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March 26, 2002
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, NW
Washington, DC 20549
Attention: Filing Desk
Gentlemen:
Re: Symbol Technologies, Inc.
Annual Report on Form 10-K
For Fiscal Year Ended
December 31, 2001
File No. 1-9802
On behalf of Symbol Technologies, Inc. (the
"Company"), I transmit for filing under the Securities and
Exchange Act of 1934 (the "Act"), the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 2001. I have
been advised by the Company that the financial statements
contained in the report do not reflect any changes from the
preceding year's financial statements with respect to accounting
principles or practices or in the method of applying such
principles or practices.
If you have any questions regarding the enclosed
materials, please call the undersigned by collect telephone at
(631) 738-4765.
Very truly yours,
S/Leonard H. Goldner_
Leonard H. Goldner
Executive Vice President
and General Counsel
LHG:dac
March 26, 2002
Securities and Exchange Commission
Washington, DC 20549
Gentlemen:
In connection with the undersigned's Annual Report on
Form 10-K for the year ended December 31, 2001 and pursuant to
Item 601(b)(4)(iii) of Regulation S-K, the undersigned has not
filed as an exhibit any agreement in which the total amount of
securities authorized thereunder does not exceed 10 percent of
the Registrant's total consolidated assets. The Registrant,
however, agrees to furnish a copy of such document to the
Commission if so requested.
Very truly yours,
SYMBOL TECHNOLOGIES, INC.
s/Kenneth V. Jaeggi
Kenneth V. Jaeggi
Senior Vice President-Finance
and Chief Financial Officer
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001 Commission file number 1-9802
SYMBOL TECHNOLOGIES, INC.______________
(Exact name of Registrant as specified in its charter)
Delaware 11-2308681______________
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Symbol Plaza
Holtsville, NY 11742-1300
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including
area code: (631) 738-2400
`
Securities registered pursuant to
Section 12(b) of the Act:
Common Stock, par value $.01 New York Stock Exchange___
(Title of each class) (Name of each Exchange on
which registered)
Securities registered pursuant to Section 12(g) of the Act: 7.5 percent
Convertible Subordinated Debentures of Telxon Corporation, a wholly owned
subsidiary of the Registrant, Due 2012.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.____
The aggregate market value of the registrant's voting stock held by
persons other than officers and directors and affiliates thereof, as of
February 15, 2002, was approximately $1,871,000,000.
The number of shares outstanding of each of the registrant's classes of
common stock, as of December 31, 2001, was as follows:
Class Number of Shares
Common Stock, par value $.01 228,780,699
Documents Incorporated by Reference: The registrant's Proxy Statement to be
used in conjunction with the Annual Meeting of Shareholders to be held on
May 6, 2002 (the "Proxy Statement") is incorporated into Part III.
PART I
Item 1. Business
The Company
Symbol Technologies, Inc. ("Symbol" and, together with its
subsidiaries, the "Company"), a Delaware corporation, is the
successor by merger in 1987 to Symbol Technologies, Inc., a New
York corporation which commenced operations in 1975. The Company
has evolved from a supplier of bar code verification products
into a leading global provider of wireless networking and
information systems that allow users of its products to access,
capture and transmit information at the point of activity over
local area networks (LAN), wide area networks (WAN) and the
Internet. The Company is the only corporation in its industry
with in-house technology for the design and manufacture of
products in its three core technologies: bar code reading
devices, mobile computing devices and network systems. The
Company is engaged in two reportable business segments-the
design, manufacture and marketing of scanner integrated mobile
and wireless information management systems, and the servicing
of, customer support for and professional services related to
these systems. These systems are used worldwide in diverse
markets such as retail, transportation and logistics, parcel
delivery and postal service, warehousing and distribution,
industrial, health care, hospitality, education and government.
On March 14, 2000, the Company was awarded the National
Medal of Technology, the nation's highest honor for technological
innovation. The award was given to the Company "for creating the
global market for laser bar code scanning and for technical
innovation and practical application of mobile computing and
wireless local area network (WLAN) technologies". The medal,
which recognizes exceptional U.S. scientific and engineering
innovations, has been awarded to only 12 corporations in its
history. Other corporate recipients of the award are AT&T Bell
Laboratories, The DuPont Company, IBM, Merck & Co. Inc., Amgen
Inc., Corning, Inc., The Proctor & Gamble Company, 3M, Johnson &
Johnson, Biogen, Inc. and Bristol-Meyers Squibb Company.
Telxon Acquisition
On November 30, 2000, a wholly owned subsidiary of the
Company was merged with and into Telxon Corporation ("Telxon") in
a stock-for-stock merger. The acquisition enhanced Symbol's
opportunities in hand-held computing systems across many
industries and vertical applications. Telxon is operating as a
wholly owned subsidiary, although portions of its operations were
consolidated with Symbol in order to obtain operating
efficiencies and synergies by eliminating duplicate functions,
rationalizing manufacturing facilities and sales offices and
realizing purchasing, sales, manufacturing and other
efficiencies.
Company Products and Services
General
The Company develops, manufactures, sells and services
scanner integrated mobile and wireless information management
systems that consist of mobile computing devices, WLAN, bar code
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reading devices, network appliance devices, peripheral devices,
software and programming tools and are designed to provide
solutions to customer specific needs in information transactions.
They are used in a variety of applications from collecting
information at remote locations and transmitting information
between these locations and the user's central data processing
facility to facilitating e-commerce transactions by accessing and
collecting price and product information at the point of activity
for storing or placing orders via the Internet. Several Symbol
devices also connect wirelessly to WANs.
The Company's mobile computing devices are microprocessor-
based, lightweight and battery-operated hand-held computers.
Information may be captured by a device that reads bar codes or
may be manually entered via a keyboard, a touch screen or a pen
computer display/entry device. The information collected by the
mobile computing device can then be transmitted instantly to a
host computer across a WLAN or in some instances by modems (batch
file transfer mode). Over 90 percent of the Company's mobile
computing devices include an integrated bar code reader and
approximately 90 percent offer optional integrated WLAN or WAN
communication capability. Depending on the model, the Company's
mobile computing devices may have up to 64 megabytes of RAM for
information storage and multiple input and output capabilities
for the connection of printers, bar code readers and
communications devices.
The Company distributes the most complete line of bar code
reading equipment in the world. The Company's bar code reading
products consist of devices designed to capture and decode one-
and two-dimensional bar code symbols and store, process and
transmit information. The Company designs and manufactures
miniature scan engines, hand-held bar code readers, portable
presentation scanners and fixed station point-of-sale scanners
most of which employ laser technology to read information encoded
in bar code symbols. The Company's bar code reading equipment is
compatible with a wide variety of information collection and
retrieval systems, including computers, electronic cash
registers, portable information collection devices and the
Internet. Bar code readers are used to improve inventory
management, productivity and cycle time in retail, transportation
and logistics, parcel delivery and postal service, warehousing
and distribution, factory automation, e-commerce and many other
applications.
The Company provides wireless communication solutions that
connect its mobile computing devices and bar code reading
equipment to wireless LANs and WANs. Based on spread spectrum RF
technology, the Company's WLAN products provide real-time
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wireless data communication at data rates of up to 11 Mbps and in
combination with the Company's telephony devices, provide
wireless voice and data communication over TCP/IP data networks.
Unlike traditional narrow band RF-based networks, installation of
the Company's spread spectrum systems requires no individual site
license from the U.S. Federal Communications Commission (FCC).
Design engineering and support for both the Company and OEM
wireless network systems is conducted in the Company's San Jose,
California facility. The focus of the group is the design of
wireless network transaction systems, the Company's Spectrum 24
WLANs and support for the integration of those high-performance
networks into customers' data networks and enterprise-wide
information systems.
Products
The PDT family of mobile computing devices features advanced
technology including Application Specific Integrated Circuits
(ASIC) and Very Large Scale Integrated (VLSI) circuits, which
incorporate many standardized integrated circuits into one
computer chip allowing for size and cost reductions. Also, the
PDT family employs surface mounted component technology for
reduced size and increased performance and dependability, as well
as industry standard 8-, 16- and 32-bit microprocessors. The PDT
family includes a series of mobile computing devices that are
available with different features and at varying costs depending
on customer requirements and preferences. PDT mobile computing
devices feature up to one-quarter VGA liquid crystal display,
slim, lightweight design, multiple input and output ports and up
to 96 megabytes of internal memory. PDT mobile computing devices
have various keyboard configurations, including a user
configurable keyboard and WLAN communication capability. The PDT
family was originally introduced in 1985.
In 1993, the Company introduced the PDT 3100, a 16-bit DOS
compatible mobile computing device incorporating a laser scan
engine and featuring a swivel-head scanner design that adjusts
instantly for right- or left- handed scanning applications. In
1996, the Company introduced a limited performance, lower cost
version of the PDT 3100. In 1998, the Company introduced the PDT
6100 Series of mobile computing devices, a sleek, compact,
ergonomically designed version of the PDT 3100 featuring a choice
of display options.
As a result of the acquisition of Telxon in 2000, the
Company also offers the PTC-710. The PTC-710 is a low-cost,
hand-held portable data terminal designed for sales order entry,
inventory control and other applications requiring batch data
communications.
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The PDT 6800, introduced by the Company in 1998, is a
versatile mobile computing device combining ruggedized housing
for use in industrial settings with a small, light-weight,
ergonomic form factor suitable for scan intensive retail
applications. The PDT 6800 has a 46-key alphanumeric keypad for
easy information input and a 16-line back-lit display for greater
data content and readability. In 2001, the PDT 6800 was the
Company's largest selling mobile computing device.
As a result of the acquisition of Telxon, the Company added
additional mobile computing devices. The PTC-960SL was Telxon's
best selling product and is a multi-purpose data management
terminal well suited to both retail and industrial environments.
This device is similar in performance and design to the PDT
6800. The PTC-960SL employs a non-shift full alphanumeric
keyboard, a 16-line by 21-character graphic LCD display, and
offers a choice of three integrated scanners for standard, long
range, or high visibility scanning. An integrated radio provides
wireless networking capability.
Introduced by the Company in 1999, the PDT 7500 is a sealed,
industrial use mobile computing device designed to withstand
extreme conditions in transportation and logistics environments.
Weighing only 19oz., the PDT 7500 is light enough for extended
periods of use. Color-coded keys facilitate information entry and
a 1/8 VGA screen with a 20-line back-lit display provides easy
viewing of information even in dimly lit areas. The PDT 7500's
486-based microprocessor supports accelerated information
processing and an integrated laser scan engine provides both one-
and two-dimensional scanning capability. The Company introduced
a wireless wide area network(WWAN) version of the PDT 7500 in
2000.
In 2001 the Company introduced the PDT 8100 series, which
bridges the gap between pure pen-based and key-based mobile data
collection solutions. The PDT 8100 is the first "Pocket PCr"
device available with multiple keyboard options. It is also
sealed to IP54 standards, and has batch, WLAN and WWAN options.
The PDT 8100 features a large easy to read one-quarter VGA
display, backlit keyboard and rechargeable extended-use lithium-
ion battery. The PDT 8100 uses an Intelr Strong ARM processor
operating at 206 MHz, and can be equipped with 32 or 64 MB of
RAM, and 32 MB of ROM.
In 1995, the Company introduced its first wearable scanning
system, the WSS 1000, an innovative hand-mounted bar code-based
information transaction system that allows mobile hands-free bar
code scanning, information collection and LAN connectivity. The
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WSS 1000 wearable computer system was designed for users who rely
on the efficiency and accuracy of bar code scanning but require
the use of both hands to perform job functions. The system,
which consists of two components, combines the RS-1, a miniature
scanner worn as a ring that allows the user to simply touch a
thumb and index finger contact switch to scan a bar code and a
compact, light-weight, wrist mounted computer with display which
permits wireless communication to the host computer. In 1997,
the Company introduced the WS 1200-LR, a back-of-the-hand mounted
scanner. Similar to the RS-1 wearable scanner, the WS 1200-LR is
triggered by a thumb-actuated switch mounted on the user's index
finger, however the WS 1200-LR is capable of scanning at longer
distances than the RS-1 ring scanner. In 2001, the Company
introduced the SRS-1 ring scanner, a lightweight low profile
design that allows users to pick, scan and pack items in tight
spaces.
The PTC-2134 and PTC-2234 are pen-based mobile computing
devices which were added to the Company's product offerings in
2000 as a result of the Telxon acquisition. The PTC-2134
features a diagonal full-VGA touch-screen and supports Windows 95
and Windows CE. The PTC-2134 supports WLAN. The PTC-2234
extends the PTC-2134 series for use in hazardous locations and is
approved for use with a non-incendive rating.
In 1998, the Company and Palm Computing, Inc., developer of
the Palm? line of hand-held computers, entered into an agreement
under the terms of which the Company manufacturers and
distributes touch- and pen-input personal productivity tools
utilizing the Palm operating system with an embedded bar code
reading device. A new agreement between the Company and Palm
Computing, Inc. was executed in 2001. Introduced in 1998, the
SPT 1500, a pocket sized mobile computing device based upon the
Palm III architecture was the first of such products introduced
by the Company. In 1999, the Company introduced the SPT 1700, a
ruggedized version of the SPT 1500 with wireless LAN
communication capability. In 2001, the Company introduced the SPT
1800, with a 33MHz processor and a high contrast LCD display.
With an embedded laser scan engine, the SPT 1700 and the SPT 1800
provide users with the latest bar code scanning technology for
collecting information and the Palm operating system allows
programmers to easily build applications using scan-embedded
graphical development tools. Designed for use in office workflow
automation, route accounting, healthcare, education, retail,
industrial and warehouse settings, the SPT 1700 is suited for use
in any application where mobile workers need to collect and
manage information at the point of activity. The SPT 1700 has 2MB
each of random access memory and flash memory and is available in
an optional 4MB of flash memory and 8MB of random access memory
configuration to accommodate larger application demands. In
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2000, the Company introduced a version which reads two-
dimensional bar codes as well as one-dimensional barcodes. The
SPT 1800 is intended to replace the SPT 1700 in 2002.
The Company also introduced two WWAN versions of the SPT
1700 in 2000, the SPT 1733 and SPT 1734. The SPT 1733 works with
the CDPD network while the SPT 1734 is based on the GSM standard.
Both products offer Internet connectivity and enable access to
web-based applications or corporate intranet data from any phone
where wireless IP service is available.
Introduced by the Company in 1999, the PPT 2700 mobile
computing device is substantially similar to the SPT 1700;
however, it is based on the Microsoft Windows CE operating
system. Designed to work specifically with mobile computers, the
Windows CE operating system allows PPT 2700 users to collect
information via a familiar Windows interface and allows
developers to create applications with standard 32-bit desktop
tools. In 2000, the Company introduced a version of the PPT 2700
that runs on Microsoft's Pocket PC operating system. The PPT
2700's ruggedized design, integrated laser scan engine and
Spectrum 24 WLAN connectivity allow users in harsh environments,
such as warehouse management, and in diverse applications, from
medical service providers to school administrators and teachers,
to access remote information at the point of activity. The
Company also introduced in 2000 a version of the PPT 2700 that
reads two-dimensional bar codes as well as WWAN versions of the
2700 that operate on the CDPD and GSM networks, respectively. In
2001, the Company introduced the PPT 2800, a Pocket PC based
terminal that includes bar code scanning and real time wireless
communication options. The PPT 2800 features extensive Internet
browsing capabilities, WLAN or WWAN communication, the Intelr
StrongARM SA 1110 processor, running at 206 MHz, and 32 or 64 MB
of RAM, and 32 MB of ROM. In 2001, the Company also introduced
versions of the PPT 2800 with a color screen. The PPT 2800 is
intended to replace the PPT 2700 in 2002.
In 2001, the Company also introduced the SPS 3000, the first
expansion pack that delivers integrated data capture and real-
time wireless communication to users of the Compaq iPAQT Pocket
PC. The SPS 3000 pack attaches easily to the Compaq iPAQ Pocket
PC H3600 or H3100 Series, and is available in these feature
configurations: scanning only, WLAN only, and scanning and WLAN.
In 1999, the Company introduced the VRC 6900, a ruggedized
vehicle mounted or wall mounted key-based computer capable of
withstanding extreme temperatures and harsh industrial
environments.
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Due to the Telxon acquisition in 2000, the Company began
offering a fixed mount terminal, the PTC-860IM, which is an
industrial strength mobile computer that can be used on a
forklift or as a fixed mount device. It is designed to capture,
process and communicate information from virtually anywhere in
the mobile workplace. The PTC-860IM features large ergonomically
designed keys and a full alphanumeric keypad, and is compatible
with the Company's line of bar code reading devices.
In 2001, the Company introduced the VRC 7900 series vehicle
radio computer. The VRC 7900 features a 32 bit StrongARM?
processor, the Windows CE operating system, a 65-key QWERTY
keyboard and a 1/2 VGA color display. It supports real-time
servicing, tracking, put-away and shipping applications. A
quick-release mounting bracket easily secures the VRC 7900 to
fixed-mount locations or forklifts, and allows for faster porting
between vehicles. The VRC 7900 is also sealed to IP65 standards
and supports both Spectrum 24 2Mbps and 11 Mbps data rate radios.
Introduced by the Company in 1996, the Symbol Mobile Gateway
(SMG) is an industrialized, PC-based host computer designed for
installation in truck cabs and cars. A wireless WAN radio modem
provides communication across major wide area network systems to
a user's enterprise-wide network and Spectrum 24 LAN capability
connects the SMG to the Company's mobile computing devices,
providing in-vehicle connectivity and communication capabilities
for motor freight, parcel delivery and private fleet operations.
The Company sells several different hand-held laser
scanners, the most important of which is the LS 4000I. The LS
4000I was introduced in 1998. The LS 4000I is a trigger
operated, visible laser diode-based scanner capable of reading
PDF 417, a high-density, high-capacity portable data file storing
approximately one kilobyte of data in a machine-readable code and
all conventional linear bar codes. PDF 417 is a two-dimensional
bar code symbology that incorporates error correction capability
and has one hundred times the information capacity of a
traditional linear bar code. Unlike linear bar codes, PDF 417
can contain an entire data record reducing or eliminating the
need for an external system of linked information storage. PDF
417 may be read by either a laser-based bar code reader or a CCD
imager. Most other two-dimensional codes can only be read by a
CCD imager. The LS 4000I combines high-performance scanning and
an advanced ergonomic form factor making it ideal for price
scanning and inventory management in a wide variety of retail and
commercial applications.
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In 2001, the Company introduced the CobraT LS 1900 series, a
lower cost, lightweight, ergonomically designed scanner. The LS
1900 scanner, available in a trigger operated version or with a
hands-free stand to allow for presentation scanning is ideal for
use in convenience, retail and specialty stores.
In 1998, the Company introduced a new category of "smart
scanners", the P 460. The P 460 is a hand-held memory scanner
with up to 8 MB of total memory and an integrated keypad and LCD
display that provide enhanced input and output capabilities.
Designed for multiple uses primarily in the retail market, the P
460 is capable of operating interactively with a host as a corded
scanner for point-of-sale applications, while a wireless version,
the P 470, provides wireless point-to-point communications for
back-office or in-store applications such as physical inventory,
cycle counts and gift registry.
The P 300 Series, introduced in 1999, is an extension of the
P 460 family of smart scanners. Ruggedized and ergonomically
designed, the P 300 is a hand-held scanner that meets stringent
industrial standards and can withstand harsh environments. The
Company's "smart" cables provide scanner-to-host computer
communication and advanced data formatting allows users to easily
program the P 300 to match their host system's data input
formats. Versions of the P 300 can also read two-dimensional bar
codes and other versions transmit information wirelessly over the
Company's Spectrum 24 WLAN. The P 360, is a version of the P 300
featuring a top-mounted keypad and display for entering and
viewing data. The P 370 is a cordless version of the P 360.
In 1999, the Company introduced the Vision System 4000 (VS
4000) Series, the first in an intended series of CCD imaging
devices. The VS 4000 is a hand-held image scanner capable of
reading bar code symbologies presented in any orientation and
digital image capture. An embedded CCD imaging engine provides
VGA resolution images and user-selectable imaging options, and
allows users to choose image characteristics such as compression,
quality, transfer time and file size.
In 2000, due to the Telxon acquisition, the Company
introduced the P300 IMG Industrial Bar Code Imager, a rugged
hand-held imager for reading all major bar code symbologies.
This product is designed to meet stringent industrial standards
and can also capture images and signatures.
Introduced in 1998, the LS 6000 Series is a trigger
operated, high visibility laser diode-based scanner capable of
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omni-directional and single line scanning. The LS 6000's
ergonomic design provides for comfortable use either as a hand-
held scanner or with an optional fixed mount stand as a
presentation scanner; this flexibility allows for increased
throughput in high-volume, point-of-sale retail applications.
Introduced by the Company in 2000, the Cycloner M 2000
Series is a versatile countertop projection and hand-held scanner
that allows users to select from three different scan patterns
depending upon their scanning requirements. With an integrated
laser scan engine, the M 2000 is capable of scanning in a
rotating omni-directional scan pattern for reading linear bar
codes in any orientation, a smart raster scan pattern for reading
two-dimensional bar codes and a high density single line scan
pattern for reading poorly printed and damaged bar codes.
Designed for retail and light industrial use, the M 2000's
ergonomic built-in stand provides for both hand-held scanning and
hands-free counter top or wall mount scanning.
In addition to its hand-held scanners, the Company also
offers several families of "hands-free" scanners. Unlike the
Company's hand-held scanners, these scanners are usually
triggered by an object sensor to enable use in situations where
use of both hands is required.
In 1994, the Company introduced the LS 9100, a laser diode-
based projection scanner. The LS 9100 generates a large omni-
directional pattern of twenty interlocking laser lines that can
read bar codes at various angles for high productivity scanning.
The LS 5700 and the LS 5800 miniaturized slot scanners were
introduced by the Company in 1996. The LS 5700 was designed to
accommodate all vertical or "on counter" applications and
incorporates a full sleep mode function which allows the motor
and laser to turn off after a prolonged period of scanner
inactivity, extending scanner longevity and reducing power
consumption. The LS 5800 operates in horizontal or "in counter"
applications and features rugged housing and a sealed exit window
that resists spills and dirt.
In 2000, the Company introduced the Magellanr SLT Slimline
family of 360-degree scanners for high volume point of sale
environments such as supermarkets, hyper markets and mass
merchandisers. The Magellan family includes a scanner/scale
version that provides added functionality and increases
productivity at the check-out counter.
In 2001, the Company introduced the MK 1000 microkiosk, an
interactive, automated customer self-service device. An
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integrated omni-directional scanner allows customers to simply
pass a bar code label in front of the MK 1000's scan window and
an easy-to-read display provides price and product information
and real-time information on in-store and frequent shopper
promotions.
In 1990, the Company began marketing bar code laser scan
engines that are integrated by unaffiliated third parties into
their portable computing devices.
The SE 1200, introduced by the Company in 1996, measures
1.15 cubic inches and weighs a little more than one ounce,
enables third party manufacturers to integrate high-performance
laser scanning into a variety of devices including hand-held
computers, medical instruments, diagnostic equipment, lottery
terminals and vending machines. The SE 1200 has a working range
and ability to read poor quality bar codes equal to that of hand-
held scanners. In 1997, the Company introduced a high density
version of the SE 1200 capable of reading miniaturized bar codes.
In 2000, the Company released an advanced long range version of
the SE 1200 capable of scanning at distances up to 30 feet.
The SE 900, introduced by the Company in 1998, is one of the
smallest, lightest scan engines available today. Measuring only
0.2 cubic inch, the SE 900 is 20 percent the size and 15 percent
the weight of the SE 1200, allowing third party manufacturers to
integrate bar code scanning capabilities into smaller devices
without compromising the ergonomic design of the device. The
High Speed SE 900 HS, introduced in 1999, scans at a speed of up
to 200 scans per second and has a working range of 2 to 23 inches
and is capable of reading both one-dimensional and two-
dimensional symbologies.
The SE 9100 Series scan engine, introduced in 1995, is a
high speed, omni-directional scan engine providing dense scan
line coverage from the face of the scanner up to a distance of
eight inches allowing quick "swipe" scanning as well as standard
presentation scanning.
Introduced by the Company in 1999, the SE 3223 scan engine
scans at speeds of up to 600+ scans per second, and supports
three modes of operation; single scan line mode, smart raster
mode for reading two-dimensional symbols and a "cyclone" pattern
for omni-directional scanning of linear bar codes in any
orientation. In 2000, the Company introduced the SE 2223 scan
engine optimized for aggressive reading of both one-dimensional
and two-dimensional symbols using "Smart" raster technology.
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Introduced in 1994, the LS 1220 is a fixed-mount scanner
designed for variety of devices requiring accurate unattended
automated data entry such as kiosks, ATMs, and lottery terminals.
In 1996, the Company introduced the LS 6804 fixed-mount
scanner, a high-speed raster scan engine in a durable die-cast
metal housing that can read any one-dimensional or two-
dimensional PDF417 bar code quickly and accurately.
In 1999, the Company introduced the SE 4200 series imaging
engine, a high-performing CCD image processor that is capable of
reading all major one-dimensional and two-dimensional bar code
symbologies and digital image capture.
In 1993, the Company introduced a self shopping system for
food and non-food retailers. The system, which is integrated
with the retailer's point-of-sale system, utilizes a mobile
computing device with an integrated laser scanner that allows
shoppers to scan and tabulate their purchases as they shop. The
system has been installed worldwide at selected mass merchandise,
retail, food and other retail operations.
In 1996, the Company introduced a version of the self
shopping system capable of communicating via the Company's WLAN
which has replaced the batch version of the system. This wireless
system enables distribution of marketing and promotional content
to consumers while they shop. There are currently self shopping
systems installed or ordered in over 500 stores in 40 chains in
20 countries on 5 continents.
The CS 2000, introduced by the Company in 1999, is a
miniature, laser-based memory scanner and Internet appliance
designed for use in the consumer electronic retail market. The
pocket size CS 2000 allows consumers to browse through retailers'
printed catalogs, advertisements and documentation, scan a bar
code for items of interest, and quickly and efficiently order or
obtain additional information on the item through the Internet.
In addition, the CS 2000 can be used by shoppers in retail
establishments and malls to scan bar codes on items of interest,
capturing the item's description and price, and then to download
the information to an Internet web site for later retrieval.
The Company enhanced its consumer scanning product line in
2000 by introducing the CS-1504, a laser scanner small enough to
fit on a key chain. The highly portable device allows consumers
to read bar codes and link to the web, or create a shopping list,
anywhere. Up to 150 bar codes can be stored in its internal
memory. Its functionality includes scan, delete and clear, and
it can be linked to a computer with a cable connection.
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The Company also introduced in 2000 the innovative CSM 150
Bar Code Scanner for HandspringT VisorT Handhelds. The Visor is
a well known hand-held computing device that runs on the Palm
operating system. The CSM 150 scan module plugs directly into
the SpringboardT expansion slot at the back of any visor and
transforms any Handspring Visor into a consumer bar code scanner.
The scanning enabled Visor can be used for electronic shopping
and other e-commerce applications.
The Company offers spread spectrum-based, WLAN products.
Spectrum 24r, introduced in 1995, is a high-performance,
frequency hopping network that operates at 2.4 GHz frequency.
Based on spread spectrum RF technology, Spectrum 24 networks
provide real-time wireless data communications with a host
computer for hundreds of portable and fixed-station computers and
radio-integrated scanners. In 1998, the Company introduced a 2Mb
version of the Spectrum 24 network and in 1999, the Company
introduced a direct sequence, WLAN that supports high throughput
applications up to 11 Mbps. This high data rate WLAN, based on
the IEEE 802.11b open airwaves standard for 11 Mbps data
transmission, now provides users with high-speed wireless
capabilities for rapid data transfer from server to terminal,
image transfer, Internet communications, customer self-scanning
services and streaming video. In 2000 and 2001, the Company
introduced additional 802.11 compliant 11 MB radio cards and
access points. Installation of the Company's wireless networks
at various customer sites began in 1991 and these networks are
now installed in over 50,000 sites worldwide. The spread
spectrum-based systems work in tandem with a broad range of the
Company's wireless mobile computing and telephony devices.
In 1998, the Company introduced the NetVision? wireless LAN
telephone system. Based upon voice-over IP technology, the
telephone which looks like a standard cellular telephone, allows
users to place or receive calls worldwide, without additional
charge, between other telephones or PC-based telephones located
at any site served by an internal TCP/IP network. To date sales
of the NetVision telephone have not been material. The NetVision
system connects to a user's TCP/IP system via the Company's
Spectrum 24 WLAN. In 1999, the Company introduced a new network
appliance in the NetVision line, the NetVision Data Phone. The
NetVision Data Phone integrates voice communication, a bar code
scanner, a data entry keypad, a Web browser, a serial port for
printing and a Spectrum 24 WLAN radio card into a single
lightweight device that allows users to bridge the gap between
voice and data networks and the Internet. The combination of
communication capabilities makes the NetVision Data Phone a
useful productivity tool for a wide range of industries including
-12-
retail, warehouse, healthcare and education. In 2001, the Company
introduced a Spectrum 24 high rate 802.11b version of the
NetVision phone and several new NetVision software clients.
Product list prices for the Company's products generally
range between $100 to $11,000, depending on product
configuration. The Company offers discounts off list price for
quantity orders and sales are frequently made at prices below
list price.
Software and Programming Tools
The Company's products and systems utilize software which
consists of a number of specialized applications and
communications software programs, that run under a variety of
operating platforms including Microsoft MS-DOSr, Caldera DR-DOS,
Palm OS, Microsoft Windows?, Microsoft Windows CE and Microsoft
Pocket PC. A series of application development kits (ADKs) and
software development kits (SDKs) are available to allow the
Company's programmers, value added resellers (VARs) and end-user
customers to develop applications that fully utilize the
integrated features of the Company's family of mobile computing
devices. The ADKs and SDKs provide the software drivers and
libraries required to maximize product performance. Used in
conjunction with industry standard development tools, software
developers can easily create and support applications to meet
specific customer requirements.
The Company also provides scalable network management
software that allows users at local and remote sites to
administer, configure and manage the Company's Spectrum One and
Spectrum 24 wireless network systems. The Company recently
introduced AirBEAMr software that allows users to upgrade
operating systems on, and distribute application software to,
key-based and pen-based mobile computing devices over any
wireless local area network.
The Company has also developed several communication
applications designed to facilitate transmission and reception of
data between mobile computers and stand-alone receivers or host
computers. These applications include a suite of terminal
emulation products, host enablers and various protocols. The
Company has entered into alliances with independent suppliers of
software who assist the Company in development of software.
-13-
Global Services
General
The Company's global services organization incorporates a
full range of professional and customer support services - from
project planning and network design through integration and
installation to ongoing service and support. Services are
aligned to address the four phases of a systems project:
Planning, Development, Implementation, and Support. Services are
modular and can be tailored to match customer requirements.
Services are sold both directly to end-user customers and through
the Company's business partners.
During the fourth quarter of 2001, the Company segregated
the service activities of its business and formed a new global
services organization.
Professional Services
The Company's professional services address the first three
phases of a systems implementation. Planning services include
consulting services, network design services, site survey, and
project management. Development services include system
integration, custom training, custom hardware development, and
application development. Implementation services provide for the
physical installation of hardware and software, as well as
configuration and test of the system both before and after
installation. Services include staging, installation services,
and system commissioning.
The Company's Wireless Network Services incorporate a
focused subset of services required for wireless network
implementation and ongoing support.
Customer Service and Support
The Company has a customer service and support organization
that provides repair and maintenance service for the Company's
products. The Company currently offers a variety of service
arrangements to meet customer needs. The Company's service
contracts generally have a term of from one to five years.
The Company's On-Site System Support program provides for
maintenance and repair at the customer's location. Service is
initiated via a phone call; a Symbol Support Specialist will then
offer problem determination and resolution. If an on-site
response is required, a Symbol Customer Service representative
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will be dispatched to the customer location, within the response
time commitments of the service agreement. On-site system
support can be tailored to meet business needs through
prioritized response options and expanded coverage days and
hours.
Depot service includes maintenance and repair at the
Company's service centers or through company-certified repair
providers. Service Center programs offer the ability to tailor
response times and turn-around times and can be further tailored
through the selection of defined options. In addition, the
programs can be customized to meet unique requirements of the
individual customer. The Company offers a single repair point
for the repair and maintenance of both Company and selected third
party products.
For products outside of warranty, the Company offers flat
rate service on a non-contract, as-needed basis.
The Company undertakes to correct defects in materials and
workmanship for a period of time after delivery of its products.
The period of time covered by these warranties varies depending
on the product involved as well as contractual arrangements but
is generally twelve months.
The Company's domestic customer support operations include
service center locations in Arkansas, California, Georgia,
Indiana, Idaho, Illinois, Kentucky, Michigan, Minnesota, New
York, Texas and West Virginia. The Company's foreign customer
service centers include locations in Argentina, Australia,
Austria, Belgium, Canada, China, Denmark, Finland, France,
Germany, Italy, Japan, Mexico, the Netherlands, Norway,
Singapore, South Africa, Spain, Sweden, and the United Kingdom.
The Company's service centers are ISO 9002 certified. These
centers enhance the Company's ability to respond to its
customers' requirements for fast, efficient service.
The Company's service repair operations are complemented by
Customer Support Centers, providing telephone, email and web
support to Company associates, business partners and customers.
The Symbol Support Center in Holtsville, NY offers 7 x 24
support, 365 days a year. Calls are answered directly by
experienced support technicians. Back-up support to these
technicians is provided by technicians in the Company's San Jose
facility. Worldwide support is provided through local company
offices.
Combined services revenue comprised 21.1 percent, 15.0
percent and 14.9 percent of total revenue for the years ended
December 31, 2001, 2000 and 1999, respectively.
-15-
Sales and Marketing
The Company presently markets its products domestically and
internationally through a variety of distribution channels,
including a direct sales force, original equipment manufacturers,
VARs and sales representatives and distributors. VARs distribute
the Company's products to customers while also selling to those
customers other products or services not provided by the Company.
The Company's sales organization includes domestic sales offices
located throughout the United States and foreign sales offices in
Argentina, Australia, Austria, Belgium, Brazil, Canada, China,
Denmark, Finland, France, Germany, Hong Kong, Italy, India,
Japan, Mexico, the Netherlands, Norway, Peru, Singapore, South
Africa, South Korea, Spain, Sweden, Switzerland, the United Arab
Emirates, and the United Kingdom.
The Company currently has contractual relationships and
strategic alliances with unaffiliated partners. Through these
relationships, the Company is able to broaden its distribution
network and participate in industries other than those serviced
by the Company's direct sales force and distributors.
Customers generally order products for delivery within 45
days. Accordingly, shipments made during any particular quarter
generally represent orders received either during that quarter or
shortly before the beginning of that quarter and generally
consist of products manufactured in the quarter. The Company
maintains significant levels of inventory to facilitate meeting
delivery requirements of its customers. The Company, pursuant to
contract or invoice, normally extends 30 to 45 day payment terms
to its customers. Actual payment terms vary from time-to-time
but generally do not exceed 90 days.
The following table sets forth certain information as to
international sales of the Company:
Year Ended
December 31,__________
(in thousands)
2001 2000 1999
Area
EMEA
(Europe, Middle East, Africa) $393,236 $355,736 $343,507
Asia Pacific $ 83,268 $ 82,051 $ 64,577
Other $ 88,652 $ 95,861 $ 75,272
The Company undertakes hedging activities to the extent of
known cash flow in an attempt to minimize the impact of foreign
currency fluctuations.
Manufacturing
The products that are manufactured by the Company are
-16-
manufactured at its Bohemia, New York and Reynosa, Mexico
facilities. Beginning in the fourth quarter of 2001 the Company
began to transition its internal production of existing products
from Bohemia to Reynosa. The Company expects this transition to
be completed in the first half of 2002. The Company expects to
use a facility in Bohemia as a new product introduction center.
If this transition does not proceed as smoothly as anticipated,
or is delayed, the Company's operating results could be
negatively affected.
While components and supplies are generally available from a
variety of sources, the Company presently depends on a single
source or a limited number of suppliers for several components of
its equipment, certain subassemblies and certain of its products.
In the past, unexpected demand for communication products caused
worldwide shortages of certain electronic parts and allocation of
such parts by suppliers that had an adverse impact on the
Company's ability to deliver its products as well as the cost of
producing such products. While the Company has increased
inventory levels and entered into contracts with suppliers of
parts that it anticipates may be in short supply, there can be no
assurance that additional parts will not become the subject of
such shortages or that such suppliers will be able to deliver the
parts in fulfillment of their contracts.
Due to the general availability of components and supplies,
the Company does not believe that the loss of any supplier or
subassembly manufacturer would have a long-term material adverse
effect on its business although set-up costs and delays could
occur in the short-term if the Company changes any single source
supplier.
Certain of the Company's products are manufactured by third
parties, most of which are outside the United States. In
particular, the Company has a long term strategic relationship
with Olympus Optical, Inc. of Japan ("Olympus") pursuant to which
Olympus and the Company jointly develop selected products which
are manufactured by Olympus exclusively for sale by the Company.
The Company is currently selling several such products and the
Company expects the number of products developed in collaboration
with Olympus to increase in the future. The Company has the
right to manufacture such products if Olympus is unable or
unwilling to do so, but the loss of Olympus as a manufacturer
could have, at least, a temporary material adverse impact on the
Company's ability to deliver such products to its customers. The
Company has no reason to believe that Olympus will not continue
to manufacture products under this arrangement.
The failure of any other third party to supply products to
the Company could have an adverse affect on the Company's ability
to deliver such products to its customers. Third party suppliers
of products to the Company have been subject to the same
-17-
shortages of electronic parts and allocation of such parts.
However, the Company has no reason to believe that these
suppliers will be unable to meet their supply or delivery
obligations to the Company over any extended period.
The Company employs certain advanced manufacturing processes
that require highly sophisticated and costly equipment and are
continuously being modified in an effort to improve efficiency,
reduce manufacturing costs and incorporate product improvements.
The Company maintains sufficient inventory to meet customers
demands for products on short notice, as well as to meet
anticipated sales levels. If the Company's product mix changes
in unanticipated ways, or if sales for particular products do not
materialize as anticipated, the Company may have excess inventory
or inventory that becomes obsolete. In such cases, the Company's
operating results could be affected negatively.
Research and Product Development
The Company believes that its future growth depends, in
large part, upon its ability to continue to apply its technology
to develop new products, improve existing products and expand
market applications for its products. The Company's research and
development projects include, among others: improvements to the
reliability, quality and readability of its laser scanners at
increased working distances, faster speeds and higher density
codes (including, but not limited to, two-dimensional codes);
continued development of its solid state laser diode-based
scanners; development of solid state imager-based engines for bar
code data capture and general purpose imaging applications;
development of RFID engines for data capture applications;
improvements to packaging and miniaturization technology for bar
code data capture products, portable data collection appliances
and integrated bar code and RFID data capture products;
development of high-performance digital data radios, high-speed
radio frequency data communications networks and
telecommunications protocols and products; the addition of
application software to provide a complete line of high-
performance interface hardware.
The Company uses both its own associates and from time-to-
time unaffiliated consultants in its product engineering and
research and development programs. Dr. Jerome Swartz, Chairman
of the Board of Directors, Chief Executive Officer and Chief
Scientist leads the Company's research, patent and new product
development programs. From time-to-time the Company has
participated with and/or partially funded research projects in
conjunction with a number of universities including the State
-18-
University of New York at Stony Brook, Polytechnic University of
New York and Massachusetts Institute of Technology.
The Company expended (including overhead charges)
approximately $61,536,000, $51,125,000, and $38,426,000 for
research and development during the years ended December 31,
2001, 2000, and 1999, respectively.
Competition
The business in which the Company is engaged is highly
competitive and acutely influenced by advances in technology,
product improvements and new product introduction, and price
competition. To the Company's knowledge, many firms are engaged
in the manufacture and marketing of products in its three core
technologies, bar code reading equipment, wireless networks and
mobile computing devices. While some companies are engaged in
the manufacture and marketing of products in more than one of
these technologies, the Company is unaware of any other company
that is engaged in all three. Numerous companies, including
present manufacturers of scanners, lasers, optical instruments,
microprocessors, wireless networks, notebook computers, PDAs and
telephonic and other communication devices have the technical
potential to compete with the Company. Many of these firms have
far greater financial, marketing and technical resources than the
Company. The Company competes principally on the basis of
performance and the quality of its products and services.
The Company believes that its principal competitors are
Agere Systems, Inc., Casio, Inc., Cisco Systems, Inc., Compaq
Computer Corporation, Datalogic S.P.A., Fujitsu, Ltd., Hewlett-
Packard Company, Intermec Technologies Corporation, LXE Inc.,
Matsushita Electric Industrial Co., Ltd., Metrologic Instruments,
Inc., Motorola, Inc., NCR Corporation, NipponDenso Co., Opticon,
Inc., Proxim, Inc., PSC, Inc., Psion Teklogix Inc., and Welch
Allyn Data Collection, Inc.
Patent and Trademark Matters
The Company files domestic and foreign patent applications
to support its technology position and new product development.
The Company owns over 685 U.S. Letters Patents covering various
aspects of the technology used in the Company's principal
products, and has entered into cross-license agreements with
other companies. In addition, the Company owns numerous foreign
companion patents. The Company has also filed additional patent
applications in the U.S. Patent and Trademark Office as well as
in foreign patent offices. The Company will continue to file
patents, both United States and foreign, to cover its most recent
research developments in the scanning, information collection and
network communications fields. One of the Company's basic
-19-
patents covering hand-held laser scanning technology expired on
June 6, 2000, and a key companion patent will expire in June
2003. A key scanner integrated computer patent will expire in
2005. While it is possible that products might be designed that
would have infringed the patent which expired in 2000 but do not
infringe the patent which expires in 2003, the Company believes
that such products would be sufficiently inferior as compared to
current hand-held products that they would not gain meaningful
customer acceptance in the marketplace. Accordingly, the Company
does not believe that the introduction of such products would
have a material adverse effect on the Company or its competitive
position. Furthermore, the expiration of the patent in 2000 has
not diminished the Company's royalty income from licensees
because all of the Company's license agreements that grant rights
under these patents include both patents and the products that
licensees are selling. The license agreements are structured so
that there is no reduction in royalty payments upon the
expiration of any one patent.
The Company believes that its patent portfolio does provide
some competitive advantage in that such patents tend to limit the
number of unlicensed competitors and permit the Company to
manufacture products that may have features that provide better
performance and/or lower cost. Although management believes that
its patents provide some competitive advantage, the Company
depends more for its success upon its proprietary know-how,
innovative skills, technical competence and marketing abilities.
In addition, because of rapidly changing technology, the
Company's present intention is not to rely primarily on patents
or other intellectual property rights to protect or establish its
market position. Instead, the Company has established a program
to protect its investment in technology by enforcing and
licensing certain of its intellectual property rights. The
Company has entered into royalty-bearing license agreements with,
among others, Intermec Technologies Corporation, LXE Inc.,
Metrologic Instruments, Inc. and PSC, Inc.
In March 2001, Proxim Incorporated ("Proxim") sued the
Company, 3 Com Corporation, Wayport Incorporated and SMC Networks
Incorporated in the United States District Court in the District
of Delaware for allegedly infringing three patents owned by
Proxim. Proxim did not identify any specific products of the
Company that allegedly infringe these three patents. Proxim also
filed a similar lawsuit in March 2001 in the United States
District Court in the District of Massachusetts against Cisco
Systems, Incorporated and Intersil Corporation. The complaint
against the Company seeks, among other relief, unspecified
damages for patent infringement, treble damages for willful
infringement, and a permanent injunction against the Company from
-20-
infringing these three patents. In a press conference held after
the filing of the complaints, Proxim indicated that it was
interested in licensing the patents that are the subject of the
lawsuit against the Company.
On May 1, 2001, the Company filed an answer and counterclaim
in response to Proxim's suit. The Company has responded by
asserting its belief that Proxim's asserted patents are invalid
and not infringed by any of the Company's products. In addition,
the Company has asserted its belief that Proxim's claims are
barred under principles of equity, estoppel and laches. The
Company believes Proxim's claims are without merit. The Company
has also filed counterclaims against Proxim, asserting that
Proxim's RF product offerings infringe four of the Company's
patents relating to wireless LAN technology. The Company has
requested the Court grant an unspecified amount of damages as
well as a permanent injunction against Proxim's sale of its
wireless LAN product offerings. The Court has severed the
Company's counterclaim against Proxim involving the four of the
Company's patents relating to wireless LAN technology from
Proxim's initial case.
On May 14, 2001, the Company announced that an agreement had
been reached with Intersil Corporation, a supplier of key
wireless LAN chips to the Company. Under this agreement,
Intersil will generally indemnify and defend the Company against
Proxim's initial infringement suit.
On December 4, 2001, the Company filed a complaint against
Proxim in the United States District Court in the District of
Delaware asserting that Proxim's RF product offerings infringe
four of the Company's patents relating to wireless LAN
technology. This complaint asserts the same four patents that
were asserted in the Company's counterclaim against Proxim in the
initial Proxim case prior to the severance of this counterclaim
by the Court. On December 18, 2001, Proxim filed an answer and
counterclaims seeking declaratory judgments for non-infringement,
invalidity and unenforceability of the four patents asserted by
the Company, injunctive and monetary relief for the Company's
alleged infringement of one additional Proxim patent involving
wireless LAN technology, monetary relief for the Company's
alleged false patent marking, and injunctive and monetary relief
for the Company's alleged unfair competition under the Lanham
Act, common law unfair competition and tortious interference.
On January 31, 2002, the Company filed an answer in response
to Proxim's counterclaim. The Company has responded by asserting
its belief that Proxim's asserted patent is invalid and not
infringed by any of the Company's products. In addition, the
-21-
Company has asserted its belief that Proxim's patent claims are
barred under principles of equity, estoppel and laches. Also on
January 31, 2002, the Company filed a motion to dismiss Proxim's
claims regarding false patent markings, Lanham Act, common law
unfair competition and tortious interference. This motion is
currently pending. The Company believes these claims to be
without merit.
On July 21, 1999, the Company and six other leading members
of the Automatic Identification and Data Capture industry jointly
initiated a litigation against the Lemelson Medical, Educational,
& Research Foundation, Limited Partnership (the "Lemelson
Partnership"). The suit, which is entitled Symbol Technologies,
Inc. et. al. v. Lemelson Medical, Educational & Research
Foundation, Limited Partnership, was commenced in the U.S.
District Court, District of Nevada in Reno, Nevada but was
subsequently transferred to the Court in Las Vegas, Nevada.
In the litigation, the Auto ID companies seek, among other
remedies, a declaration that certain patents, which have been
asserted by the Lemelson Partnership against end users of bar
code equipment, are invalid, unenforceable and not infringed.
The Company has agreed to bear approximately half of the legal
and related expenses associated with the litigation, with the
remaining portion being borne by the other Auto ID companies.
The Lemelson Partnership has contacted many of the Auto ID
companies' customers demanding a one-time license fee for certain
so-called "bar code" patents transferred to the Lemelson
Partnership by the late Jerome H. Lemelson. The Company and the
other Auto ID companies have received many requests from their
customers asking that they undertake the defense of these claims
using their knowledge of the technology at issue. Certain of
these customers have requested indemnification against the
Lemelson Partnership's claims from the Company and the other Auto
ID companies, individually and/or collectively with other
equipment suppliers. The Company, and we understand, the other
Auto ID companies believe that generally they have no obligation
to indemnify their customers against these claims and that the
patents being asserted by the Lemelson Partnership against their
customers with respect to bar code equipment are invalid,
unenforceable and not infringed. However, the Company and the
other Auto ID companies believe that the Lemelson claims do
concern the Auto ID industry at large and that it is appropriate
for them to act jointly to protect their customers against what
they believe to be baseless claims being asserted by the Lemelson
Partnership.
The Lemelson Partnership filed a motion to dismiss the
lawsuit, or in the alternative, to stay proceedings or to
transfer the case to the U.S. District Court in Arizona where
-22-
there are pending cases involving the Lemelson Partnership and
other companies in the semiconductor and electronics industries.
On March 21, 2000, the U.S. District Court in Nevada denied the
Lemelson Partnership's motion to dismiss, transfer, or stay the
action. It also struck one of the four counts.
On April 12, 2000, the Lemelson Partnership filed its
answer to the complaint in the Symbol et al. v. Lemelson
Partnership case. In the answer, the Lemelson Partnership
included a counterclaim against the Company and the other
plaintiffs seeking a dismissal of the case. Alternatively, the
Lemelson Partnership's counterclaim seeks a declaration that the
Company and the other plaintiffs have contributed to, or induced
infringement of particular method claims of the patents-in-suit
by the plaintiffs' customers. The Company believes these claims
to be without merit.
On May 15, 2000, the Auto ID companies filed a motion
seeking permission to file an interlocutory appeal of the Court's
decision to strike the fourth count of the complaint (which
alleged that the Lemelson Partnership's delays in obtaining its
patents rendered them unenforceable for laches). The motion was
granted by the Court on July 14, 2000. The Court entered a
clarifying, superseding order on July 25, 2000. On September 1,
2000, the U.S. Court of Appeals for the Federal Circuit granted
the petition of the Auto ID companies for permission to pursue
this interlocutory appeal. The Federal Circuit heard oral
argument on this appeal on October 4, 2001. On January 24, 2002,
the Federal Circuit found for the Auto ID companies, holding that
the defense of prosecution laches exists as a matter of law. On
March 20, 2002 the Federal Circuit denied Lemelson's petition for
rehearing in banc. Accordingly, the issue will be remanded to
the Court in Nevada to consider whether the laches defense is
applicable to the Lemelson case. No date has yet been set by the
Court in Nevada for the resolution of this issue.
On July 24, 2000, the Auto ID companies filed a motion for
partial summary judgment arguing that almost all of the claims of
the Lemelson Partnership's patents are invalid for lack of
written description. On August 8, 2000, the Lemelson Partnership
filed a motion seeking an extension of approximately ten weeks in
which to file an answer to this motion. On August 31, 2000, the
Court granted the Lemelson Partnership's motion for such an
extension.
On October 25, 2000, the Lemelson Partnership filed a
combined opposition to the motion of the Auto ID companies for
partial summary judgment and its own cross-motion for partial
summary judgment that many of the claims of the Lemelson
-23-
Partnership's patents satisfy the written description
requirement. On January 8, 2001, the Auto ID companies filed a
combined reply in support of their partial summary judgment
motion and opposition to the Lemelson Partnership's partial
summary judgment cross-motion. On June 15, 2001, the District
Court heard oral arguments on this motion. On July 12, 2001, the
District Court denied both the Auto ID companies' motion and
Lemelson's cross-motion. In doing so, the Court did not rule on
the merits of the matters raised in the motions, but instead held
that there remain triable issues of material fact that preclude
granting summary judgment in favor of either party.
On May 14, 2001, the Auto ID companies filed another motion
for summary judgment arguing that Lemelson's patents at issue are
unenforceable because of Lemelson's inequitable conduct before
the U.S. Patent and Trademark Office. On June 19, 2001, the
Lemelson Partnership filed a combined opposition to the motion of
the Auto ID companies for summary judgment and its own cross-
motion for partial summary judgment that no such inequitable
conduct occurred. On July 10, 2001, the Auto ID companies filed
a combined reply in support of their summary judgment motion and
opposition to the Lemelson Partnership's partial summary judgment
cross-motion. On November 13, 2001, the District Court denied
both the Auto ID companies' motion and Lemelson's cross-motion.
In doing so, the Court did not rule on the merits of the matters
raised in the motions, but instead held that there remain triable
issues of material fact that preclude granting summary judgment
in favor of either party.
On July 25, 2001 the Court entered an order setting a
schedule that culminates with a trial currently scheduled for
August 2002. Under this timetable, the Auto ID companies'
arguments relating to invalidity, unenforceability and/or non-
infringement of the so-called "bar code" patents will be briefed
by motion at the appropriate time, or at trial.
On August 1, 2001, the Auto ID companies filed another
motion for partial summary judgment arguing that the Lemelson
Partnership is not entitled, as a matter of law, to rely on a
now-abandoned Lemelson patent application filed in 1954 to
provide a filing date or disclosure for the claims of the
patents-in-suit. On November 13, 2001, the District Court
denied the Auto ID companies' motion. In doing so, the Court did
not rule on the merits of the matters raised in the motion, but
instead held that there remain triable issues of material fact
that preclude granting summary judgment.
Although the Company believes that its products and
technology do not infringe the proprietary rights of others,
there can be no assurance that third parties will not assert
-24-
infringement and other claims against the Company or that such
claims will not be successful. The Company has received and has
currently pending such claims and in the future may receive
additional such notices of claims of infringement of other
parties' rights. In such event, the Company has and will
continue to take reasonable steps to evaluate the merits of such
claims, take such action as it may deem appropriate, which action
may require that the Company enter into licensing discussions, if
available, and/or modify the affected products and technology, or
result in litigation against parties seeking to enforce a claim
which the Company reasonably believes is without merit. The
Company in the past has been involved in such litigation and
additional litigation may be filed in the future. Such parties
have and are likely to claim damages and/or seek to enjoin
commercial activities relating to the Company's products or
technology affected by such parties' rights. In addition to
subjecting the Company to potential liability for damages, such
litigation may require the Company to obtain a license in order
to manufacture or market the affected products and technology.
To date, such activities have not had a material adverse affect
on the Company's business and the Company has either prevailed in
all litigation, obtained a license on commercially acceptable
terms or otherwise been able to modify any affected products or
technology. However, there can be no assurance that the Company
will continue to prevail in any such actions or that any license
required under any such patent would be made available on
commercially acceptable terms, if at all. There are a
significant number of U.S. and foreign patents and patent
applications in the Company's areas of interest, and the Company
believes that there has been and is likely to continue to be
significant litigation in the industry regarding patent and other
intellectual property rights.
The Company has also obtained certain domestic and
international trademark registrations for its products and
maintains certain details about its processes, products and
strategies as trade secrets.
The Company regards its software as proprietary and
attempts to protect it with copyrights, trade secret law and
international nondisclosure safeguards, as well as restrictions
on disclosure and transferability that are incorporated into its
software license agreements. The Company licenses its software
products to customers rather than transferring title. Despite
these restrictions, it may be possible for competitors or users
to copy aspects of the Company's products or to obtain
information which the Company regards as trade secrets. Computer
software generally has not been patented and existing copyright
laws afford only limited practical protection. In addition, the
-25-
laws of foreign countries generally do not protect the Company's
proprietary rights in its products to the same extent as do the
laws of the United States.
Government Regulations
The use of lasers and radio emissions are subject to
regulation in the United States and in other countries in which
the Company does business. In the United States, various Federal
agencies, including the Center for Devices and Radiological
Health of the Food and Drug Administration, the FCC, the
Occupational Safety and Health Administration and various State
agencies, have promulgated regulations which concern the use of
lasers and/or radio/electromagnetic emissions standards. Member
countries of the European community have enacted standards
concerning electrical and laser safety and electromagnetic
compatibility and emissions standards.
The Company believes that all of its products are in
material compliance with current standards and regulations;
however, regulatory changes in the United States and other
countries may require modifications to certain of the Company's
products in order for the Company to continue to be able to
manufacture and market these products.
The Company's RF mobile computing devices include various
models, all of which intentionally transmit radio signals as part
of their normal operation. Certain versions of the Company's
hand-held computers and its Spectrum One and Spectrum 24 networks
utilize spread spectrum radio technology. The Company has
obtained certification from the FCC and other countries'
certification agencies for its products that utilize this radio
technology. Users of these products in the United States do not
require any license from the FCC to use or operate these
products. Certain of the Company's products transmit narrow band
radio signals as part of their normal operation. The Company has
obtained certification from the FCC and other countries'
certification agencies for its narrow band radio products. Users
of these products in the United States do not require any license
from the FCC to use or operate these products. The Company also
markets radio products that utilize cellular radio technology.
The Company has obtained certification from the FCC and other
countries' certification agencies for its products that utilize
this radio technology. Users of these products in the United
States do not require any license from the FCC to use or operate
these products.
In all cases, such certification is valid for the life of the
product unless and until the circuitry of the product is altered in
material respects, in which case a new certification may be required.
-26-
Employees
At December 31, 2001, the Company had approximately 5,250
full-time employees. Of these, approximately 3,100 were employed
domestically. The Company also employs temporary production
personnel. None of the Company's U. S. employees are represented
by a labor union. Some employees outside of the United States
are represented by labor unions. The Company considers its
relationship with its employees to be good.
Item 2. Properties
The following table states the location, primary use and
approximate size of all principal plants and facilities of the
Company and its subsidiaries and the duration of the Company's
tenancy with respect to each facility.
Location Principal Use Size Tenancy/Ownership
One Symbol Plaza World Headquarters 299,000 square Owned
Holtsville, NY feet
McAllen, Texas Distribution approximately Owned
Facility 334,000 square
feet*
Reynosa, Tamaulipas Manufacturing 290,000 square Owned
Mexico feet**
116 Wilbur Place Manufacturing 92,000 square Owned
Bohemia, NY feet
110 Wilbur Place Manufacturing 30,000 square Owned
Bohemia, NY feet
12 & 13 Oaklands Pk. Customer Service 21,700 square Owned
Fishponds Road feet
Wokingham, Berkshire
England
110 Orville Drive Manufacturing 110,000 square Leased: expires
Bohemia, NY feet August 31, 2009
Valley Oak Network Systems 100,000 square Leased: expires
Technology Campus Engineering, feet August 12, 2009
San Jose, CA Marketing
1101 Lakeland Ave. Manufacturing, 90,400 square Leased: expires
Bohemia, NY Administration and feet August 31, 2009
Distribution
El Paso, Texas Customer Service 62,660 square Leased: expires
Center and Warehouse feet December 14, 2007
-27-
Berkshire Place EMEA Headquarters, 55,500 square Leased: expires
Winnersh Triangle Marketing and feet December 31, 2012
Winnersh, Wokingham Administration and
Berkshire, England U.K. Headquarters
Juarez, Mexico Customer Service 50,000 square Leased: expires
Center and Warehouse feet April 13, 2004
* The McAllen facility is scheduled for completion in the first half
of 2002.
** The Company is scheduled to complete a 150,000 square foot
expansion of this facility to bring it to a total of 290,000 square
feet in 2002.
In addition to these principal locations, the Company and its
subsidiaries also lease other offices throughout the world, ranging in
size from approximately 150 to 40,000 square feet.
Item 3. Legal Proceedings
See Patent and Trademark Matters for a discussion of
certain other litigation involving the Company.
Telxon Litigation
From December through March 1999, a total of 27 class
actions were filed in the United States District Court, Northern
District of Ohio, by certain alleged stockholders of Telxon on
behalf of themselves and purported classes consisting of Telxon
stockholders, other than the defendants and their affiliates, who
purchased stock during the period from May 21, 1996 through
February 23, 1999 or various portions thereof, alleging claims
for "fraud on the market" arising from alleged misrepresentations
and omissions with respect to Telxon's financial performance and
prospects and an alleged violation of generally accepted
accounting principles by improperly recognizing revenues. The
named defendants are Telxon, its former President and Chief
Executive Officer, Frank E. Brick, and its former Senior Vice
President and Chief Financial Officer, Kenneth W. Haver. The
actions were referred to a single judge. On February 9, 1999,
the plaintiffs filed a Motion to consolidate all of the actions
and the Court heard motions on naming class representatives and
lead class counsel on April 26, 1999.
On August 25, 1999, the Court appointed lead plaintiffs and
their counsel, ordered the filing of an Amended Complaint, and
dismissed 26 of the 27 class action suits without prejudice and
consolidated those 26 cases into the first filed action. The
lead plaintiffs appointed by the Court filed an Amended Class
Action Complaint on September 30, 1999. The Amended Complaint
alleges that the defendants engaged in a scheme to defraud
-28-
investors through improper revenue recognition practices and
concealment of material adverse conditions in Telxon's business
and finances. The Amended Complaint seeks certification of the
identified class, unspecified compensatory and punitive damages,
pre- and post-judgment interest, and attorneys' fees and costs.
Various appeals and writs challenging the District Court's August
25, 1999 rulings were filed by two of the unsuccessful plaintiffs
but have all been denied by the Court of Appeals.
On November 8, 1999, the defendants jointly moved to dismiss
the Amended Complaint, which was denied on September 29, 2000.
Following the denial, the parties filed a proposed joint case
schedule, discovery commenced, and the parties each filed their
initial disclosures. On October 30, 2000, defendants filed their
answer to the plaintiffs' amended complaint as well as a Motion
for Reconsideration or to Certify the Order Denying the Motion to
Dismiss for Interlocutory Appeal and request for oral argument,
and a memorandum of points and authorities in support of that
motion. On November 14, 2000, Plaintiffs filed a Memorandum in
Opposition of Defendants Motion. This Motion was denied on
January 19, 2001. On November 1, 2000, defendants filed a Motion
for Application of the Amended Federal Rules of Civil Procedure
to the case, and on November 16, 2000, the Court granted this
Motion in part and held that the Court will apply the new rules
of evidence and new rules of civil procedure except to the extent
those rules effectuate changes to Rule 26 of the Federal Rules
for Civil Procedure. Discovery is in its preliminary stages.
On February 20, 2001, Telxon filed a motion for leave to
file and serve instanter a summons and third-party complaint
against third-party defendant PricewaterhouseCoopers LLP ("PWC")
in shareholders' class action complaints. Telxon's third-party
complaint against PWC concerns PWC's role in the original
issuance and restatements of Telxon's financial statements for
its fiscal years 1996, 1997, 1998 and its interim financial
statements for its first and second quarters of fiscal year 1999,
the subject of the class action litigation against Telxon.
Telxon states causes of action against PWC for contribution under
federal securities law, as well as state law claims for
accountant malpractice, fraud, constructive fraud, fraudulent
concealment, fraudulent misrepresentation, negligent
misrepresentation, breach of contract, and breach of fiduciary
duty. With respect to its federal claim against PWC, Telxon
seeks contribution from PWC for all sums that Telxon may be
required to pay in excess of Telxon's proportionate liability, if
any, and attorney fees and costs. With respect to its state law
claims against PWC, Telxon seeks compensatory damages, punitive
damages, attorney fees and costs, in amounts to be determined at
trial. Thereafter plaintiffs sued PWC directly and that action
was consolidated.
On April 30, 2001, the Court granted Telxon's motion to file
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and serve its third-party complaint against PWC. The Court
reserved judgment on Telxon's request to have the Complaint
deemed filed instanter on the date of Telxon's motion for leave
to file the same - February 20, 2001. Pursuant to the Court's
request the parties have submitted briefs on the issue of
Telxon's motion for leave to file and serve the third-party
complaint instanter. The issue is currently being considered by
the Court.
PWC has filed a motion to dismiss both Telxon's third-party
complaint and the PWC action. The parties have fully briefed the
motion. The Court heard oral argument on PWC's motions on
September 10, 2001. On March 25, 2002, the Court ruled on the
pending motions. As to Telxon's third-party complaint against
PWC, the Court held that it was timely filed, and that Telxon's
allegations of scienter by PWC under the Federal securities laws
were sufficiently pled, that Telxon's state law fraud claims were
sufficiently pled, and that Telxon's breach of fiduciary duty,
constructive fraud and fraudulent concealment claims against PWC
should not be dismissed at the pleading stage. The Court denied
PWC's motion to dismiss Telxon's claims for contribution under
the Federal securities laws with respect to Telxon's restatements
of its 1996, 1997 and 1998 audited financial statements, and
granted PWC's motion to dismiss Telxon's contribution claims with
respect to the restatements of its unaudited first and second
quarter 1999 financial statements. The Court also denied PWC's
motion to dismiss the separate action filed against it by the
plaintiffs.
By letter dated December 18, 1998, the Staff of the Division
of Enforcement of the Securities and Exchange Commission (the
"Commission") advised Telxon that it was conducting a
preliminary, informal inquiry into trading of the securities of
Telxon at or about the time of Telxon's December 11, 1998 press
release announcing that Telxon would be restating the revenues
for its second fiscal quarter ended September 30, 1998. On
January 20, 1999, the Commission issued a formal Order Directing
Private Investigation and Designating Officers To Take Testimony
with respect to the referenced trading and specified accounting
matters, pursuant to which subpoenas have been served requiring
the production of specified documents and testimony.
By letter dated March 9, 2001, the Division of Enforcement
of the Commission informed Telxon that it had made a preliminary
determination to recommend that the Commission initiate an action
against Telxon for violation of various sections of the federal
securities laws and regulations and to seek permanent injunctive
relief and appropriate monetary penalties against Telxon. The
Division of Enforcement also indicated that it intended to
recommend similar action against three former employees of
Telxon. On March 6, 2002 Telxon accepted an offer of settlement
resolving this investigation.
Pursuant to the settlement, Telxon neither admitted nor denied
certain findings by the Commission, and consented to the entry of
an administrative Cease and Desist Order prohibiting Telxon from
-30-
committing or causing any violation, and any future violation of
certain reporting, record-keeping and internal control provisions
of the Securities Exchange Act of 1934. Two former employees of
Telxon also settled administrative proceedings without admitting
or denying certain findings by the Commission and by consenting
to the entry of an administrative cease and desist order
prohibiting them from committing or causing any violation and any
future violation of certain reporting, record-keeping and
internal control provisions of the Securities Exchange Act of
1934. The Commission on March 5, 2002 also filed suit against
Kenneth W. Haver, former Chief Financial Officer of Telxon, for
fraud in connection with the company's financial statements and
earnings press release for the quarter ended September 30, 1998.
Symbol Litigation
On March 5, 2002, a purported class action lawsuit was
filed, entitled Pinkowitz v. Symbol Technologies, Inc. et.al. in
the United States District Court for the Eastern District of New
York, on behalf of purchasers of the common stock of Symbol
between October 19, 2000 and February 13, 2002, inclusive,
against the Company, Tomo Razmilovic, Jerome Swartz and Kenneth
Jaeggi.
The complaint alleges that defendants violated the federal
securities laws by issuing materially false and misleading
statements, throughout the class period that had the effect of
artificially inflating the market price of the Company's
securities. Specifically, the complaint alleges that defendants
engaged in the following conduct which had the effect of
increasing the Company's reported revenue and profits: (1) the
Company booked as profit in the third quarter of 2000 a one-time
royalty payment in excess of $10 million, enabling the Company to
make its third quarter projections; (2) the Company used expenses
associated with its acquisition of Telxon to mask the fact that
its sales were declining; and (3) the Company booked as having
shipped in the first quarter of 2001 more than $40 million in
inventory that included side provisions allowing customers to
delay payments or return merchandise, or included products that
"never left the warehouse".
Five additional purported similar class actions have also
been filed against the Company in the Eastern District of New
York. The Louisiana School Employees Retirement System is the
plaintiff in the second action, which also names, in addition to
the Company, Jerome Swartz, Tomo Razmilovic and Kenneth Jaeggi as
defendants. The Company currently does not know the identities
of the other parties in the third, fourth, fifth and sixth
actions filed against it. The Company believes that these
litigations are without merit and intends to defend them
vigorously.
-31-
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 4A. Executive Officers of the Registrant
The following table sets forth the names, ages and all
positions and offices held by the Company's executive officers:
Jerome Swartz.......... 61 Chairman of the Board of Directors,
Chief Executive Officer, Chief
Scientist and Director
Richard Bravman.........46 President and Chief Operating
Officer
Leonard H. Goldner..... 54 Executive Vice President, General
Counsel and Secretary
Carole DeMayo.......... 45 Senior Vice President-Human
Resources
Ron Goldman............ 41 Senior Vice President, General
Manager-Marketing and Business
Development
Kenneth V. Jaeggi...... 56 Senior Vice President-Finance and
Chief Financial Officer
Joseph Katz............ 49 Senior Vice President-Research and
Development
Boris Metlitsky........ 54 Senior Vice President-Corporate
Engineering
Satya Sharma........... 61 Senior Vice President, General
Manager-Worldwide Operations
Robert W. Korkuc....... 39 Vice President, Chief Accounting
Officer
Dr. Swartz co-founded and has been employed by the
Company since it commenced operations in 1975. He has been
the Chairman of the Board of Directors for more than the past
fifteen years, and served as Chief Executive Officer of the
Company for more than fifteen years until July 1, 2000. Dr.
Swartz re-assumed the Chief Executive Officer position on
February 14, 2002. Dr. Swartz was an industry consultant for
12 years in the areas of optical and electronic systems and
instrumentation. He is the author of more than 30 published
technical papers, and is credited with more than 160 issued
-32-
and pending U.S. patents, including the Company's basic
patents in hand-held laser scanning. He is a member of the
Board of Trustees of Polytechnic University of New York and a
member of the Board of Directors of the Stony Brook University
Foundation. He is also a Fellow of the Institute of Electrical
and Electronic Engineering and a member elect of the National
Academy of Engineering. He has been the recipient of the
Institute of Electrical and Electronic Engineers' Ernst Weber
Leadership Award for career achievement.
Mr. Bravman has been employed by the Company since 1978. In
2001, he established the Company's Integrated Systems Division.
For six months prior to that, he served as Senior Vice President
and General Manager of the Company's Western Area Sales and
Services. From 1995 until early 2001 Mr. Bravman served as
Senior Vice President and General Manager of the Mobile and
Wireless Systems Division. Prior to that, he held various senior
management positions including 12 years as the Company's Chief
Marketing Officer.
Mr. Goldner joined the Company in September 1990. From
September 1979 until August 1990, he was a partner of the New
York law firm of Shereff, Friedman, Hoffman & Goodman, which
was securities counsel to the Company.
Ms. DeMayo has been employed by the Company for more than
the past eight years in various human resource positions.
Mr. Goldman joined the Company in February 1992 and has
served in various legal, managerial and business development
positions.
Mr. Jaeggi joined the Company in May 1997. From May 1996 to
May 1997, he was a member of the Office of the Chairman and the
Operating Committee of Electromagnetic Sciences in Atlanta, GA.
From December 1992 until May 1996, Mr. Jaeggi served as Senior
Vice President, Chief Financial Officer and consultant of
Scientific-Atlanta, Inc., a leading producer of cable network and
satellite communications systems. From June 1988 to December
1992, he was President and Chief Executive Officer of Imagraph
Corporation, a developer and manufacturer of graphics and imaging
hardware and software for application specific workstations. Mr.
Jaeggi served as Vice President, Chief Financial Officer and
consultant to Data General Corporation from June 1980 until June
1988.
Dr. Katz joined the Company in January 1989 and has held
several positions in Research and Development. From May 1981
until January 1989, Dr. Katz held a number of positions at the
Jet Propulsion Laboratory of the California Institute of
Technology, the most recent of which was as Technical Group
Supervisor.
-33-
Dr. Metlitsky joined the Company in March 1983 and has
served in various technical and managerial positions.
Dr. Sharma joined the Company in March 1995. Prior to
joining the Company, Dr. Sharma held various management positions
at AT&T. From April 1990 to March 1995, Dr. Sharma served as
Director of Quality of AT&T's Power Systems Division and from
January 1986 to April 1990 he was a Department Head at AT&T Bell
Labs.
Mr. Korkuc joined the Company in October 1990 and has served
in various finance and accounting positions. He is a member of
the American Institute of Certified Public Accountants and the
New York State Society of Certified Public Accountants.
PART II
Item 5. Market for the Registrant's Common Equity and
Related Security Holder Matters
The Company's Common Stock is listed on the New York Stock
Exchange. The following table sets forth, for each quarter
period of the last two years, the high and low sales prices as
reported by the New York Stock Exchange and the dividend payments
declared by the Board of Directors and paid by the Company.
Year Ending: High* Low* Dividend
December 31, 2000 First Quarter 46.00 22.86 $.015
Second Quarter 42.31 23.49
Third Quarter 37.15 20.79 $.01
Fourth Quarter 30.99 17.08
December 31, 2001 First Quarter 37.33 19.50 $.01
Second Quarter 32.10 20.11
Third Quarter 22.80 9.50 $.01
Fourth Quarter 18.20 10.00
*Adjusted to reflect a three-for-two stock split, effective
April 5, 2000 and a three-for-two stock split, effective April
16, 2001.
As of March 1, 2002 there were 1,800 holders of record of
the Company's Common Stock.
-34-
Historically, changes in the Company's results of operations
or projected results of operations have resulted in significant
changes in the market price of the Company's Common Stock. As a
result, the market price of the Company's Common Stock has been
highly volatile. In addition, the stock prices of many well
known technology companies have recently experienced significant
volatility as a result of failing to meet revenue or earnings
forecasts. The Company's Common Stock may also experience
substantial volatility if its operational results do not meet
projections.
Payment of future dividends is subject to approval by the
Company's Board of Directors. Recurrent declaration of dividends
will be dependent on the Company's future earnings, capital
requirements and financial condition.
On February 14, 2000 and February 26, 2001, the Board of
Directors of the Company declared a three-for-two stock split,
payable as a 50 percent dividend, on April 5, 2000 and April 16,
2001, respectively, to all shareholders of record on March 13,
2000 and March 26, 2001, respectively.
-35-
Item 6. Selected Financial Data
The following table sets forth selected consolidated
financial information of the Company which, for each of the years
in the five year period ended December 31, 2001, is derived from
the audited consolidated financial statements of the Company.
These tables should be read in conjunction with the Company's
Consolidated Financial Statements, including the notes thereto,
appearing elsewhere in this Annual Report on Form 10-K. See
"Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations."
-36-
(in thousands, except per share data)
Year Ended December 31,__________________
Operating Results: 2001(1) 2000(2) 1999 1998(3) 1997
Total Net Revenue $1,452,697 $1,449,490 $1,139,290 $977,901 $774,345
Net (Loss) Earnings ($53,907) ($68,966) $116,364 $92,964 $70,232
(Loss) Earnings Per Share:
Basic ($0.24) ($0.33) $0.59 $0.47 $0.35
Diluted ($0.24) ($0.33) $0.55 $0.44 $0.34
Financial Position:
Total Assets $1,892,674 $2,093,199 $1,047,944 $838,399 $679,190
Working Capital $660,475 $620,214 $351,613 $295,317 $241,846
Long-Term Debt, less
Current Maturities $225,168 $201,144 $99,623 $64,596 $40,301
Stockholders' Equity $1,180,789 $1,201,696 $640,460 $530,928 $453,742
Weighted Average Number of Common
Shares Outstanding:
Basic 227,392 206,444 198,732 198,437 199,254
Diluted 227,392 206,444 212,358 210,722 206,672
(1) Includes pre-tax charges for costs associated with the reorganization of the Company's
manufacturing facilities and an inventory writedown totaling $169,662 or ($0.51)
diluted loss per share.
(2) Includes pre-tax charges for costs associated with restructuring, impairment and merger
integration charges in connection with the acquisition of Telxon Corporation of $273,521
or ($0.97) diluted loss per share.
(3) Includes a pre-tax charge for costs associated with a terminated acquisition of $3,597 or
$0.01 diluted earnings per share.
-37-
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS UNDER SECURITIES
LITIGATION REFORM ACT OF 1995; CERTAIN CAUTIONARY STATEMENTS
Sometimes, the Company makes forward-looking statements,
orally or in writing. These statements may be in press releases,
oral statements or in filings made by the Company with the
Securities and Exchange Commission, including this one. The
words or phrases "will likely result", "are expected to", "will
continue", "is anticipated", "estimate", "project" or similar
expressions identify "forward-looking statements" that are
covered by the Private Securities Litigation Reform Act of 1995
(the "Reform Act"). The Company wants to be sure that any
forward-looking statements are accompanied by meaningful
cautionary statements, so that the Company is protected by the
safe harbor established in the Reform Act. Therefore, any
forward-looking statements made by the Company are qualified by
the following discussion of factors that could cause actual
results to be different from forward-looking statements. The
Company has no obligation to update forward-looking statements.
The risks presented here may not be all of the risks the
Company may face. These are the factors that the Company believes
could cause actual results to be different from expected and
historical results. Other sections of this report include
additional factors that could have a negative effect on the
Company's business and financial performance. The industry that
the Company competes in is very competitive and changes rapidly.
Sometimes new risks emerge and management may not be able to
predict all of them, or be able to predict how they may cause
actual results to be different from those contained in any
forward-looking statements. You should not rely upon forward-
looking statements as a prediction of future results.
While the Company, from time to time, communicates with
securities analysts, you should not assume that the Company
agrees with any statement or report issued by any analyst
regardless of the content of the statement or report. The
Company has a policy against confirming the accuracy of forecasts
or projections issued by others. If reports issued by securities
analysts contain projections, forecasts or opinions, those
reports are not the responsibility of the Company.
2002 Projections. The Company has provided guidance with respect
to projected financial performance in 2002. There can be no
assurance that the Company will meet or exceed these projections.
-38-
The Company's projections could be affected by general industry
and market conditions and growth rates, United States and foreign
economic and political conditions, including the global economic
slowdown and interest rate and currency exchange rate
fluctuations and other future events. Following are some of the
risks, uncertainties and assumptions that could affect the
outcome of the projections.
- Revenue is difficult to predict. Current projections are
based upon an improvement in the level of economic
activity in general and increased IT spending in
particular, especially in the second half of 2002.
If these improvements do not occur, or occur at a slower
rate than expected, our results of operation are likely
to be below our projections.
- In the past, the Company has underestimated the severity
of the impact of economic conditions, both domestic and
foreign, and their negative affect on the Company's
operating revenues.
- If demand from the Company's resellers, distributors
and original equipment manufacturers is less than
anticipated, the Company's business and results of
operations could be adversely affected. In 2001
purchases from these entities were less than
anticipated by the Company.
- There can be no assurance that the cost saving strategies
implemented late in 2001 and the first quarter of 2002,
will not have an adverse impact on the Company's ability
to timely launch, manufacture and deliver new products
and enter new markets planned for 2002.
- The Company operates in a highly competitive industry.
- The failure of the Company to compete effectively,
or price cutting by competitors, could adversely
affect revenue.
- The Company has developed outsourcing arrangements for
the manufacture of a significant portion of its products.
If these third party manufacturers fail to deliver
quality products and components at reasonable prices on a
timely basis, the Company's relationships with customers
would be negatively affected and revenues, profitability
and cash flow could decline.
- If the products that the Company has introduced in 2001
and plans to introduce in 2002 do not become commercially
accepted, customers may not buy its products and
revenues, profitability and cash flow could be adversely
affected.
-39-
- Many of the Company's new products and products
under development are highly complex and innovative.
As a result, they may contain defects or errors that are
detected only after installation in customers' systems.
To the extent that occurs, the Company's projections
could be negatively affected.
- The failure of the Company to successfully or timely
transfer the manufacture of its internally produced
products from Long Island, New York to its manufacturing
facility in Mexico could lead to greater than expected
costs and/or late delivery of product during the first
half of 2002. This would have a negative impact on
profitability and the Company's ability to meet its
projections.
Financial Performance. The Company's operating results may vary
in the future as a result of a number of factors, including:
- worldwide economic conditions
- levels of IT spending
- changes in technology
- new competition
- customer demand
- a shift in the mix of the Company's products
- a shift in sales channels
- the market acceptance of new or enhanced versions of the
Company's products
- the timing of introduction of other products and
technologies
- cancellation or postponement of orders
- component shortages
- acquisitions made by the Company
Economic Conditions. The United States economy was in recession
for some portion of 2001. There has also been concern expressed
that the United States economy may fail to have a robust
recovery. The European and world economy has also experienced
weakness. The Company as well as numerous well-known high
technology companies have missed projected earnings forecasts and
performed below expectations in 2001. This shortfall in revenue
and earnings is due in large part to the slowing United States
economy and weakness in Europe and elsewhere. The Company's
current business and operating plan assumes that economic
activity in general and IT spending in particular will increase
throughout 2002. The Company will not be able to meet its
earning projections if weak economic conditions or lower levels
-40-
of IT spending result in less than forcasted revenues. The
Company's results will be negatively affected if the United
States economy does not have a significant recovery, or if the
European economy and world economy does not improve. The
Company's business and operating results may also be negatively
affected if the retail industry, which accounts for a significant
portion of the Company's business, does not improve.
Acquisitions. The Company has in the past and may in the future
acquire businesses or product lines as a way of expanding its
product offerings and acquiring new technology. If the Company
does not identify future acquisition opportunities and/or
integrate businesses that it may acquire effectively, the
Company's growth may be negatively affected.
Forecasts. The volume and timing of orders the Company receives
during a fiscal quarter are difficult to forecast. Sometimes
customers have canceled orders or rescheduled shipments ordered
from the Company. The Company has operated with a backlog that
is a small percentage of the revenue projected for each quarter.
The Company monitors backlog. Because most customers order
products for delivery within 45 days, the Company does not
believe that backlog provides a good indication of financial
performance except for the then current fiscal quarter. During
2001, delivery of a significant number of orders was delayed to
subsequent quarters than had been the case in the past. This
development has made it even more difficult to use backlog as a
predictor of financial performance even in the current quarter.
Shipments made during a fiscal quarter are usually in response to
orders received either during that quarter or shortly before the
beginning of that quarter. Shipments for orders received in a
fiscal quarter are usually from products manufactured in that
quarter. The Company maintains significant levels of raw
materials so it can meet delivery requirements of its customers.
The Company may not be able to procure the appropriate mix of raw
materials to accommodate all orders in a quarter. Because of the
levels of current and anticipated backlog, the Company's
financial performance in any quarter is dependent upon obtaining
orders in that quarter which can be manufactured and delivered to
its customers in the same quarter. Financial performance for any
quarter is not known until near the end of that quarter. The
Company's expense levels are partly based on the level of future
revenues the Company expects. In the event there is a decline in
projected revenue operating expenses are likely to be unusually
high for any quarter causing the Company's operating profit to be
negatively affected for that quarter.
-41-
Product Mix. The Company anticipate that in 2002 overall product
margins will begin to increase as a result of efficiencies from
the transfer of internal manufacturing to the Company's Reynosa,
Mexico facility and external manufacturing to lower cost
producers in China, Taiwan and Singapore. However, if the
Company fails to achieve these efficiencies, or if the Company is
forced to cut prices on its products, then it may not be able to
achieve the projected improvement in margins, and operating
results may be affected negatively.
Foreign Sales. A large portion of the Company's net revenues
have been from foreign sales. In 2001, foreign sales accounted
for approximately 40 percent of net revenue. These sales are
subject to the normal risks of foreign operations, such as:
- political uncertainties
- currency fluctuations
- protective tariffs
- - trade barriers and export/import controls
- transportation delays and interruptions
- reduced protection for intellectual property rights in
some countries
- the impact of recessionary foreign economies
- long receivable collection periods
Most of the Company's equipment sales in Western Europe and
Asia are billed in foreign currencies and are subject to currency
exchange fluctuations. In addition, much of Europe converted to
mandatory use of the "Euro" currency in 2002. Since a
significant portion of the Company's expenses are incurred in the
United States, sales and results of operations could be affected
by fluctuations in the U.S. dollar. Changes in the value of the
U.S. dollar compared to foreign currencies have in the past had
an impact on the Company's sales and margins. In 2001, results
of operations continued to be negatively affected by the
appreciation of the value of the U.S. dollar in relation to key
foreign currencies. The Company cannot predict the direction or
magnitude of currency fluctuations, and the Company may not
continue to perform adequately if the value of the U.S. dollar in
relation to key foreign currencies increases. The Company cannot
predict whether the United States or any other country will
impose new quotas, tariffs, taxes or other trade barriers upon
the importation of the Company's products or supplies or the
effect that new barriers would have on its financial position or
results of operations. The Company also cannot predict the
effect the adoption of the Euro will have on European economic
activity. The Company's results may be adversely affected if the
adoption of the Euro hinders economic activity in Europe.
Manufacturing. If use of the Company's manufacturing facilities
in Bohemia, New York or Reynosa, Mexico were interrupted by
-42-
natural disaster or otherwise, the Company's operations would be
negatively affected until the Company could establish alternative
production and service operations.
Beginning in the second half of 2001 and continuing in the
first half of 2002, the Company is transferring substantially all
of its internal production manufacturing activities to its
Reynosa, Mexico facility. This transfer of operations requires
the relocation of tooling, equipment and inventory that is
critical to the manufacture of many of the Company's products.
Loss of, damage to or late delivery of any of the tooling,
equipment or inventory would cause delays in production schedules
and customer shipments. The Company will continue to use a
facility in Bohemia as a new product introduction center.
Many of the Company's products and subassemblies are
manufactured in the Company's manufacturing facility in Reynosa,
Mexico and by third parties outside the United States. The
Company anticipates that an increased percentage of new products
and subassemblies will be manufactured at its Mexico facility and
by third parties, including Olympus. The manufacture of these
items is subject to risks common to all foreign manufacturing
activities such as:
- governmental regulation
- currency fluctuations
- transportation delays and interruptions
- - political and economic disruptions
- the risk of imposition of tariffs or other trade
barriers
The Company has experienced manufacturing problems that have
caused delivery delays. The Company may experience production
difficulties and product delivery delays in the future as a
result of:
- changing process technologies
- ramping production
- installing new equipment at its manufacturing facilities
- shortage of key components
Manufacturing of products in two locations subjects the
Company to normal risks of managing two separate manufacturing
facilities in two separate countries, including:
- administration of customs requirements
- coordination of procurement
- cross-border distribution
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Sometimes, the Company experiences significant price
increases and limited availability of components that are
available from multiple sources. At times, the Company has been
unable to meet product orders because parts were not available.
While past shortages and delays have not had a negative
effect on the Company's reported revenues, shortages and delays
could have a negative effect on the Company's future operating
results. Although the availability of components did not
materially impact the Company's business in 2001, the Company
cannot predict if component shortages will resurface. On
occasion, the Company acquires component inventory in
anticipation of supply shortages. If component availability is
restored and as a result component prices decline, operating
results could be negatively affected.
Some components, subassemblies and products are purchased
from a single supplier or a limited number of suppliers. The
loss of any of these suppliers may cause the Company to incur
additional set-up costs and delays in manufacturing and delivery
of products.
The Company purchases a large number of parts, components
and third party products from Japan. The value of the yen in
relation to the U.S. dollar has declined during 2001. If the
value of the yen strengthens relative to the dollar in 2002, the
Company's financial performance could be negatively affected.
Competition. The Company is in a highly competitive industry
that is influenced by:
- advances in technology
- product improvements
- new product introduction
- marketing and distribution capabilities
- price competition
If the Company does not keep pace with product and
technological advances, the Company's competitive position and
prospects for growth could be negatively affected. In 2000 and
continuing in 2001, many of the Company's key competitors had
poor financial performance. There is likely to be continued
pricing pressure in 2002 as these competitors attempt to reverse
losses in their market share, which may negatively affect the
Company's revenues and/or gross margins.
New Competitors. The products that the Company and its
competitors manufacture and market are becoming more complex. As
the technological and functional capabilities of future products
increase these products will begin to compete with products being
offered by larger, traditional computer, network and
communications industry participants who have substantially
greater financial, technical, marketing and manufacturing
-44-
resources than the Company. The Company may not be able to
compete successfully against these new competitors and
competitive pressures may negatively affect its business or
operating results.
Price. The selling price of the Company's products usually
decreases over the life of the product. To lessen the effect of
price decreases, the Company attempts to reduce manufacturing
costs of existing products and to introduce new products,
functions and other price/performance-enhancing features. If
cost reductions, product enhancements and new product
introductions do not occur in a timely manner or are not accepted
in the marketplace, the Company's operating results could be
negatively affected.
Research and Development. The Company is active in research and
development of new products and technologies. The Company's
research and development efforts may not lead to the successful
introduction of new or improved products. The Company may
encounter delays or problems in connection with its research and
development efforts. New products often take longer to develop,
have fewer features than originally considered desirable and
achieve higher cost targets than initially estimated. There may
be delays in starting volume production of new products and new
products may not be commercially successful. Products under
development are often announced before introduction and these
announcements may cause customers to delay purchases of existing
products until the new or improved versions of those products are
available. Delays or deficiencies in development, manufacturing,
delivery of or demand for new products or of higher cost targets
could have a negative effect on the Company's business, operating
results or financial condition. The Company has made significant
investments to develop consumer scanning products. Consumer
interactive shopping and scanning, in-store and at home, is a new
and developing market. The Company's business and operating
results may be negatively affected if these markets do not grow,
or if retailers and consumers adopt scanning products at lower
rates than anticipated by the Company. The Company's efforts in
consumer scanning are also dependent, in part, on applications
developed and infrastructure deployed by third parties. The
Company's business and operating results may also be negatively
affected if third parties do not develop robust, new or
innovative applications, or create appropriate infrastructure,
for interactive shopping and scanning products.
System Sales. Historically, the Company has sold individual bar
code scanning devices and scanner integrated mobile computing
devices to customers. Increasingly, the Company's sales efforts
have focused on sales of complete data transaction systems.
System sales are more costly and require a longer selling cycle,
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and more complex integration and installation services. System
sales, therefore, may result in increased time between the
manufacture of product and the recognition of revenue, as well as
the receipt of payment for such transactions.
Intellectual Property. The Company protects its proprietary
information and technology through contractual confidentiality
provisions and by applying for United States and foreign patents,
trademarks and copyrights. These applications may not result in
the issuance of patents, trademarks or copyrights. Third parties
may seek to challenge, invalidate or circumvent these
applications or resulting patents, trademarks or copyrights.
Competitors may independently develop equivalent or superior,
non-infringing technologies. The Company's licensing revenue
could be negatively affected if competing technologies avoid
infringement of the Company's licensed patents.
Third parties have and may again assert claims of
infringement of intellectual property rights against the Company.
These claims have in the past and may in the future lead to
litigation or require the Company to significantly modify or
discontinue sales of some of its products.
Third Party Products. Historically, the Company has manufactured
almost all of it products. Beginning in 1996, the Company began
to offer an increased number of third party products. The
Company hopes that sales of third party products will result in
higher operating income. Sales of third party products usually
generate lower margins which may not be fully offset by lower
expenses. If third party product suppliers become unable or
unwilling to manufacture products for the Company or do not meet
the Company's volume and quality requirements and delivery
schedules, the Company's ability to market these products could
be negatively affected. Many of the components and parts for
these third party products are purchased outside the United
States. Many of these third party products are manufactured
outside of the United States. Supply of these products could be
negatively affected by factors normally attendant to the conduct
of foreign trade, including:
- - imposition of duties, taxes, fees or other trade
restrictions
- fluctuation in currency exchange rates
- longer delivery times
Government Regulations. The Company is subject to the risks
associated with changes in United States and foreign regulatory
requirements. More stringent regulatory requirements or safety
-46-
and quality standards may be issued in the future and may have a
negative effect on the business of the Company. Sales of the
Company's products could be negatively affected if more stringent
safety standards are adopted by its customers such as electronic
cash register manufacturers.
The Company's Spectrum 24 spread spectrum wireless
communication products operate through the transmission of radio
signals. These products are subject to regulation by the FCC in
the United States and corresponding authorities in other
countries. Currently, operation of these products in specified
frequency bands does not require licensing by regulatory
authorities. Regulatory changes restricting the use of frequency
bands or allocating available frequencies could have a negative
effect on the Company's business and its results of operations.
Safety Risk. Recently, there has been some concern over the
potentially negative effects of electromagnetic emissions from
cellular telephones. While the Company's RF products do emit
electromagnetic radiation, the Company believes that due to the
low power output of its products and the logistics of their use,
there is no health risk to end-users in the normal operation of
its products. The Company's RF products may become the subjects
of safety concerns in the future. Safety issues and the
associated publicity could have a negative effect on the
Company's business and its results of operations.
Reliance on Resellers, Distributors and OEMs. The Company sells
a majority of its products through resellers, distributors and
original equipment manufacturers (OEMs). Reliance upon third
party distribution sources subjects the Company to risks of
business failure by these individual resellers, distributors and
OEMs, and credit, inventory and business concentration risks. In
addition, if there is a shortfall in demand from third party
distribution sources, the Company's operating results may be
affected negatively.
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Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
The following table sets forth for the years indicated
certain revenue and expense items expressed as a percentage of net
revenue.
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Percentage of Revenue
Year Ending December 31,
2001 2000 1999__
Product Revenue 78.9% 85.0% 85.1%
Services Revenue 21.1 15.0 14.9
100.0 100.0 100.0
Cost of Revenue:
Product costs 56.5 55.5 44.5
Amortization of Software
Development Costs 1.2 1.7 1.6
Product cost of revenue 57.7 57.2 46.1
Services cost of revenue 15.2 11.0 11.4
72.9 68.2 57.5
Gross Profit 27.1 31.8 42.5
Operating Expenses:
Engineering 8.1 6.7 7.2
Selling, General and Administrative 22.2 18.4 19.4
Restructuring and Impairment Charges - 2.1 -
In-Process Research and Development - 6.0 -
Merger Integration Charges - 2.7 -
Amortization of Excess of Cost Over Fair
Value of Net Assets Acquired 1.1 0.4 0.4
31.4 36.4 27.0
(Loss)/Earnings from Operations (4.3) (4.6) 15.5
Net Interest Expense (1.2) (0.8) (0.5)
(Loss)/Earnings Before Income Taxes And Extraordinary
Item (5.5) (5.5) 15.0
(Benefit from)/Provision for Income Taxes (1.8) (0.7) 4.8
(Loss)/Earnings Before Extraordinary Item (3.8) (4.8) 10.2
Extraordinary Gain on Repurchase of Convertible
Notes, Net of Taxes 0.1 - -
Net (Loss)/Earnings (3.7%) (4.8%) 10.2%
-49-
For the year ended December 31, 2001 (Dollars in thousands)
The Company's business consists of the design, manufacture
and marketing of scanner integrated mobile and wireless
information management systems, and the servicing of, customer
support for and professional services related to these systems.
During the fourth quarter of 2001, the Company reorganized its
services activities and formed a new global services organization.
This change allows the Company to focus on the delivery of all
services to its customers. These activities will be coordinated
under one global services organization. As a result, the Company
will present two reportable operating segments as Products and
Services.
Net product revenue of $1,146,870 for the year ended December
31, 2001 decreased 6.9 percent from 2000. The decrease in net
product revenue is due to a global slowdown in information
technology spending which resulted in a reduction in the quantity
of units sold, partially offset by increased revenue resulting
from the Telxon acquisition. Net services revenue of $305,827 for
the year ended December 31, 2001 increased 40.8 percent from 2000,
primarily due to the Telxon acquisition as well as an increase in
existing maintenance contract revenue. Foreign exchange
fluctuations unfavorably impacted the growth in total net revenue
by approximately 1.7 percentage points and 2.8 percentage points
for the years ended December 31, 2001 and 2000, respectively.
Geographically, The Americas revenue decreased 3.5 percent
from the comparable prior year period. EMEA and Asia Pacific
revenue increased 10.5 percent and 1.5 percent, respectively, over
the comparable prior year period. The Americas, EMEA, and Asia
Pacific revenue represent approximately 67.2 percent, 27.1
percent, and 5.7 percent, respectively, of net revenue in 2001.
The Company is planning for sequential quarterly growth in
revenue as the year progresses and it anticipates revenue of
approximately $1,400,000. Attainment of this forecast is
dependent on many factors, some of which are beyond the Company's
control. Those factors include those previously enumerated as
well as the assumption that there is a general improvement in the
level of economic activity as well as increased information
technology spending.
Based on the aforementioned forecast level of revenue, the
Company expects diluted earnings per share of approximately $0.30
for the full year, before a compensation related charge of
approximately $8,500. This forecast is contingent upon, among
other factors, attainment of revenue levels previously discussed.
As such, the Company has limited visibility to these numbers and
there can be no assurance they will be achieved.
Management of the Company has prepared the aforementioned
prospective financial information with respect to financial
performance in 2002. This prospective financial information was
not prepared with a view toward complying with the guidelines
established by the American Institute of Certified Public
Accountants with respect to prospective financial information,
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but, in the view of the Company's management, was prepared on a
reasonable basis. However this information is not fact and should
not be relied upon as being necessarily indicative of future
results, and one should not place undue reliance on the accuracy
of the prospective financial information.
Neither the Company's independent auditors, nor any other
independent accountants, have compiled, examined, or performed any
procedures with respect to the prospective financial information
contained herein, nor have they expressed any opinion or any other
form of assurance on such information or its achievability, and
assume no responsibility for, and disclaim any association with,
the prospective financial information.
Product cost of revenue (as a percentage of net product
revenue before non-recurring charges) was 58.8 percent for the
year ended December 31, 2001 as compared to 58.0 percent in 2000.
This increase is due to a shift in product mix in the fastest
growing proportion of the Company's business to lower margin
products versus the historical mix of products, the inclusion of
Telxon's generally lower margin products and the continued
unfavorable impact of foreign exchange rate fluctuations on net
revenue. This is partially offset by amortization of software
development costs of $17,084 for the year ended December 31, 2001,
which decreased from $24,067 in the prior year. This is due to a
decrease in the gross book value of software development costs
resulting from the writeoff of impaired assets in the fourth
quarter of 2000 in conjunction with the Telxon acquisition, as
well as the writeoff in the third quarter of 2001 related to the
reorganization of the Company's manufacturing facilities. Such
writeoffs relate to product discontinuations announced as a result
of the Telxon acquisition and the transition of volume
manufacturing activities to Mexico in the fourth quarter of 2000
and the third quarter of 2001, respectively.
Services cost of revenue (as a percentage of net services
revenue before non-recurring charges) was 70.0 percent for the
year ended December 31, 2001 as compared to 72.5 percent in 2000.
The decrease in the services cost of revenue as a percentage of
services revenue resulted primarily from cost containment efforts
and cost benefits derived from the elimination of duplicate
overhead components including the closure of four service centers
and elimination of redundant workforce created in connection with
the Telxon acquisition.
Included in total cost of revenue for the year ended December
31, 2001 is a $59,662 non-recurring charge recorded in the third
quarter of 2001 relating to the reorganization of the Company's
manufacturing facilities consisting of $53,091 representing
product cost of revenue and $6,571 representing services cost of
revenue. Management is in the process of transitioning most of
its volume manufacturing away from its Bohemia, New York facility
to lower cost locations, primarily its Reynosa, Mexico facility
and Far East contract manufacturing partners. Also included in
product cost of revenue for the year ended December 31, 2001 is a
$110,000 non-recurring charge recorded in the second quarter of
2001 for a writedown of the Company's radio frequency (RF)
infrastructure and mobile computing inventories. The writedown
-51-
was recorded as a result of lower demand for the Company's current
RF products, coupled with technological obsolescence due to
planned introductions of new RF infrastructure products and mobile
computing appliances. Included in total cost of revenue for the
year ended December 31, 2000 are restructuring and impairment
charges of $116,901 recorded in the fourth quarter of 2000,
related to the acquisition of Telxon consisting of $114,440
representing product cost of revenue and $2,461 representing
services cost of revenue. These charges include inventory
writeoffs, capitalized software writeoffs and other impairment
charges, as well as the severance costs of direct labor employees
of the Company.
Engineering costs increased to $117,377 for the year ended
December 31, 2001, from $97,274 for 2000. This represents an
increase of 20.7 percent from the prior year. The increase is
due to additional expenses incurred in connection with the
continuing research and development of new products and the
improvement of existing products and Telxon products as well as a
decrease in the amount of capitalized costs incurred for
internally developed product software where economic and
technological feasibility has been established. As a percentage
of total net revenue, such expenses increased to 8.1 percent for
the year ended December 31, 2001, from 6.7 percent in the prior
year due to lower revenue levels as well as increased
expenditures.
Selling, general and administrative expenses increased to
$322,735 for the year ended December 31, 2001, from $267,322 in
2000. In absolute dollars selling, general and administrative
expenses increased 20.7 percent from the prior year, and as a
percentage of total net revenue such expenses increased to 22.2
percent for the year ended December 31, 2001, from 18.4 percent in
2000. The increase resulted from additional expenses due to the
Telxon acquisition and additional expenses incurred to support a
revenue base that is lower than that originally planned for in
2001.
Included in the results for the year ended December 31, 2001
is a pre-tax charge of approximately $16,000 recorded in the
second quarter of 2001 for probable losses expected to be incurred
due to challenges faced by the Company's OEM partners of selling
products in the deteriorating capital spending environment.
Amortization of excess of cost over fair value of net assets
acquired of $16,419 for the year ended December 31, 2001 increased
from $6,475 in 2000 primarily due to the Telxon acquisition. In
June 2001, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No.
142, "Goodwill and Other Intangible Assets". SFAS No. 142
addresses financial accounting and reporting for acquired goodwill
and other intangible assets. Under SFAS No. 142, goodwill and
some intangible assets will no longer be amortized, but rather
reviewed for impairment on a periodic basis. The provisions of
this Statement are required to be applied starting with fiscal
years beginning after December 15, 2001.
-52-
Net interest expense increased to $17,975 for the year ended
December 31, 2001, from $12,220 in 2000 primarily due to the SAILS
exchangeable debt and interest on Telxon's subordinated notes and
debentures, partially offset by a reduction in interest expense
due to annual mandatory repayments of other indebtedness, and the
repurchase of certain of Telxon's 5.75 percent convertible
subordinated notes. For further discussion of the SAILS
exchangeable debt offering and the subordinated notes and
debentures, refer to Liquidity and Capital Resources.
The Company's effective tax benefit for 2001 was 31.9
percent. This differs from the statutory rate primarily as a
result of non-recurring restructuring and integration charges
associated with the reorganization of the Company's manufacturing
facilities and an inventory writedown.
During the year ended December 31, 2001, Telxon purchased in
the open market $21,861 of its 5.75 percent convertible
subordinated notes for $20,665. This resulted in an extraordinary
gain of $813, net of income taxes of $383, for the year ended
December 31, 2001.
At December 31, 2001, the Company had net deferred tax assets
of approximately $207,117 consisting of current deferred tax
assets of $182,964 and long-term deferred tax assets of $24,153.
The long-term deferred tax assets reflect a valuation allowance of
$8,098 relating to net operating loss carryforwards.
In February 2002, the Company's former President and Chief
Executive Officer announced his retirement. In connection
therewith, the Company will record a pre-tax compensation and
related benefits charge of approximately $8,500 in the first
quarter of 2002.
For the year ended December 31, 2000 (Dollars in thousands)
Net product revenue of $1,232,320 for the year ended December
31, 2000 increased 27.1 percent from 1999. The increase in net
product revenue is primarily due to increased worldwide equipment
sales. Net services revenue of $217,170 for the year ended
December 31, 2000 increased 27.9 percent from 1999. The increase
in net services revenue is primarily due to an increase in
maintenance contract revenue due to higher levels of product
revenue as well as revenue from maintenance and repair services
provided on an as-needed basis. Foreign exchange fluctuations
unfavorably impacted the growth in net revenue by approximately
2.8 percentage points and 0.6 percentage points for the years
ended December 31, 2000 and 1999, respectively.
-53-
Geographically, The Americas, EMEA and Asia Pacific revenue
increased 38.4 percent, 3.6 percent, and 27.1 percent,
respectively over the comparable prior year period. The Americas,
EMEA, and Asia Pacific revenue represent approximately 69.8
percent, 24.5 percent, and 5.7 percent, respectively, of net
revenue in 2000.
Product cost of revenue (as a percentage of net product
revenue before non-recurring charges) was 58.0 percent for the
year ended December 31, 2000 as compared to 54.2 percent in 1999.
The increase in product cost of revenue is due to a shift in
product mix in the fastest growing proportion of the Company's
business to lower margin products versus the historical mix of
products, the continued unfavorable impact of foreign exchange
rate fluctuations on net revenue, increased costs resulting from
shortages and delivery delays for the limited quantities of
components and subassemblies procured from suppliers and the
dilutive effect of the Telxon acquisition partially offset by
increased royalty income. Additionally, amortization of software
development costs of $24,067 for the year ended December 31, 2000,
increased from $18,472 in the prior year due to new product
releases.
Services cost of revenue (as a percentage of net services
revenue before non-recurring charges) was 72.5 percent for the
year ended December 31, 2000 as compared to 76.2 percent in 1999.
The decrease in services cost of revenue is due to the reduction
of certain overhead components of cost of revenue from the prior
year, including redundant workforce reductions. Included
in total cost of revenue are restructuring and impairment charges
of $116,901 recorded in the fourth quarter of 2000, related to the
acquisition of Telxon, consisting of $114,440 representing product
cost of revenue and $2,461 representing services cost of revenue.
These charges include inventory writeoffs, capitalized software
writeoffs and other impairment charges, as well as the severance
costs of direct labor employees of the Company.
Engineering costs increased to $97,274 for the year ended
December 31, 2000, from $81,944 for 1999. This represents an
increase of 18.7 percent from the prior year. The increase is
due to additional expenses incurred in connection with the
continuing research and development of new products and the
improvement of existing products as well as a decrease in the
amount of capitalized costs incurred for internally developed
product software where economic and technological feasibility has
been established. As a percentage of total revenue such expenses
decreased to 6.7 percent for the year ended December 31, 2000,
from 7.2 percent for the prior year.
Selling, general and administrative expenses increased to
$267,322 for the year ended December 31, 2000, from $220,753 in
1999. While in absolute dollars selling, general and
administrative expenses increased 21.1 percent for the year ended
December 31, 2000, from the prior year, as a percentage of total
-54-
revenue such expenses decreased to 18.4 percent for the year ended
December 31, 2000, from 19.4 percent in 1999 due to ongoing cost
containment programs. The increase in absolute dollars reflects
expenses incurred to support a higher revenue base inclusive of
expenses associated with the Telxon acquisition.
Restructuring and impairment charges of $29,795, recorded in
the fourth quarter of 2000, related to the restructuring plan that
resulted from the Telxon acquisition. These charges, classified as
a component of operating expenses, include impaired fixed assets,
severance of engineering, selling, general and administrative
employees, and lease termination costs of redundant facilities.
In-process research and development charges of $87,600
related to the Telxon acquisition, which was accounted for using
the purchase method. A portion of the purchase price was
allocated to acquired in-process research and development and was
expensed immediately, since the technological feasibility of the
research and development projects had not been achieved and such
projects were believed to have no alternative future use.
Independent valuations were used in determining the fair value of
the identifiable intangible assets and in allocating the purchase
price among the acquired assets, including the portion of the
purchase price attributed to in-process research and development.
The Company recorded merger integration charges of $39,225 in
the fourth quarter of 2000 related to the Telxon acquisition. The
merger integration charges consist primarily of professional
services and consulting fees, marketing and advertising, travel
expenses and other related charges.
Amortization of excess of cost over fair value of net assets
acquired of $6,475 for the year ended December 31, 2000 increased
from $5,092 in 1999 primarily due to the Telxon acquisition.
Net interest expense increased to $12,220 for the year ended
December 31, 2000, from $5,821 in 1999 primarily due to increased
borrowings under the Company's revolving credit facility,
partially offset by a reduction in interest expense due to annual
mandatory repayments of other indebtedness.
The Company's effective tax benefit for 2000 is 13.3 percent.
This differs from the statutory rate primarily as a result of non-
recurring restructuring and integration charges associated with
the Telxon acquisition previously mentioned.
At December 31, 2000, the Company had net deferred tax assets
of approximately $108,994 consisting of current deferred tax
assets of $197,019 and long-term deferred tax liabilities of
$88,025. The current deferred tax assets reflect a valuation
allowance of $6,958 relating to net operating loss carryforwards
and foreign tax credit carryforwards.
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Liquidity and Capital Resources (Dollars in thousands)
The Company utilizes a number of measures of liquidity
including the following:
Year Ended December 31,_____
2001 2000 1999__
Working Capital $660,475 $620,214 $351,613
Current Ratio (Current
Assets to Current
Liabilities) 2.9:1 2.4:1 2.5:1
Long-Term Debt
to Capital 20.8% 20.4% 13.5%
(Convertible subordinated notes and
debentures plus long-term debt to
convertible subordinated notes and
debentures plus long-term debt plus
equity)
Current assets decreased by $78,044 from December 31, 2000,
principally due to a decrease in accounts receivable resulting
from lower revenue and increased cash collections, and a decrease
in deferred income taxes. The overall decrease in current assets
was partially offset by increased inventory in support of new
product launches and the shift in volume manufacturing to Mexico,
increased cash, prepaid and refundable income taxes resulting
from non-recurring charges associated with an inventory writedown
and the reorganization of the Company's manufacturing facilities
and the tax benefit of stock option exercises.
Current liabilities decreased $118,305 from December 31,
2000, primarily due to the utilization of accrued restructuring
expenses, repayment of the current portion of long-term debt and
a decrease in accounts payable and accrued expenses.
The aforementioned activity resulted in a working capital
increase of $40,261 for the fiscal year ended December 31, 2001.
The Company's current ratio of 2.9:1 at December 31, 2001
increased from 2.4:1 at December 31, 2000.
The Company generated positive cash flow from operating
activities of $26,628 and experienced an overall increase in cash
of $17,556 during 2001. The positive cash flow provided by
operating activities, net proceeds from issuance and repayments
of notes payable and long-term debt, the proceeds from the
termination of the collar arrangement, associated with the
Company's investment in Cisco Common Stock, obtained in
conjunction with the Telxon acquisition, and the exercise of
stock options which was partially offset by purchases of
property, plant and equipment, investment in intangible and other
assets, the repurchase of convertible notes, the repurchase of
1,373,000 shares of the Company's common stock, and dividends
paid.
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For the year ended December 31, 2000, the Company used
$50,534 in operating activities, but experienced an overall
increase in cash of $33,283. The positive cash flow provided by
the sale of 7,529,000 (split-effected) treasury shares in private
placements, the net proceeds from the issuance and repayments of
notes payable and long-term debt and the exercise of stock
options which was partially offset by cash used in operations,
investments in AirClic Inc. and others, and the repurchase of
1,176,000 (split-effected) shares of the Company's common stock.
Property, plant and equipment expenditures for the year
ended December 31, 2001 totaled $98,494 compared to $79,736 for
the year ended December 31, 2000. During the fourth quarter of
2000, the Company substantially completed construction of a
140,000 square foot manufacturing and distribution facility in
Reynosa, Mexico. In February 2001, the Company began a 150,000
square foot expansion of this facility. The total cost for this
project is estimated to be approximately $8,500 and is scheduled
to be completed during 2002. Additionally, in February 2001, the
Company began construction of a new 334,000 square foot
distribution center in McAllen, Texas. The total cost for this
project is estimated to be approximately $33,000 and is scheduled
to be completed in the first half of 2002. The Company continues
to make capital investments in major systems and network
conversions but does not have any other material commitments for
capital expenditures.
During the year ended December 31, 2000, the Company
established a special purpose entity ("SPE") for the purpose of
entering into a $50,000 lease receivable securitization agreement
with a highly rated financial institution. The SPE is a
consolidated entity and, accordingly, its results are included in
the consolidated financial statements of the Company. During the
year ended December 31, 2001 the SPE securitized approximately
$32,227 of its lease receivables which resulted in proceeds from
new securitizations of $18,700. Factors that are reasonably
likely to affect the Company's ability to continue using these
financing arrangements include the ability to generate lease
receivables that qualify for securitization and the ability of
the financial institution to obtain an investment grade rating
from either of the two major credit rating agencies. The Company
does not consider its securitization of lease receivables a
significant dependency on its continued liquidity.
At December 31, 2001, the Company had $225,168 in long-term
debt outstanding, excluding current maturities, as follows:
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December 31, December 31,
2001 2000______
Revolving Credit Facility $125,439 $187,329
Senior Notes 12,698 19,048
Promissory Note - 10,000
State Loan - 3,000
SAILS Exchangeable Debt 93,206 -
Other 373 4,792
231,716 224,169
Less: Current maturities 6,548 23,025
$225,168 $201,144
The Company has a $350 million revolving credit facility
with a syndicate of U.S. and International banks (the "Credit
Agreement"). The terms of the Credit Agreement extend to 2004.
Use of the borrowings is unrestricted and the borrowings are
unsecured. These borrowings bear interest at either LIBOR plus
100 basis points or the base rate of the syndication agent bank
which approximated 4.75 percent, 9.5 percent and 6.7 percent at
December 31, 2001, 2000 and 1999, respectively. At December 31,
2001, the Company had $125,439 of borrowings outstanding under
the Credit Agreement,which have been classified as long-term
obligations. At December 31, 2000 and 1999, the Company had
$187,329 and $57,000 of borrowings outstanding under the Credit
Agreement, respectively. In addition, in March 1993, the Company
issued $25,000 of its 7.76 percent Series A Senior Notes due
February 15, 2003, and $25,000 of its 7.76 percent Series B
Senior Notes due February 15, 2003, to two insurance companies
for working capital and general corporate purposes. The Series A
Senior Notes are being repaid in equal annual installments of
$2,778 which began in February 1995. The Series B Senior Notes
are being repaid in equal annual installments of $3,571 which
began February 1997. The Senior Notes represent $6,349 of the
total long-term debt balance outstanding at December 31, 2001.
In January 2001, the Company entered into a private
Mandatorily Exchangeable Securities Contract for Shared
Appreciation Income Linked Securities ("SAILS") with a highly
rated financial institution. The securities which underlie the
SAILS contract represent the Company's investment in Cisco common
stock, which was acquired in connection with the Telxon
acquisition. The 4,160,000 shares of Cisco common stock had a
market value of $75,338 at December 31, 2001. Such shares are
held as collateral to secure the debt instrument associated with
the SAILS and are included in the balance of Investment in
Marketable Securities. This debt has a seven-year maturity and
pays a cash coupon of 3.625 percent. The SAILS contain an
embedded equity collar, which effectively manages a large portion
of the Company's exposure to fluctuations in the fair value of
its holdings in Cisco common stock. At maturity, the SAILS will
be exchangeable for shares of Cisco common stock, or at the
Company's option, cash in lieu of shares. Net proceeds from the
issuance of the SAILS and termination of an existing freestanding
collar arrangement were approximately $262,246 which were used
for general corporate purposes, including the repayment of debt
outstanding under its revolving credit facility. The Company
accounts for the embedded equity collar as a derivative financial
instrument in accordance with the requirements of Statement of
Financial Accounting Standards No. 133, "Accounting for Certain
Derivative Instruments and Hedging Activities." ("SFAS 133")
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The change in fair value of this derivative between reporting
dates is recognized through earnings but has been mitigated by
the changes in market value of Cisco shares classified as trading
securities which resulted in a net effect on earnings which is
not material. The derivative has been combined with the debt
instrument in long-term debt in an appropriate presentation of
the Company's overall future cash outflows for that debt
instrument under Financial Accounting Standards Board
Interpretation No. 39, "Offsetting of Amounts Related to Certain
Contracts" ("FIN 39") for the legal right of offset for
accounting purposes. The SAILS liability, net of the derivative
asset, represents $93,206 of the total long-term debt balance
outstanding at December 31, 2001.
The remaining $174 of long-term debt outstanding relates to
various other loans maturing through 2008.
The combined aggregate amount of long-term debt maturities for
each of the years ended December 31 are as follows:
2002 $ 6,548
2003 6,401
2004 125,468
2005 32
2006 27
Thereafter 93,240
$231,716
The Company's long-term debt to capital ratio increased to
20.8 percent at December 31, 2001, from 20.4 percent at December
31, 2000, due to the SAILS exchangeable debt transaction
completed in January 2001, the loss for the year and the
repurchase of treasury shares, offset by net repayments under the
Credit Agreement, the repurchase of the Telxon convertible notes,
and the increase in equity due to stock option exercises.
The Company has loan agreements with various banks pursuant
to which, the banks have agreed to provide lines of credit
totaling $55,000 with a range of borrowing rates and varying
terms. As of December 31, 2001, the Company has $19 outstanding
under these lines. These agreements continue until such time as
either party terminates the agreements.
At the time of the Telxon acquisition, Telxon had
outstanding $82,500 of 5.75 percent convertible subordinated
notes (the "5.75 percent notes"), and $24,413 of 7.5 percent
convertible subordinated debentures (the "7.5 percent
debentures"). The notes are redeemable at any time at the option
of the Telxon at 100.8214 percent of par value during the year
ending December 31, 2002. The 7.5 percent debentures are
redeemable at par value. During the year ended December 31,
2001, Telxon purchased in the open market $21,861 of Telxon's
5.75 percent notes for $20,665 in cash, resulting in an
extraordinary gain of $813, net of $383 in taxes. In January and
February of 2002, Telxon repurchased $34,790 of its 5.75 percent
notes for $34,127 in cash and $5,173 of its 7.5 percent
debentures for $5,004 in cash. In March 2002, Telxon called for
the redemption of all of its 5.75 percent notes and all of its
7.5 percent debentures. The redemption date will be April 15,
2002. The redemption price will be 100.8214 percent of the
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outstanding principal amount plus accrued and unpaid interest for
the 5.75 percent notes and 100 percent of the outstanding
principal amount plus accrued and unpaid interest
for the 7.5 percent debentures. The aggregate principal amount to
be redeemed is $45,089.
The Company continues to enter into obligations and
commitments to make future payments under lease agreements. The
future obligations related to capital lease obligations is not
material.
The combined aggregate amount of required future minimum
rental payments under non-cancelable operating leases for each of
the years ended December 31, are as follows:
2002 $15,357
2003 13,060
2004 11,124
2005 9,605
2006 8,884
Thereafter 32,733
$90,763
The Company has a balance of accrued purchase commitments of
$13,822 as of December 31, 2001 for which payments are due within
one year and is included in the balance of accounts payable and
accrued expenses.
The Company believes that it has adequate liquidity to meet
its current and anticipated needs from the results of its
operations, working capital and existing credit facilities.
In the opinion of management, inflation has not had a
material effect on the operations of the Company.
Critical Accounting Policies
The preparation of these financial statements in conformity
with accounting principles generally accepted in the United
States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period.
On an on-going basis, management evaluates its estimates and
judgments, including those related to revenue recognition, asset
impairment, intangible assets and derivative instrument
valuation. Management bases its estimates and judgments on
historical experience and on various other factors that are
believed to be reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these
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estimates under different assumptions or conditions. Note 1 to
the Company's consolidated financial statements "Summary of
Significant Accounting Policies" summarizes each of its
significant accounting policies. Management believes the
following critical accounting policies, among others, affect its
more significant judgments and estimates used in the preparation
of its consolidated financial statements.
Revenue Recognition. Revenue related to sales of the Company's
products and systems is generally recognized when products are
shipped or services are rendered, the title and risk of loss has
passed to the customer, the sales price is fixed or determinable,
and collectibility is reasonably assured. The Company accrues
related product return reserves and warranty expenses at the time
of sale. Service and maintenance sales are recognized over the
contract term.
In December 1999, the Securities and Exchange Commission (SEC)
issued Staff Accounting Bulletin ("SAB") No. 101 "Revenue
Recognition in Financial Statements". Accordingly, if products,
services or maintenance are bundled in a single contract, revenue
will be recognized once all elements of the contract are completed
unless the following criteria are met: (1) the product has been
delivered; (2) the undelivered services or maintenance are not
essential to the delivered products; (3) the fee for the product
is not subject to forfeiture, refund or concession based on
performance of the services or maintenance; (4) the fair value of
services and maintenance are determined based on the price charged
by the Company, or the price charged by competitors when similar
services or maintenance are sold separately; and (5) the revenue
related to any element of the contract is not subject to customer
acceptance; in which case the revenue for each element will be
recognized independently.
Long-Lived Assets. The Company assesses the impairment of its
long-lived assets, including property, plant and equipment,
identifiable intangible assets and software development costs
whenever events or changes in circumstances indicate the carrying
value may not be recoverable. Factors the Company considers
important which could trigger an impairment review include
significant changes in the manner of our use of the acquired
asset, changes in historical or projected operating performance
and significant negative economic trends.
Research and Development/Software Development Costs. The Company
expenses all research and development costs as incurred. Research
and development expenses may fluctuate due to the timing of
expenditures for the varying stages of research and product
development and the availability of capital resources. The
Company capitalizes costs incurred for internally developed
product software where economic and technological feasibility has
been established and for qualifying purchased product software.
The Company assesses the recoverability of its software
development costs against estimated future revenue over the
remaining economic life of the software.
Derivative Instruments, Hedging Activities and Foreign Currency.
The Company utilizes derivative financial instruments to hedge
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foreign exchange rate risk exposures related to foreign currency
denominated payments from its international subsidiaries. The
Company also utilizes a derivative financial instrument to hedge
fluctuations in the fair value of its investment in Cisco common
shares. These derivatives qualify for hedge accounting. The
Company does not participate in speculative derivatives trading.
While the Company intends to continue to meet the conditions for
hedge accounting, if hedges did not qualify as highly effective,
or if the Company did not believe the forecasted transactions
would occur, the changes in fair value of the derivatives used as
hedges would be reflected in earnings. The Company does not
believe it is exposed to more than a nominal amount of credit risk
in its hedging activities as the counterparties are established,
well capitalized financial institutions.
Recently Issued Accounting Pronouncements
In June 2001, the FASB issued SFAS No. 141, "Business
Combinations". SFAS No. 141 applies prospectively to all
business combinations initiated after June 30, 2001 and to all
business combinations accounted for using the purchase method for
which the date of acquisition is for July 1, 2001, or later. This
statement requires all business combinations to be accounted for
using one method, the purchase method. The adoption of SFAS No.
141 is not expected to have a significant impact on the Company's
financial statements.
In June 2001, the FASB issued SFAS No. 142, "Goodwill and
Other Intangible Assets". SFAS No. 142 addresses financial
accounting and reporting for acquired goodwill and other
intangible assets. Under SFAS No. 142, goodwill and some
intangible assets will no longer be amortized, but rather
reviewed for impairment on a periodic basis. The Company will
adopt the provisions of this Statement effective January 1, 2002.
This Statement is required to be applied to all goodwill and
other intangible assets recognized in its financial statements at
such date. Impairment losses for goodwill and certain intangible
assets that arise due to the initial application of this
Statement are to be reported as resulting from a change in
accounting principle. Goodwill and intangible assets acquired
after June 30, 2001, will be subject immediately to the
provisions of this Statement. The Company has not completed an
analysis of the potential impact upon adoption of the impairment
test of goodwill, however amortization of existing goodwill,
which was $16,419, $6,475 and $5,092 for the years ended December
31, 2001, 2000 and 1999, respectively, will cease upon adoption.
In August 2001, the FASB issued SFAS No. 143, "Accounting
for Asset Retirement Obligations". The standard requires
entities to record the fair value of a liability for an asset
retirement obligation in the period in which it is incurred. When
the liability is initially recorded, the entity capitalizes a
cost by increasing the carrying amount of the related long-lived
asset. Over time, the liability is accreted to its present value
each period, and the capitalized cost is depreciated over the
useful life of the related asset. Upon settlement of the
liability, an entity either settles the obligation for its
recorded amount or incurs a gain or loss upon settlement. The
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standard is effective for the Company beginning January 1, 2003.
The adoption of SFAS 143 is not expected to have a material
impact on the Company's financial statements.
In October 2001, the FASB issued SFAS No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets". SFAS No.
144 replaces SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
and the accounting and reporting provisions of Accounting
Principles Board Opinion No. 30, "Reporting the Results of
Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions", for the disposal of a "segment of a
business" (as previously defined in that Opinion). SFAS No. 144
requires that long-lived assets be measured at the lower of
carrying amount or fair value less cost to sell, whether reported
in continuing operations or in discontinued operations.
Therefore, discontinued operations will no longer be measured at
net realizable value or include amounts for operating losses that
have not yet occurred. SFAS No. 144 also broadens the reporting
of discontinued operations to include all components of an entity
with operations that can be distinguished from the rest of the
entity and that will be eliminated from the ongoing operations of
the entity in a disposal transaction. The provisions of SFAS No.
144 are effective for the Company beginning January 1, 2002. The
adoption of SFAS 144 is not expected to have a material impact on
the Company's financial statements.
Euro Conversion
As part of the European Economic and Monetary Union (EMU), a
single currency (the "Euro") will replace the national currencies
of most of the European countries in which the Company conducts
business. The conversion rates between the Euro and the
participating nations' currencies have been fixed irrevocably as
of January 1, 1999, with the participating national currencies
being removed from circulation between January 1, and June 30,
2002 and replaced by Euro notes and coinage. During the
"transition period" from January 1, 1999 through December 31,
2001, public and private entities as well as individuals could
pay for goods and services using either checks, drafts, or wire
transfers denominated in Euro or the participating country's
national currency.
Under the regulations governing the transition to a single
currency, there is a "no compulsion, no prohibition" rule which
states that no one is obliged to utilize the Euro until the notes
and coinage have been introduced on January 1, 2002. In keeping
with this rule, the Company has been Euro "compliant" (able to
receive Euro denominated payments and able to invoice in Euro as
requested by vendors and suppliers, respectively) as of January
1, 1999 in the affected countries. Full conversion of all
affected country operations to Euro has been completed as of
January 1, 2002.
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Market Risk Sensitivity
The Company is exposed to various market risks, including
changes in foreign currency exchange rates and interest rates.
Market risk is the potential loss arising from adverse changes in
market rates and prices, such as foreign currency exchange and
interest rates. The Company has a formal policy that prohibits
the use of currency derivatives or other financial instruments
for trading or speculative purposes. The policy permits the use
of financial instruments to manage and reduce the impact of
changes in foreign currency exchange rates that may arise in the
normal course of the Company's business. Currently, the Company
does not use interest rate derivatives. The counterparties in
derivative transactions are major financial institutions with
ratings of A or better, as determined by one of the major credit
rating services.
The Company enters into forward foreign exchange contracts
and foreign currency loans principally to hedge the currency
fluctuations in transactions denominated in foreign currencies,
thereby limiting the Company's risk that would otherwise result
from changes in exchange rates. During 2001, the principal
transactions hedged were short-term intercompany sales. The
periods of the forward foreign exchange contracts and foreign
currency loans correspond to the periods of the hedged
transactions. Gains and losses on forward foreign exchange
contracts and foreign currency loans and the offsetting losses
and gains on hedged transactions are reflected in the Company's
statement of operations.
A large percentage of the Company's sales are transacted in
local currencies. As a result, the Company's international
operating results are subject to foreign exchange rate
fluctuations. A 5.0 percent strengthening or weakening of the
U.S. dollar against every applicable foreign currency could have
had a $24,800 impact on the revenues of the Company. The Company
does not use foreign exchange contracts to hedge expected
revenues. However, the Company sources a portion of its raw
materials in local currencies. A 5.0 percent strengthening or
weakening of the U.S. dollar against every applicable local
content currency would act as a partial offset to the impact on
revenues.
The Company, which manufactures a significant portion of
its products at its Mexico facility and by third parties,
generally invoices its international subsidiaries in their local
currency for finished and semi-finished goods. As a result, the
Company's annual U.S. dollar cash flow is subject to foreign
exchange rate fluctuations. A 5.0 percent strengthening or
weakening of the U.S. dollar against every applicable currency
-64-
could have had an $11,400 impact on the value of the realized
cash remittances from its subsidiaries. The Company routinely
uses foreign exchange contracts to hedge cash flows that are
either firm commitments or those which may be forecasted to
occur.
While components and supplies are generally available from
a variety of sources, the Company presently depends on a single
source or a limited number of suppliers for several components of
its equipment, certain subassemblies and certain of its products.
This may have an adverse effect on the Company's ability to
deliver its products or to deliver its products on time or to
manufacture its products at anticipated cost levels. However,
due to the general availability of components and supplies, the
Company does not believe that the loss of any supplier or
subassembly manufacturer would have a long-term material adverse
effect on its business, although set-up costs and delays could
occur in the short-term if the Company changes any single source
supplier.
In an effort to hedge foreign currency losses on
intercompany receivables, the Company has the equivalent of
$20,400 of borrowings outstanding in various foreign currencies
at December 31, 2001. Substantially all of the remaining Company
debt is U.S. dollar denominated. At year-end, about 40 percent
of all indebtedness to third parties was floating rate-based.
Although the Company has exposure to rising and falling interest
rates, a 1.0 percent rise in rates on current year floating rate-
based borrowings would have had a $800 adverse impact on pre-tax
earnings. During 2001, the Company did not use interest rate
derivatives to protect its exposure to interest rate market
movements.
The Company currently holds an investment in Cisco common
stock, which is accounted for in accordance with Statement of
Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." These equity
securities are classified as either trading or available-for-sale
based on how they are utilized in the SAILS arrangement. They
are carried at fair market value based on their quoted market
price. As such, the Company has exposure to market risk related
to the fluctuation of Cisco's stock price. However, the change
in fair value of the Cisco stock price is mitigated by the change
in fair value of the embedded equity collar contained in the
SAILS arrangement.
-65-
Item 8. Financial Statements and Supplementary Data
The following documents are filed on the pages
listed below, as part of Part II, Item 8 of this
report.
Document Page
1. Financial Statements and Accountants' Report:
Independent Auditors' Report F-1
Consolidated Financial Statements:
Balance Sheets as of December 31, 2001 and 2000 F-2
Statements of Operations for the Years Ended
December 31, 2001, 2000 and 1999 F-3
Statements of Stockholders' Equity for the
Years Ended December 31, 2001, 2000 and 1999 F-4
Statements of Cash Flows for the Years Ended
December 31, 2001, 2000 and 1999 F-6
Notes to Consolidated Financial Statements F-7
2. Financial Statement Schedules:
Schedule II
Item 9. Disagreements on Accounting and Financial Disclosure
Not applicable
PART III
Item 10. Directors and Executive Officers of the Registrant
(a) Identification of Directors:
The section entitled "Nominees for Election"
contained in the Proxy Statement is hereby
incorporated by reference.
(b) Identification of Executive Officers:
See PART I of this Form 10-K.
Item 11. Executive Compensation
The section entitled "Management Remuneration and
Transactions" contained in the Proxy Statement is hereby
incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The sections entitled "Principal Shareholders" and
"Security Ownership of Management" contained in the Proxy
Statement are hereby incorporated by reference.
Item 13. Certain Relationships and Related Transactions
The section entitled "Management Remuneration and
Transactions" contained in the Proxy Statement is hereby
incorporated by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K.
(a) 1. FINANCIAL STATEMENTS:
Independent Auditors' Report
Consolidated Balance Sheets as of December 31,
2001 and 2000
Consolidated Statements of Operations for the
Years Ended December 31, 2001, 2000 and 1999
Consolidated Statements of Stockholders' Equity
for the Years Ended December 31, 2001, 2000 and
1999
Consolidated Statements of Cash Flows for the
Years Ended December 31, 2001, 2000 and 1999
Notes to Consolidated Financial Statements
2. FINANCIAL STATEMENT SCHEDULES
Included in Part IV of this report:
Schedules:
II. Valuation and Qualifying Accounts
Other schedules are omitted because of the absence of
conditions under which they are required or because the required
information is given in the consolidated financial statements or
notes thereto.
Individual financial statements of the subsidiaries of the
Company are omitted as the Company is primarily an operating
company and the subsidiaries included in the consolidated
financial statements filed are substantially wholly owned and are
not indebted to any person other than the parent in amounts which
exceed 5 percent of total consolidated assets at the date of the
latest balance sheet filed, excepting indebtedness incurred in
the ordinary course of business which is not overdue and which
matures within one year from the date of its creation, whether
evidenced by securities or not, and indebtedness which is
collateralized by the parent by guarantee, pledge, assignment or
otherwise.
3. Exhibits
Exhibit
3.1 Certificate of Incorporation of Symbol Technologies, Inc.
as amended. (Incorporated by reference to Exhibit 3.1 to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1999 (the "1999 Form 10-K."))
3.3 Amended and Restated By-Laws of the Company.
(Incorporated by reference to Exhibit 3.2 to the Quarterly
Report on Form 10-Q for the quarter ended September 30,
2001.)
4.1 Form of Certificate for Shares of the Common Stock of the
Company. (Incorporated by reference to Exhibit 4.1 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1998.)
4.2 Rights Agreement, dated as of August 13, 2001, between the
Company and The Bank of New York, as Rights Agent, which
includes the form of Certificate of Designations with
respect to the Series A Junior Participating Preferred
Stock as Exhibit A, the form of Right Certificate as
Exhibit B and the Summary of Rights to Purchase Shares of
Preferred Stock as Exhibit C. (Incorporated by reference
to Exhibit 4 to the Company's Current Report on Form 8-K
dated August 21, 2001.)
10.1 Form of 2008 Stock Purchase Warrant issued to certain
directors. (Incorporated by reference to Exhibit 10.1 to
the Company's Annual Report on Form 10K for the year ended
December 31, 1997.)
10.2 1994 Directors' Stock Option Plan. (Incorporated by
reference to Exhibit 4.1 to Registration Statement No. 33-
78678 on Form S-8.)
10.3 2000 Directors' Stock Option Plan. (Incorporated by
reference to Exhibit 4 to Registration Statement No. 333-
78599 on Form S-8.)
10.4 1997 Employee Stock Purchase Plan. (Incorporated by
reference to Exhibit 4.2 to Registration Statement No.
333-26593 on Form S-8.)
10.5 1997 Employee Stock Option Plan. (Incorporated by
reference to Exhibit 4.2 to Registration Statement No.
333-73322 on Form S-8.)
10.6 1991 Employee Stock Option Plan (Incorporated by reference
to Exhibit 10.1 to the Company's Annual Report on Form 10-
K for the year ended December 31, 1991.)
10.7 1990 Non-Executive Stock Option Plan, as amended.
(Incorporated by reference to Exhibit 10.1 of the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995 (the "1995 Form 10-K")).
10.8 2001 Non-Executive Stock Option Plan. (Incorporated by
reference to Exhibit 10.8 of the Company's Annual Report
on Form 10-K for the year ended December 31, 2000 (the
"2000 Form 10-K")).
10.9 Employment Agreement by and between the Company and Jerome
Swartz, dated as of July 1, 2000. (Incorporated by
reference to Exhibit 10.9 to the 2000 Form 10-K.
10.10 Employment Agreement by and between the Company and
Leonard H. Goldner, dated as of December 15, 2000.
(Incorporated by reference to Exhibit 10.10 to the 2000
Form 10-K.)
10.11 Employment Agreement by and between the Company and
Raymond Martino, dated as of February 15, 2000.
(Incorporated by reference to Exhibit 10.10 to the 1999
Form l0-K.)
10.12 Employment Agreement by and between the Company and Tomo
Razmilovic, dated as of February 14, 2002.
10.13 Separation, Release and Non-Disclosure Agreement between
the Company and Tomo Razmilovic, dated as of February
14, 2002.
10.14 Executive Retirement Plan, as amended. (Incorporated by
reference to Exhibit 10.14 to Company's Annual Report on a
Form 10-K for the year ended December 31, 1989.)
10.15 Symbol Technologies, Inc. Stock Ownership and Option
Retention Program.(Incorporated by reference to Exhibit
10.13 of the 1995 Form 10-K.)
10.16 Summary of Symbol Technologies, Inc. Executive Bonus Plan.
(Incorporated by reference to Exhibit 10.13 of the 1999
Form 10-K.)
10.17 Form of Note Agreements dated as of February 15, 1993
relating to the Company's 7.76 percent Series A and Series
B Senior Notes due February 15, 2003 (Incorporated by
reference to Exhibit 10.14 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1992.)
10.18 2000 Amended and Restated Credit Agreement dated as of
August 3, 2000 among Symbol Technologies, Inc., the
lending institutions identified in the Credit Agreement
and Bank of America, N.A., as agent and as letter of
credit issuing bank. (Incorporated by reference to
Exhibit 10.17 to the 2000 Form 10-K.)
10.19 First Amendment dated March 28, 2001 to 2000 Amended and
Restated Credit Agreement among Symbol Technologies, Inc.,
the lending institutions identified in the Credit
Agreement and Bank of America, N.A., as agent and as
letter of credit issuing bank. (Incorporated by reference
to Exhibit 10.18 to the 2000 Form 10-K.)
10.20 Second Amendment dated as of July 25, 2001 to 2000 Amended
and Restated Credit Agreement among Symbol Technologies,
Inc., the lending institutions identified in the Credit
Agreement and Bank of America, N.A. as agent.
10.21 Amended and Restated Second Amendment dated as of
September 11, 2001 to 2000 Amended and Restated Credit
Agreement among Symbol Technologies, Inc., the lending
institutions identified in the Credit Agreement and the
Bank of America, N.A. as agent.
10.22 Indenture by and between Telxon Corporation and AmeriTrust
Company National Association, as Trustee, dated as of June
1, 1987, regarding Telxon Corporation's 7.5 percent
Convertible Subordinated Debentures Due 2012.
(Incorporated by reference to Exhibit 4.2 to Telxon
Corporation's Registration Statement on Form S-3,
Registration No. 33-14348, filed May 18, 1987).
10.22.1 Form of Telxon Corporation's 7.5 percent
Convertible Subordinated Debentures Due 2012
(set forth in the Indenture included as Exhibit
10.22 above).
10.23 Indenture by and between Telxon Corporation and Bank One
Trust Company, N.A., as Trustee, dated as of December 1,
1995, regarding Telxon Corporation's 5.75 percent
Convertible Subordinated Notes due 2003. (Incorporated by
reference to Exhibit 4.1 to Telxon Corporation's
Registration Statement on Form S-3, Registration
No. 333-1189, filed February 23, 1996) (the "1996 Form
S-3")).
10.23.1 Form of Telxon Corporation's 5.75 percent
Convertible Subordinated Notes due 2003 issued
under the Indenture included as Exhibit 10.20
above. (Incorporated herein by reference to
Exhibit 4.2 to the 1996 Form S-3).
10.23.2 Registration Rights Agreement by and among
Registrant and Hambrecht & Quist LLC and
Prudential Securities Incorporated, as the
Initial Purchasers of Registrant's 5.75 percent
Convertible Subordinated Notes due 2003, with
respect to the registration of said Notes under
applicable securities laws. (Incorporated by
reference to Exhibit 4.3 to the 1996 Form S-3).
22. Subsidiaries
23. Consent of Deloitte & Touche LLP
(b) Reports on Form 8-K
Not Applicable
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SYMBOL TECHNOLOGIES, INC.
(Registrant)
By: S/Jerome Swartz
Jerome Swartz
Chief Executive Officer,
Chairman of the Board
of Directors
Dated: March 21, 2002
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.
Signature Title Date
S/Jerome Swartz Chief Executive March 22, 2002
Jerome Swartz Officer, Chairman of the
Board of Directors
Director
Tomo Razmilovic
S/Raymond R. Martino Director March 25, 2002
Raymond R. Martino
S/Harvey P. Mallement Director March 22, 2002
Harvey P. Mallement
S/George Bugliarello Director March 22, 2002
George Bugliarello
Director
Charles B. Wang
S/Leo A. Guthart Director March 22, 2002
Leo A. Guthart
S/James Simons Director March 22, 2002
James Simons
S/Kenneth V. Jaeggi Senior Vice President March 22, 2002
Kenneth V. Jaeggi Finance (Chief
Financial Officer)
S/Robert W. Korkuc Vice President March 22, 2002
Robert W. Korkuc (Chief Accounting
Officer)
SYMBOL TECHNOLOGIES, INC.
AND SUBSIDIARIES
------
CONSOLIDATED FINANCIAL STATEMENTS
COMPRISING ITEM 8 AND SCHEDULE II LISTED IN THE
INDEX AT ITEM 14(a)2 OF ANNUAL REPORT ON FORM 10-K
TO SECURITIES AND EXCHANGE COMMISSION FOR THE
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
I N D E X
PAGE
Independent auditors' report F-1
Consolidated financial statements:
Balance sheets F-2
Statements of operations F-3
Statements of stockholders' equity F-4
Statements of cash flows F-6
Notes to consolidated financial
statements (1-21) F-7
Additional financial information pursuant to the
requirements of Form 10-K:
Schedule:
II - Valuation and qualifying accounts S-1
Schedules not listed above have been omitted because they are
either not applicable or the required information has been
provided elsewhere in the consolidated financial statements or
notes thereto.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Symbol Technologies, Inc.
Holtsville, New York
We have audited the accompanying consolidated balance sheets
of Symbol Technologies, Inc. and subsidiaries as of December
31, 2001 and 2000, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of
the three years in the period ended December 31, 2001. Our
audits also included the financial statement schedule listed
in the index at Item 14(a)2. These financial statements and
financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an
opinion on the financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those
standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such consolidated financial statements
present fairly, in all material respects, the financial
position of Symbol Technologies, Inc. and subsidiaries as of
December 31, 2001 and 2000 and the results of their
operations and their cash flows for each of the three years
in the period ended December 31, 2001 in conformity with
accounting principles generally accepted in the United States
of America. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents
fairly in all material respects the information set forth
therein.
/s/ DELOITTE & TOUCHE LLP
New York, New York
February 13, 2002
F-1
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All amounts in thousands, except stock par value)
December 31, December 31,
ASSETS 2001 2000____
CURRENT ASSETS:
Cash, including temporary investments of
$1,765 and $47,203, respectively $ 80,967 $ 63,411
Accounts receivable, less allowance for doubtful
accounts of $31,348 and $31,275, respectively 307,576 453,906
Inventories 310,924 285,413
Deferred income taxes 182,964 197,019
Prepaid and refundable income taxes 22,498 -
Other current assets 95,279 78,503
TOTAL CURRENT ASSETS 1,000,208 1,078,252
PROPERTY, PLANT AND EQUIPMENT, net 241,226 234,467
DEFERRED INCOME TAXES 24,153 -
INVESTMENT IN MARKETABLE SECURITIES 76,004 263,305
INTANGIBLE ASSETS, net 413,308 386,492
SOFTWARE DEVELOPMENT COSTS, net 36,392 33,575
OTHER ASSETS 101,383 97,108
$1,892,674 $2,093,199
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 279,615 $ 325,670
Current portion of long-term debt 6,548 23,025
Deferred revenue 34,641 30,227
Accrued restructuring expenses 18,929 72,487
Income taxes payable - 6,629
TOTAL CURRENT LIABILITIES 339,733 458,038
CONVERTIBLE SUBORDINATED NOTES AND DEBENTURES 85,052 106,913
LONG-TERM DEBT, less current maturities 225,168 201,144
DEFERRED REVENUE 7,084 11,182
DEFERRED INCOME TAXES - 88,025
OTHER LIABILITIES 54,848 26,201
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, par value $1.00; authorized
10,000 shares, none issued or outstanding - -
Series A Junior Participating preferred stock, par
value $1.00, authorized 500 shares, none issued
or outstanding - -
Common stock, par value $0.01; authorized
600,000 shares; issued 253,313 shares and
164,863 shares, respectively 2,533 1,649
Additional paid-in capital 1,076,170 995,953
Accumulated other comprehensive loss (30,348) (16,944)
Deferred compensation - (1,461)
Retained earnings 350,393 408,098
1,398,748 1,387,295
Less:
Treasury stock at cost, 24,532 shares and
15,439 shares, respectively (217,959) (185,599)
1,180,789 1,201,696
$1,892,674 $2,093,199
See notes to consolidated financial statements
F-2
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(All amounts in thousands, except per share data)
Year ended December 31,_______
2001 2000 1999__
REVENUE:
Product, net $1,146,870 $1,232,320 $ 969,556
Services, net 305,827 217,170 169,734
1,452,697 1,449,490 1,139,290
COST OF REVENUE:
Product costs 820,900 805,124 506,694
Amortization of software
development costs 17,084 24,067 18,472
Product cost of revenue 837,984 829,191 525,166
Services cost of revenue 220,596 159,946 129,390
1,058,580 989,137 654,556
GROSS PROFIT 394,117 460,353 484,734
OPERATING EXPENSES:
Engineering 117,377 97,274 81,944
Selling, general and
administrative 322,735 267,322 220,753
Restructuring and
impairment charges - 29,795 -
In-process research and
development - 87,600 -
Merger integration charges - 39,225 -
Amortization of excess of
cost over fair value of
net assets acquired 16,419 6,475 5,092
456,531 527,691 307,789
(LOSS)/EARNINGS FROM
OPERATIONS (62,414) (67,338) 176,945
OTHER (EXPENSE)/INCOME:
Interest income 2,692 4,213 2,315
Interest expense (20,667) (16,433) (8,136)
(17,975) (12,220) (5,821)
(LOSS)/EARNINGS BEFORE
INCOME TAXES AND
EXTRAORDINARY ITEM (80,389) (79,558) 171,124
(BENEFIT FROM)/PROVISION FOR
INCOME TAXES (25,669) (10,592) 54,760
(LOSS)/EARNINGS BEFORE
EXTRAORDINARY ITEM (54,720) (68,966) 116,364
EXTRAORDINARY GAIN ON
REPURCHASE OF CONVERTIBLE
NOTES, NET OF $383 IN
INCOME TAXES 813 - -
NET (LOSS)/EARNINGS ($53,907) ($68,966) $ 116,364
BASIC (LOSS)/EARNINGS PER SHARE:
(Loss)/earnings before
extraordinary item ($0.24) ($0.33) $0.59
Extraordinary gain on
repurchase of convertible
notes - - -
Net (loss)/earnings ($0.24) ($0.33) $0.59
DILUTED/(LOSS)/EARNINGS PER SHARE:
(Loss) earnings before
extraordinary item ($0.24) ($0.33) $0.55
Extraordinary gain on
repurchase of convertible
notes - - -
Net (loss)/earnings ($0.24) ($0.33) $0.55
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING:
Basic 227,392 206,444 198,732
Diluted 227,392 206,444 212,358
See notes to consolidated financial statements
F-3
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(All amounts in thousands, except stock par value)
Common Stock
$0.01 Par Value Accumulated
Additional Other Total
Shares Paid-in Deferred Retained Treasury Comprehensive Comprehensive Stockholders'
Issued Amount Capital Compensation Earnings Stock Income (Loss) Income (Loss) Equity____
BALANCE,
JANUARY 1, 1999 66,439 $ 664 $315,884 $ - $365,950 ($145,773) ($5,797) $530,928
Comprehensive income:
Net earnings - - - - 116,364 - 116,364 - 116,364
Translation
adjustments - - - - - - (3,704) (3,704) (3,704)
Unrealized gains - - - - - - 7,149 7,149 7,149
Total comprehensive
income 119,809
Exercise of
stock options 2,089 21 46,880 - - - - 46,901
Exercise of warrants 51 1 417 - - 84 - 502
Purchase of
treasury shares - - - - - (55,172) - (55,172)
Stock split 33,209 332 (332) - - - - -
Dividends paid - - - - (2,508) - - (2,508)
BALANCE,
DECEMBER 31, 1999 101,788 1,018 362,849 - 479,806 (200,861) (2,352) 640,460
Comprehensive loss:
Net loss - - - - (68,966) - (68,966) - (68,966)
Translation
adjustments - - - - - - (4,584) (4,584) (4,584)
Unrealized losses - - - - - - (10,008) (10,008) (10,008)
Total comprehensive
loss - - - - - - (83,558) - -
Exercise of stock
options 3,348 33 83,865 - - - - 83,898
Exercise of
warrants 38 1 381 - - - - 382
Issuance of common
stock and vested
stock options related
to acquisition 8,775 88 404,687 - - - - 404,775
Deferred compensation
expense on
remeasured unvested
stock options - - 1,869 (1,869) - - - -
See notes to consolidated financial statements
F-4
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(All amounts in thousands, except stock par value)
Common Stock
$0.01 Par Value Accumulated
Additional Other Total
Shares Paid-in Deferred Retained Treasury Comprehensive Comprehensive Stockholders'
Issued Amount Capital Compensation Earnings Stock Income (Loss) Income (Loss) Equity____
Compensation expense
on remeasured
unvested stock
options - - - 408 - - - 408
Purchase of treasury
shares - - - - - (42,514) - (42,514)
Re-issuance of treasury
shares - - 142,811 - - 57,776 - 200,587
Stock split 50,914 509 (509) - - - - -
Dividends paid - - - - (2,742) - - (2,742)
BALANCE,
DECEMBER 31, 2000 164,863 1,649 995,953 (1,461) 408,098 (185,599) (16,944) 1,201,696
Comprehensive loss:
Net Loss - - - - (53,907) - (53,907) - (53,907)
Translation
adjustments - - - - - (5,289) (5,289) (5,289)
Unrealized losses - - - - - (8,115) (8,115) (8,115)
Total comprehensive
loss - - - - - - (67,311) - -
Exercise of
stock options 6,022 60 81,041 - - - - 81,101
Compensation expense
on remeasured
unvested stock
options - - - 1,461 - - - 1,461
Purchase of treasury
shares - - - - - (32,360) - (32,360)
Stock split 82,428 824 (824) - - - - -
Dividends paid - - - - (3,798) - - (3,798)
BALANCE,
DECEMBER 31, 2001 253,313 $2,533 $1,076,170 $ - $350,393 ($217,959) ($30,348) $1,180,789
See notes to consolidated financial statements
F-5
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts in thousands)
Year ended December 31,____
2001 2000 1999__
Cash flows from operating activities:
Net (loss) earnings ($53,907) ($68,966) $116,364
Adjustments to reconcile net (loss) earnings
to net cash provided by/(used in) operating
activities:
Depreciation and amortization of
property, plant and equipment 53,517 48,849 38,863
Other amortization 41,612 33,234 27,321
Provision for losses on accounts
receivable 3,687 2,975 3,288
Writedown due to probable losses from customers 16,000 - -
Provision for inventory writedown 110,000 - -
Deferred income taxes (7,320) (63,487) (3,627)
Tax benefit on exercise of stock
options and warrants 43,993 53,960 26,786
Gain on repurchase of convertible notes,
net of tax (813) - -
In-process research and development - 87,600 -
Non-cash restructuring and impairment charges 51,662 133,268 -
Changes in assets and liabilities net of
effect of acquisitions and divestitures:
Accounts receivable 124,276 (151,031) (50,541)
Inventories (150,943) (81,847) (19,481)
Other current assets (9,975) (34,306) (13,925)
Accounts payable and accrued expenses (46,564) 21,179 36,244
Income taxes payable (29,127) (20,428) 5,650
Other liabilities and deferred revenue (119,470) (11,534) 14,854
Net cash provided by/(used in)
operating activities 26,628 (50,534) 181,796
Cash flows from investing activities:
Proceeds from termination of collar
arrangement 88,046 - -
Investment in AirClic Inc. - (50,000) -
Purchases for property, plant
and equipment (98,494) (79,736) (70,041)
Investments in intangible and
other assets (64,399) (52,596) (92,304)
Cash acquired in acquisition - 12,964 -
Purchase of available-for-sale securities - - (1,000)
Net cash used in investing activities (74,847) (169,368) (163,345)
Cash flows from financing activities:
Net proceeds from issuance and repayments
of notes payable and long-term debt 87,528 69,242 34,479
Repurchase of convertible notes (20,665) - -
Exercise of stock options and warrants 37,108 30,320 20,533
Reissuance of treasury shares - 200,587 -
Dividends paid (3,798) (2,742) (2,508)
Purchase of treasury shares (32,360) (42,514) (55,088)
Net cash provided by/(used in)
financing activities 67,813 254,893 (2,584)
Effects of exchange rate changes on cash (2,038) (1,708) (2,023)
Net increase in cash and
temporary investments 17,556 33,283 13,844
Cash and temporary investments,
beginning of year 63,411 30,128 16,284
Cash and temporary investments, end
of year $ 80,967 $ 63,411 $ 30,128
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 18,748 $ 11,909 $ 4,905
Income taxes $ 9,535 $ 24,314 $ 14,714
See notes to consolidated financial statements
F-6
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(Dollars in thousands, except per share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Description of Business and Principles of Consolidation
Symbol Technologies, Inc. (the "Company" or "Symbol")is a leading
global provider of wireless networking and information systems
that allow users of its products to access, capture and transmit
information at the point of activity over local area networks
(LAN), wide area networks (WAN) and the Internet. The
consolidated financial statements include the accounts of Symbol
Technologies, Inc. and its subsidiaries all of which are wholly-
owned. Significant intercompany transactions and balances have
been eliminated in consolidation.
b. Temporary Investments
Temporary investments include highly liquid investments with
original maturities of three months or less and consist primarily
of money market funds and time deposits at December 31, 2001 and
2000. Temporary investments are stated at cost, which approximates
market value. These investments are not subject to significant
market risk.
c. Inventories
Inventories are stated at the lower of cost (determined on a
first-in, first-out basis) or market.
d. Property, Plant and Equipment
Property, plant and equipment is recorded at cost. Depreciation
and amortization is provided on a straight-line basis over the
following estimated useful lives:
Buildings and improvements 15 to 40 years
Machinery and equipment 3 to 7 years
Furniture, fixtures and office equipment 5 to 10 years
Computer hardware and software 3 to 7 years
Leasehold improvements (limited to terms
of the leases) 2 to 10 years
e. Intangible Assets
The excess of cost over fair value of net assets acquired is being
F-7
amortized on a straight-line basis over periods ranging from 7 to
40 years. Patents and trademarks, including costs incurred in
connection with the protection of patents, are amortized over
their estimated useful lives, not exceeding 20 years, using the
straight-line method. In June 2001, the FASB issued SFAS No.
142, "Goodwill and Other Intangible Assets". SFAS No. 142
addresses financial accounting and reporting for acquired
goodwill and other intangible assets. Under SFAS No. 142,
goodwill and some intangible assets will no longer be amortized,
but rather reviewed for impairment on a periodic basis. The
provisions of this Statement are required to be applied starting
with fiscal years beginning after December 15, 2001. This
Statement is required to be applied at the beginning of the
Company's fiscal year and to be applied to all goodwill and other
intangible assets recognized in its financial statements at that
date. Impairment losses for goodwill and certain intangible
assets that arise due to the initial application of this
Statement are to be reported as resulting from a change in
accounting principle. Goodwill and intangible assets acquired
after June 30, 2001, will be subject immediately to the
provisions of this Statement. The Company has not completed an
analysis of the potential impact upon adoption of the impairment
test of goodwill, however, amortization of existing goodwill,
which was $16,419, $6,475 and $5,092 for the years ended December
31, 2001, 2000 and 1999, respectively, will cease upon adoption.
f. Software Development Costs
The Company capitalizes costs incurred for internally developed
product software where economic and technological feasibility has
been established and for qualifying purchased product software.
Capitalized software costs are amortized on a straight-line basis
over the estimated useful product lives (normally three years).
Software development costs which have been fully amortized for two
years or more are written off.
g. Marketable Securities
All marketable securities are classified as either "available-for-
sale" or "trading" under Statement of Financial Accounting
Standards No. 115, "Investments in Certain Marketable Equity
Securities," ("SFAS No. 115"). Unrealized gains and losses, net
of tax, related to available-for-sale securities are shown as
other comprehensive income or loss within stockholders' equity.
Unrealized gains and losses on trading securities are included in
earnings.
h. Long-Lived Assets
The Company reviews its long-lived assets, including property,
F-8
plant and equipment, identifiable intangibles and software
development costs for impairment whenever events or changes in
circumstances indicate that the carrying amounts of the assets may
not be fully recoverable. To determine recoverability of its
long-lived assets, the Company evaluates the probability that
future undiscounted net cash flows, without interest charges, will
be less than the carrying amount of the assets.
Impairment is measured at fair value. As a result of the
Company's decision to reorganize its manufacturing facilities, it
recorded asset impairment charges in 2001, which is reflected in
cost of revenue, related to the shift in manufacturing operations
from New York to Mexico and other locations. Additionally, as a
result of the Telxon acquisition, the Company accrued for asset
impairment charges as an incremental cost to exit and consolidate
activities for the year ended December 31, 2000. Impairment
measured at fair value had no effect on the Company's consolidated
financial statements for the year ended December 31, 1999.
i. Securitization Transactions
The Company periodically securitizes certain of its lease
receivables. The Company's lease receivables have unguaranteed
residuals. The retained interest in these securitized leases is
classified as a component of other assets. Retained interests in
securitized assets are initially recorded at their allocated
carrying amounts based on the relative fair value of assets sold
and retained. Retained interests are subsequently carried at fair
value. Since quoted market prices are generally not available,
the Company estimates fair value of these retained interests by
determining the present value of future expected cash flows using
modeling techniques that incorporate management's best estimates
of key assumptions, which may include credit losses, prepayment
speed and discount rates commensurate with the risks involved.
j. Research and Development Expenses
The Company expenses all research and development costs as
incurred. The Company incurred research and development expenses
of approximately $61,536, $51,125, and $38,426, for the years
ended December 31, 2001, 2000, and 1999, respectively, which are
classified in engineering expenses.
k. Revenue Recognition
Revenue related to sales of the Company's products and systems is
generally recognized when products are shipped or services are
rendered, the title and risk of loss has passed to the customer,
the sales price is fixed or determinable, and collectibility is
F-9
reasonably assured. The Company accrues related product return
reserves and warranty expenses at the time of sale. Service and
maintenance sales are recognized over the contract term.
In accordance with Statement of Position ("SOP") 97-2, "Software
Revenue Recognition", as amended, and Staff Accounting Bulletin
("SAB") No. 101 "Revenue Recognition in Financial Statements", if
products, services or maintenance are bundled in a single
contract, revenue will be recognized once all elements of the
contract are completed unless the following criteria are met: (1)
the product has been delivered; (2) the undelivered services or
maintenance are not essential to the delivered products; (3) the
fee for the product is not subject to forfeiture, refund or
concession based on performance of the services or maintenance;
(4) the fair value of services and maintenance are determined
based on the price charged by the Company, or the price charged by
competitors when similar services or maintenance are sold
separately; and (5) the revenue related to any element of the
contract is not subject to customer acceptance; in which case the
revenues for each element will be recognized independently, in
accordance with the Company's policy.
l. Income Taxes
Deferred income tax assets and liabilities were recognized for the
expected future tax consequences of events that have been included
in the Company's financial statements or tax returns. Under this
method, deferred tax assets and liabilities are determined based
on the differences between the financial accounting and tax bases
of assets and liabilities using enacted tax rates in effect for
the year in which the differences are expected to reverse.
Investment, research and development and other tax credits are
accounted for by the flow-through method. The cumulative amount
of undistributed earnings of foreign subsidiaries at December 31,
2001, approximates $32,308. The Company does not provide deferred
taxes on undistributed earnings of foreign subsidiaries since the
Company anticipates no significant incremental U.S. income taxes
on the repatriation of these earnings as tax rates in foreign
jurisdictions generally approximate or exceed the U.S. Federal
rate.
m. Loss/Earnings Per Share
Basic earnings per share are based on the weighted average number
of shares of common stock outstanding during the period. For the
years ended December 31, 2001 and 2000, stock options and warrants
outstanding and the effect of convertible subordinated notes and
debentures have not been included in the net loss per share
calculation since their effect would be antidilutive. This
amounted to 10,410,000 and 15,238,000 shares for the years ended
F-10
December 31, 2001 and 2000, respectively. For the year ended
December 31, 1999, diluted earnings per share are based on the
weighted average number of shares of common stock and common stock
equivalents (options and warrants) outstanding during the period,
computed in accordance with the treasury stock method. During
each of the years ended December 31, 2001, 2000, and 1999, the
Board of Directors approved a three for two split of the
Company's common stock to be effected as a 50 percent stock
dividend. In these financial statements, all loss/earnings per
share amounts and the weighted average number of common shares
outstanding have been retroactively restated to reflect each of
the respective stock splits. In addition, the number of common
shares issued has been adjusted to reflect the stock split and an
amount equal to the par value of the additional shares issued has
been transferred from additional paid-in capital to common stock.
n. Derivative Instruments, Hedging Activities and Foreign
Currency
Assets and liabilities of foreign subsidiaries where the local
currency is the functional currency are translated at year-end
exchange rates. Exchange rate changes arising from translation
are included in the accumulated other comprehensive income (loss)
component of stockholders' equity. Results of operations are
translated using the average exchange rates prevailing throughout
the year. Gains and losses from foreign currency transactions are
included in the statement of operations for the year and are not
material.
On January 1, 2001 the Company adopted the provisions of SFAS No.
133, "Accounting for Derivative Instruments and Hedging
Activities", as amended. SFAS No. 133 requires the recognition
of all derivative instruments as either assets or liabilities in
the consolidated balance sheet measured at fair value. Changes
in fair value are recognized immediately in earnings unless the
derivative qualifies as a hedge of future cash flows. For
derivatives qualifying as cash flow hedges, the effective portion
of changes in fair value of the derivative instrument is recorded
as a component of other comprehensive income and reclassified to
earnings in the same period during which the hedged transaction
affects earnings. Any ineffective portion (representing the
remaining gain or loss on the derivative instrument in excess of
the cumulative change in the present value of future cash flows
of the hedged transaction) is recognized in earnings as it
occurs. There was no cumulative effect recognized for adopting
this accounting change due to immateriality.
The Company formally designates and documents each derivative
financial instrument as a hedge of a specific underlying exposure
as well as the risk management objectives and strategies for
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entering into the hedge transaction upon inception. The Company
also assesses whether the derivative financial instrument is
effective in offsetting changes in the fair value or cash flows
of the hedged item. The Company recognized no gain or loss
related to hedge ineffectiveness in 2001.
The embedded equity collar contained in the private Mandatorily
Exchangeable Contract for Shared Appreciation Income Linked
Securities ("SAILS") arrangement (See Note 5) is considered a
fair value hedge in accordance with the provisions of SFAS No.
133. Accordingly, any change in fair value of this derivative
financial instrument between reporting dates is recognized
through earnings. However, changes in fair value of this
derivative are mitigated by changes in fair value of the Cisco
shares classified as trading securities which resulted in a net
effect on earnings which is not material for the year ended
December 31, 2001.
The Company also utilizes derivative financial instruments to
hedge the risk exposures associated with foreign currency
fluctuations for payments from the Company's international
subsidiaries denominated in foreign currencies. These derivative
instruments are designated as either fair value or cash flow
hedges, depending on the exposure being hedged, and have
maturities of less than one year. Gains and losses on these
derivative financial instruments and the offsetting losses and
gains on hedged transactions are reflected in the Company's
statement of operations. The Company does not use these
derivative financial instruments for trading purposes.
As of December 31, 2001, the Company had $61,090 in forward
exchange contracts outstanding. The forward exchange contracts
generally have maturities that do not exceed 12 months and require
the Company to exchange foreign currencies for U.S. dollars at
maturity, at rates agreed to at inception of the contracts. These
contracts are primarily denominated in British pounds, European
currency units, Canadian dollars and Japanese yen and have been
marked to market as of December 31, 2001 with the resulting gains
and losses included in the statement of operations. The fair
value of these forward exchange contracts was $62,453 at December
31, 2001.
o. Segment Information
The Company follows the provisions of Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS 131), which establishes
standards for reporting information about operating segments.
SFAS 131 requires disclosures about products and services,
geographic areas and major customers.
F-12
p. Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles in the United States of
America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates. The Company's most significant use of
estimates includes its determination of provisions for doubtful
accounts, inventory reserves, warranty reserves and product return
reserves.
q. Reclassifications
Certain reclassifications have been made to prior consolidated
financial statements to conform with current presentations.
r. Recently Issued Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 141, "Business Combinations". SFAS No. 141
applies prospectively to all business combinations initiated
after June 30, 2001 and to all business combinations accounted
for using the purchase method for which the date of acquisition
is July 1, 2001, or later. This statement requires all business
combinations to be accounted for using one method, the purchase
method. The adoption of SFAS No. 141 is not expected to have a
significant impact on the Company's financial statements.
In August 2001, the FASB issued SFAS No. 143, "Accounting for
Asset Retirement Obligations". The standard requires entities to
record the fair value of a liability for an asset retirement
obligation in the period in which it is incurred. When the
liability is initially recorded, the entity capitalizes a cost by
increasing the carrying amount of the related long-lived asset.
Over time, the liability is accreted to its present value each
period, and the capitalized cost is depreciated over the useful
life of the related asset. Upon settlement of the liability, an
entity either settles the obligation for its recorded amount or
incurs a gain or loss upon settlement. The standard is effective
for fiscal years beginning after June 15, 2002. The adoption of
SFAS 143 is not expected to have a material impact on the
Company's financial statements.
In October 2001, the FASB issued SFAS No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets". SFAS No. 144
replaces SFAS No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of" and the
accounting and reporting provisions of Accounting Principles
Board Opinion No. 30. "Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and
Transactions", for the disposal of a "segment of a business (as
previously defined in that Opinion). SFAS No. 144 requires that
long-lived assets be measured at the lower of carrying amount or
fair value less cost to sell, whether reported in continuing
operations or in discontinued operations.
Therefore, discontinued operations will no longer be measured at
F-13
net realizable value or include amounts for operating losses that
have not yet occurred. SFAS No. 144 also broadens the reporting
of discontinued operations to include all components of an entity
with operations that can be distinguished from the rest of the
entity and that will be eliminated from the ongoing operations of
the entity in a disposal transaction. The provisions of SFAS No.
144 are effective for financial statements issued for fiscal
years beginning after December 15, 2001. The adoption of SFAS
144 is not expected to have a material impact on the Company's
financial statements.
2. ACQUISITIONS AND DIVESTITURES
a. Telxon Acquisition
On November 30, 2000, the Company completed the acquisition of
Telxon through a merger of Telxon with a wholly owned subsidiary
of the Company. In the merger, each outstanding share of Telxon
common stock was converted into the right to receive 0.5 of a
share of the Company's common stock, resulting in the issuance of
13,163,000 (split-effected) shares, comprising approximately
$378,300 of the total purchase price.
In addition, each outstanding option to purchase Telxon common
stock was converted into an option to purchase 0.5 of a share of
the Company's common stock at an exercise price equal to two
times the pre-acquisition exercise price of the Telxon options.
This resulted in 2,610,000 (split-effected) options granted to
replace Telxon options. The fair value of vested stock options
at the time of the acquisition was $26,400. The combined
purchase price of shares issued and vested stock options granted
aggregated approximately $404,700. The fair value of unvested
stock options at the time of the acquisition amounted to
approximately $1,900 and was accounted for as deferred
compensation and excluded from the total purchase price.
The acquisition has been accounted for by the purchase method of
accounting and, accordingly, the consolidated statements of
operations include the results of operations of Telxon beginning
December 1, 2000. The assets acquired and liabilities assumed
were recorded at estimated fair values as determined by the
Company's management based on information currently available and
on current assumptions as to future operations. The Company has
obtained independent appraisals of the acquired inventories,
property, plant and equipment, and identifiable intangible
assets, and their remaining useful lives. After allocating the
purchase price to net tangible assets, purchased technology which
has reached technological feasibility was valued at $22,800 using
a cash flow model, under which future cash flows were discounted
utilizing an assessment of its life expectancy. This purchased
technology has been capitalized and is being amortized over eight
years.
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In addition, a portion of the purchase price was allocated to in-
process research and development ("IPR&D"). IPR&D of $87,600 was
charged to operations at the acquisition date as the IPR&D had
not reached technological feasibility and had no alternative
future use. Independent valuations were used in determining the
fair value of the identifiable intangible assets and in
allocating the purchase price among the acquired assets,
including the portion of the purchase price attributed to IPR&D.
As a result of the acquisition of Telxon, the Company incurred
incremental costs to exit and consolidate activities at Telxon
locations, to involuntarily terminate Telxon employees, and other
costs to integrate operating locations and other activities of
Telxon with the Company. Generally accepted accounting
principles require the portion of these expenses which are not
associated with the generation of future revenues and have no
future economic benefit to be reflected as assumed liabilities in
the allocation of the purchase price to the net assets acquired.
These restructuring costs, primarily severance and abandonment of
leased facilities, were recorded in the purchase price allocation
and amounted to $58,041. Severance relates to the termination of
approximately 1,026 employees primarily in manufacturing,
management, sales and administrative support. As of December 31,
2001, all these employees had been terminated. (See Note 11).
The preliminary allocation resulted in an excess of cost over
fair value of net assets acquired that amounted to $217,690.
During the allocation period to identify and quantify the assets
acquired and the liabilities assumed in conformity with SFAS No.
38 "Accounting for Preacquisition Contingencies of Purchased
Enterprises", additional information became available regarding
the fair value of net assets acquired from Telxon. Based on this
additional information, the Company adjusted its preliminary
allocation of purchase price by $37,130. This adjustment resulted
in a decrease in the fair value allocated to the net assets
acquired and an increase in the excess of cost over fair value of
net assets acquired. The final adjustments result from the
completion of the evaluation of certain assets and various
liabilities. The adjusted excess of cost over fair value of net
assets acquired has been amortized using the straight-line method
over an estimated twenty-year life (see also Note 1e.)
Unaudited pro forma results of operations for the years ended
December 31, 2000 and 1999, as if the Company acquired Telxon at
the beginning of each year and excluding the effect of non-
recurring pre-tax charges of $273,521 are presented below. The
pro forma results include estimates and assumptions which
management believes are reasonable. However, pro forma results
do not include the realization of cost savings from operating
efficiencies, synergies or other effects resulting from the
F-15
merger, and are not necessarily indicative of the actual
consolidated results of operations had the merger occurred on the
date assumed, nor are they necessarily indicative of future
consolidated results of operations.
Unaudited Pro forma
Year ended December 31,
2000(1) 1999(2)_
Net revenue $1,736,754 $1,484,610
Net earnings $ 245,743 $ 40,784
Diluted earnings per share $ 1.05 $ 0.18
(1) The fiscal 2000 unaudited pro forma results include
certain Telxon-related matters as follows: a gain on
exchange of Aironet shares of $396,161 or $1.15
diluted earnings per share, offset by pre-tax charges
for inventory obsolescence writeoffs, bad debt charges,
Akron to Cincinnati headquarter transition costs, loss
on a major domestic retailer sales contract, and the
repurchase of subsidiary minority interest aggregating
$51,900 or $0.15 diluted earnings per share.
(2) The fiscal 1999 unaudited pro forma results include Telxon-
related pre-tax charges for inventory obsolescence writeoffs
and bad debt charges aggregating $39,700 or $0.11 diluted
earnings per share.
b. Other Acquisitions
In addition to the aforementioned Telxon acquisition, the Company
has established wholly owned subsidiaries through the acquisition
of certain of its International distributors and developers of
various of the Company's products during the past three years.
These acquisitions have been accounted for as purchases and,
accordingly, the related acquisition costs have been allocated to
net assets acquired based upon fair values. The excess of cost
over net assets acquired related to these acquisitions is being
amortized over periods not exceeding twenty years.
During 1999, the Company acquired distributors for an initial
purchase price of $11,392. The excess of cost over net assets
acquired related to these acquisitions was $11,795.
Additional acquisition payments are contingent upon the
attainment of certain annual net revenue levels and achievement
of other milestones as defined in the respective agreements
during periods not exceeding five years from the date of
acquisition. The Company made additional acquisition payments of
$1,000 and $2,876, respectively during the years ended December
31, 2001 and 2000, related to these acquisitions which have been
recorded as excess of cost over net assets acquired.
F-16
Results of operations of these subsidiaries have been included in
consolidated operations as of their respective effective
acquisition dates. Pro forma results of operations, assuming
these acquisitions had been completed at the beginning of 1999,
would not differ materially from the reported results.
3. INVENTORIES
December 31, December 31,
2001 2000___
Raw materials $178,431 $175,462
Work-in-process 16,108 25,106
Finished goods 116,385 84,845
$310,924 $285,413
The Company recorded a non-recurring charge for a writedown of
its radio frequency infrastructure and mobile computing
inventories of approximately $110,000 in the second quarter of
2001 which is reflected in product cost of revenue.
In December 2000, the Company recorded a provision of
approximately $64,000 relating to management's decision to
eliminate redundant and discontinued products and product lines
principally due to the Telxon acquisition. This provision was
recorded in total cost of revenue and related to the Company's
plan of restructuring. See Note 11 for additional information
relating to the restructuring of the Company's operations.
4. PROPERTY, PLANT AND EQUIPMENT
December 31, December 31,
2001 2000___
Land $ 12,225 $ 11,424
Buildings and improvements 59,483 57,729
Machinery and equipment 97,293 112,901
Furniture, fixtures and office
equipment 41,128 46,934
Computer hardware and software 148,312 132,087
Leasehold improvements 9,940 16,692
Construction in progress 19,726 8,653
388,107 386,420
Less: Accumulated depreciation and
amortization 146,881 151,953
$241,226 $234,467
During the fourth quarter of 2000 the Company substantially
completed construction of a 140,000 square foot manufacturing and
distribution facility in Reynosa, Mexico. In February 2001, the
Company began a 150,000 square foot expansion of this facility.
F-17
The total cost for this project is estimated to be approximately
$8,500 and is scheduled to be completed during 2002.
In February 2001, the Company also began construction of a new
334,000 square foot distribution center in McAllen, Texas. The
total cost for this project is estimated to be approximately
$33,000 and is scheduled to be completed in the first half of
2002. The Company continues to make capital investments in major
systems and network conversions but does not have any other
material commitments for capital expenditures.
5. INVESTMENT IN MARKETABLE SECURITIES
Through the Company's acquisition of Telxon (see Note 2a.), it
obtained 4,166,086 shares of Cisco Systems, Inc. common stock (the
"Cisco shares"). At December 31, 2000, using the provisions of
SFAS No. 115, the Company classified this investment as available-
for-sale, based upon its intent to hold the securities for an
extended length of time and to not engage in frequent buying and
selling of the securities.
In conjunction with the Telxon acquisition, the Company also
obtained two derivative financial instruments related to the Cisco
shares (referred to collectively herein as the "Collar"). The
Collar essentially hedged the Company's risk of loss on the
marketable securities by utilizing purchased put options.
Conversely, the Collar arrangement also limited the potential gain
by employing written call options.
In January 2001, the Company sold 6,086 of the Cisco shares, and
simultaneously terminated the existing Collar and entered into a
SAILS arrangement with a highly rated financial institution for
the remaining 4,160,000 shares. These shares had a market value
of $75,338 at December 31, 2001. Such shares are held as
collateral to secure the debt instrument associated with the SAILS
and are included in the balance of Investment in Marketable
Securities. The underlying debt has a seven-year maturity and pays
a cash coupon of 3.625 percent. The SAILS contain an embedded
equity collar, which effectively manages a large portion of the
Company's exposure to fluctuations in the fair value of its
holdings in Cisco common stock. At maturity, the SAILS will be
exchangeable for shares of Cisco common stock, or at the Company's
option, cash in lieu of shares. Net proceeds from the issuance of
the SAILS and termination of the existing free standing collar
arrangement were approximately $262,246 which were used for
general corporate purposes, including the repayment of debt
outstanding under its revolving credit facility. The Company
accounts for the embedded equity collar as a derivative financial
instrument in accordance with the requirements of SFAS No. 133 and
the change in fair value of this derivative between reporting
dates is recognized through earnings. The derivative has been
combined with the debt
F-18
instrument in long-term debt in an appropriate presentation of the
Company's overall future cash outflows for that debt instrument
under FIN 39 for the legal right of offset for accounting
purposes.
At December 31, 2001, 3,411,200 of the Cisco shares have been hedged
in conjunction with the SAILS arrangement and accordingly have been
classified as trading in accordance with the provisions of SFAS 115.
However, because these securities collateralize the long-term debt
underlying the SAILS arrangement, they have been classified as non-
current assets at December 31, 2001. The changes in market value of
these trading securities have been reflected in the statement of
operations, but have been mitigated by changes in the market value
of the embedded equity collar which resulted in a net effect on
earnings which is not material. The remaining 748,800 Cisco shares
have been classified as available-for-sale.
The Company has other investments which are classified as
available-for-sale under the provisions of SFAS No. 115. During
the year ended December 31, 2001, the Company's net unrealized
losses of $8,115 are comprised of gross unrealized losses of
$10,838, less a reclassification adjustment of $2,723, net of
taxes, for losses included in the Company's Statement of
Operations. No other reclassification adjustments were recorded
for the years ended December 31, 2000 or December 31, 1999.
Information regarding marketable securities classified as
available-for-sale is illustrated in the table below:
December 31, December 31,
2001 2000____
Cost basis $ 32,794 $268,048
Gross unrealized holding losses
on available-for-sale
securities (18,567) ( 4,743)
Aggregate fair market value $ 14,227 $263,305
Information regarding marketable securities classified as trading
securities is illustrated in the table below:
December 31, December 31,
2001 2000____
Cost basis $142,844 $ -
Gross realized holding losses
on trading securities (81,067) -
Aggregate fair market value $ 61,777 $ -
The aggregate fair market value of available-for-sale securities
of $14,227 combined with the aggregate fair market value of
trading securities of $61,777 result in a total investment in
marketable securities of $76,004 as of December 31, 2001.
F-19
6. INTANGIBLE ASSETS
December 31, December 31,
2001 2000____
Excess of cost over fair value
of net assets acquired $406,993 $370,900
Patents, trademarks, purchased
technologies and non-compete
covenants 101,887 86,344
Executive retirement plan
unrecognized prior service
costs 538 538
509,418 457,782
Less: Accumulated amortization 96,110 71,290
$413,308 $386,492
7. SOFTWARE DEVELOPMENT COSTS
Year Ended December 31,____
2001 2000 1999_
Net book value, beginning
of year $33,575 $64,883 $43,571
Amounts capitalized 27,380 32,635 39,784
Impairment related
writeoffs ( 7,479) (39,876) -
53,476 57,642 83,355
Less: Amortization 17,084 24,067 18,472
Net book value, end of year $36,392 $33,575 $64,883
Impairment writeoffs are related to the product discontinuations
associated with the restructuring charges the Company recorded
during the years ended December 31, 2001 and 2000. See Note 11
for further information.
8. OTHER ASSETS
In November 2000, the Company invested $50,000 in and licensed
certain intellectual property to AirClic Inc. ("AirClic"). In
return, the Company received convertible preferred stock in
AirClic. The Company does not currently have the right to convert
its preferred stock into common stock of AirClic and its ability
to do so in the future is subject to certain contractual
restrictions. AirClic's business allows wireless devices to scan
bar codes and transmit data to the Internet. Under the terms of
the relevant agreements, if AirClic raises an additional $365,000
in private equity, $200,000 of which must be at per share prices
materially greater than the Company's original investment, and
satisfies certain other conditions, then the Company may be
required to invest up to an additional $150,000 in AirClic. To
date, the Company has not made any additional investments in
F-20
AirClic and the Company's obligation to invest additional amounts
expires upon an initial public offering of AirClic that meets
certain criteria. Because the Company does not have the ability
to exercise significant influence over AirClic, it accounts for
this investment using the cost method. During the year ended
December 31, 2001, the Company had accumulated certain component
inventories in anticipation of orders from AirClic. As a result,
during 2001, AirClic agreed to purchase $7,000 of component
inventory from the Company. AirClic may at any time exchange all
or any portion of the inventory for products or components owned
by the Company. The Company did not recognize any revenue
relating to this transaction. Additionally, for the year ended
December 31, 2001 the Company did not receive any royalty payments
from AirClic. For the year ended December 31, 2000 the Company
received royalty payments of $15,000 relating to the licensing of
certain intellectual property, in the ordinary course of business.
All other related party transactions between the two entities have
not been material.
9. LEASE SECURITIZATIONS
The Company has a $50,000 lease receivable revolving
securitization agreement with a highly rated financial
institution. This agreement is currently scheduled to mature in
September 2002, but is expected to be renewed on an annual basis
without the payment of amounts outstanding at such time. During
2001, the Company securitized approximately $32,227 of its lease
receivables in accordance with the terms of the aforementioned
agreement. Gains on lease securitizations during 2001 were
approximately $460. While the Company retains the servicing
responsibilities for all of its lease receivables, the Company
outsources servicing and the related servicing costs offset
retained interests. Key economic assumptions used in measuring
the fair value of retained interests at the date of
securitization resulting from securitizations completed during
2001 (weighted based on principal amounts securitized) were as
follows:
Prepayment rate N/A (1)
Weighted-average life (in years) 2.03
Expected credit losses $3,223
Discount rate 9 percent
The following table presents the fair values of the retained
interest as of December 31, 2001, along with key economic
assumptions used to derive the values as of year-end. The table
also presents the sensitivity of the current fair value to
immediate 10 percent and 20 percent adverse changes in the listed
economic assumptions:
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Fair value of retained interest at December 31, 2001 $ 14,314
Weighted average life (in years) 1.86
Prepayment speed assumption N/A (1)
Impact on fair value of 10 percent adverse change -
Impact on fair value of 20 percent adverse change -
Expected credit losses (annual rate) 1.0%
Impact on fair value of 10 percent adverse change $ 14,275
Impact on fair value of 20 percent adverse change $ 14,235
Discount rate 9.0%
Impact on fair value of 10 percent adverse change $ 14,157
Impact on fair value of 20 percent adverse change $ 14,004
(1) The Company's lease portfolios historically have not been
subject to prepayment risk.
These sensitivities are hypothetical and should be used with
caution. As the amounts indicate, changes in fair value based on
a 10 percent and 20 percent variation in assumptions generally
cannot easily be extrapolated because the relationship of the
change in the assumptions to the change in fair value may not be
linear. Also, in the above table, the effect that a change in a
particular assumption may have on the fair value is calculated
without changing any other assumption. In reality, changes in
one factor may result in changes in another, which might magnify
or counteract the sensitivities. Static pool credit losses are
calculated by summing actual and projected future credit losses
and dividing them by the original balance of each securitization
pool. At December 31, 2001, static pool net credit losses for
leases securitized were not material.
The table below summarizes certain cash flows received from /
(paid to) securitization trusts in 2001:
Proceeds from new securitizations $ 18,700
Collections used by the trust to purchase
new balances in revolving securitizations $470
Servicing fees received $330
Purchases of delinquent assets ($188)
The table below presents information about delinquencies, net
credit losses, and components of reported and securitized
financial assets at December 31, 2001:
Total Principal Delinquent
Amount of Principal
Leases Over 90 Days
Leases held in portfolio $ 4,288 $631
Leases held for
securitization 5,130 43
Leases securitized 42,445 13
Total leases managed $51,863 $687
Leases securitized of $42,445 is comprised of the Company's
retained interest in future cash flows of those leases measured
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at fair value of $14,314, and the financial institution's
interest in those leases of $28,131.
The Company monitors its potential credit risk associated with
lease securitizations and provides for an allowance for doubtful
accounts which is maintained at a level which the Company
believes is sufficient to cover potential losses on leases
securitized. Credit losses historically have not been material.
10. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
December 31, December 31,
2001 2000____
Accounts payable $112,867 $129,829
Accrued compensation, fringe
benefits and related payroll taxes 49,472 86,962
Accrued merger integration charges - 19,583
Accrued purchase commitments 13,822 11,205
Accrued professional fees 14,584 6,148
Other accrued expenses 88,870 71,943
$279,615 $325,670
See Note 11 for information on the details of the restructuring,
impairment and integration charges recorded by the Company.
11. RESTRUCTURING, IMPAIRMENT AND INTEGRATION CHARGES
In September 2001, the Company's management approved and adopted
a formal plan of restructuring related to the reorganization of
its manufacturing facilities. The plan includes a transition of
volume manufacturing away from its Bohemia, New York facility to
lower cost locations, primarily its Reynosa, Mexico facility and
Far East contract manufacturing partners. In connection with
this reorganization, the Company's operating results for the year
ended December 31, 2001 include a $59,662 charge for
restructuring and impairment. The gross provision of $62,662
related to the September 2001 restructuring was partially offset
by the reversal of $3,000 of unutilized restructuring reserves
remaining from the Company's December 2000 plan of restructuring
(see below). This restructuring charge, of which $53,091 was
recorded as product cost of revenue and $6,571 was recorded as
services cost of revenue, includes workforce reduction and asset
impairment costs. The Company's restructuring plan is expected
to be substantially completed by June 30, 2002. Under this plan,
the Company recorded a workforce reduction charge of $11,000
related to the termination of approximately 375 employees,
primarily manufacturing associates. As of December 31, 2001,
approximately 20 employees have been terminated. Details of the
restructuring charges as of December 31, 2001 are as follows:
December 31,
2001
Provision Utilized Accrual__
Workforce reductions $11,000 $ 2,024 $ 8,976
Impaired fixed asset
and other writeoffs 51,662 47,239 4,423
$62,662 $49,263 $13,399
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In December 2000, the Company's management approved and
adopted a formal plan of restructuring associated with the
Telxon acquisition (see Note 2a.). The Company's operating
results for the year ended December 31, 2000 reflect a
$185,921 charge for restructuring, impairment and merger
integration related charges.
The restructuring charge of $146,696 of which $114,440 was
recorded as product cost of revenue and $2,461 was recorded as
services cost of revenue, included workforce reduction costs,
asset impairments and lease termination costs. The costs are not
associated with the generation of future revenues and have no
future economic benefit. An additional $39,225 of the charge
recorded in December 2000 relates to the integration of Telxon's
business and operations resulting in revenue-producing
activities. These merger integration charges consist primarily
of professional services and consulting fees, marketing and
advertising, travel expenses and other related charges.
The Company's exit plan, which focused on the consolidation of
manufacturing operations, including plant closings and
elimination of redundant activities, has been substantially
completed. As part of this plan, the Company recorded a charge
of $14,117 for workforce reductions. The charge relates to the
termination of approximately 225 employees primarily in
manufacturing, management, sales and administrative support. As
of December 31, 2001, all these employees have been terminated.
Details of the unutilized restructuring balance as of December
31, 2001 which relates primarily to the ongoing lease commitments
are as follows:
December 31, Reversal December 31,
2000 of Utilized 2001,
Balance __ Provision to date Balance _
Work force
reductions $ 44,158 $ 3,000 $41,158 $ -
Impaired fixed asset
and other writeoffs 7,899 - 7,743 156
Lease cancellation
costs 20,430 - 15,056 5,374
$ 72,487 $ 3,000 $63,957 $ 5,530
The accrued restructuring expenses of $5,530 combined with
accrued restructuring expenses of $13,399 related to the
reorganization of the Company's manufacturing facilities (as
discussed above) result in a total accrued restructuring
expense of $18,929 remaining as of December 31, 2001.
12. CONVERTIBLE SUBORDINATED NOTES AND DEBENTURES
At the time of the Telxon acquisition, Telxon had outstanding
F-24
$82,500 of 5.75 percent convertible subordinated notes (the "5.75
percent notes"), and $24,413 of 7.5 percent convertible
subordinated debentures (the "7.5 percent debentures"). The
notes are redeemable at any time at the option of Telxon, in
whole or in part, at 100.8214 percent during the year ended
December 31, 2002.
The 5.75 percent notes, issued December 12, 1995, pay interest
semi-annually and are due January 1, 2003. The conversion price
for these notes is $36.67 per common share and is subject to
adjustment in certain events.
During the year ended December 31, 2001, Telxon purchased in the
open market $21,861 of its 5.75 percent notes for $20,665,
resulting in an extraordinary gain of $813, net of $383 in taxes.
Borrowings from the Company's line of credit were used to finance
the repurchase. The 7.5 percent debentures, issued June 1, 1987,
pay interest semi-annually and are due June 1, 2012. The
conversion price for the debentures is $35.67 per common share
and is subject to adjustment in certain events. The debentures
are redeemable at par value. The sinking fund requires annual
payments of 5 percent of the original $46,000 principal amount,
calculated to retire 75 percent of the issue prior to maturity.
Prior to the acquisition, Telxon purchased and retired debentures
with a principal face value of $21,266. This amount has been
applied to the earliest of the sinking fund obligations.
The combined aggregate amount of maturities and sinking fund
requirements for each of the years ended December 31 are as
follows:
2002 $ -
2003 60,639
2004 -
2005 -
2006 -
Thereafter 24,413
$ 85,052
These notes and debentures contain various non-financial
covenants with which the Company was in compliance at December
31, 2001. (See Note 21.)
13. LONG-TERM DEBT
December 31, December 31,
2001 2000_____
Revolving Credit Facility (a) $125,439 $187,329
Senior Notes (b) 12,698 19,048
SAILS Exchangeable Debt (c) 93,206 -
Promissory Note (d) - 10,000
State Loan (e) - 3,000
Other (f) 373 4,792
231,716 224,169
Less: Current maturities 6,548 23,025
$225,168 $201,144
F-25
(a) The Company has a $350 million unsecured revolving credit
facility with a syndicate of U.S. and International banks.
These borrowings bear interest at either LIBOR plus 100 basis
points or the base rate of the syndication agent bank,
contingent upon various stipulations by the lender, which
approximated 4.75 percent and 9.5 percent at December 31,
2001 and 2000, respectively. Since the proceeds under the
Credit Agreement are committed until 2004, the Company has
classified these borrowings as long-term obligations. As of
December 31, 2000, the Company had outstanding borrowings of
$187,329 under this facility. This Credit Agreement has
certain restrictive covenants. Certain of the covenants were
waived in order to complete the Telxon acquisition and such
related transactions. Therefore, the Company is in
compliance with all debt covenants at December 31, 2001.
(b) In March 1993, the Company issued $25,000 of its 7.76
percent Series A Senior Notes due February 15, 2003, and
$25,000 of its 7.76 percent Series B Senior Notes due
February 15, 2003, to two insurance companies. The Series A
Senior Notes are being repaid in equal annual installments
of $2,778 which began in February 1995. The Series B Senior
Notes are being repaid in equal annual installments of
$3,571 which began February 1997. Interest is payable
quarterly for these notes. The financing agreements contain
certain covenants regarding the maintenance of a minimum
level of tangible net worth, as well as certain other
financial ratios, as defined, and certain restrictions
including limitations on indebtedness. The Company was in
compliance with these covenants at December 31, 2001.
(c) In January 2001, the Company entered into a private
Mandatorily Exchangeable Securities Contract for Shared
Appreciation Income Linked Securities ("SAILS") with a
highly rated financial institution. The securities which
underlie the SAILS contract represent the Company's
investment in Cisco common stock, which was acquired in
connection with the Telxon acquisition. The 4,160,000
shares of Cisco common stock had a market value of $75,338
at December 31, 2001, and are held as collateral to secure
the debt instrument associated with the SAILS and are
included in the balance of Investment in Marketable
Securities (see Note 5). This debt has a seven-year
maturity and pays a cash coupon of 3.625 percent. The SAILS
contain an embedded equity collar, which effectively manages
a large portion of the Company's exposure to fluctuations in
the fair value of its holdings in Cisco common stock. At
maturity, the SAILS will be exchangeable for shares of Cisco
common stock, or at the Company's option, cash in lieu of
shares. Net proceeds from the issuance of the SAILS and
termination of an existing freestanding collar
F-26
arrangement were approximately $262,246 which were used for
general corporate purposes, including the repayment of debt
outstanding under its revolving credit facility. The Company
accounts for the embedded equity collar as a derivative
financial instrument in accordance with the requirements of
SFAS 133. The change in fair value of this derivative
between reporting dates is recognized through earnings. The
derivative has been combined with the debt instrument in
long-term debt in an appropriate presentation of the
Company's overall future cash outflows for that debt
instrument under Financial Accounting Standards Board
Interpretation No. 39, "Offsetting of Amounts Related to
Certain Contracts" ("FIN 39") for the legal right of offset
for accounting purposes. The SAILS liability, net of
the derivative asset, represents $93,206 of the total long-
term debt balance outstanding at December 31, 2001. The
Company has the option to terminate the SAILS arrangement
prior to its scheduled maturity. Such early termination
would require the Company to pay an amount based on the fair
value of the embedded equity collar and the underlying stock,
which would be recorded in the Company's statement of
operations in the period of termination. Such amount,
however, will never exceed the present value of the Company's
future coupon payments at the time of termination. At the
present time, the Company does not anticipate terminating the
SAILS arrangement prior to its scheduled maturity date.
(d) In conjunction with the Telxon acquisition, the Company
assumed a short-term promissory note of $10,000. This note
charged interest at LIBOR plus 30 basis points. Telxon fully
repaid this note in January 2001.
(e) In 1994, the Company received a $3,000 loan from an agency of
New York State. The loan charged interest at 1.0 percent,
payable monthly, and the principal was fully repaid in 2001.
(f) The Company has available $55,000 in uncommitted U.S. dollar
and foreign currency lines of credit with several global
banks with a range of borrowing rates and varying terms that
continue until such time as either party wishes to terminate
the agreements. As of December 31, 2001 and 2000,
outstanding borrowings under these agreements amounted to $19
and $3,405, respectively. The remaining balances in other
long-term debt of $354 and $1,387 at December 31, 2001 and
2000, respectively, represent various other loans maturing
through 2008.
Based on the borrowing rates currently available to the Company
for bank loans with similar terms, the fair values of borrowings
under the Credit Agreement, Senior Notes and Promissory note,
approximate their carrying values.
F-27
The combined aggregate amount of long-term debt maturities for
each of the years ended December 31 are as follows:
2002 $ 6,548
2003 6,401
2004 125,468
2005 32
2006 27
Thereafter 93,240
$231,716
14. INCOME TAXES
The (benefit from)/provision for income taxes consists of:
Year Ended December 31,_______
2001 2000 1999__
Current:
Federal ($21,476) $39,721 $42,875
State and local - 7,871 7,545
Foreign 3,127 5,303 7,967
(18,349) 52,895 58,387
Deferred:
Federal (12,165) (55,087) (1,392)
State and local (2,175) (9,499) (395)
Foreign 7,020 1,099 (1,840)
(7,320) (63,487) (3,627)
Total (benefit from)/
provision for
income taxes ($25,669) ($10,592) $54,760
A reconciliation between the statutory U.S. Federal income tax
rate and the Company's effective tax rate is:
Year Ended December 31,______
2001 2000 1999__
Statutory U.S. Federal
rate (benefit)/provision (35.0%) (35.0%) 35.0%
State taxes, net of
Federal tax effect (0.5) (1.3) 2.7
Tax credits (6.5) (17.8) (6.8)
Amortization of excess of
cost over fair value of
net assets acquired 6.1 1.7 0.6
Write-off of In-Process
R&D - 38.5 -
Exempt income of foreign
sales corporation - (2.1) (3.9)
Income of foreign
subsidiaries taxed at
higher tax rates (0.7) 4.1 0.9
Non-deductible items 0.9 0.9 0.3
Other, net 3.8 (2.3) 3.2
(31.9%) (13.3%) 32.0%
F-28
At December 31, 2001, the Company had no long-term net deferred
tax liabilities. At December 31, 2000 and 1999 the Company had
long-term deferred tax liabilities of $88,025 and $37,059,
respectively. The components of the Company's net deferred tax
assets at December 31, 2001, 2000 and 1999, respectively, are as
follows:
Year Ended December 31,
2001 2000 1999____
Deferred Tax Deferred Tax Deferred Tax
Assets/ Assets/ Assets/
(Liabilities) (Liabilities) (Liabilities)
Receivables $ 20,618 $ 8,300 ($2,700)
Inventory 53,337 60,960 19,751
Net investment in
sales-type leases (11,630) (8,759) (6,471)
Accrued compensation
and associate benefits 8,136 9,045 5,296
Other accrued liabilities 30,875 26,488 8,803
Accrued restructuring
and severance costs 8,057 57,722 214
Deferred revenue - current 12,345 10,389 5,755
Deferred revenue - long term 2,292 4,783 14,835
Deferred patent and product
development costs (31,549) (31,418) (33,618)
Purchased technology &
other intangibles 512 4,629 3,932
Property, plant and
equipment (11,176) (13,247) (18,254)
Investments (52,100) (96,290) (4,614)
Cumulative translation
adjustments 15,638 12,714 6,131
Net operating loss
carryforwards 121,606 32,958 -
Tax credit carryforwards 41,515 27,562 3,651
Charitable contribution
carryforwards 523 - -
Other, net 6,216 10,116 5,024
215,215 115,952 7,735
Less: Valuation allowance 8,098 6,958 -
Net Deferred Tax Asset $207,117 $108,994 $ 7,735
The Company had available federal and state net operating loss
carryforwards of approximately $719,937 at December 31, 2001.
Such loss carryforwards expire in accordance with provisions
of applicable tax law and have remaining lives ranging from 6 to
20 years. Certain loss carryforwards are likely to expire
unused. Accordingly, the Company has recorded valuation
allowances of $8,098 and $6,958 at December 31, 2001 and 2000,
respectively. Subsequent recognition of a substantial portion of
the deferred tax asset relating to such net operating loss
carryforwards would result in a reduction of goodwill recorded in
connection with the Telxon acquisition.
F-29
The Company also had available federal and state credit
carryforwards of approximately $44,815 at December 31, 2001.
Such credits have expiration dates ranging from 4 to 20 years,
and $11,031 of these credits have no expiration date. The
Company expects that it will be able to utilize all such credits
before their expiration. Accordingly, no valuation allowance has
been recorded for these credit carryforwards.
The valuation allowance increased by $1,140 during 2001,
increased by $6,958 during 2000, and decreased by $696 during
1999.
The increases in 2000 and 2001 relate to net operating loss
carryforwards which were acquired as part of the Telxon
acquisition. The decrease in 1999 relates to state investment tax
credit carryforwards which were not required to be recaptured.
15. COMMITMENTS AND CONTINGENCIES
a. Lease Agreements
The combined aggregate amount of required future minimum rental
payments under non-cancelable operating leases for each of the
years ended December 31, are as follows:
2002 $ 15,357
2003 13,060
2004 11,124
2005 9,605
2006 8,884
Thereafter 32,733
$90,763
Rent expense under substantially all operating leases was,
$16,263, $13,198 and $11,143, for the years ended December 31,
2001, 2000 and 1999, respectively.
b. Employment Contracts
The Company has executed employment contracts with certain senior
executives that vary in length, for which the Company has a
minimum commitment aggregating approximately $6,726 at December
31, 2001. The Company has entered into agreements with its former
President and Chief Executive Officer in connection with his
retirement announced in February 2002. See Note 21 for further
details.
F-30
c. Legal Matters
The Company is currently involved in matters of litigation
arising from the normal course of business. Management is of
the opinion that such litigation will not have a material
adverse effect on the Company's consolidated financial position
or results of operations.
In March 2001, Proxim Incorporated ("Proxim") sued the Company, 3
Com Corporation, Wayport Incorporated and SMC Networks Incorporated
in the United States District Court in the District of Delaware for
allegedly infringing three patents owned by Proxim. Proxim did not
identify any specific products of the Company that allegedly
infringe these three patents. Proxim also filed a similar lawsuit
in March 2001 in the United States District Court in the District of
Massachusetts against Cisco Systems, Incorporated and Intersil
Corporation. The complaint against the Company seeks, among other
relief, unspecified damages for patent infringement, treble damages
for willful infringement, and a permanent injunction against the
Company from infringing these three patents. In a press conference
held after the filing of the complaints, Proxim indicated that it
was interested in licensing the patents that are the subject of the
lawsuit against the Company.
On May 1, 2001, the Company filed an answer and counterclaim in
response to Proxim's suit. The Company has responded by asserting
its belief that Proxim's asserted patents are invalid and not
infringed by any of the Company's products. In addition, the
Company has asserted its belief that Proxim's claims are barred
under principles of equity, estoppel and laches. The Company has
also filed counterclaims against Proxim, asserting that Proxim's RF
product offerings infringe four of the Company's patents relating to
wireless LAN technology. The Company has requested the Court grant
an unspecified amount of damages as well as a permanent injunction
against Proxim's sale of its wireless LAN product offerings. The
Court has severed the Company's counterclaim against Proxim
involving the four of the Company's patents relating to wireless LAN
technology from Proxim's initial case.
F-31
On May 14, 2001, the Company announced that an agreement had
been reached with Intersil Corporation, a supplier of key
wireless LAN chips to the Company. Under this agreement,
Intersil will generally indemnify and defend the Company
against Proxim's infringement suit.
On December 4, 2001, the Company filed a complaint against
Proxim in the United States District Court in the District of
Delaware asserting that Proxim's RF product offerings infringe
four of the Company's patents relating to wireless LAN
technology. This complaint asserts the same four patents that
were asserted in the Company's counterclaim against Proxim in
the initial Proxim case prior to the severance of this
counterclaim by the Court. On December 18, 2001, Proxim filed
an answer and counterclaims seeking declaratory judgments for
non-infringement, invalidity and unenforceability of the four
patents asserted by the Company, injunctive and monetary
relief for the Company's alleged infringement of one
additional Proxim patent involving wireless LAN technology,
monetary relief for the Company's alleged false patent
marking, and injunctive and monetary relief for the Company's
alleged unfair competition under the Lanham Act, common law
unfair competition and tortious interference.
On January 31, 2002, the Company filed an answer in response
to Proxim's counterclaim. The Company has responded by
asserting its belief that Proxim's asserted patent is invalid
and not infringed by any of the Company's products. In
addition, the Company has asserted its belief that Proxim's
patent claims are barred under principles of equity, estoppel
and laches. Also on January 31, 2002, the Company filed a
motion to dismiss Proxim's claims regarding false patent
markings, Lanham Act, common law unfair competition and
tortious interference. This motion is currently pending.
On July 21, 1999, the Company and six other leading members of the
Automatic Identification and Data Capture industry jointly
initiated a litigation against the Lemelson Medical, Educational, &
Research Foundation, Limited Partnership (the "Lemelson
Partnership"). The suit, which is entitled Symbol Technologies,
Inc. et. al. v. Lemelson Medical, Educational & Research
Foundation, Limited Partnership, was commenced in the U.S. District
Court, District of Nevada in Reno, Nevada, but was subsequently
transferred to the Court in Las Vegas, Nevada.
In the litigation, the Auto ID companies seek, among other
remedies, a declaration that certain patents, which have been
F-32
asserted by the Lemelson Partnership against end users of bar code
equipment, are invalid, unenforceable and not infringed. The
Company has agreed to bear approximately half of the legal and
related expenses associated with the litigation, with the remaining
portion being borne by the other Auto ID companies.
The Lemelson Partnership has contacted many of the Auto ID
companies' customers demanding a one-time license fee for certain
so-called "bar code" patents transferred to the Lemelson Partnership
by the late Jerome H. Lemelson. The Company and the other Auto ID
companies have received many requests from their customers asking
that they undertake the defense of these claims using their
knowledge of the technology at issue. Certain of these customers
have requested indemnification against the Lemelson Partnership's
claims from the Company and the other Auto ID companies,
individually and/or collectively with other equipment suppliers. The
Company, and we understand, the other Auto ID companies believe that
generally they have no obligation to indemnify their customers
against these claims and that the patents being asserted by the
Lemelson Partnership against their customers with respect to bar
code equipment are invalid, unenforceable and not infringed.
However, the Company and the other Auto ID companies believe that
the Lemelson claims do concern the Auto ID industry at large and
that it is appropriate for them to act jointly to protect their
customers against what they believe to be baseless claims being
asserted by the Lemelson Partnership.
The Lemelson Partnership filed a motion to dismiss the lawsuit, or
in the alternative, to stay proceedings or to transfer the case to
the U.S. District Court in Arizona where there are pending cases
involving the Lemelson Partnership and other companies in the
semiconductor and electronics industries. On March 21, 2000, the
U.S. District Court in Nevada denied the Lemelson Partnership's
motion to dismiss, transfer, or stay the action. It also struck one
of the four counts.
On April 12, 2000, the Lemelson Partnership filed its answer to the
complaint in the Symbol et al. v. Lemelson Partnership case. In the
answer, the Lemelson Partnership included a counterclaim against the
Company and the other plaintiffs seeking a dismissal of the case.
Alternatively, the Lemelson Partnership's counterclaim seeks a
declaration that the Company and the other plaintiffs have
contributed to, or induced infringement of particular method claims
of the patents-in-suit by the plaintiffs' customers. The Company
believes there is no merit to the Lemelson Partnership's
counterclaim.
F-33
On May 15, 2000, the Auto ID companies filed a motion seeking
permission to file an interlocutory appeal of the Court's decision
to strike the fourth count of the complaint (which alleged that the
Lemelson Partnership's delays in obtaining its patents rendered them
unenforceable for laches). The motion was granted by the Court on
July 14, 2000. The Court entered a clarifying superseding order on
July 25, 2000. On September 1, 2000, the U.S. Court of Appeals for
the Federal Circuit granted the petition of the Auto ID companies
for permission to pursue this interlocutory appeal. The Federal
Circuit Court heard oral arguments on this appeal on October 4,
2001. On January 24, 2002, the Federal Circuit found for the Auto
ID companies, holding that the defense of prosecution laches exists
as a matter of law. On March 20, 2002 the Federal Circuit denied
Lemelson's petition for rehearing in banc. Accordingly, the issue
will be remanded to the Court in Nevada to consider whether the
laches defense is applicable to the Lemelson case. No date has yet
been set by the Court in Nevada for the resolution of this issue.
On July 24, 2000, the Auto ID companies filed a motion for partial
summary judgment arguing that almost all of the claims of the
Lemelson Partnership's patents are invalid for lack of written
description. On August 8, 2000, the Lemelson Partnership filed a
motion seeking an extension of approximately ten weeks in which to
file an answer to this motion. On August 31, 2000, the Court
granted the Lemelson Partnership's motion for such an extension.
On October 25, 2000, the Lemelson Partnership filed a combined
opposition to the motion of the Auto ID companies for partial
summary judgment and its own cross-motion for partial summary
judgment that many of the claims of the Lemelson Partnership's
patents satisfy the written description requirement. On July 12,
2001, the District Court denied both the Auto ID companies' motion
and Lemelson's cross-motion. In doing so, the Court did not rule
on the merits of the matters raised in the motions, but instead
held that there remain triable issues of material fact that
preclude granting summary judgment in favor of either party.
On May 14, 2001, the Auto ID companies filed another motion for
summary judgment arguing that Lemelson's patents at issue are
unenforceable because of Lemelson's inequitable conduct before the
U.S. Patent and Trademark Office. On June 19, 2001, the Lemelson
Partnership filed a combined opposition to the motion of the Auto
ID companies for summary judgment and its own cross-motion for
partial summary judgment that no such inequitable conduct occurred.
On November 13, 2001, the District Court denied both the Auto ID
companies' motion and Lemelson's cross-motion. In doing so, the
F-34
Court did not rule on the merits of the matters raised in the
motions, but instead held that there remain triable issues of
material fact that preclude granting summary judgment in favor of
either party.
On July 25, 2001, the Court entered an order setting a schedule that
culminates with a trial currently scheduled for August 2002. Under
this timetable, the Auto ID companies' arguments relating to
invalidity, unenforceability and/or non-infringement of the so-
called bar code patents will be briefed by motion at the appropriate
time, or at trial.
On August 1, 2001, the Auto ID companies filed another motion for
partial summary judgment arguing that the Lemelson Partnership is
not entitled, as a matter of law, to rely on a now-abandoned
Lemelson patent application filed in 1954 to provide a filing date
or disclosure for the claims of the patents-in-suit. On November
13, 2001, the District Court denied the Auto ID companies' motion.
In doing so, the Court did not rule on the merits of the matters
raised in the motion, but instead held that there remain triable
issues of material fact that preclude granting summary judgment.
From December 1998 through March 1999, a total of 27 class actions
were filed in the United States District Court, Northern District of
Ohio, by certain alleged stockholders of Telxon on behalf of
themselves and purported classes consisting of Telxon stockholders,
other than the defendants and their affiliates, who purchased stock
during the period from May 21, 1996 through February 23, 1999 or
various portions thereof, alleging claims for "fraud on the market"
arising from alleged misrepresentations and omissions with respect
to Telxon's financial performance and prospects and an alleged
violation of generally accepted accounting principles by improperly
recognizing revenues. The named defendants are Telxon, its former
President and Chief Executive Officer, Frank E. Brick, and its
former Senior Vice President and Chief Financial Officer, Kenneth W.
Haver. The actions were referred to a single judge. On February 9,
1999, the plaintiffs filed a motion to consolidate all of the
actions and the Court heard motions on naming class representatives
and lead class counsel on April 26, 1999.
On August 25, 1999, the Court appointed lead plaintiffs and their
counsel, ordered the filing of an amended complaint, and dismissed
26 of the 27 class action suits without prejudice and consolidated
those 26 cases into the first filed action. The lead plaintiffs
appointed by the Court filed an amended class action complaint on
September 30, 1999. The amended complaint alleges that the
defendants engaged in a scheme to defraud investors through improper
revenue recognition practices and concealment of material adverse
conditions in Telxon's business and finances. The amended complaint
seeks certification of the identified class, unspecified
compensatory and punitive damages, pre- and post-judgment interest,
F-35
and attorneys' fees and costs. Various appeals and writs
challenging the District Court's August 25, 1999 rulings were filed
by two of the unsuccessful plaintiffs but have all been denied by
the Court of Appeals.
On November 8, 1999, the defendants jointly moved to dismiss the
amended complaint, which was denied on September 29, 2000.
Following the denial, the parties filed a proposed joint case
schedule, discovery commenced, and the parties each filed their
initial disclosures. On October 30, 2000, defendants filed their
answer to the plaintiffs' amended complaint as well as a motion for
reconsideration or to certify the order denying the motion to
dismiss for interlocutory appeal and request for oral argument, and
a memorandum of points and authorities in support of that motion.
On November 14, 2000, plaintiffs filed a memorandum in opposition
of defendants' motion. This motion was denied on January 19, 2001.
On November 1, 2000, defendants filed a motion for application of
the Amended Federal Rules of Civil Procedure to the case, and on
November 16, 2000, the Court granted this motion in part and held
that the Court will apply the new rules of evidence and new rules
of civil procedure except to the extent those rules effectuate
changes to Rule 26 of the Federal Rules for Civil Procedure.
Discovery is in its preliminary stages.
On February 20, 2001, Telxon filed a motion for leave to file and
serve instanter a summons and third-party complaint against third-
party defendant PricewaterhouseCoopers LLP ("PWC") in shareholders'
class action complaints. Telxon's third-party complaint against
PWC concerns PWC's role in the original issuance and restatements
of Telxon's financial statements for its fiscal years 1996, 1997,
1998 and its interim financial statements for its first and second
quarters of fiscal year 1999, the subject of the class action
litigation against Telxon. Telxon states causes of action against
PWC for contribution under federal securities law, as well as state
law claims for accountant malpractice, fraud, constructive fraud,
fraudulent concealment, fraudulent misrepresentation, negligent
misrepresentation, breach of contract, and breach of fiduciary
duty. With respect to its federal claim against PWC, Telxon seeks
contribution from PWC for all sums that Telxon may be required to
pay in excess of Telxon's proportionate liability, if any, and
attorney fees and costs. With respect to its state law claims
against PWC, Telxon seeks compensatory damages, punitive damages,
attorney fees and costs, in amounts to be determined at trial.
Thereafter Plaintiffs sued PWC directly and that action was
consolidated.
On April 30, 2001, the Court granted Telxon's motion to file and
serve its third-party complaint against PWC. The Court reserved
judgment on Telxon's request to have the Complaint deemed filed
instanter on the date of Telxon's motion for leave to file the same
- - February 20, 2001. Pursuant to the Court's request the parties
have submitted briefs on the issue of Telxon's motion for leave to
file and serve the third-party complaint instanter. The issue is
currently being considered by the Court.
F-36
PWC has filed a motion to dismiss both Telxon's third-party
complaint and the PWC action. The parties have fully briefed the
motion. The Court heard oral argument on PWC's motions on
September 10, 2001. On March 25, 2002, the Court ruled on the
pending motions. As to Telxon's third-party complaint against PWC,
the Court held that it was timely filed, and that Telxon's
allegations of scienter by PWC under the Federal securities laws
were sufficiently pled, that Telxon's state law fraud claims were
sufficiently pled, and that Telxon's breach of fiduciary duty,
constructive fraud and fraudulent concealment claims against PWC
should not be dismissed at the pleading stage. The Court denied
PWC's motion to dismiss Telxon's claims for contribution under the
Federal securities laws with respect to Telxon's restatements of
its 1996, 1997 and 1998 audited financial statements, and granted
PWC's motion to dismiss Telxon's contribution claims with respect
to the restatements of its unaudited first and second quarter 1999
financial statements. The Court also denied PWC's motion to
dismiss the separate action filed against it by the plaintiffs.
By letter dated December 18, 1998, the Staff of the Division of
Enforcement of the Securities and Exchange Commission (the
"Commission") advised Telxon that it was conducting a preliminary,
informal inquiry into trading of the securities of Telxon at or
about the time of Telxon's December 11, 1998 press release
announcing that Telxon would be restating the revenues for its
second fiscal quarter ended September 30, 1998. On January 20,
1999, the Commission issued a formal Order Directing Private
Investigation and Designating Officers To Take Testimony with
respect to the referenced trading and specified accounting matters,
pursuant to which subpoenas have been served requiring the
production of specified documents and testimony.
By letter dated March 9, 2001, the Division of Enforcement of the
Commission informed Telxon that it had made a preliminary
determination to recommend that the Commission initiate an action
against Telxon for violation of various sections of the federal
securities laws and regulations and to seek permanent injunctive
relief and appropriate monetary penalties against Telxon. The
Division of Enforcement also indicated that it intended to
recommend similar action against three former employees of Telxon.
On March 6, 2002, Telxon accepted an offer of settlement resolving
this investigation.
Pursuant to the settlement, Telxon neither admitted nor denied
certain findings by the Commission, and consented to the entry of
an administrative Cease and Desist Order prohibiting Telxon from
committing or causing any violation, and any future violation of
certain reporting, record-keeping and internal control provisions
of the Securities Exchange Act of 1934. Two former employees of
Telxon also settled administrative proceedings without admitting
or denying certain findings by the Commission and by consenting to
the entry of an administrative cease and desist order prohibiting
them from committing or causing any violation and any future
violation of certain reporting, record-keeping and internal
control provisions of the Securities Exchange Act of 1934. The
F-37
Commission on March 5, 2002 also filed suit against Kenneth W.
Haver, former Chief Financial Officer of Telxon, for fraud in
connection with the company's financial statements and earnings
press release for the quarter ended September 30, 1998.
On March 5,2002, a separate purported class action lawsuit was filed,
entitled Pinkowitz v. Symbol Technologies, Inc., et al.
in the United States District Court for the Eastern District of
New York, on behalf of purchasers of the common stock of Symbol
Technologies, Inc. between October 19, 2000 and February 13, 2002,
inclusive, against the Company, Tomo Razmilovic, Jerome Swartz and
Kenneth Jaeggi.
The complaint alleges that defendants violated the federal
securities laws by issuing materially false and misleading
statements, throughout the Class Period that had the effect of
artificially inflating the market price of the Company's
securities. Specifically, the complaint alleges that
defendants engaged in the following conduct which had the
effect of increasing the Company's reported revenue and
profits: (1) the Company booked as profit in the third quarter
of 2000 a one-time royalty payment in excess of $10 million,
enabling the Company to make its third quarter projections; (2)
the Company used expenses associated with its acquisition of
Telxon to mask the fact that its sales were declining and (3)
the Company booked as having shipped in the first quarter of
2001 more than $40 million in inventory that included side
provisions allowing customers to delay payments or return
merchandise, or included products that "never left the
warehouse." Five additional purported similar class actions
have also been filed against the Company in the Eastern
District of New York. The Louisiana School Employees
Retirement System is the plaintiff in the second action, which
also names, in addition to the Company, Jerome Swartz, Tomo
Razmilovic and Kenneth Jaeggi as defendants. The Company
currently does not know the identities of the other parties in
the third, fourth, fifth and sixth actions filed against it.
The Company believes that these litigations are without merit
and intends to defend them vigorously.
16. STOCKHOLDERS' EQUITY
a. Stock Option Plans
There are a total of 48,783,835 shares of common stock reserved
for issuance under the Company's stock option plans at December
31, 2001. Stock options granted to date generally vest over a one
to five year period, expire after ten years and have exercise
prices equal to the market value of the Company's common stock at
the date of grant. A summary of changes in the stock option
plans is:
F-38
Shares Under Option______________
Number of Weighted Avg.
Option Price Shares Exercise
per Share (in thousands) Price____
Shares under option
at January 1, 1999 $ 1.19 to $15.93 35,921 $ 5.87
Granted $14.03 to $25.22 6,950 $17.31
Exercised $ 1.45 to $ 8.17 (4,702) $ 4.26
Cancelled $ 2.45 to $17.19 (488) $ 9.06
Shares under option
at December 31, 1999 $ 1.19 to $25.22 37,681 $ 8.15
Granted $20.75 to $41.22 4,155 $31.59
Granted to
replace Telxon
options $10.63 to $39.50 2,610 $17.99
Exercised $ 1.45 to $14.67 (5,022) $ 5.34
Cancelled $ 3.46 to $35.83 (983) $16.02
Shares under option
at December 31, 2000 $ 1.19 to $41.22 38,441 $11.57
Granted $12.55 to $27.97 5,436 $26.93
Exercised $ 1.19 to $33.75 (6,022) $ 6.42
Cancelled $ 1.45 to $39.50 (1,554) $20.72
Shares under option
at December 31, 2001 $ 1.58 to $41.22 36,301 $14.33
Shares exercisable
at December 31, 2001 $ 1.58 to $33.75 20,516 $ 8.31
Shares exercisable
at December 31, 2000 $ 1.19 to $39.50 20,539 $ 7.03
Shares exercisable
at December 31, 1999 $ 1.19 to $ 8.17 17,199 $ 4.94
The following table summarizes information concerning currently
outstanding and exercisable options:
Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Life Exercise Exercisable Exercise
Prices (in thousands) (years) Price (in thousands) Price__
$ 1.58 - $ 2.37 163 1.3 $ 1.80 163 $ 1.80
$ 2.38 - $ 3.55 2,156 2.7 $ 3.32 2,156 $ 3.32
$ 3.56 - $ 5.33 3,184 3.8 $ 4.64 3,184 $ 4.64
$ 5.34 - $ 8.00 11,487 5.2 $ 6.72 10,093 $ 6.70
$ 8.01 - $12.00 2,120 6.2 $ 9.36 1,144 $ 9.70
$12.01 - $18.00 7,551 7.0 $16.08 2,742 $15.61
$18.01 - $27.00 2,438 7.6 $24.87 677 $23.33
$27.01 - $40.50 7,143 8.5 $30.33 357 $30.98
$40.51 - $41.22 59 8.1 $41.22 0 $ 0
36,301 20,516
F-39
At December 31, 2001, an aggregate of 13,767,000 shares remain
available for grant under the stock option plans. The tax
benefits arising from stock option exercises during the years
ended December 31, 2001, 2000, and 1999, in the amount of $43,993,
$53,960, and, $26,786, respectively, were recorded in
stockholders' equity as additional paid-in capital.
In accordance with the provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"), the Company applies the intrinsic
value based method as described in APB Opinion No. 25 and related
interpretations in accounting for its plans. Accordingly, no
compensation cost has been recognized for the fixed portion of its
plans.
If compensation cost for the Company's fixed stock options
(including outside directors' options and stock purchase warrants
discussed below) had been determined in accordance with the fair
value method described in SFAS No. 123, the Company's net (loss)
earnings and (loss) earnings per share would have been the pro
forma amounts indicated below:
Year Ended December 31,____
2001 2000 1999__
Net (Loss) Earnings:
As Reported ($53,907) ($68,966) $116,364
Pro Forma ($77,528) ($86,262) $103,996
Basic (Loss) Earnings Per Share:
As Reported ($0.24) ($0.33) $0.59
Pro Forma ($0.34) ($0.42) $0.52
Diluted (Loss) Earnings Per Share:
As Reported ($0.24) ($0.33) $0.55
Pro Forma ($0.34) ($0.42) $0.49
The weighted average fair value of options granted during 2001,
2000, and 1999, was $11.21, $12.75, and $6.10, per option,
respectively. In determining the fair value of options and outside
directors' options and stock purchase warrants granted in 2001,
2000, and 1999 for pro forma purposes the Company used the Black-
Scholes option pricing model and assumed the following: a risk
free interest rate of 5.5 percent; an expected option life of 4
years; an expected volatility of 45 percent, 43 percent, and 35
percent; and a dividend yield of 0.14 percent per year. As
required by SFAS No. 123, the impact of outstanding non-vested
stock options granted prior to 1995 has been excluded from the
proforma calculation.
F-40
b. Outside Directors' Options and Stock Purchase Warrants
All options and stock purchase warrants issued to outside
directors vest over a two to four year period, expire after ten
years and have exercise prices equal to the market value of the
Company's common stock at the date of grant. A summary of changes
in the outside Directors' options and stock purchase warrants is:
Number of Weighted
Option Price Shares Avg.
per Share (in thousands) Exercise Price
Shares under option
at January 1, 1999 $ 3.33 to $ 9.83 681 $ 6.09
Granted $15.80 to $25.22 233 $16.70
Exercised $ 3.33 to $ 9.83 (86) $ 5.57
Cancelled - - - -
Shares under option
at December 31, 1999 $ 3.33 to $25.22 828 $ 9.13
Granted $32.00 to $35.83 750 $35.45
Exercised $ 3.33 to $15.80 (145) $ 7.91
Cancelled $ 7.37 to $35.83 (335) $27.99
Shares under option
at December 31, 2000 $ 3.33 to $35.83 1,098 $21.52
Granted - - - -
Exercised - - - -
Cancelled - - - -
Shares under option
at December 31, 2001 $ 3.33 to $35.83 1,098 $21.52
Shares exercisable
at December 31, 2001 $ 3.33 to $35.83 615 $14.06
Shares exercisable
at December 31, 2000 $ 3.33 to $25.22 397 $ 7.21
Shares exercisable
at December 31, 1999 $ 3.33 to $ 9.83 384 $ 5.36
F-41
The following table indicates the number of common shares issuable
upon exercise and the exercise price per share of all outstanding
outside Directors' options and stock purchase warrants as of
December 31, 2001:
Number of
Shares Shares
Issuable Exercise Vested at
Exercisable Upon Exercise Price December 31,2001
to (in thousands) per Share (in thousands)_
2004 114 $ 3.33 to $ 3.65 114
2005 38 $ 4.43 38
2006 57 $ 6.19 57
2007 38 $ 6.52 38
2008 177 $ 7.37 to $ 9.83 139
2009 149 $15.80 to $25.22 98
2010 525 $32.00 to $35.83 131
1,098 615
The weighted average fair value of outside directors options and
stock purchase warrants granted during 2001, 2000, and 1999, was
$0, $14.18, and $5.61, per share, respectively.
c. Employee Stock Purchase Plan
During 1997, the Company adopted an employee stock purchase plan
which was approved by the Company's stockholders at the annual
meeting of shareholders. Participants may purchase shares of stock
for an amount equal to 85 percent of the lesser of the closing price
of a share of stock on the first trading day of the period or the
last trading day of the period.
The stock sold to plan participants shall be authorized but
unissued common stock, treasury shares or shares purchased in the
open market. The aggregate number of shares which may be issued
pursuant to the plan is 1,898,438. As of December 31, 2001,
1,445,833 shares were issued to participants and subsequent to
December 31, 2001, 264,666 shares were issued to participants by
F-42
the Company all of which were purchased in the open market. The
weighted average fair value of the options granted to purchase
shares in 2001 was $6.36.
d. Shareholder Rights Plan
In August 2001, the Company announced that its Board of Directors
adopted a stockholder rights plan. In connection with the
adoption of the rights plan, the Board has designated and reserved
five hundred thousand shares of Series A Junior Participating
preferred stock and has declared a dividend of one preferred stock
purchase right (the "rights") for each share of the Company's
common stock outstanding on September 14, 2001. The rights will
continue to be represented by, and trade with, the Company's
common stock certificates, unless the rights become exercisable.
The rights become exercisable (with certain exceptions) only in
the event that any person or group acquires beneficial ownership
of, or announces a tender or exchange offer for, 15 percent or
more of the outstanding shares of the Company's common stock. The
rights will expire on August 13, 2011, unless earlier redeemed,
exchanged or terminated in accordance with the rights plan.
e. Treasury Stock
Treasury stock is comprised of 20,224,000 shares purchased in open
market transactions pursuant to programs authorized by the Board
of Directors for a total cost of $142,497. Approximately 519,000
of these shares were purchased during the year ended December 31,
2001 for a cost of $6,502.
Additionally, in accordance with the provisions in the Company's
stock option plans, executive officers are permitted to tender
shares to the Company (with certain restrictions)to pay option
prices and taxes in connection with stock option exercises.
Treasury stock is comprised of 11,837,000 shares of common stock
for a total cost of $133,238 related to this program. During the
year ended December 31, 2001, executive officers exercised
1,553,000 stock options for which approximately 854,000 of these
shares were tendered to the Company for a total cost of $25,858.
The surrender of these shares to the Company by executive officers
resulted in such officers acquiring approximately 699,000
additional shares of common stock during the year ended December
31, 2001 pursuant to the aforementioned exercises.
Treasury stock is partially offset by 7,529,000 shares which have
been reissued in the year ended December 31, 2000 in two private
placement offerings with a book value of $57,776 for proceeds of
$200,587.
F-43
17. ASSOCIATE BENEFIT PLANS
a. Profit Sharing Retirement Plan
The Company maintains a 401(k) profit sharing retirement plan for all
U.S. associates meeting certain service requirements. The Company
contributes monthly, 50.0 percent of the first 6.0 percent of
associates' contributions, which results in a maximum Company
contribution of 3.0 percent of the associates' annual compensation.
Plan expense for the years ended December 31, 2001, 2000, and 1999,
was $8,170, $7,519, and $6,182, respectively.
b. Health Benefits
The Company pays a portion of costs incurred in connection with
providing associate and dependant health benefits through programs
administered by various insurance companies. Such costs amounted
to $23,076, $16,683, and $14,161, for the years ended December 31,
2001, 2000 and 1999, respectively.
c. Executive Retirement Plan
The Company maintains an Executive Retirement Plan (the "Plan") in
which certain highly compensated associates are eligible to
participate. Participants are selected by a committee of the
Board of Directors. Benefits vest after five years of service and
are based on a percentage of average compensation for the three
years immediately preceding termination of the participant's full-
time employment. As of December 31, 2001, 14 officers were
participants in the Plan. The Company's obligations under the Plan
are not funded apart from the Company's general assets.
Change in benefit obligation:
Year Ended December 31,__
2001 2000 1999__
Benefit obligation at beginning
of year $10,964 $10,381 $9,817
Service cost 865 1,086 1,063
Interest cost 1,233 885 792
Amortization of unrecognized prior
service cost - 92 92
Actuarial loss 429 97 110
Settlements (1,343) (1,523) (1,439)
Benefits paid (54) (54) (54)
Benefit obligation at end of year $12,094 $10,964 $10,381
Funded status ($17,350) ($17,483)($13,730)
Unrecognized actuarial loss 4,718 5,981 2,719
Unrecognized prior service cost 538 538 630
Net amount recognized ($12,094) ($10,964)($10,381)
F-44
Year Ended December 31,__
2001 2000 1999__
Service cost $ 865 $1,086 $1,063
Interest cost 1,233 885 792
Amortization of unrecognized
prior service cost - 92 92
Recognized net actuarial loss 429 97 110
Net periodic benefit cost $2,527 $2,160 $2,057
The Plan had $12,299 and $11,717 of vested benefit obligations at
December 31, 2001, and 2000, respectively, which are included in
other liabilities. The projected benefit obligation at December
31, 2001, 2000, and 1999 was determined using an assumed weighted
average discount rate of 7.5 percent, 8.0 percent, and 7.5
percent, respectively, and an assumed increase in the long-term
rate of compensation of 5 percent, 6 percent, and 5 percent for
December 31, 2001, 2000, and 1999, respectively.
18. RECONCILIATION OF BASIC AND DILUTED (LOSS)/EARNINGS PER SHARE
Basic earnings per common share are computed based on the weighted
average number of common shares outstanding during each period.
Diluted earnings per common share are computed based on the
weighted-average number of common shares, after giving effect to
diluted common stock equivalents outstanding during each period.
The following table provides a reconciliation between basic and
diluted (loss)/earnings per share:
For The Year Ended
December 31, 2001 December 31, 2000 December 31, 1999
Per Per Per
Loss Shares Share Loss Shares Share Income Shares Share
Basic EPS
(Loss) Income available
to common
stockholders ($53,907)227,392 ($0.24) ($68,966)206,444 $0.33 $116,364 198,732 $0.59
Effect of Dilutive
Securities
Options/Warrants(1) - - - - - - - 13,626 ($0.04)
Diluted EPS
(Loss) Income available to
common stockholders
plus assumed
exercises ($53,907) 227,392 ($0.24)($68,966)206,444 $0.33 $116,364 212,358 $0.55
(1) For the years ended December 31, 2001 and 2000, the impact of stock options and
warrants and convertible subordinated notes and debentures is
antidilutive and has therefore not been included herein.
F-45
19. BUSINESS SEGMENTS AND OPERATIONS BY GEOGRAPHIC AREAS
The Company's business consists of the design, manufacture and
marketing of scanner integrated mobile and wireless information
management systems, and the servicing of, customer support for and
professional services related to these systems. During the fourth
quarter of 2001, the Company reorganized its services activities
and formed a new global services organization. This change allows
the Company to focus on the delivery of all services to its
customers. These activities will be coordinated under one global
services organization. As a result, the Company will present two
reportable operating segments as Products and Services.
The Products segment sells bar code capture and verification
equipment, mobile computing devices and other peripheral products.
The Services segment provides wireless communication solutions
that connect the Company's bar code reading equipment and mobile
computing devices to wireless networks. This segment also
provides worldwide comprehensive repair and maintenance
integration and support in the form of service contracts or
repairs on an as-needed basis. Management uses many factors to
measure performance and allocate resources to these two reportable
segments. The primary measurement is gross profit. The
accounting policies of the two reportable segments are essentially
the same as those applied to the consolidated financial statements
but management is continuing to monitor its cost of revenue
allocations between the products and services segments. Changes
in cost allocations between segments may be required which could
materially change the reported gross profit of the segments.
Summarized financial information concerning the Company's
reportable operating segments is shown in the following table.
Prior years' data has been reclassified to reflect the current
segment structure. Identifiable assets are those tangible and
intangible assets used by each operating segment. Corporate
assets are principally cash and temporary investments, deferred,
prepaid and refundable income taxes, the excess of cost over fair
value of net assets acquired, marketable securities, and various
other assets which can not appropriately be allocated to either
reportable segment. Intersegment transactions are minimal and any
intersegment profit is eliminated in consolidation.
F-46
REPORTABLE SEGMENTS
Products Services Corporate Consolidated
Year ended December 31, 2001:
External revenue $1,146,870 $305,827 $ - $1,452,697
Cost of revenue 837,984(1) 220,596(2) - 1,058,580
Gross profit $308,886 $85,231 $ - $394,117
Identifiable assets $971,670 $ 93,385 $827,619 $1,892,674
Year ended December 31, 2000:
External revenue $1,232,320 $217,170 $ - $1,449,490
Cost of revenue 829,191(3) 159,946(4) - 989,137
Gross profit $403,129 $57,224 $ - $460,353
Identifiable assets $1,014,186 $ 71,678 $1,007,335 $2,093,199
Year ended December 31, 1999:
External revenue $969,556 $169,734 $ - $1,139,290
Cost of revenue 525,166 129,390 - 654,556
Gross profit $444,390 $40,344 $ - $484,734
Identifiable assets $772,413 $ 33,582 $241,949 $1,047,944
(1) Includes pre-tax charges of $163,091 related to an inventory writedown and
the reorganization of the Company's manufacturing facilities.
Excluding these charges gross profit would be $471,977 or 41.2 percent of
revenue.
(2) Includes pre-tax charges of $6,571 related to the reorganization of the
Company's manufacturing facilities. Excluding these charges gross profit
would be $91,802 or 30.0 percent of revenue.
(3) Includes pre-tax charges of $114,440 related to restructuring and
impairment costs related to the Telxon acquisition. Excluding these
charges gross profit would be $517,569 or 42.0 percent of revenue.
(4) Includes pre-tax charges of $2,461 related to restructuring and impairment
costs related to the Telxon acquisition. Excluding these charges gross
profit would be $59,685 or 27.5 percent of revenue.
F-47
The Company's internal structure is in the form of a matrix
organization whereby certain managers are held responsible for
Products and Services worldwide while other managers are
responsible for specific geographic areas. The operating results
of both components are reviewed on a regular basis. Supplemental
information about geographic areas is as follows:
The Company operates its business in three main geographic
regions; The Americas (which includes North and South America),
EMEA (which includes Europe, Middle East and Africa) and Asia
Pacific (which includes Japan, the Far East and Australia).
Summarized financial information concerning the Company's
geographic regions is shown in the following table. Sales are
allocated to each region based upon the location of the use of the
products and services. The "Corporate" column includes corporate
related expenses (primarily various indirect manufacturing
operations costs, engineering and general and administrative
expenses) not allocated to geographic regions. This has the effect
of increasing operating profit for The Americas, EMEA and Asia
Pacific. Indentifiable assets are those tangible and intangible
assets used in operations in each geographic region. Corporate
assets are principally temporary investments and the excess of
cost over fair value of net assets acquired. Certain assets which
have been allocated to each geographic region could not be
allocated to either of the Company's two reportable operating
segments. Therefore, corporate assets as shown in the following
table are different from corporate assets as previously shown in
the segment disclosure.
F-48
The Asia
Americas EMEA Pacific Corporate Consolidated
Year ended December 31, 2001:
Sales to unaffiliated
customers $976,193 $393,236 $83,268 $ - $1,452,697
Transfers between
geographic areas 336,047 - - (336,047) -
Total net revenue $1,312,240 $393,236 $83,268 ($336,047) $1,452,697
Interest income $1,590 $960 $142 - $2,692
Interest expense $20,591 $76 - - $20,667
Depreciation and
amortization expense $86,159 $8,360 $610 - $95,129
(Loss)Earnings before
income taxes and
extraordinary item $317,810 $97,670 $31,140 ($527,009) ($80,389)
Income tax (benefit)/expense ($33,122) $3,308 $4,145 - ($25,669)
Identifiable assets $1,211,083 $303,083 $38,078 $340,430 $1,892,674
Year ended December 31, 2000:
Sales to unaffiliated
customers $1,011,703 $355,736 $82,051 $ - $1,449,490
Transfers between
geographic areas 274,600 - - (274,600) -
Total net revenue $1,286,303 $355,736 $82,051 ($274,600) $1,449,490
Interest income $3,620 $501 $92 - $4,213
Interest expense $15,879 $500 $54 - $16,433
Depreciation and
amortization expense $75,224 $6,396 $463 - $82,083
(Loss) Earnings before
income taxes $316,034 $69,750 $26,100 ($491,442) ($79,558)
Income tax (benefit)
/expense ($16,152) $4,121 $1,439 - ($10,592)
Identifiable assets $1,380,287 $281,008 $69,617 $362,287 $2,093,199
Year ended December 31, 1999:
Sales to unaffiliated
customers $731,206 $343,507 $64,577 $ - $1,139,290
Transfers between
geographic areas 241,175 - - (241,175) -
Total net revenue $972,381 $343,507 $64,577 ($241,175) $1,139,290
Interest income $1,704 $568 $43 - $2,315
Interest expense $8,010 $126 - - $8,136
Depreciation and
amortization expense $59,878 $5,993 $313 - $66,184
Earnings before
income taxes $273,968 $93,198 $23,419 ($219,461) $171,124
Income tax expense $49,783 $2,822 $2,155 - $54,760
Identifiable assets $771,305 $143,717 $23,832 $109,090 $1,047,944
F-49
20. SELECTED QUARTERLY FINANCIAL DATA (unaudited)
The following tables set forth unaudited quarterly financial
information for the years ended December 31, 2001 and 2000:
Quarter Ended___________________
March 31 June 30 September 30 December 31
Year Ended
December 31, 2001:
Total net revenue $450,165 $340,210 $331,191 $331,131
Gross profit $170,376 $18,117 $73,033 $132,591
Net earnings(loss) $27,945 ($59,553)(1) ($35,693)(2) $13,394
Basic earnings (loss)
per share $0.12 ($0.27)(1) ($0.16)(2) $0.06
Diluted earnings (loss)
per share $0.12 ($0.27)(1) ($0.16)(2) $0.06
Year Ended
December 31, 2000:
Total net revenue $320,011 $341,398 $373,249 $414,832
Gross profit $133,072 $141,081 $154,047 $32,153
Net earnings (loss) $31,736 $36,177 $40,450 ($177,329)(3)
Basic earnings
(loss) per share $0.16 $0.18 $0.20 ($0.84)(3)
Diluted earnings
(loss) per share $0.14 $0.16 $0.18 ($0.84)(3)
(1) Includes pre-tax charge of $110,000 or ($0.30) diluted loss per share
for the quarter related to an inventory writedown.
(2) Includes pre-tax charge of $59,662 or ($0.21) diluted loss per
share for the quarter related to the reorganization of the Company's
manufacturing facilities.
(3) Includes pre-tax charges of $273,521 or ($0.95) diluted loss
per share for the quarter related to acquisition costs associated
with restructuring and impairment charges ($146,696), in-process
research and development ($87,600), and merger integration
charges ($39,225).
The quarterly earnings (loss) per share information is computed
separately for each period. Therefore, the sum of such quarterly
per share amounts may differ from the total for the year.
21. SUBSEQUENT EVENTS
a. In February 2002, the Company's former President and Chief
Executive Officer announced his retirement. In connection
therewith, the Company will record a pre-tax compensation and
related benefits charge of approximately $8,500 in the first
quarter of 2002.
F-50
b. In January and February of 2002, Telxon purchased in the open
market $34,790 of its 5.75 percent notes for $34,127 in cash and
$5,173 of its 7.5 percent debentures for $5,004 in cash. In
March 2002, Telxon called for the redemption of all of its 5.75
percent notes and 7.5 percent debentures. The redemption date
will be April 15, 2002. The redemption price will be 100.8214
percent of the outstanding principal amount plus accrued and
unpaid interest for the 5.75 percent notes and 100 percent of
the outstanding principal amount plus accrued and unpaid
interest for the 7.5 percent debentures. The aggregate
principal amount to be redeemed is $45,089.
F-51
SCHEDULE II
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(All amounts in thousands)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
Additions_______
Balance at Charged to Charged Balance
beginning cost and to other at end
Description of year expenses accounts Deductions of year
Allowance for doubtful
accounts:
December 31, 2001 $31,275 $3,687 $ - $3,614 (b) $31,348
December 31, 2000 $11,924 $2,975 $17,603(a) $1,227 (b) $31,275
December 31, 1999 $10,031 $3,288 $ - $1,395 (b) $11,924
Inventory reserve:
December 31, 2001 $109,326 $12,360 $ - $77,259 (d) $44,427
December 31, 2000 $26,955 $21,449 $80,168(c) $19,246 (d) $109,326
December 31, 1999 $16,275 $27,079 $ - $16,399 (d) $26,955
Warranty reserve:
December 31, 2001 $8,685 $32,594 $ - $29,711 (f) $11,568
December 31, 2000 $6,298 $29,835 $1,737(e) $29,185 (f) $8,685
December 31, 1999 $8,176 $21,107 $ - $22,985 (f) $6,298
(a) Telxon-related allowance for doubtful accounts.
(b) Uncollectible accounts written off.
(c) Telxon-related inventory reserves.
(d) Inventory disposed of.
(e) Telxon-related warranty reserves.
(f) Warranty costs incurred.
S-1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________________
ANNUAL REPORT
ON
FORM 10-K
FOR FISCAL YEAR ENDED
DECEMBER 31, 2001
__________________________________
SYMBOL TECHNOLOGIES, INC.
EXHIBITS
3. Exhibits
Exhibit
3.1 Certificate of Incorporation of Symbol Technologies, Inc. as
amended. (Incorporated by reference to Exhibit 3.1 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1999 (the "1999 Form 10-K."))
3.3 Amended and Restated By-Laws of the Company. (Incorporated by
reference to Exhibit 3.2 to the Quarterly Report on Form 10-Q for
the quarter ended September 30, 2001.)
4.1 Form of Certificate for Shares of the Common Stock of the Company.
(Incorporated by reference to Exhibit 4.1 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1998.)
4.2 Rights Agreement, dated as of August 13, 2001, between the Company
and The Bank of New York, as Rights Agent, which includes the form
of Certificate of Designations with respect to the Series A Junior
Participating Preferred Stock as Exhibit A, the form of Right
Certificate as Exhibit B and the Summary of Rights to Purchase
Shares of Preferred Stock as Exhibit C. (Incorporated by reference
to Exhibit 4 to the Company's Current Report on Form 8-K dated
August 21, 2001.)
10.1 Form of 2008 Stock Purchase Warrant issued to certain directors.
(Incorporated by reference to Exhibit 10.1 to the Company's Annual
Report on Form 10K for the year ended December 31, 1997.)
10.2 1994 Directors' Stock Option Plan. (Incorporated by reference to
Exhibit 4.1 to Registration Statement No. 33-78678 on Form S-8.)
10.3 2000 Directors' Stock Option Plan. (Incorporated by reference to
Exhibit 4 to Registration Statement No. 333-78599 on Form S-8.)
10.4 1997 Employee Stock Purchase Plan. (Incorporated by reference to
Exhibit 4.2 to Registration Statement No. 333-26593 on Form S-8.)
10.5 1997 Employee Stock Option Plan. (Incorporated by
reference to Exhibit 4.2 to Registration Statement No.
333-73322 on Form S-8.)
10.6 1991 Employee Stock Option Plan (Incorporated by reference to
Exhibit 10.1 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1991.)
10.7 1990 Non-Executive Stock Option Plan, as amended. (Incorporated by
reference to Exhibit 10.1 of the Company's Annual Report on Form
10-K for the year ended December 31, 1995 (the "1995 Form 10-K".))
10.8 2001 Non-Executive Stock Option Plan. Incorporated by reference to
Exhibit 10.8 of the Company's Annual Report on Form 10-K for the
year ended December 31, 2000 (the "2000 Form 10-K").
10.9 Employment Agreement by and between the Company and Jerome
Swartz, dated as of July 1, 2000. (Incorporated by reference to
Exhibit 10.9 to the 2000 Form 10-K.
10.10 Employment Agreement by and between the Company and Leonard H.
Goldner, dated as of December 15, 2000. (Incorporated by reference
to Exhibit 10.10 to the 2000 Form 10-K.)
10.11 Employment Agreement by and between the Company and Raymond
Martino, dated as of February 15, 2000. (Incorporated by reference
to Exhibit 10.10 to the 1999 Form l0-K.)
10.12 Employment Agreement by and between the Company and Tomo
Razmilovic, dated as of February 14, 2002.
10.13 Separation, Release and Non-Disclosure Agreement between
the Company and Tomo Razmilovic, dated as of February
14, 2002.
10.14 Executive Retirement Plan, as amended. (Incorporated by reference
to Exhibit 10.14 to Company's Annual Report on a Form 10-K for the
year ended December 31, 1989.)
10.15 Symbol Technologies, Inc. Stock Ownership and Option Retention
Program. (Incorporated by reference to Exhibit 10.13 of the 1995
Form 10-K.)
10.16 Summary of Symbol Technologies, Inc. Executive Bonus Plan.
(Incorporated by reference to Exhibit 10.13 of the 1999 Form 10-K.)
10.17 Form of Note Agreements dated as of February 15, 1993 relating to
the Company's 7.76 percent Series A and Series B Senior Notes due
February 15, 2003 (Incorporated by reference to Exhibit 10.14 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1992.)
10.18 2000 Amended and Restated Credit Agreement dated as of August 3,
2000 among Symbol Technologies, Inc., the lending institutions
identified in the Credit Agreement and Bank of America, N.A., as
agent and as letter of credit issuing bank. (Incorporated by
reference to Exhibit 10.17 to the 2000 Form 10-K.)
10.19 First Amendment dated March 28, 2001 to 2000 Amended and
Restated Credit Agreement among Symbol Technologies, Inc.,
the lending institutions identified in the Credit
Agreement and Bank of America, N.A., as agent and as
letter of credit issuing bank. (Incorporated by reference
to Exhibit 10.18 to the 2000 Form 10-K.)
10.20 Second Amendment dated as of July 25, 2001 to 2000 Amended and
Restated Credit Agreement among Symbol Technologies, Inc., the
lending institutions identified in the Credit Agreement and Bank of
America, N.A. as agent.
10.21 Amended and Restated Second Amendment dated as of September 11,
2001 to 2000 Amended and Restated Credit Agreement among Symbol
Technologies, Inc., the lending institutions identified in the
Credit Agreement and the Bank of America, N.A. as agent.
10.22 Indenture by and between Telxon Corporation and AmeriTrust Company
National Association, as Trustee, dated as of June 1, 1987,
regarding Telxon Corporation's 7.5 percent Convertible Subordinated
Debentures Due 2012. (Incorporated by reference to Exhibit 4.2 to
Telxon Corporation's Registration Statement on Form S-3,
Registration No. 33-14348, filed May 18, 1987).
10.22.1 Form of Telxon Corporation's 7.5 percent
Convertible Subordinated Debentures Due 2012
(set forth in the Indenture included as Exhibit
10.22 above).
10.23 Indenture by and between Telxon Corporation and Bank One
Trust Company, N.A., as Trustee, dated as of December 1,
1995, regarding Telxon Corporation's 5.75 percent
Convertible Subordinated Notes due 2003. (Incorporated by
reference to Exhibit 4.1 to Telxon Corporation's
Registration Statement on Form S-3, Registration
No. 333-1189, filed February 23, 1996) (the "1996 Form
S-3")).
10.23.1 Form of Telxon Corporation's 5.75 percent
Convertible Subordinated Notes due 2003 issued
under the Indenture included as Exhibit 10.20
above. (Incorporated herein by reference to
Exhibit 4.2 to the 1996 Form S-3).
10.23.2 Registration Rights Agreement by and among
Registrant and Hambrecht & Quist LLC and
Prudential Securities Incorporated, as the
Initial Purchasers of Registrant's 5.75 percent
Convertible Subordinated Notes due 2003, with
respect to the registration of said Notes under
applicable securities laws. (Incorporated by
reference to Exhibit 4.3 to the 1996 Form S-3.)
22. Subsidiaries
23. Consent of Deloitte & Touche LLP
- EXHIBIT 22 -
SYMBOL TECHNOLOGIES, INC
LIST OF SUBSIDIARIES AS OF 12/31/2001
Symbol Technologies, Inc. owns directly or indirectly 100% of the
stock of the following corporations:
Subsidiaries of Symbol Technologies, Inc.
U.S. CORPORATIONS
Symbol Technologies International, Inc.
One Symbol Plaza
Holtsville, New York 11742
State of Incorporation: New York
Symbol Technologies International, Inc.
One Symbol Plaza
Holtsville, New York 11742
State of Incorporation: Delaware
Symbolease Inc.
One Symbol Plaza
Holtsville, New York 11742
State of Incorporation: Delaware
Symbol Technologies Asia, Inc.
230 Victoria Street
04-05 Bugis Junction Office Tower
Singapore 0718
State of Incorporation: Delaware
Symbolease Canada, Inc.
5180 Orbitor Drive
Mississauga, Ontario
Canada L4W 4Z2
State of Incorporation: Delaware
The Retail Technology Group, Inc.
One Symbol Plaza
Holtsville, NY 11742
State of Incorporation: Delaware
Telxon Corporation
One Symbol Plaza
Holtsville, NY 11742
State of Incorporation: Delaware
Telxon System Services, Inc.
One Symbol Plaza
Holtsville, NY 11742
State of Incorporation: Delaware
Subsidiaries of Symbol Technologies, Inc.
FOREIGN CORPORATIONS
Olympus Symbol, Inc.
San-Ei Building, 4F, 1-22-2, Nishi - Shinjuku
Shinjuku-Ku, Tokyo-160
Japan
Country of Incorporation: Japan
Symbol Technologies Mexico, Limited
Blvd. Manuel Avila, Camacho # 88, Piso 3, Col. Lomas de
Chapultapec
C.P. 11000 Mexico, D.F. Mexico
Country of Incorporation: Mexico
Symbol De Mexico, S, De R, L, De C.V.
Avenida Rio San Juan Mahzana
9 Lotes, 3y4
CP 88730
Country of Incorporation: Mexico
Inmobiliaria Symbol De Mexico, S, De R, L, De C.V.
Avenida Rio San Juan Mahzana
9 Lotes, 3y4
CP 88730
Country of Incorporation: Mexico
Symbol Technologies Netherlands, Inc.
Kerkplein 2, 7051 CX, Postbus 24 7050 AA
Varsseveld, Netherlands
Country of Incorporation: The Netherlands
Subsidiaries of Symbol Technologies International, Inc.
U.S. CORPORATIONS
Symbol Technologies Africa, Inc.
Block BZ Rutherford Estate
1 Scott Street
Waverly 209
Republic of South Africa
State of Incorporation: Delaware
FOREIGN CORPORATIONS
Symbol Technologies Pty. Ltd.
432 Street, Kilda Road
Melbourne, VIC 3004
Australia
Country of Incorporation: Australia
Symbol Technologies GmbH
2 Haus - 5 Stock
Prinz-Eugenstrasse 70
1040 Wein
Austria
Country of Incorporation: Austria
Symbol Technologies Canada, Inc.
5180 Orbitor Drive
Mississauga, Ontario, Canada L4W 4Z2
Country of Incorporation: Canada
Symbol Technologies Holdings Do Brasil Ltda.
Rua da Consolacao, no. 247, 6th floor, Suite 4-E
City of Sao Paulo
State of Sao Paulo
Brazil
Country of Incorporation: Brazil
Symbol Technologies Do Brasil Ltda.
Avenida Tamore, no. 450
City of Barueri
State of Sao Paulo
Brazil
Country of Incorporation: Brazil
Symbol Technologies A/S
Gydevang 2,
DK-3450 Allerod
Denmark
Country of Incorporation: Denmark
Symbol Technologies S.A.
Centre d'Affaire d'Anthony
3 Rue de la Renaissance
92184 Antony Cedex, France
Country of Incorporation: France
Symbol Technologies GmbH
Waldstrasse 68
6057 Dietzenbach
Germany
Country of Incorporation: Germany
Symbol Technologies India Private Limited
"FM House"
6/12, Primrose Road
Gurappa Avenue
Bangalore 560 025
India
Country of Incorporation: India
Symbol Technologies S.R.L.
Via Cristoforo Colombo, 49
20090 Trezzano S/L Naviglio,
Milan, Italia
Country of Incorporation: Italy
Symbol Technologies O.Y.
Huoneisto A6
Kaupintie 8
FIN - 00440
Helsinki, Finland
Country of Incorporation: Finland
Symbol Technologies AB
Strandzaga 78
Box 1354
SE -171-26
Solna, Sweden
Country of Incorporation: Sweden
Symbol Technologies S.A.
Edificioi la Piovera Azul
C. Peonias, No.2 - Sexta Planta
28042 Madrid
Spain
Country of Incorporation: Spain
Symbol Technologies Limited
Symbol Place, Winnersh Triangle,
Berkshire, England RG415TP
Country of Incorporation: United Kingdom
Subsidiaries of Telxon Corporation
U.S. CORPORATIONS
Metanetics Corporation
One Symbol Plaza
Holtsville, NY 11742-1300
State of Incorporation: Delaware
Penright! Corporation
6480 Via Del Oro
San Jose, California 95119
State of Incorporation: Delaware
FOREIGN CORPORATIONS
Productos Y Servicios De Telxon, S.A. de CV (Mexico)
Juarez, Mexico
Country of Incorporation: Mexico
- EXHIBIT 23 -
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration
Statements No. 333-44202 on Post-Effective Amendment No.1 on Form
S-8 to Form S-4,No. 333-73322, No. 333-78599, No. 333-48159, No.
333-26593, No. 333-01769, No. 2-81405, No. 2-94868, No. 2-94876,
No. 33-3771, No. 33-13009, No. 33-18748, No.33-25509, No. 33-
25484, No. 33-25567, No. 33-35821, No. 33-43580, No.33-48025, No.
35-48026, No. 33-78622, No. 33-78678, No.33-59333 and No.333-
01769 on Form S-8 and No. 33-18745, No. 33-25432, No. 33-43581,
No.33-43584 and No. 33-45016 on Form S-3 of Symbol Technologies,
Inc. of our report dated February 13, 2002, appearing in this
Annual Report on Form 10-K of Symbol Technologies, Inc. for the
year ended December 31, 2001.
s/Deloitte & Touche LLP
New York, New York
March 22, 2002