01—Abstract
Summary
Summary of the 10-K filed March 20, 1998. Cited figures are marked; the original filing is the authoritative source.
Motorola, Inc.'s 10-K for fiscal 1997 describes a diversified wireless, semiconductor, and electronics company with roughly 150,000 employees and a market value of about $34.4 billiona for non-affiliate shares as of January 31, 1998 (597.5 million shares outstanding at a $59.5625 reference price).
The company operates through several segments: Cellular Subscriber (CSS), Cellular Infrastructure (CIG), Semiconductor Products (SPS), Land Mobile Products (LMPS), Messaging, Information and Media (MIMS), Automotive, Component, Computer and Energy (ACCES, which now includes the Motorola Computer Group), and Space and Systems Technology (SSTG, which includes the IRIDIUM satellite program). Total company backlog was $7.55 billionb at year-end 1997, roughly flat versus $7.57 billion a year earlier, and management says about 96% of it should ship in 1998. The filing shows a company spending heavily on R&D: about $2.75 billion on internal product development in 1997, up from $2.39 billion in 1996, plus $616 million of customer-funded research.
More than half of sales are outside the U.S., and domestic export sales alone totaled about $10.8 billionc including affiliates. The company holds 9,252 U.S. patents and was granted 1,208 new U.S. patents in 1997. Financial results are incorporated by reference from the proxy statement attachment, so this filing itself does not contain the income statement or balance sheet figures.
The main investor risks flagged are intense price competition across most product lines, a semiconductor cycle that left some facilities underutilized in 1997, reliance on a few large customers (notably Nextel for iDEN equipment and Iridium LLC for SSTG), Iridium's ability to keep making payments, cellular health-related and environmental litigation in Arizona and elsewhere, and Year 2000 exposure. The 10-K reports no material adverse effect expected from pending litigation, though the Phoenix/Scottsdale groundwater cases include claims from roughly 920 plaintiffs in the McIntire suit.
02—Key points
Key Highlights
- Diversified global portfolio spanning cellular subscriber and infrastructure equipment, semiconductors, two-way radio, paging and data, automotive electronics, computers, and defense and space systems.
- Total backlog of $7.55 billion at December 31, 1997, essentially flat versus $7.57 billion at year-end 1996, with about 96% expected to ship in 1998.
- R&D spending on new product development of $2.748 billion in 1997, up about 15% from $2.394 billion in 1996, plus $616 million in customer-sponsored research.
- Heavy international exposure: more than half of sales are outside the U.S., and domestic export sales to third parties were $3.98 billion in 1997.
- Semiconductor backlog fell to $1.77 billion from $2.32 billion, largely due to a change in how backlog is reported (only orders scheduled within the next 13 weeks now count), and the segment faced underutilized capacity in 1997.
- Concentrated customer risk: iDEN sales to Nextel are described as material to LMPS, and the Iridium contracts are a major contributor to SSTG sales; U.S. Government sales were about 2.8% of total.
- Significant legal exposure: multiple Phoenix/Scottsdale groundwater contamination suits, securities class actions (Nextel and Kaufman), and cellular health-related claims, all of which management believes will not have a material adverse effect.
03—Questions
Frequently Asked Questions
How large is Motorola and how many people does it employ?
As of December 31, 1997, Motorola had about 150,000 employees. Non-affiliate equity had a market value of roughly $34.4 billion as of January 31, 1998, based on a share price of $59.5625 and 597.5 million shares outstanding.
What drove the change in semiconductor backlog?
Semiconductor backlog dropped to $1.77 billion from $2.32 billion because the company changed its reporting so that only orders scheduled for delivery in the next 13 weeks count. Management says that on a consistent basis, backlog actually rose slightly for the year.
What are the biggest risks to Motorola's earnings in this filing?
The filing highlights aggressive price competition across most product lines, cyclical semiconductor demand and underutilized plants, dependence on a few large customers such as Nextel and Iridium LLC, the ability of Iridium to keep paying, the difficulty of pricing large fixed contracts, the push toward vendor financing, Asian economic weakness, and Year 2000 compliance.
How significant is the Iridium project to Motorola?
Motorola owns about 20% of Iridium LLC and is its prime contractor for the satellite network. As of year-end 1997, 46 satellites had been deployed of the 66 needed, with 44 operational. Iridium-related contracts are a major part of the Space and Systems Technology Group's sales, and Motorola remains liable under its subcontracts even if Iridium cannot pay.
Does the filing include Motorola's financial statements?
No. Items 6 through 8, which cover selected financial data, MD&A, and the audited financial statements, are incorporated by reference from the attachment to the 1998 proxy statement, so the financial figures are not in this 10-K document itself.
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