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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q
 
         
(Mark One)    
  þ     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the period ended April 2, 2005
Or
 
  o     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
        For the transition period from           to
Commission file number: 1-7221
 
MOTOROLA, INC.
(Exact name of registrant as specified in its charter)
 
     
Delaware
(State of Incorporation)		   36-1115800
(I.R.S. Employer
Identification No.)
1303 E. Algonquin Road
Schaumburg, Illinois
(Address of principal executive offices)		   60196

(Zip Code)
Registrant’s telephone number, including area code:
(847) 576-5000
 
      Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes þ          No o
      Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).     Yes þ          No o
      The number of shares outstanding of each of the issuer’s classes of common stock as of the close of business on April 2, 2005:
     
Class   Number of Shares
     
Common Stock; $3 Par Value   2,452,226,214
 
 

Index
             
        Page
         
 Part I Financial Information
 
Item 1
   Financial Statements        
     Condensed Consolidated Statements of Operations (Unaudited) for the Three Months Ended April 2, 2005 and April 3, 2004     3  
     Condensed Consolidated Balance Sheets as of April 2, 2005 (Unaudited) and December 31, 2004     4  
     Condensed Consolidated Statement of Stockholders’ Equity (Unaudited) for the Three Months Ended April 2, 2005     5  
     Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended April 2, 2005 and April 3, 2004     6  
     Notes to Condensed Consolidated Financial Statements (Unaudited)     7  
   Management’s Discussion and Analysis of Financial Condition and Results of Operations     21  
   Quantitative and Qualitative Disclosures About Market Risk     39  
   Controls and Procedures     41  
     Business Risks     42  
 Part II Other Information
   Legal Proceedings     43  
   Unregistered Sales of Equity Securities and Use of Proceeds     47  
   Defaults Upon Senior Securities     47  
   Submission of Matters to Vote of Security Holders     48  
   Other Information     48  
   Exhibits     48  
 2005 Incentive Plan
 Form of Award Document
 Certification of Edward J. Zander Pursuant to Section 302
 Certification of David W. Devonshire Pursuant to Section 302
 Certification of Edward J. Zander Pursuant to Section 906
 Certification of David W. Devonshire Pursuant to Section 906

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Part I — Financial Information
Motorola, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
(In millions, except per share amounts)
                     
    Three Months Ended
     
    April 2,   April 3,
    2005   2004
         
Net sales
   $ 8,161     $ 7,441  
Costs of sales
     5,491       5,075  
             
   
Gross margin
     2,670       2,366  
             
Selling, general and administrative expenses
     1,001       970  
Research and development expenditures
     811       725  
Other charges (income)
     (7 )     (14 )
             
   
Operating earnings
     865       685  
             
Other income (expense):
                
   
Interest expense, net
     (8 )     (68 )
   
Gains on sales of investments and businesses, net
     239       138  
   
Other
     (9 )     (21 )
             
Total other income
     222       49  
             
Earnings from continuing operations before income taxes
     1,087       734  
Income tax expense
     395       268  
             
Earnings from continuing operations
     692       466  
Earnings from discontinued operations, net of tax
     —       143  
             
Net earnings
   $ 692     $ 609  
             
Earnings per common share
                
 
Basic:
                
   
Continuing operations
   $ 0.28     $ 0.20  
   
Discontinued operations
     —       0.06  
             
    $ 0.28     $ 0.26  
             
 
Diluted:
                
   
Continuing operations
   $ 0.28     $ 0.19  
   
Discontinued operations
     —       0.06  
             
    $ 0.28     $ 0.25  
             
Weighted average common shares outstanding
                
Basic
     2,447.1       2,337.2  
Diluted
     2,487.1       2,451.0  
Dividends per share
   $ 0.04     $ 0.04  
See accompanying notes to condensed consolidated financial statements.

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Motorola, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In millions, except per share amounts)
                   
    April 2,   December 31,
    2005   2004
         
    (Unaudited)    
ASSETS
Cash and cash equivalents
   $ 3,796     $ 2,846  
Sigma fund
     7,349       7,710  
Short-term investments
     155       152  
Accounts receivable, net
     4,666       4,525  
Inventories, net
     2,480       2,546  
Deferred income taxes
     1,383       1,541  
Other current assets
     1,857       1,795  
             
 
Total current assets
     21,686       21,115  
             
Property, plant and equipment, net
     2,292       2,332  
Investments
     2,754       3,241  
Deferred income taxes
     2,370       2,353  
Other assets
     1,881       1,881  
             
 
Total assets
   $ 30,983     $ 30,922  
             
LIABILITIES AND STOCKHOLDERS’ EQUITY
Notes payable and current portion of long-term debt
   $ 712     $ 717  
Accounts payable
     2,952       3,330  
Accrued liabilities
     6,640       6,559  
             
 
Total current liabilities
     10,304       10,606  
             
Long-term debt
     4,577       4,578  
Other liabilities
     2,324       2,407  
 
Stockholders’ Equity
                
Preferred stock, $100 par value
     —       —  
Common stock, $3 par value
     7,361       7,343  
 
Issued and outstanding shares: April, 2005 — 2,452.2; December, 2004 — 2,447.8
                
Additional paid-in capital
     4,363       4,321  
Retained earnings
     2,316       1,722  
Non-owner changes to equity
     (262 )     (55 )
             
 
Total stockholders’ equity
     13,778       13,331  
             
 
Total liabilities and stockholders’ equity
   $ 30,983     $ 30,922  
             
See accompanying notes to condensed consolidated financial statements.

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Motorola, Inc. and Subsidiaries
Condensed Consolidated Statement of Stockholders’ Equity
(Unaudited)
(In millions, except per share amounts)
                                                 
        Non-Owner Changes to Equity        
                 
        Fair Value            
    Common   Adjustment   Foreign            
    Stock and   to Available   Currency   Other        
    Additional   for Sale   Translation   Items,       Comprehensive
    Paid-In   Securities,   Adjustments,   Net of   Retained   Earnings
    Capital   Net of Tax   Net of Tax   Tax   Earnings   (Loss)
                         
Balances at December 31, 2004
   $ 11,664     $ 1,417     $ (139 )   $ (1,333 )   $ 1,722          
Net earnings
                                     692     $ 692  
Net unrealized losses on securities (net of tax of $147)
             (239 )                             (239 )
Foreign currency translation adjustments (net of tax of $0)
                     (42 )                     (42 )
Issuance of common stock and stock options exercised
     60                                          
Net gain on derivative instruments (net of tax of $42)
                             74               74  
Dividends declared ($.04 per share)
                                     (98 )        
                                     
Balances at April 2, 2005
   $ 11,724     $ 1,178     $ (181 )   $ (1,259 )   $ 2,316     $ 485  
                                     
See accompanying notes to condensed consolidated financial statements.

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Motorola, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In millions)
                     
    Three Months
    Ended
     
    April 2,   April 3,
    2005   2004
         
Operating
                
Earnings from continuing operations
   $ 692     $ 466  
Adjustments to reconcile earnings from continuing operations to net cash provided by operating activities:
                
 
Depreciation and amortization
     151       161  
 
Charges for reorganization of businesses and other
     1       20  
 
Gains on sales of investments and businesses, net
     (239 )     (138 )
 
Deferred income taxes
     254       162  
 
Changes in assets and liabilities, net of effects of acquisitions:
                
   
Accounts receivable
     (139 )     (440 )
   
Inventories
     65       138  
   
Other current assets
     (62 )     (92 )
   
Accounts payable and accrued liabilities
     (335 )     264  
   
Other assets and liabilities
     50       204  
             
 
Net cash provided by operating activities
     438       745  
             
Investing
                
Acquisitions and investments, net
     (65 )     (12 )
Proceeds from sales of investments and businesses
     382       247  
Capital expenditures
     (103 )     (101 )
Proceeds from sale of property, plant and equipment
     5       17  
Proceeds from sale of (purchases of) Sigma fund investments, net
     361       (149 )
Purchases of short-term investments
     (4 )     —  
             
 
Net cash provided by investing activities
     576       2  
             
Financing
                
Repayment of commercial paper and short-term borrowings
     (4 )     (14 )
Repayment of debt
     —       (5 )
Redemption of TOPrS
     —       (500 )
Issuance of common stock
     58       50  
Payment of dividends
     (98 )     (91 )
Distributions from discontinued operations
     —       120  
             
 
Net cash used for financing activities
     (44 )     (440 )
             
Effect of exchange rate changes on cash and cash equivalents
     (20 )     (20 )
             
Discontinued Operations
                
Net cash used by discontinued operations
     —       (37 )
             
Net increase in cash and cash equivalents
     950       250  
Cash and cash equivalents, beginning of period (includes $87 million at December 31, 2004 from discontinued operations)
     2,846       1,689  
             
Cash and cash equivalents, end of period (includes $50 million at April 3, 2004 from discontinued operations)
   $ 3,796     $ 1,939  
             
Cash paid during the period for:
                
Interest, net
   $ 1     $ 72  
Income taxes, net of refunds
     127       92  
See accompanying notes to condensed consolidated financial statements.

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Motorola, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Dollars in millions, except as noted
1. Basis of Presentation
      The condensed consolidated financial statements as of April 2, 2005 and for the three months ended April 2, 2005 and April 3, 2004, include, in the opinion of management, all adjustments (consisting of normal recurring adjustments and reclassifications) necessary to present fairly the financial position, results of operations and cash flows as of April 2, 2005 and for all periods presented.
      Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto incorporated by reference in the Company’s Form 10-K for the year ended December 31, 2004. The results of operations for the three months ended April 2, 2005 are not necessarily indicative of the operating results to be expected for the full year. Certain amounts in prior periods’ financial statements and related notes have been reclassified to conform to the 2005 presentation.
      The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
      On December 2, 2004, Motorola completed the spin-off of its remaining equity interest in Freescale Semiconductor, Inc. The historical results of Freescale Semiconductor, Inc. have been reflected as discontinued operations in the underlying financial statements and related disclosures for all periods presented. As a result, the historical footnote disclosures have been revised to exclude amounts related to Freescale Semiconductor, Inc.
      The following table displays summarized information for discontinued operations for the three months ended April 3, 2004:
         
    Three Months Ended
    April 3, 2004
     
Net sales (including sales to other Motorola businesses of $276 million)
   $ 1,120  
Operating earnings
     137  
Earnings before income taxes
     182  
Income tax expense
     39  
Earnings from discontinued operations, net of tax
     143  

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2. Other Financial Data
Statement of Operations Information
Other Charges (Income)
      Other Charges (Income) included in Operating Earnings consist of the following:
                   
    Three Months Ended
     
    April 2,   April 3,
    2005   2004
         
Other Charges (Income):
                
 
Reorganization of businesses
   $ (5 )   $ (12 )
 
Other
     (2 )     (2 )
             
    $ (7 )   $ (14 )
             
Other Income (Expense)
      The following table displays the amounts comprising Interest Expense, net, and Other included in Other Income (Expense) in the Company’s condensed consolidated statements of operations:
                   
    Three Months Ended
     
    April 2,   April 3,
    2005   2004
         
Interest Expense, net:
                
 
Interest expense
   $ (76 )   $ (103 )
 
Interest income
     68       35  
             
    $ (8 )   $ (68 )
             
Other:
                
 
Investment impairments
   $ (10 )   $ (7 )
 
TOPrS redemption costs
     —       (14 )
 
Other
     1       —  
             
    $ (9 )   $ (21 )
             

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Earnings Per Common Share
      The following table presents the computation of basic and diluted earnings per common share from both continuing operations and net earnings, which includes discontinued operations:
                                     
    Continuing Operations   Net Earnings
    Three Months Ended   Three Months Ended
         
    April 2,   April 3,   April 2,   April 3,
    2005   2004   2005   2004
                 
Basic earnings per common share: