avatar Motorola Solutions, Inc. Manufacturing
  • Location: Illinois 
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    reality 2001 Summary Annual Report

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    Motorola is a global leader in providing Contents Financial highlights 1 integrated communications solutions To our stockholders and other friends 2 At a glance 7 and embedded electronic solutions. Our Reality 8 Consolidated financial statements 27 Intelligence Everywhere solutions include: TM Board of Directors of Motorola, Inc. 32 Stockholder reference information Inside Back Cover • Software-enhanced wireless telephone and messaging, two-way radio products and systems, as well as networking and Internet- access products, for consumers, network operators, and commercial, government and industrial customers. • End-to-end systems for the delivery of interactive digital video, voice and high-speed data solutions for broadband operators. • Embedded semiconductor solutions for customers in wireless communications, networking and transportation markets. • Integrated electronic systems for automotive, Telematics, industrial, telecommunications, com- puting and portable energy systems markets.

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    Dollars in millions, except as noted Years ended December 31, 2001 2000 Financial highlights Net sales $30,004 $37,580 Earnings (loss) before income taxes (5,511) 2,231 % to sales (18.4) % 5.9% Net earnings (loss) (3,937) 1,318 % to sales (13.1) % 3.5% Diluted earnings (loss) per common share (in dollars) (1.78) 0.58 Research and development expenditures 4,318 4,437 Capital expenditures 1,321 4,131 Working capital 7,451 3,628 Current ratio 1.77 1.22 Return on average invested capital (18.0) % 6.3% Return on average stockholders’ equity (24.8) % 6.6% % of net debt to net debt plus equity 18.4 % 27.4% Book value per common share (in dollars) $««««6.07 $««««8.49 Year-end employment (in thousands) 111 147 In billions In millions In dollars In percentages Net sales Earnings Diluted earnings Return (loss) before (loss) per share on average income taxes invested capital 40 2500 .75 9 30 0 0 0 20 -2500 -.75 -9 10 -5000 -1.5 -18 0 -7500 -2.25 -27 97 98 99 00 01 97 98 99 00 01 97 98 99 00 01 97 98 99 00 01 MOTOROLA, INC. AND SUBSIDIARIES 1

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    To our stockholders and other friends Our company is emerging from a year of tremendous struggle and rebuilding, a year of unacceptable performance for our stockholders, a year different and more difficult than any other in our history. Like others, we inopportunely chased the dot-com and telecom boom in 2000 and built up manufacturing capacity and a global cost structure for a $45 billion revenue company going into 2001, having achieved $37.6 billion in revenue in 2000. Then came the reality of 2001. A telecom equipment downturn affecting both wire-line and wireless. The worst semiconductor decline in history. Dot-com busts. A U.S. recession. Appalling terrorist acts. Delays in the deployment of next-generation (3G) wireless technology. A large customer default. Sales of only $30 billion. Major and painful corporation-wide resizing. Regrettable financial charges. Sales decreased to $30.0 billion compared with $37.6 billion in 2000. We We are determined to become a great incurred a net loss of $3.9 billion compared with net earnings of $1.3 billion the stock again. Our 5-point plan to rebuild prior year. The loss per share was $1.78 versus earnings of $.58 per share in 2000. Included in the loss of 2001 were special items resulting in a net charge of value for our investors includes an $3.3 billion after-tax, which represented approximately 80% of the total loss for emphasis on a strengthened manage- the year. A portion of these charges were related to cost-reduction actions taken in 2001 as business activity weakened. These actions have been designed to ment team; a stabilized balance sheet adjust our costs to global market conditions and, as the market recovers, to restore and improved financial flexibility; a trend of improving profitability. In fact, the balance sheet at the close of 2001 cost and capacity reduction; growth was stronger than at the close of the previous year. Full financial data can be found in the proxy statement. driven by innovation; and continuous We have been moving aggressively to reverse the impact of 2001 and return reevaluation of our strategies to to profitability. Our goal is to be a great stock again. We intend to achieve superior ensure alignment with the direction and consistent operating performance through market share gains based on frequent new product cycles and new market opportunities. The business strategies we are of a dynamic high-tech environment. following are robust and will, we believe, lead us to profitability. We instituted a 5-point plan to build shareholder value, and we’re delivering on that plan: 1. An experienced management team complemented by new talent. We have instituted a world-class leadership supply system to ensure the right managers in the right jobs at the right time. 2. Stabilized balance sheet and financial flexibility. We generated positive operational cash flow of more than $1.9 billion, Christopher B. Galvin reduced net debt by $4 billion and improved working capital. Chairman of the Board and Chief Executive Officer 3. Reduced costs/manufacturing capacity. (right) We announced a significant workforce reduction, and a reduction in the Edward D. Breen President and number of manufacturing plants. We began 2001 with 147,000 employees Chief Operating Officer and employed 111,000 at year-end. (left) MOTOROLA, INC. 3

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    4. Growth through innovative products, software applications, customer relationships. In 2001, we took tough but necessary We’re providing our customers with the solutions they demand: a portfolio of steps throughout the corporation to 24 exciting new wireless telephone products; driver information systems, such as the OnStar® system; new digital cable set-top products; next-generation wireless improve our cost structure, institute technology; silicon-to-software solutions. new efficiencies and enhance our bal- 5. Continuous reevaluation of our strategy as the high-tech environment changes. Examples of this include the divestiture of businesses no longer key to our strategies; ance sheet. Meanwhile, PCS improved acquisitions of companies that strengthen our strategic position; and the decision both its market share and profitability; to license our technologies more aggressively to other companies to generate GTSS continued its drive to achieve oper- royalty income. ational excellence and develop more The changes we are making now are fundamentally different than the changes we made in the past. We’ve taken the tough, necessary steps to improve value-added services for customers; and our cost structures, institute new efficiencies across the corporation, focus on BCS bolstered its leadership position generating profit and positive cash flow, maintain a low break even point and through acquisition. enhance our balance sheet. 2001 was the first year in the history of the cellular industry in which handset sales declined. Despite this, our Personal Communications Sector (PCS) retained the number-two worldwide market share, improved that market share from 15% at the end of 2000 to 17% at the end of 2001 and returned to profitability in the fourth quarter of 2001. We are the number-one handset provider in the rapidly grow- ing China market. PCS expects further improvement in performance by driving: • The implementation of our platform design strategy; • Aggressive reductions in our product portfolio and parts complexity; • Increased margins for new products; and • Markedly improved relationships with operators. In 2001, the wireless infrastructure industry also experienced its first year ever of decline, dropping 23%. The focus of our Global Telecom Solutions Sector (GTSS) is back to basics. As part of the drive toward operational excellence, the sector will increasingly focus on providing margin-enhancing, value-added software and services to its large installed base of customers. GTSS has won contracts and is deploying next-generation wireless technology, such as GPRS, CDMA 1X and UMTS. While the cable equipment industry saw a softening of demand in 2001, the Broadband Communications Sector (BCS) retained a strong market share and technology position. We believe the cable equipment market will resume growth during the second half of 2002 due to significant opportunities outside of North America. The European market in particular presents significant opportunity over the next few years. 4 MOTOROLA, INC.

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    BCS has made strategic acquisitions to strengthen its leadership role in the cable equipment industry and to support its growth strategy of building its Internet Protocol (IP) business to deploy the “triple play” of video, voice and data services on a worldwide basis. Our Commercial, Government and Industrial Solutions Sector (CGISS) continued to maintain strong market share and technology leadership in the two-way radio market. Motorola became the first company to deliver IP technology on a digital trunking system that complies with the Project 25 U.S. public safety standard for digital radio communications. We also began shipping new-generation portable and mobile radios compatible with Project 25 and TETRA, the European standard for digital radio communications. CGISS divested non-strategic elements of its business and intensified its focus on growth opportunities in integrated communications and information solutions. As government-funded programs for Homeland Security become solidified, Motorola is very well positioned to participate. In our Semiconductor Products Sector (SPS), we have implemented a new busi- As CGISS focuses its growth strategy ness model intended to improve substantially its long-term financial performance. on integrated communications, as We are sharpening the focus of the sector on the wireless communications, network- ing and transportation markets, which we believe have a tremendous future. This SPS implements its new “Asset Light” business model, which we refer to as “Asset Light,” consists of three major elements: business model, as IESS works to 1. An increased focus on proprietary, higher-value products providing silicon- build upon its leadership in Telematics, to-software solutions; Motorola is, across the entire organ- 2. A new more efficient approach in manufacturing to reduce fixed asset expenditures. We have already announced and begun to implement factory ization, intensely focused on what’s closures and consolidations. most pressing and relevant right now: 3. A much more aggressive approach to licensing intellectual property. Included in this initiative are patent cross-licenses, process technology licenses and agree- becoming as successful financially ments with partners to commercialize manufacturing invention and know-how as it is technologically. that we have created. In the highly competitive automotive market, our Integrated Electronic Systems Sector (IESS) enjoys a strong market share in driver information systems, known as Telematics, that make cars smarter and safer. The Energy Systems Group within IESS provides energy system solutions for a wide variety of portable products. What’s relevant? The summary annual report that follows shows examples of how – in reality – right now – our businesses are doing some spectacular things with our customers that give us a glimpse of the opportunity we have for profitable growth in exciting arenas. MOTOROLA, INC. 5

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    As we progress through 2002, a new reality continues to evolve. The role of sophisticated, flexible and reliable communications has never been more important. What’s relevant to society? Simplicity. Safety. Security. Innovation. Leadership. Quality. The ability to protect. The ability to respond. Motorola Intelligence Everywhere TM solutions are making things smarter and life better all over the world. Over the course of our history, Motorola has enjoyed wave after wave of growth in the marketplace, moving from a privately owned startup to a globally acknowledged industry leader. We have helped to define the way the world com- municates. And now, we intend to become as financially successful as we are technologically successful. We are setting ambitious goals to ensure that Motorola is well positioned to take advantage of the resumption of strength in our marketplaces. We are confi- dent that the invigorating actions we are now taking will reward our stockholders. We think you’re going to like the leaner, more responsive company we’ve become. Robert L. Growney Vice Chairman Leadership transition In closing, we would like to take special note of the transition of Bob Growney on December 31, 2001 from his position as president and chief operating officer to vice chairman of the Board of Directors and his pending retirement from Motorola effective March 31, 2002. It has been a special privilege for this senior leadership team to work with Bob. We all have benefited greatly from his wisdom and counsel. We thank him for the thoughtful and significant contributions he has made during his 35-year Motorola career and look forward to building on his long record of achievement as we enter the next stage of our company’s development. Our business strategies and new course of action are designed to enhance the shareholder value of this great company. We enter 2002 leaner, more agile, and more fiscally sound. We respect the monumental challenges we face. With renewed commitment, we are a leadership team that is fiercely dedicated to the ideas, energy, innovation and stamina it will take to move Motorola forward. From the extraordinary challenges of 2001, we rebuild and renew. Christopher B. Galvin Edward D. Breen Chairman of the Board and President and Chief Executive Officer Chief Operating Officer 6 MOTOROLA, INC.

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    At a glance Broadband Communications Sector Integrated Electronic Systems Sector David E. Robinson Thomas J. Lynch Executive Vice President, President, Executive Vice President, President, Broadband Communications Sector Integrated Electronic Systems Sector As the world’s leading supplier of digi- The Integrated Electronic Systems tal cable set-tops and cable modems, Sector (IESS) provides a broad range Motorola’s Broadband Communications of embedded systems and products for Sector (BCS) provides end-to-end the automotive, industrial, Telematics, systems for the delivery of interactive telecommunications and portable digital video, voice and high-speed energy systems markets. data solutions for broadband operators. Personal Communications Sector Commercial, Government and Mike S. Zafirovski Industrial Solutions Sector Executive Vice President, President, Personal Communications Sector Robert L. Barnett Executive Vice President, President, The Personal Communications Sector Commercial, Government and Industrial Solutions Sector (PCS) designs, manufactures, sells In percentages In percentages and services wireless subscriber and 2001 2001 The Commercial, Government and server equipment including: wireless net sales market sales Industrial Solutions Sector (CGISS) is by business by region handheld devices for cellular and iDEN® segment a trusted integrator of communication integrated digital-enhanced networks, and information solutions for work advanced messaging devices, personal teams in business and government two-way radios and a broad range of enterprises. Our solutions enhance mobile data services, servers and soft- and transform operations by delivering ware solutions, with related software rapid, mobile intelligence to meet and accessory products. mission-critical needs. Semiconductor Products Sector Personal United States 44% Communications Global Telecom Solutions Sector Fred Shlapak Segment 33% Europe 14% China 13% Adrian Nemcek Executive Vice President, President, Global Telecom Solutions Segment 20% Latin America 9% Senior Vice President, President, Semiconductor Products Sector Semiconductor Asia-Pacific 8% Global Telecom Solutions Sector Products Segment 15% Other Markets 7% As the world’s number-one producer Commercial, Japan 5% The Global Telecom Solutions Sector Government and of embedded processors, Motorola’s Industrial Systems (GTSS) delivers the infrastructure, Segment 14% Semiconductor Products Sector (SPS) Broadband network services and software that creates DigitalDNA system-on-chip TM Communications Segment 9% meet the needs of operators worldwide solutions for a connected world. Its Integrated Electronic today, while providing a migration path Systems Segment 7% strong focus on wireless communica- Other Products to next-generation networks that will tions and networking enables customers Segment 2% enable them to offer innovative, revenue- to develop smarter, simpler, faster and generating applications and services synchronized products for the person, to their customers. work team, home and automobile. MOTOROLA, INC. 7

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    “We need simplicity. We have no time for “I want the coolest-looking phone.” ”I want to feel safe.“ “I need to check my e-mail.” “We want a vendor/ “I want to know my exact location when I’m driving.” 8 MOTOROLA, INC. what’s Motorola’s solving real problems for customers, helping

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    “I want it affordable.” complexity.” “We need to be ahead of the curve. Always.” “I need to find my husband.” “We need to compete more effectively.” partner that supplies solutions, not just products.” “We want what we want. And we want it yesterday.” relevant? them make things people want and need, day after day. 9 MOTOROLA, INC.

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    What’s relevant to mobile phone retailers and service providers in China? Product and feature range that give their customers choice. Quality. And support. Top distributors and operators are making the freedom and convenience of personal communications a reality across China, and Motorola is there, helping them succeed. 10 MOTOROLA, INC.

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    The freedom of personal communications means the same thing in China that it does all over the world: the ability to stay in touch, conveniently and reliably, while on the go. The unique and exciting new V70 mobile phone is a popular part of Motorola’s product offering in China – just one of a new generation of Motorola phones that is helping gain market share worldwide. Our unrivaled product range, powerful brand and experience in integrating complex infrastructure are keys to putting more Motorola phones in people’s hands. In China, distributors/retailers sell handsets in owned and independent retail outlets; China’s two distinct market opportu- operators primarily provide cellular service. It’s simple, and separate – retailers sell nities – the coastal regions, more product; operators sell dial tone. Motorola is committed to helping both groups win. penetrated and mature, and the interior, with emerging infrastructure and For distributors/retailers, giving consumers a choice is critical. Our product range is demand – align well with Motorola’s the best in the market, provided with dedicated merchandising and advertising support strengths. The ability to offer value- that enables maximum leverage of Motorola’s global brand to drive sales. Quality added features such as messaging, is key as well. Motorola delivers it, with dependable performance and responsive calendars and downloadable content service after the sale. Motorola is the market share leader in handsets in China. is becoming crucial to distributors and operators. In addition, consumers Motorola provides infrastructure equipment and technology for operators. In simply demand dependable perform- China, we are number one in CDMA systems and number two in GSM base sta- 1 ance at the best cost. Motorola has tions. Our sales and orders in China for infrastructure equipment in 2001 increased the technology and product portfolio versus those in 2000, during a period of weak industry demand globally. to serve both types of need in China – In the wireless infrastructure arena, we bring years of experience in integrating and all over the world. complex technologies for operators. We combine our own technologies with those of the finest third-party suppliers to provide fully operational commercial systems that deliver value to our customers. 1 based on publicly announced awards MOTOROLA, INC. 13

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    What’s relevant to Canada’s Shaw Communications and other major cable operators? Broadband that’s speedier, simpler and more synchronized than ever, making it possible to build strong sub- scriber relationships with services and features that consumers will buy, use and keep using. Motorola delivers the technology behind it all. 14 MOTOROLA, INC.

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    television through your current Shaw connection,

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    In the broadband home, subscribers can access a new world of entertainment and information from the comfort of their couch. Motorola’s new DCT2500 digital set-top terminals enable opera- tors to offer more interactive services, faster performance and increased functionality – for improved graphics, “watch and surf” capabilities and more. Motorola technology and support are helping Shaw Communications make the vision of the broadband home a reality. Shaw Communications Inc. is Canada’s top broadband operator, providing a The convergence of video, data and wide range of digital communications and entertainment services to approximately voice – and the bundling of the three 2.8 million subscribers across the country. Shaw uses a growing retail presence to into one integrated, economical broad- band package – represents tremendous successfully market a competitive array of digital broadband packages and services potential worldwide. No one has the that connect subscribers to a whole new world of entertainment through their TV array of capabilities like Motorola to or home computer with “always on” high-speed Internet connections. help realize that potential. As broad- Our relationship with Shaw represents decades of helping them offer product band telephony emerges globally, menus that attract and, more important, retain subscribers. Motorola is far and away our voice-over-Internet-Protocol (VoIP) technology will provide the interface the leader in digital broadband technology, providing a complete line of set-top for Shaw and cable operators like them terminals, cable modems and related products, including multimedia terminal adap- to connect devices to the home cable tors that serve as the gateway that enables bundling of services to subscribers. platform for a new world of possibility. Motorola‘s broad array of products, systems and solutions help build strong relationships with subscribers that can be expanded to include new services. As Shaw’s customers’ needs change, as the marketplace evolves, Motorola has the technology to help them remain at the forefront. MOTOROLA, INC. 17

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    What’s relevant to General Motors? Innovation. And leadership. Great cars and trucks with features people want, at competitive prices, have always been essential to success. Advanced electronics are increasingly integral, both in the vehicles and the plants that make them. A key “partner” with GM to develop those electronics? Motorola. 18 MOTOROLA, INC.

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    GM is enhancing vehicle appeal and building market leadership by offering the technology- driven features most relevant to buyers today. Motorola embedded silicon solutions are omnipresent in today’s vehicles. From sophisti- cated pressure sensors for engine and fuel system control to stability control electronics, from auto-body modules for lighting, heating and other func- tions to Telematics, Motorola is helping redefine automobile capability and performance. From semiconductors and embedded solutions to wireless communications, Motorola brings all its capabilities together to meet GM’s vehicle electronics and enterprise needs. For the largest automotive manufacturer in the world, reality is an environment of The business opportunity for Motorola: unrelenting challenge and competition. GM’s drive is to lead through innovation, and Telematics rapidly is becoming preva- its longstanding relationship with Motorola enables it to tap our advanced technical lent, all over the world. Forecasters are projecting 10 million subscribers within expertise and 74 years of automotive experience to help it succeed. the next few years, and Motorola is Technology – useful technology that buyers value – helps sell cars and trucks. We the leading provider of Telematics tech- have brought all of Motorola together to develop and deliver it: semiconductors and nology. But perhaps more significant is electronics for control modules in the powertrain and chassis; computer boards for what the total Motorola/GM relationship factory automation; even wireless communication solutions to help manage a safe, demonstrates. A broad-based approach brings all our capabilities together for secure and smooth manufacturing process. solutions that others simply can‘t provide, Our unique ability to deliver deeply integrated technology reduces size, weight representing real value to GM and and cost of components, which translates to competitive advantage and enables customers like them. GM to build innovation into more vehicles. Case in point: OnStar ®, the industry’s leading Telematics platform. Motorola has worked with GM since day one to apply GPS and cellular technology for a feature-rich offering – hands-free telephony, navi- gation, Internet access – that brings more than two million owners of GM vehicles much-valued peace of mind in today’s emerging new reality. MOTOROLA, INC. 21

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    What’s relevant to society? A new reality. Safety. Security. The ability to protect. The ability to respond. In these times, the role of sophisticated, flexible and reliable communications has never been more important. Motorola is the undisputed leader and a committed partner dedicated to delivering it. 22 MOTOROLA, INC.

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    The safety of loved ones is a basic human value, every- where in the world. Motorola is dedicated to helping those whose life’s work is to pre- serve and protect. Advanced Motorola command- and-control technology for 911 systems and, increasingly, for non-emergency 311 systems is taking responsiveness, efficiency and effectiveness to new levels. Motorola’s sophisticated two-way radio communication solutions help preserve something that’s never been more important: peace of mind. The world has changed. A new reality has emerged, a “new normal” in which safety Need has met capability. It’s estimated and security can no longer be taken for granted. This is a tremendous challenge the United States government will not just for local, county, state and national governments, but also for businesses, spend $1.5 trillion on Homeland Security over the next five years; states are busy institutions, airports – virtually every entity in society today. deploying new communication systems In the “new normal,” traditional notification-and-response functionality, geared to enhance readiness and performance. to short-duration events, is no longer sufficient. Today, detection and prevention And the need is global. All over the are equally if not more important, and long-duration events are a frightening new world, resources are being reallocated possibility. The need for interoperability and information-sharing across many users to bolster security. Motorola has the experience and technology, and we’re has increased exponentially. Data transmission – for fingerprints, criminal and other meeting the need now. records, even facial recognition – will be a critical tool going forward. Motorola has answered the call. With a dedication to understanding and meeting the unique, extremely complex needs of our customers, with technology and talent that could not be more relevant to the challenge at hand, we are hard at work help- ing our customers respond – bringing new capabilities like integrated voice, data and video together with the security and reliability that have made Motorola the overwhelming choice for more than 60 years. MOTOROLA, INC. 25

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    Management’s responsibility for financial statements Management is responsible for the preparation, integrity and objectivity of the consolidated financial statements and other financial information presented in this report. The accompanying consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America, applying certain estimates and judgments as required. Motorola’s internal controls are designed to provide reasonable assurance as to the integrity and reliability of the financial statements and to adequately safeguard, verify and maintain accountability of assets. Such controls are based on established written policies and procedures, are implemented by trained, skilled personnel with an appropriate segregation of duties and are monitored through a comprehensive internal audit program. These policies and procedures prescribe that the Company and all its employees are to maintain the highest ethical standards and that its business practices throughout the world are to be conducted in a manner which is above reproach. KPMG LLP, independent auditors, are retained to audit Motorola’s financial statements. Their accompanying report is based on audits conducted in accordance with auditing standards generally accepted in the United States of America, which include the consideration of the Company’s internal controls to establish a basis for reliance thereon in determining the nature, timing and extent of audit tests to be applied. The Board of Directors exercises its responsibility for these financial statements through its Audit and Legal Committee, which consists entirely of independent non-management Board members. The Audit and Legal Committee meets periodically with the independent auditors and with the Company’s internal auditors, both privately and with management present, to review accounting, auditing, internal controls and financial reporting matters. Christopher B. Galvin Carl F. Koenemann Chairman of the Board and Chief Executive Officer Executive Vice President and Chief Financial Officer Independent auditors’ report The Board of Directors and stockholders of Motorola, Inc.: We have audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheets of Motorola, Inc. and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2001, appearing in the appendix to the proxy statement for the 2002 Annual Meeting of Stockholders of Motorola, Inc. (not presented herein); and in our report dated January 18, 2002, also appearing in that proxy statement appendix, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated financial statements is fairly stated, in all material respects, in relation to the consolidated financial statements from which it has been derived. KPMG LLP Chicago, Illinois January 18, 2002 26 MOTOROLA, INC. AND SUBSIDIARIES

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    In millions, except per share amounts Years ended December 31, 2001 2000 1999 Consolidated statements of operations Net sales $30,004 $37,580 $33,075 Costs and expenses Manufacturing and other costs of sales 21,445 23,628 20,631 Selling, general and administrative expenses 3,703 5,141 5,220 Research and development expenditures 4,318 4,437 3,560 Depreciation expense 2,357 2,352 2,243 Reorganization of businesses 1,858 596 (226) Other charges 3,328 517 1,406 Interest expense, net 437 248 138 Gains on sales of investments and businesses (1,931) (1,570) (1,180) Total costs and expenses 35,515 35,349 31,792 Earnings (loss) before income taxes (5,511) 2,231 1,283 Income tax provision (1,574) 913 392 Net earnings (loss) $«(3,937) $÷1,318 $÷«÷891 Basic earnings (loss) per common share $÷«(1.78) $÷««0.61 $÷««0.42 Diluted earnings (loss) per common share $«««(1.78) $«÷«0.58 $«÷«0.41 Basic weighted average common shares outstanding 2,213.3 2,170.1 2,119.5 Diluted weighted average common shares outstanding 2,213.3 2,256.6 2,202.0 MOTOROLA, INC. AND SUBSIDIARIES 27

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    In millions, except per share amounts December 31, 2001 2000 Consolidated balance sheets Assets Current assets Cash and cash equivalents $÷6,082 $÷3,301 Short-term investments 80 354 Accounts receivable, net 4,583 7,092 Inventories, net 2,756 5,242 Deferred income taxes 2,633 2,294 Other current assets 1,015 1,602 Total current assets 17,149 19,885 Property, plant and equipment, net 8,913 11,157 Investments 2,995 5,926 Long-term deferred income taxes 1,152 – Other assets 3,189 5,375 Total assets $33,398 $42,343 Liabilities and stockholders’ equity Current liabilities Notes payable and current portion of long-term debt $«««««870 $÷6,391 Accounts payable 2,434 3,492 Accrued liabilities 6,394 6,374 Total current liabilities 9,698 16,257 Long-term debt 8,372 4,293 Long-term deferred income taxes – 1,504 Other liabilities 1,152 1,192 Company-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely company-guaranteed debentures 485 485 Stockholders’ equity Preferred stock, $100 par value issuable in series Authorized shares: 0.5 (none issued) – – Common stock, $3 par value Authorized shares: 2001 and 2000, 4,200 Issued and outstanding: 2001, 2,254.0; 2000, 2,191.2 6,764 6,574 Additional paid-in capital 1,707 1,188 Retained earnings 5,434 9,727 Non-owner changes to equity (214) 1,123 Total stockholders’ equity 13,691 18,612 Total liabilities and stockholders’ equity $33,398 $42,343 28 MOTOROLA, INC. AND SUBSIDIARIES

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    In millions Years ended December 31, 2001 2000 1999 Consolidated statements of cash flows Operating Net earnings (loss) $(3,937) $«1,318 $«÷«891 Adjustments to reconcile net earnings (loss) to net cash provided by (used for) operating activities: Depreciation and amortization 2,552 2,527 2,371 Charges for reorganization of businesses and other charges 5,998 1,483 1,893 Acquired in-process research and development charges 40 332 67 Gains on sales of investments and businesses (1,931) (1,570) (1,180) Deferred income taxes (2,273) 239 (443) Change in assets and liabilities, net of effects of acquisitions and dispositions: Accounts receivable 2,445 (1,471) (135) Inventories 1,838 (2,305) (678) Other current assets 249 (532) (16) Accounts payable and accrued liabilities (3,030) (666) 361 Other assets and liabilities 25 (519) (991) Net cash provided by (used for) operating activities 1,976 (1,164) 2,140 Investing Acquisitions and investments, net (512) (1,912) (632) Proceeds from dispositions of investments and businesses 4,063 1,433 2,556 Capital expenditures (1,321) (4,131) (2,856) Proceeds from dispositions of property, plant and equipment 14 174 468 Sales (purchases) of short-term investments 233 345 (496) Net cash provided by (used for) investing activities 2,477 (4,091) (960) Financing Net proceeds from (repayment of) commercial paper and short-term borrowings (5,688) 3,884 (403) Net proceeds from issuance of debt 4,167 1,190 501 Repayment of debt (305) (5) (47)) Issuance of preferred securities of subsidiary trust – – 484 Issuance of common stock 362 383 544 Payment of dividends (356) (333) (291) Net cash provided by (used for) financing activities (1,820) 5,119 788 Effect of exchange rate changes on cash and cash equivalents 148 (100) (33) Net increase (decrease) in cash and cash equivalents $«2,781 $÷«(236) $«1,935 Cash and cash equivalents, beginning of year $«3,301 $«3,537 $«1,602 Cash and cash equivalents, end of year $«6,082 $«3,301 $«3,537 Cash flow information Cash paid during the year for: Interest $««««844 $÷««529 $÷««323 Income taxes $««««676 $÷««130 $÷««301 MOTOROLA, INC. AND SUBSIDIARIES 29

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    Dollars in millions Years ended December 31 2001 2000 1999 Segment information Net sales Personal Communications Segment $10,448 $13,267 $11,932 Global Telecom Solutions Segment 6,548 7,791 6,544 Commercial, Government and Industrial Systems Segment ÷4,318 4,580 4,068 Broadband Communications Segment 2,855 3,416 2,532 Semiconductor Products Segment 4,936 7,876 7,370 Integrated Electronic Systems Segment 2,239 2,869 2,592 Other Products Segment ÷755 1,057 804 Adjustments and eliminations (2,095) (3,276) (2,767) Segment totals $30,004 $37,580 $33,075 Earnings (loss) before income taxes Personal Communications Segment $«(1,797) (17.2) % $««÷(328) (2.5) % $÷«««608 5.1 % Global Telecom Solutions Segment (1,413) (21.6) % 846 10.9 % (479) (7.3) % Commercial, Government and Industrial Systems Segment ÷508 11.8 % 434 9.5 % 609 15.0 % Broadband Communications Segment (436) (15.3) % 1,251 36.6 % 294 11.6 % Semiconductor Products Segment (2,142) (43.4) % 163 2.1 % 619 8.4 % Integrated Electronic Systems Segment ÷(211) (9.4) % 184 6.4 % 192 7.4 % Other Products Segment ÷551 73.0 % (338) (32.0) % (632) (78.6) % Adjustments and eliminations 236 11.3 % (66) 2.0 % (4) 0.1 % Segment totals (4,704) (15.7) % ÷2,146 5.7 % 1,207 3.6 % General corporate (807) 85 76 Earnings (loss) before income taxes $«(5,511) (18.4) % $««2,231 5.9 % $««1,283 3.9 % 30 MOTOROLA, INC. AND SUBSIDIARIES

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    Dollars in millions, except as noted Years ended December 31 2001 2000 1999 1998 1997 Five-year financial summary Operating results Net sales $30,004 $37,580 $33,075 $31,340 $31,498 Manufacturing and other costs of sales ÷21,445 ÷23,628 20,631 19,396 18,532 Selling, general and administrative expenses ÷3,703 ÷5,141 5,220 5,807 5,443 Research and development expenditures 4,318 ÷4,437 3,560 3,118 2,930 Depreciation expense ÷2,357 ÷2,352 2,243 2,255 2,394 Reorganization of businesses ÷1,858 ÷596 (226) 1,980 327 Other charges ÷3,328 ÷517 1,406 109 – Interest expense, net ÷437 ÷248 138 215 136 Gains on sales of investments and businesses ÷(1,931) ÷(1,570) (1,180)) (260) (70) Total costs and expenses ÷35,515 ÷35,349 31,792 32,620 29,692 Earnings (loss) before income taxes ÷(5,511) ÷2,231 1,283 (1,280) 1,806 Income tax provision ÷(1,574) ÷913 392 (373) 642 Net earnings (loss) $«(3,937) $««1,318 $«««÷891 $««««(907) $««1,164 Net earnings (loss) as a percent of sales ÷(13.1) % ÷3.5% 2.7% (2.9) % 3.7% Per share data (in dollars) Diluted earnings (loss) per common share $«««(1.78) $««««0.58 $««««0.41 $«««(0.44) $««««0.56 Diluted weighted average common shares outstanding (in millions) ÷2,213.3 ÷2,256.6 2,202.0 2,071.1 2,091.2 Dividends declared 1 $÷««0.16 $««÷0.16 $««÷0.16 $««÷0.16 $««÷0.16 Balance sheet Total assets $33,398 $42,343 $40,489 $30,951 $28,954 Working capital ÷7,451 ÷3,628 4,679 2,532 4,597 Long-term debt and redeemable preferred securities ÷8,857 ÷4,778 3,573 2,633 2,144 Total debt and redeemable preferred securities ÷9,727 ÷11,169 6,077 5,542 3,426 Total stockholders’ equity $13,691 $18,612 $18,693 $13,913 $14,487 Other data Current ratio ÷1.77 ÷1.22 1.36 1.21 1.49 Return on average invested capital (18.0) % 6.3% 5.3% (5.4) % 7.7% Return on average stockholders’ equity (24.8) ÷% 6.6% 5.7% (6.5) % 8.5% Capital expenditures $««1,321 $««4,131 $««2,856 $««3,313 $««2,954 % to sales ÷4.4 % 11.0% 8.6% 10.6 % 9.4% Research and development expenditures $««4,318 $««4,437 $««3,560 $««3,118 $««2,930 % to sales ÷14.4 % ÷11.8% ÷10.8% 9.9 % 9.3% Year-end employment (in thousands) ÷111 ÷147 128 141 158 1 Dividends declared from 1997 to 1999 were on Motorola shares outstanding prior to the General Instrument merger. MOTOROLA, INC. AND SUBSIDIARIES 31

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    Directors standing for election to the Motorola, Inc. Board of Directors Christopher B. Galvin Nicholas Negroponte Chairman of the Board and Chairman of Media Laboratory, Chief Executive Officer, Massachusetts Institute of Motorola, Inc. Technology Edward D. Breen John E. Pepper Jr. President and Chairman of the Board, Chief Operating Officer, Procter & Gamble Company Motorola, Inc. Samuel C. Scott III Francesco Caio Chairman of the Board and Chief Executive Officer, Chief Executive Officer, Netscalibur Corn Products International H. Laurance Fuller Douglas A. Warner, III Retired; formerly Co-Chairman, Chairman of the Board, BP Amoco, p.l.c. J.P. Morgan Chase & Co. Anne P. Jones B. Kenneth West Consultant; formerly a Senior Consultant for Corporate Commissioner of the Federal Governance to TIAA-CREF Communications Commission Dr. John A. White Judy C. Lewent Chancellor, Executive Vice President and University of Arkansas Chief Financial Officer, Merck & Co., Inc. Walter E. Massey President, Morehouse College 32 MOTOROLA, INC. AND SUBSIDIARIES

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    Stockholder reference information Stock transfer, registrar, Common stock Business risks Statements that are not historical facts, dividend disbursing, direct Motorola common stock is listed including statements about our future per- stock purchase and dividend on the New York, Chicago and formance and profitability, our strategies, reinvestment agent Tokyo Stock Exchanges. trends in the wireless infrastructure market, expectations for the two-way radio market Mellon Investor Services LLC and Homeland Security, use of our voice-over- Overpeck Centre Annual meeting of stockholders Internet Protocol and the projected number of Telematics subscribers, are forward- 85 Challenger Road The annual meeting will be held looking and involve risks and uncertainties. Ridgefield Park, NJ 07660 on May 6, 2002. A notice of the Motorola wishes to caution the reader that (800) 704-4098 meeting, together with a form of the factors below and those in the appendix www.melloninvestor.com proxy and a proxy statement, will to Motorola’s Proxy Statement for the 2002 annual meeting of stockholders and in its be mailed to stockholders on or other SEC filings could cause Motorola’s For shareholder correspondence: actual results to differ materially from those about March 28, 2002, at which Mellon Investor Services LLC stated in the forward-looking statements. time proxies will be solicited by These factors include: (i) the company’s Shareholder Relations Department the Board of Directors. ability to effectively carry out the planned P.O. Box 3315 cost-reduction actions; (ii) the potential for South Hackensack, NJ 07606-1915 unanticipated results from cost-reduction Proxy statement activities on productivity; (iii) the impact of the slowdown in the overall economy and For transfer of stock: The Proxy Statement is the uncertainty of current economic condi- Mellon Investor Services LLC available on the Internet at tions; (iv) the impact of ongoing tax relief, interest rate reduction and liquidity infusion Stock Transfer Department www.motorola.com/investor. efforts to stimulate the economy; (v) the P.O. Box 3312 decline in the telecommunications, semi- A copy of the Proxy Statement conductor and broadband industries; (vi) South Hackensack, NJ 07606-1912 may be obtained without charge by the company’s continuing ability to access the capital markets on favorable terms; contacting the Investor Relations Investor relations (vii) demand for the company’s products, Department as listed to the left. including products related to new tech- Security analysts, investment nologies; (viii) the company’s ability to con- professionals and shareholders tinue to increase profitability and market Form 10-K share in its wireless handset business; (ix) can find investor relations the company’s success in the emerging 3G The Form 10-K is available information on the Internet at market; (x) the demand for vendor financing on the Internet at and the company’s ability to provide that www.motorola.com/investor. www.motorola.com/investor. financing in order to remain competitive; (xi) unexpected liabilities or expenses, includ- Inquiries should be directed to: ing unfavorable outcomes to any currently A copy of the Form 10-K may pending or future litigation, including the Investor Relations, Motorola, Inc. be obtained without charge by Iridium project; (xii) the success of alliances Corporate Offices contacting the Investor Relations and agreements with other companies to develop new products and services; (xiii) 1303 East Algonquin Road Department as listed to the left. difficulties in integrating the operations of Schaumburg, IL 60196 USA newly acquired businesses and achieving strategic objectives, cost savings and other Independent auditors benefits; (xiv) volatility in the market value Or call: (800) 262-8509 KPMG LLP of securities held by Motorola; (xv) the impact of foreign currency fluctuation; and (xvi) the 303 East Wacker Drive impact of changes in governmental policies, Chicago, IL 60601 USA laws or regulations. This entire report has been printed on recycled paper.

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    Motorola, Inc. Corporate Offices 1303 East Algonquin Road Schaumburg, IL 60196 USA Phone: 1-847-576-5000 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 of their respective owners. © Motorola, Inc. 2002 Motorola is an Equal Employment Opportunity/Affirmative Action Employer visit us at www.motorola.com

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