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Motorola,฀Inc.
2004฀Annual฀Report
to฀Stockholders

Table of contents

  • Page 1
    Motorola,฀Inc. 2004฀Annual฀Report to฀Stockholders

  • Page 2

  • Page 3
    ...฀business฀units฀-฀mobile฀ devices,฀networks,฀government฀&฀enterprise฀and฀connected฀home.฀Support฀functions฀are฀ streamlined฀to฀reduce฀cost฀and฀drive฀common฀business฀processes฀across฀the฀company.฀ We฀invested฀in฀our฀core฀competencies...

  • Page 4
    ...and฀execute฀on฀our฀strategic฀direction.฀We฀aim฀to฀make฀Motorola฀the฀most฀desirable฀฀ workplace฀-฀diverse,฀inclusive฀and฀where฀people฀perform฀to฀their฀fullest฀potential. As฀I฀close฀this฀letter,฀I฀look฀forward฀to฀2005฀-฀A฀Year...

  • Page 5
    Motorola,฀Inc.'s฀ 2004฀ Form฀10-K

  • Page 6
    (This page intentionally left blank)

  • Page 7
    ...Ã'ed in its charter) DELAWARE (State of Incorporation) (Address of principal executive oÇces) 36-1115800 (I.R.S. Employer IdentiÃ'cation No.) 1303 East Algonquin Road, Schaumburg, Illinois 60196 (847) 576-5000 (Registrant's telephone number) Securities registered pursuant to Section 12(b) of...

  • Page 8
    ... Solutions Segment Integrated Electronic Systems Segment Broadband Communications Segment Other Products Segment Other Information Financial Information About Segments Customers Backlog Research and Development Patents and Trademarks Environmental Quality Employees Financial Information...

  • Page 9
    ... wireless infrastructure communications systems, including hardware, software and services. Mission-Critical Information Systems: In addition, we are a leading provider of customized, mission-critical radio communications and information systems. ‚ Broadband We are a global leader in developing...

  • Page 10
    2 Business Segments Motorola reports six segments as described below. Personal Communications Segment The Personal Communications segment (""PCS'' or the ""segment'') designs, manufactures, sells and services wireless handsets with integrated software and accessory products. In 2004, PCS net sales ...

  • Page 11
    ... infrastructure equipment for over ten years. Nextel uses Motorola's proprietary iDEN technology to support its nationwide wireless service business. In December 2004, Motorola announced that it reached an agreement with Nextel to extend the companies' iDEN infrastructure and iDEN subscriber supply...

  • Page 12
    ...'' for information relating to patents and trademarks and research and development activities with respect to this segment. Inventory, Raw Materials, Right of Return and Seasonality PCS's practice is to carry reasonable amounts of inventory in distribution centers in order to meet customer delivery...

  • Page 13
    ...the Company's consolidated net sales. Principal Products and Services GTSS provides end-to-end wireless networks, including radio base stations, base site controllers, associated software and services, mobility soft switching, application platforms and third-party switching for CDMA, GSM, iDEN» and...

  • Page 14
    ... infrastructure equipment for over ten years. Nextel uses Motorola's proprietary iDEN technology to support its nationwide wireless service business. In December 2004, Motorola announced that it reached an agreement with Nextel to extend the companies' iDEN infrastructure and iDEN subscriber supply...

  • Page 15
    ...: technology oÃ...ered; price; payment terms; availability of vendor Ã'nancing; product and system performance; product features, quality, delivery, availability and warranty; the quality and availability of service; company image; relationship with key customers; and time-tomarket. Price is a major...

  • Page 16
    ... and Services CGISS designs, manufactures, sells, installs and services analog and digital two-way radio, voice and data communications products and systems to a wide range of public-safety, government, utility, courier, transportation and other worldwide markets. The business continues to invest in...

  • Page 17
    ...of interoperable communications and information systems, especially related to global homeland security; and (v) increasing sales to enterprise customers. We are working with national governments to design and sell countrywide radio systems that are shared by police, Ã're, emergency services and, in...

  • Page 18
    ... introduce new competition and new opportunities for Motorola and our customers. On February 7, 2005, Nextel Communications agreed to a plan by federal regulators designed to address interference from Nextel cellular phones with hundreds of public safety communications systems in the U.S. According...

  • Page 19
    ... the heading ""Other Information'' for information relating to patents and trademarks, and research and development activities with respect to this segment. Inventory, Raw Materials, Right of Return and Seasonality The segment provides custom products based on assembling basic units into a large...

  • Page 20
    ... devices in the mobile computing and portable communications markets. Customers In 2004, 60% of the segment's net sales were to four customers: 19% to Motorola, 17% to General Motors, 12% to Ford and 12% to Daimler Chrysler. Our largest customer within Motorola is the wireless handset business, PCS...

  • Page 21
    ... Motorola businesses, particularly the sales of our wireless handset business, the group's largest customer. Demand for ECCG products is linked to sales of telecommunications, manufacturing, and other infrastructure systems in the U.S. and other countries. The segment experiences competition from...

  • Page 22
    ...-to-home (""DTH'') satellite networks and private networks for business communications, and (vi) high-speed data, video and voice broadband systems over existing phone lines. In 2004, BCS net sales represented 7% of the Company's consolidated net sales. Principal Products and Services The segment...

  • Page 23
    ... the traditional cable modem business and into voice modems. We are focused on providing home networking and monitoring products, including wireless networking devices with high-speed Internet access for a complete home, small oÇce or small-to-medium enterprise communications system. Customers We...

  • Page 24
    ... the sale of our set-top terminals. We also compete worldwide in the market for broadband data products. We believe that we are the leading provider of cable modems worldwide, competing with a number of consumer electronic companies and various original design manufacturers worldwide. Competitive...

  • Page 25
    ... from limited sources. We have inventory controls and other policies intended to minimize the eÃ...ect of any interruption in the supply of components. We currently source certain parts from Broadcom Corporation and Texas Instruments Corporation for our digital set-top terminals and cable modems. Any...

  • Page 26
    ...on Motorola. Based on 2004 annual sales, in addition to Nextel, other large Motorola customers include China Mobile, Cingular and Vodafone. Approximately 2% of Motorola's net sales in 2004 were to various branches and agencies, including the armed services, of the U.S. Government. All contracts with...

  • Page 27
    ...our reports and corporate governance documents may also be obtained without charge by contacting Investor Relations, Motorola, Inc., Corporate OÇces, 1303 East Algonquin Road, Schaumburg, Illinois 60196, E-mail: [email protected], phone: 1-800-262-8509. Our Internet website and the information...

  • Page 28
    ... cellular phones cause undisclosed injury to cells and other health risks, to the United States District Court for the District of Maryland for coordinated or consolidated pretrial proceedings in the matter called In re Wireless Telephone Radio Frequency Emissions Products Liability Litigation. On...

  • Page 29
    ...to purchase gateway equipment from Motorola, acquire Iridium stock, and invest in developing a market for Iridium services in India. Under the Indian penal code, ""cheating'' is punishable by imprisonment for up to 7 years and a Ã'ne of any amount. The court may also require defendants to compensate...

  • Page 30
    ...second amended complaint and served a demand on the Motorola Board of Directors to investigate the alleged wrongful conduct. At a July 10, 2004 Special Board Meeting, Motorola's Board appointed an investigatory committee to: (i) evaluate the plaintiÃ...'s demand, and (ii) report back to the Board with...

  • Page 31
    ... the judgment which would have allowed Motorola to execute against entities owned and controlled by the Uzans. As a result, MCC's eÃ...orts to execute on its judgment against the Uzans were recommenced in the United States, United Kingdom, Bermuda and France, and the Company has begun to realize some...

  • Page 32
    ... 28, 2004, the International Centre for the Settlement of Investment Disputes registered Motorola's Request for Arbitration, thus Ã'nding that, at a minimum, there is a possibility of jurisdiction for Motorola's claims. Class Action Securities Lawsuits A purported class action lawsuit, Barry...

  • Page 33
    ... to Telsim in connection with the sale of telecommunications equipment by Motorola. The plaintiÃ... sought to represent a class of participants in the Plan for whose individual accounts the Plan purchased or held shares of common stock of Motorola from ""May 16, 2000 to the present'', and sought an...

  • Page 34
    ... Employees Retirement Association et al. v. Motorola, Inc., et al. The complaint raises claims under California law for aiding and abetting fraud and conspiracy to defraud and generally makes the same allegations as the other previouslydisclosed cases relating to the In re Adelphia Communications...

  • Page 35
    ... Vice President and President, Connected Home Solutions since January 2005; Executive Vice President and President, Broadband Communications Sector (""BCS'') from June 2002 to January 2005; Senior Vice President and General Manager, IP Systems Group, BCS from February 2000 to June 2002. Adrian...

  • Page 36
    ... Chief Strategy OÇcer from July 2004 to March 2005; Strategic Advisor to Motorola, Inc. February 2004 to July 2004; Vice President and General Manager of Vitesse Semiconductor Corporation from August 2003 to January 2004; Chairman of the Board, President and Chief Executive OÇcer of Multilink from...

  • Page 37
    29 PART II Item 5: Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Motorola's common stock is listed on the New York, Chicago and Tokyo Stock Exchanges. The number of stockholders of record of Motorola common stock on January 31, 2005 was...

  • Page 38
    ...% of sales 1.6% 1.5% 1.7% 2.7% Research and development expenditures $ 3,060 $ 2,799 $ 2,774 $ 3,312 % of sales 9.8% 12.1% 11.8% 12.5% Year-end employment (in thousands)* 68 88 97 111 * Employment decrease in 2004 primarily reÃ-ects the impact of the spin-oÃ... of Freescale Semiconductor. $ $ $ 0.54...

  • Page 39
    ...the Company's consolidated net sales. The Commercial, Government and Industrial Solutions segment (""CGISS'') designs, manufactures, sells, installs and services analog and digital two-way radio, voice and data communications products and systems to a wide range of public-safety, government, utility...

  • Page 40
    ... market share leader in supplying two-way radio communications systems, and BCS remains the market share leader for both digital set-tops and cable modems. What challenges and opportunities did our businesses face in 2004? ‚ In PCS: Our wireless handset business had a very strong year in 2004, re...

  • Page 41
    ... employee incentive accruals, increased research and development and selling, general and administrative expenditures, and integration costs associated with the addition of Force Computers. In BCS: Our broadband business had a strong year in 2004, as net sales increased 26% and the business reported...

  • Page 42
    ...-to-end solutions for specialized markets such as mission critical, governments and automotive. Targeted plans for improving our competitive positioning and operating results include: ‚ ‚ Improve execution Ã" Our new organizational structure was in part designed to enhance our speed and ability...

  • Page 43
    ... the Company's major segments in 2004 compared to 2003. The overall increase in net sales was primarily related to: (i) a $5.8 billion increase in net sales by the Personal Communications segment (""PCS''), driven by a 39% increase in unit shipments and a 15% increase in average selling price (""ASP...

  • Page 44
    ... OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS technologies and regions, (iii) a $478 million increase in net sales by the Broadband Communications segment (""BCS''), primarily due to increased purchases of digital cable set-top boxes by cable operators and an increase in ASP for digital set-top...

  • Page 45
    ...businesses were $460 million in 2004, compared to $539 million in 2003. The 2004 net gains were primarily: (i) a $130 million gain on the sale of the Company's remaining shares in Broadcom Corporation, (ii) a $122 million gain on the sale of a portion of the Company's shares in Nextel Communications...

  • Page 46
    ... spending by cable service providers, (ii) a $196 million decrease in net sales by PCS, primarily due to: (a) increased competition in Asia, (b) an estimated loss in market share during 2003, resulting from delays in the introduction of new products, driven by supply constraints for a key component...

  • Page 47
    ...general and administrative spending by PCS, reÃ-ecting beneÃ'ts from cost-reduction eÃ...orts, (ii) decreased selling and sales support costs by GTSS, reÃ-ecting beneÃ'ts from prior cost-reduction eÃ...orts, partially oÃ...set by an increase in employee incentive program costs, and (iii) decreased general...

  • Page 48
    ... to an intellectual property license that enabled the Company to provide national authorization services for digital set-top terminals, and (iii) $12 million for acquired in-process research and development charges, primarily related to the acquisition of Synchronous, Inc. by BCS. These items...

  • Page 49
    ... and businesses, primarily due to a $255 million gain from the sale of a portion of the Company's shares in Nextel and gains from the sale of equity securities of other companies held for investment purposes, and (vi) a $61 million decrease in net interest expense. These items were partially oÃ...set...

  • Page 50
    ... 31, 2004: Year Ended December 31, Segment 2004 Personal Communications Global Telecom Solutions Commercial, Government and Industrial Solutions Integrated Electronic Systems Broadband Communications Other Products General Corporate $(27) (7) 6 10 (4) Ì (22) 15 $ (7) Reorganization of Businesses...

  • Page 51
    ... for the year ended December 31, 2003: Segment Personal Communications Global Telecom Solutions Commercial, Government and Industrial Solutions Integrated Electronic Systems Broadband Communications Other Products General Corporate Exit Costs $ 6 (3) (3) (1) 1 (3) (3) (6) $(9) Employee Separations...

  • Page 52
    ... the following: (i) $275 million in the Personal Communications segment, primarily related to the shut-down of an engineering and distribution center in Illinois, (ii) $224 million in the Global Telecom Solutions segment, primarily related to segment-wide employee separation costs and for exit costs...

  • Page 53
    ... for the year ended December 31, 2002: Segment Personal Communications Global Telecom Solutions Commercial, Government and Industrial Solutions Broadband Communications Integrated Electronic Systems Other Products General Corporate Exit Costs $(5) 56 (16) 4 24 (8) 55 24 $79 Employee Separations $ 70...

  • Page 54
    ... payment milestones in Asia. The increase in net accounts receivable was primarily due to the increase in net sales in the fourth quarter of 2004, compared to net sales in the fourth quarter of 2003, primarily in the Personal Communications segment (""PCS''). Inventory: The Company's net inventory...

  • Page 55
    ... 2004, compared to $275 million in 2003. The Company expects to make cash contributions of approximately $195 million to its pension plans during 2005. Retirement-related beneÃ'ts are further discussed below in the ""SigniÃ'cant Accounting PoliciesÃŒRetirement-Related BeneÃ'ts'' section. Investing...

  • Page 56
    ... receive aggregate proceeds of approximately $333 million. The precise number of shares of Nextel common stock that the Company will deliver to satisfy the contracts is dependent upon the price of Nextel common stock on the various settlement dates. The maximum aggregate number of shares the Company...

  • Page 57
    ... Freescale Semiconductor through the cash management system and (ii) proceeds of $158 million from the issuance of common stock in connection with the Company's employee stock purchase plan and employee stock option plan. Short-Term Debt: At December 31, 2004, the Company's outstanding short-term...

  • Page 58
    ...Proceeds from the Sale of Stock Pursuant to Equity Security Units During 2004: The Company sold $1.2 billion of MEUs during the fourth quarter of 2001. In November 2004, pursuant to the terms of the MEUs the Company sold 69.4 million shares of common stock for $1.2 billion to the holders of the MEUs...

  • Page 59
    ...many years the Company has utilized a receivables program to sell a broadly-diversiÃ'ed group of short-term receivables, through Motorola Receivables Corporation (""MRC''), to third parties. The obligations of the third parties to continue to purchase receivables under the MRC short-term receivables...

  • Page 60
    ... as beneÃ't administration and information technology related services. These contracts generally extend for 10 years and are expected to expire in 2013. The total payments under these contracts are approximately $3 billion over 10 years; however, these contracts can be terminated. Termination would...

  • Page 61
    ... any time. In October 2004, the Company renewed the MRC short-term receivables program at its current level for one year. In addition, the Company sells short-term receivables directly to third parties. Total short-term receivables sold by the Company (including those sold directly to third parties...

  • Page 62
    ... Ã'nancial statements as a discontinued operation. Personal Communications Segment The Personal Communications segment (""PCS'') designs, manufactures, sells and services wireless handsets with integrated software and accessory products. In 2004, PCS's net sales represented 54% of the Company...

  • Page 63
    ... equipment to Nextel for over ten years. Nextel uses Motorola's proprietary iDEN technology to support its nationwide wireless service business. In December 2004, Motorola announced that it reached an agreement with Nextel to extend the companies' iDEN infrastructure and iDEN subscriber supply...

  • Page 64
    ... of the year, toward lower-priced handsets, (ii) the intense competition from new and existing handset manufacturers in the Asian market, and (iii) unusually high sales of end-of-life products in the third quarter of 2003, reÃ-ecting the segment's aggressive steps to sell aging inventory. During the...

  • Page 65
    ... equipment to Nextel for over ten years. Nextel uses Motorola's proprietary iDEN technology to support its nationwide wireless service business. In December 2004, Motorola announced that it reached an agreement with Nextel to extend the companies iDEN infrastructure and iDEN subscriber supply...

  • Page 66
    .... The nature of the segment's business is long-term contracts with major operators that require sizeable investments by its customers. In 2003, Ã've customersÃŒChina Mobile Communications Corporation; China Unicom; KDDI, a service provider in Japan; Nextel and its aÇliates and VerizonÃŒrepresented...

  • Page 67
    ...CGISS'') designs, manufactures, sells, installs and services analog and digital two-way radio, voice and data communications products and systems to a wide range of public-safety, government, utility, courier, transportation and other worldwide markets. The business continues to invest in the market...

  • Page 68
    ..., which companies compete for bids and how companies partner on projects. The segment was awarded a number of major, multi-year contracts in 2004, including: (i) a $329 million contract with the Commonwealth of Virginia for a sophisticated digital voice and wireless data communications system, (ii...

  • Page 69
    ... the success of telematics products, as well as electronic control products launched during the year. In ESG, demand is strongly linked to the sales of other Motorola businesses, particularly the sales of the wireless handset business, which is the group's largest customer. For 2004 compared to 2003...

  • Page 70
    ... cable television operators, (iv) digital satellite television systems, (v) direct-to-home satellite networks and private networks for business communications, and (vi) high-speed data, video and voice broadband systems over existing phone lines. In 2004, BCS net sales represented 7% of the Company...

  • Page 71
    ... set-top terminals, as well as a reduction in purchases of network transmission systems and equipment. The decrease in the segment's net sales was driven by this reduction in spending by the segment's customers. The industry also experienced a reduction in ASP for cable modems. On a geographic basis...

  • Page 72
    ... of $13 million related to the General Instrument pension plan. Other Other is comprised of the Other Products segment and general corporate items. The Other Products segment includes: (i) various corporate programs representing developmental businesses and research and development projects that are...

  • Page 73
    ... 1, 2005. The Company will be organized into four main business groups, focused on mobile devices, networks, government and enterprise, and the connected home. The Mobile Devices business will be primarily comprised of the current Personal Communications segment and the Energy Systems group from...

  • Page 74
    ... to write down to zero the Company's debt security holding in a European cable operator and other cost-based investment writedowns. Additionally, the available-for-sale securities portfolio reÃ-ected a net pre-tax unrealized gain position of $2.3 billion at December 31, 2004, compared to a net pre...

  • Page 75
    ... Ã-ows discounted at the eÃ...ective interest rate implicit in the underlying receivable. Retirement-Related BeneÃ'ts The Company accounts for its pension beneÃ'ts and its postretirement health care beneÃ'ts using actuarial models required by SFAS No. 87, ""Employers' Accounting for Pensions,'' and...

  • Page 76
    ... the Company's net sales in 2004. These contracts primarily involve the design, engineering, manufacturing, and installation of wireless infrastructure communication systems by GTSS and two-way radio voice and data systems by CGISS. These systems are designed to meet speciÃ'c customer speciÃ'cations...

  • Page 77
    ... AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 69 The Company executes contracts with customers that describe the equipment and system speciÃ'cations to be delivered, including the consideration to be received. Revenue is recognized as work progresses on each contract and is based...

  • Page 78
    ... Accounting Pronouncements In December 2004, the Financial Accounting Standards Board (""FASB'') issued Statement No. 123R, a revision to Statement No. 123, ""Accounting for Stock-Based Compensation.'' This standard requires the Company to measure the cost of employee services received in exchange...

  • Page 79
    ... structure, (b) future payments, charges, use of accruals and expected cost-saving beneÃ'ts associated with our reorganization of business programs, (c) the Company's ability and cost to repatriate funds, (d) future cash contributions to pension plans or retiree health beneÃ't plans, (e) outstanding...

  • Page 80
    ... can result in third-party litigation, including class action litigation by persons alleging common harm resulting from the purchase of the products. We operate in highly competitive markets and our Ã'nancial results will be aÃ...ected if we are not able to compete eÃ...ectively. The markets for our...

  • Page 81
    ... fulÃ'lling our orders and our sales and proÃ'ts could decline. Another cost-reduction action has been to develop outsourcing arrangements for the design and/or manufacture of certain products, parts and components. If these third parties fail to deliver quality products, parts and components on...

  • Page 82
    ... telephony and high-speed data over hybrid Ã'ber coaxial cable systems; integrated digital radios; and integrated public safety systems. These risks include: (i) diÇculties and delays in the development, production, testing and marketing of products; (ii) customer acceptance of products; (iii) the...

  • Page 83
    ... communication products, our sales of these products and our proÃ'tability could be negatively impacted by changes in the operations, products, business models, part-sourcing requirements, Ã'nancial condition, market share or consumer Ã'nancing and rebate programs of our automotive customers...

  • Page 84
    ... operations are subject to a wide range of environmental, health and safety laws, including laws relating to the use, disposal, clean up of, and human exposure to hazardous substances. In the United States, these laws often require parties to fund remedial action regardless of fault. Factors such as...

  • Page 85
    ... commerce on, the Internet. We could be adversely aÃ...ected by any such regulation in any country where we operate. The adoption of such measures could decrease demand for our products and at the same time increase the cost of selling such products. The growth of our Broadband Communications segment...

  • Page 86
    ... small number of operators own a majority of cable television systems and account for a signiÃ'cant portion of the capital spending made by cable television system operators. Last year, net sales to the Broadband Communications segment's largest customer, Comcast, which merged with AT&T Broadband in...

  • Page 87
    ...invest necessary resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities. The level at which design wins become actual orders...

  • Page 88
    ... and over the life of the hedge contract. The Company's strategy in foreign exchange exposure issues is to oÃ...set the gains or losses of the Ã'nancial instruments against losses or gains on the underlying operational cash Ã-ows or investments based on the operating business units' assessment of risk...

  • Page 89
    ...receive aggregate proceeds of approximately $333 million. The precise number of shares of Nextel common stock that the Company would deliver to satisfy the contracts is dependent upon the price of Nextel common stock on the various settlement dates. The maximum aggregate number of shares the Company...

  • Page 90
    ...Ã'nancial instruments were not materially diÃ...erent from their carrying or contract values at December 31, 2004. Equity Price Market Risk The value of the available-for-sale securities would change by $290 million as of year-end 2004 if the price of the stock in each of the publicly-traded companies...

  • Page 91
    ... major markets to designate its products and services across all businesses of the Company. These marks are valuable corporate assets. Certain other trademarks and service marks of Motorola are registered in relevant markets. Motorola's increasing focus on marketing products directly to consumers is...

  • Page 92
    ... accordance with the standards of the Public Company Accounting Oversight Board (United States), the eÃ...ectiveness of Motorola, Inc.'s internal control over Ã'nancial reporting as of December 31, 2004, based on criteria established in Internal ControlÃŒIntegrated Framework issued by the Committee of...

  • Page 93
    CONSOLIDATED FINANCIAL STATEMENTS 85 Motorola, Inc. and Subsidiaries Consolidated Statements of Operations (In millions, except per share amounts) Net sales Costs of sales Gross margin Selling, general and administrative expenses Research and development expenditures Reorganization of businesses ...

  • Page 94
    ... mandatorily redeemable preferred securities of subsidiary trust holding solely company-guaranteed debentures Stockholders' equity Preferred stock, $100 par value Authorized shares: 0.5 (none issued) Common stock, $3 par value Authorized shares: 2004Ì4,200.0 and 2003Ì4,200.0 Issued and outstanding...

  • Page 95
    ...common stock and stock options exercised Gain on sale of subsidiary stock Issuance of stock related to Equity Security Units Net loss on derivative instruments (net of tax eÃ...ect of $39) Dividends declared ($0.16 per share) Spin-oÃ... of Freescale Semiconductor, Inc. Balances at December 31, 2004 245...

  • Page 96
    ...plant and equipment Sales (purchases) of short-term investments Net cash provided by (used for) investing activities FINANCING Repayment of commercial paper and short-term borrowings Net proceeds from issuance of debt Repayment of debt Repayment of TOPrS Issuance of common stock Net payments related...

  • Page 97
    ... related reduction to revenue, for allowances for discounts and price protection, product returns and incentive programs for distributors and end customers related to these sales based on actual historical exposure at the time the related revenues are recognized. For long-term contracts, the Company...

  • Page 98
    ... which includes discontinued operations. Years Ended December 31 Earnings (loss): Earnings (loss), as reported Add: Stock-based employee compensation expense included in reported earnings (loss), net of related tax eÃ...ects Deduct: Stock-based employee compensation expense determined under fair value...

  • Page 99
    ...by way of a pro rata non-cash dividend to Motorola stockholders, which reduced retained earnings by $2.5 billion. Holders of Motorola stock at the close of business on November 26, 2004 received a dividend of .110415 shares of Freescale Semiconductor Class B common stock per share of Motorola common...

  • Page 100
    ... TO CONSOLIDATED FINANCIAL STATEMENTS MOTOROLA INC. AND SUBSIDIARIES (Dollars in millions, except as noted) entitled to fractional shares of Freescale Semiconductor Class B common stock in the distribution received the cash value instead. The equity distribution was structured to be tax-free to...

  • Page 101
    ... following: Years Ended December 31 Other charges (income): Goodwill and intangible asset impairments Potentially uncollectible Ã'nance receivables Iridium settlements In-process research and development charges Insurance settlements Other 2004 2003 2002 $125 $ 73 $325 (44) ÃŒ 526 ÃŒ (100) (63...

  • Page 102
    ... basis for the year ended December 31, 2002, the assumed conversions of the zero coupon notes due 2009 and 2013, all stock options, restricted stock, warrants, and equity security units were excluded because their inclusion would have been antidilutive. Balance Sheet Information Accounts Receivable...

  • Page 103
    ... 31, 2004, the $460 million gain on sales of investments and businesses is primarily comprised of: (i) a $130 million gain on the sale of the Company's remaining shares in Broadcom Corporation, (ii) a $122 million gain on the sale of a portion of the Company's shares in Nextel Communications, Inc...

  • Page 104
    ... NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MOTOROLA INC. AND SUBSIDIARIES (Dollars in millions, except as noted) $65 million gain on the sale of the Company's shares in UAB Omnitel of Lithuania, and (iv) a $61 million gain on the sale of a portion of the Company's shares in Nextel Partners, Inc...

  • Page 105
    ... of the interest rate payments from Ã'xed-rate payments to short-term LIBOR-based variable rate payments. Additionally, in November 2004, pursuant to the terms of the MEUs, the Company sold 69.4 million shares of common stock to the holders of the MEUs. The purchase price per share was $17.30...

  • Page 106
    ...26, 2004, all then-outstanding 2009 LYONs and 2013 LYONs, not validly exchanged for stock, were redeemed for an aggregate redemption price of approximately $4 million. No 2009 LYONs or 2013 LYONs remain outstanding. In September 2003, the Company announced the conclusion of its oÃ...er to purchase its...

  • Page 107
    ... and over the life of the hedge contract. The Company's strategy in foreign exchange exposure issues is to oÃ...set the gains or losses of the Ã'nancial instruments against losses or gains on the underlying operational cash Ã-ows or investments based on the operating business units' assessment of risk...

  • Page 108
    100 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MOTOROLA INC. AND SUBSIDIARIES (Dollars in millions, except as noted) In order to manage the mix of Ã'xed and Ã-oating rates in its debt portfolio, the Company has entered into interest rate swaps to change the characteristics of interest rate ...

  • Page 109
    ... receive aggregate proceeds of approximately $333 million. The precise number of shares of Nextel common stock that the Company will deliver to satisfy the contracts is dependent upon the price of Nextel common stock on the various settlement dates. The maximum aggregate number of shares the Company...

  • Page 110
    ... exchange. The fair values of the other Ã'nancial instruments were not materially diÃ...erent from their carrying or contract values at December 31, 2004. 6. Income Taxes Components of earnings (loss) from continuing operations before income taxes are as follows: Years Ended December 31 United States...

  • Page 111
    ...million of previously-accrued income taxes related to the settlement of tax audits. During 2004, the Internal Revenue Service (IRS) completed its Ã'eld examination of the Company's 1996 through 2000 tax returns. In connection with this examination, the Company received notices of certain adjustments...

  • Page 112
    ... year of service. The beneÃ't formula is dependent upon employee earnings and years of service. EÃ...ective January 1, 2005, newly-hired employees will not be eligible to participate in the Regular Pension Plan. The Company has a noncontributory supplemental retirement beneÃ't plan (the OÇcers' Plan...

  • Page 113
    ... CONSOLIDATED FINANCIAL STATEMENTS 105 Non U.S. Plans Years Ended December 31 Service cost Interest cost Expected return on plan assets Amortization of: Unrecognized net loss Unrecognized prior service cost Settlement/curtailment loss Net periodic pension cost The status of the Company's plans is...

  • Page 114
    .... To achieve this, the pension plans retain professional investment managers that invest plan assets in equity and Ã'xed income securities and cash. In addition, some plans invest in insurance contracts. The Company has the following target mixes for these asset classes, which are readjusted at...

  • Page 115
    ... Investment return assumptions Net retiree health care expenses were as follows: Years Ended December 31 Service cost Interest cost Expected return on plan assets Amortization of: Unrecognized net loss Unrecognized prior service cost Settlement/curtailment gain Net retiree health care expense 2004...

  • Page 116
    ... spin-oÃ... of Freescale Semiconductor, post-retirement health care beneÃ't obligations relating to eligible former and active vested Freescale Semiconductor employees on December 2, 2004 (Spin-oÃ... Date) and active Freescale Semiconductor employees who vest within the three year period following the...

  • Page 117
    ... retiree health care expense $29 3 1% Point Decrease $(31) (3) The Company has no signiÃ'cant postretirement health care beneÃ't plans outside the United States. Stock Compensation Plans Employee Stock Purchase Plan The employee stock purchase plan allows eligible participants to purchase shares...

  • Page 118
    ... of Freescale Semiconductor to Motorola shareholders, certain adjustments were made to outstanding stock options. For vested and unvested options held by Motorola employees and vested options held by Freescale Semiconductor employees, the number of underlying shares and the exercise price of the...

  • Page 119
    ...NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 111 Total restricted stock and restricted stock units issued and outstanding at December 31, 2004 and 2003 were 6.0 million and 6.6 million, respectively. At December 31, 2004 and 2003, the amount of related deferred compensation reÃ-ected in Stockholders...

  • Page 120
    ..., the Turkish government has asserted control over Telsim and certain other interests of the Uzans and this may make the Company's collection eÃ...orts more diÇcult. The Company sells short-term receivables through the Motorola Receivables Corporation (""MRC'') shortterm receivables program, which...

  • Page 121
    ... accessory products. The Global Telecom Solutions segment (""GTSS'') designs, manufactures, sells, installs, and services wireless infrastructure communication systems, including hardware and software. GTSS provides end-to-end wireless networks, including radio base stations, base site controllers...

  • Page 122
    ... 2000, GSM, iDEN» and UMTS technologies. ‚ The Commercial, Government and Industrial Solutions segment (""CGISS'') designs, manufactures, sells, installs, and services analog and digital two-way radio, voice and data communications products and systems to a wide range of public-safety, government...

  • Page 123
    ... securities, property, plant and equipment, cost-based investments, deferred income taxes and the administrative headquarters of the Company. Geographic area information Net Sales* 2003 Assets** 2003 Property, Plant, and Equipment 2004 2003 2002 Years Ended December 31 United States China...

  • Page 124
    ... into an entirely independent company, Freescale Semiconductor. Businesses impacted by these plans include the Commercial, Government and Industrial Solutions segment, the Integrated Electronic Systems segment and the Broadband Communications segment, as well as various corporate functions.

  • Page 125
    ... 31, 2004: Year Ended December 31, 2004 $(27) (7) 6 10 (4) Ì (22) 15 $ (7) Segment Personal Communications Global Telecom Solutions Commercial, Government and Industrial Solutions Integrated Electronic Systems Broadband Communications Other Products General Corporate Reorganization of Businesses...

  • Page 126
    ... for the year ended December 31, 2003: Segment Personal Communications Global Telecom Solutions Commercial, Government and Industrial Solutions Integrated Electronic Systems Broadband Communications Other Products General Corporate Exit Costs $ 6 (3) (3) (1) 1 (3) (3) (6) $(9) Employee Separations...

  • Page 127
    ... for the year ended December 31, 2002: Segment Personal Communications Global Telecom Solutions Commercial, Government and Industrial Solutions Broadband Communications Integrated Electronic Systems Other Products General Corporate Exit Costs $ (5) 56 (16) 4 24 (8) 55 24 $ 79 Employee Separations...

  • Page 128
    ...products fail to become viable, the Company will unlikely be able to realize any value from the sale of incomplete technology to another party or through internal re-use. The risks of market acceptance for the products under development and potential reductions in projected sales volumes and related...

  • Page 129
    ...$ Ì 270 $270 MeshNetworks In November 2004, the Company acquired MeshNetworks, Inc. (""MeshNetworks''), a developer of mobile mesh networking and position location technologies that allow customers to deploy high-performance, Internet Protocol-based wireless broadband networks, for $169 million in...

  • Page 130
    ...TO CONSOLIDATED FINANCIAL STATEMENTS MOTOROLA INC. AND SUBSIDIARIES (Dollars in millions, except as noted) Force Computers In August 2004, the Company acquired Force Computers, (""Force''), a worldwide designer and supplier of open, standards-based and custom embedded computing solutions, for $121...

  • Page 131
    ... of goodwill from January 1, 2003 to December 31, 2004, by business segment: Segment Personal Communications Global Telecom Solutions Commercial, Government and Industrial Solutions Integrated Electronic Systems Broadband Communications Other Products January 1, 2004 Acquired $ 17 97 123 71 782 125...

  • Page 132
    ...TO CONSOLIDATED FINANCIAL STATEMENTS MOTOROLA INC. AND SUBSIDIARIES (Dollars in millions, except as noted) Segment Personal Communications Global Telecom Solutions Commercial, Government and Industrial Solutions Integrated Electronic Systems Broadband Communications Other Products January 1, 2003...

  • Page 133
    ...York Stock Exchange market prices and has not been adjusted to reÃ-ect the spin-oÃ... of Freescale Semiconductor, on December 2, 2004, in which holders of Motorola common stock at the close of business on November 26, 2004 received a dividend of .110415 shares of Freescale Semiconductor Class B common...

  • Page 134
    ... to be disclosed in our Securities and Exchange Commission (""SEC'') reports (i) is recorded, processed, summarized and reported within the time periods speciÃ'ed in SEC rules and forms, and (ii) is accumulated and communicated to Motorola's management, including our chief executive oÇcer and chief...

  • Page 135
    ... of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Motorola, Inc. and Subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of operations, stockholders' equity and cash Ã-ows for each of the years in the three...

  • Page 136
    ... Information The Compensation and Leadership Committee of the Motorola Board of Directors on February 28, 2005 approved amendments (""Amendments'') eÃ...ective June 30, 2005 to Motorola's Elected OÇcers Supplementary Retirement Plan (""EOSRP Plan'') for certain elected oÇcers. Since January 1, 2000...

  • Page 137
    ... accounting oÇcer). The Code is posted on Motorola's internet website, www.motorola.com/investor, and is available free of charge, upon request to Investor Relations, Motorola, Inc., Corporate OÇces, 1303 East Algonquin Road, Schaumburg, Illinois 60196, E-mail: [email protected], phone...

  • Page 138
    ... Motorola Management Deferred Compensation Plan Motorola, Inc. Senior OÇcer Change in Control Severance Plan Motorola, Inc. Retiree Basic Life Insurance for Elected OÇcers prior to January 1, 2004 who retire after January 1, 2005 Arrangement for directors' fees and retirement plan for non-employee...

  • Page 139
    ... eÃ...ectiveness of internal control over Ã'nancial reporting as of December 31, 2004 and the eÃ...ectiveness of internal control over Ã'nancial reporting as of December 31, 2004, which reports appear in the December 31, 2004 annual report on Form 10-K of Motorola, Inc. Chicago, Illinois March 4, 2005

  • Page 140
    .... By: /s/ EDWARD J. ZANDER Edward J. Zander Chairman of the Board and Chief Executive OÇcer March 4, 2005 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Motorola, Inc. and in the capacities and on the...

  • Page 141
    ...R. STENGEL James R. Stengel Director Title Date March 4, 2005 /s/ Director March 4, 2005 /s/ DOUGLAS A. WARNER III Douglas A. Warner III DR. JOHN A. WHITE Dr. John A. White MIKE S. ZAFIROVSKI Mike S. ZaÃ'rovski Director March 4, 2005 /s/ Director March 4, 2005 /s/ Director March 4, 2005

  • Page 142
    ... BNY Midwest Trust Company (as successor in interest to Harris Trust and Savings Bank) (incorporated by reference to Exhibit 4.2(b) to Motorola's Annual Report on Form 10-K for the Ã'scal year ended December 31, 2000 (File No. 1-7221)). Certain instruments deÃ'ning the rights of holders of long-term...

  • Page 143
    ... 10.5 to Motorola's Annual Report on Form 10-K for the Ã'scal year ended December 31, 2002 (File No. 1-7221)). Form of Motorola, Inc. Award DocumentÃŒTerms and Conditions Related to Non-Employee Director NonqualiÃ'ed Stock Options relating to the Motorola Omnibus Incentive Plan of 2002 (incorporated...

  • Page 144
    ...and the Motorola Compensation/Acquisition Plan of 2000 (incorporated by reference to Exhibit 10.34 to Motorola's Quarterly Report on Form 10-Q for the Ã'scal quarter ended July 3, 2004 (File No. 1-7221)). Form of Motorola, Inc. Restricted Stock Unit Award (Tax Deferred-Periodic Vesting), relating to...

  • Page 145
    ...Retiree Basic Life Insurance for Elected OÇcers prior to January 1, 2004 who retire after January 1, 2005. Arrangement for directors' fees and retirement plan for non-employee directors (description incorporated by reference from the information under the caption ""Director Compensation and Related...

  • Page 146
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  • Page 147
    ...: Investor Relations, Motorola, Inc. Corporate Offices 1303 East Algonquin Road Schaumburg, IL 60196 U.S.A. E-mail: [email protected] 800-262-8509 Common Stock Motorola common stock is listed on the New York, Chicago and Tokyo Stock Exchanges. Annual Meeting of Stockholders The annual meeting...

  • Page 148
    ... 1303฀E.฀Algonquin฀Road฀฀ Schaumburg,฀Illinois฀60196฀U.S.A.฀ 847-576-5000฀ www.motorola.com MOTOROLA฀and฀the฀Stylized฀M฀Logo฀are฀registered฀in฀the฀U.S.฀Patent฀and฀ Trademark฀Office.฀All฀other฀product฀or฀service฀names฀are฀the฀property...