01—Abstract
Summary
Summary of the 10-K filed March 28, 1994. Cited figures are marked; the original filing is the authoritative source.
Motorola, Inc. (MSI) reported a record 1993 with net sales of $16.96 billiona, up 28% from $13.30 billion in 1992, and net earnings of $1.02 billion, or $3.55 per fully diluted share, versus $453 million (after a $123 million accounting charge) a year earlier.
Net margin rose to 6.0% from 4.3% before the cumulative effect of an accounting change. Growth was broad-based: the Semiconductor Products sector grew 28% to $5.7 billionb, General Systems grew 43% to $5.2 billion (driven by cellular), and the Communications segment rose 24% to $4.8 billion. Total backlog reached $6.0 billion, up from $4.3 billion, and about 94% of it was expected to ship in 1994.
International sales represented 54% of total sales, with China/Hong Kong contributing $1.56 billionc. Cash generation and balance sheet metrics were strong. Operating cash flow hit a record $2.31 billion, net debt to total capital fell to 11.9% from 15.2%, and capital expenditures rose to $2.19 billion, with about $2.9 billion planned for 1994.
R&D spending reached $1.52 billiond, roughly 9% of sales, and the company expects $1.7 billion in 1994. Management also announced a two-for-one stock split and a 27% dividend increase, payable April 1994.
Investors should note several risks disclosed in the filing: a large strategic commitment to the Iridium satellite system (about $231 million invested, roughly $6.3 billion in contract payments over ten years, with Motorola obligated on subcontracts even if Iridium's funding fails), roughly $440 million in loans or guarantees tied to the planned sale of 800 MHz SMR businesses, pending IRS challenges on 1984-1987 audits, environmental litigation in Phoenix and Scottsdale, and a securities class action (Feldman). Management considers these matters unlikely to have a material adverse effect.
02—Key points
Key Highlights
- Record 1993 net sales of $16.96 billion (+28% YoY) and net earnings of $1.02 billion ($3.55 fully diluted EPS), with net margin up to 6.0% from 4.3%.
- Backlog rose to $6.0 billion from $4.3 billion, with about 94% expected to ship in 1994.
- Record operating cash flow of $2.31 billion; net debt to net debt plus equity improved to 11.9% from 15.2%.
- Semiconductor Products (+28% to $5.7B) and General Systems (+43% to $5.2B, led by cellular) drove growth; Communications rose 24% to $4.8B.
- International sales reached 54% of total, with China/Hong Kong at $1.56 billion, which exposes the company to U.S.-China trade policy risk.
- Two-for-one stock split and 27% quarterly dividend increase announced February 1994; R&D of $1.52 billion (about 9% of sales) and 1994 capex guidance of about $2.9 billion.
- Material contingent exposures: Iridium satellite system commitments (about $6.3 billion in contract payments), roughly $440 million in loans or guarantees tied to SMR business transfers, and disputed IRS adjustments.
03—Questions
Frequently Asked Questions
What drove Motorola's revenue growth in 1993?
Growth was broad, with 28% total sales growth to $16.96 billion. General Systems (cellular telephones and infrastructure) grew 43%, Semiconductors grew 28% on strong demand for microcontrollers, microprocessors, and communications chips, and Communications (land mobile and paging) grew 24%. Order growth was strong across segments, and Asia-Pacific, especially China, was the fastest-growing region.
How much backlog does Motorola have heading into 1994?
Total backlog was $6.006 billion at December 31, 1993, up from $4.321 billion a year earlier, and about 94% is expected to ship in 1994. Segment backlogs were Semiconductors $2.12 billion, Communications $1.71 billion, General Systems $1.2 billion, and Government and Systems Technology $634 million. Management notes that orders have been rescheduled in the past, so firmness estimates can change.
What are the main risks tied to the Iridium satellite project?
Motorola is the prime contractor for satellites and system maintenance under contracts with Iridium, Inc., which provides about $6.3 billion in payments over ten years. Motorola has invested about $231 million in equity and has committed about $60 million more. The company remains obligated on subcontracts even if Iridium cannot pay, and Iridium will need additional outside funding to finish the system over the next five years. Motorola also reduced its ownership in Iridium from 100% to about 29%.
Are there significant legal or contingent liabilities?
Yes. Five lawsuits allege groundwater, soil, and air contamination in Phoenix and Scottsdale, Arizona, seeking damages and class relief. A securities class action (Feldman) alleges fraud on the market, and a cellular-phone health suit (Verb) is pending. The company also faces Superfund claims and IRS challenges to 1984-1987 tax returns. Management believes none of these will have a material adverse effect, and environmental accruals total about $42 million.
Did Motorola change its capital structure or shareholder returns in 1993-1994?
Yes. The company issued $480 million (face value at maturity) of zero-coupon LYONs due 2013 for $301 million in net proceeds, and it issued $200 million of 6.5% notes. Holders converted about $568 million face value of 2009 LYONs into stock. Shareholders' equity rose to $6.4 billion. The February 1994 two-for-one split and 27% dividend increase reflect confidence in cash generation, and the quarterly dividend moved to 14 cents per pre-split share.
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