Motorola posts loss for first time in 71 years

By : |March 30, 2002 0



Claire Soares

WASHINGTON: Wireless technology giant Motorola Inc. said on Friday it had
canceled chairman Christopher Galvin’s bonus and frozen his pay last year
because of the company’s "unsatisfactory financial performance".

Its annual shareholder proxy, filed with the US Securities and Exchange
Commission, showed Motorola paid Galvin an unchanged salary of $1.3 million in
2001 but not the $1.25 million bonus awarded the previous year.

In 2001 Motorola, the world’s second largest maker of wireless telephones
after Finland’s Nokia, posted a loss before one-time items for the first time in
71 years, because the industry was hit by a slowdown in consumer spending.

But Galvin, who is also chief executive, was granted options for 900,000
Motorola shares. The options, which carry an exercise price of $14.41, could be
worth up to $20.7 million if the stock appreciates at 10 per cent a year until
they expire in 2011.

Motorola’s stock fell almost 26 per cent last year, declining less than its
peer group in the Standard & Poor’s Communications Equipment Index, which
slid 72 per cent. Shares in the Schaumburg, Illinois-based company closed up 3
per cent at $14.20 on Thursday on the New York Stock Exchange. The markets are
closed on Friday for the Good Friday holiday.

Galvin, Motorola chairman for nearly three years, acquired 168,000 shares in
2001 by exercising options with a value realized of $2.7 million. "Value
realized" is the difference between the price Galvin bought into the option
and the market price on the exercise date. The number does not necessarily
reflect what he might receive if he sells the shares because the market share
price may have changed.

The proxy showed the 51-year-old chairman directly or indirectly held
14,048,014 shares as of Jan. 31. Motorola also said in the proxy it would be
retaining KPMG as its auditors. But even the telecommunications giant could not
avoid the ramifications of the Andersen-Enron debacle.

Separation of audit and non-audit?
An Alexandria, Virginia-based pension fund, which owns 162,000 Motorola
shares, proposed that the company not employ the same accounting firm to do
audit and non-audit work.

The collapse of energy giant Enron Corp. has put the spotlight on the thorny
issue of auditor independence. Critics point to the $25 million in audit fees
and the $27 million in non-audit fees that Enron paid Andersen and question
whether that affected the auditor signing off on books that hid billions of
dollars in off-balance-sheet debt.

The Sheet Metal Workers’ National Pension Fund noted Motorola billed KPMG
more for non-audit services than audit services in 2000 — $3.9 million versus
$62.3 million. "We believe that this … may at a minimum create the
perception of a conflict of interest that could result in a lack of owner and
investor confidence in the integrity of the company’s financial
statements," the pension fund said.

But Motorola recommended shareholders vote against the proposal, saying
measures were in place to safeguard auditor independence. The company said the
non-audit services KPMG provided were mainly tax services.

"And we have also mandated that the company’s auditors may not provide
IT consulting, internal audit services or financial transaction structuring
services in the future."

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