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Motorola Braced for Charges; Analysts Expect No Long-Term Harm

July 30, 1987

CHICAGO (AP) _ Motorola Inc. is bracing for government charges linked to overbilling of the Pentagon, but analysts said Thursday the company is unlikely to suffer any long-term harm.

The electronics and communications manufacturer says it expects to be indicted and is considering entering a plea bargain on some of the charges, according to documents filed with the Securities and Exchange Commission in Washington.

A federal grand jury in Phoenix, Ariz., is considering the government’s case. The probe centers on ″defective″ pricing and whether Motorola improperly charged labor expenses on certain government contracts.

In Arizona, U.S. Attorney Stephen McNamee declined to comment.

The Schaumburg-based company wouldn’t say what specific contracts were involved. But analysts who were briefed Wednesday by William J. Weisz, Motorola vice chairman and chief operating officer, said the pacts ran from 1977 to 1981.

″As a result of the federal criminal investigation, Motorola expects either to be indicted or to enter into a plea agreement wherein it would plead guilty to certain charges and be subject to criminal fines and restitutions,″ Motorola’s SEC filing says.

″Motorola has undertaken negotiations with the Department of Justice to resolve these matters,″ the document says.

Motorola spokesman Chuck Sengstock said the company would have no further comment Thursday, although he expressed optimism about its eligibility for future government contracts.

Paul Johnson, an analyst at L.F. Rothschild & Co., said Motorola’s public disclosure indicates two things.

″First, they’re probably guilty and they’ve suggested that,″ Johnson said.

″And two, if they’re guilty, they’re willing to take the punishment. Nine times of 10, when you come forward like this, the penalty isn’t as severe,″ he said.

″I’m sure they said, ’Oh my God, we screwed up. Let’s try to cut it off before it gets out of hand and maybe the penalty won’t be so bad,‴ Johnson said.

Under government procurement regulations, an indictment could result in a one-year suspension from new government contracts, and a conviction could lead to permanent exclusion.

″To our knowledge, no major contractor has been debarred,″ Sengstock said. ″We don’t expect to be debarred.″

Motorola’s government electronics group accounted for about 9 percent, or $526 million, of the company’s $5.88 billion in 1986 sales, he said. Pentagon contracts accounted for only a portion of the group’s sales.

″In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the business or financial position of the company,″ Weisz said. Johnson agreed.

Adam Cuhney, a Kidder, Peabody & Co. analyst who also was briefed by Motorola executives, said the nation’s 39th-largest defense contractor is following in the footsteps of some of its larger competitors.

″These people haven’t done anything that other defense contractors haven’t been caught doing,″ Cuhney said.

″It’s not something that you want to happen, of course,″ he said from San Francisco. ″Certainly you don’t want your other customers to see you’ve been overcharging the government, but Motorola will survive.″

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