Why did Motorola report a net loss in 1998 after earning $1.18 billion in 1997?

The 1998 loss was driven by a $1.98 billion pre-tax charge for restructuring and asset impairments, launched in the second quarter as a 1998 Program to address cost pressures. Operating results also weakened: the semiconductor industry entered a second recession in three years, and cellular and paging demand fell. Excluding special charges, 1998 earnings were still down sharply, at $347 million compared with $1.4 billion in 1997.

How large is Motorola's exposure to Iridium, and what could trigger a loss?

Motorola owns about 19% of Iridium LLC and had $263 million in equity, bond, and gateway investments at year-end 1998. It also guarantees a $750 million senior credit facility, may have to guarantee another $350 million on request, and has deferred $176 million in Iridium payments under a $400 million deferral cap. Assets tied to the Iridium contracts were valued at $791 million. Iridium said in March 1999 that it would likely miss its first-quarter subscriber and revenue targets, and a default could trigger the guarantees and write off much of the investment.

Which business segments drove the 1998 results?

Semiconductor Products had sales of $7.3 billion, down 9%, and an operating loss of $1.2 billion. Messaging, Information and Media sales fell 31% to $2.6 billion, with a $699 million operating loss. Cellular Products had the largest sales base at $12.5 billion, up 5%, but operating profit fell 62% to $482 million. Land Mobile Products grew sales 10% to $5.4 billion, and operating profit rose 35% to $729 million.

Is Motorola's balance sheet and cash generation under pressure?

Yes. Net cash from operations fell to $1.0 billion from $2.6 billion, and capital expenditures were $3.2 billion, so the company borrowed to fund operations, customer financing, and investments. Net debt to net debt plus equity rose to 26.8% from 12.4%. Working capital fell to $2.1 billion from $4.2 billion, the current ratio dropped to 1.18, and accounts receivable collection slowed to 8.3 weeks. Management said it could still access capital markets, but it cautioned that access depends on credit ratings and market conditions.

What did the SEC-driven amendment change, and what does it not update?

The amendment expands MD&A and footnote disclosure in response to SEC comments, mainly on restructuring accruals, the reclassification of severance and other charges, Iridium exposures, and Year 2000 readiness. It speaks only as of the original March 22, 1999 filing and does not update results or events after that date, so investors should check later periodic reports for subsequent developments such as the Iridium outcome.

MSI 10-K FY1998 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K/A filed October 28, 1999. Cited figures are marked; the original filing is the authoritative source.

This is Amendment No. 1 (Form 10-K/A) to Motorola's 1998 Annual Report, filed in response to SEC comments.

It amends only Item 7 (MD&A) and Item 8 (financial statements and notes) and does not update disclosures to any date after the original March 22, 1999 filing. The core story is a sharp reversal: 1998 sales fell 1% to $29.4 billion^a, and the company posted a net loss of $962 million, or $1.61 per share, versus net earnings of $1.18 billion in 1997. The loss was driven by $1.98 billion in pre-tax restructuring and other charges under the 1998 Program, which covers manufacturing consolidation, business exits, and cutting about 20,000 positions.

Excluding special charges, 1998 earnings were $347 million^b, or 58 cents per share, down from $2.26 per share in 1997. Segment results show the pressure was concentrated. Semiconductor Products posted a $1.2 billion operating loss on sales down 9%, and Messaging, Information and Media swung to a $699 million loss on sales down 31%.

Cellular Products remained the largest segment at $12.5 billion^c in sales, but its operating profit fell 62%. Land Mobile Products was the bright spot, with sales up 10% and operating profit up 35%, helped by iDEN growth. Balance sheet leverage rose: the net debt to net debt plus equity ratio climbed to 26.8% from 12.4%, and working capital fell to $2.1 billion.

Net cash from operations dropped to $1.0 billion^d from $2.6 billion. Management still cites a long-term target of 15% sales growth and a 16% to 18% return on equity. The amended disclosures put the most attention on contingent exposure to Iridium LLC, in which Motorola holds about 19%.

Motorola carries $263 million in equity, bond, and gateway investments, plus $176 million in deferred payments and $264 million in receivables. It also has a $750 million guarantee of Iridium's senior guaranteed credit facility, a possible additional $350 million guarantee, and roughly $791 million in assets at risk.

Iridium had already said it would likely miss its first-quarter 1999 targets, which raised default risk. The filing states that a default would have a material adverse effect on Motorola's financial position, liquidity, and results.

02—Key points

Key Highlights

1998 net loss of $962 million (-$1.61 per share) versus 1997 net earnings of $1.18 billion, driven by $1.98 billion in pre-tax restructuring and other charges
Excluding special charges, 1998 earnings were $347 million ($0.58 per share), down from $2.26 per share in 1997
Net sales fell 1% to $29.4 billion; Semiconductor Products operating loss of $1.2 billion and Messaging, Information and Media operating loss of $699 million
Restructuring plan targets about $1.0 billion annualized profit improvement by mid-1999, covering roughly 20,000 positions and manufacturing consolidation
Net debt to total capital rose to 26.8% from 12.4%, and operating cash flow fell to $1.0 billion from $2.6 billion, while capital expenditures reached $3.2 billion
Iridium exposure: about 19% ownership, $263 million in investments and receivables, a $750 million guarantee, and roughly $791 million in assets at risk, with default risk after Iridium signaled it would miss first-quarter 1999 targets
Land Mobile Products was the strongest segment, with sales up 10% and operating profit up 35% on iDEN growth

03—Questions

Frequently Asked Questions

Why did Motorola report a net loss in 1998 after earning $1.18 billion in 1997?
The 1998 loss was driven by a $1.98 billion pre-tax charge for restructuring and asset impairments, launched in the second quarter as a 1998 Program to address cost pressures. Operating results also weakened: the semiconductor industry entered a second recession in three years, and cellular and paging demand fell. Excluding special charges, 1998 earnings were still down sharply, at $347 million compared with $1.4 billion in 1997.
How large is Motorola's exposure to Iridium, and what could trigger a loss?
Motorola owns about 19% of Iridium LLC and had $263 million in equity, bond, and gateway investments at year-end 1998. It also guarantees a $750 million senior credit facility, may have to guarantee another $350 million on request, and has deferred $176 million in Iridium payments under a $400 million deferral cap. Assets tied to the Iridium contracts were valued at $791 million. Iridium said in March 1999 that it would likely miss its first-quarter subscriber and revenue targets, and a default could trigger the guarantees and write off much of the investment.
Which business segments drove the 1998 results?
Semiconductor Products had sales of $7.3 billion, down 9%, and an operating loss of $1.2 billion. Messaging, Information and Media sales fell 31% to $2.6 billion, with a $699 million operating loss. Cellular Products had the largest sales base at $12.5 billion, up 5%, but operating profit fell 62% to $482 million. Land Mobile Products grew sales 10% to $5.4 billion, and operating profit rose 35% to $729 million.
Is Motorola's balance sheet and cash generation under pressure?
Yes. Net cash from operations fell to $1.0 billion from $2.6 billion, and capital expenditures were $3.2 billion, so the company borrowed to fund operations, customer financing, and investments. Net debt to net debt plus equity rose to 26.8% from 12.4%. Working capital fell to $2.1 billion from $4.2 billion, the current ratio dropped to 1.18, and accounts receivable collection slowed to 8.3 weeks. Management said it could still access capital markets, but it cautioned that access depends on credit ratings and market conditions.
What did the SEC-driven amendment change, and what does it not update?
The amendment expands MD&A and footnote disclosure in response to SEC comments, mainly on restructuring accruals, the reclassification of severance and other charges, Iridium exposures, and Year 2000 readiness. It speaks only as of the original March 22, 1999 filing and does not update results or events after that date, so investors should check later periodic reports for subsequent developments such as the Iridium outcome.

04—Continue

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