Motorola posts loss for first time in 71 years

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."