MOTOROLA ANNUAL REPORT 1965

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TABLE OF CONTENTS

Directors and Officers 7

Highlights of 1965 2

Letter to Shareholders 2

Balance Sheet 4

Statement of Earnings 6

Ten Year Financial Summary 7

Semiconductor Products Division 8

Communications Division 9

Consumer Products Division 10

Military Electronics Division 77

Automotive Products Division 12

Control Systems Division 13

International Operations 14

A Special Report:Motorola Serving San Jose 15

ABOUT THE COVER The dramatic overviewof San Jose, California, symbolizes an Amer-ican community on the move. The same pho-tograph introduces a special pictorial sectionon pages 15-24 showing how Motorola'sdiverse products serve in the daily life of justone of America's many dynamic cities.

DIRECTORSAND OFFICERS

BOARD OF DIRECTORS

ROBERT W. GALVIN

MATTHEW J. HICKEY, JR.

C. LESTER HOGAN

DANIEL E. NOBLE

ARTHUR L. REESE

WALTER B. SCOTT

EDWIN P. VANDERWICKEN

ELMER H. WAVERING

OFFICERS

ROBERT W. GALVINChairman of the Board

ELMER H. WAVERINGPresident

DANIEL E. NOBLEVice Chairman of the Board

Group Executive. Technical Divisions

C. LESTER HOGANVice President and General Manager

Semiconductor Products Division

ARTHUR L REESEExecutive Vice President

and General ManagerConsumer Products Division

WALTER B. SCOTTVice President

Consumer and Automotive Production

EDWIN P. VANDERWICKENExecutive Vice President, Finance

and Secretary

ALLEN H. CENTERVice President, Public Relations

JOSEPH A. CHAMBERSVice President and General Manager

Military Electronics Division

SYLVESTER R. HERKESVice President, Marketing

Consumer Products Division

JOHN T. HICKEYVice President, Planning

JOHN A. HUBENYVice President and Controller

OSCAR P. KUSISTOVice President and General Manager

Automotive Products Division

HOMER L. MARRSVice President, Communications Sales

KENNETH M. PIPERVice President, Human Relations

ROGER C. SMITHTreasurer

LEWIS D. SPENCERVice President and General Attorney

WILLIAM J. WEISZVice President and General Manager

Communications Division

ROBERT W. GALVIN MATTHEW J. HICKEY, JR.

C. LESTER HOGAN DANIEL E. NOBLE

EDWIN P. VANDERWICKEN ELMER H. WAVERING

HIGHLIGHTS OF 1965

Motorola's finest yearin sales and earnings

World's largest manufacturerof silicon semiconductors

Third position in color TV,a leader in rectangular color sales

First all-solid-state2-way radio base stations

Accelerated deliveries forViet Nam

Auto stereo tape playerfeatured by Ford

Business overseas up over 25%

More than $30,000,000 expendedin research & development

Color TV picture tube plant ready

Plans for 2,400,000 feetof plant expansion

Perfect performanceon space flights

$12,000,000 in fuze contracts

TO THE SHAREHOLDERS:

The year 1965 was the most chal-lenging and rewarding in Motorola'shistory.

Sales of $516,973,065 were 23% overthe $419,066,694 in 1964. Earningsof $31,838,678 or $5.23 per sharewere 54% above the $20,666,724, or$3,41 per share for the previous year.

During the year public attentionwas focused on the explosive de-mand for color television. This fa-vored Motorola along with othercompanies taking a leading role inthis product.

This newsworthy development tendedto overshadow advances made by thecompany in other products. The factis that all six of Motorola's productdivisions scored gains in sales andcontributed to the earnings increasefor the year.

The semiconductor products divisionagain attained a remarkable percent-age sales increase to continue itsgrowth at a pace well above that ofthe industry. Integrated circuit dol-lar volume tripled over the year be-fore. The division is now the largestsupplier of silicon semiconductor de-vices in the world. The year aheadlooks equally promising for continuedsales growth.

Our communications division, whichhas for years maintained a strongrate of growth, exceeded the rate ofprevious years in 1965, with an at-tractive profit return. The divisioncontinues to lead its competition inthe established mobile and portabletwo-way radio lines, and to set thepace in newer types of FM paging andhospital communications systems.

A major dollar gain in both salesand earnings was scored by consum-er products. This reflected the colorTV upsurge and the full recovery ofthe outlay of previous years in thedevelopment of a rectangular colortube. It also reflects the fine publicacceptance of new stereo record play-

ers, black and white television, carradio sales in the after-market, andradios for the home.

In 1966 the division is targeted forcolor television sales volume at least2V2 times the 1965 total and colortelevision tubes continue to be thelimiting factor. Our new color picturetube plant came on stream in thefirst quarter of 1966. The major por-tion of our color picture tubes willbe purchased outside this year, andabout one half will be purchased out-side in subsequent years.

The company's participation in mili-tary and space programs was at alevel higher than in 1964 and contin-ued in the customary 12-15% rangeof our total business. Motorola equip-ment has a perfect record on all spaceprobes. Work progressed on the im-portant Agena and Apollo contracts.During the year the military electron-ics division complied with defensedepartment requests for accelerateddeliveries and increased quantities ofcertain items for Viet Nam.

The automotive products division washampered by a strike situation at onemajor customer for car radio and al-ternators, but finished the year witha sales gain. There was an increasein sales of alternators to a wideningvariety of customers. The requirementfor stereo tape players by Ford MotorCompany was greater than had beeninitially anticipated.

A large percentage gain in sales wasattained by the newest and smallestdivision, control systems. Two largecontracts, one approaching a milliondollars, aided this growth. The divi-sion continues to operate at a loss,but has reached an important mar-keting milestone.

Our business overseas showed a sub-stantial increase and new relation-ships were formed. We continue tosupport the voluntary balance of pay-ments program.

As good a year as 1965 was, it wasalso an important year in planning

for the future. And we entered 1966with the largest capital expenditureprogram, by far, in our history.

In early 1965, the company occupiedsome 4,000,000 square feet of space.By year end, 1966, we expect to beoccupying nearly 6,400,000 feet ofspace. During these two years weshall have entered, as a major em-ployer, three more U.S. communitiesand three abroad which were totallynew to us.

To illustrate the dimension and com-plexity of the facility expansion prob-lem, we have included with thisannual report a special booklet show-ing the present and projected spacerequirements and facilities.

Capital expenditures for enlarged andnew facilities in 1965 were $25,173,-248, almost double the average forthe preceding five years of $14,000,-000. For 1966 the capital investmentwill approach $45,000,000.

The company has arranged for a$30,000,000 revolving credit witheight banks for three years, convert-ible at the company's option to a fiveyear term loan. While the company'sfinancial position is strong, it wasdeemed prudent to have availableadequate funds for the proposed capi-tal expenditures and the increasedworking capital required for substan-tially larger sales volume.

Because of these large requirements,we feel that any change at this timein the cash dividend would not bein the best interest of shareholders.As a part of this judgment, we do notnow anticipate a stock split, whichotherwise would accompany an in-crease in the cash dividend.

During 1965 the management of thecompany was strengthened. DanielE. Noble, the company's chief techni-cal officer was named vice chairmanof the board. He continues as groupexecutive for the four technical oper-ating divisions. C. Lester Hogan, vicepresident and general manager of thesemiconductor division, was elected

to the board of directors. Edwin P.Vanderwicken was advanced to ex-ecutive vice president for finance,and Arthur L. Reese to executive vicepresident in charge of the consumerproducts division. William J. Weiszwas advanced to vice president andgeneral manager, communicationsdivision, and Oscar P. Kusisto to vicepresident and general manager of theautomotive division. John A. Hubenymoved from controller to vice presi-dent and controller. New officerselected were John T. Hickey, vicepresident, planning; Lewis D. Spen-cer, vice president and general attor-ney; and Roger C. Smith, treasurer.

Taken altogether, or product by prod-uct, our competitive posture has neverbeen stronger. Our major productcategories should resist any moderatefluctuations in the gross nationalproduct or the nation's commitmentsat home or abroad.

The atmosphere within the companyat all levels of responsibility is oneof zest for the challenges ahead. Onall sides we see evidence of personalinitiative to maximize each individu-al's influence on the company's suc-cess. This springs naturally from thecompany's profit sharing concept andthe high respect in which excellentperformance is held.

For this spirit of enthusiasm and per-sonal initiative we are grateful toall Motorolans throughout the world.It makes the responsibility of man-agement still more rewarding to seethis demonstration of "reaching out."

FOR THE BOARD OF DIRECTORS

CHAIRMAN OF THE BOARD

PRESIDENT f~J

MARCH 14, 1966

CONSOLIDATED BALANCE SHEET as of December 31Motorola, Inc. and Subsidiaries

ASSETS

CURRENT ASSETS

Cash

Short-term investments, at cost

Accounts receivable

United States government

Other

Allowance for doubtful accounts

Costs recoverable under United States government

contracts, less progress billings

Inventories, at the lower of cost (first-in, first-out) or market

Other current assetsTOTAL CURRENT ASSETS

Plant and equipment—less depreciation (note 1)

Sundry assets, net

1965

> 9,311,856

21,059,960

14,059,782

73,243,350

(2,665,799)

8,130,556

67,263,601

3,556,119

193,959,425

81,082,588

4,219,466

$279,261,479

1964

; 7,922,825

7,027,114

13,528,545

66,798,241

(2,473,803)

5,403,575

60,280,741

2,656,833

161,144,071

67,836,835

3,099,867

$232,080,773

NOTES TO FINANCIAL STATEMENTS

IThe companies' investment in plant and equipment at December 31,1965 and 1964 was as follows:

1965 1964

Land-at cost $ 5,186,181 $ 3,488,342

Buildings-at cost, less depreciation(1965, $18,902,917; 1964, $16,179,559). 43,815,023 39,698,127Machinery and equipment—at cost,less depreciation (1965, $25,498,763;1964, $22,250,963) 29,039,687 22,260,707Dies, tools, and leasehold improvements-a t cost, less amortization 3,041,697 2,389,659

$81,082,588 $67,836,835

2 Long-term debt at December 31, 1965 and 1964 consisted of thefollowing:

1965 39644%% debentures due April 1, 1986(with annual sinking fund require-ments commencing in 1967) $30,000,000 $30,000,000Notes payable:

33/4%, due $1,500,000 in 1966 and$500,000 annually thereafter to 1972 4,500,000 5,500,000

4%%, due $500,000 annually,1966-1976 5,500,000 6,000,000

Real estate mortgages 632,218 1,103,15040,632,218 42,603,150

Less current maturities, included incurrent liabilities 2,317,766 1,573,931Noncurrent portion of long-term debt. . $38,314,452 $41,029,219

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES

Current maturities of long-term debt

Accounts payable

Accrued compensation

Federal income taxes, less United States Treasuryobligations of $18,404,814 in 1965and $13,191,650 in 1964

Other (including withheld) taxes

Contribution to employees' profit sharing fund

Product and service warranties

Other

TOTAL CURRENT LIABILITIES

Long-term debt (note 2)

SHAREHOLDERS' EQUITY

Capital stock, $3.00 par value (note 3)Authorized: 1965, 10,000,000 shares; 1964, 6,000,000 sharesOutstanding: 1965, 6,088,868 shares; 1964, 4,035,822 shares

Additional paid-in capital (note 3)

Retained earnings (note 2)

TOTAL SHAREHOLDERS' EQUITY

1965

2,317,766

32,301,338

6,348,538

5,182,528

11,442,542

2,973,026

15,379,007

75,944,745

38,314,452

18,266,604

16,083,471

130,652,207

165,002,282

$279,261,479

1964

1,573,931

19,251,327

4,081,544

897,102

5,461,114

6,947,697

2,079,931

13,225,486

53,518,132

41,029,219

12,107,466

14,486,641

110,939,315

137,533,422

$232,080,773

Early in 1966, the company arranged a $30,000,000 revolving credit,convertible to a term loan on or prior to February 1, 1969. The agree-ment contains provisions restricting, among other things, the pay-ment of cash dividends which are not to exceed $10,000,000 plusearnings after December 31, 1965. It also requires the company tomaintain consolidated working capital of not less than $75,000,000.

3 Under the Employee Share Option Plan adopted in 1960, options havebeen granted to key employees to purchase Motorola, Inc. shares atnot less than 95% of market value at date of grant if granted prior toJanuary 1, 1964 and at 100% of market if granted thereafter. The op-tions become exercisable two years after date of grant; they expire atthe end of ten years, if granted prior to January 1, 1964 and five yearsif granted thereafter, and are contingent upon continued employ-ment by the company or its subsidiaries.

During 1965 options to purchase 30,000 shares were granted, optionson 2,100 shares were terminated, and options on 35,135 shares wereexercised; the excess ($1,596,830) of the option price over the par

value of the capital stock issued was credited to additional paid-incapital. At the year end 109,810 shares were under option, at anaggregate option price of $6,331,068, of which 80,560 shares werecurrently exercisable, in the total amount of $3,878,924. Authority togrant options under the plan terminated during 1965.

4 The companies are obligated under repurchase and other agreements,principally in connection with the financing of sales of products toconsumers, and are defendants in suits and claims, which it is be-lieved will have no material effect on the business of the companies.

STATEMENT OF CONSOLIDATED EARNINGSAND RETAINED EARNINGS Motorola, Inc. and Subsidiaries

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, net of investment credit of $923,000 in 1965;$1,272,000 in 1964

EARNINGS

(per share outstanding at end of year: 1965,$5.23; 1964, $3.41, adjustedfor share distribution)

Retained earnings at beginning of year

TOTAL

DEDUCT:

Cash dividends declared (per share: 1965, $1.00;1964, $.75, adjusted for share distribution)

Three-for-two share distribution—par value of 2,019,251 sharestransferred to capital stock

TOTAL DEDUCTIONS

Retained earnings at end of year (note 2)

See accompanying notes to financial statements.

1965

$516,973,065

359,486,354

76,023,648

10,202,882

11,442,542

1,978,961

459,134,387

57,838,678

26,000,000

31,838,678

110,939,315

142,777,993

6,068,033

6,057,753

12,125,786

$130,652,207

1964

$419,066,694

294,060,184

67,875,746

9,235,479

6,947,697

2,020,864

380,139,970

38,926,724

18,260,000

20,666,724

94,809,931

115,476,655

4,537,340

4,537,340

$110,939,315

PEAT, MARWICK, MITCHELL & CO.CERTIFIED PUBLIC ACCOUNTANTS,CHICAGO, ILLINOIS

The Board of Directors and Shareholders of Motorola, Inc.:

We have examined the consolidated balance sheet of Motorola, Inc.and subsidiaries as of December 31, 1965 and the related statementof earnings and retained earnings for the year then ended. Ourexamination was made in accordance with generally accepted audit-ing standards, and accordingly included such tests of the accountingrecords and such other auditing procedures as we considered neces-sary in the circumstances. It was not practicable to confirm accountsreceivable from United States government departments or agenciesby communication with them but we satisfied ourselves as to suchaccounts by means of other auditing procedures.

In our opinion, the accompanying consolidated balance sheet andstatement of consolidated earnings and retained earnings presentfairly the financial position of Motorola, Inc. and subsidiaries atDecember 31, 1965 and the results of their operations for the yearthen ended, in conformity with generally accepted accounting prin-ciples applied on a basis consistent with that of the preceding year.

PEAT, MARWICK, MITCHELL & CO.February 21,1966

TEN YEAR FINANCIAL SUMMARY

SALESAND OTHERREVENUES

INCOME BEFOREINCOME TAXES

EARNINGS

EARNINGSPER SHARE*

WORKINGCAPITAL

NETINVESTMENTIN PLANT ANDEQUIPMENT

SHAREHOLDERS'EQUITY

1956

$229,266,055

$ 16,936,334

$ 7,966,817

1.37

$ 54,936,569

$ 25,388,866

$ 61,305,080

1957

228,431,385

15,756,431

7,824,431

1.35

56,425,360

27,167,597

66,172,446

1958

218,909,968

15,171,013

7,356,213

1.27

59,585,830

27,615,287

71,533,020

1959

293,081,127

27,756,237

14,171,237

2.39

63,336,998

33,436,676

83,338,386

1960

301,049,185

26,548,813

12,633,813

73,790,019

44,594,599

97,166,850

1961

298,219,845

19,900,308

9,517,308

1.57

95,078,616

48,427,446

102,655,506

1962

346,881,779

26,514,514

13,206,514

2.02

96,804,189

54,783,818

111,835,713

1963

377,852,809

27,126,526

12,926,526

2.14

92,358,852

67,283,543

120,735,367

1964

419,066,694

38,926,724

20,666,724

3.41

107,625,939

67,836,835

137,533,422

1965

516.973,065

57.838.678

31.838.678

5.23

118.014,680

81.082,588

165,002,282

"Earnings per share are based on the number of shares out-standing at the end of the respective years, adjusted for sharedistributions.Earnings per share shown above for 1962 do not include 17<fof nonrecurring capital gain from sale of finance subsidiary.

SEMICONDUCTORPRODUCTSDIVISION

For the seventh consecutive year, rec-ord highs in both sales and earningswere established in the semiconductorproducts division. The dollar sales in-crease rate was substantially morethan that of the industry.

The outstanding records resulted fromthe continued acceptance of existingproduct lines, new product develop-

, ments, and the steadily growing mar-8

ket for Motorola integrated circuits.

The most significant development dur-ing the year was the introduction ofa full line of high-performance, low-cost, plastic encapsulated silicon tran-sistors. These devices, competingsuccessfully with comparable qualitytransistors made anywhere in theworld, are being widely accepted inthe new and important consumerproducts market.

Late in the year, Motorola was issuedfour patents covering annular tran-sistor devices, which use special struc-tural techniques to provide both highvoltage and the highest level of re-liability and performance availablefrom any existing transistor. The an-nular process has made it possible forthe division to introduce a steadystream of improved, low-level, high-current and fast-switching silicon de-vices. As a result, the division becamethe largest producer of silicon semi-conductor devices in the world.

The annular structure is also beingused by Motorola in the productionof other semiconductor devices, in-cluding integrated circuits, where itsability to prevent surface leakage isextremely important.

In the integrated circuits area, salesvolume was stimulated by the grow-ing demand by computer designersfor the Motorola-developed MECL cir-cuits, the introduction of three newlinear (amplifier) integrated circuits,and the entry into production of threenew major families of integrated logiccircuits. With the addition of thesefamilies, the division now manufac-tures all of the major logic systemsbeing used by the computer industrytoday.

The families include full lines of high-speed diode-transistor logic (DTL) cir-cuits for military and industrialuse, adjustable-performance variablethreshold logic (VTL) circuits for nu-merous high-noise environment appli-cations, and milliwatt resistor-transis-tor logic (RTL) circuits for space andmilitary use. More than 200 integrated

circuits are now available as standard,"off-the-shelf" types.

In addition to increased domestic mar-ket penetration, the division also madesubstantial progress in the develop-ment of its international marketing or-ganization. A product and applicationscustomer service center was estab-lished in Geneva, Switzerland. To-gether with the London sales office,established a year earlier, the servicecenter will help increase Motorola'sshare of the fast-rising European mili-tary, industrial and consumer prod-ucts semiconductor markets.

Also of continuing importance, be-cause of the swiftly developing semi-conductor science, there is the needto keep manufacturers abreast of themost recent advances in the state ofthe art. To this end, the division heldan internationally successful inte-grated circuits seminar in Paris,France, and also published the firstcomprehensive integrated circuit ap-plications textbook in the industry.

With the rapid increase in sales vol-ume and spiraling production opera-tions required to handle the resultingproduct demands, the division founditself literally overflowing the exist-ing buildings. To partially satisfy theneed for added space, several admin-istrative office functions were movedto downtown Phoenix, Arizona.

The acquisition of an 80-acre tractin Mesa, Arizona and the constructionin 1966 of additional facilities for alaboratory and production of inte-grated circuits will further relievethe problem.

While more types of semiconductordevices were produced at an ever in-creasing rate, continued attention wasgiven to product quality in the manu-facturing process. In August, the divi-sion became the first in its industry toparticipate in the national "Zero De-fects" effort with the introduction ofits PRIDE program. PRIDE is carefullyplanned and implemented to inspireemployee pride and craftsmanship toassure continued high quality.

COMMUNICA TIONSDIVISION

The communications division achievedrecord sales in all major segments ofits business. The year was highlightedby new products introduced in allcategories and by expansion of produc-tion and distribution facilities.

Product development in the two-wayradio field featured new high-poweredand medium-powered transistorizedbase stations, and the industry's firstall-solid-state base station. The pacesetting MOTRAC radio line was fur-ther improved by additional transis-torization, new channel elements andhigher powered transmitters. MOTRACcontinues to be the country's mostpopular mobile radio.

Portable product development activ-ity centered on new VHF radio pagingproducts. New "pageboy" paging mod-els were introduced. They receivedexcellent reception in both the privateand common carrier system markets.The very compact personal radio pag-ers for city wide use are carried bydoctors, engineers, servicemen andothers so that they can be contactedinstantly.

Certain critical communications needsof the urban transit industry were metwith the introduction of a new TransitDispatcher radio especially designedfor use in subway and rapid transitcars. A large pilot system of transitdispatcher radios was installed for theNew York Transit Authority.

New closed circuit television camerasand monitors offering higher resolu-tion were placed on the market. Thehospital communications product lineswere strengthened with the industry'sfirst solid state designs in its Audio-Visory and Manumatic nurse call prod-ucts. The first standard portable re-mote control systems for overhead in-dustrial cranes were delivered.

Major individual sales were registeredin all product areas. For example, theCincinnati Gas and Electric Companyand the State of California awardedMotorola major contracts for new basestations and all-solid-state MOTRANmobile radios. Installation began on

a series of radio paging systems forIBM. The largest hospital productsorder on record was received fromMercy Hospital of Chicago.

Activity in the overseas market inten-sified with the establishment of a jointventure in England. Continued excel-lent growth was enjoyed by all over-seas joint ventures, and especially byMotorola-Israel, Ltd. and CanadianMotorola Electronics Company.

Major shipments were made to South-east Asia in support of our country'scommitment in Viet Nam. Motorola'srole in this conflict is indicated by thefollowing excerpt in a letter from theSouth Vietnamese Chief of CombinedTelecommunications in the Upper Me-kong Region:

"Our MOTRAN radio system is sogood that every telecommunica-tions unit, especially military peo-ple, becomes jealous of it. We arein special type of war and onlymeans of communications asgood as MOTRAN radio can helpus associate our effort to fightagainst the Viet Cong."

Additional production facilities wereleased in Palatine, Illinois. Plans werealso approved to begin construction ofa major plant in Schaumburg, Illinois.

A new building was completed at Res-ton, Virginia to house the Mid-East-ern area headquarters for MotorolaCommunications & Electronics, Inc.,the division's sales-service subsidiary.A new sales-service area was estab-lished to increase coverage in theWestern states. It will be headquar-tered in a new building in Los An-geles. Other new facilities are plannedfor area headquarters in San Fran-cisco and Dallas.

The increasingly serious problem ofradio spectrum congestion receivedattention. Key executives and engi-neers have major roles in the LandMobile Advisory Committee of theFederal Communications Commissionand in the Land Mobile Communica-tions Section of the Electronic Indus-tries Association.

CONSUMERPRODUCTSDIVISION

The solid success of Motorola's 23-inchrectangular color television receiversat the market place contributed im-portantly to the consumer productsdivision's record sales in 1965. Colortelevision dollar volume, for the firsttime, topped that of black and whitereceiver sales.

An explosive break-out in consumerdemand caused severe industry short-ages of color television sets duringthe latter months of the year. Re-ceiver production was limited by theavailability of color picture tubes.However, Motorola's program withNational Video Corporation on the rec-tangular color tube positioned thecompany favorably and it was gener-ally acknowledged in the industry thatMotorola solidified its third position inindustry color television sales.

The company's color picture tube plantconstructed at Franklin Park to pro-vide a second source of supply wascompleted during the year, with plansfor production in 1966 proceeding onschedule.

Best estimates are that the now pent-up demand for color television re-ceivers will continue at least through1966. It may be several years beforesupply levels off with demand.

To meet the growing requirements ofthe marketplace, the consumer prod-ucts division embarked upon a sub-stantial expansion program that waswell underway at year's end. Blackand white television production isbeing shifted to the Quincy, Illinoisplant, an experienced home electron-ics facility which has been making

home and portable radios and port-able phonographs for a number ofyears. A major expansion is underconstruction in Quincy, scheduled forcompletion by mid-1966, to handle theincreased volume.

Removal of much of the black andwhite production from Franklin Parkwill open up production areas for ex-panded color television production.Additionally, the corporation acquiredin late 1965 a plant in Elgin, Illinoiswhich has been converted into a feed-er facility for the Franklin Park colortelevision assembly plant.

While color television attracted theheadlines in 1965, black and whitereceiver sales continued at a strongpace but were limited somewhat bystrains on production. The companyexpects black and white televisionsales to continue to mount as smallscreen portables move into morehomes as second and third sets, withcolor consoles taking over the livingroom television viewing.

Phonograph sales went ahead duringthe year, in both portable and consolecategories. The Audio Master Con-trol Center, a design innovation inconsoles, moved the division wellahead of industry performance in thisproduct area. Radio sales were mixed,with strength in some lines, littlechange in others.

During the present year, the divisionwill introduce a Motorola brand carstereo tape player unit for after-mar-ket sales. This product can developinto a substantial business.

An exciting and dynamic marketlooms ahead for the consumer prod-ucts division during the next fewyears. Preparing for a continuedgrowth in business, organizationalchanges were implemented during theyear, giving the division a high degreeof integrated effectiveness and point-ing toward achievement of optimumresults in an attractive environmentof brisk demand for our products. Thedivision's outlook for improved profit-ability and market position is excellent.

10

MILITARYELECTRONICSDIVISION

Motorola strengthened its role as amajor producer of ultra-reliable elec-tronics equipment for critical spaceand defense programs. The divisionachieved new highs in sales, profitsand backlog volume.

Three factors contributed significantlyto these records: the success of re-search programs in developing a widevariety of profitable proprietary prod-ucts, the expansion of participation inthe nation's space efforts, and the ac-celeration of communications andother electronic contracts in supportof the commitment in Viet Nam.

Through company-sponsored research,the already highly successful instru-

mentation product line was broadened.New command receivers and transrponders were developed for both spaceand non-space use.

The TP-4000, a lower cost, high-speed,all-electronic teleprinter, was intro-duced. This teleprinter will providereadout for data processing computersand is applicable to the rapidly growingmanagement-information field.

A line of solid state microwave com-munications and data transmissionequipment was developed, and is beingwell received in the marketplace.

In addition to the U. S. space programs,the division has produced devices foruse in the space programs of virtuallyall free-world countries.

Ranging equipment and receivers werebuilt for the space-ground link systemin U. S. Air Force space programs.

In the Gemini manned space pro-grams, Motorola continued to supplythe successful space-proven digitalcommand system. This advanced elec-tronic command unit receives signalsfrom earth, relieving the astronauts ofmany time consuming functions. Ithas been described by one space ex-pert as "like having a third astronauton board." A similar unit is being pro-duced for the Agena space rendezvoustarget vehicle.

Participation in the Apollo programcontinued to expand during the year.

The Apollo command module will con-tain a Motorola two-way communica-tions S-band transponder and an "updata link" which will receive data fromearth for on-board equipment. For thelunar excursion module, Motorola isbuilding a transceiver. This communi-cations unit will be used by astronautsto transmit voice and television toearth from the spacecraft on the sur-face of the moon.

The division is also developing a spe-cial low-profile helmet mounted an-tenna to enable the moon-probingastronauts to communicate back totheir lunar landing vehicle.

The new digital test command systemsbeing produced for the prelaunchcheckout of the Apollo spacecraft arethe first large scale systems of theirkind to be fully implemented using in-tegrated circuits. The systems will useover 300,000 MECL logic circuits pro-duced by Motorola's semiconductorproducts division, selected because oftheir inherent speed and reliability.

A Motorola transponder and flightdata encoder also performed perfectlyfrom liftoff to impact on the historicRanger lunar photographic probe.

Two other missions which benefitedfrom reliable Motorola communica-tions equipment performance werethe eight-month Mariner/Mars photo-graphic mission successfully com-pleted in July, and the Pegasus Bscientific satellite still in operation. Onthe Mariner/Mars spacecraft a Motor-ola transponder and flight commandsubsystem operated to a distance of183 million miles, bettering all pre-vious distance communication records.

In the non-space areas, the Bureau ofNaval Weapons contracted for a largequantity of guidance and control sys-tems for the Sidewinder Missile. Thedivision received a contract to supplythe second in a series of weather radarrelay systems for the U. S. Weather Bu-reau. AN/TRC-87 ground-air commu-nications systems, regarded as the mostmodern, reliable and readily maintain-able UHF voice communications sys-tem currently in production, were de-livered to the Air Force. Security clas-sified fuze contracts for a variety ofapplications exceeded $12 million in1965. Advances were also made in theareas of combat surveillance, terrain-following/terrain-avoidance radar andundersea electronics.

The diversified awards and accom-plishments throughout the year result-ed from the division's predeterminedbalance of contracts from various gov-ernment agencies which permits a con-tinuing high degree of employmentstability.

11

AUTOMOTIVEPRODUCTSDIVISION

The automotive products division setanother sales record in 1965 with in-creased volume of car radios, elec-tronic alternators and new products.

New highs were reached in radio salesas a result of the record volume of 9.3million automobiles. The division con-tinued to supply radios to Ford MotorCompany, Chrysler Corporation, Amer-ican Motors Corporation, Volkswagen,Renault, British Motors Corporation,and Standard Triumph and to truckmanufacturers such as InternationalHarvester Company, the White MotorCompany, Mack Truck and KenworthMotor Truck Company. With qualityand reliability as the keynote, Motorolacontinued to be the leader in the in-dependent automobile radio industry.

An outstanding achievement duringthe year was the design, developmentand phasing into production of the 8-track stereo tape player. With a jointprogram among Ford, Motorola, andRCA using the Lear cartridge, Ford wasable to lead the industry by one modelyear in offering the tape player as op-tional factory or dealer installed equip-ment. Tape player models, includingAM radio, were offered for the Con-tinental, Thunderbird, and Mustang

cars, fitting into the dash in place ofthe regular radio. Straight tape play-ers were provided for Ford and Mer-cury automobiles.

The division is in the process of ne-gotiating contracts to supply stereotape units to other car manufacturersand will supply the tape deck as acomponent to other manufacturers forhome and auto stereo tape players.

The division broadened its line of elec-tronic alternators by the addition of atotally enclosed unit with companiontransistor regulator. This unit is de-signed for use in tractors and indus-trial equipment where severe dustconditions or fire hazards prevail. Aunit with the transistor regulatormounted as an integral part of thealternator was also added to the line,providing ease of assembly and reduc-tion in wiring harnesses for both in-dustrial and automotive application.The list of companies using Motorolaalternators continues to expand withthe addition of many smaller manu-facturers of industrial and specializedequipment.

The marine alternator line was ex-panded, with the heavy duty line beinglisted by the Yacht Safety Bureau.Chris Craft is now installing alterna-tors in a majority of their new craftand several other marine engine com-panies are also fitting their equip-ment with the Motorola system.

Continued expansion in the interna-tional area is evidenced by a new plantin Midland, Ontario, designed to buildcar radios for both Canadian and U.S.markets as well as consumer productitems for Canadian distribution. Ajoint venture company, Motorola-SouthAfrica, has been formed to manufac-ture alternators in the Union of SouthAfrica. S.E.V.-Motorola S.A. in Paris,France, is experiencing increasingsales in auto rectifier diodes and alter-nators as the European industry isgradually replacing the DC generators.Corporacion Nacional Distribuidora isimproving its alternator penetration inthe Mexican car market.

12

CONTROLSYSTEMSDIVISION

Motorola achieved greater strength andstature in the highly competitive in-dustrial controls field during 1965.

In all three of the division's productlines—supervisory control systems, datasystems, and process control systems-significant advances were scored inproduct development, expansion ofsales and market penetration.

Mobil Oil Company and Texaco Inc.were important additions to the grow-ing customer list which now includesall major American oil companies.

One of the industry's largest single con-tracts was awarded to Motorola byMobil Oil for a Veritrak process con-trol system to be installed at one of thecompany's West Coast refineries. Thecomputer-controlled system is partof Mobil's multi-million-dollar modern-ization program for this refinery.

The Veritrak product line was en-hanced with the development of a com-puter set station to provide an interfacebetween electronic analog controlsystems and a digital computer.

Late in the year, the division obtainedthe Canadian Standards Associationand Factory Mutual approvals on the"intrinsic safety" concept engineeredinto the Veritrak process control equip-ment. This important safety recogni-tion is an industry first.

During the year, Motorola sold morebulk petroleum terminal data systemsthan all of its competitors combined.There are now nearly 100 Motorolasystems in service throughout thecountry. Every major American oilcompany has purchased some type ofMotorola data system.

An automatic data system for self-service fleet vehicle fueling operationswas introduced in September. Thedriver-operated system records thedata of the complete transaction. Thisincludes driver and vehicle identity,type of fuel, and gallons pumped. Italso allows automation of accountingand operations-control procedures.

Consolidated Gas Supply Company,Clarksburg, West Virginia, contractedfor a telememory remote digital con-trol system. This large contract dem-onstrates Motorola's ability to supplya completely integrated system. Inaddition to the supervisory controlequipment, Motorola is supplying amicrowave communications systemfor the pipeline operation, and is pur-chasing, integrating and supplying theneeded computer.

Development of a compact TM-10 re-mote digital monitor and control sys-tem provides, for the first time, thelow-cost monitoring and controllingof up to ten status points.

The sales force was further strength-ened with the opening of district of-fices in Atlanta, Georgia and NewOrleans, Louisiana.

Further progress in market penetra-tion is projected for 1966.

13

INTERNATIONALOPERATIONS

Motorola Overseas Corporation con-tinued to show sales gains around theworld for the diversified product linesof five of the company's divisions.

Sales were the highest in the sub-sidiary's history; orders received in1965 exceeded the previous year byover 25% . Royalty revenues also madesubstantial gains, reflecting healthysales increases of overseas licensees.An additional office was opened inBurlingame, California to service for-eign clients. New distributors wereadded in many free-world nations.

As in past years, communicationsequipment accounted for a substan-tial portion of the increases, particu-larly in the European and Far Easternregions. In the former area, impor-tant sales of portables and base sta-tions were made to the Finnish,Belgian and Greek police organiza-tions. Improved commercial radiosales were noted in Holland. Signifi-cant orders were received from Swe-den for high-stability oscillators.Under the guidance of the company'sBrussels office, a sizeable and efficientgroup of European technicians con-tinued to service U. S. Air Force equip-ment throughout Europe.

In the Far East, increased activity inSoutheast Asia resulted in the forma-tion of a technical service group there,as well as in the achievement ofmajor contracts with the governmentof Viet Nam. Motorola sales engineersworked with several international or-ganizations in providing communica-tions support of peace-keeping opera-tions, in the Middle East, Cyprus,India and Pakistan. Gains were shownby our Philippine associate in the ex-panding business radio market there.

In the Middle East, an important sys-tem of mobiles and base stations wascontracted for by the Turkish police,and by the Bureau of Forestry forsingle sideband units. Motorola IsraelLtd. enjoyed a successful year and isexpanding its staff and scope of oper-ations. In Panama Motorola obtaineda contract for communications equip-ment for the proposed sea-level canalproject, to include a complete packageof mobiles, portables, base stations,microwave and single sideband units.One of the world's largest and mostmodern hospital projects, underway inPuerto Rico, will use Motorola hos-pital communications equipment, prin-cipally doctors' registers and low-frequency pagers. Canadian MotorolaElectronics Company also producedimportant sales of hospital equip-ment including the Scarborough Cen-tenary Hospital in Toronto and RockyView Hospital in Alberta.

Consumer product sales improved inseveral Latin American markets, par-ticularly Puerto Rico and Venezuela.New distributors were added in Ice-land and several developing Africancountries. Licensed production of carradios, stereo phonographs and TVimproved in Argentina, and marketpenetration for locally-assembled con-sumer products was achieved in Chileand Uruguay. Production of car radiosin Brazil went into high-gear, and inMexico our affiliate became the majorsupplier to automobile manufacturers,an enviable position already held byour Argentine associate.

14

A SPECIAL REPORT:

MOTOROLASERVINGSAN JOSE

Through its product diversification. Motorola

can touch the lives of evervone, one wav or

cations systems. In every state and in hun-

dreds of cities, residents are protected, eiven

another, leisure time watching help when needed and provided efficient ser-

television—on a Motorola set, color or mono- vice through two-way radio communications

chrome. Events around the world are brought systems operated by police, fire and sheriff's

into the living room, bedroom or kitchen by departments, utilities, and numerous individ-

radio. We can hear beautiful music at home ual businesses. . . ._ _ „ r....„.„ ^

through stereophonic high fidelity equipment. by Motorola go into many other products used

The radio or stereo tape player in the automo- daily or constantly available for everyone's ben-

bile, may be Motorola's. • Municipalities and efit. • Sophisticated communications equipment

metropolitan areas rely on Motorola communi- systems help the defense services protect our

• ^ vo

country and move our nation forward in space

exploration. • In virtually every community in

the nation, Motorola products work to improve

the efficiency of industrial organizations and

commercial businesses; other products enter-

tain or inform or protect and save lives. • On

the following pages is a picture story show-

ing how Motorola products serve one city.

We selected a middle-sized city, San Jose, Cali-

fornia. It is a city that captures the feel of a

nation on the move. There are many such cities

—like Dayton, Jacksonville, Hartford, Omaha.

The population of San Jose is approximately

300.000, Santa Clara county about 700,000. In

its missions and vineyards, it is steeped in

American tradition. In its burgeoning popula-

tion and prosperity, it represents mainstream

today. With its involvement in the space age,

it forecasts a wave of the future. It is a Lookmagazine All-American City, home of indus-

trial giants and small stable businesses. • And

now, to San Jose . . .

ENTERTAINING AND INFORMING

ABOVE—Color television captures the imagi-nation. The youngsters of the Don Malcolmfamily are among many in the San Jose areanow being delighted by programs with theadded dimension of color. Adults like pro-grams in color too for the added realism andbeauty.

BELOW LEFT—Tiny transistor radios filled withinterest the hours that these two youngsters,David and Lee Leonard, spent while waitingto show their livestock at the Santa ClaraCounty fair in San Jose last summer. "JoeBright Eyes" apparently liked the music aswell. He was named the Grand Champion bull.

BELOW—San Francisco Basketball Coach AlexHannum relaxes in his room at the Hotel St.Claire watching television after a practicesession. This large downtown San Jose hotelhas equipped all of its rooms with Motorolatelevision sets for the enjoyment of its guests.

Virtually all San Jose municipal departments depend upon two-way radio to do their jobs effectively. In order to make sure thatradio coverage blankets every block of the city, San Josecommunications experts have installed base station and micro-wave radio equipment and antennas on this mountain over-looking the valley.

Finding the parents of lost children was just one of manyfunctions performed by the Santa Clara county sheriff's depart-ment at the fair. Sgt. W. E. Johnson radios headquarters to reportthat three-year-old Martha Evans is found and fine. The vasttwo-way radio network speeds service to some 41 cities andtowns in the county.

Farsighted San Jose officials employ electronics to ease theincreasing load of traffic. This new system combines radio,microwave and computers to count cars, determine best trafficpattern programs, then automatically put those programs intoeffect. The system synchronizes traffic signals so they are greenor red at the right time to maximize the flow.

Patients can enjoy radio or television, and instantly contact anurse, through the all-in-one system at the new Alexian BrothersHospital. Focal point is this control unit held by Mrs. WilliamJenkins. With this unit, patients can talk to a nurse, and operatea combination radio-television set. A similar system is beingoperated throughout Doctors Hospital, another San Jose hospital.

20

A compact portable television set is right athome at this California patio party. San JoseArchitect Will Blessing, his wife, Suzanne,right, and close friends, Mr. and Mrs. RobertFerini, watch 12-inch TV on the patio.

PROTECTING LIVES AND PROPERTY

Lightning-like communications puts the SanJose police department right where neededto protect the lives and property of its citizens.Two-way radio directed the chase that cor-nered these car thieves.

Lightweight, portable two-way radios extendcontact for the fire department beyond thestation and vehicle so that firemen can gointo burning buildings, if need be, to coordi-nate rescues and save property. The unit beingoperated by Chief Chris Shannon weighs just33 ounces.

19

BENEFITING BUSINESS AND INDUSTRY

Motorola radio pagers make it easy to reach a man in five secondsanywhere in the sprawling San Jose Continental Can Companycomplex. With thousands of cans made each minute, pinpointcommunications are essential to insure quality control levelsand highest production output. The small pager can be carriedin the pocket or on the belt as Quality Control Supervisor JohnG. Rogers has his. Calls to key personnel can be originated fromany telephone in the plant.

Radio helps cover the news and deliver the daily papers. Two-way units rush San Jose Mercury and News trucks to homeswhere deliveries were missed. Reporters and photographers driveradio-equipped cars to be where the news is happening.

Kfe

TOP—San Jose has hundreds of radio stations. Residents cantune in only a few, however. The rest are two-way radio systemsoperated privately by the city and county and by many industrialand business firms. One is O. C. McDonald Co., Inc., a plumbing,heating and air conditioning company. These systems slashhours and miles off travel to boost a company's own efficiencywhile helping it give customers faster service.

MIDDLE —Two-way radio plays an important role in schedulingthe Piazza Construction Company's operations. Foremen at re-mote and hard-to-reach construction sites can be in touch withthe home office in seconds. By just such efficiency, time andmoney are saved.

BOTTOM—Motorola electronic alternator systems make sure thebattery is charged so the vehicle will go: they rep/ace generators.Businessmen and car owners save money, time and aggravation.Outfits like Peninsula Crane & Rigging, Inc. of San Jose help pro-tect profits by keeping their giant rigs on the job every minute—with reliability provided by Motorola alternators.

21

HELPING INDUSTRY BUILD SUPERIOR PRODUCTS

Little electronic components often do big jobs in control systems.A Motorola diode, no larger than a quarter of an inch, performskey operational functions in a 1710 control system produced byInternational Business Machines Corporation at its ultra-modernSan Jose facility. As IBM Senior Associate Engineer Rodney G.Rockwell studies location of a diode on a circuit board. MotorolaDistrict Sales Manager Charles P. Shaw stands ready to assist.

Combination AM radio and stereo tape players made by Motorolaare installed in 1966 Mustangs at Ford's San Jose assemblyplant. Tapes produce up to 80 minutes of concert stereo sound.

BELOW—FMC Corporation, one of the nation's most diversifiedindustrial giants, headquartered in San Jose, uses Motorola semi-conductors in many sophisticated systems such as teachingmachines, automatic warehouses and this high-speed mail sorterbeing checked by Senior Engineer David G. Curphey.

BELOW RIGHT—A most important advance in electronics is repre-sented by these integrated circuits used by Link Group of GeneralPrecision, Inc. Examining boards consisting of Motorola MECLintegrated circuits for a new Link GP-4 computer are Dr. JohnHunt, vice president for research and engineering. Link Group,and Robert Porter, director. Western Division, Link Group.

22

CONTRIBUTING TO OUR NATION'SMILITARY AND SPACE PROGRAMS

ABOVE—Motorola teams up with Lockheed Aircraft Corporationin a number of major space programs. Here at Lockheed's mam-moth Sunnyvale facility, part of the greater San Jose area,Polaris missile components incorporating Motorola commandreceivers are assembled.

RIGHT—Motorola digital command equipment and a radar Trans-ponder will link earth with the Agena space vehicle being built byLockheed for the rendezvous missions of the dramatic Geminiprogram. The Motorola units are installed in this aft equipmentrack being studied by Lockheed Electronics System InspectorFernando Penelli. M

23

BOOSTING BUSINESS FOR BUSINESSES

Chester Spink, of the beautiful departmentstore. The Emporium Stevens Creek, describessets in the Motorola television line to Mrs.Charles N. Strotz.

Sales representatives and mechanics from SanJose auto supply companies learn the engi-neering and selling features of Motorola elec-tronic alternator systems from William J. Peck,district sales manager for the automotiveproducts division. Clinics sharpen sales andservice abilities of companies to increase theirvolume of business. At this session are repre-sentatives of Carburetor Electric Service Com-pany and United Automotive Service.

ABOVE RIGHT—The comprehensive array ofMotorola entertainment products handled byEverybody's Appliance includes this hand-some stereo phonograph with lift-top tuningbeing demonstrated for Mrs. Ginger Silveraby William Estrada.

RIGHT—Motorola semiconductors are madeavailable to manufacturers in the San Josearea by local companies. Looking over a seriesof transistors are Mario Chirone, right, vicepresident of Elmar Electronics, a Motoroladistributor, and Russell E. Wilson, purchasingagent for Applied Technology, Inc.

ANNUAL MEETING

The annual meeting will beheld on Monday, May 2, 1966.

A notice of the meeting,together with a form of proxy

and a proxy statement,will be mailed to shareholders

on or about April 1, 1966,at which time proxies will

be solicited by management.

TRANSFER AGENTS

Harris Trust and Savings Bank111 W. Monroe St., Chicago, Illinois 60690

Chemical Bank New York Trust Company165 Broadway, New York, New York 10015

REGISTRARS

Continental Illinois National Bank andTrust Company of Chicago

231 S. LaSalle St., Chicago, Illinois 60690

Irving Trust Company1 Wall St., New York, New York 10015

MOTOROLA INC.9401 WEST GRAND AVENUE

FRANKLIN PARK, ILLINOIS 60131

MAJOR FACILITIES LOCATED AT:Chicago, Franklin Park, Quincy,

Elgin, and Palatine, IllinoisPhoenix, Scottsdale, and Mesa, Arizona

Arcade, New YorkMidland, Ontario

MOTOROLA INC., 9401 WEST GRAND AVENUE, FRANKLIN PARK. ILLINOIS 60131