Motorola Announces Record Second-Quarter Sales and Earnings

SCHAUMBURG, Ill., July 19 /PRNewswire-FirstCall/ -- Motorola, Inc. today reported the following sales and earnings.

Second Quarter % 2006 2005 Increase Sales $10.88B $8.41B 29% Earnings Per Share: Continuing operations $0.54 $0.37 46% Net earnings $0.55 $0.37 49%

Second-quarter earnings from continuing operations in 2006 and 2005 include the following significant items:

EPS Impact 2006 2005 Stock compensation expense $(0.02) Reorganization of business charges (0.01) (0.01) Tax benefits 0.11 0.02 Telsim settlement 0.10 Gain on investments, including derivative gain 0.03 0.10 Repayment of previously reserved loan 0.01 Total EPS Impact $0.21 $0.12

During the quarter, the company continued to maintain a very strong balance sheet, generating operating cash flow from continuing operations of approximately $500 million, its 22nd consecutive quarter of positive operating cash flow. In addition, the company repurchased 39 million shares of its stock for $838 million.

"Motorola continues to deliver excellent quarterly sales and earnings growth. With our solid financial performance and unrelenting focus on innovation and customer satisfaction, Motorola is among the fastest growing large-cap technology companies in the world," said Ed Zander, chairman and CEO. "In the second quarter, all of our businesses improved sales and grew profits sequentially versus the first quarter. Mobile Devices led the way, setting records for unit shipments, sales and profits. With our strong balance sheet, leading technologies and proven record of growth, Motorola is well-positioned to continue creating value for its shareholders."

Operating Results

Mobile Devices Segment sales were $7.14 billion, up 46 percent compared with the year-ago quarter. Operating earnings increased to $799 million, compared with operating earnings of $493 million in the year-ago quarter. The company also captured headlines by launching the highly anticipated MOTO Q, which is transforming consumer expectations and experiences for QWERTY devices. During the quarter, Mobile Devices also:

-- Shipped 51.9 million handsets, up 53 percent compared to the second quarter of 2005 -- and up 12.4 percent compared to 46.1 million handsets shipped during the first quarter of 2006. -- Expanded global market share to an estimated 22 percent, up 4.3 percentage points from a year ago and up 1.3 percentage points from the first quarter of 2006. -- Increased brand strength and market share leadership in both North America and Latin America; remained the solid No. 2 with growing brand momentum in Western Europe, North Asia and the high-growth markets (Middle East, Africa, India and Southeast Asia); and expanded market share to greater than 20 percent in China, up 8.9 percentage points from the second quarter of 2005. -- Launched 11 new handsets: 5 for GSM networks, 4 for CDMA and 2 for iDEN. Notably, shipments for iDEN handsets posted a record second- quarter performance. -- Since the third quarter of 2005, we have shipped nearly 10 million music handsets and launched the MOTO (RED) SLVR, joining with Bono and Project Red to fight AIDS and poverty in Africa.

Networks and Enterprise Segment sales were $2.90 billion, up 3 percent compared with the year-ago quarter and up 15 percent compared with the first quarter of 2006. Operating earnings decreased to $386 million, compared with operating earnings of $494 million in the year-ago quarter, but increased sequentially compared with operating earnings of $299 million in the first quarter of 2006. The second quarter of 2006 included restructuring charges of $37 million. Backlog for the segment increased for the second consecutive quarter. During the quarter, Networks and Enterprise also:

-- Received a contract for a nationwide TETRA system in Portugal that will provide mission-critical voice and data communications to more than 50,000 users in the police, fire and ambulance services as well as other public safety and civil protection agencies. -- Received a contract for a nationwide WiMAX wireless broadband network from Wateen Telecom in Pakistan. -- Received a contract from TeliaSonera in Denmark for a commercial Unlicensed Mobile Access (UMA) fixed mobile convergence solution. -- Received a contract from Shanghai Telecom to provide a TETRA-based digital trunking network for Shanghai. After the end of the quarter, Networks and Enterprise: -- Completed the sale of the automotive electronics business to Continental AG for approximately $1 billion. -- Announced an investment in Clearwire Corporation and our intent to acquire NextNet as further steps in Motorola's focused strategy to continue to expand and profitably grow our wireless broadband business and advance our vision of seamless mobility.

Connected Home Solutions Segment sales were $803 million, up 8 percent compared with the year-ago quarter and up 10 percent compared with the first quarter of 2006. Operating earnings increased to $56 million, compared with operating earnings of $33 million in the year-ago quarter and an operating loss of $11 million in the first quarter of 2006. Motorola continued to maintain and grow its market leadership with strong shipments of video, voice and data infrastructure and consumer devices. During the quarter, the segment:

-- Shipped a record 2.4 million digital entertainment set-top devices, including approximately 680,000 with digital video recorders (DVR). -- Shipped a record 900,000 voice-enabled modems. -- Announced that Sentivision of Japan will deploy Motorola's IP video set-top platform. -- Announced the world's first commercial implementation of PacketCable MultiMedia(TM) (PCMM), through deployment of an end-to-end solution with StarHub of Singapore. -- Introduced the Motorola Follow Me TV solution, which enables the seamless movement of multimedia content within the home and to the mobile device. -- Announced that Cox Communications will begin field trials of Motorola's Open Cable Applications Platform (OCAP) software. Third Quarter 2006 Outlook

The company's outlook for the third quarter of 2006 is for sales of between $10.9 billion and $11.1 billion, an increase of 20 to 23 percent versus the prior-year quarter, driven primarily by continuing momentum in the Mobile Devices business.

Conference Call and Web-cast

Motorola's quarterly earnings conference call is scheduled to begin at 4:00 p.m. Central Time (USA) on Wednesday July 19, 2006. Motorola plans a live web-cast of the conference call over the Internet, featuring both audio and slides. Investors can view the slides and join the web-cast at http://www.motorola.com/investor .

Consolidated GAAP Results A comparison of results from operations is as follows: Second Quarter (In millions, except per share amounts) 2006 2005 Net sales $10,876 $8,408 Gross margin 3,359 2,757 Operating earnings 1,522 958 Earnings from continuing operations 1,349 919 Net earnings 1,384 933 Diluted earnings per common share: Continuing operations $0.54 $0.37 Discontinued operations 0.01 -- $0.55 $0.37 Weighted average diluted common shares outstanding 2,522.0 2,504.0 Business Risks

Statements in this press release that are not historical facts are forward-looking statements based on current expectations that involve risks and uncertainties, including, but not limited to, Motorola's guidance for third quarter 2006 sales. Motorola cautions the reader that the factors below and those on pages 19 through 27 in Item 1A of Motorola's 2005 Annual Report on Form 10-K and in its other SEC filings, could cause Motorola's actual results to differ materially from those stated in the forward-looking statements. These factors include: (1) the uncertainty of current economic and political conditions, as well as the economic outlook for the telecommunications and broadband industries; (2) the company's ability to continue to increase profitability and market share in its wireless handset business; (3) demand for the company's products, including products related to new technologies; (4) the company's ability to introduce new products and technologies in a timely manner; (5) the company's ability to purchase sufficient materials, parts and components to meet customer demand; (6) unexpected negative consequences from the realignment of our Networks and Enterprise business; (7) risks related to dependence on certain key suppliers; (8) the impact on the company's performance and financial results from strategic acquisitions or divestitures that are currently pending or may occur in the future; (9) risks related to the company's high volume of manufacturing and sales in Asia; (10) the creditworthiness of the company's customers, particularly purchasers of large infrastructure systems; (11) unexpected liabilities or expenses, including unfavorable outcomes to any pending or future litigation, including without limitation any relating to the Iridium project; (12) the timing and levels at which design wins become actual orders and sales; (13) the impact of foreign currency fluctuations; (14) the impact on the company from continuing hostilities in Iraq and conflict in other countries; (15) the impact on the company from ongoing consolidation in the telecommunications and broadband industries; (16) the impact of changes in governmental policies, laws or regulations; (17) the outcome of currently ongoing and future tax matters with the IRS, and (18) unforeseen negative consequences from the company's outsourcing of various activities, including certain manufacturing, information technology and administrative functions.

About Motorola

Motorola is known around the world for innovation and leadership in wireless and broadband communications. Inspired by our vision of Seamless Mobility, the people of Motorola are committed to helping you get and stay connected simply and seamlessly to the people, information, and entertainment that you want and need. We do this by designing and delivering "must have" products, "must do" experiences and powerful networks -- along with a full complement of support services. A Fortune 100 company with global presence and impact, Motorola had sales of US $35.3 billion in 2005. For more information about our company, our people and our innovations, please visit http://www.motorola.com/ .

MOTOROLA and the stylized M Logo are registered in the U.S. Patent & Trademark Office. All other product or service names are the property of their respective owners.

Motorola, Inc. and Subsidiaries Condensed Consolidated Statements of Operations (In millions, except per share amounts) Quarter Ended Quarter Ended July 1, 2006 July 2, 2005 --------------- --------------- Net sales $10,876 $8,408 Costs of sales 7,517 5,651 --------------- --------------- Gross margin 3,359 2,757 --------------- --------------- Selling, general and administrative expenses 1,195 915 Research and development expenditures 1,016 878 Other charges (income) (374) 6 --------------- --------------- Operating earnings 1,522 958 --------------- --------------- Other income (expense): Interest income (expense), net 70 4 Gains on sales of investments and businesses, net 5 409 Other 126 20 --------------- --------------- Total other income 201 433 --------------- --------------- Earnings from continuing operations before income taxes 1,723 1,391 Income tax expense 374 472 --------------- --------------- Earnings from continuing operations 1,349 919 Earnings from discontinued operations, net of tax 35 14 --------------- --------------- Net earnings $1,384 $933 =============== =============== Earnings per common share ------------------------- Basic: Continuing operations $0.55 $0.37 Discontinued operations 0.01 0.01 --------------- --------------- $0.56 $0.38 =============== =============== Diluted: Continuing operations $0.54 $0.37 Discontinued operations 0.01 - --------------- --------------- $0.55 $0.37 =============== =============== Weighted average common shares outstanding ------------------------------------------ Basic 2,464.4 2,460.2 Diluted 2,522.0 2,504.0 Dividends paid per share $0.04 $0.04 Six Months Ended Six Months Ended July 1, 2006 July 2, 2005 ---------------- ---------------- Net sales $20,484 $16,175 Costs of sales 14,199 10,837 ---------------- ---------------- Gross margin 6,285 5,338 ---------------- ---------------- Selling, general and administrative expenses 2,296 1,838 Research and development expenditures 1,962 1,685 Other charges (income) (344) 1 ---------------- ---------------- Operating earnings 2,371 1,814 ---------------- ---------------- Other income (expense): Interest income (expense), net 137 (4) Gains on sales of investments and businesses, net 156 648 Other 107 12 ---------------- ---------------- Total other income 400 656 ---------------- ---------------- Earnings from continuing operations before income taxes 2,771 2,470 Income tax expense 766 866 ---------------- ---------------- Earnings from continuing operations 2,005 1,604 Earnings from discontinued operations, net of tax 65 21 ---------------- ---------------- Net earnings $2,070 $1,625 ================ ================ Earnings per common share ------------------------- Basic: Continuing operations $0.81 $0.65 Discontinued operations 0.03 0.01 ---------------- ---------------- $0.84 $0.66 ================ ================ Diluted: Continuing operations $0.79 $0.64 Discontinued operations 0.03 0.01 ---------------- ---------------- $0.82 $0.65 ================ ================ Weighted average common shares outstanding ------------------------------------------ Basic 2,477.7 2,454.1 Diluted 2,538.8 2,495.4 Dividends paid per share $0.08 $0.08 Motorola, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (In millions) ASSETS July 1, December 31, 2006 2005 ----------- ------------ Cash & cash equivalents $3,401 $3,774 Sigma funds 10,801 10,867 Short-term investments 188 144 Accounts receivable, net 6,420 5,635 Inventories, net 2,716 2,422 Deferred income taxes 2,123 2,355 Other current assets 2,440 2,360 Current assets held for sale 339 312 ----------- ------------ Total current assets 28,428 27,869 ----------- ------------ Property, plant and equipment, net 2,084 2,020 Investments 1,395 1,644 Deferred income taxes 991 1,196 Other assets 2,804 2,597 Non-current assets held for sale 302 323 ----------- ------------ Total assets $36,004 $35,649 =========== ============ LIABILITIES AND STOCKHOLDERS' EQUITY Notes payable and current portion of long-term debt $490 $448 Accounts payable 4,134 4,295 Accrued liabilities 7,149 7,376 Current liabilities held for sale 281 320 ----------- ------------ Total current liabilities 12,054 12,439 ----------- ------------ Long-term debt 3,758 3,806 Other liabilities 2,907 2,727 Non-current liabilities held for sale 8 4 Stockholders' equity 17,277 16,673 ----------- ------------ Total liabilities and stockholders' equity $36,004 $35,649 =========== ============ Motorola, Inc. and Subsidiaries Segment Information (In millions) Summarized below are the Company's net sales by reportable segment for the quarters and six months ended July 1, 2006 and July 2, 2005. Net Sales --------------------------------------- Quarter Ended Quarter Ended % Change July 1, 2006 July 2, 2005 from 2005 --------------------------------------- Mobile Devices $7,140 $4,902 46% Networks and Enterprise 2,903 2,825 3% Connected Home Solutions 803 743 8% ----------------------------- Segment Totals 10,846 8,470 28% Other and Eliminations 30 (62) 148% ----------------------------- Company Totals $10,876 $8,408 29% ============================= Net Sales ------------------------------------------ Six Months Ended Six Months Ended % Change July 1, 2006 July 2, 2005 from 2005 ------------------------------------------ Mobile Devices $13,543 $9,317 45% Networks and Enterprise 5,423 5,562 -2% Connected Home Solutions 1,535 1,425 8% -------------------------------- Segment Totals 20,501 16,304 26% Other and Eliminations (17) (129) 87% -------------------------------- Company Totals $20,484 $16,175 27% ================================ Motorola, Inc. and Subsidiaries Segment Information (In millions) Summarized below are the Company's operating earnings (loss) by reportable segment for the quarters and six months ended July 1, 2006 and July 2, 2005. Operating Earnings (Loss) ------------------------------ Quarter Ended Quarter Ended July 1, 2006 July 2, 2005 --------------- -------------- Mobile Devices $799 $493 Networks and Enterprise 386 494 Connected Home Solutions 56 33 --------------- -------------- Segment Totals 1,241 1,020 Other and Eliminations 281 (62) --------------- -------------- Company Totals $1,522 $958 =============== ============== Operating Earnings (Loss) ----------------------------------- Six Months Ended Six Months Ended July 1, 2006 July 2, 2005 ---------------- ----------------- Mobile Devices $1,498 $931 Networks and Enterprise 685 909 Connected Home Solutions 45 42 ---------------- ----------------- Segment Totals 2,228 1,882 Other and Eliminations 143 (68) ---------------- ----------------- Company Totals $2,371 $1,814 ================ =================