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Motorola Braced for Charges; Analysts Say It Would Survive

July 30, 1987

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

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

William J. Weisz, Motorola vice chairman and chief operating officer, also discussed the matter during a meeting with analysts Wednesday in Chicago.

A federal grand jury in Phoenix, Ariz., is investigating ″defective″ pricing and whether Motorola improperly charged labor expenses on certain government contracts.

U.S. Attorney Stephen McNamee in Phoenix declined to comment.

Motorola, based in Schaumburg, Ill., wouldn’t say what contracts were involved, but analysts who were briefed by Weisz said the pacts ran from 1977-81.

″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 said.

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

Motorola spokesman Chuck Sengstock said the company would have no further comment Thursday.

Paul Johnson, an analyst at L.F. Rothschild & Co. who attended the meeting, 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.″

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 an undiclosed portion of the group’s sales.

Motorola is the 39th-largest defense contractor.

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