01—Abstract
Summary
Summary of the 10-K filed March 22, 2000. Cited figures are marked; the original filing is the authoritative source.
Motorola's fiscal 1999 Form 10-K describes a company in transition: a shift from analog to digital wireless phones, a large push into infrastructure and broadband, and a portfolio pruned by 1999 divestitures.
Total backlog rose to $9.20 billiona at year-end 1999 from $7.16 billion a year earlier. Management expects about 95% of that backlog to ship in 2000. The Personal Communications segment's backlog more than doubled to $2.8 billion, which points to strong demand for digital handsets.
Research and development spending reached about $3.44 billionb, up from $2.89 billion in 1998. The company reported roughly 121,000 employees at year-end. The filing also flags risks that investors should weigh.
Iridium LLC has been in Chapter 11 since August 1999, and Motorola faces ongoing Iridium-related securities suits. Several large product-liability and environmental suits are pending, including seven cases over groundwater and air contamination in Phoenix and Scottsdale, Arizona. The company is also exposed to component shortages, the growing demand for vendor financing on large infrastructure contracts, and the cyclicality of semiconductors.
The January 5, 2000 merger with General Instrument Corporation adds a broadband business and a majority stake in Next Level Communications, but the filing defers most of its financial detail to the proxy statement appendix. Important limitation: this 10-K incorporates its Management's Discussion and Analysis and consolidated financial statements by reference from the 2000 proxy statement appendix. Revenue, net income, EPS, and balance sheet figures are therefore not included in the document provided, and this analysis does not assess them.
02—Key points
Key Highlights
- Total backlog rose to $9.20 billion at December 31, 1999, up from $7.16 billion in 1998 (about $6.44 billion excluding Iridium at 1998 levels), with about 95% expected to ship in 2000.
- Personal Communications segment backlog reached $2.8 billion, up from $1.3 billion, and digital phones made up over 80% of 1999 unit shipments.
- Research and development expenditures were approximately $3.44 billion in 1999, versus $2.89 billion in 1998 and $2.75 billion in 1997, supported by about 19,900 professional staff.
- Iridium LLC has operated as a debtor-in-possession under Chapter 11 since August 1999, leaving no Iridium backlog at year-end and ongoing securities litigation against Motorola.
- The General Instrument merger closed January 5, 2000, creating a Broadband Communications Sector and giving Motorola a majority stake in Next Level Communications, which completed its IPO in Q4 1999.
- Motorola owned about 10,542 U.S. utility and design patents and 11,265 foreign patents at year-end 1999, and was granted 1,271 U.S. patents during the year.
- The company reported about 714.6 million common shares outstanding as of January 31, 2000, with non-affiliate market value of approximately $94.9 billion at $136.00 per share.
03—Questions
Frequently Asked Questions
What is driving Motorola's backlog growth in 1999?
Most of the increase came from the Personal Communications segment, whose backlog nearly doubled to $2.8 billion, reflecting strong demand for digital wireless phones. Backlog also grew in the Commercial, Government and Industrial Solutions segment, to $2.0 billion from $1.4 billion. Network Systems backlog was flat at $2.2 billion, but excluding Iridium it would have been $1.5 billion at the end of 1998, so underlying infrastructure orders were stronger than the headline figure suggests.
How does the Iridium bankruptcy affect Motorola?
Iridium LLC has been operating under Chapter 11 since August 1999, and Motorola's Network Systems segment no longer carries any Iridium backlog. Motorola is also a defendant in several securities class actions tied to Iridium, and the filing lists risks from liquidation, including deorbiting the satellites, remaining obligations under Iridium agreements, and redeploying resources previously devoted to the project. The filing does not quantify the total financial exposure.
What are the main litigation risks disclosed?
The most prominent risks are seven pending suits over alleged groundwater, soil and air contamination in Phoenix and Scottsdale, Arizona, including the McIntire case with about 920 plaintiffs and the Baker class action. Other matters include the Kaufman securities class action over inventory disclosures, the Nextel securities litigation (which has a stipulated settlement subject to a June 2000 hearing), and several cellular-phone health suits. Management states that none of these is expected to have a material adverse effect on the company's financial position, liquidity, or results of operations.
Does this filing include Motorola's full financial statements?
No. Under Items 6 through 8, the 10-K incorporates the Five-Year Financial Summary, MD&A, and consolidated financial statements by reference from the appendix to the 2000 proxy statement. Revenue, earnings, cash flow, and balance sheet data should be taken from that appendix rather than this document, and this analysis cannot evaluate Motorola's profitability from the filing text provided.
What is the company's exposure to component shortages and customer financing?
Component shortages in wireless phones were severe in 1999 and were expected to persist into the first half of 2000, though availability was improving sequentially. Infrastructure customers increasingly expect suppliers to provide or arrange long-term financing, which can be sizable and may cover equipment, working capital, or both. Motorola flags both as risks, since they can constrain production, tie up capital, and affect competitiveness against rivals that offer more attractive financing terms.
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