MOTOROLA ANNUAL REPORT 1961 (M)

A Progress Report... Integrated Circuitry

The Cover designs symbolize three basic integrated circuit technologies through which Motorola is gaining

leadership identification in the art of solid state electronics.

The circular design represents a ferrite logic core. With the addition of

wire windings, this multi-aperture device becomes a complete circuit for a digital computer.A star planar transistor—the center design—symbolizes the epitaxial technique of growing crystals on substrates.

The rectangular design illustrates the configuration of most integrated circuits of the future.

Motorola's work on such integrated circuits involves a synthesis of the sciences of chemistry, physics, metallurgy,mathematics, and electronics. The arts and skills required in semiconductor processing, thin film technology,surface passivation, and electronic ceramics are based upon these sciences.

Through the combined efforts of many specialists working in the Motorola research laboratories,substantial advances have been made in the practical production of the integrated circuit equivalents of

resistance, capacitance, and inductance. Multiple circuit elements are being producedin semiconductor substrates by means of diffusion, alloying, and epitaxial growth, and upon insulator substrates

through the use of vapor deposition and advanced thin film techniques.

TABLE OF CONTENTS

HIGHLIGHTS OF 1961 / 2 PRESIDENT'S LETTER / 3

DIVISIONAL REPORTS: COMMUNICATIONS / 4 CONSUMER PRODUCTS / 6

AUTOMOTIVE PRODUCTS / 8 SEMICONDUCTOR PRODUCTS / 10

MILITARY ELECTRONICS / 12 SOLID STATE SYSTEMS / 14

HEARING AIDS AND HOSPITAL COMMUNICATIONS / 15 INTERNATIONAL / 15

FINANCIAL REPORT: TEN YEAR FINANCIAL SUMMARY / 17

STATEMENT OF EARNINGS / 18 BALANCE SHEET / 19

HIGHLIGHTS OF 1961Business "Dispatcher" two-way mobile radio introduction.

Motorola equipment for NASA space vehicles.

Record level in foreign sales and licensing income.

Electronic alternator and ignition systems for automobiles.

Third consecutive Mahogany Association Award for furniture craftsmanship.

Application of epitaxial and planar production techniques to semiconductors.

"Extender" noise suppression circuit for MOTRAC two-way radio.

Modern communications system for Chicago Police Department.

All-transistor aircraft flight control system.

Divisional status for Solid State Systems.

TO THE SHAREHOLDERSI h e mood and dynamics of Motorola's marketschanged dramatically from the early to the latterpart of the year. The hesitancy of the consumerto purchase durable goods and the indecisive-ness of the commercial and military buyer duringmost of the first half of 1961, are well known.

In contrast, as the year ended the consumerwas displaying a confident mood...the industrialmarket firmed . . . and military programs wereexpanding. This uneven tempo of business wasthe biggest single influence on 1961 earningswhich declined to $2.36 per share comparedwith $3.14 in 1960.

In addition, special circumstances in the semi-conductor market are significant. Competitionwas intensified by industry overcapacity formany devices, less than anticipated demand incertain areas, and substantial erosion of pricesthrough the year. In spite of this, Motorola'sSemiconductor Products Division increased itsdollar volume considerably and maintained vir-tually the same excellent profit it reported in 1960.

Also noteworthy, sales volume and licensingincome from our international operations wereup 24%, and earnings more than doubled.

The improved momentum in practically all ofMotorola's markets—well in evidence as the yearended—promises better volume and particu-larly better earnings for the Company in 1962.

At the close of 1961, field inventories of con-sumer goods were moderate, making it possiblefor distributors and dealers to add to their stocks.Motorola's share of the television and phono-graph markets was steadily growing, Automobilesales were continuing at a brisk pace throughthe winter; car radio volume was up accordingly.

Though temporarily slowed early in 1961, theCommunications Division continued its uninter-rupted year-after-year pattern of sales increases,and confidently predicts further gains in 1962.Unit and dollar volume in the SemiconductorProducts Division are mounting though cost andprice pressures will make it difficult to maintainlast year's fine profit record. We look forward toperhaps a 30% increase in military sales for 1962.

More product developments and scientific a-chievements of significance matured in 1961 thanin any other year in our history. The most longrange of these are in solid state electronics.Our achievements in molecular structures, inte-grated circuits, solid state process controls, anda variety of solid state devices have made it ap-propriate for us to establish a sixth importantMotorola division called the Solid State SystemsDivision. In addition, we announced many otherdevelopments with more immediate potential.

I call your attention to our balance sheet whichfor the first time consolidates Motorola FinanceCorporation. Much of the long and short termdebt is for the purpose of financing the $40,000,000in notes and contracts owned by the financecompany. Two-thirds of last April's $30,000,000public issue of debentures was for this purpose.

In general, markets for all of Motorola's prod-ucts will be larger and more orderly in 1962.Your company is ready to take advantage ofits opportunities, and this is evidence of theachievements and imagination of my associates.

For the Board of Directors

'March 13, 1962 President

COMMUNICATIONS DIVISION

Most prominent of the communications products introduced in 1961 are: 1 / the Business"Dispatcher" two-way mobile radio (left)—together with the well-known MOTRAC radio fea-turing the new "Extender" noise suppression device • 2/the Low Frequency Pocket RadioPager (right)—smallest yet of Motorola's family of pocket radio products • 3/new closedcircuit TV control panel, monitor, and transistorized camera • 4/ all-transistor flight controlsystem • 5/ control center for Motorola-built Chicago police communications network.

1 he Communications Division increasedits lead in the two-way radio field despiteintense competition in 1961. Sales volumeincreased and earnings kept pace, aidedby the introduction of new products andcontinued attention to control of costs.

Major performer in the product line con-tinues to be the transistorized MOTRACtwo-way radio. New products and improvedfeatures introduced in 1961 both strength-ened the Division's position in the marketand provided a broader base for good per-formance in 1962.

The Division's aggressive program ofresearch and development resulted in intro-duction of two significant mobile two-wayradio products this past year. In spring, the"Extender" circuit —an ignition noise-suppression device —was introduced as abuilt-in optional feature of the premiumquality MOTRAC two-way radio. Appreciableimprovements in communications rangeand quality result from this circuit whichdetects and cancels"noisy" ignition pulses.Early in 1962, the circuit in slightly modifiedform will be offered in an adapter kit forMotorola mobile units already in use.

An entirely new mobile two-way radio,designed primarily for the general businessmarket, was the second significant productdevelopment. Called the Motorola"BusinessDispatcher" radio, the new unit in-cludes a fully transistorized receiver andpower supply economically designed forthe smaller business organization. Its fea-tures are exclusive to Motorola within itsprice range.

Noteworthy this past year was the com-pletion of a $1.5 million communicationsnetwork system for the City of ChicagoPolice Department. The system representsthe largest single order for a two-way radiosystem ever received by the Division. It pro-vides Chicago a completely new andmodernized police radio network, incor-porating new equipment and operationalconceptswith broad potential for similar ap-

plication in major cities throughout the U.S.During the latter part of the year, a new

pushbutton mobile radio-telephone, com-bined with Motorola's exclusive transistor-ized MOTRAC radio unit, was introducedto the independent telephone market.

A new remote control closed circuit tele-vision console was announced during theyear and development of a transistorizedcamera and monitor was completed. Bothwill be marketed in early 1962.

In the miniature equipment field, a newMotorola "Low Frequency Pager" was intro-duced. Newtransistortechniques permittedsignificant advances in miniaturization, re-liability, and operating characteristics. Thisnew pocket radio pager is smaller andlighter and has a substantially reducedoperating cost as compared with previouspagers. To meet demands of hospitals andindustry for larger systems, a high capacity,low frequency base station was engineeredwith a capacity of up to 900 units.

The miniature product line also containsthe VHF radio paging system and the fullytransistorized "Handie-Talkie" PocketTransmitter and Pocket Receiver. Duringthe year several systems of note werecompleted—such as a city-wide medicalpaging system for the San Diego, Califor-nia, county medical society; and two-waynetworks for foot patrolmen in Washington,D. C, and other major cities.

Motorola radio traffic control systemswere installed in Hartford and New Haven,Connecticut, during the year and orderswere received for new systems from theCity of Tampa, Florida, and the New JerseyTurnpike Authority.

The ADF-T-12 all-transistor automaticdirection finder, a product of the Division'sAviation Products Department, continuesto dominate the market for this type ofequipment. The new M-4 all-transistor flightcontrol system—announced during Septem-ber— already has a reputation as leader inthe general aviation "automatic pilot" field. 5

CONSUMER PRODUCTS DIVISION

Available to Motorola customers is a full line of home entertainment and car radio prod-ucts. It consists of: 1/television receivers and stereo hi-fi phonographs—featuring the wellknown Drexel and Heritage furniture designs-2/ clock and table AM and FM radios3/ portable radios — including the popular pocket-size units • 4/ portable transistorizedTV • 5/ FM and AM car radios and tuners. Motorola, for the third consecutive time, haswon the Mahogany Association "Grand Award" for outstanding furniture craftsmanship.

1 he consumer, anxious about internationaltension and the business recession, milledaround the market place in early 1961 withhis money cautiously banked. As a result,many consumer durables fell short of theirprior-year levels. Automobiles, televisionreceivers, phonographs, radios, householdappliances, and others, all suffered invarying degrees in the first half-year,

The early decline for Motorola consumerproducts was reversed from mid-year onwith sales showing steady improvementduring the third and fourth quarters. Thecomeback was not quite sufficient, how-ever, for the full year to equal 1960, althoughthe fourth quarter ran at a substantiallyhigher level than in the previous year.

Distributor sales volume increased con-siderably in the last two months, particularlyin the major dollar product categories. TVwas up 22% over the like period in 1960,and stereo phonograph sales increased32%. Home radio maintained the same unitvolume. Car radio was off somewhat, beingunable to meet the surge in demand duringthis period. This, however, precipitatedstepped-up production which will be re-flected in wide first quarter increases.

A sharp uptrend was generally evidentgoing into 1962. Both sales and earnings inthe consumer products area are expectedto show satisfactory increases for the yearas a whole.

During 1961, several television manufac-turers marketed color receivers using theearly-design 21-inch, 70 degree, roundpicture tube. This tube is the only one cur-rently available and requires a bulky cabinetto house it, Motorola chose not to re-enterthe color television market with thisapproach, convinced that the sales volumewould not be adequate for a profitableventure. This proved prudent. Theindustry color television retail volumefor the year was an estimated 170,000units, less than 3 percent of the some6,000,000 black and white receivers sold.

To encourage the industry to modernizecolor television, Motorola's engineers de-signed and built a working prototype, 23-inch, 90 degree, rectangular color tube.This tube made possible a cabinet of thesame size and attractive design as currentblack and white receivers. The set wasdemonstrated throughout the country andthe tube technology was offered to theentire industry in an effort to attract a tubemanufacturer to produce it. At year end,however, no major manufacturer hadagreed to make the tube, although the pos-sibility still exists in 1962.

The Company continues to believe thatcolor will become an important product anda source of greater enjoyment for viewers.

Motorola also took a strong stand against"gimmick" merchandising methods suchas the "Instant Dividend Plan" sale of tele-vision receivers and stereo phonographsthrough grocery stores.

Motorola completed in 1961 its third yearof association with the Drexel FurnitureCompany and Heritage Furniture, Inc.,winning increased recognition for excel-lence of furniture styling and quality. In thelatter part of the year, during the ChicagoFurniture Market, the Division held a privateshowing of 14 unique and original furniturecreations incorporating Motorola radio,stereo hi-fi, and television units. Theseunusual designs, featuring Drexel andHeritage styling and called the "Designer-Decorator Series," include furni turepieces such as coffee tables, serving carts,breakfronts, and hanging wall decks—eachhousing Motorola radios, TV's, or stereophonographs.

During the summer, the Company dis-continued its display space in Chicago'sMerchandise Mart. Negotiations were com-pleted at year-end to open a new salon onthe ground level of the well-known PalmerHouse in Chicago. It will front on StateStreet a few doors south of Madison—con-sidered oneoftheworld's busiest sidewalks. 7

AUTOMOTIVE PRODUCTS DIVISION

Diversification into new product areas, and production of fully-transistorized car radioswere two of the major milestones in 1961 for the automotive group. New product develop-ments were: 1/the transistorized ignition system; and 2/the all-electronic alternator sys-tem with voltage regulator. A miniature tuner 3/ (right), has replaced all othertype tunersin Motorola auto radios such as the all-transistor radio shown (left) • 4/ Long lines of alter-nators move along conveyors at the recently expanded Arcade, N.Y., production facility.

Sales volume of the Automotive ProductsDivision decreased substantially in the firstsix months because of reduced output inthe automobile industry. With the intro-duction of 1962 models, however, sales re-turned to a favorable level. Increases areanticipated for 1962 both in car radios andin the significant new automotive productsannounced during the past year.

In its more than 30 years in the car radiobusiness, Motorola's automotive group hasbeen involved almost exclusively with de-signing and building radiosforautomobiles.Announcements in 1961 of new electronicdevices to be manufactured for the modernauto marked a noteworthy transition inproduct diversification for both the Com-pany and the Automotive Products Division.

In September, Motorola introduced anall-electronic alternator system to replacethe DC generator and voltage regulator inthe automobile. The system, using tran-sistors and diodes exclusively, is designedfor maintenance-free operation and ex-tended life. It enables the battery to chargewhile the motor is idling even with the highelectrical current demand of many acces-sories in operation.

The alternator extends battery life from25% to 50%, and has particular applicationin service vehicles which can become costlyoverhead when inoperable. The system isspecially suited to such vehicles as taxicabs, delivery trucks, farm equipment, andpatrol cars which operate for long periodsat low speeds and are continually stoppingand starting.

A second electronic device, a transistor-ized ignition system, was announced inNovember. The system completely elimi-nates the breaker points and condenser inthe distributor. It replaces them with asmall magnetic pick-up system which willlast the lifetime of the car and does notrequire the maintenance or adjustment ofpresent ignition devices.

The alternator and ignition systems were

made possible through advances in thetransistor and diode art accomplished byMotorola's semiconductor group in Phoenix.

The Automotive Products Division is nowoffering a unique reverberation system forautomobile radios. It is the first mass-produced reverberation system designedfor passenger cars, making available "con-cert hall" radio performance while driving.

The complete transistorization of carradios has become economically practicaland the Division has now converted tomass-production of an all-transistor autoradio. The automotive industry is headedfor fully transistorized car radios in virtu-ally all 1963 models.

In 1961, Motorola supplied all-transistorradios both for the Lincoln-Continental andthe Ford "Thunderbird" models. Thesehave been continued in the 1962 models.Ford Motor Company initiated a changeduring the year to complete transistoriza-tion for most of the 1962 model radiosmanufactured by Motorola. The "Rambler"car radio is now completely transistorized,as well as radios produced for the RenaultMotor Company.

The Automotive Products Division con-tinued to supply radios to Ford, Chrysler,and American Motors in 1961. The totalradio requirements were supplied for Ford's"Thunderbird," "Galaxy," "Continental,""Meteor," and "Comet"; American Motors'"Rambler"; Dodge's "Lancer," and Plym-outh's "Valiant"; Renault (U.S. sold); andInternational Harvester.

Automotive Products Division businessfor the first time became international uponnegotiation of a joint venture agreementwith a large automotive parts manufacturerin France. A newly formed company willproduce Motorola electronic alternatorsystems for the European market. In addi-tion, samples of the Division's automotiveproducts have been submitted to countriesin other parts of the world in prospect of es-tablishing similar joint venture agreements.

SEMICONDUCTOR PRODUCTS DIVISION

MICRO-PHOTO

ACTUAL SIZE

10 ACTUAL SIZE

The success of Motorola's semiconductor business in 1961 was duefor the most part to eight particular types of devices. These areillustrated on this page. Actual size photographs indicate the tinydimensions, and microscopic photos show the minute circuitfunction areas not visible to the eye: 1/ epitaxial star planartransistor • 2/ germanium epitaxial mesa transistor • 3/ siliconepitaxial mesa transistor • 4/ power transistors • 5/ general purposemilliwatt transistor • 6/ integrated "flip-flop" circuit (diagramand actual size) • 7/ zener diode • 8/ automotive silicon rectifier.

ACTUAL SIZE ACTUAL SIZE

iiixpansion, research advances, and addi-tion of new products marked another yearof progress for Motorola's SemiconductorProducts Division. Dollar sales increasedover 40% in spite of the chaotic price com-petition within the industry. Increasedvolume offset price reductions, and earn-ings were maintained at about the favorablelevel of the previous year.

In May, 1961, the Division expanded itsresearch and production facilities with theopening of a 315,000 square foot addition.This more than doubled its previous oper-ating area, and the facility now has a totalof some 536,000 feet.

During 1961, the Division concentrated onthe engineering improvement and pro-duction expansion of its broad line of semi-conductor products which now includessome 4,000 different types. The Divisioneffected major engineering and processimprovements in the germanium mesatransistor line, resulting in significant re-ductions of cost and increases in reliability.

These improvements are being incorpo-rated into the production techniques usedin making all Motorola mesa transistors.

Motorola's accomplishment in developingand implementing practical productionmethods of epitaxial crystal growth hasmade possible a universal line of high-speed switching transistors. The line literallyblankets the major spectrum of computerapplications. The epitaxial technique hasalso enabled the Division to introduce newgermanium amplifier transistors whichcompete in the high-frequency communi-cations market.

The Division introduced the new epitaxialstar planar silicon transistor which repre-sents the ultimate in design for maximumoperating performance, frequency range,and reliability. It permits a combination ofelectrical parameters not before possiblein a single device. The star planar incor-porates in one transistor all of the latestsemiconductor technologies, providing

Motorola the capability to advance integra-ted circuit activity.

All silicon mesa transistor productionlines were converted to the epitaxial processduring the year.

The Semiconductor Products Divisionstrengthened its position in the industrialand military markets with the addition of anew power transistor design. This providessuperior power capability over competitivetypes. With the inclusion of the devicesused in automotive products, Motorola hasthe most complete line of power transistorscurrently available.

For the expanding automotive market,Motorola's early development of a low-costsilicon rectifier resulted in the capture ofa major part of the volume in this device.The silicon rectifier has made the elec-tronic alternator an economic replacementfor the automobile DC generator.

Expansion of the zener diode line toinclude new devices has established theDivision as the leading supplier, having themost complete line in the industry.

Two years of research effort in micro-miniature solid-state technology, coupledwith new advances in the epitaxial tech-nique (considered vital for the fabricationof integrated circuits) qualified the Divisionfor a $1.5 million Air Force contract foraccelerated research and development inthis new art. This work—undertaken incooperation with the continued researchin this field by the Solid State SystemsDivision—is expected to result in maintain-ing a leading position in the revolutionarytechnology of integrated circuitry.

Motorola has developed several practicalintegrated circuit devices which will beintroduced early in 1962 for both militaryand industrial applications. The devicesare unique in that they can be used toreplace conventional circuits in existingequipment without requiring complete re-design of equipment to conform to thespecial requirements of integrated circuits.

MILITARY ELECTRONICS DIVISION

A montage ofrepresentative"end-uses" of MotorolaMilitary products:(bottom to top)1/Dafa Acquisition andTelemetry System: relaysin-flight informationfrom "X-15" mannedspace probe. 2/ SpaceGuidance, Command &Control Systems:command functionssystem for Mercurycapsule; guidanceand command functionssystem for Rangerspace craft. 3/ TacticalCommunications Controland Sensor Equipment:advanced single-sidebandcommunications systemfor Army; command andcontrol digital data linkused in Navy'santi-submarine warfaresystem; advancedreconnaissance sensors(APS-94); drone-mountedsidelooking radar.4/ Expanding ProprietaryProduct Line:

(a) electronic teleprinter;(b) family of commandreceivers and long-rangeradar transponders;(c) sonobuoys—underseawarfare equipment.

oales of the Military Electronics Divisionmaintained about the same level as the pre-vious year although the Division reporteda major improvement in operating results.The backlog of military contracts rose sub-stantially, establishing a six-year high atthe close of 1961.

Current major programs conducted bythe Military Electronics Division are servingthe armed forces, the National Aeronauticaland Space Administration (NASA), theFederal Aviation Agency (FAA), and manyprime industrial contractors.

Proprietary product development hasassumed an important role at each of theMil i tary centers in Chicago, I l l inois;Phoenix, Arizona; and Riverside, California.Emphasis on the generation of these newdevices has resulted in contracts with im-proved long-range production potential.

Prominent among the proprietary prod-ucts is a family of Motorola "CommandReceivers"—used or scheduled for use inmore second generation missiles than anysimilar competitive receiver—and an ex-panded line of radar transponders used intracking long-range missiles and spacecraft.

Design-approval models of the Army'sAN/USC-3"Communications System" weredelivered in late 1961 for field evaluation.The product ion pace on this mul t i -million dollar contract will be stepped upduring 1962. The research and developmentphases of the Motorola-designed APS-94"Side-Looking Radar" have beencompleted, and assembly has started onproduction models of this highly advancedreconnaissance equipment.

The data acquisition and relaying equip-mentused in picking up in-flightinformationfrom the "X-15" manned space probevehicle was installed on the first half of thetest range near Edwards Air Force Base.Designed by the Riverside Systems

.Research Laboratory and employing micro-wave relaying unitssupplied bytheChicagoMilitary Center, this first segment of the

complex data transfer system was acceptedas operational by the Air Force and will beused jointly with NASA. Construction ofthe second half of the system is continuinginto 1962.

A new, fully-transistorized microwaveproduct line consisting of RF and multiplexequipment was entering into production atthe Chicago Center at year's end.

The Chicago Center delivered to the Navythe first prototypes of an all-solid-stateradar indicator. Production quantities ofthese units will be supplied during 1962.

Other important programs performedduring 1961 included the digital data linksuppl ied for the Navy's DASH dronehelicopter; a substantial contract forMotorola-designed teleprinter units for useby the Strategic Air Command; andcontinuing large-volume production ofSonobuoys (under-sea detection devices).

A long-range planning group has beenestablished to study and monitor Air Forceand NASA needs for aerospace systemsextending into the 1970's. Prominent amongthe space programs in which Motorola isnow participating are the "Mercury,""Saturn," "Ranger," "Mariner," "Advent,"and "Midas" programs. In the missile area,Motorola equipment is found on nearly allpresent and proposed missile systems in-cluding "Atlas," "Minuteman," "Pershing,""Polaris," "Bomarc," "Quai l , " "Side-winder," and many others.

Indicative of the Company-wide emphasison solid state integrated circuit implemen-tation are the many advanced programs andtechniques within the Military ElectronicsDivision. A formal program is now inprogress to assure earliest possible appli-cation of available integrated solid statedevices to military systems and equipment.This program is closely coordinated withthe Solid State Systems and SemiconductorProducts divisions to place Motorola inposition to aid the country's leadership inadvanced military equipment and systems. 13

SOLID STATE SYSTEMS DIVISIONIn order to acknowledge the increasingemphasis Motorola is placing on the pro-gram and mission of the Solid State Elec-tronics and Controls department in thefield of industrial products as well as inmilitary solid state research, the depart-ment has been advanced to divisional statusunder the leadership of Dr. H. W. Welch.

The primary mission of the new SolidState Systems Division is the application ofsolid state materials, devices, integrated cir-cuits, and techniques to existing equipmentand systems—and to develop new productapplications of electronics. The Division isorganized into three groups designated"Controls Department," "Electronics De-partment," and "Research Department."

Industrial control system development,production, and sales activities will becarried on by the Controls Department. Thefirst group of new products—designed forremote supervisory control of water, power,oil, and gas distribution systems—is engi-neered and in production. The first unitswere placed in the hands of customers inlate 1961. A complete line of process con-trol equipment will be released in 1962, andother solid state control applications areundergoing study and development.

The Electronics Department of the Di-vision has on the market a complete line ofelectromagnetic devices for application inmicrowave communications and radar sys-tems. Solid state instrumentation for controlapplications—from refrigeration to spacesatellites—is under development.

The Research Department will continueits exploration in the fields of electronicceramics, thin film technology, and solidstate device application. Special attentionwill be given to integrated solid stateelectronics in an effort to provide uniqueand advanced features in new productsdeveloped by other Motorola divisions.

I l l

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Among the initial products de-veloped and manufactured byMotorola's new Solid State Sys-tems Division: 1/ (a) thin filmvoltage digitizer; (b) positive tem-perature coefficient thermistors;(c) multiaperature magneticcores; (d) thin film magneto-resistive element; • 2/ "Teleme-mory" supervisory control con-sole; • 3/ a family of microwavedevices • 4/ liquid level digitizer.

1

INTERNATIONAL OPERATIONS

r o r the third consecutive year, sales andearnings from Motorola products sold over-seas have set new marks. Recorded was anall-time high with an increase in sales overthe previous year of about 24%, and a sub-stantial improvement in earnings.

An intensified licensing program, initiatedin the latter part of 1958, is now producingresults. Progress was made in 1961 inestablishing manufacturing arrangementsin France, Argentina, Brazil, and Mexico.Manufacturing arrangements in Canadaalso were strengthened and expanded.Assembly facilities were established inChile, Uruguay, and Colombia. Total in-come from overseas licensing during 1961surpassed any previous year.

Motorola currently is placing emphasison developing production facilities outside

this country through licensing and jointventure manufacturing arrangements. Aninternational managementand organizationbase has been established to provide afirm planning and marketing structure forthis purpose,

A high percentage of international opera-tions is in the sale of communicationsproducts. This trend is expected to con-tinue and major attention is being directedat this market area.

Increased emphasis was given to theexport sales of automotive and aviationproducts. Considerable attention also wasdirected during the year to engineeringsuitable consumer and communicationsproducts to meet the diverse needs of themajor world markets. By the end of 1962 thereshould be visible progress in this program.

HEARING AIDS ANDHOSPITAL COMMUNICATIONS

Indicative of the gradual changes takingplace within the Company's hearing aidand hospital communications departmentis the new trademark establishing identi-fication between the Dahlberg hearing aidgroup and Motorola. The trademark now ap-pearing on all products and sales literaturereads: "Motorola/Dahlberg Hearing Aids."

The Mark IV, a unique and efficient behind-the-ear hearing aid introduced this year,strengthened the Motorola/Dahlberg line ofquality instruments. Notable expansion alsotook place in the sales department in antici-pation of increased market activity in 1962.

The hospital communications depart-ment fortified its marketing position in

1961 by expanding and strengthening theproduct line. Additions included: a min-iaturized low-frequency pocket radio pager;a low-priced hospital TV set; an inter-com-munications system; a doctor's registersystem; and a manual nurse-call system.These new products, added to the existingline of Motorola/Dahlberg hospital prod-ucts, place the Company in the positionof producing the most complete hospitalcommunications line in the industry.

Sales responsibility for hospital commu-nications systems was transferred duringthe year to Motorola's CommunicationsDivision for purposes of maximum marketcoverage, systems engineering, and service.

FINANCIAL REPORT

The annual meeting will be held on Monday, May 7,1962. A notice of the meeting, together with a formof proxy and a proxy statement, will be mailed to shareholders on or about April 9,1962, at which timeproxies will be solicited by the management.

TRANSFER AGENTS: Harris Trust and Savings Bank111 W. Monroe St., Chicago 90, Illinois

Chemical Bank New York Trust Company165 Broadway, New York 15, New York

REGISTRARS: Continental Illinois National Bank andTrust Company of Chicago231 S.LaSalle St., Chicago 90, Illinois

Irving Trust Company1 Wall St., New York 15, New York

16

TEN YEAR FINANCIAL SUMMARY

SALES

AND OTHER

REVENUESt

INCOME BEFORE

INCOME TAXES t

1952

EARNINGS

EARNINGS

PER SHARE*

WORKING

CAPITAL t

NET INVESTMENT

IN PLANT AND

EQUIPMENT

$169,191,047

SHAREHOLDERS'

EQUITY

1953

219,089,238

1954 1956 1957 1958 1959 1960 1961

298,219,845

$15,576,165 15,512,489 16,523,889 18,740,426 16,936,334 15,756,431 15,171,013 27,756,237 26,548,813

38,222,001 38,308,612 42,892,165 73,790,019 95,078,616

27,615,287 33,436,676 44,594,599

56,186,590 61,305,080 66,172,446 71,533,020 83,338,386 97,166,850 102,655,506

f Restated to include Motorola Finance Corporation, a wholly-owned subsidiary, organized in 1956 and not consolidated prior to 1961.* Earnings per share are based on the number of shares outstanding at the end of the respective years, adjusted for subsequent share distributions.

Motorola, Inc. and SubsidiariesSTATEMENT OF CONSOLIDATED EARNINGS AND RETAINED EARNINGS

Years ended December 31

Sales and other revenues

Manufacturing and other costs of sales

Selling, service, and administrative expenses

Depreciation of plant and equipment

Contribution to employees' profit sharing fund

Interest and amortization of debenture expense

Total costs and other expenses

Income before federal income taxes

Federal income taxes

Earnings (per share outstanding at end of

year: 1961, $2.36; 1960, $3.14)

Retained earnings at beginning of year

Total

Cash dividends declared (per share:

1961, $1.00; 1960, $.9375)

Share-for-share distr ibut ion—par value of

2,014,326 shares, transferred to capital stock

account

Total deductions

Retained earnings at end of year (note 6)

See accompanying notes to financial statements.

1961

$298,219,845

214,871,908

52,409,790

5,276,286

2,624,174

3,137,379

278,319,537

19,900,308

10,383,000

9,517,308

71,242,879

80,760,187

4,028,652

4,028,652

$ 76,731,535

1960

$301,049,185

218,874,056

43,649,804

4,475,463

4,610,393

2,890,656

274,500,372

26,548,813

13,915,000

12,633,813

68,429,207

81,063,020

3,777,163

6,042,978

9,820,141

$ 71,242,879

18

Accountants' Report The Board of Directors and Shareholders of Motorola, Inc.:We have examined the consolidated balance sheet of Motorola, Inc. and sub-sidiaries as of December 31, 1961 and the related statement of earnings andretained earnings for the year then ended. Our examination was made in accord-ance with generally accepted auditing standards, and accordingly includedsuch tests of the accounting records and such other auditing procedures as weconsidered necessary in the circumstances. It was not practicable to confirmaccounts receivable from United States government departments or agenciesby communication with them but we satisfied ourselves as to such accounts bymeans of other auditing procedures.

In our opinion, the accompanying consolidated balance sheet and statementof consolidated earnings and retained earnings present fairly the financialposition of Motorola, Inc. and subsidiaries at December 31, 1961 and the resultsof their operations for the year then ended, in conformity with generallyaccepted accounting principles applied on a basis consistent with that of thepreceding year.

Chicago. Illinois. February 21. 1962 PEAT. MARWICK, MITCHELL & CO.

Motorola, Inc. and SubsidiariesCONSOLIDATED BALANCE SHEET AS OF DECEMBER 31

ASSETS

Current assets:

Cash

Receivables:

Accounts:

United States government

Other

Notes and contracts:

Lease and conditional salescontracts—net (note 2)

Other

Allowance for doubtful accounts

Costs recoverable under United Statesgovernment contracts, less progress billings

Inventories, at the lower of average cost ormarket

Other current assets

Total current assets

Plant and equipment—less depreciation (note 3)

Sundry assets

Patents, debenture expense, and other deferreditems—less amortization

See accompanying notes to financial statements.

1961

$ 8,794,244

7,773,137

47,714,344

32,725,036

8,011,781

(1,801,559)

8,440,774

39,958,980

2,865,560

154,482,297

48,427,446

3,648,892

1,242,955

$207,801,590

1960

$ 13,402,720

8,085,819

44,179,507

23,952,381

6,977,559

(1,817,000)

5,921,763

37,746,611

2,555,633

141,004,993

44,594,599

3,949,880

1,642,169

$191,191,641

Notes to Financial Statements

1/The 1961 consolidated f inancial statements include the accounts ofMotorola, Inc. and all subsidiaries. Motorola Finance Corporation, whollyowned but previously not consolidated, has been consolidated in 1961because the subsidiary's operations are now f inanced wholly by Motorola,Inc.; the 1960 financial statements included herein have been restatedfor comparison. Such restatement had no effect on 1960 net earningsor. retained earnings. Foreign subsidiaries previously not consolidatedare consolidated in 1961, with no material effect upon net earnings.

2/The lease and conditional sales contracts include amounts due afterone year (1961, $27,120,000; 1960, $19,690,000) and are net of unearnedfinance charges (1961, $7,900,455; 1960, $5,884,863).

3/The companies' investment in plant and equipment at December 31,

1961 and 1960 was as follows:

1961 1960$ 3,395,726 $ 3,416,284Land—at cost

Buildings—at cost, less depreciation (1961,$8,902,050; 1960, $6,906,679)

Machinery and equipment—at cost, lessdepreciation (1961, $12,555,411;1960, $10,881,098)

Dies, tools, and leasehold improvements—at cost, less amortization

Total

28,569,406 26,459,507

14,451,480 12,856,592

2,010,834 1,862,216

$48,427,446 $44,594,599

LIABILITIES 1961 1960

Current liabilities:

Notes payable to banks and others

Current maturities of long-term debt

Accounts payable—trade

Accrued taxes

Contribution to employees' profit sharing fund

Pro**duct and service warranties

Other

Long-term debt (note 4)

Total current liabilities

Shareholders' equity:

Capital stock, $3.00 par value. Authorized,

6,000,000 shares; outstanding, 4,028,652

shares (net of 1,610 treasury shares) (note 5)

Additional paid-in capita!

Retained earnings (note 6)

Total shareholders' equity

20,500,000

1,064,422

14,085,533

9,033,724

2,624,174

969,649

11,126,179

59,403,681

45,742,403

12,085,956

13,838,015

76,731,535

102,655,506

$207,801,590

34,350,000

1,060,016

9,547,165

8,399,919

4,610,393

915,328

8,332,153

67,214,974

26,809,817

12,085,956

13,838,015

71,242,879

97,166,850

$191,191,641

4/Long-term debt at December 31, 1961following:

4 % % debentures due Apri l 1, 1986(with annual sinking fund requirementscommencing in 1967)

Notes payable:3%%, due $1,000,000 annually to 1965,$1,500,000 in 1966, and $500,000annually thereafter to 1972

4%% due $500,000 annually 1963-1976

4%%, due 1963-1965

Real estate mortgages

Less current maturities, includedin current liabilities

Noncurrent portion of long-term debt

and 1960 consisted of the

1961 1960

$30,000,000 $ —

8,500,000 9,500,0007,000,000 7,000,000

— 10,000,0001,306,825 1,369,833

46,806,825 27,869,833

1,064,422 1,060,016

$45,742,403 $26,809,817

5/Under the Employee Share Option Plan adopted in 1960, options maybe granted to key employees to purchase Motorola, Inc. shares at not lessthan 95% of market value at date of grant. During 1961 options for thepurchase of 7,300 shares were granted and options for 600 shares wereterminated, leaving outstanding at December 31, 1961 options for 43,000shares at a price of $73.25 per share and 7,300 shares at a price of $83,875per share. An additional 149,700 shares are reserved for options whichmay be granted by the Board of Directors until May 2, 1965. The optionsgranted may be exercised two years after the date of grant; they expireat the end of ten years, and are contingent upon continued employmentby the company and its subsidiaries.

6/At December 31, 1961 approximately $15,500,000 of retained earningswas free from dividend restrictions contained in the debenture andnote agreements.7/The companies are obligated under repurchase and other agreements,principally in connection with the financing of sales of products to con-sumers, and are defendants in suits and claims, none of which it isbelieved will have any material effect on the business of the companies.

20

DIRECTORS AND OFFICERS

ROBERT W. GALVINDIRECTOR, PRESIDENT

ALEX ARNOLDVICE PRESIDENT, CONTROLLER

MATHEW J. HICKEY, JR.DIRECTOR

ALLEN H. CENTERVICE PRESIDENT, PUBLIC RELATIONS

DANIEL E. NOBLEDIRECTOR, EXECUTIVE VICE PRESIDENT,COMMUNICATIONS, SEMICONDUCTOR,MILITARY ELECTRONICS, ANDSOLID STATE SYSTEMS DIVISIONS

FRANK J. O'BRIENDIRECTOR, VICE PRESIDENT, PURCHASING

ARTHUR L. REESEDIRECTOR, VICE PRESIDENT AND GENERAL MANAGER,COMMUNICATIONS DIVISION

WALTER B. SCOTTDIRECTOR, VICE PRESIDENT,CONSUMER AND AUTOMOTIVE PRODUCTION

JOSEPH A. CHAMBERSVICE PRESIDENT AND MANAGER, WESTERN CENTER,MILITARY ELECTRONICS DIVISION

JOHN I. DAVISVICE PRESIDENT,CONSUMER PRODUCTS ENGINEERING

SYLVESTER R. HERKESVICE PRESIDENT,CONSUMER PRODUCTS MARKETING

C. LESTER HOGANVICE PRESIDENT AND GENERAL MANAGER.SEMICONDUCTOR PRODUCTS DIVISION

HOMER L. MARRSVICE PRESIDENT,COMMUNICATIONS SALES

EDWARD R. TAYLORDIRECTOR, EXECUTIVE VICE PRESIDENT.CONSUMER PRODUCTS DIVISION

KENNETH M. PIPERVICE PRESIDENT,

HUMAN RELATIONS

EDWIN P. VANDERWICKENDIRECTOR, VICE PRESIDENT FOR FINANCE,TREASURER, AND SECRETARY

WILLIAM J. WEISZVICE PRESIDENT,COMMUNICATIONS PRODUCTS

ELMER H. WAVERINGDIRECTOR, EXECUTIVE VICE PRESIDENT,AUTOMOTIVE PRODUCTS DIVISION

WILLIAM S. WHEELERVICE PRESIDENT AND GENERAL MANAGER,MILITARY ELECTRONICS DIVISION

MOTOROLA ING. / 9401 West Grand Avenue, Franklin Park, Illinois

M A J O R F A C I L I T I E S L O C A T E D I N : A R C A D E , N E W Y O R K

M I N N E A P O L I S , M I N N E S O T A • P H O E N I X A N D S C O T T S D A L E ,

• C H I C A G O , F R A N K L I N P A R K , A N D O U I N C Y , I L L I N O I S

A R I Z O N A • C U L V E R C I T Y A N D R I V E R S I D E , C A L I F O R N I A

• AUTOMOTIVE PRODUCTS • CAR RADIOS • PUSHBUTTON TRANSMISSION CONTROLS • ALTERNATOR SYSTEMS • TRANSISTORIZED IGNITION SYSTEMS

COMMUNICATIONS PRODUCTS • TWO-WAY R A D I O - M O 8 I L E , PORTABLE AND BASE STATION EQUIPMENT, PUSHBUTTON MOBILE RADIO-TELEPHONE, ANTENNAS, TOWERS, ACCESSORIES

AND PARTS, CONTRACT MAINTENANCE AND INSTALLATION SERVICE • • AUTOMATIC CAPACITANCE SWITCHING FOR ELECTRIC UTILITIES • ELECTRONIC SIGNALING DEVICES

CLOSED CIRCUIT TELEVISION EQUIPMENT • MICROWAVE RELAY SYSTEMS • RADIO TRAFFIC LIGHT CONTROL • RADIO PAGING SYSTEMS • POWER MEGAPHONES • PRECISION TEST

AND MEASUREMENT EOUIPMENT • "SELCAL" SELECTIVE CALLING EQUIPMENT FOR AIRLINES • AIRCRAFT VHF NAVIGATION AND COMMUNICATIONS EQUIPMENT • AIRCRAFT AUTOMATIC

DIRECTION FINDERS • AUTOMATIC FLIGHT CONTROL SYSTEMS CONSUMER PRODUCTS ' TELEVISION RECEIVERS • STEREOPHONIC HIGH FIDELITY PHONOGRAPHS • AM AND AM-FM TABLE

RADIOS • CLOCK AND PORTABLE RADIOS • AM AND FM CAR RADIOS • ALTERNATOR SYSTEMS, ANTENNAS, ACCESSORIES. AND PARTS DAHLBERG PRODUCTS • HEARING AIDS • HOSPITAL

COMMUNICATIONS SYSTEMS MILITARY ELECTRONICS PRODUCTS ' RADAR • COMMUNICATIONS SYSTEMS ' MISSILE GUIDANCE SYSTEMS • INDICATORS AND DISPLAY SYSTEMS ' ANTI-

SUBMARINE WARFARE EOUIPMENT • DATA LINK SYSTEMS • NAVIGATION EOUIPMENT • TELEMETERING SYSTEMS • DRONE CONTROL SYSTEMS • GROUND SUPPORT, TRAINING, AND TEST

EQUIPMENT • ELECTRONIC COUNTERMEASURE SYSTEMS • FLIGHT SAFETY EQUIPMENT SEMICONDUCTOR PRODUCTS • POWER TRANSISTORS • MESA TRANSISTORS • GENERAL PURPOSE

TRANSISTORS • INDUSTRIAL AUDIO TRANSISTORS • INDUSTRIAL SWITCHING TRANSISTORS • RECTIFIERS • ZENER DIODES SOLID STATE PRODUCTS • PROCESS MEASUREMENT AND

CONTROL SYSTEMS ' REMOTE SUPERVISORY CONTROL SYSTEMS • ANALOG AND DIGITAL INSTRUMENTATION • ELECTROMAGNETIC DEVICES • INTEGRATED ELECTRONIC SUB-ASSEMBLIES.