. Several

hundred people were hired—the

largest, single addition of new en-

gineering talent in the group's histor

Society itself was largely respons for the growth pattern during 1976. Radio communication was increasingly recognized as a factor in solvin many major national problems such as energy conservation, environment, pollution and health care. New developments trend toward communications systems that do more. The Los Angeles Police Department "Rover" system uses Morotola MX-300 portable radios that also include an identification function and emergency alarm. These features were formerly found only in vehicular radios.

To meet favorable customer reac-

tion to communications systems with

increased capabilities, the group re-

sponded with a new Multi-Line Data

Terminal and Digital Voice Privacy

System. The data terminal gives a

police officer the capability to relay

printed messages to the dispatcher

or directly to the computer from the

vehicle. The entire message can be

displayed on the terminal's screen.

The Digital Voice Privacy System

Linking patients with hospitals speeds life-saving emergency medical care.

uses voice scrambling techniques

which make it virtually impossible for an unauthorized listener to intercept messages. The health care field is alive and well and growing at a healthy rate.

Health care agencies are turning to

sophisticated communications sys-

tems to improve medical services. It

has been less than twenty years since

the HEAR radio system first helped

hospitals communicate with each

other in emergencies.

Today Motorola systems will trans-

mit a patient's EKG and simultane-

ously provide telephone-type

Motorola communications networks help police officers do their jobs.

communication between hospital

physicians and Emergency Medical

Technicians at the scene of the emergency. The utilities and other energy producing companies are a rapidly growing market because of radio's ability to improve energy conservation. 1976 saw Motorola equipment play an increasingly important role. New load management systems help utilities lower peak levels and reduce the cost of wholesale electric power. Here's one example of how they work for the Buckeye Power Corporation in Columbus, Ohio. Sophisticated Motorola radio switches are attached to water heaters throughout the city. A computer samples the utili ty's load every five minutes. When the load reaches a predetermined level, the computer signals radio switches to shut off the heaters for a few minutes. The number of water heaters shut off is in direct proportion to t peak level—and the shut-off time is so brief that no one is ever aware of

These systems save peak generat-

ing capacity and increase fuel efficiency so that electric companies find that they can actually receive a complete payback of investment within two or three years.

In another energy-related applica-

tion, the new Alaska Pipeline was

augmented by an extensive Motorola

communications system.

The available radio frequency

spectrum will be three times greater

as the 900 MHz band becomes

available after a long series of

negotiations.

At the end of the year, the Federa

Communications Commission (FCC)

reached an agreement with Canada

and Mexico which will allow the op-

eration of 900 MHz systems in most

major U.S. cities including Los

Angeles, New York, Chicago and Philadelphia. Motorola has already shipped a number of systems to several different markets.

The group developed the first FCC

type-accepted mobile radio in the

band which promises to alleviate congested frequencies. The true impact of this important 900 MHz oppor

tunity will not be felt for a few yea

and Motorola is in an excellent posi-

Applied technology creates families o MX-300 portable radio (right) and MBX

(right) Two-way radio communicatio are proving a valuable tool f industries such as constru (far right) From roof tops to mountain Motorola communications systems are designed to fit customers'

tion for future development.

Internationally, years of investment

began to pay off in 1976.

The group now offers multiple tiers

of mobile, portable and paging prod-

ucts which have opened up new

markets.

Some of the products which made

the most important contribution this

year were the MX-300 series portable

radio, the MAXAR mobile radio and

the MICOM single side band unit.

The group also introduced the

MBX-1000—one of the smallest, high

performance mobile radios in the

world with true system capability.

In 1976, a broadened product offering and maturing European organization began to establish Motorola as an important supplier in that part of

the world. This has been an important

long-range goal.

Expanded product lines and years of market development in Europe led to growth in the public safety, transit

and industrial sectors. By the end of

the year the group had public safety customers in major European capitals including London, Rome, Paris, Berlin and Amsterdam. Paging equipment continued to be the primary product in Europe. In the Netherlands, Motorola installed the paging terminal for the largest paging system order it has ever received. A nationwide paging system will soon cover Austria. Market segments ranging from fire brigades to business are using pagers in Sweden, West Germany and the United Kingdom. One of the year's more unique challenges was a hail control system to protect the Yugoslavian grape crop. The group worked with the Hydrometeorlogical Institute to engineer a weather information relay system using Motorola radios and repeaters. The information gathered by this portable system allows rain clouds to be ionized in time to prevent hail fro forming.

Business in Canada began slowly in 1976 but gained momentum so that the year ended on a strong note. Particularly active customers were small system users and regional users such as the petroleum operations in Alberta.

New technological skills were important to the group's success in 1976.

One was the development of the PULSAR II radio-telephone. It uses advanced semiconductor technology to remember telephone numbers and

to automate many telephone functions. It was basically designed to

allow drivers to concentrate on driving, but the same technology can be applied to home telephones in the futur Motorola is also the most important processor of quartz in the world.

Quartz is not only used as the frequency determining element in most

radios but is also used in computer timing circuits and now in quartz watches. The industry sold fifteen million quartz watches in 1976 alone. Almost half of these watches have quart crystals manufactured by Motorola.

The Communications Group has built its business by having excellent

product technology and excellent customer service. And, the technology and products of the group have taken their place in the fabric of society as people communicate more, as sophisticated health and life saving techniques are

needed, and as conservation and public safety become more critical

considerations for society. For more than a quarter of a century business has improved each year as technology grew, products and systems were expanded and customer service refined. Now Motorola pro-

duces more than 4,000 different models of two-way radios and has moved

intootherelectronic related fields. None of this happened by accident. The group has run hard to be the best. And they're still running. (above left) Multiple tiers of products opportunities in major international communications marketplaces. (left) In an energy-starved world, communications are important in the fin and conserving of energy sources.

Joseph F. Miller. Jr., Senior Vice President and General Manager CommunicationsGroup

Jack Germain, Vice President and Assistant General Manager Communications Gro

Claude G. Davi Vice President General Manage Communications Products Divis

Arthur P. Sundry, Vice President and General Manager Communications Distribution Division

hesaS. Farmer, Jr., Vice President and General Manager Communications International Division

tin Cooper, e President General Manager munications tems Division

conductor, less than a quarter of

an inch square, can make one million 1 decisions in less ti than it takes to read

. this sentence!

(M) Semiconductor Group

There is a device which contains a hundred billion individual components, each so small that the whole thing weighs no more than three pounds and is not more than about

one hundred cubic inches in volume. We call it the human brain.

There is another device that is fo ten-thousandths of one cubic inch. It can make more than one million electronic decisions every second—and it's possible for one chip to account for 310 trillion separate functions. We call it a semiconductor. The semiconductor, in one of its newest forms—the microprocessor —is actually the heart of a powerful

microcomputer. The microprocessor is made by a very interesting photolithographic process. Microscopic patterns are projected onto a thin slice of sensitized silicon which is then developed and etched. This etching exposes selected parts of the silicon to chemical elements that change the chemical nature of these areas. The process is repeated several times using different patterns and chemical elements to form electrical paths which can be turned on and off electronically. This resulting tiny chip full of sophisticated circuit is quite literally the basic building block for future electronic technology. In the near future it is probable t computers wHI take over control of automatic transmissions and fuel injection systems in cars. Computers will be able to run homes of the future monitoring fire and burglar alarm systems—automatically controlling houselights and locks on doors and windows—they'll even be able to water the lawn. Microcomputers in the home could automate shopping and make financial transactions without writing checks. There is a possibil that programs from the wealth of

television, stage and motion pic ture entertainment will be avai

whenever the viewer wishes.

This microprocessor has the potential to revolutionize the way we live, the way things operate—but actually it has been evolving for many years in the semiconductor industry. Since the

invention of the first solid state devi approximately 30 years ago, the industry has been developing new and better ways of designing more and more functions into a single device. Almost since the semiconductor industry's inception, Motorola has been a major participant. 1976 was a recovery year, for both the semiconductor industry and for Motorola's Semiconductor Group. Following what was one of the worst years in the history of the semiconductor industry, Motorola's 1976 performance reflected substantial improvement in sales and new orders plus a return to profitabili As a result of the steadily increasing demand in most U.S. and non-U.S. markets, sales have increased in each quarter, compared to year-earlier quarters. For the full year, sales of the Semiconductor Group were up 28 per cent over 1975. The improved sales performance took place in all three major world markets (U.S., Europe, Asia) as well as in the major product categories, discrete devices and integrated circuit The rebound in bookings has been more dramatic than in sales. The group's worldwide new orders

booked were up about 65 per cent over last year.

The most important accomplishment of the Semiconductor Group this year has been its return to profitability. The profit turnaround that began in the fourth quarter of 1975 continued into 1976. As a result, the group operated at an acceptable profit margin for the full year. Both discretes and integrated circuits contributed to the earnings performance. Integrated circuits, while operating at a loss for the full year 1976, operated profitability in the third and fourth quarters. Dis-

crete products operated at satisfac-

tory profit levels throughout the year.

Success in the Discrete Semiconductor Division is primarily the result of increased productivity, improved yields and strategic capital investment programs which have led to a more aggressive marketing stance.

The year provided a sound foundation for future growth and solidified Motorola's leadership in the discrete component industry. Key programs were initiated in 1976 which have impacted productivity. The improved productivity has been essential to countering steadily rising costs. One of these programs was aimed at establishing stricter manufacturing disciplines and improved working environments. It helped increase productivity in some parts of the operation by more than 17 per cent over 197 There was also considerable success in improving processing yields. One example: The division improved silicon power wafer processing by using a glassivation process on silicon power transistors. This process protects open junctions on the transistor with a thin layer of glass. Thi technique has resulted in about a seven per cent higher wafer processing yield and as much as a 15 per cent improvement in final test results. Comparable improvements have been made in other discrete product families.

These improved efficiencies have supported more aggressive pricing.

Prices were reduced by as much as 40 per cent on several product lines

including some small signal transistors, zener diodes, axial lead rectifiers and thyristors. One of the unique challenges and opportunities of the semiconductor industry is the historic trend of declining of prices opposed to increasing prices experienced by many other sectors of the economy. This has been a major factor in expanding the total semiconductor market. Programs to increase yields and reduce costs require increased in-

vestment. Adequate and consistent

fixed asset spending is key to the

achievement of future goals. As part of a multi-year investment program, the Discrete Semiconductor Division is automating process and product equipment in important areas such as power and signal transistors. The use of computer-operated diffu-

sion modules is growing along with increased use of ion implantation. These investments are strategic. They not only should lead to increased share of market, but should also help provide better overall return on investment. During 1976, Motorola continued to earn its front running reputation for developing and introducing new discrete products for both existing and new applications. A few examples: A new 1500 volt horizontal deflection transistor was introduced into the television market. This unit "deflects" an electronic beam in a TV picture tube after the beam leaves the electron gun. It has already been accepted by U.S. television makers and should soon be approved by other domestic and European customers. More introductions of new, stateof-the-art devices are planned for the TV deflection market within the next year. Also introduced was an expanded line of switch-mode power transistors which offer both size reduction and

efficiency improvement to customers in the computer, industrial and military markets. New higher reliability thyristor products are being offered to the industrial market at lower prices. They're being made by a new patented photo-glass process. AM tuning diodes are now being offered to the automotive industry. These devices will permit car radios to be removed from the space-tight dashboard and placed under the seat or in the trunk. They represent an opportunity for important sales growth i small signal products. 1976 was a year for pulling it together in the Intergrated Circuits Division. New management stepped into key posts, and employees put shoulder to the wheel with programs that boosted productivity. The MOS operation tightened up and yields improved considerably. While the opportunities and underlying strategiesforthe IC Division are somewhat d ifferent than they are for the crete Division, the goal is the same:

improve marketshare, profitability and technological leadership. The division continues to enjoy a front rank position in the linear IC marketplace. It is quite strong in all important linear processes including ion implantation and linear compatible I2L. The division manufactures a broad line of linear products and has an aggressive new product development program. The new frequency synthesizer, which has application in recently introduced 40 channel citizen band radios, and new telephone encoder/decoder circuits are examples of major future sales opportunities. Significant progress was also made with a variety of digital products durin 1976. A new high speed 4-bit microprocessor line was introduced at mid-year and is already a major factor in the high speed market. For good reason. It is the fastest operating bipo lar processor on the market and is expected to greatly improve the division's

Today's new generation of micro-circuits include many thousands of active components integrated into a tiny sliver of s

opportunities in the Central Processor Unit (CPU) segment of the computer market. During the year, the division acquired a license to manufacture the 2900 Schottky 4-bit slice microprocessor. This addition to the line is aimed the medium speed CPU and controller segments of the computer market.

Dramatic growth is expected from both markets over the next few years. In another transaction, an alterna source agreement was signed which gives the IC Division the right to pr duce a line of more than 100 low powe Schottky devices. Production started early in 1977. Plans are also underwa to develop a proprietary line of

Schottky devices. This combination should give Motorola a strong position in this market where there was not a previous Motorola entry. In 1976 very important progress was made with MOS integrated circuits which are critical to long-term success in the IC industry. In Europe Motorola is now the leading CMOS supplier and intends to be number one in the U.S. soon. Motorola continues to offer the broadest line of standard CMOS parts in the industry and is improving its position in the im portant custom CMOS marketplace. The shipping rate of NMOS memory (left) Computer controlled diffusion fu are used in processing silicon wafers.

products continued to improve during the year. New product development was extremely active resulting in several key products being scheduled for introduction in early 1977. These new products include: advanced 4 thousand (K) bit and 16K bit dynamic random access memories (RAM), a 4K static RAM, an 8K erasable programmable read only memory (ROM) and a 16KR0M. The semiconductor memory market, where these devices are sold, is one of the most rapidly growing segments of the industry. Applications include use in microcomputer systems in a wide (below) Microprocessor "clean room" production area minimizes contamination and thereby improves yield.

x _tt) RF Modules are so small and delica workers must use microscopes during assembly and inspection process.

variety of control functions ranging from refineries to bakeries; and mainframe computer memories where they offer high speed, high density memory capacity at low cost. Motorola's M6800 microprocessor family has scored well in the highly competitive microprocessor marketplace. 1976 resulted in the division being awarded several major design and developmental contracts for this important product. It now holds a strong second position in the market. The 6800 product line is being alternate sourced by several other major semiconductor manufacturers. The division has other key programs aimed at sustaining its growth in the

microprocessor market, including the planned introduction of both simpler as

well as more complex versions for a variety of consumer, industrial and commercial applications.

The Semiconductor Group operates in a pioneering industry where technology is exciting and new product applications are discovered every day. The group moved in stride with the industry this year, and moved ahead noticably in several product categories. New products and consistent improvement in productivity and yields are critical to success in the semiconductor industry, and the group concentrated efforts in these areas. A consistent capital investment spending program helped. The Semiconductor Group is growing profitably. That's both a reality and a commitment.

JohnR.Welty. Robert R. Heikes. Vice President and Vice President an General Manager Assistant General SemiconductorGroup Semiconductor Gro

Gary L. Tooker, Alfred J. Stein, Vice President and Vice President an General Manager General Manager Discrete Semiconductor Integrated Circui Division

® Automotive Products Division The world's first automobile was bui in 1769. It was a steam carriage and there was only one. Automobile sales weren't quite that bad in 1975, but the felt like it. 1976 was something else. Automotive Products Division sales hit an all time record, and the division returned to profitability. Full year sales were up 23 per cent from 1975. This resulted primarily from a much improved automotive industry where Motorola has major OEM (original equipment manufacturer) sales. In addition the division reported large sales increases of both alternators and Motorola branded automotive entertainment products. Major operational improvements were achieved domestically and this was one of the principal factors in

the return to profitability. However,

the division's total year profit was

adversely affected by the Ford strike

in the last half of the year and a con-

1976: AUTOMOBIL SALES GET U TO SPEE AND AUTOMOTIW ELECTRONICS TAKE OF

tinued funding effort to establish a foothold in Europe. In 1976, Motorola entered the citizen band radio business with four underdash models, a base station adapter, a full line of antennas and a wide range of accessories. Shipments began in June, and orders for CB radios poured in faster than they could be made. At the end of July, the FCC announced a decision to relieve the congested CB traffic jam by expanding the number of channels from 23 to 40. The hook. The new 40 channel radios could not be sold until January 1, 1977. There was massive confusion at the dealer and consumer level. Industry sales eroded. Fortunately, the division did not have much 23 channel inventory. CB sales are expected to recover

during the first quarter of 1977 with 40

channel product available. The divi-

sion expects CB to make an important

contribution to its 1977 profits.

Automative today's sou

In addition to Motorola branded aftermarket CB sales, an original equipment contract was received from Ford for underdash CB units as options on the 1977 Lincoln and Mark V models. A contract was also awarded to supply CB radios with remote transceivers for selected models of 1978 Ford cars. Important orders were received for new electronic engine control products. These devices which are designed to increase engine operating efficiency will appear on 1978 cars and should represent a major business soon thereafter. The division is continually reworkin existing products to reduce costs and improve performance. One example is an updated integrated circuit version o an AM radio introduced in the fourth quarter. The new design will improve

product and component standardiza-

tion, utilize more efficient manufactur

ing techniques and provide even

better operating performance.

tainment products bring o the automobile.

40 channel CBs are expected to be an important factor in the division's 1977 results. The fact that 1976 was a good year for automobile sales was not the only reason for Motorola's better performance. The Automotive Products Division is growing rapidly, and has won a number of pitched battles against competitors who are extremely good at their work. This growth situation is the result of an effort to constantly improve the quality of work.

Motorola is a leading producer of "under the hood" electronic products and instrumentation.

19

Quality is more important today than ever before and raising product quality to an even higher level of consumer satisfaction has become an important strategic thrust of the division. The quality control organization has been given more authority, more range, more manpower and more control. Appropriate steps are being taken to add new accounts and to generate new products for our existing customers. The current customer list includes Ford, American Motors, Chrysler, Volkswagen, Renault, Citroen and British Leyland. And the division is ready for more. The marketing function has been restructured to provide broader services and to put more concentration on two important customer groups, OEM and aftermarket.

The division's product organization was also reorganized to more closely link the engineering and manufacturing functions for better product control. To solidify its good position with pr sent customers, Motorola works with them on long-range development programs. The division is assuming the role of a high-technology consultant with a view towards participating in the business on a long-term basis. There are also plans to develop rela-

tionships with other non-electronic automotive suppliers. Joint development programs with established automotive suppliers should enable Motorola to offer its customers even more products than it produces now—and that's a fundamental goal. The car has already been turned into a mobile entertainment and communications center. Electronics have already gone under the hood with alternator

charging systems, electronic ignition systems, engine management systems and other instrumentation. The division is now reaching out to do more. And the time is right. The electroni age of the automobile is just beginning to develop, and because of its automotive know-how, Motorola should have a leading role in this exciting era.

Carl E. Lindholm, Senior Vice President Manager, Automotive Products Division

(M) Government Electronics Division &X%»v

?i *' > PIT >f •S*j, *e 'yM*-* v -^ ,A. 'Cf

1 f vr Our |tnasbeen Space Odyssey ' more It has been than 2,200 years * / mr\ra than since Aristotle said: "Since all matter is contained in one world, there can be no others.' Aristotle, wise man that he was, was dead wrong on this one.

In 1976, Motorola technology went to Mars twice with the Viking I and the Viking II missions. And some will say the shout heard round the world on July 20, 1976, the day the U.S. landed on Mars, emanated from Motorola's Gov-

ernment Electronics Division plant in

Scottsdale, Arizona.

The Viking spacecraft were designed for 120 day-orbital missions— but the flow of information being received has lasted a great deal longer than that. Earth is still receiving info mation from Apollo instrument sites on the Moon. The Motorola instrumentation left on the Moon during the Apollo 16 mission was designed to deliver 365 days of operation. It has already delivered almost five times the service called for by the goals of the mission, and at last report it was still going strong. The space odyssey is one example of advanced research turned into reality, but the Government Electronics Division is constantly probing the unknown. The result is a strong leadership position in frontier technology. It's true that research and development programs are less profitable than large scale production, but they provide the base for leadership in advanced electronics which is required for future more probable production programs.

The quest for space has taken many forms, from imaginary spaceships to ailed and "scientifically" drawn men from Mars.

(right) Electronic sub-ass guidance systems are field

Total 1976 shipments by the division were down about 3 per cent from 1975's record level and, due to R & D contracts being a greater share of total business, profit margins were down slightly from last year. New

order bookings, while improving in

the latter part of the year, were less

than in 1975.

In the U.S. in 1976, there were several large customer contracts awarded which will advance the division's technology base. For the Air Force, engineers are designing an advanced electronic scoring system for use with supersonic target drones. An electronic radar sensor system mounted in the pilotless drone target detects attacking missiles and sends signals to a ground station that prints out an electronic score car to tell exactly what happened at 50,000 feet at supersonic speeds. The ALQ-122 countermeasures system for the Strategic Air Command's B-52 aircraft neutralizes enemy early warning and acquisition type radars by creating electronic confusion. The system detects incoming enemy radar signals and automatically denies use-

r missile tested.

ful tracking information. Another associated Air Force contract was awarded in 1976 for flight line test equipment to be used with the ALQ-122 system.

The division received an order from

NASA as a part of their standardization

program to develop transponders for

use as part of the data control and communications links in the Advanced Tracking & Data Relay Satellite System. This system will be the base of U.S. near-Earth space communications in the 1980s. Two satellites, on either si of the earth, in a constant geosynchronous orbit, will be able to track a receive data from spacecraft—and relay the resulting information back to Earth. Another program, this one from the Navy, works something like a tele-

phone switchboard in the sky that will put more people in touch with more people with automatic priorities on a need-to-use basis. Several important projects, includin target detection systems for the Navy, the development of an advanced radar seeker system for Department of Defense missiles and the delivery of transponders for a space-based navigation system to provide extremely accurate positioning information almost anywhere on the globe also got underway in 1976. The division significantly increased its business abroad in 1976. Europe continued to be the focal point of the

Unique testing range for radar target sc system utilizes a stationary drone targe 400 feet-per-second fly-by-wire simulated missiles.

«a « ** m &

international marketing effort. The Italian Navy and the Norwegian Air Force were both customers in 1976. The Italian Navy contracted for new helicopter radar tracking equipment, and delivery started on multi-channel ground-to-air communications equipment to the Norwegian Air Force. A new direction finding system was introduced that features a compact, all electronic antenna that one person can make operational within minutes. The first sale was to a Canadian systems company for airtraffic control. New products also included a unique Data Processor designed to work with the Motorola Mini-Ranger Position Determining System. It quickly found outstanding worldwide acceptance.

The Government Electronics Division makes its mark in the fast-track world of advanced technology partly because its business strategy emphasizes advancing the state of the electronics art. One-third of the division's work force are skilled engineers who specialize in the division's major segments: Communications, Radar and Tactical Electronics Operations. Much of Motorola's technology and the technology of the world in 1976 was beyond the imagination of even the

(below) C/Star portable ground surveillan unit can identify and track moving vehic and personnel up to 35 kilometers away.

great science fiction writers like J Verne and H. G. Wells. As far as the Government Electronics Division is concerned—this is only the beginning Something new is learned every day.

Ralph, W. Eisner. Vice President and Manager, Government Electronics Divi

r

Motorola's financial condition remains strong. Total borrowings (short and long term) were 18.8 per cent of borrowings plus stockholder's equity. If marketable securities of $61 million, largely the result of the accumulated profits of Puerto Rican subsidiaries, were offset against borrowings this debt to debt plus equity ratio would be 12.4 per cent.

Short-term borrowings are essentially all outside the U.S. and are primaril caused by exchange controls and the neutralizing of foreign exchange exposure risk. Atyearend working capital was $420 million and the current ratio was 2.2:1.

During 1976 we replaced a $75 million revolving credit/term loan established in 1973 with a $56 million revolv ing credit fully extending through March 1980 with $7 million semiannual reductions thereafter. Currently, the credit is being utilized as back-up for company-issued commercial paper. At yearend, approximately $91 million of unused lines of credit were available to us.

Also in 1976, we paid thefinal insta

ment of a $15 mi 11 ion (later increased

to $22 million) long-term loan first extended to Motorola in 1951 by the Prudential Insurance Company of

America, in which year Motorola's sales, earnings and net worth were $135 million, $7 million and $32 million, respectively.

Foreign Currency During 1976 several sharp and many gradual changes took place in the market exchange ratios between the U.S. dollar and other world currencies. We are pleased to report that, despite this difficult environment, Motorola recorded a net gain of $840,000 on foreign currency exchange and translation. This fine record results fro both careful attention to asset and liability relationships in each of the nonU.S. operations and a conservative policy of attempting to stay near neutral in long vs. short exposure in each currency.

Replacement Cost Footnote No. 11 to the financial state ments contains our compliance with the Securities and Exchange Commission's requirement for information on cost of sales and depreciation expense based on estimated replacement costs of inventories and fixed assets. Additional information will appear in our annual report to the SEC on Form 10-K, a copy of which is available to any stockholder upon request.

As we have discussed in earlier annual reports, our studies continue to confirm that, except in times of very severe (double digit) inflation, Motorola's inventory values generally follow a level or declining trend.

Fixed assets present a somewhat different story. The replacement cost of our buildings and equipment would be substantially higher than historical acquisition cost. However, because we use the declining balance method in our statements, the depreciation charge based on replacement cost and with a straight line method, would only be slightly higher and, in our studied opinion, the modestly higher depreciation would be more than offset by greater productivity of replacement

equipment—if we were to replace

the assets.

For these reasons and the other

factors mentioned in the financial statement notes, we believe that the replacement cost data has limited significance.

Consolidated Balance Sheets (Dollars in thousands)

Motorola, Inc. and Subsidiaries as of December 31 1976 ASSETS CURRENT ASSETS Cash $ 21,952 Short-term investments, at cost (approximating market) 60,839 Accounts receivable, less provision fordoubtful accounts (1976,$10,426; 1975, $8,380) 304,676 Inventories, at the lower of average cost or market Finished goods 93,859 Work in process and production materials 224,226 Future income tax benefits 24,145 Other current assets 30,621 TOTALCURRENTASSETS 760,318 PLANT AND EQUIPMENT, AT COST Land 19,262 Buildings 243,879 Machinery and equipment 338,151 Accumulated depreciation (227,672 NET PLANT AND EQUIPMENT 373,620 SUNDRY ASSETS, NET 22,871 TOTAL ASSETS $1,156,809

LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Notes payable-banks and other $ 62,708 Current maturities of long-term debt 1,543 Accounts payable 115,770 Accrued expenses 113,757 Income taxes 46,772 TOTAL CURRENT LIABILITIES 340,550 LONG-TERM DEBT 94,007 OTHER NON-CURRENT LIABILITIES 36,495 STOCKHOLDERS' EQUITY Common stock, $3.00 par value Authorized: 40,000,000 shares Outstanding: 1976-28,540,416shares; 1975-28,295,460shares 85,621 Preferred stock, $100 par value issuable in series Authorized: 500,000 shares (none issued) — Additional paid-in capital 149,027 Retained earnings 451,109 TOTAL STOCKHOLDERS' EQUITY 685,757 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,156,809 See accompanying notes to consolidated financial statements.

Statements of Consolidated Earnings and Retained Earnings (Dollars in thousands, except pershare data)

Motorola, Inc. and Subsidiaries, Years Ended December 31 1976 1975

SALES AND OTHER REVENUES $1,504,431 $1,311,771 Manufacturing and other costs of sales 928,201 850,370 Selling, service and administrative expense 345,522 311,998 Depreciation of plant and equipment 54,631 50,546 Interest and amortization of debenturediscount, expense and premium, net . . . 16,388 20,387 Total costs and other expenses 344,742 1,233,301 Earnings from continuing operations before income taxes 159,689 78,470 Income taxes 71,822 37,343 EARNINGS FROM CONTINUING OPERATIONS 87,867 41,127 Loss from discontinued operations (2,470) — Net earnings ":.'. 85,397 41,127 Retained earnings at beginning of year 386,601 365,248 Cash dividends declared (per common share: 1976, $.735; 1975, $.70) (20,889) (19,774) Retained earningsatend of year $ 451,109 $ 386,601

EARNINGS PER SHARE FROM CONTINUING OPERATIONS $ 3.10 $ 1.46 Net earnings pershare 3.01 1.46

Statements of Consolidated Additional Paid-in Capital (Dollars in thousands)

Motorola, Inc. and Subsidiaries, Years Ended December 31 1976 1975

Balance at beginning of year $ 139,504 $ 135,898 Share option plans 7,777 1,032 Conversion of 41/2% convertible guaranteed debentures (principal amount: 1976, $2,245; 1975, $3,226) 1,746 2,444 Equity change in affiliate — 130 Balanceatend of year $ 149,027 $ 139,504

See accompanying notes to consolidated financial statements.

Statements of Consolidated Changes in Financial Position (Dollars in thousands)

Motorola, Inc. and Subsidiaries, Years Ended December 31 1976 1975 SOURCESOF FUNDS: Net earnings from continuing operations $ 87,867 $ 41,127 Add non-cash charges: Depreciation 54,631 50,546 Amortization of deferred debenture discount, expense and premium, net . . . . 225 285 Funds provided from continuing operations 142,723 91,958 Net loss from discontinued operations (2,470) Add non-cash charge—depreciation 985 Funds used by discontinued operations (1,485) Funds provided from operations 141,238 91,958

Increase in notes payable and current maturities of long-term debt 9,903 Decrease in receivables — 17,747 Decrease in inventories — 54,659 Disposals and other changes of plant and equipment (and tooling), net 9,938 7,709 Issuance of common stock 10,258 3,927 Increase in income taxes 33,075 Othersources, net 47,568 Total sources of funds 251,980 176,000 USES OF FUNDS: Decrease in notes payable and current maturities of long-term debt — 35,843 Increase in receivables 52,578 Increase in inventories 35,989 F i x e d asset e x p e n d i t u r e s ( i n c l u d e s s u b s i d i a r i e s a c q u i r e d i n 1975, $1,153) . . . . 96,073 71,253 Increase in equipment rented to others, at cost 2,257 2,918 Decrease in long-term debt 25,177 28,626 Dividends 20,889 19,774 Decrease in income taxes — 1,471 Other uses, net — 4,795 Total usesof funds 232,963 164,680 NETINCREASEIN FUNDS 19,017 11,320 Cash and short-term investments Beginning of year : 63,774 52,454 End of year $ 82,791 $ 63,774 See accompanying notes to consolidated financial statements.

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

The Board of Directors and then ended. Our examinations statements present fairly the Stockholders of Motorola, Inc.: were made in accordance with financial position of Motorola, We have examined the con- generally accepted auditing Inc. and Subsidiaries at Desolidated balance sheets of standards, and accordingly cember 31 , 1976 and 1975, and Motorola, Inc. and Subsidiaries included such tests of the ac- the results of their operations as of December 31,1976 and counting records and such and changes in theirfinancial 1975, and the related statements other auditing procedures as position forthe years then endof consolidated earnings and we considered necessary in the ed, in conformity with generally retained earnings, additional circumstances. accepted accounting principles paid-in capital and changes in In our opinion, the aforemen- applied on a consistent basis. financial position for the years tioned consolidated financial PEAT, MARWICK, MITCHELL & CO. February 10,1977

Notes to Consolidated

Financial Statements

1. ACCOUNTING POLICIES: Following is a summary of sig-

nificant accounting policies used in the preparation of these

consolidated financial statements, which policies are in accordance with generally accepted accounting principles.

CONSOLIDATIONThe consolidated financial statements include the accounts of the company and all majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. INTERNATIONAL: The company generally follows the method (adopted in 1976) of foreign currency translation recommended in Statement No. 8 of the Financial Accounting Standards Board. Assets and liabilities expressed in foreign currencies, other than principally fixed assets and inventories, a translated at the approximate yearend rates of exchange; inventories and fixed assets are translated at approximate rates in effect when the assets were acquired. The earnings statements are translated at rates prevailing during the year except for depreciation, amortization and cost of sales, which are translated at historical rates. Gains and losses from currency realignments have been reflected in earnings as incurred. The effect of this change in method on years prior to 1976 i not material and, accordingly, prior years' financial statement have not been restated.

INVENTORIESInventories are valued at the lower of average

cost (which approximates computation on a first-in, first-out

basis) or market. Market value of work in process and production materials is represented by replacement cost and for finished goods by net realizable value.

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 reflecte in the consolidated balance sheets primarily 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 in 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 accounts 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 generall by the declining balance method. 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 in the accompanying consolidated financial statements.

DEBENTURE DISCOUNT, EXPENSE AND PREMIUM: De-

ferred debenture discount, expense and premium are in-

cluded in Sundry Assets at unamortized cost. Amortization is being charged to expense over the terms of the debentures, generally by the straight-line method.

SHARE OPTIONS: When share options are exercised, the proceeds received are credited to the common stock account to the extent of the par value of shares issued, and the excess is credited to Additional Paid-in Capital. The tax benefit the company receives from disqualifying dispositions by op-

tionees of exercised qualified share options is credited to

Additional Paid-in Capital.

PRODUCT AND SERVICE WARRANTIESAnticipated costs related to product and service warranties are recorded at the

time of the sale of the products. EARNINGS PER SHARE: Earnings per share are calculated on the average daily shares outstanding.

2. INTERNATIONAL OPERATIONS: Net foreign currency exchange gains of $840,000 and $1,232,000 are included in net earnings for 1976 and 1975, respectively. The company's equity in undistributed earnings of non-U.S. subsidiaries and affiliates included in consolidated retained earnings at December 31, 1976, amounted to $42,515,000 ($39,600,000 in 1975). 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. At December 31, 1976 and 1975, net assets of consolidated operations outside the United States aggregated $137,893,000 and $131,200,000, respectively. Export sales of U.S. companies, and sales and other

revenues of continuing operations outside the United States,

were 29% of both the 1976 and 1975 consolidated amounts.

3. LONG-TERM DEBT: Long-term debt at December 31 consisted of the following:

1976 1975

(Dollars in thousands)

Debt outside the United States: 41/2% convertible guaranteed debentures due July 1,1983 $7,016 $ 9,261 8% guaranteed sinking fund debentures due March 1,1987 (net of debentures held by the company for sinking fund payments, $1,090,000 in 1976; none in 1975) 23,910 25,000 Notes payable (generally at prevailing prime rates) due in installments to 1985 13,018 9,788 Debt in the United States: Commercial paper supported by revolving credit commitments from banks 30,215 52,890 4%% debentures due April 1,1986 (net of debentures held by the company for sinking fund payments $1,609,000 in 1976; $931,000 in 1975) 21,391 23,069 4%% note due in annual installments to 1976 — 500

95,550 120,50

Less current maturities, included in current liabilities 1,543 1,324 Net long-term debt $94,007 $119,184

The 41/2% convertible guaranteed debentures (issued by Motorola International Development Corporation) are convertible into common stock of Motorola, Inc., at the rate of 25.2 shares for each $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 102% to 100% of the principal amount

thereof. In 1976, $2,245,000 in debentures ($3,226,000 in 1975) were converted into 56,554 shares (81,285 in 1975). At December 31,1976, there were 176,890 shares (233,444 shares in 1975) 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 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 retire 76% of the issue prior to ^maturity. The issue is guaranteed as to payment of principal and interest by Motorola, Inc.

The full amount of the revolving credit agreement ($56,000,000) extends through March 31, 1980, with $7,000,000 in equal semi-annual reductions thereafter. Under the terms of the agreement, any borrowings through September 30,1979, will be at the prevailing prime commercial

rate of interest, for the next two years at the prevailing prime

commercial rate of interest plus 1/4%, and for the last two years at the prevailing prime commercial rate of interest plus 1/2%. It is the intention of the company to maintain the availability of the revolving credit during 1977, and therefore, the debt is classified as long-term debt.

The revolving credit agreement restricts retained earnings available for payment of cash dividends. At December 31, 1976, approximately $157,000,000 of retained earnings was not restricted as to dividend payments. The revolving credit agreement also requires the company to maintain a ratio of consolidated current assets to consolidated current liabilities at not less than 1.75:1 and consolidated networking capital (as defined) of not less than $225,000,000.

4. INCOME TAXES: Income taxes provided for the years ended December 31,1976 and 1975 are as follows:

1976 197 (Dollars in thousands

Current: United States $56,511 $23,704 Other Nations 7,817 6,503 State income taxes (U.S.) 6,323 3,393

Total current 70,651 33,600 Deferred 1,171 3,743

Total income taxes $71,822 $37,343

Total income taxes differ from the statutory U.S. Federal income tax rate of 48%. The principal reasons for this diffe ence are reflected below:

1976

Statutory U.S. Federal rate 48.0%

lncrease/(decrease) in tax rate resulting from: Taxes on earnings in other nations, net of loss operations with no tax benefits and tax holidays 1.4 Tax benefits arising from tax holiday in Puerto Rico (5.0) Investment credits (3.0) State income taxes 2.1

Tax benefits derived from consolidation of certain Western Hemisphere Trade Corporations 4 Other 1.1

Effective tax rate 45.0%

Income taxes have been provided in the accounts based upon income recorded therein. Certain timing differences exist which cause the current income taxes actually payable differ from the amount provided. The principal items are as follows:

1976

(Dollars i

Difference between depreciation recorded for income tax purposes and financial statement purposes $2,229 (lncrease)/decrease in: Future warranty obligations 12 Future vacation obligations (417) Inventory adjustment accruals (89) Incentive bonus plan (1,701) IRS audit timing reversals — Other—net 1,137

Total $1,171

The company's Federal Income Tax Returns have been examined by the Internal Revenue Service through December 31,1973. At December 31, 1976, certain foreign subsidiaries of the company had tax loss carry forwards of approximately $15,000,000.

5. SHARE OPTION PLAN: Under the company's Employee Share Option Plans, shares of common stock have been made available for qualified or non-qualified option to employees the company and certain subsidiaries. Options may be granted at not less than fair market value on the dates of grants, a become exercisable one year from the date of original grants Qualified options expire at the end of five years and non-

qualified options expire at the end of ten years.

Data on share options are summarized below: 1976 1975

Options outstanding beginning of year. 1,030,493 791,703 Additional options granted 320,910 307,335 Options exercised (188,402) (25,990 Options terminated for discontinued employment (47,530) (42,555 Options expired (5,796) —

Options outstanding end of year 1,109,675 1,030,493 Shares reserved for possible future option grants 32,411 299,995 Total shares reserved 1,142,086 1,330,488

Aggregate exercise price of outstanding options $53,423,000 $49,027,000

Aggregate exercise price of exercisable options $38,517,000 $33,177,000

Options exercised during 1976 were at per share prices of

$42.25 to $52.56 ($31.95 to $46.25 in 1975). Options outstanding at December 31, 1976, were at per share prices of $42.25 to $63.75.

6. CONTINGENCIES: 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 In-

dustrial Co., Ltd. of Japan (collectively with such subsidiaries,

"MEI") of certain of the assets and business of Motorola's

Consumer Products Division home television receiver business. (See note 7 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 investigations, 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 judgment against the defendants jointly and individually in that amount plus costs and plaintiff's attorney's fees. It also seeks divestiture by MEI of th assets purchased from Motorola. In the event a divestiture is ordered or litigation damages are assessed against MEI arising out of such purchase, Motorola has agreed to share to a limited extent certain of the dollar loss, if any, incurred by MEI. The maximum loss for which Motorola could be responsible to MEI under this agreement is $20 million. Management believes that the company has acted properly throughout and has denied any conspiracy or other violation of law alleged by Zenith. The company is a defendant in various other suits and claims which arise in the normal course of business and is obligated under repurchase and other agreements principally in connection with the financing of sales.

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.

7. DISCONTINUED OPERATIONS: On May 28,1974, Motorola sold to certain subsidiaries of Matsushita Electric Industrial Co., Ltd., a Japanese corporation, certain of the assets of

Motorola's Consumer Products Division home television receiver business. Because of disagreements between the parties, the sales price of the business could not be finally determined until such disagreements (including those applicable to Product and Service Warranty obligations, which were the subject of an arbitration proceeding) were resolved. All such

disagreements were finally resolved in January of 1977, and the loss from discontinued operations has been reflected as a non-recurring net loss in the company's 1976 operations.

The toss from discontinued operations (including the net proceeds from disposition of certain assets not sold to Mat-

sushita) is comprised as follows:

(Dollars in thousands) Income Pre-Tax Taxes Net Operating losses incurred during the period subsequent to March 12,1974 $(11,878) $ (5,587) $ (6,29 Gain on disposal 1,505 (2,316) 3,82 Loss from discontinued operations $(10,373) $ (7,903) $ (2,

The net gain after tax on the sale and disposition of the

assets has been reduced by an estimate of remaining costs

applicable to litigation against Motorola brought by Zenith

Radio Corporation, which litigation was instituted as a result

of the sale to Matsushita.

Income taxes applicable to the gain on disposal vary from the normal Corporate Federal income tax rate of 48%, principally because certain assets sold at a gain receive capital gains treatment for income tax purposes, whereas other assets sold at a loss result in a tax benefit at the 48% rate.

8. EMPLOYEE BENEFIT PLANS: An Executive Incentive Plan specifies that the company and certain subsidiaries may provide 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 recipient's continued employment. Awards made in 1977 for 1976 performance are payable in full or may be deferred over five years at the option of the participant. Amounts of $4,091,000 and $1,408,000 were provided in 1976 and 1975 for such awards, representing 4% of defined earnings. In 1976 awards of $2,202,000 were made for 1975 performance ($2,083,000 in 1975 for 1974 performance). Awards for 1976 performance have not yet been determined. At December 31, 1976, $4,953,000 was available for such awards ($2,532,000 in 1975). 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 $18,291,000 in 1976, and $9,098,000 in 1975. The company and certain subsidiaries have a voluntary, contributory pension plan and the company's policy is to fund pension costs as accrued: $6,126,000 in 1976, and $4,705,000

in 1975. At December 31, 1975, date of the latest actuarial

determination, vested benefits were fully funded. Certain changes in actuarial assumptions increased the company's 1976 pension funding by approximately $1,000,000. No significant increase in pension costs resulted from the Employee Retirement Income Security Act of 1975.

In the event that the amount actually payable annually under

the plan does not amount to 40% or more of an officer's rate of

salary at retirement, it is the intention of the company (subject to certain 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 for these supplementary payments on a current basis.

9. SUPPLEMENTARY DATA: Research and Development expenditures, which are charged against operations as incurred, were $101,536,000 in 1976, and $98,479,000 in 1975. Rental expense of operations under all lease commitments (including non-cancellable leases) totaled $21,055,000 in 1976, and $20,273,000 in 1975. If all financing leases (which are principally for computers) were capitalized, the impact on net earnings would be insignificant. Commitments related to non-cancellable leases expire as follows: 1977 $12,869,000 1982-1986 1978 8,786,000 1987-1991 1979 4,775,000 1992-1996 1980 2,753,000 1997 and later 1981 1,238,000

10. QUARTERLY FINANCIAL DATA (Unaudited): Summarized quarterly financial data for 1976 and 1975, are as follows: (Dollars in thousands, THREE MONTHS ENDED except per share data) 1976: April 3 July 3 Oct. 2 Sales and other revenues $346,996 $383,545 $361,459 $412,431 Gross profit before

depreciation (a) 131,957 149,600 138,38

Earnings per share from continuing operations .. $ .60 $ .78 $ .8

Net earnings per share . . . $ .60 $ .78 $ .8

THREE MONTHS ENDED

1975: March 29 June 28 Sept. 27 Sales and other revenues $303,881 $344,844 $307,040 $356,006

Gross profit before

depreciation (a) 105,675 121,846 102,545

(a) Profit after manufacturing and other costs of sales exclusiv depreciation expense.

(b) The effect of recognizing the final adjustments on the dispo

tion of the home television receiver business (See footnote 7).

Peat, Marwick, Mitchell &Co. made a limited review of the 1976 quarterly data in accordance with standards established by the American Institute of Certified Public Accountants, but no such review was made of the 1975 quarterly data. Since Peat, Marwick, Mitchell & Co. did not audit the quarterly data for either year, they express no opinion on such data.

11. ESTIMATED REPLACEMENT COST INFORMATION (Unaudited): Requirements of the Securities and Exchange Commission direct the calculation of cost of sales and depreciation expense based on the estimated replacement costs of inventories and fixed assets. The company has extensively studied revaluing inventory on a LIFO basis, and has concluded that no significant change would thereby result. These studies also indicate that stated costs of inventories and cost of sales also approximate a replacement cost basis. Consequently, the company's stated inventory value and cost of sales have not been restated. While the replacement cost of the company's fixed assets would be substantially higherthan the stated acquisition cost, and while depreciation charges (straight-line) based on such higher replacement costs would be approximately $5.6 million higher than the 1976 depreciation charge in the financial statements, management believes (but cannot definitively quantify) that lower costs of operation would result from using newer and more efficient fixed assets and that the savings, which would result from these efficiencies, would at least offset the higher depreciation indicated. Because the SEC's requirements exclude the effect of price level changes on assets and liabilities other than inventories and fixed assets, the data cannot be used to estimate the effect of inflation on the company's operation. Also, because of the inherent subjectivity of the replacement cost disclosure requirements and the con-

sequent differences of interpretation between different companies, management believes that this information has limited significance.

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

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, service& administrative expense Depreciation of plant and equipment Interest&amortizationof debenturediscount.expenseand premium, net Total costs and other expenses Earnings from continuing operations before income taxes Incometaxes EARNINGS FROM CONTINUING OPERATIONS RETURN ON SALES

Discontinued operations—profit/(loss) Netearnings Operating Results as Originally Reported (1) Sales and other revenues Net earnings Return on sales 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-termdebt Stockholders' equity Less: short-term investments Total invested capital Return on average invested capital Return on average stockholders'equity Yearend employment (approximate) Average shares outstanding (in thousands)

(1) In March, 1974, Motorola sold its home television business. Due the substantial size of this business, it was both desirable and necessary to reflect the historical operating results of Motorola's remaining business without the home television operations included. As a result, the 1967-1973 operating results Motorola reported to stockholders during this period of time were adjusted to remove the effect of the television business—these revised operating results a reported above as results from Continuing Operations. The financial statistics entitled As Originally Reported, are the exact results M reported to stockholders at each applicable period of time.

(2) 1974-1976 data is from continuing operations; 1967-1973 data is as originally reported and has not been restated on a continuing operations basis.

MANAGEMENT DISCUSSION AND ANALYSIS OF STATEMENTS OF CONSOLIDATED EARNINGS Sales and other revenues from continuing operations increased 14.7% in 1976, while 1975 sales were down 4.1% from the previous year. As stated in other parts of this report, the sales improvement in 1976 was primarily in the Semiconductor Group (up 28%) and the Automotive Products Division (up

(2,470) — $ 85,397 $ 41,127

$3.10 $1.46 3.01 1.46 .735 .70

23% from the previous year). These operations both recovered from depressed sales of the previous year when sales were

down 23% in the Semiconductor Group and down 12% in the Automotive Products Division, due principally to depressed economic conditions throughout the world. Manufacturing and other costs of sales increased 9.2% in 1976 while such costs decreased 3.2% in 1975. The cost

changes are generally consistent with the sales changes in each year except that 1976 costs also reflect improved

productivity and strengthened cost controls throughout the company. Selling, service and administration expense increased 10.7% in 1976 and 9.8% in 1975 over the previous year. The increase in 1976 is less than the sales increase of 14.7% and reflects improved cost controls throughout the company. The increased cost in 1975 on a sales decline of 4.1% did not fully reflect the efficiencies implemented in 1975 due to the timing of the cutbacks and associated severance pay. In addition, the company increased its ownership to over 50% in two

International subsidiaries, as a result, the expenses of thes subsidiaries were consolidated for the first time in 1975, an increased these costs by $5.2 million over 1974. Depreciation of plant and equipment increased 8.1% and 16.3% in 1976 and 1975, respectively, over the previous year. These increases are the result of fixed asset expenditures during the past three years of $96.1 million in 1976, $70.1 million in 1975 and $131.2 million in 1974. Interest and amortization expense declined 19.6% in 1976 and 25.1% in 1975 due to reductions in debt and to declining interest rates. The reductions in debt were attributable to t implementation of more stringent administrative controls, as well as efforts to achieve improved management over accounts receivable and inventories. The company's overall effective tax rate decreased from 47.6% in 1975, to 45.0% in 1976 due primarily to earnings of International Operations that were in a loss position in 1975 The net earnings from continuing operations increased 113.6% in 1976 and decreased 43.6% in 1975 due principally to

the Semiconductor Group and Automotive Products Division, which incurred losses in 1975 and returned to a profitable position in 1976. Additional comments on the results of operations may be found in other sections of this Annual Report.

The sales of Semiconductor Products do not include the dollar value of Semiconductor Products manufactured by Motorola and incorporated into other products manufactured and sold by Motorola. In addition, the sales of Autovox S.p.A., an Italian subsidiary, are excluded from the sales of Automotive Products reported above.

Directors Officers Motorola, Inc.

ROBERT W.GALVIN CORPORATE Robert W.Galvin Chairman of the Board and Chief Executive Officer WILLIAM J.WEISZ William J.Weisz President and Chief Operating Officer JOHN F.MITCHELL John F.Mitchell Executive Vice President and Assistant Chief Operating Officer JAMES W. BIRKENSTOCK President, Intercal Inc. FINANCE JohnT. Hickey SeniorVice President and Chief Financial Officer JOHNT.HICKEY Donald R.Jones Vice President and Assistant Chief Financial Officer Edward J. Harty Vice President and Controller STEPHENLLEVY Vincent J. Rauner Vice President for Patents, Trademarks and Licensing HOMER L.MARRS Lewis D. Spencer Vice President, General Counsel and Secretary William P. Meehan Treasurer ARTHUR C.NIELSEN, JR. Chairman of the Board STAFF Stephen L. Levy SeniorVice President and Chief Corporate Staff Off A. C. Nielsen Company L.Curtis Foster Vice President and Corporate Director of Engineeri ARTHUR L.REESE R. James Harring Vice Presidentand Corporate Directorof Planning C.Travis Marshall Vice Presidentand Corporate Directorof Retired, formerly Executive Government Relations Vice President, Motorola Inc. Walter B.Scott Vice Presidentand ELMER H.SCHULZ Corporate Directorof Manufacturing and Facilitie Director, LIT. Research Institute HUMAN RELATIONS Benjamin W. Borne Vice Presidentand Directorof Human Relations WALTER B. SCOTT Robert N. Swift Vice Presidentand Assistant Directorof Human Relat EDWIN P. VANDERWICKEN MULTINATIONAL Chairman, Finance and Audit LevyKatzir Vice Presidentand Directorof Multinational Operati Committees, Motorola Inc. DATA PRODUCTS AND NEW VENTURES GROUP ELMER H. WAVERING HomerL. Marrs SeniorVice President Retired, formerly ViceChairman AUTOMOTIVE PRODUCTS DIVISION and Chief Operating Officer, Carl E. Lindholm SeniorVice Presidentand General Manager Motorola Inc. Automotive Products Division John D. Mueller Vice Presidentand Directorof Marketing B.KENNETH WEST Automotive Products Division SeniorVice President, COMMUNICATIONS GROUP Harris Trust and Savings Bank SeniorVice Presidentand General Manager Joseph F. Miller, Jr. Communications Group Vice President and Assistant General Manager Jack Germain Communications Group Vice President and General Manager Arthur P. Sundry Communications Distribution Division Vice President and Assistant General Manager Ira W.Walker Communications Distribution Division Vice President and General Manager RhesaS. Farmer, Jr. Communications International Division Vice Presidentand General Manager Claude G.Davis Communications Products Division Vice Presidentand Assistant General Manager JohnM.Duich Communications Products Division Vice Presidentand General Manager Martin Cooper Communications Systems Division Director Emeritus: GOVERNMENT ELECTRONICS DIVISION Ralph W. Eisner Vice Presidentand General Manager DANIEL E. NOBLE Government Electronics Division Chairman, James R. Lincicome Vice President and Assistant General Manager Science Advisory Board, Government Electronics Division Motorola Inc. SEMICONDUCTOR GROUP JohnR.Welty Vice Presidentand General Manager Semiconductor Group Robert R.Heikes Vice President and Assistant General Manager Semiconductor Group EarlR.Gomersall Vice Presidentand Directorof Manufacturing and Production Technology, Semiconductor Group Gary L. Tooker Vice Presidentand General Manager Discrete Semiconductor Division Alfred J. Stein Vice Presidentand General Manager Integrated Circuits Division

Staff Activities/New Motorola Products Motorola Worldwide Ventures, Other AUTOMOTIVE PRODUCTS DIVISION Major facilities i Businesses Car radios Stereo tape players Australia Melbourne Alternator charging systems Canada Managing a large corporation with Midland and Willow Solid-state ignition systems operating groups in several high tech- Electronic instrumentation Denmark nology areas of the electronics industry Frederikssund Electronic engine controls requires a staff with a variety of special France Citizens band radios and antennas Angers talents. Coordinating the activities of Toulouse these specialized groups is the job of COMMUNICATIONS GROUP West Germany the Senior Vice President and Chief Mobile and portable FM two-way radio Taunusstein Corporate Staff Officer Stephen L. Levy. communications systems Great Britain Reporting to Levy, a 13-year Motorolan Radio paging systems East Kilbride, Sco Communications control centers Stotfold and Warri and former general manager of the Hong Kong Signaling and remote control systems Semiconductor Division, are corporate Kowloon Cartelephone systems engineering; marketing; government Microwave communications systems Israel relations; public relations and advertis- Tel-Aviv Health care communications systems ing; corporate planning; manufacturing Italy Precision instruments Rome and facilities; computer services; sys- Component products Korea tems and telecommunications. Electronic command and control systems Seoul Mobile data communications systems Malaysia Through the years Motorola has been Kuala Lumpur alert to new business opportunities both GOVERNMENT ELECTRONICS Penang from inside and outside the company. DIVISION Mexico To direct this effort, the corporation has Fixed and satellite communications systems Guadalajara, Jalis had operating atthe staff level an office Space communications systems Mexico City, D.F. of acquisitions and new ventures. Tactical electronics systems Nogales, Sonara Radar surveillance and display systems Puerto Rico Heading this office is SeniorVice Vega Baja Positioning and navigation systems President Homer L. Marrs, a Motorolan South Africa Countermeasures systems for nearly 40 years and former general Bramley, Transvaal Missile guidance systems manager of the Communications Divi- Drone control systems Switzerland sion. Also reporting to him are two of Geneva Data security modules United States the operations that have resulted from Missileand aircraft instrumentation Illinois the program: Data Products and Secure communications Carol Stream MotorolaTeleprograms, Inc. Chicago SEMICONDUCTOR GROUP Franklin Park MOS and bipolar integrated circuits Lombard Northlake Microprocessors Schaumburg Micro-components and systems Arizona Semiconductor chips Mesa Zener and tuning diodes Phoenix RF modules Scottsdale Power and small signal transistors Tempe Florida Field effect transistors (FETs) Fort Lauderdal Stephen L. Levy Microwave devices New York Senior Vice President Optoelectronics Arcade and Chief Corporate Rectifiers Texas Staff Officer Austin Thyristors Varactors Fort Worth Seguin Triggers Missouri Suppressors Webb City Solar energy components Iowa Mount Pleasant OTHER BUSINESSES Pennsylvania Educational films and materials Carlisle CRTdisplay modules Motorola Executive Oracle, Arizona Closed circuit TV systems Microprocessor test equipment Homer L Marrs Information display systems SeniorVice President Industrial process controls Ferriteand iron core components

® MOTOROLA INC.

Corporate Offices Motorola Center 1303 E. Algonquin Rd. Schaumburg, III., 60196 Phone:(312)397-5000

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