SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 2002
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
incorporation or organization) Identification No.)
One Symbol Plaza, Holtsville, NY 11742_________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 631-738-2400
Former name, former address and former fiscal year, if changed
since last report.
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 _________
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the close of the period
covered by this report.
Class Outstanding at September 30, 2002
Common Stock, 230,564,549 shares
par value $0.01
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets at
September 30, 2002 and December 31, 2001 2
Condensed Consolidated Statements of Operations
Three and Nine Months Ended September 30, 2002
and 2001 3
Condensed Consolidated Statements of Cash Flows
Three Months Ended September 30, 2002 and 2001 4
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2002 and 2001 5
Notes to Condensed Consolidated Financial
Statements 6
ITEM 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations 28
ITEM 3.
Quantitative and Qualitative Disclosures about
Market Risk 39
ITEM 4.
Controls and Procedures 39
PART II. OTHER INFORMATION
ITEM 1.
Legal Proceedings 40
ITEM 6.
Exhibits and Reports on Form 8-K 50
SIGNATURES 51
CERTIFICATIONS 52
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
As described elsewhere in this document, the Company is engaged with the
assistance of outside counsel and an independent accounting firm in an
ongoing internal investigation of certain accounting issues. The Company
anticipates that the internal investigation will be completed in the fourth
quarter of 2002. Based on its preliminary findings to date, the Company
believes that it may have to restate its revenue, income and certain
reserves previously reported in financial statements principally issued
with respect to 2000, 2001 and 2002. The Company believes that the results
reported in this Form 10-Q are likely to be affected by any such
restatement, principally with respect to the amount and timing of revenue
recognized and the creation and utilization of reserves during these
periods. Please refer to notes 5,8, and 12 for further discussion of these
issues. Any potential restatement is not expected to have a material
impact on the Company's balance sheet as of September 30, 2002. Due to the
preliminary results of the Company's ongoing internal investigation, the
Company's independent public accounting firm did not complete its review of
the condensed consolidated financial statements included herein prior to
the deadline for filing this Form 10-Q, as required by Rule 10-01(d) of
regulation S-X promulgated under the Securities Exchange Act of 1934, as
amended.
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(All amounts in thousands, except stock par value)
September 30, December 31,
ASSETS 2002 2001____
(Unaudited)
CURRENT ASSETS:
Cash and temporary investments $ 69,614 $80,967
Accounts receivable, less allowance for doubtful
accounts of $30,382 and $31,348, respectively 283,607 307,576
Inventories 316,858 310,924
Deferred income taxes 183,619 182,964
Prepaid and refundable income taxes 26,712 22,498
Other current assets 75,065 95,279
TOTAL CURRENT ASSETS 955,475 1,000,208
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation and amortization of $147,876 and
$146,881, respectively 226,433 241,226
DEFERRED INCOME TAXES 18,527 24,153
INVESTMENT IN MARKETABLE SECURITIES 43,936 76,004
INTANGIBLE AND OTHER ASSETS, net of accumulated
amortization of $184,340 and $202,011,
respectively 522,654 551,083
$1,767,025 $1,892,674
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $288,494 $279,615
Current portion of long-term debt 6,695 6,548
Deferred revenue 32,211 34,641
Accrued restructuring expenses 7,914 18,929
TOTAL CURRENT LIABILITIES 335,314 339,733
CONVERTIBLE SUBORDINATED NOTES AND DEBENTURES - 85,052
LONG-TERM DEBT, less current maturities 197,456 225,168
OTHER LIABILITIES AND DEFERRED REVENUE 62,862 61,932
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 256,255 shares and
253,313 shares, respectively 2,563 2,533
Retained earnings 337,859 350,393
Treasury stock, at cost, 25,690 shares
and 24,532 shares, respectively (234,791) (217,959)
Other stockholders' equity 1,065,762 1,045,822
1,171,393 1,180,789
$1,767,025 $1,892,674
See notes to condensed consolidated financial statements
-2-
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(All amounts in thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30,__ September 30,_
2002 2001__ 2002 2001__
REVENUE $266,597 $253,939 $741,750 $892,021
Product 72,913 77,252 214,921 229,545
Services 339,510 331,191 956,671 1,121,566
COST OF REVENUE:
Product costs 154,095 194,043 437,047 673,799
Amortization of software
development costs 4,991 4,607 14,058 13,326
Product cost of revenue 159,086 198,650 451,105 687,125
Services cost of revenue 52,585 59,508 155,415 172,915
211,671 258,158 606,520 860,040
GROSS PROFIT 127,839 73,033 350,151 261,526
OPERATING EXPENSES:
Engineering 34,305 28,108 90,545 87,466
Selling, general and administrative 71,273 76,937 204,755 247,883
Non-recurring compensation charge - - 8,597 -
Non-recurring impairment charge - - 47,200 -
Goodwill amortization - 4,124 - 12,123
105,578 109,169 351,097 347,472
EARNINGS/(LOSS) FROM OPERATIONS 22,261 (36,136) (946) (85,946)
INTEREST EXPENSE, net (3,061) (4,947) (10,727) (12,943)
EARNINGS/(LOSS) BEFORE INCOME TAXES 19,200 (41,083) (11,673) (98,889)
PROVISION FOR/(BENEFIT FROM)
INCOME TAXES 6,144 (5,390) (3,736) (31,588)
NET EARNINGS/(LOSS) $13,056 ($35,693) ($7,937) ($67,301)
EARNINGS/(LOSS) PER SHARE:
Basic $0.06 ($0.16) ($0.03) ($0.30)
Diluted $0.06 ($0.16) ($0.03) ($0.30)
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING:
Basic 230,384 228,372 229,657 226,983
Diluted 233,415 228,372 229,657 226,983
See notes to condensed consolidated financial statements
-3-
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts in thousands)
(Unaudited)
Three Months Ended September 30,
2002 2001 _____
Cash flows from operating activities:
Net earnings/(loss) $13,056 ($35,693)
Adjustments to reconcile net earnings/(loss)
to net cash provided by operating
activities:
Depreciation and amortization of property,
plant and equipment 13,092 12,756
Other amortization 8,383 11,025
Provision for losses on accounts receivable 1,522 1,231
Non cash restructuring and impairment charges - 51,662
Non cash compensation charge 2,992 -
Tax benefit on exercise of stock
options and warrants 950 4,945
Changes in assets and liabilities
net of effects of acquisitions & divestitures:
Accounts receivable (4,962) 118,963
Inventories (15,337) 10,122
Other assets 6,779 (6,233)
Accounts payable and accrued expenses 21,943 (50,134)
Income taxes payable 4,724 (8,634)
Accrued restructuring expenses (3,338) (9,640)
Other liabilities and deferred revenue 1,623 (354)
Net cash provided by operating activities 51,427 100,016
Cash flows from investing activities:
Purchases of property, plant and equipment (7,302) (20,228)
Investments in intangible and other assets (16,894) (11,779)
Net cash used in investing activities (24,196) (32,007)
Cash flows from financing activities:
Net proceeds from issuance and repayment
of notes payable and long-term debt (28,357) (6,473)
Repurchase of convertible notes - (19,482)
Exercise of stock options and warrants 2,868 790
Dividends paid (2,306) (2,288)
Purchase of treasury shares - (5,163)
Net cash used in financing activities (27,795) (32,616)
Effects of exchange rate changes on cash 895 3,050
Net increase in cash and temporary investments 331 38,443
Cash and temporary investments, beginning
of period 69,283 71,333
Cash and temporary investments, end of
period $69,614 $109,776
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 3,063 $ 5,885
Income taxes $ 1,354 $ 847
See notes to condensed consolidated financial statements
-4-
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts in thousands)
(Unaudited)
Nine Months Ended September 30,
2002 2001_______
Cash flows from operating activities:
Net loss ($7,937) ($67,301)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization of property,
plant and equipment 35,168 39,602
Other amortization 24,338 30,653
Provision for losses on accounts receivable 4,218 2,853
Writedown due to probable losses from customers - 16,000
Provision for inventory writedown - 110,000
Non cash restructuring and impairment charges 47,200 51,662
Non cash compensation charge 2,992 -
Tax benefit on exercise of stock options
and warrants 7,926 43,045
Changes in assets and liabilities
net of effects of acquisitions & divestitures:
Accounts receivable 19,507 107,599
Inventories (6,029) (149,825)
Other assets 26,050 (13,855)
Accounts payable and accrued expenses 5,993 (28,139)
Income taxes payable (4,214) (82,230)
Accrued restructuring expenses (11,015) (56,823)
Other liabilities and deferred revenue (2,715) 7,007
Net cash provided by operating activities 141,482 10,248
Cash flows from investing activities:
Proceeds from termination of
collar arrangement - 88,046
Proceeds from sale of property, plant
and equipment 4,196 -
Purchases of property, plant and
equipment (25,494) (74,443)
Investments in intangible and other assets (40,014) (31,607)
Net cash used in investing activities (61,312) (18,004)
Cash flows from financing activities:
Net proceeds from issuance and repayment
of notes payable and long-term debt (1,966) 79,253
Repurchase of convertible notes and debentures (84,786) (19,482)
Exercise of stock options and warrants 16,998 31,339
Dividends paid (4,597) (3,798)
Purchase of treasury shares (20,949) (32,360)
Net cash (used in)/provided by financing
activities (95,300) 54,952
Effects of exchange rate changes on cash 3,777 (831)
Net (decrease)/increase in cash and
temporary investments (11,353) 46,365
Cash and temporary investments, beginning
of period 80,967 63,411
Cash and temporary investments, end of
period $69,614 $109,776
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $12,651 $13,656
Income taxes $ 7,065 $ 7,569
See notes to condensed consolidated financial statements
-5-
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(All dollar amounts in thousands, except per share data)
1. BASIS OF PRESENTATION
As described elsewhere in this document, the Company is engaged
with the assistance of outside counsel and an independent
accounting firm in an ongoing internal investigation of certain
accounting issues. The Company anticipates that the internal
investigation will be completed in the fourth quarter of 2002.
Based on its preliminary findings to date, the Company believes
that it may have to restate its revenue, income and certain
reserves previously reported in financial statements principally
issued with respect to 2000, 2001 and 2002. The Company believes
that the results reported in this Form 10-Q are likely to be
affected by any such restatement, principally with respect to the
amount and timing of revenue recognized and the creation and
utilization of reserves during these periods. Please refer to
notes 5,8, and 12 for further discussion of these issues. Any
potential restatement is not expected to have a material impact on
the Company's balance sheet as of September 30, 2002. Due to the
preliminary results of the Company's ongoing internal
investigation, the Company's independent public accounting firm did
not complete its review of the condensed consolidated financial
statements included herein prior to the deadline for filing this
Form 10-Q, as required by Rule 10-01(d) of regulation S-X
promulgated under the Securities Exchange Act of 1934, as amended.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements include all necessary adjustments
(consisting of normal recurring accruals) and present fairly the
Company's financial position as of September 30, 2002, and the results
of its operations and its cash flows for the three and nine months
ended September 30, 2002 and 2001, in accordance with the instructions
to Form 10-Q of the Securities and Exchange Commission and in
accordance with accounting principles generally accepted in the United
States of America applicable to interim financial information applied
on a consistent basis. The results of operations for the three and
nine months ended September 30, 2002 and 2001 are not necessarily
indicative of the results to be expected for the full year. For
further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's annual report on Form
10-K for the year ended December 31, 2001. Certain reclassifications
have been made to prior consolidated financial statements to conform
with current presentations.
2. ADOPTION OF NEW ACCOUNTING PRONOUNCEMENT
In April 2002, the Financial Accounting Standards Board issued
Statement No. 145, "Recission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical Corrections,"
("SFAS No. 145"). This statement eliminates the automatic
classification of gain or loss on extinguishment of debt as an
extraordinary item of income and requires that such gain or loss be
evaluated for extraordinary classification under the criteria of
Accounting Principles Board Opinion No. 30, "Reporting the Results of
Operations". Certain provisions of this Statement will be effective
for the Company for the year ending December 31, 2003, however the
Company has elected to early adopt the provisions of this Statement in
the quarter ending September 30, 2002. As a result, the gain on early
extinguishment of debt of $813 (net of taxes of $383) which had been
recorded by the Company as an extraordinary item in the statement of
operations for the three and nine months ended September 30, 2001
-6-
has been reclassified and presented as a component of operating
results. Additionally, the gain on early extinguishment of debt of
$566 (net of taxes of $266) which had been recorded by the Company
as an extraordinary item in the statements of operations for the
three months ended March 31, 2002 and the six months ended June 30,
2002 has been reclassified and presented as a component of
operating results for the nine months ended September 30, 2002.
3. INTANGIBLE ASSETS
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets". Under SFAS No. 142, goodwill and intangible
assets acquired in a business combination will no longer be amortized
into results of operations, but rather subject to a periodic
assessment for impairment. The Company adopted the provisions of this
Statement effective January 1, 2002. Under the new standard, goodwill
is subject to an annual assessment for impairment using a prescribed
fair-value-based test. The Company completed the initial step of the
transitional goodwill impairment test as of January 1, 2002 utilizing
an independent appraisal during the quarter ended June 30, 2002. This
step of the goodwill impairment test compares the fair value of a
reporting unit with its carrying amount, including goodwill. Based on
results of these comparisons, the Company concluded there was no
impairment of goodwill related to either of its reporting units.
The changes in the carrying amount of goodwill for the nine months
ended September 30, 2002 are as follows:
Product Services
Segment Segment Total_
Balance as of January 1, 2002 $267,862 $ 71,204 $339,066
Net goodwill acquired during
the year 14,160 2,746 16,906
Translation adjustment (3,076) (818) (3,894)
Balance as of September 30, 2002 $278,946 $ 73,132 $352,078
Adjusted financial information assuming SFAS No. 142 had been adopted
as of January 1, 2001 is as follows:
Three Months Ended Nine Months Ended
September 30,____ September 30, _
2002 2001__ 2002 2001__
(Unaudited) (Unaudited)
Reported net earnings/(loss) $13,056 ($35,693) ($7,937) ($67,301)
Goodwill amortization, net of tax - 3,584 - 8,709
Adjusted net earnings/(loss) $13,056 ($32,109) ($7,937) ($58,592)
Basic Earnings/(Loss) Per Share:
Earnings/(loss) as reported $0.06 ($0.16) ($0.03) ($0.30)
Goodwill amortization, net of tax - 0.02 - 0.04
Adjusted earnings/(loss) $0.06 ($0.14) ($0.03) ($0.26)
Diluted Earnings/(Loss) Per Share:
Earnings/(loss) as reported $0.06 ($0.16) ($0.03) ($0.30)
Goodwill amortization, net of tax - 0.02 - 0.04
Adjusted earnings/(loss) $0.06 ($0.14) ($0.03) ($0.26)
-7-
Other than goodwill, the Company's intangible assets, all of which are
subject to amortization, consist of the following:
September 30, 2002 December 31, 2001
Gross Accumulated Gross Accumulated
Amount Amortization Amount Amortization
(Unaudited)
Patents, trademarks
and tradenames $45,832 ($8,519) $40,633 ($6,789)
Purchased technology 66,213 (28,385) 61,154 (21,340)
Software development costs 114,493 (74,887) 138,419 (102,027)
Other 3,247 (83) 638 (54)
$229,785 ($111,874) $240,844 ($130,210)
Estimated amortization expense for the above intangible assets, assuming
no additions or writeoffs, for the three months ended December 31, 2002
and for each of the subsequent years ended December 31 is as follows:
2002 (fourth quarter) $ 8,097
2003 (full year) 28,069
2004 (full year) 19,706
2005 (full year) 7,857
2006 (full year) 5,932
$69,661
4. EARNINGS/(LOSS) PER SHARE AND DIVIDENDS
Basic earnings per share are based on the weighted average number
of shares of common stock outstanding during the period. For the
three months ended September 30, 2002, 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. For the nine months ended September 30, 2002 and 2001, and
the three months ended September 30, 2001 stock options and
warrants outstanding and the effect of convertible subordinated
notes and debentures have not been included in the net loss per
share calculations since their effect would be antidilutive.
On August 12, 2002 the Company's Board of Directors approved a
$0.01 per share semi-annual cash dividend payable on October 7,
2002 to shareholders of record on September 13, 2002.
5. INVENTORIES
September 30, 2002 December 31, 2001
(Unaudited)
Raw materials $167,794 $178,431
Work-in-process 15,145 16,108
Finished goods 133,919 116,385
$316,858 $310,924
In June 2001, the Company recorded a $110,000 non-recurring special
provision for excess and obsolete inventory for a writedown of
certain radio frequency (RF) infrastructure and mobile computing
inventory. The writedown was recorded to product cost of revenue as
a result of lower demand for the Company's then current RF products,
coupled with technological obsolescence due to planned introductions
of new RF infrastructure products and mobile computing appliances.
In September 2002, as a result of a review of this provision as well
as an estimate of future charges expected to be incurred related to
its RF and mobile computing inventory, the Company determined that
it had higher sales on these product lines than originally
-8-
anticipated and that $55,200 of the total remaining provision of
$78,900 was no longer required for its RF and mobile computing
inventory. Therefore, $55,200 of the remaining provision was
reversed against product cost of revenue in September 2002 leaving a
remaining reserve of $23,700 at September 30, 2002. As part of its
ongoing internal investigation, the Company is currently reviewing
the creation and utilization of this reserve.
The Company also continues to monitor its reserve for excess and
obsolete inventory. In September 2002, as a result of the continued
general decline in the economy coupled with the prolonged decline in
information technology spending, the Company determined it needed to
increase its reserve for excess and obsolete inventory. The Company
recorded an additional provision to product cost of revenue of
$48,500 in September 2002. The Company is currently investigating
whether this provision should have been recorded in prior quarters
as a part of its ongoing investigation.
Any potential restatement is not expected to have a material impact
on the Company's balance sheet as of September 30, 2002. Because
the investigation is not complete and involves other issues, the
magnitude of any adjustment is not known at this time. Any
resulting restatement is likely to affect comparisons between
currently reported amounts and amounts reported for previous
periods.
The charge and the aforementioned reversal of the special excess and
obsolete provision for RF and mobile computing inventory resulted in
a net benefit of $6,700 to product cost of revenue in the statement
of operations for the three and nine months ended September 30,
2002.
6. COMPREHENSIVE EARNINGS/(LOSS)
Three Months Ended Nine Months Ended
September 30,__ September 30,__
2002 2001_ 2002 2001__
(Unaudited) (Unaudited)
Net earnings/(loss) $13,056 ($35,693) ($7,937) ($67,301)
Other comprehensive (losses)
income/net of related taxes:
Foreign currency translation
adjustments (4,250) 4,246 2,901 (3,589)
Unrealized losses
on marketable securities (1,690) (2,967) (3,682) (10,945)
Unrealized derivative
gains/(losses) 532 (822) (3,050) 437
Comprehensive earnings/(loss) $ 7,648 ($35,236)($11,768) ($81,398)
7. CONVERTIBLE SUBORDINATED NOTES AND DEBENTURES
In January and February 2002, Telxon, a wholly owned subsidiary of the
Company, purchased in the open market $34,790 of its 5.75 percent
convertible subordinated notes for $34,127 in cash, and $5,173 of its
7.5 percent convertible subordinated debentures for $5,004 in cash. In
April 2002, Telxon redeemed the remaining $25,849 of its 5.75 percent
notes and the remaining $19,240 of its 7.5 percent notes for $26,061 and
$19,240 respectively. This represented a redemption price of 100.8214
percent of the outstanding principal amount for the 5.75 percent notes
and 100 percent of the outstanding principal amount for the 7.5 percent
debentures.
In September 2001, at the option of the holders, Telxon repurchased
$19,865 of its 5.75 percent convertible subordinated notes for $18,669
in cash.
-9-
Telxon used funds owed to it by the Company for such redemption and
repurchases. The Company obtained such funds from borrowings under
its line of credit. In accordance with SFAS No. 145 (see note 2), the
gain on the early extinguishment of this debt has been included in the
Company's operating results for each period presented.
8. RESTRUCTURING AND IMPAIRMENT CHARGES
a.) In September 2001, the Company's management approved and adopted a
plan of restructuring primarily 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 accrued for restructuring and impairment
charges at September 30, 2001 related to workforce reduction, asset
impairment and facility maintenance costs. As a result, the Company's
operating results for the three and nine months ended September 30,
2001 include a $59,662 charge for restructuring and impairment, which
was recorded as a component of cost of revenue. Under this plan, the
Company recorded a workforce reduction charge related to the
termination of approximately 375 employees, primarily manufacturing
associates. As of September 30, 2002, approximately 290 employees had
been terminated. The Company's restructuring plan was substantially
completed by June 30, 2002 with the remaining workforce reductions to
take place during the fourth quarter of 2002. The amount and timing
of the Company's restructuring and impairment charges are a subject of
the Company's ongoing internal investigation.
Details of the restructuring charges as of September 30, 2002 are as
follows:
December 31, September 30,
2001 2002
Accrual Utilized Accrual_______
Workforce reductions $8,976 $4,914 $4,062
Impaired fixed asset,
facility maintenance,
and other writeoffs 4,423 4,423 0
$13,399 $9,337 $4,062
b.) In December 2000, the Company's management approved and adopted a
plan of restructuring as a result of the Telxon acquisition. In
connection with this acquisition, the Company accrued for restructuring,
impairment and integration related charges at December 1, 2000. This
accrual, which primarily relates to anticipated costs for workforce
reductions, asset impairments and lease terminations is also a subject
of the Company's ongoing investigation. The Company's exit plan, which
focused on the consolidation of manufacturing operations, including
plant closings and elimination of redundant activities, was
substantially completed by June 30, 2001. The amount accrued for
workforce reductions related to the termination of 1,251 employees,
primarily in manufacturing, management, sales and administrative
support, all of whom have been terminated. During the nine months ended
September 30, 2002, the Company utilized $156 in fixed asset and other
impairment charges, and $1,522 in lease cancellation costs. As a
result, the remaining unutilized restructuring expense balance is
$3,852, which relates to ongoing lease commitments on abandoned
facilities.
-10-
The accrued restructuring expenses of $3,852 combined with accrued
restructuring expenses of $4,062 related to the reorganization of the
Company's manufacturing facilities (as discussed in (a), above) result
in a total accrued restructuring expense of $7,914 remaining as of
September 30, 2002.
c.) In the quarter ended June 30, 2002, the Company recorded a pre-
tax non-recurring impairment charge of $47,200 related to its
investment in AirClic Inc. ("AirClic"). The Company regularly tests
the carrying value of its investments for impairment. In
consideration of the outlook of AirClic's business, the general
decline in the economy and the decline in information technology
spending, it was determined that the decline in the value of its
investment in AirClic was other than temporary during the quarter
ended June 30, 2002. The Company obtained an independent appraisal
of its investment in AirClic and wrote down the carrying amount of
the investment to its estimated fair value of $2,800 at June 30,
2002. This investment was previously fully allocated to the product
segment.
9. COMMITMENTS AND CONTINGENCIES
In February 2002, the Company's former President and Chief Executive
Officer announced his retirement. In connection therewith, the
Company recorded a pre-tax non-recurring compensation and related
benefits charge of $8,597 during the quarter ended March 31, 2002.
In July 2002, the Company announced the hiring of its new President
and Chief Operating Officer, effective August 2002. As part of his
compensation, the Company issued 400,000 fully vested treasury
shares of the Company's common stock to this officer. Such shares
had a pre-tax value of $2,992 at the date of issuance, which has
been included in compensation expense during the third quarter of
2002. If he is an employee of the Company, this officer is
restricted from selling or transferring these shares for a period of
two years from the date of issuance. In addition to the
aforementioned compensation charge, the Company recorded a pre-tax
charge of approximately $700 in the third quarter of 2002 for
recruiting fees and other expenses associated with this officer's
hiring.
10. OTHER ASSETS
In February 2002, the Company loaned $1,000 to its current Chief
Executive Officer. This loan bears interest at an annual rate of LIBOR
plus 100 basis points, which approximated 2.8 percent at September 30,
2002. This loan is payable upon the earlier of: (1) the date he ceases
to be an employee of the Company, (2) the date of sale of his
California residence, or (3) February 19, 2007. In addition, if the
officer or his wife sell any shares of common stock of the Company now
owned by either of them or hereafter acquired (other than shares sold
to pay the exercise price and taxes resulting from the exercise of any
options originally granted to this officer by the Company) 100 percent
of the net proceeds of such sales shall be applied immediately to
reduce any outstanding indebtedness under this loan.
-11-
In addition, the Company loaned $500 to this officer in October 1999.
This loan bears interest at an annual rate of 7 percent through October
2004, and 2.75 percent above the One Year Treasury Rate through
maturity. The accrued interest amount currently due of $105 was paid
in October 2002. The loan is payable upon the earlier of: (1) the date
he ceases to be an employee of the Company, (2) the date of sale of his
California residence, or (3) October 5, 2006. This loan is secured by
a second mortgage on the officer's California residence. In addition,
if the officer or his wife sell any shares of common stock of the
Company now owned by either of them or hereafter acquired (other than
shares sold to pay the exercise price and taxes resulting from the
exercise of any options originally granted to this officer by the
Company) 100 percent of the net proceeds of such sales shall be applied
immediately to reduce any outstanding indebtedness under this loan.
These loans, including accrued interest, are classified as Intangible
and Other Assets at September 30, 2002.
11. ACQUISITIONS
a.) During the second quarter of 2002, the Company entered into an
agreement with the owners of Seal Sistemas e Technologia Da
Informacao Ltda. ("Seal"), a Brazilian corporation which had
operated as a distributor and integrator of the Company's products
since 1987. The agreement resulted in the termination of
distribution rights for Seal and the creation of a majority owned
subsidiary of the Company that would serve as the Brazilian
distributor and customer service entity ("Symbol Brazil"). In
accordance with the terms of the agreement, the owners of Seal
acquired a 49 percent ownership interest in Symbol Brazil.
Terms of the agreement included payments to the minority
shareholders that range from $9,550 to a total of $14,800 contingent
upon the attainment of certain annual net revenue levels of Symbol
Brazil (as defined), and are payable no later than March 31, 2009.
With each of these earnout payments, the Company will repurchase a
portion of Symbol Brazil's shares owned by the minority shareholders
such that the Company will ultimately own 100 percent of Symbol
Brazil no later than March 31, 2009. Additionally, the Company
loaned these minority shareholders $5,000 at the time of the
agreement, which was recorded by the Company as part of the purchase
price, but which will be repaid on the date the first earnout
payment is triggered.
In order to consummate this business combination, the Company was
also required to make payments aggregating $5,300 to two
shareholders of Seal. These amounts were also included in the
purchase price of Symbol Brazil, resulting in a total purchase price
(including the present value of the minimum future earnout payments)
of $12,292. The only assets acquired in this transaction were
certain intangible assets which were independently appraised and
determined to be immaterial. Therefore the total purchase price has
been classified as goodwill.
-12-
The subsidiary commenced operations in the second quarter of 2002
and the results of its operations have been included in the
Company's statement of operations since such time. Pro forma
financial information as if the acquisition had taken place at the
beginning of each interim period presented would not be materially
different from the actual results reported. Therefore, no pro forma
information has been disclosed.
b.) On September 16, 2002, the Company completed the acquisition of
@POS.com, Inc. ("@POS") through a merger of @POS with a wholly
owned subsidiary of the Company. @POS is a leading technology
provider for point-of-sale platforms and rapid software development
tools. In the merger, the Company purchased all outstanding shares
of @POS common stock as well as all outstanding shares of preferred
stock (on an as-converted basis) for $0.46 per share, comprising
approximately $5,136 of the purchase price. In addition, the
Company paid @POS option holders for each outstanding option with an
exercise price lower than $0.46 an amount equal to the difference
between the aforementioned $0.46 and the option exercise price,
comprising approximately $310 of the purchase price. The combined
purchase price aggregated approximately $5,446. As a result of the
acquisition all shares and options in @POS were cancelled.
In accordance with the merger agreement, any shareholder of @POS who
has not voted in favor of the merger has the right to demand an
appraisal of their shares. The purchase price paid includes the
$0.46 per share for all shares outstanding at the time of the
acquisition, including the minimum payment due to the dissenting
shareholders, and has been paid by the Company to a transfer agent
responsible for paying the merger consideration to each former @POS
shareholder. The Company has evaluated the potential liability for
any additional amounts which may be paid to dissenting shareholders.
Management considers any such future payments unlikely, and the
amount of any possible future payment to be immaterial.
Accordingly, no accrual for these amounts was recorded at September
30, 2002.
This acquisition has been accounted for by the purchase method of
accounting and, accordingly, the consolidated statements of
operations include the results of operations of @POS beginning
September 17, 2002. The assets acquired and liabilities assumed were
recorded at their 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 certain 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 by independent appraisal at
$1,800 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 four years.
In addition, a portion of the purchase price was allocated to other
intangible assets with an aggregate fair value as determined by
independent appraisal of $3,000 at a weighted average useful life of
9.5 years. These intangible assets include trademarks and
tradenames of $300 (5 year useful life), and customer related assets
of $2,700 (10 year useful life).
-13-
The preliminary allocation of purchase price resulted in goodwill of
approximately $6,141 at September 30, 2002. The preliminary
purchase price allocation is subject to adjustment in 2003 when
finalized.
Unaudited pro forma results of operations for the three and nine
months ended September 30, 2002 and 2001, as if the Company had
acquired @POS at the beginning of each period follow. 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 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
Three Months Ended Nine Months Ended
September 30, September 30,_____
2002(3) 2001(1) 2002(3)(4) 2001(1)(2)_
Net revenue $340,121 $333,992 $958,642 $1,128,628
Earnings/(loss)
before
extraordinary
item $9,670 ($36,428) ($16,027) ($68,488)
Net earnings/
(loss) $9,670 ($34,378) ($16,027) ($66,438)
Diluted
earnings/
(loss)per
share $0.04 ($0.15) ($0.07) ($0.29)
(1) The unaudited pro forma results for the three and nine months ended
September 30, 2001 include an extraordinary gain on @POS'
acquisition of Crossvue of $2,050 or $0.01 per share, and a pre-tax
non-recurring charge of $59,662 or $0.18 per share for the
reorganization of the Company's manufacturing facilities.
(2) The unaudited pro forma results for the nine months ended September
30, 2001 include a pre-tax non-recurring charge of $110,000 or $0.33
per share for a writedown of the Company's radio frequency
infrastructure and mobile computing inventory.
(3) The unaudited pro forma results for the three and nine months ended
September 30, 2002 include a pre-tax non-recurring charge of $3,683
or $0.01 per share related to the hiring of the Company's new
President and Chief Operating Officer.
(4) The unaudited pro forma results for the nine months ended September
30, 2002 include a pre-tax non-recurring compensation charge of
$8,597 or $0.03 per share related to the retirement of the Company's
former President and Chief Executive Officer, and a pre-tax non-
recurring impairment charge of $47,200 or $0.14 per share related to
the Company's investment in AirClic, Inc.
-14-
12. THE INTERNAL INVESTIGATION AND RELATED MATTERS
As previously disclosed, the Securities and Exchange Commission has
issued a Formal Order Directing Private Investigation and
Designating Officers to Take Testimony with respect to certain
accounting matters, principally concerning the timing and amount of
revenue recognized by the Company during the period of January 1,
2000 to December 31, 2001. The Company is cooperating with the
Commission, and has produced documents in response to the
Commission's inquiries. More recently the Company has learned that
the United States Attorney's Office for the Eastern District of New
York has commenced a related investigation. The Company is
cooperating with that investigation, and has produced documents in
response to the Eastern District's inquiries.
In addition, the Company has commenced its own investigation of
these matters with the assistance of an outside law firm and
independent accounting firm. The Company's investigation is still
in progress and has not yet reached a final conclusion. It is
anticipated that the internal investigation will be concluded in the
fourth quarter of 2002. Based on preliminary findings of the
internal investigation, the Company believes that it may have to
restate its revenue and income and certain reserves, previously
reported in financial statements principally issued with respect to
2000, 2001, and 2002. However, the amounts and time periods of any
potential restatement have not been ascertained. Prior to any
restatement, the results of the internal investigation must be
reviewed by the Company's independent auditors.
The Company currently believes, based on preliminary findings, that
the total revenue that would be either (i) reversed or (ii)
reversed and restated in later fiscal years or (iii) otherwise
adjusted as a result of a restatement would amount to less than 10
percent of the revenue originally reported for the fiscal years 2000
and 2001. Based upon the investigation to date, the Company further
expects that the potential restatement would likely result in a net
reduction of previously reported net income and revenue in 2000 and a
net increase in previously reported net income and revenue for
subsequent periods. Such a restatement is not expected to have a
material impact on the Company's balance sheet as of September 30,
2002. Because this investigation is not complete, any actual
restatement may vary from the foregoing estimates, may involve other
issues, and would likely affect comparisons between currently
reported amounts and amounts reported for previous periods.
As discussed in Note 5, the Company recorded an additional provision
to product cost of revenue of $48,500 in September 2002 related to
excess and obsolete inventory. The Company is currently
investigating whether this provision should have been recorded in
prior quarters. In September 2002, the Company reversed against
product cost of revenue an inventory reserve of $55,200 previously
recorded in June 2001 for the writedown of certain RF and mobile
computing devices. The Company is currently reviewing the creation
and utilization of this reserve. Any potential restatement is not
expected to have a material impact on the Company's balance sheet as
of September 30, 2002. Because the investigation is not complete and
involves other issues, the magnitude of any adjustment is not known
at this time. Any resulting restatement is likely to affect
comparisons between currently reported amounts and amounts reported
for previous periods.
The Company is continuing its efforts to make systems and process
improvements to its system of internal accounting controls, including
-15-
hiring additional expertise and employees, and replacing employees,
in corporate and other finance functions, where appropriate.
13. 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 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 certain
of its wireless LAN product offerings. The Court has severed the
Company's counterclaim against Proxim involving 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
infringement suit. On May 30, 2002, the Court granted Intersil's
motion to intervene as a defendant in the Proxim infringement
suit. Having granted Intersil's motion to intervene, the Court
imposed a mandatory stay in the case until the conclusion of a
related proceeding involving Proxim, Intersil, and other parties
in the U.S. International Trade Commission ("ITC"). The Court
further barred Proxim from collecting damages against the Company
attributable to the Company's alleged infringing conduct during
the stay. On June 14, 2002, Proxim filed a motion requesting the
Court reconsider the damages bar portion of the Court's May 30th
order. The motion is currently pending.
On December 4, 2001, the Company filed a complaint against Proxim
in the United States District Court in the District of Delaware
-16-
asserting that Proxim's RF product offerings infringe four of the
Company's patents relating to wireless LAN technology. This
complaint asserts the 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 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. The Company
believes these claims to be without merit.
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, the Lanham Act, common
law unfair competition and tortious interference. On June 25,
2002, the Court granted the Company's motion with respect to
false patent marking, and denied the motion in all other
respects.
On August 13, 2002, the Company filed its Second Renewed Motion
to Dismiss Proxim's Lanham Act, unfair competition and tortious
interference counterclaims, based on Proxim's failure to provide
discovery in support of its claims that it had been injured by
the Company's press release announcing that it had filed suit
against Proxim. Proxim filed its opposition papers on August 28,
2002 and the Company filed its reply papers on September 5, 2002.
The motion is currently pending.
On August 9, 2002, Proxim served an Amended Motion to Implead
Third Parties Under Rule 14. The parties Proxim sought to
implead were, according to Proxim, suppliers of components used
in Proxim's devices accused of infringing the Company's patents.
The Company opposed the motion on August 23, 2002 and Proxim
served its reply papers on August 30, 2002. On November 6, 2002,
the Court denied Proxim's motion, finding that the addition of
seven parties at this stage in the proceedings would unduly
complicate the issues and delay the scheduled trial.
On August 15, 2002, Proxim moved to amend its answer and
counterclaims to assert a defense of unenforceability with
respect to one of the Company's four patents asserted against it,
the '803 Patent, on the grounds of alleged inequitable conduct in
the Patent Office. On August 29, 2002, the Company filed its
papers in opposition to Proxim's motion, and in support of its
own motion to dismiss the claims it had asserted with respect to
the '803 Patent. During the course of discovery, the Company's
counsel had learned that the '803 Patent was invalid for reasons
having nothing to do with any alleged inequitable conduct on the
Company's part. As a result, the Company had filed a disclaimer
of the '803 Patent in the Patent Office, therefore rendering moot
any claims in the case relating to the '803 Patent. Proxim filed
-17-
a response to the Company's motion on September 13, 2002, and the
Company filed a reply on September 20, 2002. The motions are
currently pending before the Court. As a result of the Company's
disclaimer of the '803 Patent, it is now asserting three patents
against Proxim rather than the four originally asserted.
Discovery is ongoing. Trial of the case is scheduled to begin on
September 8, 2003.
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 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.
-18-
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 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. On October 7, 2002, the Supreme Court of the
United States denied Lemelson's petition for a writ of certiorari to
review the decision of the Federal Circuit. Accordingly, the issue
has been remanded to the Court in Nevada to consider whether the
laches defense is applicable to the Lemelson case.
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 Janaury 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.
-19-
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.
On July 12, 2002, the Auto ID plaintiffs filed three new summary
judgment motions with the Court in Nevada on the following grounds:
(1) that the so-called bar code patents are unenforceable based on the
prosecution laches doctrine found to exist by the Federal Circuit; (2)
that users of bar code equipment do not infringe Lemelson's patents
based on Lemelson's statements in the prosecution history equating his
alleged invention with video-based technology; and (3) that the so-
called bar code patents are invalid based on Lemelson's admissions
regarding the prior art that were made to advance the prosecution of
his patent applications. On August 12, 2002, the Court denied all of
these motions, but allowed the Auto ID plaintiffs to renew any
arguments contained therein at trial. Accordingly, the Company
expects to present these arguments as well as other strong invalidity,
noninfringement, and fraud arguments (including those previously
presented in summary judgement motions and the prosecution laches
argument upheld by the Federal Circuit) against Lemelson's so-called
bar code patents at trial. On September 25, 2002, the Court in Nevada
issued a trial order allocating thirty-four days for a trial
commencing November 18, 2002 and concluding January 24, 2003. On
November 8, 2002 the Court denied the Lemelson Partnership's motion to
alter the order of proof for the trial. Accordingly, the Auto-ID
companies will present their case first.
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.
-20-
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, 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. PWC filed a
motion to dismiss both Telxon's third party complaint and the PWC
action.
-21-
On March 25, 2002, the Court ruled on the pending motions. As to
Telxon's third-party complaint against PWC, the Court ruled 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 granted
Telxon's motion for leave to file and serve the third party complaint
instanter on February 20, 2001. The Court also denied PWC's motion to
dismiss the separate action filed against it by the plaintiffs. PWC
has subsequently filed an answer denying liability, asserting numerous
defenses and a third party complaint against Telxon for contribution
and indemnity.
On June 11, 2002 a complaint was filed against Telxon by Wyser-
Pratte Management Co., Inc. ("Wyser-Pratte")whose President and sole
shareholder is Mr. Guy Wyser-Pratte, a well-known securities
arbitrageur. In late August 1998, Mr. Wyser-Pratte and Telxon
settled a proxy litigation which arose out of discussions between
Telxon and the Company during the April-June 1998 time period about
a then possible acquisition by the Company. The complaint also
names several former Telxon executives as well as Telxon's former
outside auditors, PWC, as defendants. The complaint alleges
violations of Sections 10b-5, 14, 18 and 20 of the Securities and
Exchange Act of 1934, as well as common law claims for fraud and
negligent misrepresentation. This litigation is related to the
above described Telxon class action litigation. The Wyser-Pratte
complaint seeks unspecified compensatory and punitive damages, as
well as attorney's fees and costs. By Court Order dated June 20,
2002, this litigation was consolidated for discovery purposes with
the Telxon class action litigation. On August 5, 2002, Telxon moved
to dismiss the original Complaint. In response, Wyser-Pratte filed
an Amended Complaint, on or about September 17, 2002. On October
25, 2002 Telxon moved to dismiss the Amended Complaint. Telxon's
motion is expected to be fully briefed before the Court by the end
of 2002. In addition, Wyser-Pratte has moved for partial summary
judgment as to its Section 18 claim. Telxon will respond to that
motion in the coming weeks. The Company believes that Telxon has
meritorious defenses to the litigation, and Telxon intends to defend
the action vigorously.
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 the Company between
October 19, 2000 and February 13, 2002, inclusive, against the
Company, Tomo Razmilovic, Jerome Swartz and Kenneth Jaeggi. The
-22-
complaint alleged 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.
Subsequently, a number of additional purported class actions
containing substantially similar allegations were also filed against
the Company and certain of its officers in the Eastern District of
New York.
On September 27, 2002, a consolidated amended purported class action
complaint was filed in the Eastern District of New York,
consolidating the previously filed class actions. The consolidated
amended complaint added additional individual defendants, including
the members of the audit committee of the Company's Board of
Directors and two former employees of the Company, and alleges
principally that the Company improperly recognized revenue in
numerous instances in 2000 and 2001. In addition, the consolidated
amended complaint extended the class period to the time between
April 26, 2000 and April 18, 2002. The Company intends to defend
the action vigorously and believes that it has meritorious defenses.
14. 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 have been coordinated under one global services
organization. As a result, the Company now presents two reportable
operating segments as Products and Services.
a.)The Products segment sells bar code data capture equipment,
mobile computing devices and other peripheral products and receives
royalties. 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 period 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 certain limited fixed assets, deferred taxes
and prepaid and refundable income taxes which can not appropriately
be allocated to either reportable segment. Intersegment
transactions are minimal and any intersegment profit is eliminated
in consolidation.
-23-
REPORTABLE SEGMENTS
Products Services Corporate Consolidated
Three Months ended September 30, 2002
External revenue $266,597 $72,913 - $339,510
Cost of revenue 159,086 52,585 - 211,671
Gross profit $107,511 $20,328 $ - $127,839
Identifiable assets $1,474,521 $283,451 $9,053 $1,767,025
Three Months ended September 30, 2001
External revenue $253,939 $77,252 - $331,191
Cost of revenue 198,650(1) 59,508(2) - 258,158
Gross profit $55,289 $17,744 - $73,033
Identifiable assets $1,646,371 $282,299 $9,631 $1,938,301
Nine Months ended September 30, 2002
External revenue $741,750 $214,921 - $956,671
Cost of revenue 451,105 155,415 - 606,520
Gross profit $290,645 $59,506 $ - $350,151
Nine Months ended September 30, 2001
External revenue $892,021 $229,545 - $1,121,566
Cost of revenue 687,125(3) 172,915(2) - 860,040
Gross profit $204,896 $56,630 - $261,526
(1) Product cost of revenue for the three months ended September 30,
2001 includes a pre-tax non-recurring charge of $53,091 related to
the reorganization of the Company's manufacturing facilities.
Excluding this charge, gross profit for the product segment would
have been $108,380.
(2) Services cost of revenue for the three and nine months ended
September 30, 2001 includes a pre-tax non-recurring charge of
$6,571 related to the reorganization of the Company's manufacturing
facilities. Excluding this charge, gross profit for the services
segment would have been $24,315 and $63,201, respectively, for the
three and nine months ended September 30, 2001.
(3) Product cost of revenue for the nine months ended September 30,
2001 includes a pre-tax non-recurring charge of $110,000 related to
an inventory writedown, and the aforementioned $53,091 pre-tax non-
recurring charge related to the reorganization of the Company's
manufacturing facilities. Excluding these charges, gross profit
for the product segment would have been $367,987.
-24-
b). 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. Identifiable assets are those
tangible and intangible assets used in operations in each
geographic region. Corporate assets are principally temporary
investments and goodwill. Certain assets which have been
allocated to each reportable operating segment could not be
allocated to any of the Company's geographic regions.
Therefore, corporate assets as shown in the following table are
different from corporate assets as previously shown in the
segment disclosure.
-25-
The Asia/
Americas EMEA Pacific Corporate Consolidated
Three Months ended
September 30, 2002:
Sales to unaffiliated
customers $227,555 $87,488 $24,467 $ - $339,510
Transfers between
geographic areas 78,366 - - (78,366) -
Total net revenue $305,921 $87,488 $24,467 ($78,366) $339,510
Earnings before
income taxes $66,521 $17,568 $8,369 ($73,258) $19,200
Identifiable assets $1,089,768 $285,614 $37,129 $354,514 $1,767,025
Three Months ended
September 30, 2001:
Sales to unaffiliated
customers $219,252 $91,388 $20,551 $ - $331,191
Transfers between
geographic areas 72,430 - - (72,430) -
Total net revenue $291,682 $91,388 $20,551 ($72,430) $331,191
Earnings/(loss) before
income taxes $ 71,562 $21,452 $8,058 ($142,155) ($41,083)
Identifiable assets $1,374,816 $191,932 $40,084 $331,469 $1,938,301
Nine Months ended
September 30, 2002:
Sales to unaffiliated
customers $653,706 $244,215 $58,750 $ - $956,671
Transfers between
geographic areas 215,333 - - (215,333) -
Total net revenue $869,039 $244,215 $58,750 ($215,333) $956,671
Earnings/(loss) before
income taxes $204,048 $49,389 $19,919 ($285,029) ($11,673)
Nine Months ended
September 30, 2001:
Sales to unaffiliated
customers $775,246 $285,856 $60,464 $ - $1,121,566
Transfers between
geographic areas 238,719 - - (238,719) -
Total net revenue $1,013,965 $285,856 $60,464 ($238,719) $1,121,566
Earnings/(loss) before
income taxes $265,213 $ 69,220 $23,441 ($456,763) ($98,889)
-26-
Safe harbor for forward-looking statements under securities litigation
act of 1995; certain cautionary statements
This report contains forward-looking statements based on current
expectations, forecasts and assumptions that involve risks and
uncertainties that could cause actual outcomes and results to differ
materially. These risks and uncertainties include price and product
competition, dependence on new product development, reliance on major
customers, customer demand for the Company's products and services,
control of costs and expenses, international growth, general industry and
market conditions and growth rates and general domestic and international
economic conditions including interest rate and currency exchange rate
fluctuations, the Company's internal investigation, the governmental
investigations and the current political climate, as well as the effect
of the current international political situation, which is impossible to
predict. For a further list and description of such risks and
uncertainties, see the reports filed by the Company with the Securities
and Exchange Commission. The Company disclaims any intention or
obligation to update or revise any forward-looking statements, whether as
a result of new information, future events or otherwise.
-27-
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
(All dollar amounts in thousands, except per share data)
Results of Operations
As described elsewhere in this document, the Company is engaged
with the assistance of outside counsel and an independent accounting
firm in an ongoing internal investigation of certain accounting issues.
The Company anticipates that the internal investigation will be
completed in the fourth quarter of 2002. Based on its preliminary
findings to date, the Company believes that it may have to restate its
revenue, income and certain reserves previously reported in financial
statements principally issued with respect to 2000, 2001 and 2002. The
Company believes that the results reported in this Form 10-Q are likely
to be affected by any such restatement, principally with respect to the
amount and timing of revenue recognized and the creation and utilization
of reserves during these periods. Please refer to notes 5,8, and 12 for
further discussion of these issues. Any potential restatement is not
expected to have a material impact on the Company's balance sheet as of
September 30, 2002. Due to the preliminary results of the Company's
ongoing internal investigation, the Company's independent public
accounting firm did not complete its review of the condensed
consolidated financial statements included herein prior to the deadline
for filing this Form 10-Q, as required by Rule 10-01(d) of regulation S-
X promulgated under the Securities Exchange Act of 1934, as amended.
Net product revenue of $266,597 for the three months ended
September 30, 2002 increased 5.0 percent from the comparable prior
year period but decreased 16.8 percent to $741,750 for the nine months
ended September 30, 2002 from the comparable prior year period. The
increase for the three month period is due to increased sales volume
of the Company's mobile computing products. The decrease for the nine
month period is due to a global slowdown in information technology
spending which resulted in a reduction in the quantity of units sold.
Net services revenue of $72,913 and $214,921 for the three and nine
months ended September 30, 2002 decreased 5.6 percent and 6.4 percent,
respectively, from the comparable prior year periods primarily due to
a decrease in professional service revenue resulting from fewer
project management activities. Foreign exchange fluctuations
favorably impacted the growth in total net revenue by approximately
2.0 percentage points and 0.2 percentage points for the three and nine
months ended September 30, 2002, respectively. Foreign exchange
fluctuations unfavorably impacted the growth in total net revenue by
approximately 2.1 percentage points and 2.3 percentage points for the
three and nine months ended September 30, 2001, respectively.
Geographically, the Americas revenue increased 3.8 percent for the
three months ended September 30, 2002, but decreased 15.7 percent for
the nine months ended September 30, 2002 from the respective comparable
prior year periods. EMEA revenue decreased 4.3 percent and 14.6
percent, respectively, for the three and nine months ended September 30,
2002 from the comparable prior year periods. Asia Pacific revenue
increased 19.1 percent for the three months ended September 30, 2002,
but decreased 2.8 percent for the nine months ended September 30, 2002
from the respective comparable prior year periods. The Americas, EMEA
and Asia Pacific revenue represent approximately 67 percent, 26 percent,
and 7 percent of net revenue for the three months ended September 30,
2002, and 68 percent, 26 percent and 6 percent of net revenue for the
nine months ended September 30, 2002.
The Company has forecasted revenue to be approximately $1,300,000
for the full year 2002. Attainment of this forecast is dependent on
many factors, some of which are beyond the Company's control,
including 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.
-28-
Based on the aforementioned forecast level of revenue, the
Company expects diluted earnings per share before non-recurring
charges in the range of $0.20 to $0.25 for the full year 2002, prior
to the impact of any restatement referred to herein. The forecast is
contingent upon, among other factors, attainment of the revenue level
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, 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) was
59.7 percent and 60.8 percent for the three and nine months ended
September 30, 2002 as compared to 57.3 percent and 58.7 percent before
non-recurring charges in the comparable prior year periods. The increase
for the three months ended September 30, 2002 is due to an overall shift
in product mix to lower margin products partially offset by the net
effect of adjustments recorded in relation to the evaluation of certain
inventory provisions discussed below and the favorable impact of foreign
exchange fluctuations. The increase for the nine months ended September
30, 2002 is due to an overall shift in product mix to lower margin
products coupled with reduced manufacturing absorption due to lower sales
volumes partially offset by the net effect of adjustments recorded in
relation to the evaluation of certain inventory provisions discussed
below. Amortization of software development costs for the three and nine
months ended September 30, 2002 of $4,991 and $14,058 increased from
$4,607 and $13,326 in the comparable prior year periods due to new
product releases.
Included in product cost of revenue for the nine months ended
September 30, 2001 is a $110,000 non-recurring special provision for
excess and obsolete inventory recorded in the second quarter of 2001 for
a writedown of certain radio frequency (RF) infrastructure and mobile
computing inventory. The writedown was recorded as a result of lower
demand for the Company's then current RF products, coupled with
technological obsolescence due to planned introductions of new RF
infrastructure products and mobile computing appliances. In September
2002, as a result of a review of this provision as well as an estimate
of future charges expected to be incurred related to its RF and mobile
computing inventory, the Company determined that it had higher sales on
these product lines than originally anticipated and that $55,200 of the
total remaining provision of $78,900 was no longer required for its RF
and mobile computing inventory. Therefore, $55,200 of the remaining
provision was reversed against product cost of revenue in September 2002
leaving a remaining reserve of $23,700 at September 30, 2002. As part
of its ongoing internal investigation, the Company is currently
-29-
reviewing the creation and utilization of this reserve.
The Company also continues to monitor its reserve for excess and
obsolete inventory. In September 2002, as a result of the continued
general decline in the economy coupled with the prolonged decline in
information technology spending, the Company determined it needed to
increase its reserve for excess and obsolete inventory. The Company
recorded an additional provision to product cost of revenue of $48,500
in September 2002. The Company is currently investigating whether this
provision should have been recorded in prior quarters as part of its
ongoing investigation.
Any potential restatement is not expected to have a material impact
on the Company's balance sheet as of September 30, 2002. Because the
investigation is not complete and involves other issues, the magnitude
of any adjustment is not known at this time. Any resulting restatement
is likely to affect comparisons between currently reported amounts and
amounts reported for previous periods.
The charge and the aforementioned reversal of the special excess
and obsolete provision for RF and mobile computing inventory resulted in
a net benefit of $6,700 to product cost of revenue in the statement of
operations for the three and nine months ended September 30, 2002.
Services cost of revenue (as a percentage of net services revenue)
was 72.1 percent and 72.3 percent for the three and nine months ended
September 30, 2002 as compared to 68.5 percent and 72.5 percent before
non-recurring charges in the comparable prior year periods. The increase
for the three month period resulted primarily from lower contract revenue
coupled with higher repair costs for parts and labor.
Included in total cost of revenue for the three and nine months
ended September 30, 2001 is a $59,662 non-recurring charge recorded in
the third quarter of 2001 primarily related 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.
This charge primarily relates to the Company's transition of 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. The amount and timing of the Company's
restructuring and impairment charges are a subject of the Company's
ongoing internal investigation.
Engineering costs increased to $34,305 and $90,545 for the three
and nine months ended September 30, 2002, from $28,108 and $87,466 for
the respective prior year periods. This represents an increase of 22.0
percent and 3.5 percent, respectively, from the prior year periods.
This increase is due to a decrease in the amount of capitalized costs
incurred for internally developed product software where economic and
technological feasibility has been established, coupled with slightly
higher expenditures incurred during the three months ended September 30,
2002 in connection with the continuing research and development of new
products and the improvement of existing products. As a percentage of
total net revenue, engineering expenses increased to 10.1 percent and
9.5 percent for the three and nine months ended September 30, 2002
compared to 8.5 percent and 7.8 percent for the comparable prior year
-30-
periods primarily due to higher expenditures during the three months
ended September 30, 2002 and lower revenue levels for the nine months
ended September 30, 2002.
Selling, general and administrative expenses of $71,273 and
$204,755 for the three and nine months ended September 30, 2002
decreased from $76,937 and $247,883 for the comparable prior year
periods. In absolute dollars, selling, general and administrative
expenses decreased 7.4 percent and 17.4 percent from the comparable
prior year periods. The decrease is a result of cost containment
efforts implemented during the last half of 2001. As a percentage of
net revenue, such expenses decreased to 21.0 percent and 21.4 percent
for the three and nine months ended September 30, 2002 from 23.2 percent
and 22.1 percent in the comparable prior year periods. The decrease is
due to the aforementioned cost containment efforts, partially offset by
lower revenue levels for the nine months ended September 30, 2002.
In July 2002, the Company announced the hiring of its new
President and Chief Operating Officer, effective August 2002. As part
of his compensation, the Company issued 400,000 fully vested treasury
shares of the Company's common stock to this officer. Such shares had
a pre-tax value of $2,992 at the date of issuance which has been
included in compensation expense during the third quarter of 2002. If
he is an employee of the Company, this officer is restricted from
selling or transferring these shares for a period of two years from
the date of issuance. In addition to the aforementioned compensation
charge, the Company recorded a pre-tax charge of approximately $700 in
the third quarter of 2002, for recruiting fees and other expenses
associated with this officer's hiring.
In February 2002, the Company's former President and Chief Executive
Officer announced his retirement. In connection therewith, the Company
recorded a pre-tax non-recurring compensation and related benefits charge
of $8,597 for the three months ended March 31, 2002.
In the quarter ended June 30, 2002, the Company recorded a pre-tax
non-recurring impairment charge of $47,200 related to its investment in
AirClic Inc. ("AirClic"). The Company regularly tests the carrying value
of its investments for impairment. In consideration of the outlook of
AirClic's business, the general decline in the economy and the decline in
information technology spending, it was determined that the decline in
the value of the investment in AirClic was other than temporary during
the quarter ended June 30, 2002. The Company obtained an independent
appraisal of its investment in AirClic and wrote down the carrying amount
of the investment to its estimated fair value of $2,800 at June 30, 2002.
This investment was previously fully allocated to the product segment.
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets". Under SFAS No. 142, goodwill and intangible assets
acquired in a business combination will no longer be amortized into
results of operations, but rather subject to a periodic assessment for
impairment. The Company adopted the provisions of this Statement
effective January 1, 2002. Under the new standard, goodwill is subject
to an annual assessment for impairment using a prescribed fair-value-
based test. The Company completed the initial step of the transitional
-31-
goodwill impairment test as of January 1, 2002 utilizing an independent
appraisal during the quarter ended June 30, 2002. This step of the
goodwill impairment test compares the fair value of a reporting unit
with its carrying amount, including goodwill. Based on results of these
comparisons, the Company concluded there was no impairment of goodwill
related to either of its reporting units.
Adjusted financial information assuming SFAS No. 142 had been
adopted as of January 1, 2001 is as follows:
Three Months Ended Nine Months Ended
September 30,____ September 30, _
2002 2001__ 2002 2001__
(Unaudited) (Unaudited)
Reported net earnings/(loss) $13,056 ($35,693) ($7,937) ($67,301)
Goodwill amortization, net of tax - 3,584 - 8,709
Adjusted net earnings/(loss) $13,056 ($32,109) ($7,937) ($58,592)
Basic Earnings/(Loss) Per Share:
Earnings/(loss) as reported $0.06 ($0.16) ($0.03) ($0.30)
Goodwill amortization, net of tax - 0.02 - 0.04
Adjusted earnings/(loss) $0.06 ($0.14) ($0.03) ($0.26)
Diluted Earnings/(Loss) Per Share:
Earnings/(loss) as reported $0.06 ($0.16) ($0.03) ($0.30)
Goodwill amortization, net of tax - 0.02 - 0.04
Adjusted earnings/(loss) $0.06 ($0.14) ($0.03) ($0.26)
Net interest expense decreased to $3,061 and $10,727 for the
three and nine months ended September 30, 2002 from $4,947 and $12,943
for the comparable prior year periods. This net decrease is primarily
due to the lower interest expense resulting from Telxon's redemption
and repurchases of its convertible debt.
The Company's effective tax rate was 32 percent for the three and
nine months ended September 30, 2002. This differed from the
statutory rate primarily as a result of research and development tax
credits and state taxes. The Company's effective tax benefit for the
three and nine months ended September 30, 2001 was 13.1 percent and
31.9 percent, respectively. This differed from the statutory rate
primarily as a result of non-recurring charges associated with the
reorganization of the Company's manufacturing facilities and an
inventory writedown.
Liquidity and Capital Resources
The Company utilizes a number of measures of liquidity including
the following:
September 30, December 31,
2002 _____ 2001_____
Working Capital $620,161 $660,475
Current Ratio (Current Assets
to Current Liabilities) 2.8:1 2.9:1
Long-Term Debt to Capital 14.4% 20.8%
(Convertible subordinated notes
and debentures plus long-term
debt to convertible subordinated
notes and debentures plus
long-term debt plus equity)
-32-
Current assets decreased by $44,733 from December 31, 2001
principally due to a decrease in accounts receivable due to increased
cash collections, a decrease in other current assets primarily due to
collection of notes receivable, and a decrease in cash due to debt
redemption and repurchase, partially offset by the increase in inventory
and prepaid and refundable income taxes.
Current liabilities decreased $4,419 from December 31, 2001
primarily due to the utilization of accrued restructuring expenses,
partially offset by the increase in accounts payable and accrued
expenses.
The aforementioned activity resulted in a working capital
decrease of $40,314 for the nine months ended September 30, 2002. The
Company's current ratio at September 30, 2002 decreased to 2.8:1
compared with 2.9:1 as of December 31, 2001.
The Company generated $51,427 positive cash flow from operating
activities for the three months ended September 30, 2002, and
experienced an overall increase in cash of $331 for the period. The
positive cash flow provided by operations was partially offset by the
net repayment of long-term debt, investment in intangible and other
assets, and purchases of property, plant and equipment.
Property, plant and equipment expenditures for the nine months
ended September 30, 2002 totaled $25,494 compared to $74,443 for the
nine months ended September 30, 2001. In February 2001, the Company
began a 150,000 square foot expansion of its 140,000 square foot
manufacturing facility in Reynosa, Mexico. The total cost for this
project was approximately $8,500 and was substantially completed in
2002. Additionally, in February 2001, the Company began construction of
a new 334,000 square foot distribution center and data center in
McAllen, Texas. The total cost for this project was approximately
$33,000, which was substantially completed as of June 30, 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 nine months ended September 30,
2002, the Company securitized $7,373 of its lease receivables, which
resulted in proceeds of $4,200. During the year ended December 31,
2001, the Company securitized $32,227 of its lease receivables, which
resulted in proceeds of $18,700. The Company does not consider its
securitization of lease receivables a significant dependency on its
continued liquidity.
-33-
The Company had long-term debt outstanding, excluding current maturities
and capital lease obligations, as follows:
September 30, December 31,
2002 2001____
Revolving Credit Facility $129,757 $125,439
Senior Notes 6,349 12,698
SAILS Exchangeable Debt 67,178 93,206
Other 154 373
203,438 231,716
Less Current Maturities 6,355 6,548
$197,083 $225,168
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 125 basis points at September 30, 2002,
LIBOR plus 100 basis points at December 31, 2001 (which approximated 3.1
percent for both periods), or the base rate of the syndication agent
bank (which approximated 4.8 percent at September 30, 2002 and December
31, 2001). At September 30, 2002, the Company had $129,757 of
borrowings outstanding under the Credit Agreement, as compared to
$125,439 outstanding at December 31, 2001. These borrowings have been
classified as long-term obligations in each respective period.
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 remaining balance of the Senior Notes is classified
as current at September 30, 2002.
In January 2001, the Company entered into a private SAILS
arrangement 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 $43,597 at September 30, 2002 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. 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 agreement were
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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." 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" for the legal
right of offset for accounting purposes. The SAILS liability, net of
the derivative asset, represents $67,178 of the total long-term debt
balance outstanding at September 30, 2002. 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.
The remaining portion of long-term debt outstanding relates to
various other loans maturing through 2008.
The combined aggregate amount of long-term debt maturities for the
three months ended December 31, 2002 and each of the subsequent years
ended December 31 are as follows:
2002 (fourth quarter) $ 6
2003 (full year) 6,379
2004 (full year) 129,786
2005 (full year) 31
2006 (full year) 32
Thereafter 67,204
$203,438
The Company's long-term debt to capital ratio decreased to 14.4
percent at September 30, 2002 from 20.8 percent at December 31, 2001
primarily due to Telxon's repurchases and redemption of its remaining
convertible subordinated notes and debentures, the net repayment of
foreign currency borrowings and the increase in equity due to stock
option exercises, partially offset by net borrowings under the Company's
credit facility (increase resulting from financing of convertible notes
and debentures redeemed and repurchased partially offset by repayments),
the decrease in equity due to the net loss for the period, and the
repurchase of treasury shares.
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The Company has loan agreements with various banks pursuant to
which, the banks have agreed to provide lines of credit totaling
$57,000. As of September 30, 2002 the Company had no borrowings
outstanding under these lines as compared to $19 outstanding at December
31, 2001. These agreements continue until such time as either party
terminates the agreements.
At the date of the Telxon acquisition, Telxon had outstanding
$82,500 of 5.75 percent convertible subordinated notes, and $24,413 of
7.5 percent convertible subordinated debentures. During the year ended
December 31, 2001, Telxon purchased in the open market $21,861 of its
5.75 percent notes for $20,665. In January and February 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 April 2002,
Telxon redeemed the remaining balance of its 5.75 percent notes and 7.5
percent debentures at a redemption price of 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 redeemed was $45,089.
The Company continues to enter into obligations and commitments to
make future payments under lease agreements. The Company's capital
lease obligations are included in long-term debt as presented on the
balance sheet. The combined aggregate amount of required future minimum
rental payments under non-cancelable capital and operating leases for
the three months ended December 31, 2002 and each of the subsequent
years ended December 31, are as follows:
Capital Operating
Leases_ Leases__
2002 (fourth quarter) $128 $ 4,566
2003 (full year) 373 16,510
2004 (full year) 246 13,672
2005 (full year) 46 12,112
2006 (full year) - 11,009
Thereafter - _37,449
Total minimum payments 793 $95,318
Less amounts representing interest 80
Present value of future lease payments 713
Less current portion 340
Long-term capital lease obligation $373
The current and long-term capital lease obligations of $340 and
$373, respectively, combined with the current and long-term debt
outstanding of $6,355 and $197,083, respectively, result in a total
current and long-term debt balance of $6,695 and $197,456, respectively
at September 30, 2002.
The Company has a balance of accrued purchase commitments of
$11,076 at September 30, 2002, compared to $13,822 at December 31, 2001.
Payments are due within one year and such balances are included in the
balance of accounts payable and accrued expenses in each respective
period.
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The Company believes that it has adequate liquidity to meet its
current and anticipated needs from working capital, results of its
operations, and existing credit facilities.
In the opinion of management, inflation has not had a material
effect on the operations of the Company.
As previously disclosed, the Securities and Exchange Commission
has issued a Formal Order Directing Private Investigation and
Designating Officers to Take Testimony with respect to certain
accounting matters, principally concerning the timing and amount of
revenue recognized by the Company during the period from January 1,
2000 to December 31, 2001. The Company is cooperating with the
Commission, and has produced documents in response to the Commission's
inquiries. More recently, the Company has learned that the United
States Attorney's Office for the Eastern District of New York has
commenced a related investigation. The Company is cooperating with
that investigation, and has produced documents in response to the
Eastern District's inquiries.
In addition, the Company has commenced its own investigation of
these matters with the assistance of an outside law firm and
independent accounting firm. The Company's investigation is still in
progress and has not yet reached a final conclusion. It is
anticipated that the internal investigation will be concluded in the
fourth quarter of 2002. Based on preliminary findings of the internal
investigation, the Company believes that it may have to restate its
revenue and income and certain reserves, previously reported in
financial statements principally issued with respect to 2000, 2001 and
2002. However, the amounts and time periods of any potential
restatement have not been ascertained. In addition, prior to there
being any restatement, the results of the internal investigation must
be reviewed by the Company's independent auditors.
The Company currently believes, based on preliminary findings,
that the total revenue that would be either (i) reversed or (ii)
reversed and restated in later fiscal years or (iii) otherwise
adjusted as a result of a restatement would amount to less than 10
percent of the revenue originally reported for the fiscal years 2000
and 2001. Based on the investigation to date, the Company further
expects that the potential restatement would likely result in a net
reduction of previously reported net income and revenue in 2000 and a
net increase in previously reported net income and revenue in
subsequent periods. Such a restatement is not expected to have a
material impact on the Company's balance sheet as of September 30,
2002. Because the initial investigation is not yet complete, any
actual restatement may vary from the foregoing estimates, may involve
other issues, and would likely affect comparisons between currently
reported amounts and amounts reported for previous periods.
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
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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 estimates under different assumptions or conditions. Note 1 to the
Company's consolidated financial statements for the year ended December
31, 2001 (as contained in the Company's Form 10-K) "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
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. The application of these
policies to the Company's revenue is a subject of the Company's ongoing
internal investigation.
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 the Company's use of
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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
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.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
Refer to ITEM 7, in the Company's annual report on Form 10-K for the
year ended December 31, 2001 for required disclosure. The Company does
not currently believe there are any material changes to this disclosure.
ITEM 4. Controls and Procedures
The Company has undertaken what it believes to be substantial steps to
improve its controls and procedures and intends to continue this
process. Within the 90-day period prior to the filing of this report,
an evaluation was carried out under the supervision and with the
participation of the Company's management, including the Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design
and operation of the Company's disclosure controls and procedures (as
defined in Rule 13a-14(c)under the Securities Exchange Act of 1934).
Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the design and operation of these
disclosure controls and procedures were believed to be effective as to
this current quarter. Although the Company believes that it has
significantly improved its controls and procedures in the last fiscal
year, these procedures and controls continue to be evaluated in
connection with the Company's ongoing investigation. No significant
changes were made in the Company's internal controls or in other factors
that could significantly affect these controls subsequent to the date of
their evaluation.
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PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
As previously disclosed, the Securities and Exchange Commission
has issued a Formal Order Directing Private Investigation and
Designating Officers to Take Testimony with respect to certain
accounting matters, principally concerning the timing and amount
of revenue recognized by the Company during the period of January
1, 2000 to December 31, 2001. The Company is cooperating with
the Commission, and has produced documents in response to the
Commission's inquiries. More recently the Company has learned
that the United States Attorney's Office for the Eastern District
of New York has commenced a related investigation. The Company
is cooperating with that investigation, and has produced
documents in response to the Eastern District's inquiries.
In addition, the Company has commenced its own investigation of
these matters with the assistance of an outside law firm and an
independent accounting firm. The Company's investigation is
still in progress and has not yet reached a final conclusion. It
is anticipated that the internal investigation will be concluded
in the fourth quarter of 2002. Based on preliminary findings of
the internal investigation, the Company believes that it may have
to restate its revenue and income and certain reserves,
previously reported in financial statements principally issued
with respect to 2000, 2001, and 2002. However, the amounts and
time periods of any potential restatement have not been
ascertained. Prior to any restatement, the results of the
internal investigation must be reviewed by the Company's
independent auditors.
The Company currently believes, based on preliminary findings,
that the total revenue that would be either (i) reversed or (ii)
reversed and restated in later fiscal years or (iii) otherwise
adjusted as a result of a restatement would amount to less than 10
percent of the revenue originally reported for the fiscal years
2000 and 2001. Based upon the investigation to date, the Company
further expects that the potential restatement would likely result
in a net reduction of previously reported net income and revenue
in 2000 and a net increase in previously reported net income and
revenue for subsequent periods. Such a restatement is not
expected to have a material impact on the Company's balance sheet
as of September 30, 2002. Because this investigation is not
complete, any actual restatement may vary from the foregoing
estimates, may involve other issues, and would likely affect
comparisons between currently reported amounts and amounts
reported for previous periods.
As discussed in Note 5, the Company recorded an additional
provision to product cost of revenue of $48,500 in September 2002
related to excess and obsolete inventory. The Company is
currently investigating whether this provision should have been
recorded in prior quarters. In September 2002, the Company
reversed against product cost of revenue an inventory reserve of
$55,200 previously recorded in June 2001 for the writedown of
certain RF and mobile computing devices. The Company is currently
reviewing the creation and utilization of this reserve. Any
potential restatement is not expected to have a material impact on
the Company's balance sheet as of September 30, 2002. Because the
investigation is not complete and involves other issues, the
magnitude of any adjustment is not known at this time. Any
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resulting restatement is likely to affect comparisons between
currently reported amounts and amounts reported for previous
periods.
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
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 certain of its wireless LAN
product offerings. The Court has severed the Company's
counterclaim against Proxim involving 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 May 30, 2002, the Court granted
Intersil's motion to intervene as a defendant in the Proxim
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infringement suit. Having granted Intersil's motion to intervene,
the Court imposed a mandatory stay in the case until the
conclusion of a related proceeding involving Proxim, Intersil, and
other parties in the U.S. International Trade Commission ("ITC").
The Court further barred Proxim from collecting damages against
the Company attributable to the Company's alleged infringing
conduct during the stay. On June 14, 2002, Proxim filed a motion
requesting the Court reconsider the damages bar portion of the
Court's May 30th order. The motion is currently pending.
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 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 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. The Company believes these claims to be without
merit.
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, the Lanham Act, common
law unfair competition and tortious interference. On June 25,
2002, the Court granted the Company's motion with respect to
false patent marking, and denied the motion in all other
respects.
On August 13, 2002, the Company filed its Second Renewed Motion
to Dismiss Proxim's Lanham Act, unfair competition and tortious
interference counterclaims, based on Proxim's failure to provide
discovery in support of its claims that it had been injured by
the Company's press release announcing that it had filed suit
against Proxim. Proxim filed its opposition papers on August 28,
2002 and the Company filed its reply papers on September 5, 2002.
The motion is currently pending.
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On August 9, 2002, Proxim served an Amended Motion to Implead
Third Parties Under Rule 14. The parties Proxim sought to
implead were, according to Proxim, suppliers of components used
in Proxim's devices accused of infringing the Company's patents.
The Company opposed the motion on August 23, 2002 and Proxim
served its reply papers on August 30, 2002. On November 6, 2002,
the Court denied Proxim's motion, finding that the addition of
seven parties at this stage in the proceedings would unduly
complicate the issues and delay the scheduled trial.
On August 15, 2002, Proxim moved to amend its answer and
counterclaims to assert a defense of unenforceability with
respect to one of the Company's four patents asserted against it,
the '803 Patent, on the grounds of alleged inequitable conduct in
the Patent Office. On August 29, 2002, the Company filed its
papers in opposition to Proxim's motion, and in support of its
own motion to dismiss the claims it had asserted with respect to
the '803 Patent. During the course of discovery, the Company's
counsel had learned that the '803 Patent was invalid for reasons
having nothing to do with any alleged inequitable conduct on the
Company's part. As a result, the Company had filed a disclaimer
of the '803 Patent in the Patent Office, therefore rendering moot
any claims in the case relating to the '803 Patent. Proxim filed
a response to the Company's motion on September 13, 2002, and the
Company filed a reply on September 20, 2002. The motions are
currently pending before the Court. As a result of the Company's
disclaimer of the '803 Patent, it is now asserting three patents
against Proxim rather than the four originally asserted.
Discovery is ongoing. Trial of the case is scheduled to begin on
September 8, 2003.
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.
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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 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
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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. On
October 7, 2002, the Supreme Court of the United States denied
Lemelson's petition for a writ of certiorari to review the
decision of the Federal Circuit. Accordingly, the issue has been
remanded to the Court in Nevada to consider whether the laches
defense is applicable to the Lemelson case.
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 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.
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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 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.
On July 12, 2002, the Auto ID plaintiffs filed three new summary
judgment motions with the Court in Nevada on the following grounds:
(1) that the so-called bar code patents are unenforceable based on
the prosecution laches doctrine found to exist by the Federal
Circuit; (2) that users of bar code equipment do not infringe
Lemelson's patents based on Lemelson's statements in the
prosecution history equating his alleged invention with video-based
technology; and (3) that the so-called bar code patents are invalid
based on Lemelson's admissions regarding the prior art that were
made to advance the prosecution of his patent applications. On
August 12, 2002, the Court denied all of these motions, but allowed
the Auto ID plaintiffs to renew any arguments contained therein at
trial. Accordingly, the Company expects to present these arguments
as well as other strong invalidity, noninfringement, and fraud
arguments (including those previously presented in summary
judgement motions and the prosecution laches argument upheld by the
Federal Circuit) against Lemelson's so-called bar code patents at
trial.
On September 25, 2002, the Court in Nevada issued a trial order
allocating thirty-four days for a trial commencing November 18,
2002 and concluding January 24, 2003. On November 8, 2002 the
Court denied the Lemelson Partnership's motion to alter the order
of proof for the trial. Accordingly, the Auto-ID companies will
present their case first.
-46-
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 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.
-47-
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. PWC filed a motion to dismiss both Telxon's third
party complaint and the PWC action.
On March 25, 2002, the Court ruled on the pending motions. As to
Telxon's third-party complaint against PWC, the Court ruled 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 granted Telxon's motion for leave to file and serve
the third party complaint instanter on February 20, 2001. The
Court also denied PWC's motion to dismiss the separate action filed
against it by the plaintiffs. PWC has subsequently filed an answer
denying liability, asserting numerous defenses and a third party
complaint against Telxon for contribution and indemnity.
On June 11, 2002 a complaint was filed against Telxon by Wyser-
Pratte Management Co., Inc. ("Wyser-Pratte") whose President and
sole shareholder is Mr. Guy Wyser-Pratte, a well-known securities
arbitrageur. In late August 1998, Mr. Wyser-Pratte and Telxon
settled a proxy litigation which arose out of discussions between
Telxon and the Company during the April-June 1998 time period about
a then possible acquisition by the Company. The complaint also
names several former Telxon executives as well as Telxon's former
-48-
outside auditors, PWC, as defendants. The complaint alleges
violations of Sections 10b-5, 14, 18 and 20 of the Securities and
Exchange Act of 1934, as well as common law claims for fraud and
negligent misrepresentation. This litigation is related to the
previously described Telxon class action litigation. The Wyser-
Pratte complaint seeks unspecified compensatory and punitive
damages, as well as attorney's fees and costs. By Court Order
dated June 20, 2002, this litigation was consolidated for discovery
purposes with the Telxon class action litigation. On August 5,
2002, Telxon moved to dismiss the original Complaint. In response,
Wyser-Pratte filed an Amended Complaint, on or about September 17,
2002. On October 25, 2002 Telxon moved to dismiss the Amended
Complaint. Telxon's motion is expected to be fully briefed before
the Court by the end of 2002. In addition, Wyser-Pratte has moved
for partial summary judgment as to its Section 18 claim. Telxon
will respond to that motion in the coming weeks. The Company
believes that Telxon has meritorious defenses to the litigation and
Telxon intends to defend the action vigorously.
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 the Company
between October 19, 2000 and February 13, 2002, inclusive,
against the Company, Tomo Razmilovic, Jerome Swartz and Kenneth
Jaeggi. The complaint alleged 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. Subsequently, a number of additional
purported class actions containing substantially similar
allegations were also filed against the Company and certain of
its officers in the Eastern District of New York.
On September 27, 2002, a consolidated amended purported class
action complaint was filed in the Eastern District of New York,
consolidating the previously filed class actions. The
consolidated amended complaint added additional individual
defendants, including the members of the audit committee of the
Company's Board of Directors and two former employees of the
Company, and alleges principally that the Company improperly
recognized revenue in numerous instances in 2000 and 2001. In
addition, the consolidated amended complaint extended the class
period to the time between April 26, 2000 and April 18, 2002.
The Company intends to defend the action vigorously and believes
that it has meritorious defenses.
-49-
ITEM 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are included herein:
10.1 Employment Agreement by and between the Company and
Richard Bravman dated as of August 1, 2002.
10.2 Executive Retirement Plan dated as amended as of
October 21, 2002.
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
(b) On August 13, 2002, the Company filed a Current Report on
Form 8-K reporting under Item 9 - Regulation FD Disclosure
furnishing Statements Under Oath of its Principal Executive
Officer and its Principal Financial Officer regarding facts
and circumstances relating to Exchange Act Filings.
-50-
SIGNATURES
Pursuant to the requirements 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.
Dated: November 14, 2002 By: /s/ Richard Bravman_____
Richard Bravman
Vice Chairman of the Board
of Directors and
Chief Executive Officer
Dated: November 14, 2002 By: /s/ Kenneth V. Jaeggi
Kenneth V. Jaeggi
Senior Vice President -
Chief Financial Officer
-51-
CERTIFICATIONS
I, Richard Bravman, certify that:
1. I have reviewed this quarterly report on Form 10-Q of
Symbol Technologies Inc.;
2. Based on my knowledge, this quarterly report does not
contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-
14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
-52-
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in
the registrant's internal controls; and
6. The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
Date: November 14, 2002
/s/Richard Bravman_____
Richard Bravman
Vice Chairman of the Board of Directors
and Chief Executive Officer
-53-
CERTIFICATIONS
I, Kenneth V. Jaeggi, certify that:
1. I have reviewed this quarterly report on Form 10-Q of
Symbol Technologies Inc.;
2. Based on my knowledge, this quarterly report does not
contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-
14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
-54-
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in
the registrant's internal controls; and
6. The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
Date: November 14, 2002
/s/Kenneth V. Jaeggi
Kenneth V. Jaeggi
Senior Vice President -
Chief Financial Officer
-55-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________________
QUARTERLY REPORT
ON
FORM 10-Q
FOR QUARTER ENDED
SEPTEMBER 30, 2002
__________________________________
SYMBOL TECHNOLOGIES, INC.
EXHIBITS
6a) Exhibits
10.1 Employment Agreement by and between the Company and
Richard Bravman dated as of August 1, 2002.
10.2 Executive Retirement Plan dated as amended as of
October 21, 2002.
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
Exhibit 10.1
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (the "Agreement") made as of
the 1st day of August, 2002 by and between SYMBOL
TECHNOLOGIES, INC., a Delaware corporation (the
"Corporation"), and Richard Bravman (the "Executive").
W I T N E S S E T H:
WHEREAS, the Corporation desires to employ the
Executive and the Executive desires to be employed by the
Corporation in the manner and on the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and
of the mutual and dependent agreements and covenants set forth
herein, the parties hereto agree as follows:
1. EMPLOYMENT
The Corporation hereby agrees to employ the Executive as its
Vice Chairman and Chief Executive Officer, and the Executive
hereby agrees to accept such employment and render services to
the Corporation and its subsidiaries, divisions and affiliates
for the period and on the terms and conditions set forth in
this Agreement.
2. TERM
The Executive's employment under this Agreement
shall be for a term of five (5) years commencing as of August
1, 2002 and ending July 31, 2007; provided, however, that the
term of the Executive's actual employment hereunder shall at
all times be subject to earlier termination in accordance with
the provisions of section 12 hereof.
3. DUTIES
(a) So long as the Executive's employment under this
Agreement shall continue, the Executive shall, subject to periods
of illness, vacation and other excused absences, devote his
entire business time, attention, and energies to the affairs of
the Corporation and its subsidiaries, divisions and affiliates,
use his best efforts to promote its and their best interests and
perform such executive duties as may be assigned to him by the
Board of Directors of the Corporation; provided, however, that
such executive duties shall be consistent with the position of
Vice-Chairman and Chief Executive Officer of the Corporation as
such position exists as of the date hereof.
(b) So long as the Executive's employment under this
Agreement shall continue, the Executive shall, if elected or
appointed, serve as an executive officer and/or director of the
Corporation and of any subsidiary, division or affiliate of the
Corporation and shall hold, without any compensation other than
that provided for in this Agreement, the offices in the
Corporation and in any such subsidiary, division or affiliate to
which he may, at any time or from time to time, be elected or
appointed.
(c) The Executive shall be eligible to take, in
addition to holidays recognized by the Corporation, four (4)
weeks per annum of vacation.
4. COMPENSATION
(a) The Corporation hereby agrees to pay to the
Executive, and the Executive hereby agrees to accept compensation
for services rendered under this Agreement, a base salary at the
rate of seven hundred and fifty thousand dollars ($750,000) per
annum payable at such intervals as the Corporation customarily
pays the salaries of its executive officers. Effective July 1,
2003 and July 1, 2005, the Executive and the Corporation shall
negotiate, in good faith, with respect to increasing said base
salary for additional two year periods in an amount mutually
satisfactory to the Corporation and the Executive.
(b) In addition to the base salary provided for in
subsection 4(a) above, the Executive shall participate in the
Corporation's Executive Bonus Plan as may be amended from time to
time and thereby be entitled to receive an annual bonus for each
fiscal year during the term of this Agreement in the amounts
determined pursuant to such plan. The target amount of the
Executive's bonus under said plan shall be 100% of his base
salary actually earned in each fiscal year, provided that the
Executive shall have the possibility, if target goals are
exceeded to an extent specified in the annual bonus plan, of
earning an annual bonus equal to 200% of his base salary.
Payment of any bonuses to which Executive may be entitled, as
provided herein, shall be paid to the Executive no later than
ninety (90) days after the completion of each respective fiscal
year.
(c) During the term of this Agreement, the Executive
shall participate in the Corporation's Executive Retirement Plan
as in effect on the date of this Agreement and as it may
hereafter be amended to improve benefits thereunder. The
Executive acknowledges that he has previously been provided with
a copy of said plan.
(d) In addition to the foregoing, it is hereby agreed
that the Corporation shall, at its sole expense, provide and the
Executive shall be entitled to receive, during his employment
hereunder, the employee fringe benefits provided by the
Corporation, from time to time, to its executive officers,
including, but not limited to, benefits relating to life, medical
and disability insurance, and participation in the Corporation's
Section 401(k) Plan; provided, however, that as used in this
Agreement, the term "employee fringe benefits" shall not include
any salary or other bonus plan, except as set forth in this
Agreement.
(e) Pursuant to a certain agreement, dated as of June
20, 1999, entered into between the Corporation and the Richard
Bravman Irrevocable Trust UAD 11/01/98, it is an obligation of
this Trust to reimburse the Corporation for all insurance
premiums it paid in connection with any policies owned by the
Trust. However, if the Corporation's interest in any policy is
purchased through a promissory note issued by the Trust, then the
Executive personally guarantees full payment of such debt.
5. AUTOMOBILE
During the period of the Executive's employment under
this Agreement, the Corporation shall make available to the
Executive the business and personal use of an automobile, with a
lease allotment of up to $1,000 per month as well as pay the
Executive's gasoline, maintenance and insurance expenses
associated with such automobile.
6. EXPENSES; OPTIONS
(a) The Corporation shall pay or reimburse the
Executive for all reasonable travel and other expenses incurred
or paid by him in connection with the performance of his duties
under this Agreement, upon presentation to the Corporation of
expense statements or vouchers and such other supporting
documentation as it may, from time to time, reasonably require;
provided however that the maximum amount available for such
expenses may, at any time or from time to time, be fixed in
advance by the Board of Directors of the Corporation.
(b) All outstanding options to purchase shares of
Common Stock of the Corporation now held by the Executive or
hereafter awarded to the Executive during the term of this
Agreement shall vest regardless of any conditions precedent to
the vesting of such options (such as passage of time) if and when
there is a "change in control of the Corporation" as hereafter
defined. As used in this Agreement, a "change in control of the
Corporation" shall mean a change in control of a nature that
would be required to be reported in response to Item 1 of Form 8-
K promulgated under the Securities Exchange Act of 1934, as
amended, (the "Exchange Act"); provided, that, without
limitation, such a change in control shall be deemed to have
occurred if (i) any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act), other than the Corporation
or any "person" who on the date hereof is a director or officer
of the Corporation, is or becomes the "beneficial owner", (as
defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Corporation representing 25% or
more of the combined voting power of the Corporation's then
outstanding securities and the Corporation's Board of Directors,
after having been advised that such ownership level has been
reached, does not, within fifteen (15) business days, adopt a
resolution approving the acquisition of that level of securities
ownership by such person; or (ii) during any period of two
consecutive years during the term of this Agreement, individuals
who at the beginning of such period constitute the Board of
Directors cease for any reason to constitute at least majority
thereof, unless the election of each director who was not a
director at the beginning of such period has been approved in
advance by directors representing at least two-thirds of the
directors then in office who were directors at the beginning of
the period.
(c) In addition to any rights to indemnification and
advancement of expenses that the Executive may have under the
Corporation's By-laws, the Executive shall be entitled at all
times to the benefit of the maximum indemnification and
advancement of expenses permissible from time to time under the
laws of the State of Delaware.
(d) The Corporation and/or any of its subsidiaries,
divisions or affiliates may, from time to time, apply for and
obtain, for its or their benefit and at its or their sole
expense, key man life, health, accident, disability, or other
insurance upon the Executive, in any amounts that it or they may
deem necessary or desirable to protect its or their respective
interests, and the Executive agrees to cooperate with and assist
the Corporation or such subsidiary, division or affiliate in
obtaining any and all such insurance by submitting to all
reasonable medical examinations, if any, and by filling out,
executing, and delivering any and all such applications and other
instruments as may reasonably be necessary.
7. INVENTIONS
(a) The Executive agrees to and hereby does assign to
the Corporation or any subsidiary, affiliate or division of the
Corporation designated by the Corporation, all his right, title
and interest throughout the world in and to all ideas, methods,
developments, products, inventions, processes, improvements,
modifications, techniques, designs and/or concepts relating
directly or indirectly to the Business of the Corporation (as
defined in subsection 10(e) below), whether patentable or
unpatentable, which the Executive may conceive and/or develop
during his employment by the Corporation (whether pursuant to
this Agreement or otherwise) and during the twenty-four (24)
month period following the termination of his employment, whether
or not conceived and/or developed at the request of the
Corporation or any subsidiary, affiliate or division (the
"Inventions"); provided, however, that if the Corporation or such
subsidiary, affiliate or division determines that it will not use
any such Invention or that it will license or transfer any such
Invention to an unaffiliated third party, then it will negotiate
in good faith with the Executive, if the Executive so requests,
with respect to a transfer or license of such Invention to the
Executive.
(b) The Executive further agrees to promptly
communicate and disclose to the Corporation any and all such
Inventions as well as, upon the Corporation's request, any other
knowledge or information which he may possess or obtain relating
to any such Inventions.
(c) In furtherance of the foregoing, the Executive
agrees that at the request of the Corporation, and at its
expense, he will make or cooperate in the making of applications
for letters patent of the United States or elsewhere and will
execute such other agreements, documents or instruments which the
Corporation may reasonably consider necessary to transfer to and
vest in the Corporation or any subsidiary, affiliate or division,
all right, title and interest in such Inventions, and all
applications for any letters patent issued in respect of any of
the foregoing.
(d) The Executive shall assist, upon request, in
locating writings and other physical evidence of the making of
the Inventions and provide unrecorded information relating to
them and give testimony in any proceeding in which any of the
Inventions or any application or patent directed thereto may be
involved, provided that reasonable compensation shall be paid the
Executive for such services and the Executive shall be reimbursed
for any expenses incurred by him in connection therewith, except
that during such period of time as the Executive is employed by
the Corporation, the Corporation shall not be obligated to
compensate the Executive beyond that provided under the terms of
this Agreement. The Corporation shall give the Executive
reasonable notice should it require such services, and, to the
extent reasonably feasible, the Corporation shall use its best
efforts to request such assistance at times and places as will
least interfere with any other employment of the Executive.
(e) At the expense of the Corporation, the Executive
shall assign to the Corporation all his interest in copyrightable
material which he produces, composes, or writes, individually or
in collaboration with others, which arises out of work performed
by him on behalf of the Corporation, and shall sign all papers
and do all other acts necessary to assist the Corporation to
obtain copyrights on such material in any and all jurisdictions.
8. CONFIDENTIAL INFORMATION
The Executive hereby acknowledges that, in the course
of his employment by the Corporation he will have access to
secret and confidential information, which relates to or affects
all aspects of the business and affairs of the Corporation and
its subsidiaries, affiliates and divisions, and which are not
available to the general public ("Confidential Information").
Without limiting the generality of the foregoing, Confidential
Information shall include information relating to inventions
(including, without limitations, Inventions), developments,
specifications, technical and engineering data, information
concerning the filing or pendency of patent applications,
business ideas, trade secrets, products under development,
production methods and processes, sources of supply, marketing
plans, and the names of customers or prospective customers or of
persons who have or shall have traded or dealt with the
Corporation. Accordingly, the Executive agrees that he will not,
at any time, during or after this Agreement terminates, without
the express written consent of the Corporation, directly or
indirectly, disclose or furnish, or negligently permit to be
disclosed or furnished, any Confidential Information to any
person, firm, corporation or other entity except in performance
of his duties hereunder.
9. CONFIDENTIAL MATERIALS
The Executive hereby acknowledges and agrees that any
and all models, prototypes, notes, memoranda, notebooks,
drawings, records, plans, documents or other material in physical
form which contain or embody Confidential Information and/or
information relating to Inventions and/or information relating to
the business and affairs of the Corporation, its subsidiaries,
affiliates and divisions and/or the substance thereof, whether
created or prepared by the Executive or by others ("Confidential
Materials"), which are in the Executive's possession or under his
control, are the sole property of the Corporation. Accordingly,
the Executive hereby agrees that, upon the termination of his
employment with the Corporation, whether pursuant to this
Agreement or otherwise, or at the Corporation's earlier request,
the Executive shall return to the Corporation all Confidential
Materials and all copies thereof in his possession or under his
control and shall not retain any copies of Confidential
Materials.
10. NON-COMPETITION
(a) The Executive agrees that he shall not, so long as
he shall be employed by the Corporation in any capacity (whether
pursuant to this Agreement or otherwise), without the express
written consent of the Corporation, directly or indirectly, own,
manage, operate, control or participate in the ownership,
management, operation or control or be employed by or connected
in any manner with any business, firm or corporation which is
engaged in any business activity competitive with the Business of
the Corporation or any subsidiary, affiliate or division of the
Corporation (as defined in Section 10(e) below).
(b) The Executive agrees that for a period of twenty
four (24) months commencing on the effective date of the
termination of his employment, whether such termination is
pursuant to the terms of this Agreement or otherwise, he shall
not, without the express written consent of the Corporation,
directly or indirectly, own, manage, operate, control, or
participate in the ownership, management, operation or control,
or be employed by any business, firm or corporation which is
engaged in any business activity competitive with the Business of
the Corporation or any subsidiary, affiliate, or division of the
Corporation (as defined in Section 10(e) below).
(c) During the term of this Agreement and for twenty
four (24) months commencing on the effective date of the
termination of his employment, whether such termination is
pursuant to the term of this Agreement or otherwise, the
Executive shall not, directly or indirectly, solicit, divert or
take away in whole or in part any customers or prospective
customers of the Corporation who were solicited or serviced
directly or indirectly by Executive or by anyone directly or
indirectly under Executive's supervision or with whom Executive
had any business relationship within the two (2) year period
prior to the termination of Executive's employment. The
Executive also agrees that during such period, he will not
directly or indirectly attempt to recruit or solicit or aid in
the recruitment or solicitation of any person who at the time of
such recruitment or solicitation (or within the six month period
prior thereto) is or was an employee, independent contractor or
consultant of the Corporation to terminate his or her employment
or relationship with the Corporation for the purpose of working
for the Executive, any competitor of the Corporation or any other
entity; nor shall Executive employ any such employee, independent
contractor or consultant.
(d) Anything to the contrary herein notwithstanding,
the provisions of this section shall not be deemed violated by
the purchase and/or ownership by the Executive of shares of any
class of equity securities (or options, warrants or rights to
acquire such securities, or any securities convertible into such
securities) representing (together with any securities which
would be acquired upon the exercise of any such options, warrants
or rights or upon the conversion of any other security
convertible into such securities) the lesser of (i) 1% or less of
the outstanding shares of any such class of equity securities of
any issuer whose securities are listed on a national securities
exchange or traded on NASDAQ, the National Quotation Bureau
Incorporated or any similar organization or (ii) securities
having a market value of less than $100,000 at the time of
purchase; provided, however, that the Executive shall not be
otherwise connected with or active in the business of the issuers
described in this subsection 10(d).
(e) "Business of the Corporation" shall mean any
business in which the Corporation and its subsidiaries,
affiliates and divisions are actively engaged, or are actively or
demonstrably planning to engage in, during the period of the
Executive's employment (whether pursuant to this Agreement or
otherwise) and at the time of termination thereof.
11. REMEDY FOR BREACH
The Executive hereby acknowledges that in the event of
any breach or threatened breach by him of any of the provisions
of sections 7, 8, 9 or 10 of this Agreement, the Corporation
would have no adequate remedy at law and could suffer substantial
and irreparable damage. Accordingly, the Executive hereby agrees
that, in such event, the Corporation shall be entitled, without
necessity of proving damages, and notwithstanding any election by
the Corporation to claim damages, to obtain a temporary and/or
permanent injunction to restrain any such breach or threatened
breach or to obtain specific performance of any of such
provisions, all without prejudice to any and all other remedies
which the Corporation may have at law or in equity.
12. TERMINATION
(a) This Agreement and the employment of the Executive
by the Corporation shall terminate upon the earliest of the dates
specified below:
(i) the close of business on the date as of which
the term of the Executive's employment hereunder has terminated
as provided in Section 2 hereof; provided, however, that such
term is not extended by any other agreement between the Executive
and the Corporation; or
(ii) the close of business on the date of the
death of the Executive; or
(iii) the close of business on the effective date
of the voluntary termination by the Executive of his employment
with the Corporation; or
(iv) the close of business on the fourteenth
(14th) day following the date on which the Corporation provides
the Executive with written notice of its intention to terminate
the Employment of the Executive for "cause" (as defined in
subsection 12(b)(1) below), which notice shall set forth the
basis for such termination; provided, however, within the first
(7) days of this period a representative of the Board of
Directors of the Corporation shall meet with the Executive and
discuss in detail the reasons for the Executive's termination and
permit the Executive (if the representative deems it possible) to
cure the refusal to perform, gross negligence or willful
misconduct asserted as the occurrence of such cause or, at the
Executive's request, permit him to resign without the
Corporation's making any public disclosure of the basis of the
Corporation's action (provided, however, that for purposes of
this Agreement any such resignation shall still be deemed to be a
termination for "cause" (as provided herein)), provided further
the Corporation shall not purport to terminate the Executive's
employment for "cause" unless there exists clear and convincing
evidence of the existence of such "cause" pursuant to the
criteria set forth in subsection 12(b)(1) below;
(v) the close of business on the last day of the
month in which the Board of Directors of the Corporation elects
to terminate the Executive's employment following and as a result
of the inability of the Executive, by reason of physical or
mental disability, for six (6) months within any twelve (12)
month period during the term of this Agreement, to render
services of the character contemplated by this Agreement.
(b) (1) For purposes of this Agreement, the term
"cause" shall mean a determination made in good faith by vote of
a majority of the members of the Board of Directors of the
Corporation then holding office (other than the Executive if he
shall then be a director) that one of the following conditions
exists or one of the following events has occurred;
(i) indictment of the Executive for a criminal
offense; or
(ii) the intentional refusal by the Executive
to perform such service as may legally and reasonably be
delegated or assigned to him, consistent with his position, by
the Chief Executive Office of the Corporation; or
(iii) willful misconduct or gross negligence on
his part in connection with the performance of such duties.
(c) (1) In the event of the termination of the
Executive's employment prior to August 1, 2004, for any reason
other than due to (i) his death or disability as provided in
subsection 12(a)(ii) or (v); (ii) his voluntary termination of
his employment with the Corporation pursuant to subsection
12(a)(iii); or his termination for cause as provided in
subsection 12(a)(iv), the Executive shall be paid an amount equal
to his annual base salary and the bonus actually earned by him
during the last completed fiscal year immediately preceding any
such termination. Said amount shall be paid within ninety (90)
days after such termination. In addition, Executive shall be
paid, one (1) year after such termination, an amount equal to his
annual base salary immediately preceding any such termination,
and his target bonus.
(2) Except as otherwise provided in
subsection 12(c)(1) above, in the event of the termination of the
Executive's employment for any reason other than due to (i) his
death or disability as provided in subsection 12(a)(ii) or 12
(a)(v); (ii) his voluntary termination of his employment from the
Corporation pursuant to subsection 12(a)(iii); or (iii) his
termination for cause as provided in subsection 12(a)(iv), the
Executive shall be paid at the time of such termination an amount
equal to the annual base salary and the bonus actually earned by
him during the last completed fiscal year immediately preceding
any such termination, or the payments and benefits to which
Executive would otherwise be entitled under the terms of the
Corporation's Severance Pay Plan then in effect, whichever is
greater.
(3) In the event Executive is eligible for
payment of his annual base salary and target or actual bonus,
whichever is applicable, pursuant to subsection 12(c)(1) or (2)
above, the Corporation shall, to the extent that the Executive's
continued participation is possible under the normal terms and
provisions of such plans and programs, continue to provide the
Executive, at the Corporation's sole expense, for one year after
the termination of his employment, with all of the employee
fringe benefits he was entitled to receive immediately prior to
the termination of his employment including but not limited to
life, health, and disability insurance and the use of the
automobile referred to in Section 5 (but the Executive shall not
be credited with an additional year of service in the Executive
Retirement Plan). In the event of any termination without cause
by the Corporation pursuant to section 12(c)(1) or (2), the
Corporation shall give the Executive at least 14 days' notice of
such proposed termination prior to the date his employment
termination shall be effective. The Executive shall not be
required to mitigate the amount of any payments provided for in
this subsection 12(c) by seeking other employment, nor shall
amounts payable under this subsection 12(c) be reduced as a
result of his obtaining other employment or otherwise being
compensated by any other employer following termination of his
employment with the Corporation.
(d) All the payments as set forth in subsection
12(c)(1) or (2) are contingent upon the Executive's signing at
the time of employment termination the Corporation's standard
waiver and release agreement.
13. NO CONFLICTING AGREEMENTS
In order to induce the Corporation to enter into this
Agreement and to employ the Executive on the terms and conditions
set forth herein, the Executive hereby represents and warrants
that he is not a party to or bound by any agreement, arrangement
or understanding, written or otherwise, which prohibits or in any
manner restricts his ability to enter into and fulfill his
obligations under this Agreement, to be employed by and serve as
an executive of the Corporation. The parties acknowledge and
agree that the Executive shall not use or disclose, or be
permitted to use or disclose, any confidential or proprietary
information belonging to any prior employer in connection with
his performance of services to the Corporation under this
Agreement.
14. MISCELLANEOUS
(a) This Agreement shall become effective as of the
date hereof and, from and after that time, shall extend to and be
binding upon the Executive, his personal representative or
representatives and testate or intestate distributees, and upon
the Corporation, its successors and assigns; and the term
"Corporation," as used herein, shall include successors and
assigns.
(b) Nothing contained in this Agreement shall be
deemed to involve the creation by the Corporation of a trust for
the benefit of, or the establishment by the Corporation of any
other form of fiduciary relationship with the Executive, his
beneficiaries or any of their respective legal representatives or
distributees. To the extent that any person shall acquire the
right to receive any payments from the Corporation hereunder,
such right shall be no greater than the right of any unsecured
general creditor of the Corporation.
(c) Any notice required or permitted by this Agreement
shall be given by registered or certified mail, return receipt
requested, addressed to the Corporation at its then principal
office or to the Executive at his residence address, or to either
party at such other address or addresses as it or he may from
time to time specify for the purpose in a notice similarly given
to the other party.
(d) This Agreement shall be construed and enforced in
accordance with the laws of the State of New York. Any dispute
or controversy arising under or in connection with this
Agreement, including, any claims for employment discrimination
under any federal, state, or local civil rights law, shall be
settled exclusively by binding arbitration in Suffolk County of
the state of New York and shall proceed under the rules then
prevailing of the Judicial Arbitration and Mediation Service
("JAMS"). The dispute shall be referred to a single arbitrator
to be mutually agreed to by the parties. If an arbitrator cannot
be agreed upon within sixty (60) days of a demand for arbitration
by either party, the dispute shall be referred to a single
arbitrator appointed by JAMS. Any award determined by an
arbitrator must be in accordance with the terms of this Agreement
and shall be final and binding upon the parties. Judgment upon
any award made in such arbitration may be entered and enforced in
any court of competent jurisdiction. The Corporation and the
Executive waive any right of appeal with respect to any judgment
entered on an arbitrator's award in any court having
jurisdiction. In the event that it is necessary for any party
hereto to incur legal expenses in defending its or his rights
hereunder, including but not limited to rights to reimbursement
of legal fees and expenses under this sentence, the losing party
shall reimburse the winning party for all reasonable legal fees
and expenses incurred by him or it as a result thereof.
(e) Except as stated otherwise herein, this instrument
contains the entire agreement of the parties relating to the
subject matter hereof, and there are no agreements,
representations or warranties not herein set forth. No
modification of this Agreement shall be valid unless in writing
and signed by the Corporation and the Executive. A waiver of the
breach of any term or condition of this Agreement shall not be
deemed to constitute a waiver or any subsequent breach of the
same or any other term or condition.
(f) If any provision of this Agreement shall be held
invalid, such invalidity shall not affect any other provision of
this Agreement not held so invalid, and all other such provisions
shall remain in full force and effect to the full extent
consistent with the law.
IN WITNESS WHEREOF, the parties hereto have duly
executed and delivered this Agreement as of the day and year
first above written.
SYMBOL TECHNOLOGIES, INC.
By: /s/Leonard H. Goldner
ATTEST:
/s/Walter Siegel
/s/Richard Bravman
EXECUTIVE
Exhibit 10.2
SYMBOL TECHNOLOGIES, INC.
EXECUTIVE RETIREMENT PLAN
(As amended as of October 21, 2002)
This Plan is a deferred compensation arrangement for a
select group of management or highly compensated employees, the
purpose of which is to attract and retain executive employees by
providing those who have proven their value and become eligible
for benefits hereunder with the assurance of income following
retirement.
ARTICLE I
DEFINITIONS
As used herein, the following terms shall have the
following meanings:
AFFILIATE: Any corporation eligible to join with
the Corporation in filing a consolidated federal
income tax return.
BENEFICIARY: The person or legal entity
designated to receive benefits hereunder after a
Participant's death in accordance with, or as
provided in, Article IV.
BENEFIT CEILING AMOUNT: The amount determined
under Section 3.2 hereof which is the maximum
Retirement Income Benefit payable to a Participant
hereunder.
BOARD: The Board of Directors of the
Corporation.
CODE: Internal Revenue Code of 1986, as amended.
COMMITTEE: The Compensation/Stock Option
Committee of the Board.
COMPENSATION: The sum of the salary paid by the
Corporation to a Participant during a Plan Year,
plus any cash bonuses of such Participant accrued
under the Corporation's Executive Bonus Plan with
respect to such year. Compensation shall not
include income, if any, derived from stock
options, expense reimbursements, and similar
employee perquisites.
CORPORATION: Symbol Technologies, Inc., a
Delaware corporation, its predecessor and any
successor thereto, and any Affiliate thereof.
DISABILITY: The inability of the Participant as
the result of a determinable physical or mental
impairment to perform in the usual manner enough
of the regular, substantial and material duties of
his position with the Corporation to be able to
successfully continue to serve in such capacity.
Disability will be presumed if the Participant is
determined to be eligible for benefits for total
disability by the Social Security Administration.
In all other cases, disability shall be determined
by the Committee.
EARLY RETIREMENT: Termination of a Participant's
full-time employment with the Corporation prior to
his Normal Retirement Date.
EFFECTIVE DATE: The effective date of the Plan
specified in Article II.
ELIGIBLE EMPLOYEE: A member of senior management
or a highly compensated employee of the
Corporation.
ERISA: Employee Retirement Income Security Act of
1974, as amended.
FINAL AVERAGE ANNUAL COMPENSATION: A
Participant's average Compensation for the three
highest years (or lesser number of full years of
employment) in the five year period ending on the
date he ceases to be a full-time employee of the
Corporation, or as applicable, the date of the
Plan Termination.
NORMAL RETIREMENT DATE: With respect to each
Participant, the date upon which he (i) attains
age sixty-five, or (ii) has both attained age
sixty and completed fifteen years of participation
in the Plan.
PARTICIPANT: An Eligible Employee who is selected
by the Committee to participate in the Plan.
PLAN: This Executive Retirement Plan, as it may
be amended from time to time.
PLAN TERMINATION: The termination of the Plan,
suspension of the accrual of benefits under the
Plan, substantial reduction in the benefits which
would otherwise accrue to Participants, or other
modification which materially and substantially
changes the nature of the Plan to the detriment of
a Participant without the express written consent
of the Participant.
PLAN YEAR: The year coinciding with the fiscal
year of the Corporation.
RETIREMENT: Termination of a Participant's full-
time employment with the Corporation on or after
his Normal Retirement Date.
RETIREMENT INCOME BENEFIT: The benefit to which a
Participant becomes entitled in accordance with
Article III.
ARTICLE II
EFFECTIVE DATE
This Plan shall become effective January 1, 1989.
ARTICLE III
RETIREMENT INCOME BENEFIT
3.1 ENTITLEMENT OF PARTICIPANTS TO BENEFITS
The amount of the Retirement Income Benefit to which a
Participant becomes entitled hereunder and the terms of payment
thereof shall be determined in accordance with the provisions of
this Article.
3.2 BENEFIT CEILING AMOUNT
With respect to each Participant, the Benefit Ceiling Amount
is the Participant's Final Average Annual Compensation multiplied
by five. Such amount is the maximum benefit to which a
Participant may become entitled under the Plan.
3.3 RETIREMENT INCOME BENEFIT
(a) Upon completing five successive years of
participation in the Plan, a Participant shall
become entitled to a Retirement Income Benefit
equal to 50% of his Benefit Ceiling Amount. For
each additional successive year of participation
in the Plan, up to and including ten years of
participation, the Participant shall become
entitled to an additional 10% of his Benefit
Ceiling Amount as a Retirement Income Benefit.
Accordingly, after ten successive years of
participation in the Plan, the Participant shall
be entitled to a Retirement Income Benefit equal
to his Benefit Ceiling Amount.
(b) For purposes hereof, (i) each Participant in the
first Plan Year shall be immediately credited with
a number of years of participation equal to such
Participant's number of complete years of service
to the Corporation in a management capacity prior
to the Effective Date, and (ii) the Committee may,
in its discretion, at the time of its selection of
an Eligible Employee to participate in the Plan
beginning in any subsequent Plan Year, credit such
new Participant with any number of years of
participation up to the number of complete years
of his service to the Corporation in a management
capacity prior to his participation in the Plan.
(c) The Retirement Income Benefit to which a
Participant would otherwise be entitled hereunder
shall be reduced by the value of retirement income
benefits of the Participant which are attributable
to contributions by the Corporation to any pension
plan hereafter adopted by the Corporation, which
is qualified under Section 401 of the Code.
Benefits under the Code Section 401(k) Plan
maintained by the Corporation on the Effective
Date shall not be taken into account for this
purpose.
3.4 PAYMENT OF RETIREMENT INCOME BENEFITS
(a) The Retirement Income Benefit to which a
Participant becomes entitled shall be payable in
120 equal and successive monthly installments
commencing the first day of the month following
the date of the Participant's Retirement. This
shall be the normal mode of payment and define the
entitlement of Participants hereunder; provided
however, for Participants who have more than ten
successive years of participation in the Plan, the
Retirement Income Benefit shall be paid for an
additional 12 months (after completion of the
first 120 installments) for each additional full
year of participation in the Plan in excess of 10
years up to a maximum of 60 additional monthly
installments.
(b) A Participant may elect to receive the Retirement
Income Benefit to which he becomes entitled
hereunder upon Retirement in a lump sum payment 60
days after the effective date of his Retirement,
provided that the amount of such lump sum payment
shall equal the then present value of the
Retirement Income Benefit payable in accordance
with Section 3.4(a). Such election shall be
exercised in writing within 30 days after the
Participant is notified by the Committee that he
has been selected to participate in the Plan (or
within 30 days after the adoption of the amendment
to the Plan authorizing this election, if later).
Any such election shall not be effective in the
event of Early Retirement.
(c) In the event of a Participant's Disability while
he is an employee of the Corporation and prior to
his Retirement, the Participant shall be entitled
to receive, 60 days after the determination of
his Disability and in a lump sum, the then
present value of the Retirement Income Benefit to
which he has become entitled hereunder. For
purposes hereof, in the case of a Participant
whose Disability occurs while he is an employee
of the Corporation and prior to his Retirement,
the Participant's full-time employment with the
Corporation shall be deemed to have terminated on
the date of determination of his Disability.
(d) In the event of a Participant's death, whether
prior to Retirement or prior to receipt of all
payments to which he may be entitled under Section
3.4(a), (b) or (c), the Participant's Beneficiary
shall be entitled to receive, 60 days after such
death and in a lump sum, the then present value of
the payments to which the Participant would have
become entitled had he survived. For purposes
hereof, in the case of a Participant whose death
occurs prior to his Retirement, the Participant's
full-time employment with the Corporation shall be
deemed to have terminated on the date of his
death.
(e) In the event of a Plan Termination, each
Participant shall be entitled to receive, within
60 days after the date thereof and in a lump sum,
the then present value of the Retirement Income
Benefit to which such participant has become
entitled under the Plan.
(f) Present value computations required hereunder (and
under Section 3.3(c) and 3.5) shall be made using
a discount rate equal to the federal long term
rate described in Code Section 1274(d)(1)(A) which
is then in effect.
3.5 SOURCE OF PAYMENT
All benefits hereunder shall be an obligation of the
Corporation, payable in cash from the general funds of the
Corporation, and no special or separate fund shall be established
or other segregation of assets made with respect to which the
Plan, or any Participant or Beneficiary, shall have any rights
greater than any unsecured general creditor of the Corporation.
3.6 FORFEITURE OF BENEFITS
The right of a Participant or his Beneficiary to receive the
Retirement Income Benefit provided hereunder shall be forfeited
if the Participant is discharged from employment with the
Corporation for acts which would constitute a felony under the
laws of the United States or any state thereof.
ARTICLE IV
DESIGNATION OF BENEFICIARIES
4.1 DESIGNATION
Each Participant shall file with the Committee a written
designation of one or more persons as the Beneficiary who shall
be entitled to receive the amount, if any, payable upon his
death. Such designation shall be in the form specified by the
Committee. A Participant may from time to time revoke or change
his Beneficiary by filing a new designation with the Committee.
The last such designation received by the Committee shall be
controlling; provided, however, that no designation, or change or
revocation thereof, shall be effective unless received by the
Committee prior to the Participant's death, and in no event shall
it be effective as of a date prior to such receipt.
4.2 FAILURE OF DESIGNATION
If no such Beneficiary designation is in effect at the time
of a Participant's death, or if no designated Beneficiary
survives the Participant, or if such designation conflicts with
any applicable law, the Participant's estate shall be the
Beneficiary entitled to receive any amounts payable hereunder.
The Committee may direct the Corporation to retain such amounts,
without liability for any interest thereon, until the rights
thereto are determined, or it may direct the Corporation to pay
such amount into any court of appropriate jurisdiction and such
payment shall be a complete discharge of the liability of the
Plan and the Corporation therefore.
ARTICLE V
ADMINISTRATION OF PLAN
5.1 COMMITTEE IS ADMINISTRATOR
The Plan shall be administered by the Committee which shall
have full power, discretion and authority to interpret, construe
and administer the Plan and any part thereof, including all
issues with respect to entitlement to and the amount of
Retirement Income Benefits provided hereunder. The Committee's
interpretation and construction hereof, and actions hereunder,
shall be binding and conclusive on all persons for all purposes.
5.2 SELECTION OF PARTICIPANTS
The Committee shall from time to time select Eligible
Employees to become Participants in the Plan based upon such
factors as the Committee deems relevant. Notice shall be given
to each Eligible Employee who is selected and such employee shall
become and remain a Participant in accordance with the terms
hereof until the earlier of (i) the termination of his full-time
employment with the Corporation, or (ii) the termination of the
Plan.
5.3 ERISA COMPLIANCE
The Committee shall take such actions as may be necessary or
appropriate to comply with the applicable provisions of ERISA.
Such actions shall include, without limitation, filing with the
Department of Labor a statement with respect to the Plan
containing information specified in Labor Regs. Sec. 2520.104-23,
providing to Participants information with respect to the Plan
and Participants rights hereunder in accordance with ERISA Sec. 104
(b), and establishing a claims procedure in accordance with ERISA
Sec. 503 to assure a fair resolution of any dispute regarding
benefits payable hereunder.
5.4 RULES, ETC.
The Committee may from time to time adopt such rules,
regulations, procedures and forms as it deems necessary or
appropriate for the administration of the Plan.
ARTICLE VI
AMENDMENT
The Board may amend or terminate the Plan, but no such
action shall retroactively impair or otherwise adversely affect
the rights of any person to benefits under the Plan which have
accrued prior to the date (or as the result) of such action.
ARTICLE VII
GENERAL PROVISIONS
7.1 ASSIGNMENT PROHIBITED
The right of any Participant or other person to the payment
of benefits under the Plan may not be assigned, transferred,
pledged, or encumbered, either voluntarily or by operation of
law, except as provided in Article IV with respect to
designations of Beneficiaries hereunder, or as may otherwise be
required by law.
7.2 INCOMPETENCE OF BENEFICIARY
If the Committee shall find that any person to whom any
amount is payable under the Plan is unable to care for his
affairs because of illness or accident, or is a minor, then any
amount due (unless a prior claim therefore shall have been made
by a duly appointed guardian, committee or other legal
representative) may be paid to his spouse, a child, a parent, or
a brother or sister, or any other person deemed by the Committee
to have incurred expenses for such person otherwise entitled to
payment, in such manner and proportions as the Committee may, in
its discretion, determine. Any such payment shall be a complete
discharge of the liability of the Corporation therefore under the
Plan.
7.3 BENEFITS NOT SALARY
Any amount payable under the Plan shall not be deemed salary
or other compensation for the purpose of computing benefits under
any employee benefit plan or other arrangement of the Corporation
for the benefit of its employees.
7.4 PLAN NOT EMPLOYMENT AGREEMENT
Neither the Plan nor any action taken hereunder shall be
construed as giving to any Participant the right to be retained
in the employ of the Corporation or as affecting the right of the
Corporation to dismiss any Participant.
7.5 GENDER
As used herein, all pronouns, nouns and any variations
thereof shall be deemed to refer to the masculine, feminine or
neuter, as the circumstances require.
7.6 CAPTIONS FOR CONVENIENCE
The captions preceding the Articles and Sections hereof have
been inserted solely as a matter of convenience and in no way
define or limit the scope or intent of any provision hereof.
7.7 APPLICABLE LAW
The Plan and all rights thereunder shall be governed by and
construed in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the Vice Chairman and Chief Executive
Officer of the Corporation has hereunto affixed his signature
signifying the adoption of this Plan by the Board of Directors of
the Corporation
/s/ Richard Bravman
Vice Chairman and
Chief Executive Officer
Exhibit 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Symbol
Technologies, Inc., (the "Company") on Form 10-Q for the period
ended September 30, 2002 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, Richard
Bravman, Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements
of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
(2) The information contained in the Report fairly
presents, in all material respects, the
financial condition and results of operations
of the Company.
/s/Richard Bravman_________
Richard Bravman
Vice Chairman of the Board
of Directors and
Chief Executive Officer
Dated: November 14, 2002
Exhibit 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Symbol
Technologies, Inc., (the "Company") on Form 10-Q for the period
ended September 30, 2002 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, Kenneth
V. Jaeggi, Chief Financial Officer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements
of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
(2) The information contained in the Report fairly
presents, in all material respects, the
financial condition and results of operations
of the Company.
/s/Kenneth V. Jaeggi_______
Kenneth V. Jaeggi
Senior Vice President -
Chief Financial Officer
Dated: November 14, 2002