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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to __________________.
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, New York 11742-1300
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (631) 738-2400
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Common Stock, par value $.01 New York Stock Exchange
(Title of Each Class) (Name of Each Exchange on Which Registered)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE.
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 [ ] NO [X]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act).
YES [X] NO [ ]
The aggregate market value of the registrant's voting and non-voting
stock held by persons other than officers and directors and affiliates thereof,
as of the last business day of the second fiscal quarter ended June 30, 2003 was
$2,946,867,623.
The number of shares outstanding of each of the registrant's classes of
common stock, as of December 26, 2003, was as follows:
Class Number of Shares
----- ----------------
Common Stock, par value $0.01 231,205,860
DOCUMENTS INCORPORATED BY REFERENCE: NONE.
SYMBOL TECHNOLOGIES, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2002
TABLE OF CONTENTS
Page Number
PART I............................................................................................................1
Item 1. Business........................................................................................1
Item 2. Properties.....................................................................................27
Item 3. Legal Proceedings..............................................................................28
Item 4. Submission of Matters to a Vote of Security Holders............................................36
Item 4A. Executive Officers of the Registrant...........................................................37
PART II..........................................................................................................40
Item 5. Market for the Registrant's Common Equity and Related Security Holder Matters..................40
Item 6. Selected Financial Data........................................................................40
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..........41
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.....................................68
Item 8. Financial Statements and Supplementary Data....................................................69
Item 9. Disagreements on Accounting and Financial Disclosure...........................................69
Item 9A. Controls and Procedures........................................................................69
PART III.........................................................................................................74
Item 10. Directors and Executive Officers of the Registrant.............................................74
Item 11. Executive Compensation.........................................................................77
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters ...................................................................88
Item 13. Certain Relationships and Related Transactions.................................................92
PART IV..........................................................................................................93
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K................................93
Signatures
Exhibits
PART I
References herein to "Symbol," "we," "us" or "our" refer to Symbol Technologies,
Inc. and its subsidiaries unless the context specifically states or implies
otherwise.
INTRODUCTORY NOTE
Symbol Technologies, Inc. is today filing this Annual Report on Form
10-K for its fiscal year ended December 31, 2002. This annual report was delayed
as a result of Symbol's internal investigations and the resulting restatement of
our selected financial data for 1998, 1999, 2000 and 2001, financial statements
for the years ended December 31, 2000 and 2001, and unaudited selected quarterly
information for each of the four quarters of 2001 and the first three quarters
of 2002. See Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 2 to the Consolidated Financial
Statements included elsewhere herein. In this annual report, words such as
"today," "recently," "current" or "currently," or phrases such as "as of the
date hereof" or "as of the date of this report," refer to December 30, 2003, the
date we are filing this report with the Securities and Exchange Commission (the
"Commission" or the "SEC").
Our Quarterly Reports on Form 10-Q for the fiscal quarters ended March
31, 2003, June 30, 2003 and September 30, 2003 have also been delayed as a
result of our internal investigations and the restatement. We intend to file
these quarterly reports as soon as practicable.
The Consolidated Financial Statements for fiscal years 2000, 2001 and
2002 included in this report have been audited by Symbol's independent auditors,
Deloitte & Touche LLP. While the selected financial information for fiscal years
1998 and 1999 included in this report is unaudited, the financial information
presented for these periods are presented on a basis that is consistent with the
audited Consolidated Financial Statements for fiscal years ended 2000, 2001 and
2002. We have not amended, and do not intend to amend, any of our previously
filed annual or quarterly reports. Therefore, financial information that has
been previously filed or otherwise reported for these periods should no longer
be relied upon and is superseded by the information in this annual report.
ITEM 1. BUSINESS
OVERVIEW
We are a leader in secure mobile information systems that integrate
application-specific handheld computers with wireless networks for data, voice
and bar code data capture. Our goal is to be one of the world's preeminent
suppliers of mission-critical mobile computing solutions to both business and
industrial users.
Symbol manufactures products and provides services to capture, manage
and communicate data using three core technologies - bar code reading and image
recognition, mobile computing and networking systems. Our products and services
are sold to a broad and diverse base of customers on a worldwide basis and in
diverse markets such as retail, transportation, parcel and postal delivery
services, warehousing and distribution, manufacturing, healthcare, hospitality,
security, education and government. We do not depend upon a single customer, or
a few customers, the loss of which would have a material adverse effect on our
business.
We are engaged in two reportable business segments: (1) the design,
manufacture and marketing of mobile computing, automatic data capture, and
wireless network systems (the "Product Segment"); and (2) the servicing of,
customer support for and professional services related to these systems (the
"Services
1
Segment"). Each of our operating segments uses its core competencies to provide
building blocks for mobile computing solutions. Operating and geographic segment
financial information is found in Note 20 to the Consolidated Financial
Statements.
Symbol Technologies, Inc. is a Delaware corporation and is the
successor by merger in 1987 to Symbol Technologies, Inc., a New York corporation
that commenced operations in 1975.
RECENT DEVELOPMENTS
In May 2001, we initiated a review of certain financial matters in
response to an inquiry from the Commission. In connection with that review, and
a subsequent, substantially more detailed and extensive review, we identified
accounting errors and irregularities relating to our previously issued financial
statements. As a result, we are restating our selected financial data for 1998,
1999, 2000 and 2001, financial statements for the years ended December 31, 2000
and 2001, and unaudited selected quarterly information for each of the four
quarters of 2001 and first three quarters of 2002. These matters are discussed
in more detail in Item 3 and Item 7 of this Annual Report on Form 10-K.
The adjustments necessary to restate our financial statements in
accordance with accounting principles generally accepted in the United States of
America ("U.S. GAAP") relate to widespread errors and irregularities primarily
involving the timing and amount of product and service revenues recognized and
the timing and amounts recognized with respect to certain reserves,
restructurings, certain option programs and several categories of cost of
revenue and operating expenses. We reversed cumulative net revenue of
$234,220,000 and cumulative net earnings of $324,722,000 that had previously
been recognized through the period ended September 30, 2002. As of September 30,
2002, our restated Stockholders' Equity was $946,261,000 as compared with
$1,171,393,000 as originally reflected in our Form 10-Q for the quarter then
ended.
We have been informed that the Commission and the United States
Attorney's Office for the Eastern District of New York (the "Eastern District"),
with whom Symbol is cooperating, are conducting investigations relating to these
errors and irregularities.
The effects of these adjustments on the Consolidated Financial
Statements are presented in Note 2 to the Consolidated Financial Statements and
have been reflected in the information and disclosures in this annual report.
Financial information included in reports on Form 10-K, Form 10-Q and Form 8-K
that we have previously filed should not be relied upon and are superseded by
the information in this Annual Report on Form 10-K. Our Quarterly Reports on
Form 10-Q for the quarterly periods ended March 31, 2003, June 30, 2003 and
September 30, 2003 will be filed with the Commission as soon as practicable
after the filing of this Annual Report on Form 10-K and the information
contained therein will supersede any financial information included in any
report on Form 8-K that we previously filed for the quarters ended March 31,
2003, June 30, 2003 and September 30, 2003.
On December 30, 2003, Symbol announced that Richard Bravman, a director
of Symbol and our Chief Executive Officer and Vice Chairman of the Board of
Directors, has resigned from his executive and board positions, effective
immediately. The Board of Directors has named William Nuti, Symbol's President
and Chief Operating Officer, to succeed Mr. Bravman as Chief Executive Officer
and Mr. Nuti will also serve as a director. Symbol has also named Salvatore
Iannuzzi, a non-executive of Symbol and currently a director, as Chairman of
the Board of Directors. Mr. Bravman is expected to remain with Symbol for one
year as a senior advisor to Mr. Nuti and Symbol's Board of Directors.
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PRODUCT SEGMENT
GENERAL
Symbol develops, manufactures, sells and services scanner-integrated
mobile and wireless information management systems that consist of mobile
(primarily handheld) computing devices, wireless local area networks (or
wireless LAN) and wireless wide area networks (or wireless WAN), radio
subsystems, bar code reading devices, network appliance devices (such as
voice-over-IP, cordless telephones, peripheral devices and software and
programming tools). These products are designed to provide solutions to
customer-specific needs in information transactions, and are used worldwide in
diverse markets such as retail, transportation, parcel and postal delivery
services, warehousing and distribution, manufacturing, healthcare, hospitality,
education and government. For the year ended December 31, 2002, Product Segment
net revenue was $1,103.1 million, which represented 78.7% of total revenues. See
Note 20 to the Consolidated Financial Statements included elsewhere herein.
Most of these systems are used for mission-critical business operations
such as merchandise ordering and price control, stock management, point-of-sale,
production control, delivery confirmation, route accounting and military
logistics and in various healthcare applications. Customers purchase our
products to enhance productivity, quality control and customer service.
Collectively, our products and services deliver to our customers end-to-end
mission-critical mobility solutions such as controlling the flow of merchandise
to a retail chain.
Mobile Computing. Our mobile computing devices are durable, lightweight
battery-operated hand-held computers. Symbol's newest designs are mostly based
on industry-standard Intel(R) CPUs and industry-standard Microsoft(R), Palm(R)
and Linux(R) handheld operating systems. Information may be captured by a device
that reads bar codes or it may be manually entered via a keyboard or touch
screen on a pen computer display/data entry device. The information collected by
the mobile computing device can then be transmitted quickly to a host computer
across a wireless LAN or wireless WAN, or via batch file transfer. More than 90
percent of our mobile computing devices include an integrated bar code reader
and approximately 90 percent offer optional integrated wireless LAN or wireless
WAN communication capability.
Automatic Data Capture. We design, manufacture and distribute the most
complete line of bar code reading equipment in the world. Our bar code reading
products consist of devices designed to capture and decode one- and
two-dimensional bar code symbols and store, process and transmit information.
Our bar code reading equipment includes hand-held bar code readers, portable
presentation scanners, fixed station point-of-sale scanners, and miniature "scan
engines" (for use within our own products and for integration by original
equipment manufacturers ("OEM")), most of which employ laser technology to read
information encoded in bar code symbols. Our bar code reading equipment is
compatible with a wide variety of information collection and retrieval systems,
including computers, electronic cash registers, portable information collection
devices and the Internet.
Wireless Networking Systems. Symbol provides wireless communication
solutions that connect its mobile computing devices and bar code reading
equipment to wireless LANs and wireless WANs. Based on industry-standard
unlicensed spread spectrum radio frequency, or RF, technology, our wireless LAN
products provide real-time wireless data communication and in combination with
our devices integrated with telephony capability, provide wireless voice and
data communication. Research, development, design, marketing and support for our
wireless network systems are conducted mainly at Symbol's San Jose, California
facility. The focus of the division is the design and development of wireless
network client and infrastructure solutions for the highly mobile transaction
processing systems market. In addition, our wireless infrastructure business
unit in San Jose, California provides support for
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the integration of those high-performance networks into customers' data networks
and enterprise-wide information systems.
PRODUCTS AND TECHNOLOGY
In 2003, we reorganized Symbol's product families into four core
technology areas - Mobile Computing, Advanced Data Capture, Wireless
Infrastructure and Mobility Software. These areas, with recent key product and
product line developments, are described below.
MOBILE COMPUTING
Portable Data Terminals
The portable data terminal, or PDT, family of mobile computing devices
features advanced technology including application specific integrated circuits
("ASICs") and very large scale integrated ("VLSI") circuits. These circuits
incorporate many standard integrated circuits into one computer chip, allowing
for size and cost reductions. Also, the PDT family employs surface mounted
component technology for reduced size and increased performance and
dependability, as well as industry standard 8-, 16- and 32-bit microprocessors.
The PDT family includes a series of mobile computing devices that are available
with different features and at varying costs depending on customer requirements
and preferences. PDT mobile computing devices feature up to one-quarter VGA
liquid crystal display; slim, lightweight design; multiple input and output
ports; and up to 96 megabytes of internal memory. PDT mobile computing-devices
have various keyboard configurations, including a user-configurable keyboard.
The PDT family was originally introduced in 1985. Our PDT devices serve the
warehouse, hospitality and industrial markets and are useful in route accounting
and other logistical applications.
In 2002, we introduced the PDT 8000 series. The PDT 8000 features the
Intel(R) XScale(TM) PXA250 processor, the Microsoft(R) Pocket PC operating
system and currently has the largest VGA display in this product class. The PDT
8000 offers wireless LAN, wireless WAN or wireless personal area network
communication options.
In 2003, we introduced the MC-9000G handheld ruggedized mobile
computer. In addition to its bar code intensive data capture abilities, the
MC-9000G introduces a wireless and mobile computing platform that may be
upgraded and custom tailored to a customer's specific requirements. Key
applications for the MC9000-G include inventory management, price verification,
shipping/receiving, warehouse management, shop floor data capture and baggage
reconciliation. Built around the Intel(R) XScale(TM) embedded processor, the
MC-9000G is designed for longer battery life. The MC9000-G offers Symbol "fuzzy
logic" technology in its standard and extended-range laser scanning
configurations as well as two-dimensional imaging with Symbol "smart focus"
technology. Symbol's MC9000-G is available with either Microsoft(R) Windows(R)
CE.NET or Windows(R) Mobile 2003 operating system variants.
Enterprise PDA
In 1998, Symbol and Palm Computing, Inc., developer of the Palm(R) line
of handheld computers, entered into an agreement under the terms of which we
manufacture and distribute touch- and pen-input personal productivity tools
utilizing the Palm operating system with an embedded bar code reading device. A
new agreement between Symbol and Palm Computing, Inc. was executed in 2001 and
is set to expire in 2005.
Introduced in 1998, the SPT 1500, a pocket-sized mobile computing
device based upon the Palm III architecture, was the first of such products we
introduced.
4
In 1999, we introduced a ruggedized form factor version of the Palm
III, the SPT 1700. With an embedded laser scan engine, the SPT 1700 provided
users with bar code scanning technology for collecting information while the
Palm operating system allowed programmers to easily build applications using
scan-embedded graphical development tools. The SPT 1700 is suited for point of
activity information management and is used in office workflow automation, route
accounting, healthcare, education, retail, industrial and warehouse settings. In
2002, we introduced the SPT 1800, the next series of the SPT 1700, which
contains a 33MHZ processor and a high contrast LCD display.
Also in 1999, we introduced a Microsoft Windows CE operating system
version of the ruggedized Palm family, the PPT 2700.
In 2000, we introduced two wireless WAN versions of the pocket-sized
mobile computing device, the SPT 1733 and SPT 1734. The SPT 1733 works with the
CDPD network while the SPT 1734 is based on the GSM standard. Both products
offer Internet connectivity and enable access to web-based applications or
corporate intranet data from any phone where wireless IP service is available.
In 2001, we replaced the PPT 2700 with the PPT 2800, a Pocket PC-based
terminal that includes bar code scanning and real-time wireless communication
options. The PPT 2800 features Internet browsing capabilities; wireless LAN or
wireless WAN communication; the Intel(R) StrongARM SA 1110 processor, running at
206 MHz; 32 or 64 MB of RAM; and 32 MB of ROM. In 2001, we also introduced
versions of the PPT 2800 with a color screen.
In 2003, we introduced the PPT 8800, a slim handheld computer in the
PDA format based upon the Microsoft Windows CE 4.1 (also known as CE.NET)
operating system. The PPT 8800 features laser bar code scanning, ruggedization
and wireless LAN connectivity, but its smaller streamlined size enables it to
extend into new enterprise applications such as mobile shopping, mobile
point-of-sale and mobile SAP access. In the near future, the PPT 8800 will also
offer our first Bluetooth(TM) wireless connectivity option to customers.
Voice-Over IP Telephony
In 1998, we introduced the NetVision(R) wireless LAN voice-over IP
telephony system. The telephone looks like a standard cellular telephone and
allows users to place or receive calls worldwide, without additional charge,
between other telephones or PC-based telephones located at any site served by an
internal TCP/IP network. The NetVision VoIP system integrates wireless voice and
data over a TCP/IP network via Symbol's Spectrum 24 wireless LAN. In 1999, we
introduced the NetVision Data Phone, which integrates voice communication, a bar
code scanner, a data-entry keypad, a Web browser, a serial port for printing and
a Spectrum 24 wireless LAN radio card into a single lightweight device.
In 2001, we introduced a Spectrum 24 high rate 802.11b version of the
NetVision phone and several new NetVision software clients.
ADVANCED DATA CAPTURE
Wearable Scanners
In 1995, we introduced our first wearable scanning system, the WSS
1000, a hand-mounted information transaction system that allows mobile
hands-free bar code scanning, information collection and LAN connectivity. The
WSS 1000 wearable computer system was designed for users who rely on the
efficiency and accuracy of bar code scanning but require the use of both hands
to perform job functions. The system, which consists of two components, combines
the RS-1, a miniature scanner worn as a ring
5
that allows the user to simply touch a thumb and index finger contact switch to
scan a bar code, and a compact, light-weight, wrist-mounted computer with
display which permits wireless communication to the host computer.
In 1997, we introduced the WS 1200-LR, a back-of-the-hand mounted
scanner. Similar to the RS-1 wearable scanner, the WS 1200-LR is triggered by a
thumb-activated switch mounted on the user's index finger, however the WS
1200-LR is capable of scanning at longer distances than the RS-1 ring scanner.
In 2001, we introduced the SRS-1 ring scanner, a lightweight low
profile design that allows users to pick, scan and pack items in tight spaces.
Hand-Held Scanners
We currently offer several different handheld laser scanners, the most
significant of which is the LS 4000I. The LS 4000I was introduced in 1998. The
LS 4000I is a trigger-operated, visible laser diode-based scanner capable of
reading PDF 417, a high-density, high-capacity portable data file storing
approximately one kilobyte of data in a machine-readable code, and all
conventional linear bar codes. PDF 417 is a two-dimensional bar code symbology
that incorporates error correction capability and has one hundred times the
information capacity of a traditional linear bar code. Unlike linear bar codes,
PDF 417 can contain an entire data record, reducing or eliminating the need for
an external system of linked information storage. PDF 417 may be read by either
a laser-based bar code reader or a CCD imager. Most other two-dimensional codes
can only be read by a CCD imager.
In 2002, we introduced the LS 4008I as an update to the LS 4000I. The
LS 4008I gave the LS 4000I a new appearance, greater durability, a more powerful
microprocessor for even better scanning performance on poorly printed bar codes,
and the ability to have one unit capable of communicating to a large variety of
popular POS host terminals. This feature provides flexibility for retailers who
may migrate to different host terminals and also benefits distribution partners
who stock a single model and respond to a wide variety of demand.
In 2001, we introduced the Cobra(TM) LS 1900 series, a lower cost
lightweight scanner. The LS 1900 scanner, available in a trigger operated
version or with a hands-free stand to allow for presentation scanning, is
well-suited for use in convenience and specialty stores.
In 2002, we introduced the Cobra LS 1908 series, capable of
communicating to a large variety of popular POS host terminals. Similar to the
LS 4008I, the LS 1908 provides investment protection for retailers who may
migrate to different host terminals and benefits wide response distribution
partners.
In 2003, we introduced the LS 2200 series. The LS 2200 features a
liquid injection molded scan element that contains no bearings, moving parts or
need for lubrication and is made from highly flexible material in a one-step
economical manufacturing process. The scan element is guaranteed over the life
of the product. The LS 2200 also features multiple-interface capability that
allows it to migrate from one host terminal to another by a simple cable change.
Introduced by Symbol in 2000, the Cyclone(R) M 2000 Series is a
versatile countertop projection and handheld scanner that allows users to select
from three different scan patterns depending upon their scanning requirements.
With an integrated laser scan engine, the M 2000 is capable of scanning in a
rotating omni-directional scan pattern for reading linear bar codes in any
orientation, a smart raster scan pattern for reading two-dimensional bar codes
and a high- density single-line scan pattern for reading poorly printed and
damaged bar codes. Designed for retail and light industrial use, the M 2000's
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ergonomic built-in stand provides for both handheld scanning and hands-free
counter top or wall mount scanning.
Hands-Free Scanners
In addition to our handheld scanners, we also offer several families of
"hands-free" scanners. Unlike our handheld scanners, these scanners are usually
triggered by an object sensor to enable use in situations where use of both
hands is required.
We introduced the LS 5700 and the LS 5800 miniaturized slot scanners in
1996. The LS 5700 was designed to accommodate all vertical or "on counter"
applications and incorporates a full sleep mode function that allows the motor
and laser to turn off after a prolonged period of scanner inactivity, extending
scanner longevity and reducing power consumption. The LS 5800 operates in
horizontal or "in counter" applications and features rugged housing and a sealed
exit window that resists spills and dirt.
In 2003, we introduced the LS 9208, the next generation of the laser
diode-based projection scanner. The LS 9208's rastering feature provides more
aggressive scanning capability by moving the scan pattern to eliminate scan
pattern "holes" and quickly capturing bar code data regardless of how the bar
code is presented to the scanner. It allows the scanner to read highly truncated
and poorly printed bar codes faster and more accurately. With a scan pattern
repetition rate of 1500 scans per second, the LS 9208 is 12 percent faster than
its predecessor, the LS 9100, and its processing speed is 7 1/2 times faster
than that of the LS 9100. The LS 9208 is capable of reading all ID bar code
types, including reduced space symbologies.
Scan and Imaging Engines
In 1990, we began marketing bar code laser scan engines that are
integrated by unaffiliated third parties into their portable computing devices.
In 2003, we introduced the SE 1400HS, a scan engine designed for the
Japanese retail market and contact reading at extreme pitch angles. The SE
1400HS engine departs from our traditional form factors, and contains unique
features that make it suitable for contact scanner replacement and some
specialty and portable applications.
Also introduced in 2003 was Symbol's new MiniScan(R) family, the next
generation of scan modules. The MiniScan family offers Symbol's high performance
scan engines, along with a housing, exit window, decoder and variety of
interfaces (including USB), in a compact durable housing. All of the MiniScan
products can be easily used as an industrial fixed-mount or embedded scanner.
The feature offers flexibility in applications such as kiosks, ATMs, warehousing
and manufacturing assembly lines, conveyer belts, clinical diagnostic equipment,
gas pumps, security identification and robotic arms.
Self Scanning & Self Checkout
In 2001, we introduced the MK 1000 microkiosk, an interactive,
automated customer self-service device. An integrated omni-directional scanner
allows customers to pass a bar code label in front of the MK 1000's scan window,
which provides price and product information and real-time information on
in-store and frequent shopper promotions.
In connection with our acquisition of @pos in 2002, we began offering
products in three new major product categories: signature-capture terminals,
payment transaction terminals and trusted services. The PenWare 1500 is a rugged
signature capture pad for the retail, government and banking
7
markets incorporating a backlit pressure-sensitive screen to capture electronic
signatures for retrieval, printing, faxing or emailing. The iPOS TC, iPOS TX and
3100 are transaction terminals used in the point-of-sale environment that
provide interactive functions including signature capture, promotional message
and line item display; and debit, credit and smart card payment processing. The
iPOS TC introduces a second wireless LAN or fixed ethernet channel allowing IP
addressability and simultaneous routing of messages, payment information and
digital signatures synchronized between a point of sale and remote server
connection.
We recently introduced our customer access technology, or CAT, suite of
enterprise mobility solutions, which incorporates a number of our self-scanning
and self-checkout products into complementary systems. We have selected products
such as the Personal Shopping System, the MK 2000, the PPT 8800 and the iPOS
Transaction System as the cornerstones for building systems addressing four core
categories of retail solutions-mobile point-of-sale, inventory management, shelf
price audit and interactive shopping solutions.
WIRELESS INFRASTRUCTURE
Spectrum 24(R)
Introduced in 1996, the Symbol Mobile Gateway ("SMG") is an
industrialized, PC-based host computer designed for installation in truck cabs
and cars. A wireless WAN radio modem provides communication across major wide
area network systems to a user's enterprisewide network, and Spectrum 24 LAN
capability connects the SMG to Symbol's mobile computing devices, providing
in-vehicle connectivity and communication capabilities for motor freight, parcel
delivery and private fleet operations.
We also offer spread spectrum-based, wireless LAN products. Spectrum
24, introduced in 1995, is a high-performance, frequency hopping network that
operates at 2.4 GHz frequency. Based on unlicensed spread spectrum RF
technology, Spectrum 24 networks provide real-time wireless data communications
with a host computer for hundreds of portable and fixed-station computers and
radio-integrated scanners. In 1998, we introduced a 2Mbps version of the
Spectrum 24 network, and, in 1999, we introduced a direct sequence, wireless LAN
that supports high throughput applications up to 11 Mbps. This high data rate
wireless LAN, based on the IEEE 802.11b Wi-Fi standards for 11 Mbps data
transmission, now provides users with high-speed wireless capabilities for rapid
data transfer from server to terminal, image transfer, Internet communications,
customer self-scanning services and streaming video. In 2000 and 2001, we
introduced additional Wi-Fi compliant high data rate radio cards and access
points. Installation of our wireless networks at various customer sites began in
1991 and these networks are now installed in more than 125,000 sites worldwide.
These spread spectrum-based systems work in tandem with a broad range of our
wireless mobile computing and telephony devices.
Symbol Wireless Switch
In 2003, we introduced our first generation Symbol Wireless Switch,
which was developed to integrate with existing enterprise backbones from network
vendors including 3Com, Cisco Systems, Extreme Networks and Nortel Networks. The
Symbol Wireless Switch connects via standard 100BaseT cabling and related
components (including standard Ethernet hubs and switches) to Symbol's IEEE
802.11a/b Access Port. The Symbol Wireless Switch system is open, extensible and
expandable. Its design allows for frequency hopping, 802.11b, 802.11a and other
emerging standards and even provides an upgrade path to allow legacy access
points to become members of the Symbol Wireless Switch system. The Symbol
Wireless Switch has a 1U rack-mount form factor that allows it to be physically
secured with
8
other network equipment. Finally, the security features of the Symbol Wireless
Switch complies with all current relevant industry standards and provides
support for those in development.
MOBILITY SOFTWARE
The Mobility Software group is focusing its efforts on developing
next-generation platform technologies and solution strategies. Currently in
development is a scalable and integrated software suite that ties together
Symbol's mobile clients, wireless switch/infrastructure and back-end middleware
components.
PRODUCT PRICING
Product list prices generally range between $100 to $11,000, depending
on product configuration. We offer discounts off list price for quantity orders,
and sales are frequently made at prices below list price.
SOFTWARE AND PROGRAMMING TOOLS
Our products and systems use software that consists of a number of
specialized applications and communications software programs that run under a
variety of operating platforms including Microsoft MS-DOS(R), Caldera DR-DOS,
Palm OS, Microsoft Windows(R), Microsoft Windows CE and Microsoft Pocket PC. A
series of application development kits ("ADKs") and software development kits
("SDKs") are available to allow our programmers, value added resellers and
end-user customers to develop applications that fully utilize the integrated
features of our family of mobile computing devices. The ADKs and SDKs provide
the software drivers and libraries required to maximize product performance.
Used in conjunction with industry standard development tools, software
developers can easily create and support applications to meet specific customer
requirements.
We also provide scalable network management software that allows users
at local and remote sites to administer, configure and manage our Spectrum One
and Spectrum 24 wireless network systems. We also offer AirBEAM(R) software that
allows users to upgrade operating systems on, and distribute application
software to, key-based and pen-based mobile computing devices over any wireless
local area network.
We have also developed several communication applications designed to
facilitate transmission and reception of data between mobile computers and
stand-alone receivers or host computers. These applications include a suite of
terminal emulation products, host enablers and various protocols. We have
entered into alliances with independent suppliers of software who assist us in
the development of software.
ACQUISITIONS
Telxon
On November 30, 2000, a wholly-owned subsidiary of Symbol was merged
with Telxon Corporation ("Telxon") in a stock-for-stock merger. Telxon is
operating as a wholly-owned subsidiary, although portions of its operations were
consolidated with Symbol in order to obtain operating efficiencies and synergies
by eliminating duplicate functions, rationalizing manufacturing facilities and
sales offices and realizing purchasing, sales, manufacturing and other
efficiencies. See Note 3 to the Consolidated Financial Statements included
elsewhere herein.
9
@pos
In September 2002, a wholly-owned subsidiary of Symbol was merged with
@pos.com, Inc. ("@pos") in a cash-for-stock merger. @pos is operating as a
wholly-owned subsidiary of Symbol, although certain portions of its operations
were consolidated in order to achieve operating efficiencies and synergies with
Symbol's existing functions. @pos manufactures and markets a range of
interactive customer transaction terminals with advanced signature capture
technology and I/P-enabled features that allow traditional and advanced payment
capabilities at the retail point of sale and provide enhanced customer
interaction and order processing. See Note 3 to the Consolidated Financial
Statements included elsewhere herein.
Covigo
On July 28, 2003, a wholly-owned subsidiary of Symbol was merged with
Covigo, Inc. ("Covigo") in a cash-for-stock merger. Covigo mobile software
enables its customers to simplify the creation and deployment of wireless
applications, while reducing administrative costs associated with network
management and data synchronization.
SERVICES SEGMENT
GENERAL
Our global services organization, Global Systems & Services, or GSS,
was formed in 2001. Under the SymbolCareSM umbrella, it offers our customers an
array of services ranging from "high-touch" consulting and project management to
equipment repair and support. GSS's goal is to combine our extensive technical
expertise with vertical market knowledge in order to support solutions to
increase the value of a customer's information technology investment. These
services are sold and delivered, depending on requirements and infrastructure,
via Symbol's global direct sales and services organization or through our Symbol
PartnerSelect or SymbolCertifiedSM Professional Services certification program.
For the year ended December 31, 2002, Services Segment net revenue was $298.5
million, which represented 21.3% of total revenues. See Note 20 to the
Consolidated Financial Statements included elsewhere herein.
ENTERPRISE MOBILITY AND EMERGING TECHNOLOGY SERVICES
Our enterprise mobility services provide on-going assistance during the
planning, development and implementation of a customer's mobility installation.
It is our intent to insure that a Symbol project management consultant is part
of each major installation of a Symbol product, whether sold by us or our
partners. Once a market is established for these products, we will deliver these
solutions to end users via our partners through our SymbolCertified Professional
Services certification program.
CUSTOMER SERVICE AND SUPPORT
We provide a range of service and support offerings for both on-site
and service center support. Service offerings are usually either one or three
year contracts, with time and material options also available. The customer can
choose the extent of the service, the turnaround time and the duration of the
contract.
Our service centers provide maintenance and repair services and offer a
single repair point for both Symbol and selected third-party products. Symbol's
customer support operations for the Americas include a facility operated jointly
in El Paso, Texas, and the Mexican city of Juarez. Service may be
10
initiated either via phone call or the Internet. In addition, small facilities
are located throughout the United States dedicated to meeting the needs of
specific customers. Our non-U.S. customer service centers are located around the
globe in major customer areas. These centers are either direct Symbol repair
centers or facilities managed by Symbol partners authorized by Symbol.
We undertake to correct defects in materials and workmanship for a
period of time after delivery of our products. The period of time covered by
these warranties varies depending on the product involved as well as contractual
arrangements but is generally 12 months. Turnaround times, as well as other
conditions of warranty, are predetermined and published.
On-site system support programs provide for maintenance and repair at
the customer's location. Service is initiated via telephone call to a Symbol
support specialist, who will offer problem determination and resolution. If an
on-site response is required, a Symbol customer service representative will be
dispatched to the customer location within the response time commitments of the
service agreement.
The service repair operations are complemented by Customer Support
Centers, providing telephone, email and web support to our associates, business
partners and customers. The Symbol Support Center in Holtsville, New York,
offers 7 days per week, 24 hours per day support, 365 days a year. Calls are
answered directly by support technicians. Worldwide support is provided through
local company offices, backed by the support infrastructure of GSS. In addition
to our Holtsville facility, there are various Symbol Support Centers in global
locations. Our Symbol PartnerSelect channel partners may also offer value-added
services such as phone support to their customers.
SALES AND MARKETING
We market our products domestically and internationally through a
variety of distribution channels, including a direct sales force, original
equipment manufacturers, solution providers ("SPs"), authorized resellers
("ARs") and distributors. SPs and ARs integrate and sell our products to
customers while also selling to those customers other products or services not
provided by us. Our sales organization includes domestic sales offices located
throughout the United States and foreign sales offices in Argentina, Australia,
Austria, Belgium, Brazil, Canada, China, Denmark, Dubai, Finland, France,
Germany, Hong Kong, Italy, India, Japan, Mexico, the Netherlands, Norway,
Poland, Portugal, Russia, Singapore, South Africa, South Korea, Spain, Sweden,
Switzerland and the United Kingdom.
We currently have contractual relationships and strategic alliances
with unaffiliated partners. Through these relationships, we are able to broaden
our distribution network and participate in industries other than those serviced
by our direct sales force and distributors.
Customers generally order products for delivery within 45 days.
Accordingly, shipments made during any particular quarter generally represent
orders received either during that quarter or shortly before the beginning of
that quarter and, therefore, we do not have a significant amount of backlog
orders. We maintain significant levels of inventory to facilitate meeting
delivery requirements of our customers. We, pursuant to contract or invoice,
normally extend 30 to 45 day payment terms to our customers. Actual payment
terms vary from time to time but generally do not exceed 90 days.
11
The following table sets forth certain information as to international
revenues of Symbol(1):
YEAR ENDED DECEMBER 31,
---------------------------------------
(IN MILLIONS)
AREA 2002 2001 2000
----------------- ------- ------- -------
EMEA(2).......... $ 382.8 $ 390.9 $ 310.3
Asia Pacific..... 84.6 83.0 76.9
Other(3)......... 75.5 69.2 50.2
------- ------- -------
Total......... $ 542.9 $ 543.1 $ 437.4
======= ======= =======
-------------------------------------------------------------------
(1) See Note 20 to the Consolidated Financial Statements included
elsewhere herein.
(2) Europe, Middle East, and Africa
(3) Includes the non-U.S. countries in The Americas.
MANUFACTURING
The products that Symbol manufactures are principally manufactured at
our Reynosa, Mexico facility. We also have a facility in Bohemia, New York that
we utilize as a new product development center.
While components and supplies are generally available from a variety of
sources, we currently depend on a limited number of suppliers for several
components for our equipment, and certain subassemblies and products. In the
past, unexpected demand for communication products caused worldwide shortages of
certain electronic parts and allocation of such parts by suppliers that had an
adverse impact on our ability to deliver our products as well as the cost of
producing such products. While we have entered into contracts with suppliers of
parts that we anticipate may be in short supply, there can be no assurance that
additional parts will not become the subject of such shortages or that such
suppliers will be able to deliver the parts in fulfillment of their contracts.
Due to the general availability of components and supplies, we do not
believe that the loss of any supplier or subassembly manufacturer would have a
long-term material adverse effect on our business although set-up costs and
delays could occur in the short term if we change any single source supplier.
Certain of our products are manufactured by third parties, most of
which are outside the United States. In particular, we have a long-term
strategic relationship with Olympus Optical, Inc. of Japan ("Olympus") pursuant
to which Olympus and Symbol jointly develop selected products that are
manufactured by Olympus exclusively for sale by us. We are currently selling
several such products. We have the right to manufacture such products if Olympus
is unable or unwilling to do so, but the loss of Olympus as a manufacturer could
have, at least, a temporary material adverse impact on our ability to deliver
such products to our customers.
We employ certain advanced manufacturing processes that require highly
sophisticated and costly equipment and are continuously being modified in an
effort to improve efficiency, reduce manufacturing costs and incorporate product
improvements.
We generally maintain sufficient inventory to meet customer demand for
products on short notice, as well as to meet anticipated sales levels. If our
product mix changes in unanticipated ways, or if
12
sales for particular products do not materialize as anticipated, we may have
excess inventory or inventory that becomes obsolete. In such cases, our
operating results could be negatively affected.
RESEARCH AND PRODUCT DEVELOPMENT
We believe that our future growth depends, in large part, upon our
ability to continue to apply our technology and intellectual property to develop
new products, improve existing products and expand market applications for our
products. Our research and development projects include, among other things,
improvements to the reliability, quality and readability of our laser scanners
at increased working distances, faster speeds and higher density codes
(including, but not limited to, two-dimensional codes); continued development of
our solid state laser diode-based scanners; development of solid state
imager-based engines for bar code data capture and general purpose imaging
applications; development of RFID engines for data capture applications;
improvements to packaging and miniaturization technology for bar code data
capture products, portable data collection appliances and integrated bar code
and RFID data capture products; development of high-performance digital data
radios, high-speed, secure, manageable mobile data communications systems and
telecommunications protocols and products; the development of "smart" mobile
devices that may be located by intelligent wireless LAN systems; and the
addition of application software to provide a complete line of high-performance
interface hardware.
We use both our own associates and from time to time unaffiliated
consultants in our product engineering and research and development programs.
From time to time we have participated with and/or partially funded research
projects in conjunction with a number of universities including the State
University of New York at Stony Brook, Polytechnic University of New York and
Massachusetts Institute of Technology.
We expended (including overhead charges) approximately $72,845,000,
$93,682,000 and $81,591,000 for research and development during the years ended
December 31, 2002, 2001, and 2000, respectively. These amounts are included as a
component of engineering in the Consolidated Statements of Operations.
COMPETITION
The business in which we are engaged is highly competitive and acutely
influenced by advances in technology, product improvements and new product
introduction and price competition. To our knowledge, many firms are engaged in
the manufacture and marketing of products in bar code reading equipment,
wireless networks and mobile computing devices and mobility software. Numerous
companies, including present manufacturers of scanners, lasers, optical
instruments, microprocessors, wireless networks, notebook computers, PDAs and
telephonic and other communication devices have the technical potential to
compete with us. Many of these firms have far greater financial, marketing and
technical resources than we do. We compete principally on the basis of
performance and the quality of our products and services.
We believe that our principal competitors are Casio, Inc., Cisco
Systems, Inc., Datalogic S.P.A., Fujitsu, Ltd., Hand Held Products, Inc.,
Hewlett-Packard Company, Intermec Technologies Corporation, LXE Inc., Matsushita
Electric Industrial Co., Ltd., Metrologic Instruments, Inc., Motorola, Inc., NCR
Corporation, NipponDenso Co., Opticon, Inc., Proxim, Inc., PSC, Inc. and Psion
Teklogix, Inc.
PATENT AND TRADEMARK MATTERS
We file domestic and foreign patent applications to support our
technology position and new product development. We own more than 725 U.S.
Letters Patents covering various aspects of the
13
technology used in our principal products and have entered into cross-license
agreements with other companies. In addition, we own numerous foreign companion
patents. We have also filed additional patent applications in the U.S. Patent
and Trademark Office as well as in foreign patent offices. We will continue to
file patents, both United States and foreign, to cover our most recent research
developments in the scanning, information collection and network communications
fields. One of our basic patents covering handheld laser scanning technology
expired on June 6, 2000, and a key companion patent expired June 3, 2003. Due to
the recent expiration of these patents, we may see increased competition in
handheld trigger combined bar code readers; however, we have not witnessed any
evidence of that to date. Notwithstanding the expiring patents, we believe that
our extensive patent portfolio will continue to provide us with some level of
competitive advantage. An important scanner-integrated computer patent will
expire in 2005, which could lead to increased competition in the marketplace.
Although we believe that our patents provide a competitive advantage,
we believe we are not dependent upon a single patent, or a few patents, the loss
of which would have a material adverse effect on our business. Our success
depends more upon our proprietary know-how, innovative skills, technical
competence and marketing abilities. In addition, because of rapidly changing
technology, our present intention is not to rely primarily on patents or other
intellectual property rights to protect or establish our market position.
However, Symbol has in the past instituted litigation against competitors to
enforce its intellectual property rights and is currently involved in several
such lawsuits. Symbol has licensed some of its intellectual property rights
through royalty-bearing license agreements; we may continue to enter into these
arrangements should the circumstances lead us to believe that such an
arrangement would be beneficial.
Despite our belief that Symbol's products and technology do not
infringe the proprietary rights of others, there can be no assurance that third
parties will not assert infringement and other claims against us or that such
claims will not be successful. We have received and have currently pending such
claims and in the future may receive additional notices of such claims of
infringement of other parties' rights. In such event, we have and will continue
to take reasonable steps to evaluate the merits of such claims, take such action
as we may deem appropriate, which action may require that we enter into
licensing discussions, if available, and/or modify the affected products and
technology, or result in litigation against parties seeking to enforce a claim
which we reasonably believe is without merit. We have been involved in such
litigation in the past and additional litigation may be filed in the future.
Such parties have and are likely to claim damages and/or seek to enjoin
commercial activities relating to our products or technology affected by such
parties' rights. In addition to subjecting us to potential liability for
damages, such litigation may require us to obtain a license in order to
manufacture or market the affected products and technology. To date, such
activities have not had a material adverse affect on our business and we have
either prevailed in all litigation, obtained a license on commercially
acceptable terms or otherwise been able to modify any affected products or
technology. However, there can be no assurance that we will continue to prevail
in any such actions or that any license required under any such patent would be
made available on commercially acceptable terms, if at all. There are a
significant number of U.S. and foreign patents and patent applications in our
areas of interest, and we believe that there has been and is likely to continue
to be significant litigation in the industry regarding patent and other
intellectual property rights.
We have also obtained certain domestic and international trademark
registrations for our products and maintain certain details about our processes,
products and strategies as trade secrets.
We regard our software as proprietary and attempt to protect it with
copyrights, trade secret law and international nondisclosure safeguards, as well
as restrictions on disclosure and transferability that are incorporated into our
software license agreements. We license our software products to customers
rather than transferring title. Despite these restrictions, it may be possible
for competitors or users to copy aspects of our products or to obtain
information that we regard as trade secrets. Computer software
14
generally has not been patented and existing copyright laws afford only limited
practical protection. In addition, the laws of foreign countries generally do
not protect our proprietary rights in our products to the same extent as do the
laws of the United States.
GOVERNMENT REGULATIONS
The use of lasers and radio emissions are subject to regulation in the
United States and in other countries in which we do business. In the United
States, various Federal agencies including the Center for Devices and
Radiological Health of the Food and Drug Administration, the Federal
Communications Commission (the "FCC"), the Occupational Safety and Health
Administration and various State agencies have promulgated regulations which
concern the use of lasers and/or radio/electromagnetic emissions standards.
Member countries of the European community have enacted standards concerning
electrical and laser safety and electromagnetic compatibility and emissions
standards.
We believe that all of our products are in material compliance with
current standards and regulations; however, regulatory changes in the United
States and other countries may require modifications to some of our products in
order for us to continue to be able to manufacture and market these products.
Our RF mobile computing devices include various models, all of which
intentionally transmit radio signals as part of their normal operation. Certain
versions of our handheld computers and our Spectrum One and Spectrum 24 networks
utilize spread spectrum radio technology. We have obtained certification from
the FCC and other countries' certification agencies for our products that
utilize this radio technology. Users of these products in the United States do
not require any license from the FCC to use or operate these products. Some of
our products transmit narrow band radio signals as part of their normal
operation.
We have obtained certification from the FCC and other countries'
certification agencies for our narrow band radio products. Users of these
products in the United States do not require any license from the FCC to use or
operate these products. We also market radio products that utilize cellular
radio technology. We have obtained certification from the FCC and other
countries' certification agencies for our products that utilize this radio
technology. Users of these products in the United States do not require any
license from the FCC to use or operate these products.
In all cases, such certification is valid for the life of the product
unless the circuitry of the product is altered in any material respect, in which
case a new certification may be required. Where a country certificate has a
limited duration, additional certification will be obtained during the life of
the product, when required.
EMPLOYEES
At December 31, 2002, we had approximately 5,600 full-time employees.
Of these, approximately 2,850 were employed in the United States. Symbol also
employs temporary production personnel. None of our U.S. employees are
represented by a labor union. Some employees outside of the United States are
represented by labor unions. We consider our relationship with our employees to
be good.
15
RISK FACTORS
Set forth below are important risks and uncertainties that could have a material
adverse effect on Symbol's business, results of operations and financial
condition and cause actual results to differ materially from those expressed in
forward-looking statements made by Symbol or our management.
RISKS RELATING TO THE RESTATEMENT
WE ARE BEING INVESTIGATED BY THE COMMISSION AND THE EASTERN DISTRICT FOR CERTAIN
OF OUR PRIOR ACCOUNTING PRACTICES AND WE CANNOT PREDICT THE OUTCOME OF THESE
INVESTIGATIONS. THE INVESTIGATIONS COULD RESULT IN CIVIL AND/OR CRIMINAL ACTIONS
SEEKING, AMONG OTHER THINGS, INJUNCTIVE AND MONETARY RELIEF FROM SYMBOL. IN
ADDITION, THE FILING OF ANY CHARGES COULD RESULT IN THE SUSPENSION OR DEBARMENT
FROM FUTURE GOVERNMENT CONTRACTS. ANY SUCH DEVELOPMENT COULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
The Commission and the Eastern District have commenced separate
investigations relating to certain of our prior accounting practices. In
response to an inquiry from the Commission, we conducted an initial internal
investigation, with the assistance of a law firm, in May 2001 relating to such
accounting practices, which we subsequently discovered was hindered by certain
of our former employees. The Commission expressed dissatisfaction with the
initial investigation. In March 2002, we undertook an approximately
eighteen-month internal investigation, with the assistance of a second law firm
and independent forensic accounting team, the results of which gave rise to the
restatement of our selected financial data for 1998, 1999, 2000 and 2001,
financial statements for the years ended December 31, 2000 and 2001, and
unaudited selected quarterly information for each of the four quarters of 2001
and the first three quarters of 2002. See Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations." Symbol has also been
given notice that the Commission is considering recommending civil actions
against Symbol and certain of our former employees for violations of federal
securities laws.
We are fully cooperating with the Commission and Eastern District in
their respective investigations, and are engaging in discussions with each
entity to resolve the issues raised by such investigations. However, we cannot
predict when these investigations will be completed, the outcome of such
investigations, or when a negotiated resolution, if any, may be reached and the
likely terms of such a resolution. At this time, we have not made any reserves
for the imposition of potential fines. However, any criminal and/or civil action
or any negotiated resolution may involve, among other things, injunctive and
equitable relief, including material fines, which could have a material adverse
effect on our business, results of operations and financial condition.
In addition, as a result of the investigations, various governmental
entities at the federal, state and municipal levels may conduct a review of our
supply arrangements with them to determine whether we should be considered for
debarment. If we are debarred, we would be prohibited for a specified period of
time from entering into new supply arrangements with such government entities.
In addition, after a government entity has debarred Symbol, other government
entities are likely to act similarly, subject to applicable law. Governmental
entities constitute an important customer group for Symbol, and debarment from
governmental supply arrangements at a significant level could have an adverse
effect on our business, results of operations and financial condition.
16
PENDING LITIGATION MAY HAVE A MATERIAL ADVERSE EFFECT ON OUR RESULTS OF
OPERATIONS AND FINANCIAL CONDITION.
Symbol, certain members of our former senior management team and
certain former and current members of our Board of Directors are named
defendants in a number of purported class actions alleging violations of federal
securities laws, including issuing materially false and misleading statements
that had the effect of artificially inflating the market price of our common
stock, as well as related derivative actions. In the fourth quarter of 2002, we
recorded a charge of $70 million related to the pending class actions filed
against Symbol. The plaintiffs have yet to specify the amount of damages being
sought in the related civil actions and, therefore, we are unable to estimate
what our ultimate liability in such lawsuits may be. Telxon, our wholly-owned
subsidiary, along with various former executive officers of Telxon, are named
defendants in a number of separate purported class actions alleging violations
of federal securities laws. On November 13, 2003, Telxon and the plaintiff class
reached a tentative settlement of all pending shareholder class actions against
Telxon. Under the settlement, Telxon anticipates that it will pay $37 million to
the class. As a result of anticipated contributions by Telxon's insurers, Telxon
expects that its net payment will be no more than $25 million. Our insurance
coverage is not sufficient to cover our total liabilities in any of these
purported class actions, and our ultimate liability in these actions may have a
material adverse effect on our results of operations and financial condition.
In addition, in March and June 2003, Robert Asti, former Vice
President--North America Sales and Service--Finance, and Robert Korkuc, former
Chief Accounting Officer, respectively, pled guilty to two counts of securities
fraud in connection with the government investigations described above. The
Commission has also filed civil complaints against the two individuals based
upon similar facts. The resolution of these civil complaints, any additional
civil complaints against members of our current and/or former management team or
Board of Directors or the indictment of any members of our current management
team or Board of Directors could result in additional negative publicity for
Symbol and may impact the securities litigations in which we are a party.
In addition, we may be obligated to indemnify (and advance legal
expenses to) such former or current directors, officers or employees in
accordance with the terms of our certificate of incorporation, bylaws, other
applicable agreements, and Delaware law. We currently hold insurance policies
for the benefit of our directors and officers, although our insurance coverage
may not be sufficient in some or all of these matters. Furthermore, the
underwriters of our directors and officers insurance policy may seek to rescind
or otherwise deny coverage in some or all of these matters, in which case we may
have to self-fund the indemnification amounts owed to such directors and
officers. Our ultimate liability in these civil actions may have a material
adverse effect on our results of operations and financial condition.
On September 17, 2003, a jury awarded approximately $218 million in
damages against Telxon, which we acquired in November 2000, for claims relating
to an alleged contract with Smart Media of Delaware, Inc. Telxon has made
certain post-verdict motions seeking, among other things, a new trial or a
reduction in the amount of the jury verdict. While we are still vigorously
defending against this lawsuit, Telxon may ultimately be liable for the full
amount of the jury verdict, which could have a material adverse effect on our
results of operations, financial condition and business.
We are also subject to lawsuits in the normal course of business, which
can be expensive, lengthy, disrupt normal business operations and divert
management's attention from ongoing business operations. An unfavorable
resolution to any lawsuit could have a material adverse effect on our business,
results of operations and financial condition. See "Legal Proceedings" for
additional information regarding material litigation.
17
IF WE ARE UNABLE TO EFFECTIVELY AND EFFICIENTLY IMPLEMENT OUR PLAN TO REMEDIATE
THE MATERIAL WEAKNESSES WHICH HAVE BEEN IDENTIFIED IN OUR INTERNAL CONTROLS AND
PROCEDURES, THERE COULD BE A MATERIAL ADVERSE EFFECT ON OUR OPERATIONS OR
FINANCIAL RESULTS.
Symbol's internal investigations, conducted with oversight by our Audit
Committee, identified material weaknesses in our internal controls and
procedures, as well as instances in which certain members of former management
engaged in, directed and/or created an environment that encouraged a variety of
inappropriate activities that necessitated the restatement. Through our
investigations, we discovered that a significant portion of the accounting
errors and irregularities related to the timing and amount of product and
service revenue recognized. Additionally, there were errors and irregularities
associated with the establishment and utilization of certain reserves and
restructurings, including certain end-of-quarter adjustments that were
apparently made in order to achieve previously forecasted financial results.
There were also errors and/or irregularities associated with the administration
of certain options programs, as well as several categories of revenue and
operating expenses, including efforts to artificially reduce reported inventory.
In the investigations, we also concluded that certain members of former
management who were primarily responsible for maintaining proper internal
controls and procedures failed to establish an appropriate control environment,
which, among other things, resulted from inadequate hiring of qualified and
experienced personnel, inadequate staffing, insufficient training and
supervision of personnel, a decentralized accounting structure for operations in
the United States and inadequate systems and systems interfaces.
We are implementing various initiatives intended to materially improve
our internal controls and procedures, address the systems and personnel issues
raised in the course of the restatement and help ensure a corporate culture that
emphasizes integrity, honesty and accurate financial reporting. These
initiatives address Symbol's control environment, organization and staffing,
policies, procedures and documentation, and information systems. See Item 9A,
"Controls and Procedures" for a discussion of these initiatives.
The implementation of the initiatives set forth in Item 9A is one of
Symbol's highest priorities. Our Board of Directors, in coordination with our
Audit Committee, will continually assess the progress and sufficiency of these
initiatives and make adjustments as necessary. However, no assurance can be
given that we will be able to successfully implement our revised internal
controls and procedures or that our revised controls and procedures will be
effective in remedying all of the identified material weaknesses in our prior
controls and procedures. In addition, we may be required to hire additional
employees, and may experience higher than anticipated capital expenditures and
operating expenses, during the implementation of these changes and thereafter.
If we are unable to implement these changes effectively or efficiently, there
could be a material adverse effect on our operations or financial results.
ONGOING REVIEW OF OUR PUBLIC FILINGS BY THE COMMISSION MAY RESULT IN THE FURTHER
AMENDMENT OR RESTATEMENT OUR PERIODIC REPORTS, AND THE NEW YORK STOCK EXCHANGE
MAY DELIST OUR COMMON STOCK OR TAKE OTHER ACTION IF WE ARE UNABLE TO COMPLY WITH
ITS LISTING REQUIREMENTS. IF ANY OF THE FOREGOING OCCURRED, THERE COULD BE A
MATERIAL ADVERSE EFFECT ON THE TRADING PRICE OF OUR COMMON STOCK AND OUR ABILITY
TO ACCESS THE CAPITAL MARKETS.
The investigations by Symbol and the resulting restatement of our
financial statements have led to a delay in the filing of this annual report,
and we have yet to file our quarterly reports for 2003. We cannot assure you
when we will be able to file our delayed quarterly reports. We have been, and
will continue to be, engaged in a dialogue with the Commission with respect to
the Consolidated Financial Statements and our delayed periodic reports. However,
the Commission may provide us with comments on this filing or any of the delayed
quarterly reports after such reports have been filed, which would require us to
amend or restate previously filed periodic reports. In addition, as a result of
the delay in
18
filing our periodic reports with the Commission, we are currently not in
compliance with the listing requirements of the New York Stock Exchange, or
NYSE, the exchange on which our common stock is listed. The NYSE has not taken
any delisting or other action against Symbol, but there can be no assurance that
the NYSE will not take any such action in the future. If we are required to
amend or restate our periodic filings, or if the NYSE delists, or attempts to
delist, our common stock, investor confidence may be reduced, our stock price
may substantially decrease and our ability to access the capital markets may be
limited.
TAXING AUTHORITIES MAY DETERMINE WE OWE ADDITIONAL TAXES FROM PREVIOUS YEARS DUE
TO THE RESTATEMENT.
As a result of the restatement, previously filed tax returns and
reports may be required to be amended to reflect tax related impacts of the
restatement. Where legal, regulatory or administrative rules would require or
allow us to amend our previous tax filings, we intend to comply with our
obligations under applicable law. To the extent that tax authorities do not
accept our conclusions regarding the tax effects of the restatement, liabilities
for taxes could differ from what has been recorded in our Consolidated Financial
Statements. If it is determined that we have additional tax liabilities, there
could be an adverse effect on our financial condition.
MANY OF THE INDIVIDUALS THAT COMPRISE OUR SENIOR MANAGEMENT TEAM ARE NEW TO
SYMBOL, AND THEY HAVE BEEN REQUIRED TO DEVOTE A SIGNIFICANT AMOUNT OF TIME ON
MATTERS RELATING TO THE RESTATEMENT.
In the past year, we have replaced a significant portion of our senior
management team. During this period, our senior management team has devoted a
significant amount of time conducting internal investigations, restating our
financial statements, reviewing and improving our internal controls and
procedures, developing effective corporate governance procedures and responding
to government inquiries. If senior management is unable to devote a significant
amount of time in the future towards developing and attaining our strategic
business initiatives and running ongoing business operations, there may be a
material adverse effect on our results of operations, financial condition and
business.
RISKS RELATING TO THE BUSINESS
OUR OPERATING RESULTS MAY BE ADVERSELY AFFECTED BY UNFAVORABLE ECONOMIC AND
MARKET CONDITIONS, AS WELL AS THE VOLATILE GEOPOLITICAL ENVIRONMENT.
Adverse worldwide economic and market conditions over the last few
years have contributed to slowdowns in the technology sector generally and the
mobile information systems industry specifically. While worldwide economic and
market conditions have begun recently to improve, if they do not continue to
improve or otherwise deteriorate, there may be:
o reduced demand for our products and services due to continued
restraints on technology-related capital spending by our
customers;
o increased price competition;
o increased risk of excess and obsolete inventories;
o higher overhead costs as a percentage of revenues; and
o limited investment by Symbol in new products and services.
Our current business and operating plan assumes that economic activity
in general, and IT spending in particular, will at least remain at current
levels; however, we cannot assure you that IT
19
spending will not deteriorate, which could have a material adverse effect on our
results of operations and growth rates. Our business is especially affected by
the economic success of the retail sector, which accounts for a significant
portion of our business, and our results of operations may be adversely affected
if the global economic and market conditions in the retail sector do not
improve. If historically low interest rates rise, consumer demand and IT
spending could be further dampened.
In addition, continuing turmoil in the geopolitical environment in many
parts of the world, including terrorist activities and military actions,
particularly in the aftermath of the September 11th attacks and the war in Iraq,
may continue to put pressure on global economic and market conditions and may
continue to have a material adverse effect on consumer and business confidence,
at least in the short term. As an international company with significant
operations located outside of the United States, we are vulnerable to
geopolitical instability. If worldwide economic and market conditions and
geopolitical stability do not improve or otherwise deteriorate, there could be a
materially adverse effect on our business, operating results, financial
condition and growth rates.
WE HAVE MADE STRATEGIC ACQUISITIONS AND ENTERED INTO ALLIANCES AND JOINT
VENTURES IN THE PAST AND INTEND TO DO SO IN THE FUTURE. IF WE ARE UNABLE TO FIND
SUITABLE ACQUISITIONS OR PARTNERS OR ACHIEVE EXPECTED BENEFITS FROM SUCH
ACQUISITIONS OR PARTNERSHIPS, THERE COULD BE A MATERIAL ADVERSE EFFECT ON OUR
BUSINESS, GROWTH RATES AND RESULTS OF OPERATIONS.
As part of our ongoing business strategy to expand product offerings
and acquire new technology, we frequently engage in discussions with third
parties regarding, and enter into agreements relating to, possible acquisitions,
strategic alliances and joint ventures. If we are unable to identify future
acquisition opportunities or reach agreement with such third parties, there
could be a material adverse effect on our business, growth rates and results of
operations.
Even if we are able to complete acquisitions or enter into alliances
and joint ventures that we believe will be successful, such transactions,
especially those involving technology companies, are inherently risky.
Significant risks include:
o integration and restructuring costs, both one-time and ongoing;
o maintaining sufficient controls, procedures and policies;
o diversion of management's attention from ongoing business
operations;
o establishing new informational, operational and financial systems
to meet the needs of our business;
o losing key employees;
o failing to achieve anticipated synergies, including with respect
to complementary products; and
o unanticipated and unknown liabilities.
WE DEPEND UPON THE DEVELOPMENT OF NEW PRODUCTS, SUCH AS ENTERPRISE MOBILITY
PRODUCTS, AND ENHANCEMENTS TO EXISTING PRODUCTS, AND IF WE FAIL TO PREDICT AND
RESPOND TO EMERGING TECHNOLOGICAL TRENDS AND OUR CUSTOMERS' CHANGING NEEDS,
THERE COULD BE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, OPERATING RESULTS AND
MARKET SHARE.
We are active in the research and development of new products and
technologies and enhancing our current products. However, research and
development in the mobile information systems industry is
20
complex and filled with uncertainty. If we expend a significant amount of
resources and our efforts do not lead to the successful introduction of new or
improved products, there could be a material adverse effect on our business,
operating results and market share. In addition, it is common for research and
development projects to encounter delays due to unforeseen problems, resulting
in low initial volume production, fewer features than originally considered
desirable and higher production costs than initially budgeted, which may result
in lost market opportunities. In addition, new products may not be commercially
well received. There could be a material adverse effect on our business,
operating results and market share due to such delays or deficiencies in
development, manufacturing and delivery of new products.
We have made significant investments to develop enterprise mobility
products because we believe enterprise mobility is a new and developing market.
If this market does not grow, retailers and consumers react unenthusiastically
to enterprise mobility or we are unable to sell our enterprise mobility products
and services at projected rates, there could be a material adverse effect on our
business and operating results. Our efforts in enterprise mobility are also
dependent, in part, on applications developed and infrastructure deployed by
third parties. If third parties do not develop robust, new or innovative
applications, or create the appropriate infrastructure, for enterprise mobility
products, there could be a material adverse effect on our business and operating
results.
Once a product is in the marketplace, its selling price usually
decreases over the life of the product, especially after a new competitive
product is publicly announced because customers often delay purchases of
existing products until the new or improved versions of those products are
available. To lessen the effect of price decreases, our research and development
teams attempt to reduce manufacturing costs of existing products in order to
improve our margins on such products. However, if cost reductions do not occur
in a timely manner, there could be a material adverse effect on our operating
results and market share.
THE MOBILE INFORMATION SYSTEMS INDUSTRY IS HIGHLY COMPETITIVE AND COMPETITIVE
PRESSURES FROM EXISTING AND NEW COMPANIES MAY HAVE A MATERIALLY ADVERSE EFFECT
ON OUR BUSINESS.
The mobile information systems industry is a highly competitive
industry that is influenced by the following:
o advances in technology;
o new product introduction;
o product improvements;
o rapidly changing customer needs;
o marketing and distribution capabilities; and
o price competition.
If we do not keep pace with product and technological advances, there
could be a material adverse effect on our competitive position and prospects for
growth. There is also likely to be continued pricing pressure as competitors
attempt to maintain or increase market share.
The products manufactured and marketed by us and our competitors in the
mobile information systems industry are becoming more complex. As the
technological and functional capabilities of future products increase, these
products may begin to compete with products being offered by traditional
21
computer, network and communications industry participants who have
substantially greater financial, technical, marketing and manufacturing
resources than us. We may not be able to compete successfully against these new
competitors, and competitive pressures may result in a material adverse effect
on our business or operating results.
WE ARE SUBJECT TO RISKS RELATED TO OUR OPERATIONS OUTSIDE THE UNITED STATES.
A substantial portion of our net revenues have been from foreign sales.
In 2002, foreign sales accounted for approximately 38.7% of our net revenue. We
also manufacture most of our products outside the United States and we
anticipate that an increasing percentage of new products and subassemblies will
be manufactured outside the United States. Overall margins for our products have
increased throughout 2003 partially as a result of increased efficiencies due to
the transfer of internal manufacturing to our Reynosa facility and external
manufacturing to lower cost producers in China, Taiwan and Singapore.
These sales and manufacturing activities are subject to the normal
risks of foreign operations, including:
o political uncertainties;
o currency fluctuations;
o protective tariffs and taxes;
o trade barriers and export/import controls;
o transportation delays and interruptions;
o reduced protection for intellectual property rights in some
countries;
o the impact of recessionary or inflationary foreign economies;
o long receivables collection periods;
o adapting to different regulatory requirements;
o difficulties associated with repatriating cash generated or held
abroad in a tax-efficient manner; and
o different technology standards or customer expectations.
Many of these risks have affected our business in the past and may have
a material adverse effect on our business, results of operations and financial
condition in the future. We cannot predict whether the United States or any
other country will impose new quotas, tariffs, taxes or other trade barriers
upon the importation of our products or supplies or if new barriers would have a
material adverse effect on our results of operations and financial condition.
FLUCTUATIONS IN EXCHANGE RATES MAY HAVE A MATERIAL ADVERSE EFFECT ON OUR
BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITIONS.
Most of our equipment sales in Western Europe and Asia are billed in
foreign currencies and are subject to currency exchange fluctuations. In
addition, much of Europe converted to mandatory use of the "Euro" currency in
2002, which has continued to appreciate throughout 2003. In prior years, changes
in
22
the value of the U.S. dollar compared to foreign currencies have had an impact
on our sales and margins. We cannot predict the direction or magnitude of
currency fluctuations. A weakening of the currencies in which we generate sales
relative to the currencies in which our costs are denominated may lower our
results of operations and financial condition. For example, we purchase a large
number of parts, components and third-party products from Japan. The value of
the yen in relation to the U.S. dollar strengthened during 2002 and has
continued to appreciate throughout 2003. If the value of the yen continues to
strengthen relative to the dollar, there could be a material adverse effect on
our results of operations.
In all jurisdictions in which we operate, we are also subject to the
laws and regulations that govern foreign investment, foreign trade and currency
exchange transactions. These laws and regulations may limit our ability to
repatriate cash as dividends or otherwise to the United States and may limit our
ability to convert foreign currency cash flows in to U.S. dollars.
WE RELY ON OUR MANUFACTURING FACILITY IN REYNOSA, MEXICO TO MANUFACTURE A
SIGNIFICANT PORTION OF OUR PRODUCTS. ANY PROBLEMS AT THE REYNOSA FACILITY COULD
HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.
In 2002, approximately 50% of our product cost of revenue can be
attributed to our facility in Reynosa, and we estimate that such percentage will
be similar or higher in 2003.
In the past, we have experienced manufacturing problems that have
caused delivery delays. We may experience production difficulties and product
delivery delays in the future as a result of the following:
o changing process technologies;
o ramping production;
o installing new equipment at our manufacturing facilities; and
o shortage of key components.
If manufacturing problems in our Reynosa facility arise, and we are unable to
develop alternative sources for our production needs, we may not be able to meet
consumer demand for our products, which could have a material adverse effect on
our business, results of operations and financial condition.
We have been sued in Mexico by a plaintiff who alleges she is the legal
owner of some of the property that our facility in Reynosa is located. See Item
3, "Legal Proceedings--Other Litigation--Lic. Olegario Cavazos Cantu, on behalf
of Maria Leonor Cepeda Zapata vs. Symbol de Mexico, Sociedad de R.L. de C.V." If
use of our manufacturing facility in Reynosa, Mexico were interrupted by natural
disaster, the aforementioned lawsuit or otherwise, there could be a material
adverse effect on our operations until we could establish alternative production
and service operations.
SOME COMPONENTS, SUBASSEMBLIES AND PRODUCTS ARE PURCHASED FROM A SINGLE SUPPLIER
OR A LIMITED NUMBER OF SUPPLIERS. THE LOSS OF ANY OF THESE SUPPLIERS MAY CAUSE
US TO INCUR ADDITIONAL SET-UP COSTS AND RESULT IN DELAYS IN MANUFACTURING AND
THE DELIVERY OF OUR PRODUCTS.
While components and supplies are generally available from a variety of
sources, we currently depend on a limited number of suppliers for several
components for our equipment, and certain subassemblies and products, including
Olympus as previously discussed. Some components, subassemblies and products are
purchased from a single supplier or a limited number of suppliers. In addition,
for certain components, subassemblies and products for which we may have
multiple sources,
23
we are still subject to significant price increases and limited availability due
to market demand for such components, subassemblies and products. In the past,
unexpected demand for communication products caused worldwide shortages of
certain electronic parts, which had an adverse impact on our business. While we
have entered into contracts with suppliers of parts that we anticipate may be in
short supply, there can be no assurance that additional parts will not become
the subject of such shortages or that such suppliers will be able to deliver the
parts in fulfillment of their contracts. In addition, on occasion, we build up
our component inventory in anticipation of supply shortages, which may result in
us carrying excess or obsolete components if we do not anticipate customer
demand properly and could have a material adverse effect on our business and
results of operations.
If shortages or delays exist, we may not be able to secure enough
components at reasonable prices and acceptable quality and therefore, may not be
able to meet consumer demand for our products, which could have a material
adverse effect on our business and results of operations. Although the
availability of components did not materially impact our business in 2002 or
2003, we cannot predict when and if component shortages will occur. If we are
unable to develop alternative sources for our raw materials if and as required,
we could incur additional set-up costs, which could result in delays in
manufacturing and the delivery of our products and thereby have a material
adverse effect on our business, results of operations and financial condition.
WE SELL A MAJORITY OF OUR PRODUCTS THROUGH RESELLERS, DISTRIBUTORS AND ORIGINAL
EQUIPMENT MANUFACTURERS (OEMS). IF WE FAIL TO MANAGE OUR SALES SYSTEM PROPERLY,
OR IF THIRD-PARTY DISTRIBUTION SOURCES DO NOT PERFORM EFFECTIVELY, OUR BUSINESS
MAY SUFFER.
We sell a majority of our products through resellers, distributors and
OEMs. Some of our third-party distribution sources may have insufficient
financial resources and may not be able to withstand changes in worldwide
business conditions, including the current economic downturn, or abide by our
inventory and credit requirements. If the third-party distribution sources we
rely on do not perform their services adequately or efficiently or exit the
industry, and we are not able to quickly find adequate replacements, there could
be a material adverse effect on our revenues. In addition, we do not have
third-party distribution sources in certain parts of the world. If we are unable
to effectively and efficiently service customers outside our current geographic
scope, there may be a material adverse effect on our growth rates and result of
operations.
In 2003, we launched a new distribution system called the Symbol
PartnerSelect Program that is designed to increase our business and the business
of our resellers, distributors and OEMs and improve the quality of services and
products offered to the end user community. If the new program does not continue
to be well received by our resellers, distributors and OEMs, or the end user
community, there could be a material adverse effect on our operating results.
IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS OR IF THIRD PARTIES
ASSERT WE ARE IN VIOLATION OF THEIR INTELLECTUAL PROPERTY RIGHTS, THERE COULD BE
A MATERIALLY ADVERSE EFFECT ON OUR RESULTS OF OPERATIONS AND OUR ABILITY TO
COMPETE.
We protect our proprietary information and technology through licensing
agreements, third-party nondisclosure agreements and other contractual
provisions, as well as through patent, trademark, copyright and trade secret
laws in the United States and similar laws in other countries. There can be no
assurance that these protections will be adequate to prevent our competitors
from copying or reverse engineering our products, or that our competitors will
not independently develop products that are substantially equivalent or superior
to our technology, which in each case could affect our ability to compete and to
receive licensing revenues. In addition, third parties may seek to challenge,
invalidate or circumvent our applications for our actual patents, trademarks,
copyrights and trade secrets. Furthermore,
24
the laws of certain countries in which our products are or may be licensed do
not protect our proprietary rights to the same extent as the laws of the United
States.
Third parties have, and may in the future, assert claims of
infringement of intellectual property rights against us. Due to the rapid pace
of technological change in the mobile information systems industry, much of our
business and many of our products rely on proprietary technologies of third
parties, and we may not be able to obtain, or continue to obtain, licenses from
such third parties on reasonable terms. We have received, and have currently
pending, third-party claims and may receive additional notices of such claims of
infringement in the future. To date, such activities have not had a material
adverse affect on our business and we have either prevailed in all litigation,
obtained a license on commercially acceptable terms or otherwise been able to
modify any affected products or technology. However, there can be no assurance
that we will continue to prevail in any such actions or that any license
required under any such patent or other intellectual property would be made
available on commercially acceptable terms, if at all. Since there is a
significant number of U.S. and foreign patents and patent applications
applicable to our business, we believe that there is likely to continue to be
significant litigation regarding patent and other intellectual property rights,
which could have a material adverse effect on our business and our ability to
compete.
CHANGES IN SAFETY REGULATIONS RELATED TO OUR PRODUCTS, INCLUDING WITH RESPECT TO
THE TRANSMISSION OF ELECTROMAGNETIC RADIATION, COULD HAVE A MATERIALLY ADVERSE
EFFECT ON OUR PROSPECTS AND FUTURE SALES.
The use of lasers and radio emissions are subject to regulation in the
United States and in other countries in which we do business. In the United
States, various Federal agencies including the Center for Devices and
Radiological Health of the Food and Drug Administration, the Federal
Communications Commission, the Occupational Safety and Health Administration and
various state agencies have promulgated regulations which concern the use of
lasers and/or radio/electromagnetic emissions standards. Member countries of the
European community have enacted standards concerning electrical and laser safety
and electromagnetic compatibility and emissions standards.
While some of our products do emit electromagnetic radiation, we
believe that due to the low power output of our products and the logistics of
their use, there is no health risk to end-users in the normal operation of our
products. However, if any of our products becomes specifically regulated by
governments, or the safety of which is questioned by our customers, such as
electronic cash register manufacturers, or the public at large, there could be a
material adverse effect on our business and our results of operations.
In addition, our Spectrum 24 spread spectrum wireless communication
products operate through the transmission of radio signals. These products are
subject to regulation by the FCC in the United States and corresponding
authorities in other countries. Currently, operation of these products in
specified frequency bands does not require licensing by regulatory authorities.
Regulatory changes restricting the use of frequency bands or allocating
available frequencies could have a material adverse effect on our business and
our results of operations.
OUR SUCCESS LARGELY DEPENDS ON OUR ABILITY TO RETAIN AND RECRUIT KEY EMPLOYEES.
In order to be successful, we must retain and motivate our executives
and other key employees, including those in managerial, technical, marketing and
information technology support positions. In particular, our product generation
efforts depend on hiring and retaining qualified engineers. Attracting and
retaining skilled solutions providers in the IT support business and qualified
sales representatives are also critical to our future.
25
Experienced management and technical, marketing and support personnel
in the information technology industry are in high demand, in spite of the
general economic slowdown, and competition for their talents is intense. Many
companies, including Symbol, grant stock options as one of their primary
incentives to retain and recruit key employees. However, as long as we are not
current with our periodic filings with the Commission, our key employees will be
unable to exercise their options, which may make it more difficult for us to
retain and recruit key employees. The loss of, or the inability to recruit, key
employees could have a material adverse effect on our business.
OUR OPERATING RESULTS FLUCTUATE EACH QUARTER. THIS FLUCTUATION HINDERS OUR
ABILITY TO FORECAST REVENUES AND TO VARY OUR OPERATING EXPENSES ACCORDINGLY.
Our operating results have been, and may continue to be, subject to
quarterly fluctuations as a result of a number of factors discussed in this
report, including: worldwide economic conditions; levels of IT spending; changes
in technology; new competition; customer demand; a shift in the mix of our
products; a shift in sales channels; the market acceptance of new or enhanced
versions of our products; the timing of introduction of other products and
technologies; component shortages; and acquisitions made by Symbol.
An additional reason for such quarterly fluctuations is that it is
difficult for us to forecast the volume and timing of sales orders we will
receive during a fiscal quarter, as most customers require delivery of our
products within 45 days of ordering and customers frequently cancel or
reschedule shipments. However, our operating expense levels are partly based on
our projections of future revenues at any given time. For example, in order to
meet the delivery requirements of our customers, we maintain significant levels
of raw materials. Therefore, in the event that actual revenues are significantly
less than projected revenues for any quarter, operating expenses are likely to
be unusually high and our operating profit may be adversely affected.
Our revenues may vary in the future to an even greater degree due to
our increasing focus on sales of mobile information systems instead of
individual products. Historically, we have sold individual bar code scanning
devices and scanner integrated mobile computing devices to customers.
Increasingly, our sales efforts have focused on sales of complete data
transaction systems. System sales are more costly, and require a longer selling
cycle and more complex integration and installation services. An increase in
system sales, therefore, may result in increased time between the manufacture of
product and the recognition of revenue, as well as the receipt of payment for
such transactions.
OUR STOCK PRICE MAY CONTINUE TO BE VOLATILE.
Our stock price, like that of other technology companies, can be
volatile. Some of the factors that can affect our stock price include:
o the announcement of new products, services or technological
innovations by us or our competitors;
o quarterly increases or decreases in revenue, gross margin or
earnings, and changes in our business, operations or prospects for
any of our segments;
o changes in quarterly revenue or earnings estimates by the
investment community; and
o speculation in the press or investment community about our
strategic position, financial condition, results of operations,
business, significant transactions, the restatement or the
previously discussed government investigations.
26
General market conditions or domestic or international macroeconomic
and geopolitical factors unrelated to our performance may also affect the price
of our stock. For these reasons, investors should not rely on recent trends to
predict future stock prices, financial condition, results of operations or cash
flows. In addition, following periods of volatility in a company's securities or
a restatement of previously reported financial statements, securities class
actions may be filed against a company. We are currently litigating a number of
securities class action lawsuits. See "--Pending litigation may have a material
adverse effect on our results of operations and financial condition."
ACCESS TO INFORMATION
Symbol's Internet address is www.symbol.com. Through the Investor
Relations section of our Internet website, we make available, free of charge,
our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports
on Form 8-K and any amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities and Exchange Act of 1934 (the "Exchange
Act"), as well as any filings made pursuant to Section 16 of the Exchange Act,
as soon as reasonably practicable after we electronically file such material
with, or furnish it to, the Commission. Copies are also available, without
charge, from Symbol Investor Relations, One Symbol Plaza, Holtsville, New York
11742. As discussed in the Introductory Note, the financial information that has
been previously filed or otherwise reported should no longer be relied upon and
are superseded by the information in this annual report and certain 2003 filings
with the Commission have been delayed. Our Internet website and the information
contained therein or incorporated therein are not incorporated into this Annual
Report on Form 10-K.
You may also read and copy materials that we have filed with the
Commission at the Commission's public reference room located at 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549. Please call the Commission at
1-800-SEC-0330 for further information on the public reference room. In
addition, our filings with the Commission are available to the public on the
Commission's web site at www.sec.gov.
ITEM 2. PROPERTIES
The following table states the location, primary use and approximate
size of all principal plants and facilities of Symbol and the duration of our
tenancy with respect to each facility.
Location Principal Use Size (sq. ft.) Tenancy/Ownership
- ----------------------------- --------------------------- -------------- -----------------
One Symbol Plaza
Holtsville, New York World Headquarters 299,000 Owned
McAllen, Texas Distribution Facility 334,000 Owned
Reynosa, Tamaulipas Mexico Manufacturing 290,000 Owned
116 Wilbur Place
Bohemia, New York Operations Offices, Labs 92,000 Owned
110 Wilbur Place
Bohemia, New York Manufacturing, Development Lab 30,000 Owned
12 & 13 Oaklands Pk. Customer Service 18,923 Owned
Fishponds Road
Wokingham, Berkshire
England
27
Location Principal Use Size (sq. ft.) Tenancy/Ownership
- ----------------------------- --------------------------- -------------- -----------------
Valley Oak Network Systems 100,000 Leased: expires
Technology Campus Engineering, Marketing August 12, 2009
San Jose, California
El Paso, Texas Customer Service Center 62,660 Leased: expires
and Warehouse December 14, 2007
Berkshire Place Winnersh EMEA Headquarters, 55,500 Leased: expires
Triangle Winnersh, Wokingham Marketing and December 31, 2012
Berkshire, England Administration and
U.K. Headquarters
Juarez, Mexico Customer Service Center 50,000 Leased: expires
and Warehouse April 13, 2004
In addition to these principal locations, we lease other offices
throughout the world, ranging in size from approximately 150 to 40,000 square
feet.
ITEM 3. LEGAL PROCEEDINGS
GOVERNMENT INVESTIGATIONS
As previously disclosed, the 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 Symbol during the period of January 1, 2000
through December 31, 2001 as well as the accounting for certain reserves,
restructurings, certain option programs and several categories of cost of
revenue and operating expenses. We are cooperating with the Commission, and have
produced hundreds of thousands of documents and numerous witnesses in response
to the Commission's inquiries. Symbol and approximately ten or more former
employees have received so-called "Wells Notices" stating that the Commission
Staff in the Northeast Regional Office is considering recommending to the
Commission that it authorize civil actions against Symbol and the individuals
involved alleging violations of various sections of the federal securities laws
and regulations. Pursuant to an action against Symbol, the Commission may seek
permanent injunctive relief and appropriate monetary relief, including a fine,
from us.
As previously disclosed, the Eastern District has commenced a related
investigation. We are cooperating with that investigation, and have produced
documents and witnesses in response to the Eastern District's inquiries. As
indicated above, the Eastern District could file criminal charges against Symbol
and seek to impose a fine and other appropriate relief upon us.
In March 2003, Robert Asti, Symbol's former Vice President--North
America Sales & Services--Finance, who left Symbol in March 2001, pleaded guilty
to two counts of securities fraud in connection with matters that are the
subject of the Commission and the Eastern District investigations, as well as
our own investigation. These counts included allegations that Mr. Asti acted
together with other unnamed high-ranking corporate executives at Symbol to,
among other things, manufacture revenue through sham "round-trip" transactions.
The Commission also has filed a civil complaint asserting similar allegations
against Mr. Asti.
In June 2003, Robert Korkuc, Symbol's former Chief Accounting Officer,
who left Symbol in March 2003, pleaded guilty to two counts of securities fraud
in connection with matters that are the subject of the Commission and the
Eastern District investigations, as well as our own internal
28
investigation. These counts included allegations that Mr. Korkuc acted with
others at Symbol in a fraudulent scheme to inflate various measures of Symbol's
financial performance. The Commission also has filed a civil complaint asserting
similar allegations against Mr. Korkuc.
Symbol is attempting to negotiate a resolution with each of the
Commission and the Eastern District to the mutual satisfaction of the parties
involved. In either case, an agreement has not yet been reached and there is no
guarantee that Symbol will be able to successfully negotiate a resolution.
SECURITIES LITIGATION MATTERS
PINKOWITZ V. SYMBOL TECHNOLOGIES, INC., ET AL.
On March 5, 2002, a purported class action lawsuit was filed, entitled
Pinkowitz v. Symbol Technologies, Inc., et al., in the United States District
Court for the Eastern District of New York on behalf of purchasers of the common
stock of Symbol between October 19, 2000 and February 13, 2002, inclusive,
against Symbol, 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 Symbol's securities.
Subsequently, a number of additional purported class actions containing
substantially similar allegations were also filed against Symbol and certain
Symbol officers in the Eastern District of New York.
On September 27, 2002, a consolidated amended complaint was filed in
the United States District Court for the Eastern District of New York,
consolidating the previously filed purported class actions. The consolidated
amended complaint added Harvey P. Mallement, George Bugliarello and Leo A.
Guthart (the current members of the Audit Committee of Symbol's Board of
Directors) and Brian Burke and Frank Borghese (former employees of Symbol) as
additional individual defendants and broadened the scope of the allegations
concerning revenue recognition. In addition, the consolidated amended complaint
extended the alleged class period to the time between April 26, 2000 and April
18, 2002.
Discovery in the Pinkowitz action has recently commenced. In addition,
on October 15, 2003, plaintiffs moved for class certification of the Pinkowitz
action. Trial of the Pinkowitz action is scheduled to commence on June 8, 2004.
Symbol intends to defend the case vigorously on the merits.
HOYLE V. SYMBOL TECHNOLOGIES, INC., ET AL.
SALERNO V. SYMBOL TECHNOLOGIES, INC., ET AL.
On March 21, 2003, a separate purported class action lawsuit was filed,
entitled Edward Hoyle v. Symbol Technologies, Inc., Tomo Razmilovic, Kenneth V.
Jaeggi, Robert W. Korkuc, Jerome Swartz, Harvey P. Mallement, George
Bugliarello, Charles B. Wang, Leo A. Guthart and James H. Simons, in the United
States District Court for the Eastern District of New York. On May 7, 2003, a
virtually identical purported class action lawsuit was filed against the same
defendants by Joseph Salerno.
The Hoyle and Salerno complaints are brought on behalf of a purported
class of former shareholders of Telxon who obtained Symbol stock in exchange for
their Telxon stock pursuant to Symbol's acquisition of Telxon effective as of
November 30, 2000. The complaint alleges that the defendants violated the
federal securities laws by issuing a Registration Statement and Joint Proxy
Statement/Prospectus in connection with the Telxon acquisition that contained
materially false and misleading statements that had the effect of artificially
inflating the market price of Symbol's securities.
29
On October 3, 2003, Symbol and the individual defendants moved to
dismiss the Hoyle action as barred by the applicable statute of limitations. The
Court has not ruled on the motion. Symbol intends to defend the case vigorously
on the merits.
In connection with the above pending class actions, Symbol recorded a
charge of $70 million in the fourth quarter of 2002.
BILDSTEIN V. SYMBOL TECHNOLOGIES, INC., ET. AL.
On April 29, 2003, a lawsuit was filed, entitled Bildstein v. Symbol
Technologies, Inc., et. al., in the United States District Court for the Eastern
District of New York against Symbol and Jerome Swartz, Harvey P. Mallement,
Raymond R. Martino, George Bugliarello, Charles B. Wang, Tomo Razmilovic, Leo A.
Guthart, James Simons, Saul F. Steinberg and Lowell Freiberg. The plaintiff
alleges that the defendants violated Section 14(a) of the Securities Exchange
Act of 1934 and Rule 14a-9 promulgated thereunder, and common and state law, by
authorizing the distribution of proxy statements in 2000, 2001 and 2002.
Plaintiff seeks the cancellation of all affirmative votes at the annual meetings
for 2000, 2001 and 2002, canceling all awards under the option plans, enjoining
implementation of the option plans and any awards thereunder and an accounting
by the defendants for all damage to Symbol, plus all costs and expenses in
connection with the action. Symbol has filed a motion to dismiss that is now
fully briefed and pending before the Court. Symbol intends to defend the case
vigorously on the merits.
GOLD V. SYMBOL TECHNOLOGIES, INC., ET AL.
On December 18, 2003, a purported class action lawsuit was filed,
entitled Gold v. Symbol Technologies, Inc., et al., in the Court of Chancery of
the State of Delaware against Symbol and Tomo Razmilovic, Kenneth V. Jaeggi,
Dr. Jerome Swartz, Frank Borghese, Brian Burke, Richard M. Feldt, Satya Sharma,
Harvey P. Mallement, Raymond R. Martino, George Bugliarello, Dr. Leo A. Guthart,
Dr. James H. Simons, Leonard H. Goldner, Saul P. Steinberg, Lowell C. Freiberg
and Charles Wang. The complaint alleges that the defendants violated the federal
securities laws by issuing materially false and misleading statements from
January 1, 1998 through December 31, 2002 that had the effect of artificially
inflating the market price of Symbol's securities and that they to failed to
properly oversee or implement policies, procedures and rules to ensure
compliance with federal and state laws requiring the dissemination of accurate
financial statements, ultimately caused Symbol to be sued for, and exposed to
liability for, violations of the anti-fraud provisions of the federal securities
laws, engaged in insider trading in Symbol's common stock, wasted corporate
assets and improperly awarded a severance of approximately $13,000,000 to Mr.
Razmilovic.
Plaintiff seeks to recover incentive-based compensation paid to senior
members of Symbol's management in reliance on materially inflated financial
statements and to impose a trust to recover cash and other valuable assets
received by the management defendants and former Symbol board members in the
form of proceeds garnered from the sale of Symbol common stock (including option
related sales) from at least January 1, 1998 through December 31, 2002.
IN RE TELXON CORPORATION SECURITIES LITIGATION
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
30
former senior vice president and chief financial officer, Kenneth W. Haver. The
actions were referred to a single judge, consolidated and an amended complaint
was filed by lead counsel. 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.
On November 13, 2003, Telxon and the plaintiff class reached a
tentative settlement of all pending shareholder class actions against Telxon.
Under the settlement, Telxon anticipates that it will pay $37 million to the
class. As a result of anticipated contributions by Telxon's insurers, Telxon
expects that its net payment will be no more than $25 million. Telxon has not
settled its lawsuit against its former auditors, PricewaterhouseCoopers LLP
("PwC"), and, as part of the proposed settlement of the class action, Telxon has
agreed to pay to the class, under certain circumstances, up to $3 million of the
proceeds of that lawsuit. The settlement is subject to the negotiation and
execution of final settlement documentation, approval by the Board of Directors,
the agreement of Telxon insurers and approval by the Court.
On February 20, 2001, Telxon filed a motion for leave to file and serve
a summons and third-party complaint against third-party defendant PwC in the
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 and 1998 and its interim
financial statements for its first and second quarters of fiscal year 1999,
which are 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.
Fact discovery has been substantially completed. Trial is scheduled to
commence sometime in 2004.
WYSER-PRATTE MANAGEMENT CO. V. TELXON CORPORATION, ET. AL.
On June 11, 2002, Wyser-Pratte Management Co., Inc. ("WPMC") filed a
complaint against Telxon and its former top executives alleging violations of
Sections 10(b), 18, 14(a) and 20(a) of the Exchange Act, and alleging additional
common law claims. This action is related to the same set of facts as the In re
Telxon class action described above. On November 15, 2003, the parties reached
an agreement in principle to resolve the litigation under which Telxon would pay
WPMC $3.3 million. The settlement is subject to the negotiation and execution of
final settlement documentation, approval by WPMC and the Telxon board of
directors, and approval by the Court.
PENDING PATENT AND TRADEMARK LITIGATION
PROXIM V. SYMBOL TECHNOLOGIES, INC., 3 COM CORPORATION, WAYPORT INCORPORATED AND
SMC NETWORKS INCORPORATED
In March 2001, Proxim Incorporated ("Proxim") sued Symbol, 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 (the "Proxim v. 3Com et al. Action").
31
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 Symbol sought, among other relief,
unspecified damages for patent infringement, treble damages for willful
infringement and a permanent injunction against Symbol from infringing these
three patents.
Symbol answered and filed counterclaims against Proxim, asserting that
Proxim's RF product offerings infringe four of our patents relating to wireless
LAN technology.
On December 4, 2001, we filed a complaint against Proxim in the United
States District Court in the District of Delaware ("Symbol v. Proxim Action")
asserting infringement of the same four patents that were asserted in our
counterclaim against Proxim in the Proxim v. 3Com et al. Action prior to the
severance of this counterclaim by the Court. On December 18, 2001, Proxim filed
an answer and counterclaims in the Symbol v. Proxim Action, seeking declaratory
judgments for non-infringement, invalidity and unenforceability of the four
patents asserted by Symbol, injunctive and monetary relief for our alleged
infringement of one additional Proxim patent (the "`634 Patent") involving
wireless LAN technology, monetary relief for our alleged false patent marking,
and injunctive and monetary relief for our alleged unfair competition under the
Lanham Act, common law unfair competition and tortious interference.
On March 17, 2003, Intersil and Proxim announced that a settlement
between the companies had been reached, whereby Proxim agreed, inter alia, to
dismiss with prejudice all of Proxim's claims in the Proxim v. 3Com et al.
Action (the "Proxim/Intersil Agreement"). Proxim also agreed in the
Proxim/Intersil Agreement to release us from past and future liability for
alleged infringement of the '634 Patent in the Symbol v. Proxim Action, with
respect to any of our products that incorporate Intersil's wireless radio
chipsets. On April 5, 2003, the Court signed that Stipulation and Order of
Dismissal, dismissing all of Proxim's claims in that action with prejudice. On
July 30, 2003, among other rulings, the Court dismissed Proxim's unfair
competition claim.
Trial on the Symbol patents began on September 8, 2003. On September
12, 2003, the jury returned a verdict finding that two of the three asserted
patents (the '183 and '441 Patents) had been infringed by Proxim. Proxim dropped
its claims of invalidity as to all three Symbol patents, and consented to
judgment against Proxim on those invalidity claims. The jury awarded Symbol 6%
royalties on Proxim's past sales of infringing products, which include Proxim's
OpenAir, 802.11 and 802.11b products. Based on Proxim's sales of infringing
products from 1995 to the present, we estimate that damages for past
infringement by Proxim amount to approximately $23 million, before interest. In
addition, Proxim continues to sell the infringing products, and we expect that
future sales would be subject to a 6% royalty as well. A one day bench trial on
Proxim's remaining equitable defenses took place on November 24, 2003. The Court
has not ruled on theses defenses.
Trial on the Proxim patent began on September 15, 2003. On September
29, 2003, the jury returned a verdict, finding the patent valid but not
infringed by Symbol.
SYMBOL TECHNOLOGIES, INC. V. HAND HELD PRODUCTS, INC. AND HHP-NC, INC.
On January 21, 2003, we filed a complaint against Hand Held Products,
Inc. and HHP-NC, Inc. (collectively, "HHP") for patent infringement and
declaratory judgment. We alleged that HHP infringes 12 of our patents, that 36
of HHP's patents are not infringed by us, that the HHP patents are otherwise
invalid or unenforceable, and that the court has jurisdiction to hear the
declaratory judgment action. We requested that the court enjoin HHP from further
infringement, declare that our products do not infringe HHP's patents, and award
us costs and damages.
32
On March 12, 2003, HHP filed a Motion to Dismiss, which was denied on
November 14, 2003. With respect to our claim for a declaratory judgment that 36
of HHP's patents are not infringed by us, or that they are otherwise invalid or
unenforceable, the Court denied HHP's motion to dismiss with respect to 10 of
the patents, granted HHP's motion to dismiss with respect to 25 of the patents
based on lack of subject matter jurisdiction, and granted HHP's motion to
dismiss as to one HHP patent based on HHP's representation to the Court that the
patent had been dedicated to the public and that HHP would not assert it against
us. Pursuant to a stipulation between the parties, we have dismissed without
prejudice our claim that HHP infringes 5 of the 12 Symbol patents and our action
seeking a declaratory judgment with respect to the 10 HHP patents that remained
in the case. We expect discovery to commence in 2004.
SYMBOL TECHNOLOGIES, INC. V. METROLOGIC INSTRUMENTS, INC.
Symbol and Metrologic Instruments, Inc. ("Metrologic") entered into a
cross-licensing agreement executed on December 16, 1996 and effective as of
January 1, 1996 (the "Metrologic Agreement").
On April 12, 2002, we filed a complaint in the United States District
Court in the Eastern District of New York against Metrologic, alleging a
material breach of the Metrologic Agreement. We moved for summary judgment
seeking a ruling on the issues, inter alia, that Metrologic had breached the
Metrologic Agreement and that we had the right to terminate Metrologic's rights
under the Metrologic Agreement. The Court denied the summary judgment motion on
March 31, 2003, and held that the issues were subject to resolution by
arbitration. We have appealed the Court's decision.
On December 23, 2003, the Court of Appeals dismissed the appeal for
lack of appellate jurisdiction because the District Court judgment was not
final. We may seek reconsideration of the Court of Appeals decision.
In the interim, we are proceeding with the arbitration. Metrologic had
filed a Demand for Arbitration in 2002 that was stayed pending the decisions by
the Court. On June 26, 2003, we filed an Amended Answer and Counterclaims to
Metrologic's Demand for Arbitration, asserting that (a) Metrologic's accused
products are royalty bearing products, as defined under the Metrologic
Agreement, and (b) in the alternative, those products infringe upon one or more
of our patents. Metrologic replied to our counterclaims on July 31, 2003,
denying infringement and asserting that the arbitrator was without jurisdiction
to hear our counterclaims. Pursuant to the decision made by the arbitration
panel, an arbitrator is now in place to hear the arbitration.
On December 22, 2003, Metrologic withdrew its Demand for Arbitration,
however, our counterclaims are still being heard.
In a separate matter relating to the Metrologic Agreement, we filed a
demand for an arbitration against Metrologic seeking a determination that
certain of our new bar code scanning products are not covered by Metrologic
patents licensed to us under the Metrologic Agreement. We do not believe that
the products infringe any Metrologic patents, but in the event there were a
ruling to the contrary, our liability would be limited to the previously
negotiated royalty rate. On June 6, 2003, the arbitrator ruled that whether we
must pay royalties depends on whether our products are covered by one or more
claims of Metrologic's patents, and that this issue must be litigated in court,
not by arbitration. The arbitrator further ruled that we could not have
materially breached the Metrologic Agreement, since the threshold infringement
issue has not yet been determined. On June 19, 2003, after the arbitrator ruled
that Metrologic's infringement allegations must be adjudicated in court,
Metrologic filed a complaint against us in the District Court for the District
of New Jersey, alleging patent infringement and breach of contract, and seeking
monetary damages and termination of the Metrologic Agreement. On July 30, 2003,
Symbol answered the complaint and asserted counterclaims for declaratory
judgments of invalidity and noninfringement of Metrologic's patents and for
non-breach of the Agreement. Discovery is proceeding. Symbol intends to defend
the case vigorously on the merits.
33
SYMBOL TECHNOLOGIES, INC. ET. AL. V. LEMELSON MEDICAL, EDUCATIONAL & RESEARCH
FOUNDATION, LIMITED PARTNERSHIP
On July 21, 1999, we and six other members of the Automatic
Identification and Data Capture industry ("Auto ID Companies") jointly initiated
a lawsuit 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 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.
Symbol 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 Symbol and the
other Auto ID Companies, individually and/or collectively with other equipment
suppliers. Symbol believes, and its understanding is that 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.
A 27-day non-jury trial was held before the Court beginning on November
18, 2002, and concluding on January 17, 2003. Post-trial briefing was completed
in late June 2003 and the parties are awaiting a decision to be rendered by the
Court.
OTHER LITIGATION
TELXON V. SMART MEDIA OF DELAWARE, INC. ("SMI")
On December 1, 1998, Telxon filed suit against SMI in the Court of
Common Pleas for Summit County, Ohio in a case seeking declaratory judgment
that, contrary to SMI's position, Telxon did not contract to develop SMI's
products or to fund SMI, and that it did not fraudulently induce SMI to refrain
from engaging in business with others or interfere with SMI's business
relations. On March 12, 1999, SMI filed its Answer and Counterclaim denying
Telxon's allegations and alleging claims against Telxon for negligent
misrepresentation, estoppel, tortious interference with business relationship
and intentional misrepresentation and seeking approximately $10 million in
compensatory damages, punitive damages, fees and costs.
On September 17, 2003, a jury awarded approximately $218 million in
damages against Telxon. This sum included an award of approximately $6 million
to an individual. On September 24, 2003, the individual and SMI moved to add
Symbol as a substitute or counterclaim defendant. That motion has subsequently
been withdrawn by SMI although it is still being pursued by the individual. The
motion has been fully briefed and Symbol is awaiting a decision. There can be no
assurance that SMI will not renew this motion at a later date. On October 7,
2003, Telxon made a motion to impound and secure the trial record of certain
exhibits, and on October 8, 2003, Telxon made motions for judgment in its favor
notwithstanding the jury's verdicts, and for a new trial. In the event this
relief is not granted, Telxon requested that the amount of the jury's verdicts
be reduced. Also, Telxon requested that the execution of any judgment against
Telxon entered by the Court be stayed without the posting of a bond, or in the
alternative, that a bond be set at a maximum of $3.7 million. In support of its
motions, Telxon argued
34
that the jury's verdicts were based upon inadmissible evidence being improperly
provided to the jury during its deliberations; that the absence of liability on
the part of Telxon was conclusively established by the documents in evidence;
and that the amounts awarded to SMI were based on legally irrelevant
projections, and are wildly speculative, particularly given that SMI never had
any revenue or profits. In addition, Telxon argued that the jury verdicts
incorrectly awarded damages more than once for the same alleged injury by adding
together two separate awards for lost profits, and by improperly combining
different measures of damages. The court has not ruled on any post-trial
motions.
There can be no assurance that Symbol will not be found to be
ultimately liable for the damage awards.
BARCODE SYSTEMS, INC. ("BSI") V. SYMBOL TECHNOLOGIES CANADA, INC., ET AL.
On March 19, 2003, BSI filed an amended statement of claim in the Court
of Queen's Bench in Winnipeg, Canada, naming Symbol Technologies Canada, Inc.
and Symbol as defendants. BSI alleges that Symbol deliberately, maliciously and
willfully breached its agreement with BSI under which BSI purported to have the
right to sell Symbol product in western Canada and to supply Symbol's support
operations for western Canada. BSI has claimed damages in an unspecified amount,
punitive damages and special damages.
Symbol denies BSI's allegations and claims that it properly terminated
any agreements between BSI and Symbol. Additionally, Symbol filed a counterclaim
against BSI alleging trademark infringement, depreciation of the value of the
goodwill attached to Symbol's trademark and damages in the sum of Canadian
$1,281,402.34, representing the unpaid balance of product sold by Symbol to BSI.
On October 30, 2003, BSI filed an Application For Leave with the
Canadian Competition Tribunal ("Tribunal"). BSI is seeking an Order from the
Tribunal that would require Symbol to accept BSI as a customer on the "usual
trade terms" as they existed prior to the termination of their agreement in
April 2003. The Tribunal has not yet granted leave for BSI to proceed with its
claim against Symbol.
On November 17, 2003, BSI filed an additional lawsuit in British
Columbia, Canada against Symbol and a number of its distributors alleging that
Symbol refused to sell products to BSI, conspired with the other defendants to
do the same and used confidential information to interfere with BSI's business.
Symbol considers these claims to be meritless and intends to defend against
these claims vigorously.
LIC. OLEGARIO CAVAZOS CANTU, ON BEHALF OF MARIA LEONOR CEPEDA ZAPATA VS. SYMBOL
DE MEXICO, SOCIEDAD DE R.L. DE C.V.
Lic. Olegario Cavazos Cantu, on behalf of Maria Leonor Cepeda Zapata
("Plaintiff"), filed a lawsuit against Symbol de Mexico, Sociedad de R.L. de
C.V. ("Symbol Mexico") on or about October 21, 2003 for purposes of exercising
an action to reclaim property on which Symbol's Reynosa facility is located.
Such lawsuit was filed before the First Civil Judge of First Instance, 5th
Judicial District, in Reynosa, Tamaulipas, Mexico. Additionally, the First Civil
Judge ordered the recording of a lis pendens with respect to this litigation
before the Public Register of Property in Cd. Victoria, Tamaulipas. As of
November 13, 2003, such lis pendens was still pending recordation.
Plaintiff alleges that she is the legal owner of a tract of land of one
hundred (100) hectares in area, located within the area comprising the Rancho La
Alameda, Municipality of Reynosa, Tamaulipas, within the Bajo Rio San Juan,
Tamaulipas, irrigation district. Allegedly, such land was caused to be part of
the Parque Industrial Del Norte in Reynosa, Tamaulipas. Plaintiff further
alleges that Symbol Mexico, without any
35
claim of right and without Plaintiff's consent entered upon the tract of land,
occupied such, and refused to return to Plaintiff the portion of land and all
improvements and accessions thereto occupied by Symbol Mexico. Plaintiff is
asking the court to order Symbol Mexico to physically and legally deliver to the
Plaintiff the portion of land occupied by Symbol Mexico.
Symbol Mexico acquired title to the lots in the Parque Industrial
Reynosa from Edificadora Jarachina, S.A. de C.V. pursuant to a deed instrument.
An Owner's Policy of Title Insurance was issued by Stewart Title Guaranty
Company in connection with the above-mentioned transaction in the amount of US
$13,400,000. A Notice of Claim and Request for Defense of Litigation was duly
delivered on behalf of Symbol to Stewart Title Guaranty Company on November 4,
2003. Symbol intends to defend against this claim vigorously.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
36
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names, positions and offices held by
Symbol's executive officers, as of December 31, 2002 and the date of this
report, and their ages as of the date of this report:
CURRENT EXECUTIVES
NAME AGE POSITION
- ------------------------------------- ----- ------------------------------------------------------------------------
William R. Nuti...................... 40 Chief Executive Officer, Director, President and Chief Operating Officer
Todd Abbott.......................... 44 Senior Vice President-Worldwide Sales
Carole DeMayo........................ 47 Senior Vice President-Human Resources
Ron Goldman.......................... 42 Senior Vice President, General Manager-Product Business Units(1)
Mark T. Greenquist................... 45 Senior Vice President-Finance and Chief Financial Officer/Acting
Chief Accounting Officer
Joseph Katz.......................... 51 Senior Vice President-Research and Development
Peter M. Lieb........................ 47 Senior Vice President, General Counsel and Secretary
Boris Metlitsky...................... 56 Senior Vice President-Corporate Engineering(1)
Todd Hewlin.......................... 37 Senior Vice President-Global Products Group
FORMER EXECUTIVES
NAME AGE POSITION
- ------------------------------------- ----- ----------------------------------------------------------------------------------
Richard Bravman...................... 48 Vice Chairman of the Board of Directors, Chief Executive Officer and Director(2)
Jerome Swartz........................ 63 Executive Chairman of the Board of Directors, Chief Scientist and Director(3)
Leonard H. Goldner................... 56 Executive Vice President, General Counsel and Secretary(4)
Kenneth V. Jaeggi.................... 58 Senior Vice President-Finance and Chief Financial Officer(5)
Satya Sharma......................... 62 Senior Vice President-General Manager-Worldwide Operations(6)
Robert W. Korkuc..................... 41 Vice President, Chief Accounting Officer(7)
- ----------
(1) As of June 9, 2003, the date Mr. Hewlin joined Symbol, Messrs. Goldman and
Metlitsky were no longer considered "officers" as that term is defined in
Rule 16a-1(f) of the Exchange Act and for purposes of Section 16(a) of the
Exchange Act.
(2) Resignation effective December 30, 2003.
(3) Resignation effective July 7, 2003.
(4) Resignation effective June 30, 2003.
(5) Resignation effective January 2, 2003.
(6) Termination effective July 11, 2003.
37
(7) Resignation effective March 11, 2003. See Item 3, "Legal Proceedings -
Government Investigations."
Mr. Nuti was appointed President and Chief Operating Officer of Symbol
on August 1, 2002 and was appointed Chief Executive Officer and Director on
December 30, 2003. Mr. Nuti joined Symbol from Cisco Systems, Inc., where he was
senior vice president of U.S. Theatre and Worldwide Service Provider Operations,
responsible for Cisco's field operations, systems engineering, professional
services and marketing for the global service provider arena. In his 10-year
career at Cisco, Mr. Nuti served as president of Europe, the Middle East and
Africa ("EMEA") operations, vice president for the Cisco Asia Pacific region and
various sales management positions.
Mr. Abbott joined Symbol as its Senior Vice President-Worldwide Sales
in November 2002 from Cisco Systems, Inc., where he was most recently group vice
president of Cisco EMEA Service Provider Sales, a position he held for three
years. Prior to that, Mr. Abbott served as Cisco's vice president of Asian
operations for 18 months and for 18 months prior to that, Cisco's operations
director for Southeast Asia.
Ms. DeMayo has worked in various human resource positions at Symbol for
over eight years, and has served as Symbol's Senior Vice President-Human
Resources since July 2001.
Mr. Goldman joined Symbol in February 1992 and has served in various
legal, managerial and business development positions.
Mr. Greenquist joined Symbol as its Senior Vice President-Finance and
Chief Financial Officer/Acting Chief Accounting Officer in February 2003 from
Agere Systems, Inc., where he was executive vice president and chief financial
officer, responsible for executive management and the oversight of its financial
operations. Before joining Agere Systems, Mr. Greenquist was based in Zurich,
Switzerland, with General Motors Europe as vice president of finance and chief
financial officer. In 1986, he joined the New York General Motors finance
organization and held a number of positions in GM's New York Treasurer's Office,
including corporate finance, capital markets, foreign exchange and commodity
hedging, and investor relations.
Mr. Hewlin joined Symbol as its Senior Vice President-Global Products
Group in June 2003 from The Chasm Group, where he served as managing director.
Prior to joining The Chasm Group, he was managing director at Internet Capital
Group and before that he was a partner at McKinsey & Co., where he served as
co-head of its Global Electronic Commerce Practice.
Dr. Katz joined Symbol in January 1989 and, after holding several
positions in research and development, became our Senior Vice President-Research
and Development in July 1996. From 1981 until 1989, Dr. Katz held a number of
positions at the Jet Propulsion Laboratory of the California Institute of
Technology, the most recent of which was as technical group supervisor.
Mr. Lieb joined Symbol as its Senior Vice President, General Counsel
and Secretary in October 2003 from International Paper Company, where he served
in various senior legal positions including Deputy General Counsel and chief
counsel for litigation. Prior to his tenure at International Paper, Mr. Lieb was
assistant general counsel for GTE Service Corporation, a litigation partner at
Jones, Day, Reavis & Pogue and served as an Assistant United States Attorney for
the Southern District of New York. Early in his legal career, Mr. Lieb served as
a law clerk to U.S. Supreme Court Chief Justice Warren Burger.
Dr. Metlitsky joined Symbol in March 1983 and has served in various
technical and managerial positions.
38
Mr. Bravman has been employed by Symbol since 1978. Mr. Bravman is
currently a senior advisor to Mr. Nuti and Symbol's Board of Directors. From
August 1, 2002 to December 30, 2003, Mr. Bravman was Symbol's Chief Executive
Officer and Vice Chairman of the Board of Directors. From February 2002 to
July 2002, Mr. Bravman served as President and Chief Operating Officer. In 2001,
he established our Integrated Systems Division. For six months prior to that, he
served as Senior Vice President and General Manager of Symbol's Western Area
Sales and Services Division. From 1999 until early 2001, Mr. Bravman served as
senior vice president and general manager of the Mobile and Wireless Systems
Division. Prior to that, he held various senior management positions including
12 years as chief marketing officer.
Dr. Swartz co-founded Symbol and had been employed by Symbol since it
commenced operations in 1975. He served as Chairman of the Board of Directors
for more than 15 years and served as Chief Executive Officer of Symbol for more
than 15 years until July 1, 2000. Dr. Swartz re-assumed the Chief Executive
Officer position on February 14, 2002 until July 1, 2002, and resigned from the
positions Executive Chairman of the Board of Directors, Director and Chief
Scientist on July 7, 2003.
Mr. Goldner joined Symbol in September 1990 as General Counsel and was
appointed to the position of Executive Vice President and General Counsel in
2000 in which capacity he served until his resignation, effective June 30, 2003.
Mr. Jaeggi joined Symbol in May 1997 and served as Chief Financial
Officer until his resignation, effective January 2, 2003.
Dr. Sharma, who joined Symbol in March 1995, most recently served as
Senior Vice President and General Manager of Worldwide Operations until his
departure from Symbol, effective July 11, 2003. Prior to joining Symbol, Dr.
Sharma held various management positions at AT&T.
Mr. Korkuc joined Symbol in October 1990 and served as Chief Accounting
Officer from July 2000 until his resignation, effective March 11, 2003. During
his tenure at Symbol, he served in various finance and accounting positions.
39
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER
MATTERS
Our common stock is listed on the New York Stock Exchange under the
trading symbol "SBL". The following table sets forth, for each quarter period of
the last two years and the first, second and third quarters of 2003, the high
and low sales prices as reported by the New York Stock Exchange and the dividend
payments declared by the Board of Directors and paid by Symbol.
Year Ending: High Low Dividend
- -------------------- ---------- -------- ----------
December 31, 2001* First Quarter $ 37.33 $ 19.50 $ 0.01
Second Quarter 32.10 20.11 --
Third Quarter 22.80 9.50 .0067
Fourth Quarter 18.20 10.00 --
December 31, 2002 First Quarter 17.50 6.60 .01
Second Quarter 11.25 7.99 --
Third Quarter 11.35 6.40 .01
Fourth Quarter 10.74 4.98 --
December 31, 2003 First Quarter 10.95 8.01 --
Second Quarter 14.93 8.62 .01
Third Quarter 14.88 11.54 .01
Fourth Quarter (through 17.06 11.94 --
December 26, 2003)
*Adjusted to reflect a three-for-two stock split effective April 16, 2001.
On December 26, 2003, the closing price of Symbol's common stock was
$16.32. As of December 26, 2003, there were 1,729 holders of record of Symbol's
common stock.
Historically, changes in our results of operations or projected results
of operations have resulted in significant changes in the market price of our
common stock. As a result, the market price of Symbol's common stock has been
highly volatile. Our common stock may also experience substantial volatility if
our operational results do not meet projections.
Payment of future dividends is subject to approval by our Board of
Directors. Recurrent declaration of dividends will be dependent our future
earnings, capital requirements and financial condition.
On February 26, 2001, our Board of Directors declared a three-for-two
stock split, payable as a 50 percent dividend, on April 16, 2001, to all
shareholders of record on March 26, 2001.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial
information of Symbol for each of the years in the five-year period ended
December 31, 2002. These tables should be read in conjunction with our
Consolidated Financial Statements, including the notes thereto, appearing
elsewhere in this Annual Report on Form 10-K and Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
40
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
2002(1) 2001(2) 2000(2) 1999(2) 1998(2)
------------ ----------- ------------ ------------ -----------
(AS RESTATED) (AS RESTATED) (AS RESTATED) (AS RESTATED)
OPERATING RESULTS:
Total net revenue.......................... $ 1,401,617 $ 1,487,456 $ 1,213,263 $ 1,067,027 $ 945,324
Net loss................................... (57,775) (4,094) (137,666) (59,639) (55,697)
Basic and diluted loss per share(3)........ (0.25) (0.02) (0.67) (0.30) (0.28)
FINANCIAL POSITION:
Total assets............................... $ 1,572,195 $ 1,705,371 $ 2,009,041 $ 1,042,987 $ 809,874
Working capital............................ 216,191 559,880 543,829 393,141 175,344
Long-term debt, less current maturities.... 135,614 220,521 201,144 99,623 64,596
Stockholders' equity....................... 887,739 999,115 1,092,588 623,762 503,839
Cash dividends per share(3)................ 0.02 0.0167 0.0144 0.0104 0.0079
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING:
Basic and diluted(3)....................... 229,593 227,173 206,347 198,600 198,363
- ----------
(1) Symbol changed its method of accounting for goodwill and other intangibles
effective January 1, 2002.
(2) See Item 7, "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and Note 2 to the Consolidated Financial
Statements.
(3) Adjusted to reflect three-for-two stock splits that became effective on
April 16, 2001, April 5, 2000, June 14, 1999 and April 3, 1998.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FORWARD-LOOKING STATEMENTS; CERTAIN CAUTIONARY STATEMENTS
This report contains forward-looking statements made in reliance upon
the safe harbor provisions of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
These statements may be identified by their use of words, such as "anticipate,"
"estimates," "should," "expect," "guidance," "project," "intend," "plan,"
"believe" and other words and terms of similar meaning, in connection with any
discussion of Symbol's future business, results of operations, liquidity and
operating or financial performance or results. Such forward looking statements
involve significant material known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or achievements to be
materially different from any future results, performance or achievements
expressed or implied by such forward looking statements. These and other
important risk factors are included in the "Risk Factors" section of this report
beginning on page 16.
In light of the uncertainty inherent in such forward-looking
statements, you should not consider the inclusion to be a representation that
such forward-looking events or outcomes will occur.
Because the information herein is based solely on data currently
available, it is subject to change and should not be viewed as providing any
assurance regarding Symbol's future performance. Actual results and performance
may differ from Symbol's current projections, estimates and expectations, and
the differences may be material, individually or in the aggregate, to Symbol's
business, financial condition, results of operations, liquidity or prospects.
Additionally, Symbol is not obligated to make public indication of changes in
its forward looking statements unless required under applicable disclosure rules
and regulations.
41
The following discussion and analysis should be read in conjunction with
Symbol's Consolidated Financial Statements and the notes thereto that appear
elsewhere in this report.
OVERVIEW
We are a leader in secure mobile information systems that integrate
application-specific handheld computers with wireless networks for data, voice
and bar code data capture. Our goal is to be one of the world's preeminent
suppliers of mission-critical mobile computing solutions to both business and
industrial users. For the year ended December 31, 2002, we generated $1,401,617
of net revenue.
Symbol manufactures products and provides services to capture, manage
and communicate data using three core technologies - bar code reading and image
recognition, mobile computing and networking systems. Our products and services
are sold to a broad and diverse base of customers on a worldwide basis and in
diverse markets such as retail, transportation, parcel and postal delivery
services, warehousing and distribution, manufacturing, healthcare, hospitality,
security, education and government. We do not depend upon a single customer, or
a few customers, the loss of which would have a material adverse effect on our
business.
We are engaged in two reportable business segments: (1) the design,
manufacture and marketing of mobile computing, automatic data capture, and
wireless network systems (the "Product Segment"); and (2) the servicing of,
customer support for and professional services related to these systems (the
"Services Segment"). Each of our operating segments uses its core competencies
to provide building blocks for mobile computing solutions.
RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
In May 2001, in response to an inquiry from the United States
Securities and Exchange Commission, we retained a law firm to conduct an
internal investigation into certain allegations concerning Symbol's accounting
practices, focusing on specific transactions with two of our customers but also
including a limited review of other large transactions. The law firm retained an
accounting firm to assist it in the investigation. We subsequently learned that
the effectiveness of this initial investigation was hindered by the apparently
deliberate actions of one or more individuals formerly in Symbol's employ. The
Commission expressed dissatisfaction with the initial investigation.
In March 2002, we retained a second law firm to conduct a wide-ranging
internal investigation into Symbol's accounting practices. The investigation was
conducted over a period of approximately eighteen months with the assistance of
an outside forensic accounting team. The investigation involved more than 200
interviews and the review of hundreds of thousands of pages of documents and
emails.
The investigation found that, during the period covered by the
restatement, certain members of former management engaged in, directed and/or
created an environment that encouraged a variety of inappropriate activities
that resulted in accounting errors and irregularities affecting Symbol's
previously issued financial statements that we have now restated. The errors and
irregularities caused by these actions primarily concerned the timing and amount
of product and service revenue recognized. In particular, the investigation
found that revenue was accelerated from the appropriate quarters to earlier
quarters through a variety of improper means and, on a more limited basis,
revenue was improperly created and inflated on a net basis. Additionally, there
were errors and irregularities associated with the establishment and utilization
of certain reserves and restructurings, including certain end-of-quarter
adjustments that were apparently made in order to achieve previously forecasted
financial results. There were also errors and/or irregularities associated with
the administration of certain options programs, as
42
well as several categories of cost of revenue and operating expenses, including
efforts to artificially reduce reported inventory.
In addition, the internal investigation uncovered efforts by certain
then employees, including certain members of then management, to impede both the
initial and second internal investigations. The employees responsible for
directing such conduct have been terminated.
The investigation found that, in addition to the specific items of
misconduct giving rise to the need for the restatement, there was a failure by
Symbol's former management to establish an appropriate control environment, and
there were significant failures in Symbol's internal controls and procedures
resulting from numerous causes, including inadequate hiring of qualified and
experienced personnel, insufficient training and supervision of personnel, a
decentralized accounting structure for operations in the United States and
inadequate systems and systems interfaces. The investigation also found
instances in which some members of former management and sales and
finance-related employees devoted insufficient attention and resources to
ensuring accurate accounting and financial reporting. Indeed, as the guilty
pleas of two former senior members of our finance group illustrate, there were
also instances in which such activity rose to the level of criminal misconduct.
All of the members of senior management who were primarily responsible for the
errors and irregularities underlying the restatement either have been terminated
from employment at Symbol as part of the internal investigation or have left
Symbol.
On August 13, 2002, we disclosed that a restatement of our previously
issued financial statements was possible. In November 2002, we announced the
unaudited, preliminary expected magnitude of the anticipated restatement of our
financial statements, and updated that information on several occasions over the
subsequent eleven months. Accordingly, the selected financial data for 1998,
1999, 2000 and 2001, financial statements for the years ended December 31, 2000
and 2001, and unaudited selected quarterly information for each of the four
quarters of 2001 and the first three quarters of 2002 included in this Annual
Report on Form 10-K have been restated. We did not amend our annual reports on
Form 10-K or quarterly reports on Form 10-Q for periods affected by the
restatement that ended prior to and including September 30, 2002, and the
financial statements and related financial information contained in such reports
should no longer be relied upon.
We have been informed that the Commission and the United States
Attorney's Office for the Eastern District of New York are conducting
investigations relating to the aforementioned errors and/or irregularities.
The effect of the adjustments made to restate our financial results is
a reversal of cumulative net revenue of $234,220 and cumulative net earnings of
$324,722 that had previously been recognized through September 30, 2002. As of
September 30, 2002, our restated Stockholders' Equity was $946,261 as compared
with $1,171,393 as originally reflected in our Form 10-Q as of and for the
quarter then ended. As a result, the Consolidated Financial Statements have been
restated to give effect to the correction of these errors.
The principal adjustments are summarized below:
REVENUE RECOGNITION
Our investigation in the area of revenue recognition identified
numerous instances where the timing or amount of revenue recognized was not
appropriate. SEC Staff Accounting Bulletin No. 101 "Revenue Recognition in
Financial Statements" (SAB 101) expresses the SEC Staff's views regarding the
43
application of U.S. GAAP to revenue recorded in financial statements. Provided
below is a summary of the nature of the adjustments to revenue that were
recorded to our Consolidated Financial Statements:
PERSUASIVE EVIDENCE OF AN ARRANGEMENT EXISTS
Generally, we rely on a written contract or purchase order from our
customer as evidence that a sales arrangement exists. Our investigation
identified situations when the customer arrangements were not available, were
not documented or were superceded by separate written agreements or verbal
arrangements. In many of these instances, the customer returned most or all of
the merchandise shipped in a subsequent accounting period based on these
separate agreements or arrangements. The existence of these separate agreements
and arrangements indicates that the original agreement was not binding and,
therefore, the recognition of revenue was inappropriate at that time and should
have been deferred until such time as persuasive evidence of an arrangement
existed.
DELIVERY HAD NOT OCCURRED OR SERVICES HAD NOT BEEN RENDERED
We recognize revenue when the risks and rewards of ownership have been
transferred to our customer and the earnings process is complete. Our
investigation identified situations in which we had recognized revenue at the
time we shipped our product to an intermediate staging area or location where we
performed additional configuration services to meet customer requirements. The
recognition of revenue was inappropriate at that time and should have been
deferred until such time as our products had been shipped or services had been
rendered to our customer.
THE SELLER'S PRICE TO THE BUYER WAS NOT FIXED OR DETERMINABLE
Generally, we collect cash from our customer based on the amount we
invoice which reflects a previous agreement on price. In the course of our
investigation, we identified situations in which significant price concessions
were made based on prior or ongoing negotiations or in which subsequent credits
were issued to a customer based on sales volume or in which separate agreements
existed that were not considered in the revenue recognition process. These
arrangements indicate that the price of goods and services was not fixed or
determinable at the time of the sale and, therefore, the recognition of revenue
was inappropriate and should have been deferred until the price was fixed or
determinable.
COLLECTIBILITY IS REASONABLY ASSURED
Generally, we perform various credit-checking procedures to be assured
that our customer is credit worthy and that collectibility of invoices is
reasonably assured. In the course of our investigation, we identified situations
in which sales were made to customers who had no financial means for payment
other than from the resale of our products to third parties. Effectively, these
customers were acting as our distributors or agents and our sales to them were
on a consignment basis since we readily accepted any returns they provided.
Accordingly, the recognition of such sales to distributors with unlimited or
extremely broad return capability was inappropriate and should have been
deferred until such time as the sale was made to the ultimate customer and
collectibility was reasonably assured.
RESTRUCTURING RESERVES
In December 2000, we recorded restructuring, impairment and merger
integration charges associated with the Telxon acquisition (See Note 3 to the
Consolidated Financial Statements included elsewhere herein). As a result of our
investigation, we determined that both the amount and timing of
44
certain components of this charge as well as the subsequent utilization of the
established reserve were inappropriate.
In September 2001, we recorded a restructuring charge primarily related
to the reorganization of our manufacturing facilities. Similarly, we determined
that both the amount and timing of certain components of this charge as well as
the subsequent utilization of the established reserve were inappropriate.
INVENTORY
The investigations identified numerous errors and irregularities in the
area of inventory. In particular, our previous methodology for identifying
excess and obsolete inventory, which relied heavily on historical usage, did not
properly consider the rapid nature of technology changes and reduced product
life cycles during the past several years. In addition, in June 2001, a $110,000
write down was recorded and disclosed as being related to Palm and radio
inventory. The nature, timing and amount of these charges were inappropriate.
COMPUTER HARDWARE AND SOFTWARE COSTS
We design, develop and engineer certain of the computer hardware and
software that are used in many of the products and services we sell to
customers. The accounting for these activities as they relate to the development
of computer hardware is prescribed by Statement of Financial Accounting ("SFAS")
Standards No. 2, "Accounting for Research and Development Costs." SFAS No. 2
requires that all research and development costs be charged to expense as
incurred. In the course of our investigation, we determined that certain
computer hardware development costs had been incorrectly capitalized.
The accounting for computer software design and development costs is
governed by SFAS No. 86, "Accounting for the Costs of Computer Software to be
Sold, Leased or Otherwise Marketed" ("SFAS No. 86"). SFAS No. 86 provides that
all costs incurred to establish technological feasibility of a computer software
product to be sold, leased or otherwise marketed be recorded as an expense as
incurred. As a result of our investigation, we determined that the criteria
provided in SFAS No. 86 to identify when technological feasibility has been
established had been misapplied.
Accordingly, the Consolidated Financial Statements reflect all computer
hardware and software design and development costs as current period expenses.
In addition, since we believe our current process for developing software is
essentially completed concurrently with the establishment of technical
feasibility, we have expensed as incurred all costs of computer software to be
sold, leased or otherwise marketed. Such costs have been reflected as a current
period expense in the Consolidated Financial Statements. See Note 1 to the
Consolidated Financial Statements included elsewhere herein.
PATENT COSTS
We incur significant costs in registering and defending our patent
portfolio that provides us with a competitive advantage. In general, we
capitalize and amortize such costs over the remaining life of the patent subject
to an impairment test, to be assured that the combined net book value of the
patent and related costs do not exceed its fair value. Our investigation
revealed that certain patent-related costs were being incorrectly amortized
beyond the life of the related patent. Additionally, other instances were noted
in which we could not associate various legal costs incurred with a specific
patent. Accordingly, the Consolidated Financial Statements reflect adjustments
to correct the amortization of costs to coincide with the remaining life of the
related patent and to write-off legal costs that could not be directly
associated with a patent. In addition, because of rapidly changing technology,
we determined that our prior policy of
45
amortizing patents generally over a 17 year period was not appropriate and the
Consolidated Financial Statements reflect adjustments to reduce the patent
amortization period to six years.
AIRCLIC TRANSACTION
In the third quarter of 2000, we received a non-cancelable purchase
order from AirClic for the development of certain technologies, molding designs
and other rights and recorded $15,000 of revenue and gross profit. In the fourth
quarter of 2000, the terms of the purchase order were materially changed and
were tied to a $50,000 cash investment we made in AirClic, a cost method
investee. In the second quarter of 2002, we determined that a decline in the
value of our investment in AirClic was other than temporary and wrote off
$47,200 of the $50,000 investment as an impairment charge as a component of
operating expenses. As a result of our investigation, we have determined that
our previous accounting for the transactions with AirClic was inappropriate and
the Consolidated Financial Statements reflect the elimination of the $15,000
revenue and gross profit originally recognized in the third quarter of 2000 and
the previously recorded $50,000 investment has been recorded as $35,000, which
reflects the net effect of the 2000 transactions. Lastly, the $47,200 impairment
charge recorded in 2002 has been reduced to $32,200 and is shown as an
impairment in investments as a component of other income/(expense) in the
Consolidated Statements of Operations.
TELXON TRANSACTION
As discussed in Note 3 to the Consolidated Financial Statements
included elsewhere herein, on November 30, 2000, we completed the acquisition of
the Telxon Corporation. The acquisition was accounted for as a purchase and the
excess of the purchase price over the fair value of the assets acquired and
liabilities assumed was recorded as goodwill. Subsequent to the acquisition
date, we adjusted goodwill for revisions to the fair values of the assets and
liabilities acquired. As a result of our investigation, we concluded that
certain of the adjustments to goodwill did not relate to contingencies existing
at the time of the acquisition. Furthermore, we discovered that while certain
adjustments to the net assets acquired from Telxon were appropriate, the impact
of these adjustments was incorrectly recorded in accounts other than goodwill.
BRAZIL ACQUISITION
As discussed in Note 3 to the Consolidated Financial Statements
included elsewhere herein, during the second quarter of 2002, we entered into an
agreement with the owners of a Brazilian corporation that was a distributor of
our products, whereby we created a majority-owned subsidiary of Symbol. In our
previously reported financial statements, we recorded payments to two
individuals aggregating approximately $5,300 as part of the purchase price. As a
result of our investigation, we determined that we should have treated these
payments as operating expenses.
ACCRUALS, RESERVES AND PREPAYMENTS
In the normal course of preparing our financial statements, we record
accruals for costs incurred that have not been paid and record prepayments for
goods or services to be received that have been paid for in advance. As a result
of our investigations, we identified errors in the accounting for certain of
these accruals and prepayments. Specifically, we identified instances in which
we established reserves or released reserves in error.
46
STATEMENT OF OPERATIONS RECLASSIFICATIONS
As a result of our investigation, we discovered numerous instances in
which certain categories of expenses were inappropriately classified in the
statements of operations.
STOCK OPTION ACCOUNTING
In the course of our investigation, we identified certain
irregularities and improper administration of option exercises related to our
stock option plans. In particular, an informal practice began in or around the
early 1990's, whereby certain officers and directors were afforded a look-back
period (no more than 30 days) for purposes of determining the market price to be
used in connection with specific option exercises. In addition, certain of these
individuals were given an extended period of time in which to pay for their
option exercises. These practices were contrary to the terms of the relevant
option plans.
As this practice allowed certain participants to choose exercise dates
outside of the approved plan terms and also allowed these participants to extend
the period of time in which to pay for their option exercise, the price of the
option at the grant date was not fixed. Accordingly, in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," the Consolidated Financial Statements reflect as compensation
expense the change in market price of the common stock underlying these options
granted to plan participants that could have participated in this practice.
Effective July 30, 2002, this practice of options exercise ended,
resulting in ceasing the accounting for such options under variable plan
accounting.
EXECUTIVE LIFE INSURANCE
As a benefit to some of our key executives, we paid the premiums to
provide split dollar life insurance. As part of this program, the premiums on
the policies accumulate as cash surrender value that must be repaid to us upon
the termination of employment or death of the employee. In the course of our
investigations, we determined that the amount we recorded as a recoverable asset
exceeded the amount we could realize as cash surrender value under the policies.
Following the adoption of the Sarbanes-Oxley Act of 2002, no further payments
were made by us in connection with split dollar life insurance.
INTEREST EXPENSE
Our primary source of liquidity during 1999 through most of 2003 was a
Credit Agreement signed in December 1998 and voluntarily terminated in November
2003.
Pricing terms of this Credit Agreement were covered under a "credit
grid" that provided for interest charges on both drawn and undrawn committed
lines of credit, and was based on a quarterly calculation of a leverage ratio of
outstanding debt divided by earnings before income taxes, depreciation and
amortization. Interest charges were either lowered the further the leverage
ratio fell below 2.5 times or raised if the ratio moved toward 2.5 times. The
agreement also provided for additional fees in the event of additional leverage
or events of default. Through a series of waivers and amendments granted by the
bank group during the life of the Credit Agreement, no event of default
occurred. However, these waivers and amendments did not provide protection from
the obligations under the "credit grid" pricing.
We determined that our previously recorded interest expense during the
period covered by the restatement needed to be recalculated based on our
restated results, which resulted in adjustments in our
47
Consolidated Financial Statements to appropriately reflect interest expense due
under the terms of the Credit Agreement.
BALANCE SHEET ADJUSTMENTS AND RECLASSIFICATIONS
In the course of our investigations, we identified errors associated
with the cut off of cash receipts. In these instances, recording of cash
receipts was inappropriately accelerated into earlier accounting periods. In
addition, reclassifications were made incorrectly to certain balance sheet
accounts, such as accounts receivable and other assets.
OTHER RESTATEMENT-RELATED ADJUSTMENTS
In the course of our investigations, we identified instances where
marketable securities, property, plant and equipment and other long-lived assets
were carried at amounts exceeding their net realizable values.
INCOME TAXES
As a result of the adjustments described above, we have adjusted our
tax provisions and related accounts for the periods involved.
48
The following table presents the effects of the aforementioned
adjustments on pre-tax (loss)/income:
INCREASE/(DECREASE) IN PREVIOUSLY REPORTED PRE-TAX (LOSS)/INCOME
(IN THOUSANDS):
FOR THE YEAR ENDED DECEMBER 31,
NINE MONTHS ENDED -----------------------------------------------------
SEPTEMBER 30, 2002 2001 2000 1999 1998
-------------------- ---------- --------- ---------- ----------
Pre-tax (loss)/income previously
reported........................ $ (11,673) $ (79,193) $ (79,558) $ 171,124 $ 138,751
REVENUE ADJUSTMENTS:
Product............................ 69,145 59,306 (226,533) (74,655) (31,436)
Service............................ 2,943 (24,547) (9,694) 2,392 (1,141)
---------- ---------- --------- ---------- ----------
72,088 34,759 (236,227) (72,263) (32,577)
COST OF REVENUE ADJUSTMENTS:
Product revenue cost............... (39,687) (29,394) 70,805 19,019 (2,170)
Service revenue cost............... 3,555 4,236 1,433 103 3,916
Restructuring reserves............. (26,592) 25,586 25,103 (753) (1,604)
Excess and obsolete inventory...... (36,920) (24,613) 10,099 (5,950) (14,517)
Computer costs..................... 11,799 24,105 63,995 19,274 14,454
Telxon transaction................. (3,471) (1,539) (1,285) (1,213) --
Accruals and prepayments........... 2,970 17,329 147 94 (2,707)
Other, net......................... 3,793 (3,206) (2,018) 17 --
---------- ---------- --------- ---------- ----------
(84,553) 12,504 168,279 30,591 (2,628)
OPERATING EXPENSE AND OTHER
ADJUSTMENTS:
Restructuring reserves............. 11,589 (22,677) 20,375 292 --
Computer costs..................... (19,145) (37,574) (37,075) (43,678) (33,581)
Patent costs....................... (5,461) (5,094) (2,642) (3,406) (1,919)
AirClic impairment................. 47,200 -- -- -- --
Telxon transaction................. (6,382) (16,531) (573) -- --
Brazil acquisition................. (2,050) -- (3,250) -- --
Accruals and prepayments........... 3,572 19,693 (5,972) 5,049 3,316
Stock option accounting............ 70,132 92,760 (9,402) (202,836) (179,383)
Executive life insurance........... (743) (1,824) (1,932) (1,750) (95)
Bad debt impact of revenue
adjustments..................... (200) 7,254 (542) 119 1,576
Interest expense................... (381) (691) (3,125) (896) --
Impairment of investments.......... (53,110) (1,521) -- -- --
Other, net......................... (5,303) 2,816 376 448 2
---------- ---------- --------- ---------- ----------
39,718 36,611 (43,762) (246,658) (210,084)
Increase/(decrease) in pre-tax
(loss)/income................... 27,253 83,874 (111,710) (288,330) (245,289)
---------- ---------- --------- ---------- ----------
Pre-tax income/(loss), as restated. $ 15,580 $ 4,681 $(191,268) $ (117,206) $ (106,538)
========== ========== ========= ========== ==========
49
The following table presents the effects of correcting for all
previously discussed adjustments and reclassifications on the individual balance
sheet captions.
INCREASE/(DECREASE) (IN THOUSANDS):
AS OF AS OF DECEMBER 31,
SEPTEMBER 30, ----------------------------------------------
2002 2001 2000 1999 1998
------------- --------- --------- --------- ---------
Cash.............................................. $ -- $ (10,602) $ (10,787) $ (6,623) $ --
Accounts receivable, net.......................... (116,754) (166,249) (285,080) (109,363) (63,874)
Inventories....................................... (59,407) 27,241 93,114 (22,178) (41,002)
Deferred income taxes............................. 123,372 105,438 166,091 194,533 (7,595)
Other current assets.............................. (34,185) (60,716) (20,321) (1,787) (4,599)
Property, plant and equipment..................... (10,873) 9,558 1,557 (5,543) (3,181)
Deferred income taxes............................. (12,288) 54,276 74,805 43,481 152,387
Investment in marketable securities............... -- -- 1,000 1,000 --
Goodwill and other intangible assets.............. (92,312) (83,641) (48,062) (21,172) (17,422)
Software development costs........................ (42,275) (36,392) (33,575) (64,883) (43,571)
Other assets...................................... (7,423) (26,217) (22,899) (12,422) 331
Accounts payable and accrued expenses............. 952 (7,129) 29,469 14,260 4,536
Deferred revenue, current......................... 5,098 8,125 6,746 (1,207) (1,632)
Accrued restructuring expenses.................... 3,700 (5,288) (16,814) -- --
Income taxes payable.............................. 188 -- -- -- --
Long term debt, less current maturities........... (20,928) (4,647) -- -- --
Deferred revenue, long-term....................... 1,113 4,639 (65) 93 (2,241)
Other liabilities................................. (190) (1,329) 5,613 (1,405) (2,099)
Additional paid-in capital........................ 219,810 297,262 413,631 439,697 253,567
Other comprehensive income/(loss)................. 13,685 754 5,802 3,025 --
Retained deficit.................................. (456,716) (475,545) (525,358) (456,659) (280,656)
Treasury stock.................................... (1,911) (4,145) (3,183) (2,761) --
50
The impact of the foregoing adjustments on certain key ratios is as
follows:
AS OF AND FOR
THE NINE MONTHS
ENDED AS OF AND FOR THE YEAR ENDED DECEMBER 31,
SEPTEMBER 30, --------------------------------------------------
2002 2001 2000 1999 1998
--------------- -------- -------- -------- --------
GROSS PROFIT MARGIN:
Based on previously reported
amounts.......................... 36.6% 27.1% 31.8% 42.5% 42.5%
Based on restated amounts.......... 32.8% 29.7% 32.3% 41.5% 40.3%
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES (AS A
PERCENTAGE OF REVENUE):
Based on previously reported
amounts.......................... 21.4% 22.2% 18.4% 19.4% 19.9%
Based on restated amounts.......... 22.1% 22.1% 26.9% 22.1% 21.5%
WORKING CAPITAL:
Based on previously reported
amounts.......................... $620,161 $660,475 $620,214 $351,613 $295,317
Based on restated amounts.......... $523,248 $559,880 $543,829 $393,141 $175,344
CURRENT RATIO:
Based on previously reported
amounts.......................... 2.8:1 2.9:1 2.4:1 2.5:1 2.6:1
Based on restated amounts.......... 2.5:1 2.7:1 2.1:1 2.6:1 1.9:1
LONG-TERM DEBT TO CAPITAL:
Based on previously reported
amounts.......................... 14.4% 20.8% 20.4% 13.5% 10.8%
Based on restated amounts.......... 15.7% 23.4% 22.0% 13.8% 11.4%
RETURN ON ASSETS:
Based on previously reported
amounts.......................... (0.4%) (2.8%) (4.4%) 12.3% 12.3%
Based on restated amounts.......... 0.7% (0.2%) (9.0%) (6.4%) (7.5%)
51
The following is a summary of the significant effects of the
restatement:
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE YEAR ENDED DECEMBER 31,
NINE MONTHS ENDED -----------------------------------------------------
SEPTEMBER 30, 2002 2001 2000
------------------------ ------------------------- -------------------------
AS AS AS
PREVIOUSLY PREVIOUSLY PREVIOUSLY
REPORTED AS RESTATED REPORTED AS RESTATED REPORTED AS RESTATED
---------- ----------- ------------ ----------- ------------ -----------
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenue.......................... $956,671 $1,028,759 $1,452,697 $1,487,456 $1,449,490 $1,213,263
Cost of revenue.................. 606,520 691,073 1,058,580 1,046,076 989,137 820,858
-------- ---------- ---------- ---------- ---------- ----------
Gross profit..................... 350,151 337,686 394,117 441,380 460,353 392,405
Stock based compensation
(recovery)/expense under
variable plan accounting...... -- (70,132) -- (92,760) -- 9,402
Other operating expenses......... 351,097 343,202 455,335 512,846 527,691 559,350
-------- ---------- ---------- ---------- ---------- ----------
(Loss)/earnings from operations.. (946) 64,616 (61,218) 21,294 (67,338) (176,347)
(Loss)/earnings before income
taxes......................... (11,673) 15,580 (79,193) 4,681 (79,558) (191,268)
Net (loss)/earnings (7,937) 10,892 (53,907) (4,094) (68,966) (137,666)
NET (LOSS)/EARNINGS PER COMMON
SHARE:
Basic......................... (0.03) 0.05 (0.24) (0.02) (0.33) (0.67)
Diluted....................... (0.03) 0.05 (0.24) (0.02) (0.33) (0.67)
AS OF DECEMBER 31,
AS OF -----------------------------------------------------
SEPTEMBER 30, 2002 2001 2000
------------------------ ------------------------- -------------------------
AS AS AS
PREVIOUSLY PREVIOUSLY PREVIOUSLY
REPORTED AS RESTATED REPORTED AS RESTATED REPORTED AS RESTATED
---------- ----------- ------------ ----------- ------------ -----------
CONSOLIDATED BALANCE SHEETS
DATA:
Accounts receivable, net......... $ 283,607 $ 166,853 $ 307,576 $ 141,327 $ 453,906 $ 168,826
Inventories...................... 316,858 257,451 310,924 338,165 285,413 378,527
Total current assets............. 955,475 868,500 1,000,208 895,320 1,078,252 1,021,268
Goodwill and other intangible
assets, net................... 469,989 340,289 413,308 329,667 386,492 338,430
Total assets..................... 1,767,025 1,539,457 1,892,674 1,705,371 2,093,199 2,009,041
Accounts payable and accrued
expenses...................... 288,494 289,446 279,615 272,486 325,670 355,139
Deferred revenue, current........ 32,211 37,309 34,641 42,766 30,227 36,973
Total current liabilities........ 335,314 345,252 339,733 335,440 458,038 477,439
Deferred revenue, long-term...... 7,632 8,745 7,084 11,723 11,182 11,117
Total other liabilities.......... 252,686 239,199 365,068 359,093 422,283 427,897
Total stockholders' equity.... 1,171,393 946,261 1,180,789 999,115 1,201,696 1,092,588
See Note 21 to the Consolidated Financial Statements for selected quarterly
financial information.
52
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE YEAR ENDED DECEMBER 31,
1999 1998
----------------------------- ---------------------------
AS AS
PREVIOUSLY AS PREVIOUSLY AS
REPORTED RESTATED REPORTED RESTATED
---------- ---------- ----------- --------
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenue........................................... $1,139,290 $1,067,027 $977,901 $945,324
Cost of revenue................................... 654,556 623,965 561,920 564,548
------- ------- ------- -------
Gross profit...................................... 484,734 443,062 415,981 380,776
Stock based compensation expense/(recovery) under
variable plan accounting....................... -- 202,836 -- 179,383
Other operating expenses.......................... 307,789 350,937 274,274 308,215
------- ------- ------- -------
(Loss)/earnings from operations................... 176,945 (110,711) 141,707 (106,822)
(Loss)/earnings before income taxes............... 171,124 (117,206) 138,751 (106,538)
Net earnings/(loss)............................... 116,364 (59,639) 92,964 (55,697)
Net earnings/(loss) per common share:
Basic....................................... 0.59 (0.30) 0.47 (0.28)
Diluted..................................... 0.55 (0.30) 0.44 (0.28)
AS OF DECEMBER 31,
---------------------------------------------------------------
1999 1998
----------------------------- ---------------------------
AS AS
PREVIOUSLY AS PREVIOUSLY AS
REPORTED RESTATED REPORTED RESTATED
---------- --------- ----------- ----------
CONSOLIDATED BALANCE SHEETS DATA:
Accounts receivable, net.......................... $ 252,140 $ 142,777 $ 205,416 $ 141,542
Inventories....................................... 216,709 194,531 196,986 155,984
Total current assets.............................. 584,201 638,782 479,604 362,534
Goodwill and other intangible assets, net......... 130,566 109,394 115,954 98,532
Total assets...................................... 1,047,944 1,042,987 838,399 809,874
Accounts payable and accrued expenses............. 188,178 202,438 149,938 154,474
Deferred revenue, current......................... 18,805 17,598 13,897 12,265
Total current liabilities......................... 232,588 245,641 184,287 187,190
Deferred revenue, long-term....................... 12,833 12,926 10,683 8,442
Total other liabilities........................... 162,063 160,658 112,501 110,403
Total stockholders' equity........................ 640,460 623,762 530,928 503,839
53
RESULTS OF OPERATIONS
The following table sets forth for the years indicated certain revenue
and expense items expressed as a percentage of total net revenue.
PERCENTAGE OF REVENUE
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------
2002 2001 2000
---------- ---------- ---------
REVENUE:
Product revenue................................................. 78.7% 81.1% 82.9%
Services revenue................................................ 21.3 18.9 17.10
---------- ---------- ---------
100.0 100.0 100.0
COST OF REVENUE:
Product cost of revenue......................................... 49.5 55.6 54.2
Services cost of revenue........................................ 15.7 14.7 13.4
---------- ---------- ---------
65.2 70.3 67.6
Gross profit.................................................... 34.8 29.7 32.4
---------- ---------- ---------
OPERATING EXPENSES:
Engineering..................................................... 10.2 10.1 10.5
Selling, general and administrative............................. 24.5 22.1 26.9
Stock based compensation expense/(recovery) under variable plan
accounting................................................... (4.9) (6.2) 0.8
Litigation...................................................... 7.0 -- --
Restructuring and impairment charges............................ 0.2 0.7 0.4
In-Process research and development............................. -- -- 7.2
Merger integration charges...................................... -- 0.6 0.6
Amortization of goodwill........................................ -- 1.0 0.5
---------- ---------- ---------
37.0 28.3 46.9
---------- ---------- ---------
(Loss)/earnings from operations................................. (2.2) 1.4 (14.5)
Impairment of investments....................................... (3.8) (0.1) --
Net other income/(expense)...................................... 0.1 (1.0) (1.2)
---------- ---------- ---------
(Loss)/earnings before income taxes............................. (5.9) 0.3 (15.7)
(Benefit from)/provision for income taxes....................... (1.8) 0.6 (4.4)
---------- ---------- ---------
Net loss..................................................... (4.1)% (0.3)% (11.3)%
========== ========== =========
FOR THE YEAR ENDED DECEMBER 31, 2002 (AMOUNTS IN THOUSANDS)
Throughout the following Management's Discussion and Analysis of
Financial Condition and Results of Operations, all referenced amounts reflect
balances and amounts on a restated basis, except for amounts as of and for the
year ended December 31, 2002, which have not been previously reported.
Net product revenue for the year ended December 31, 2002 decreased 8.5
percent to $1,103,070 from $1,206,176 for 2001. This decline was due to
unfavorable global economic conditions and reduced levels of information
technology spending which resulted in a reduction in the quantity of units sold.
Net services revenue for the year ended December 31, 2002 increased 6.1 percent
to $298,547 from $281,280 for 2001, primarily due to an increase in support
service contract renewals and time and materials billings, particularly in our
EMEA region associated with product sales offset partially by decrease in
project management activities in 2002 as compared to 2001.
54
Geographically, The Americas and EMEA revenue decreased 7.8 percent and
2.0 percent, respectively, for the year ended December 31, 2002 from the
comparable prior year period. Asia Pacific revenue increased 1.9 percent over
the comparable prior year period. The Americas, EMEA, and Asia Pacific revenue
represent approximately 66.7 percent, 27.3 percent, and 6.0 percent,
respectively, of net revenue in 2002. The slowdown in the US and EMEA economy,
along with customer constraints on information technology spending, were the
main causes for the decline in our revenue.
Product cost of revenue as a percentage of net product revenue was 62.9
percent for the year ended December 31, 2002 as compared to 68.5 percent in
2001. This decrease is mainly attributed to charges for excess and obsolete
inventory of $166,445 in 2001 as compared to $37,011 in 2002.
Services cost of revenue as a percentage of net services revenue was
73.7 percent for the year ended December 31, 2002 as compared to 78.0 percent in
2001. The decrease in the services cost of revenue as a percentage of net
services revenue resulted primarily from cost containment efforts and cost
benefits derived from the elimination of duplicate overhead components,
including the closure of four service centers and elimination of redundant
workforce resulting from the Telxon acquisition.
Engineering costs for the year ended December 31, 2002 decreased 4.6
percent to $142,602 from $149,523 for 2001. The decrease is due to cost
containment arrangements to keep spending in line with reduced revenue
expectations, and an increase in engineering cost sharing efforts with certain
of our customers. As a percentage of total net revenue, engineering expenses
increased slightly to 10.2 percent for the year ended December 31, 2002 as
compared to 10.1 percent for 2001.
Selling, general and administrative expenses for the year ended
December 31, 2002 increased 4.5 percent to $343,971 from $329,044 for 2001. The
increase is attributed to additional professional fees associated with our
internal investigation and a severance charge recorded in 2002 for our former
President and Chief Executive Officer. As more fully described in Note 2 to the
Consolidated Financial Statements, in early 2002 we initiated a review of
certain accounting and financial matters with the assistance of an independent
counsel and an outside accounting firm. As a result of this investigation, we
incurred additional professional fees and costs of $9,245 in 2002. In February
2002, our former President and Chief Executive Officer announced his retirement.
In connection therewith, we recorded a pre-tax compensation and related benefits
charge of $8,597 which is included in selling, general and administrative
expense in the Consolidated Statements of Operations.
Excluding the investigation costs and executive compensation and
benefits charge, selling, general and administrative expenses for the year ended
December 31, 2002 decreased 0.9 percent to $326,129 from $329,044 for 2001.
Higher costs were incurred in 2001 in anticipation of increased sales activity
related to the Telxon acquisition. As the increased sales activity did not
materialize to the extent anticipated, cost reduction programs were initiated in
2002. As a percentage of total net revenue, selling general and administrative
expenses excluding the investigation costs and the executive compensation and
benefits charge increased to 23.3 percent for the year ended December 31, 2002
from 22.1 percent in 2001.
Included in total operating expenses, and as more fully described in
Note 17 to the Consolidated Financial Statements, are amounts associated with
the variable portion of our stock option plans. Such amounts were non-cash
recoveries of $68,084 and $92,760 for 2002 and 2001, respectively. These amounts
represent a reduction of approximately 11.6 percent and 18.1 percent of total
operating expenses in 2002 and 2001, respectively.
In November 2003, we reached a tentative settlement of certain
litigation related to Telxon, one of our wholly owned subsidiaries, enabling us
to quantify our likely liability. Reflected in total operating
55
expenses and more fully described in Note 16 to the Consolidated Financial
Statements is a charge of $28,300 related to these matters, which was recorded
in the fourth quarter of 2002.
As more fully described in Note 16 to the Consolidated Financial
Statements, in the fourth quarter of 2002, we also recorded a charge of $70,000
in connection with the pending class action lawsuits.
During the year ended December 31, 2002, we also incurred restructuring
charges of $2,590 primarily related to workforce reductions resulting from the
transition of our volume manufacturing operations from our Bohemia, New York
facility to lower cost locations, primarily our Reynosa, Mexico facility and Far
East contract manufacturing partners.
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets," which we adopted effective January 1, 2002. Under SFAS No.
142, goodwill and indefinite life intangible assets acquired in a business
combination will no longer be amortized into results of operations, but rather
be subject to assessment for impairment at least annually. Under SFAS No. 142,
we are required to perform a prescribed fair-value-based test to measure any
impairment to our goodwill and other intangible assets. We completed the
impairment test as of January 1, 2002 utilizing an independent appraisal and
comparing the fair value of our reporting units with their carrying values,
including goodwill. Based on the results of these comparisons, we concluded
there was no impairment of goodwill related to either of our reporting units
upon initial adoption of this statement.
Subsequent to the initial adoption of SFAS No. 142, we elected to
perform our annual goodwill impairment testing on September 30th of each year
beginning in 2002. We completed the impairment test as of September 30, 2002
using the same methodology as described above. The results indicated no
impairment of goodwill related to either of our reporting units at September 30,
2002.
Adjusted financial information assuming SFAS No. 142 had been adopted
as of January 1, 2000 is as follows:
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------
2002 2001 2000
-------- -------- ----------
Net loss, as reported................... $(57,775) $(4,094) $(137,666)
Goodwill amortization, net of tax....... -- 14,823 6,347
-------- ------- ---------
Adjusted net (loss)/earnings............ $(57,775) $10,729 $(131,319)
======== ======= =========
BASIC LOSS PER SHARE:
Net loss, as reported................... $ (0.25) $ (0.02) $ (0.67)
Goodwill amortization, net of tax....... -- 0.07 0.03
-------- ------- ---------
Adjusted net (loss)/earnings............ $ (0.25) $ 0.05 $ (0.64)
======== ======= =========
DILUTED LOSS PER SHARE:
Net loss as-reported.................... $ (0.25) $ (0.02) $ (0.67)
Goodwill amortization, net of tax....... -- 0.07 0.03
-------- ------- ---------
Adjusted net (loss)/earnings ........... $ (0.25) $ 0.05 $ (0.64)
======== ======= =========
Interest expense for the year ended December 31, 2002 decreased to
$16,801 or 24.1 percent from $22,145 in 2001 primarily due to the repurchase of
Telxon's remaining convertible debt, net repayments under our revolving credit
facility and annual mandatory repayments of other indebtedness.
56
Interest income for the year ended December 31, 2002 decreased 19.3
percent to $2,322 from $2,876 for 2001. This was primarily due to our use of
cash for our repayments under our revolving credit facility.
We periodically evaluate the carrying value of our investments for
impairment. In consideration of the financial 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 our investment in
AirClic was other than temporary during the quarter ended June 30, 2002. In
accordance with the provisions of SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," we recorded a pre-tax impairment
charge of $32,200, which is included in impairment of investments as a component
of other income/(expense) in the Consolidated Statements of Operations, and
wrote down the carrying amount of the investment to its estimated fair value of
$2,800.
In June 2002, we evaluated the decline in market value of our
investment in Cisco common stock. Based on the then current market conditions,
it was determined that an other-than-temporary decline in the market value of
this investment had occurred. In accordance with SFAS No. 115, a pre-tax
impairment charge of $20,910 was included in impairment of investments as a
component of other income/(expense) in the Consolidated Statements of
Operations.
In accordance with the provisions of SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," the gain or loss on the change
in fair value of the portion of our investment in Cisco common stock classified
as trading, coupled with the gain or loss of the change in fair value of the
embedded derivative, have been recorded as a component of other income/(expense)
in each reporting period. The net impact of these fair value adjustments
resulted in other income of $16,676 for the year ended December 31, 2002, as
compared to other income of $4,647 for the year ended December 31, 2001.
Our effective income tax rate was (30.1) percent for 2002. The
effective tax rate each year is largely impacted by the ratio of items receiving
different treatment for tax and accounting purposes to profit/(loss) before
taxes. In 2002, the impact of additional valuation allowances and nondeductible
compensation was partially offset by tax credits and state tax benefits.
FOR THE YEAR ENDED DECEMBER 31, 2001 (AMOUNTS IN THOUSANDS)
Net product revenue for the year ended December 31, 2001 increased 19.9
percent to $1,206,176 from $1,005,787 for 2000. Net services revenue for the
year ended December 31, 2001 increased 35.6 percent to $281,280 from $207,476
for 2000. The increase in net product and services revenue is due to having
acquired Telxon in November 2000 and having a full year of consolidated results
for 2001. See Note 3 in the Consolidated Financial Statements included elsewhere
herein for the estimated pro forma effects of the Telxon acquisition.
Geographically, The Americas, EMEA, and Asia Pacific revenue increased
22.7 percent, 26.0 percent, and 7.9 percent, respectively, for the year ended
December 31, 2001 from the comparable prior year period. The Americas, EMEA, and
Asia Pacific revenue represent approximately 68.1 percent, 26.3 percent, and 5.6
percent, respectively, of net revenue in 2001.
Product cost of revenue as a percentage of net product revenue was 68.5
percent for the year ended December 31, 2001 as compared to 65.4 percent in
2000. This increase is due to a charge for excess and obsolete inventory of
$166,445 in 2001 as compared with $69,609 in 2000, a shift in product mix in the
fastest growing proportion of our business to lower margin products, the
inclusion of Telxon's generally lower margin products and the unfavorable impact
of foreign exchange rate fluctuations.
57
Included in product cost of revenue for the year ended December 31,
2001 is a charge of $10,282 primarily relating to lease obligation and workforce
reduction costs. In addition, during 2001, we substantially completed
construction of a 140,000 square foot manufacturing and distribution facility in
Reynosa, Mexico. In early 2001, we began a 150,000 square foot expansion of this
facility. During 2001, we determined that the majority of the space created by
the expansion project was not going to be utilized. As such, we recorded an
impairment charge of $4,636 which has been reported as a component of product
cost of revenue. This charge includes the costs incurred for the project as well
as additional costs for which we were committed. Excluding these charges,
product cost of revenue as a percentage of product sales would have been 67.3
percent for 2001.
Services cost of revenue as a percentage of net services revenue was
78.0 percent for the year ended December 31, 2001 as compared to 78.4 percent in
2000. The decrease in the services cost of revenue as a percentage of net
services revenue resulted primarily from cost containment efforts and cost
benefits derived from the elimination of duplicate overhead components,
including the closure of four service centers and elimination of redundant
workforce resulting from the Telxon acquisition.
Engineering costs for the year ended December 31, 2001 increased 17.1
percent to $149,523, from $127,740 for 2000. The increase is due to additional
expenses incurred in connection with the continuing research and development of
new products, the improvement of existing products, the impact of the Telxon
acquisition and the increased usage of contract manufacturers as our partners to
flexibly expand our engineering capacity. As a percentage of total net revenue,
such expenses decreased to 10.1 percent for the year ended December 31, 2001 as
compared to 10.5 percent for 2000.
Selling, general and administrative expenses for the year ended
December 31, 2001 increased 0.9 percent to $329,044 from $326,117 for 2000.
Higher costs were incurred in 2001 in anticipation of increased sales activity
related to the Telxon acquisition. As a percent of total net revenue, such
expenses decreased to 22.1 percent for the year ended December 31, 2001 from
26.9 percent in 2000.
Included in total operating expenses, and as is more fully described in
Note 17 to the Consolidated Financial Statements, are amounts associated with
the variable portion of our stock option plans. Such amounts were recoveries of
$92,760 and expenses of $9,402 for 2001 and 2000, respectively. These amounts
represent approximately 18.1% and 1.7% of total operating expenses in 2001 and
2000, respectively.
In December 2001, we recorded a $7,959 impairment charge related to
supplier relationship management computer software we received from i2
Technologies, Inc. ("i2"). At that time, we decided to utilize another vendor
for our enterprise software applications and as such, the supplier relationship
software program we purchased from i2 had no future use. This impairment charge
included the cost of the software of $4,250, the future software maintenance
payments of $2,465, which we were contractually obligated to pay to i2, and the
cost of inventory of $1,244, which we were contractually obligated to provide to
i2. The $1,244 was recorded as a component of product cost of sales, while the
remaining $6,715 was recorded as a component of restructuring and impairment
expenses.
During the year ended December 31, 2001, we incurred restructuring
charges of $2,897 related to workforce reductions resulting from the Telxon
acquisition. We also recorded a merger integration charge of $9,238 to integrate
Telxon's business and operations.
Amortization of goodwill of $14,823 for the year ended December 31,
2001 increased from $6,347 in 2000 primarily due to the Telxon acquisition.
Interest expense for the year ended December 31, 2001 increased 14.1
percent to $22,145 from $19,405 in 2000 primarily due to the Shared Appreciation
Income Linked Securities (SAILS) exchangeable
58
debt and interest on Telxon's subordinated notes and debentures, partially
offset by a reduction in indebtedness due to annual mandatory repayments, and
the repurchase of certain of Telxon's 5.75 percent convertible subordinated
notes. For further discussion of the SAILS exchangeable debt offering and the
subordinated notes and debentures, refer to "--Liquidity and Capital Resources."
Interest income for the year ended December 31, 2001 decreased 35.9
percent to $2,876 from $4,484 for 2000. The reduction is primarily due to our
use of funds throughout the year for operations and investing.
Additionally in 2001, we evaluated the fair value of certain of our
investments in marketable securities considered available-for-sale under the
provisions of SFAS No. 115. Based on the evidence reviewed, we determined the
decline in market value for these investments was other-than-temporary. In
accordance with the provisions of SFAS No. 115, a pre-tax impairment charge of
$1,521 was included in impairment of investments as a component of other
income/(expenses) in the Consolidated Statements of Operations.
In accordance with the provisions of SFAS No. 133, the gain or loss on
the change in fair value of the portion of our investment in Cisco common stock
classified as trading, coupled with the gain or loss on the change in fair value
of the embedded derivative have been recorded as a component of other income or
loss in each reporting period. The net impact of these fair value adjustments
resulted in other income of $4,647 for the year ended December 31, 2001.
Our effective income tax rate was 187.5 percent for 2001. As previously
discussed, the effective tax rate each year is largely impacted by the ratio of
permanent items to net income or loss before taxes. Total permanent items
decreased in 2001 for non-deductible acquisition-related costs partially offset
by a reduction in foreign tax credits, while 2001 state taxes increased due to a
nonrecurring charge for state tax rate changes on deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES (AMOUNTS IN THOUSANDS)
Historically, our primary source of liquidity has been borrowings under
our $350,000 unsecured revolving credit facility with a syndicate of U.S. and
international banks (the "Credit Agreement"). We terminated the Credit Agreement
in November 2003. Our primary liquidity requirements were for working capital,
engineering costs and financing and investing activities. We have historically
had sufficient availability under our Credit Agreement to fund our operations
and financing and investing activities.
Borrowings under the Credit Agreement were at an interest rate of
either LIBOR plus 100 basis points (which approximated 2.4 percent and 3.0
percent as of December 31, 2002 and 2001, respectively) or the base rate of the
syndication agent bank (which approximated 4.25 and 4.75 percent as of December
31, 2002 and 2001, respectively). As more fully discussed in Note 2 to the
Consolidated Financial Statements, our restated financial results caused a
change in pricing under the Credit Agreement. As a result, our borrowing rate
approximated 4.7 percent and 5.2 percent for the years ended December 31, 2002
and 2001, respectively. At December 31, 2002 and 2001, we had $80,000 and
$125,439 of borrowings outstanding under the Credit Agreement, respectively.
As a result of the length of time necessary to restate our financial
statements (see Note 2 to the Consolidated Financial Statements included
elsewhere herein), beginning on September 16, 2003, we would have been in
violation of one of the covenants of our Credit Agreement that requires the
timely filing of financial statements with the Commission. On September 15,
2003, we reached an agreement with the bank group and obtained a waiver to
provide us additional time to become current with our periodic filings with the
Commission. Under the revised Credit Agreement, the credit facility was
59
reduced from $350,000 to $100,000 and we voluntarily agreed to limit our usage
of the credit facility to $50,000 until such time as we become current with our
periodic filings. In addition, we pledged our U.S.-originated trade receivables
and agreed to retain $75,000 of unencumbered cash until we become current with
our periodic filings. As of September 30, 2003, the amount outstanding under the
credit facility was zero and we had $120,917 of unencumbered cash. In November
2003, we refinanced the Credit Agreement with a $30,000 secured credit line
which expires in May 2006 (the "Secured Credit Agreement).
Currently, our primary source of liquidity is cash flow from operations
and the Secured Credit Agreement. Our primary liquidity requirements continue to
be for working capital, engineering costs, and financing and investing
activities. Cash flows from operations in 2002 and for the first three quarters
of 2003 have been sufficient to meet our liquidity needs and we believe our cash
and cash equivalents will be sufficient to meet our projected cash requirements
for at least the next 12 months.
During 2002, we generated positive cash flow from operating activities
of $177,470 and experienced an overall increase in cash of $5,756. The positive
cash flow provided by operating activities, proceeds from the exercise of stock
options, warrants and the employee stock purchase plan, and proceeds from the
sale of property, plant and equipment were used to repurchase convertible notes
and debentures, repay other long-term debt, purchase property, plant and
equipment, investment in new companies and other assets, repurchase our common
stock, and pay dividends.
Net cash provided by operating activities for the year ended December
31, 2002 increased to $177,470 from a use of cash of $42,415 for 2001 primarily
as a result of improved operating gross profit, as well as lower cash payments
on trade payables. Net cash used in investing activities for the year ended
December 31, 2002 increased to $43,632 from $20,847 for 2001 as a result of the
absence of proceeds received in 2001 of $88,046 from the termination of a collar
arrangement associated with our investment in Cisco common stock partially
offset by lower purchases of property, plant and equipment in 2002.
For the year ended December 31, 2001, we used cash of $42,415 for
operating activities, and experienced an overall increase in cash of $17,741.
The net proceeds from the issuance of notes payable and long-term debt, the
proceeds from the termination of the collar arrangement associated with our
investment in Cisco Common Stock, and proceeds from the exercise of stock
options, warrants and the employee stock purchase plan was used for operating
activities and to purchase property, plant and equipment, repurchase convertible
notes, repurchase shares of our common stock, and pay dividends.
Net cash used by operating activities for the year ended December 31,
2001 was $42,415 compared to a use of cash in operating activities of $111,820
for 2000 primarily as a result of the absence of costs incurred to increase
inventory levels in anticipation of higher sales and production levels. Net cash
used in investing activities for the year ended December 31, 2001 decreased to
$20,847 from $136,685 for 2000 as a result of proceeds received in 2001 of
$88,046 from the termination of a collar arrangement associated with our
investment in Cisco common stock as well as the AirClic investment we made in
2000 for $35,010. Net cash provided by financing activities for the year ended
December 31, 2001 decreased to $82,461 from $278,998 for 2000 primarily as a
result of cash received in 2000 from the sale of treasury shares in private
placements of our common stock.
In addition to our Secured Credit Agreement, we have additional
uncommitted loan agreements with various overseas banks pursuant to which the
banks have agreed to provide lines of credit totaling $55,000 with a range of
borrowing rates and varying terms. As of December 31, 2002, we had no loans
outstanding under these lines. These agreements continue until such time as
either party terminates the agreements.
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OTHER LIQUIDITY MEASURES
Other measures of our liquidity including the following:
YEAR ENDED DECEMBER 31,
-----------------------------------
2002 2001 2000
-------- -------- --------
Working capital.............................................. $216,191 $559,880 $543,829
(current assets minus current liabilities)
Current ratio (current assets to current liabilities)........ 1.5:1 2.7:1 2.1:1
Long-term debt to capital
(Convertible subordinated notes and debentures plus
long-term debt to convertible subordinated notes and
debentures plus long-term debt plus equity).............. 13.3% 23.4% 22.0%
Current assets as of December 31, 2002 decreased by $205,029 from
December 31, 2001, principally due to a decrease in deferred, prepaid and
refundable income taxes, and inventories. Current liabilities as of December 31,
2002 increased $138,660 from December 31, 2001 primarily due to an increase in
accounts payable and accrued expenses of which $110,300 was reserved for
settlements of certain Telxon and shareholder litigation, partially offset by
the utilization of accrued restructuring expenses and a decrease in the current
portion of deferred revenue. As a result, working capital decreased $343,689
between December 31, 2001 and December 31, 2002. Our current ratio of 1.5:1 at
December 31, 2002 decreased from 2.7:1 at December 31, 2001.
Our long-term debt to capital ratio decreased to 13.3 percent at
December 31, 2002, from 23.4 percent at December 31, 2001, primarily due to the
repayment in full of all outstanding convertible subordinated notes and
debentures and a reduction in amounts outstanding under our revolving credit
facility and the SAILS exchangeable debt arrangement.
FINANCING ACTIVITIES
During 2000, we entered into a $50,000 lease receivable securitization
agreement. This agreement is currently scheduled to mature on December 31, 2003,
but is expected to be renewed for an additional three months without the payment
of amounts outstanding at such time. After December 31, 2003, we will not be
able to securitize additional lease receivables until we provide certain
financial information to the financial institution. During the years ended
December 31, 2002 and 2001, we securitized approximately $17,219 and $32,227,
respectively, of lease receivables which resulted in up front proceeds from new
securitizations of $10,000 and $18,700, respectively. Factors that are
reasonably likely to affect our ability to continue using these financing
arrangements include the ability to generate lease receivables that qualify for
securitization and the ability of the financial institution to obtain an
investment grade rating from either of the two major credit rating agencies. We
do not consider the securitization of lease receivables to be a significant
contributing factor to our continued liquidity. See Note 10 to the Consolidated
Financial Statements included elsewhere herein.
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EXISTING INDEBTEDNESS
At December 31, 2002 and 2001, long-term debt outstanding, excluding
current maturities, was as follows:
DECEMBER 31, DECEMBER 31,
2002 2001
------------- ------------
(IN THOUSANDS)
Revolving credit facility $ 80,000 $ 125,439
Senior notes 6,349 12,698
SAILS exchangeable debt 55,194 88,559
Other 752 373
---------- ----------
142,295 227,069
Less: current maturities 6,681 6,548
---------- ----------
Long-term debt $ 135,614 $ 220,521
========== ==========
At the time of the Telxon acquisition, Telxon had outstanding $82,500
of 5.75 percent convertible subordinated notes (the "notes"), and $24,413 of 7.5
percent convertible subordinated debentures (the "debentures"). The notes were
redeemable at any time at the option of Telxon at 100.8214 percent of par value
and the debentures were redeemable at par value. During 2001, we redeemed
portions of the notes and debentures and in 2002 we redeemed the remaining
outstanding balances.
In March 1993, we issued $50,000 of our 7.76 percent Senior Notes due
February 15, 2003 (the "Senior Notes"). The remaining balance of the Senior
Notes of $6,349 is classified as current at December 31, 2002 and was fully
repaid in February, 2003.
In January 2001, we entered into a private Mandatorily Exchangeable
Securities Contract for Shared Appreciation Income Linked Securities ("SAILS")
with a highly rated financial institution. The securities that underlie the
SAILS contract represent our 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 $54,496 at December 31, 2002. Such
shares are held as collateral to secure the debt instrument associated with the
SAILS and are included in Investment in Marketable Securities in the
Consolidated Balance Sheets. This debt has a seven-year maturity and pays
interest at a cash coupon rate of 3.625 percent.
At maturity, the SAILS will be exchangeable for shares of Cisco common
stock or, at our option, cash in lieu of shares. Net proceeds from the issuance
of the SAILS and termination of an existing freestanding collar arrangement were
approximately $262,246 which were used for general corporate purposes, including
the repayment of debt outstanding under our revolving credit facility. The SAILS
contain an embedded equity collar, which effectively hedges a large portion of
exposure to fluctuations in the fair value of our holdings in Cisco common
stock. We account for the embedded equity collar as a derivative financial
instrument in accordance with the requirements of SFAS No. 133, ("SFAS 133").
Accordingly, the derivative has been specifically designated as a hedge of the
exposure to changes in the fair value of the securities. The gain or loss on
changes in the fair value of the derivative is recognized through earnings in
the period of change together with the offsetting gain or loss on the hedged
item attributable to the risk being hedged. The effect of that accounting is to
reflect in earnings the extent to which the hedge is not effective in achieving
offsetting changes in fair value.
The derivative has been combined with the debt instrument in long-term
debt in the Consolidated Balance Sheets and presented on a net basis as
permitted under FIN No. 39, "Offsetting of Amounts
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Related to Certain Contracts," as there exists a legal right of offset. The
SAILS liability, net of the derivative asset, represents $55,194 at December 31,
2002.
The remaining portion of long-term debt outstanding relates to capital
lease obligations and various other loans maturing through 2007.
CASH AND ACCOUNTS PAYABLE
We have a balance of accrued purchase commitments of $2,227, for which
a loss was recognized for the year ended December 31, 2002, for which payments
are due within one year and is included in the balance of accounts payable and
accrued expenses. Historically, we have adjusted cash and accounts payable at
the end of each fiscal quarter for checks that have been prepared but not mailed
out at such date. This has had the effect of increasing cash and accounts
payable by approximately $21,101 and $23,552 at December 31, 2002 and 2001,
respectively. While the accounting treatment for these transactions was not
improper, beginning in 2003, we have ceased the practice of holding checks at
the end of each fiscal quarter.
The impact of this practice on cash and accounts payable at the end of
each of the interim fiscal quarters during 2002 and 2001 was as follows:
March 31, 2001 $37,598
June 30, 2001 23,757
September 30, 2001 26,678
March 31, 2002 27,097
June 30, 2002 18,461
September 30, 2002 16,487
CONTRACTUAL CASH OBLIGATIONS
The following is a summary of the contractual commitments associated
with our debt and lease obligations as of December 31, 2002 (Amounts in
thousands).
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------
TOTAL 2003 2004 2005 2006 2007 THEREAFTER
------------ ------------- ------------ ------------- ------------ ------------- ------------
Long-term debt......... $ 141,693 $ 6,374 $ 80,032 $ 32 $ 33 $ 28 $ 55,194
Capital lease
commitments ......... 602 307 230 65 - - -
Operating lease
commitments.......... 107,998 19,020 15,970 14,344 13,075 11,395 34,194
---------------------------------------------------------------------------------------------
Total................ $ 250,293 $ 25,701 $ 96,232 $ 14,441 $ 13,108 $ 11,423 $ 89,388
Our ability to fund planned capital expenditures and to make payments
on and to refinance our indebtedness will depend on our ability to generate cash
in the future. This, to a certain extent, is subject to general economic,
financial, competitive, legislative, regulatory and other factors that are
beyond our control. Based on our current level of operations, we believe our
cash flow from operations, available cash and available borrowings under our
Secured Credit Agreement will be adequate to meet our future liquidity needs for
the foreseeable future.
We cannot assure you, however, that our business will generate
sufficient cash flow from operations or that future borrowings will be available
to us under our Secured Credit Agreement in an
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amount sufficient to enable us to fund our other liquidity needs or pay our
indebtedness. If we consummate an acquisition, our liquidity and/or debt service
requirements could increase.
In our opinion, inflation has not had a material effect on our
operations.
CRITICAL ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS
The preparation of financial statements and related disclosures in
conformity with accounting principles generally accepted in the United States of
America requires us to make judgments, assumptions and estimates that affect the
reported amounts of assets, liabilities, revenue and expenses, as well as the
disclosure of contingent assets and liabilities.
On an on-going basis, we evaluate our estimates and judgments,
including those related to product return reserves, legal contingencies,
inventory valuation, warranty reserves, useful lives of long-lived assets,
derivative instrument valuations and income taxes. We base our estimates and
judgments on historical experience and on various other factors that we believe
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
Consolidated Financial Statements "Summary of Significant Accounting Policies"
summarizes each of our significant accounting policies. We believe the following
critical accounting policies affect the more significant judgments and estimates
used in the preparation of our Consolidated Financial Statements.
REVENUE RECOGNITION AND PRODUCT RETURN RESERVES
We sell our products and systems to end users for their own
consumption, as well as to value-added resellers, distributors and original
equipment manufacturers (OEMs or channel partners). Channel partners may provide
a service or add componentry in order to resell our product to end users.
Revenue from the direct sale of our products and systems to end users and OEMs
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 recognition of
revenues related to sales of our products or systems to our value-added
resellers is contingent upon the reseller's ability to pay for the product
without reselling it to the end user. Sales to resellers that are financially
sound are generally recognized when products are shipped, the title and risk of
loss has passed, the sales prices is fixed and determinable and collectibility
is reasonably assured. Sales to resellers that lack economic substance or cannot
pay for our products without reselling them to their customers are recognized
when the revenue is billed and collected. Revenue on sales to distributors is
recognized when our products and systems are sold by them to the end user.
When a sale involves multiple elements, the entire revenue from the
arrangement is allocated to each respective element based on its relative fair
value and is recognized when the revenue recognition criteria for each element
is met.
We accrue estimated product return reserves against our recorded
revenue. The estimated amount is based on historical experience of similar
products to our customers. If our product mix or customer base changes
significantly, this could result in a change to our future estimated product
return reserve.
LEGAL CONTINGENCIES
We are currently involved in certain legal proceedings and accruals are
established when we are able to estimate the probable outcome of these matters.
Such estimates of outcome are derived from
64
consultation with outside legal counsel, as well as an assessment of litigation
and settlement strategies. Legal contingencies are often resolved over long time
periods. The required accruals may change in the future due to new developments
in each matter or changes in approach such as a change in settlement strategy in
dealing with these matters. Depending on how these matters are resolved, these
costs could be material.
INVENTORY VALUATION
We record our inventories at the lower of historical cost or market
value. In assessing the ultimate realization of recorded amounts, we are
required to make judgments as to future demand requirements and compare these
with the current or committed inventory levels. Projected demand levels,
economic conditions, business restructurings, technological innovation and
product life cycles are variables we assess when determining our reserve for
excess and obsolete inventories.
We have experienced significant changes in required reserves in recent
periods due to these variables. As a result, we incurred charges for excess and
obsolete inventory of $37,011, $166,445 and $69,609 for the years ended December
31, 2002, 2001 and 2000, respectively. It is possible that significant changes
in required inventory reserves may continue to occur in the future if there is
further deterioration in market conditions or acceleration in technological
change.
WARRANTY RESERVES
We provide standard warranty coverage for most of our products for a
period of one year from the date of shipment. We record a liability for
estimated warranty claims based on historical claims, product failure rates and
other factors. This liability primarily includes the anticipated cost of
materials, labor and shipping necessary to repair and service the equipment. Our
warranty obligation is affected by product failure rates, material usage rates,
and the efficiency by which the product failure is corrected. Should our
warranty policy change or should actual failure rates, material usage and labor
efficiencies differ from our estimates, revisions to the estimated warranty
liability would be required.
USEFUL LIVES OF LONG-LIVED ASSETS
We estimate the useful lives of our long-lived assets, including
property, plant and equipment, identifiable finite life intangible assets and
software development costs for internal use in order to determine the amount of
depreciation and amortization expense to be recorded during any reporting
period. The estimated lives are based on historical experience with similar
assets as well as taking into consideration anticipated technological or other
changes. If technological changes were to occur more rapidly or slowly than
anticipated, or in a different form, useful lives may need to be changed
accordingly, resulting in either an increase or decrease in depreciation and
amortization expense. We review these assets annually or whenever events or
changes in circumstances indicate the carrying value may not be recoverable.
Factors we consider important and that could trigger an impairment review
include significant changes in the manner of our use of the acquired asset,
changes in historical or projected operating performance and cash flows and
significant negative economic trends.
DERIVATIVE INSTRUMENTS, HEDGING ACTIVITIES AND FOREIGN CURRENCY
We utilize derivative financial instruments to hedge foreign exchange
rate risk exposures related to foreign currency denominated payments from our
international subsidiaries. We also utilize a derivative financial instrument to
hedge fluctuations in the fair value of our investment in Cisco common shares.
Our foreign exchange derivatives qualify for hedge accounting in accordance with
the provisions of SFAS No. 133. We do not participate in speculative derivatives
trading. While we intend to continue
65
to meet the conditions for hedge accounting, if hedges did not qualify as highly
effective, or if we did not believe the forecasted transactions would occur, the
changes in fair value of the derivatives used as hedges would be reflected in
earnings and could be material. We do not believe we are exposed to more than a
nominal amount of credit risk in our hedging activities as the counterparties
are established, well capitalized financial institutions.
INCOME TAXES
Deferred income taxes are provided for the effect of temporary
differences between the amounts of assets and liabilities recognized for
financial reporting purposes and the amounts recognized for income tax purposes.
We measure deferred tax assets and liabilities using enacted tax rates, that if
changed, would result in either an increase or decrease in the reported income
taxes in the period of change. A valuation allowance is recorded when it is more
likely than not that a deferred tax asset will not be realized. In assessing the
likelihood of realization, management considers estimates of future taxable
income, the character of income needed to realize future tax benefits, and other
available evidence.
Our critical accounting policies have been reviewed with the Audit
Committee of the Board of Directors.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
On January 1, 2002, we adopted SFAS No. 142, "Goodwill and Other
Intangible Assets," which eliminates the amortization of goodwill and indefinite
life intangible assets but requires impairment reviews at least annually. In
accordance with SFAS No. 142, prior period amounts were not restated. See Note 7
to the Consolidated Financial Statements included elsewhere herein.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." This standard requires that the fair value of
obligations which are legally enforceable and unavoidable and are associated
with the retirement of a tangible long-lived asset be recorded in the period in
which it is incurred. This amount is accounted for as an additional element of
cost and is depreciated over the corresponding assets' useful life. The standard
is effective for fiscal years beginning after June 15, 2002. The adoption of
SFAS No. 143 is not expected to have a material impact on our Consolidated
Financial Statements.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes previous
accounting pronouncements and requires that long-lived assets held for sale be
measured at the lower of carrying amount or fair value less cost to sell,
whether reported in continuing operations or in discontinued operations. SFAS
No. 144 also modified the accounting and reporting of discontinued operations.
The provisions of SFAS No. 144 are effective for financial statements issued for
fiscal years beginning after December 15, 2001. The adoption of SFAS 144 on
January 1, 2002 did not have a material impact on our Consolidated Financial
Statements.
In April 2002, the FASB issued SFAS No. 145, "Recission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." This statement eliminates the automatic classification of a gain
or loss on the 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 APB Opinion No. 30, "Reporting the Results of Operations."
We elected to adopt this statement in 2002. As a result, gains on the
extinguishments of debt of $813 (net of taxes of $383) and $566 (net of taxes of
$266) have been recorded as components of operating results in the Consolidated
Statements of Operations for 2002 and 2001, respectively.
66
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This statement addresses financial
accounting and reporting for costs associated with exit or disposal activities
and supersedes EITF Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (Including Certain
Costs Incurred in Restructuring)." EITF Issue No. 94-3 required accrual of
liabilities related to exit and disposal activities at a plan (commitment) date.
SFAS No. 146 requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred. This statement
is effective for exit or disposal activities initiated after December 31, 2002.
The adoption of SFAS No. 146 is not expected to have a material impact on our
Consolidated Financial Statements.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." This interpretation requires that upon
issuance of a guarantee (including those embedded in a purchase or sales
agreement), the guarantor must disclose and recognize a liability for the fair
value of the guarantee. This interpretation also requires detailed information
about each guarantee or group of guarantees even if the likelihood of making a
payment is remote. The recognition and measurement provisions of this
interpretation are applicable on a prospective basis for guarantees issued or
modified after December 31, 2002. The disclosure requirements are effective for
us as of December 31, 2002 and are applicable to our product warranty liability
(see Note l(l) to the Consolidated Financial Statements included elsewhere
herein). The adoption of this interpretation is not expected to have a
significant impact on our Consolidated Financial Statements.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation--Transition and Disclosure, an amendment of FASB
Statement No. 123." This statement amends SFAS No. 123 to provide alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based compensation and requires more prominent disclosure
about the method used. This statement is effective for fiscal years ending after
December 15, 2002. Since we account for stock-based compensation using the
intrinsic value approach, only the disclosure provisions of this statement
apply. Therefore, the impact of adoption did not have a significant impact on
our Consolidated Financial Statements.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation
of Variable Interest Entities," ("FIN 46"), which was revised in December 2003.
This interpretation clarifies the application of Accounting Research Bulletin
No. 51, "Consolidated Financial Statements," to certain entities in which equity
investors do not have the characteristics of a controlling financial interest or
do not have sufficient equity at risk for the entity to finance its activities
without additional subordinated financial support from other parties. The
provisions of this interpretation, as revised, are effective for periods ending
after December 15, 2003. We are currently evaluating the impact of adopting this
interpretation on our Consolidated Financial Statements.
In November 2002, the Emerging Issues Task Force ("EITF") of the FASB
reached a consensus on EITF Issue No. 00-21, "Revenue Arrangements with Multiple
Deliverables" related to the timing of revenue recognition for arrangements in
which goods or services or both are delivered separately in a bundled sales
arrangement. The consensus requires that when the deliverables included in this
type of arrangement meet certain criteria they should be accounted for
separately. This may result in a difference in the timing of revenue recognition
but will not result in a change in the total amount of revenue recognized over
the life of the arrangement. The allocation of revenue to the separate
deliverables is based on the relative fair value of each item in a bundled sales
arrangement. If the fair value is not available for the delivered items, the
residual method must be used. This method requires that the amount allocated for
the undelivered items in the arrangement be recorded at their full fair value.
This results in the discount, if any, being allocated to the delivered items.
This consensus is effective prospectively for
67
arrangements entered into in fiscal periods beginning after June 15, 2003. We
are currently evaluating the impact of this consensus on our Consolidated
Financial Statements.
In April 2003, the FASB issued SFAS No. 149, "Amendments of Statement
133 on Derivative Instruments and Hedging Activities," which amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities under SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS No. 149 requires that contracts with comparable
characteristics be accounted for similarly and clarifies under what
circumstances a contract with an initial net investment meets the characteristic
of a derivative and when a derivative contains a financing component. SFAS No.
149 also amends the interpretation of an underlying to conform it to language
used in FIN No. 45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others." SFAS No.
149 is effective for contracts entered into or modified after June 30, 2003,
with certain exceptions. We do not believe that the adoption of SFAS No. 149
will have a material impact on our Consolidated Financial Statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity,"
which establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. SFAS
No. 150 requires that an issuer classify a financial instrument that falls
within its scope as a liability (or an asset in some circumstances). SFAS No.
150 is effective for financial instruments entered into or modified after May
31, 2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003, which for us is the quarter ended
September 30, 2003. We do not believe that the adoption of SFAS No. 150 will
have a material impact on our Consolidated Financial Statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to various market risks, including changes in foreign
currency exchange rates and interest rates. Market risk is the potential loss
arising from adverse changes in market rates and prices. We have a formal policy
that prohibits the use of currency derivatives or other financial instruments
for trading or speculative purposes. The policy permits the use of financial
instruments to manage and reduce the impact of changes in foreign currency
exchange rates that may arise in the normal course of our business. Currently,
we do not use any financial instruments to manage our interest rate risk. The
counterparties in derivative transactions that we have entered into are major
financial institutions with ratings of A or better, as determined by one of the
major credit rating services.
We enter into forward foreign exchange contracts and foreign currency
loans principally to hedge the currency fluctuations in transactions denominated
in foreign currencies, thereby limiting our risk that would otherwise result
from changes in exchange rates. During 2002, the principal transactions hedged
were short-term intercompany sales. The periods of the forward foreign exchange
contracts and foreign currency loans correspond to the periods of the hedged
transactions. Gains and losses on forward foreign exchange contracts and foreign
currency loans and the offsetting losses and gains on hedged transactions are
reflected as a component of operating results in our Consolidated Statements of
Operations.
A large percentage of our sales are transacted in local currencies. As
a result, our international operating results are subject to foreign exchange
rate fluctuations. As of December 31, 2002, a five percent strengthening or
weakening of the U.S. dollar against every applicable foreign currency would
have had a $24,237 impact on our revenues for the year ended December 31, 2002.
We did not use foreign exchange contracts to hedge expected revenues for the
year ended December 31, 2002. However, we acquire a portion of our raw materials
using local currencies. The strengthening or weakening of the U.S. dollar
against local currency would act as a partial offset to the impact on revenues.
68
We manufacture a significant portion of our products at our Mexico
facility and we generally invoice our international subsidiaries in their local
currency for finished and semi-finished goods. As a result, our annual U.S.
dollar cash flow is subject to foreign exchange rate fluctuations. As of
December 31, 2002, a five percent strengthening or weakening of the U.S. dollar
against every applicable currency would have had a $14,025 impact on the value
of the realized cash remittances from our subsidiaries during the year ended
December 31, 2002. We routinely use foreign exchange contracts to hedge cash
flows that are either firm commitments or those which may be forecasted to
occur.
While components and supplies are generally available from a variety of
sources, we currently depend on a single source or a limited number of suppliers
for several components of our equipment, certain subassemblies and certain of
our products. This may have an adverse effect on our ability to deliver our
products or to deliver them on time or to manufacture them at anticipated cost
levels. However, due to the general availability of components and supplies, we
do not believe that the loss of any supplier or subassembly manufacturer would
have a long-term material adverse effect on our business, although set-up costs
and delays could occur in the short term if we changed any single source
supplier.
Substantially all of our debt outstanding at December 31, 2002 is U.S.
dollar denominated. At year-end, about 56 percent of all indebtedness to third
parties was floating rate-based. Although we have exposure to rising and falling
interest rates, as of December 31, 2002, a 1.0 percent rise in rates on current
year floating rate-based borrowings would have had a $1,448 adverse impact on
pre-tax earnings in 2002. During 2002, we did not use interest rate derivatives
to protect our exposure to interest rate market movements.
We currently hold an investment in Cisco common stock, which is
accounted for in accordance with SFAS No. 115. At December 31, 2002, these
equity securities are classified as either trading (3,411,200 shares) or
available-for-sale (748,800 shares) based on how they are utilized in the SAILS
arrangement. They are carried at fair market value based on their quoted market
price. As such, we have exposure to market risk related to the fluctuation of
Cisco's stock price. However, the change in fair value of the Cisco stock price
is mitigated by the change in fair value of the embedded equity collar contained
in the SAILS arrangement. As of December 31, 2002, a 10 percent increase
(decrease) in the risk free interest rate used to value the option would have a
(negative) positive earnings impact of approximately $1,400, while a 10 percent
increase (decrease) in the assumed volatility used to value the option would
have a positive (negative) earnings impact of approximately $300.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information in response to this Item 8 is included in the
Consolidated Financial Statements and notes thereto, and related Independent
Auditors' Report, beginning on page F-1.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
Symbol is committed to maintaining disclosure controls and procedures
that are designed to ensure that information required to be disclosed in its
Exchange Act reports is recorded, processed, summarized and reported within the
time periods specified in the Commission's rules and forms, and that such
information is accumulated and communicated to its management, including its
Chief Executive Officer and Chief Financial Officer, as appropriate, to allow
for timely decisions regarding required disclosure. In designing and evaluating
the disclosure controls and procedures, management recognizes that any controls
and procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives and is subject
to certain limitations, including the
69
exercise of judgment by individuals, the inability to identify unlikely future
events, and the inability to eliminate misconduct completely. As a result, there
can be no assurance that our disclosure controls and procedures will prevent all
errors or fraud or ensure that all material information will be made known to
management in a timely manner.
In May 2001, in response to an inquiry from the Commission, we retained
a law firm to conduct an internal investigation into certain allegations
concerning Symbol's accounting practices, focusing on specific transactions with
two of our customers but also including a limited review of other large
transactions. The law firm retained an accounting firm to assist it in the
investigation. We subsequently learned that the effectiveness of this initial
investigation was hindered by the apparently deliberate actions of one or more
individuals formerly employed by Symbol. The Commission expressed
dissatisfaction with the initial investigation.
In March 2002, we retained a second law firm to conduct a wide-ranging
internal investigation into Symbol's accounting practices. The investigation was
conducted over a period of approximately eighteen months with the assistance of
an outside forensic accounting team. The investigation involved more than 200
interviews and the review of hundreds of thousands of pages of documents and
emails.
The investigation found that, during the period covered by the
restatement, certain members of former management engaged in, directed and/or
created an environment that encouraged a variety of inappropriate activities
that resulted in accounting errors and irregularities affecting our previously
issued financial statements that we have now restated. The errors and
irregularities caused by these actions primarily concerned the timing and amount
of product and service revenue recognized. In particular, the investigation
found that revenue was accelerated from the appropriate quarters to earlier
quarters through a variety of improper means and, on a more limited basis,
revenue was improperly created and inflated on a net basis. Additionally, there
were errors and irregularities associated with the establishment and utilization
of certain reserves and restructurings, including certain end-of-quarter
adjustments that were apparently made in order to achieve previously forecasted
financial results. There were also errors and/or irregularities associated with
the administration of certain options programs, as well as several categories of
cost of revenue and operating expenses, including efforts to artificially reduce
reported inventory. For a more detailed description and the scope of these
accounting errors and irregularities, see Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
The investigation also found that, in addition to the specific items of
misconduct giving rise to the need for the restatement, there was a failure by
Symbol's former management to establish an appropriate control environment, and
there were significant failures in Symbol's internal controls and procedures
resulting from numerous causes, including inadequate hiring of qualified and
experienced personnel, insufficient training and supervision of personnel, a
decentralized accounting structure for operations in the United States and
inadequate systems and systems interfaces. The investigation also found
instances in which some members of former management and sales and
finance-related employees devoted insufficient attention and resources to
ensuring accurate accounting and financial reporting. Indeed, as the guilty
pleas of two former senior members of our finance group illustrate, there were
also instances in which such activity rose to the level of criminal misconduct.
As required by Rule 13a-15(b) of the Exchange Act, Symbol has carried
out an evaluation, under the supervision and with the participation of its
management, including its Chief Executive Officer and its Chief Financial
Officer, of the effectiveness of the design and operation of its disclosure
controls and procedures. The evaluation examined those disclosure controls and
procedures as of December 31, 2002, the end of the period covered by this
report. Based upon the evaluation and the results of the investigations
discussed above, Symbol's management concluded that, as of December 31, 2002,
Symbol's disclosure controls and procedures were not effective at the reasonable
assurance level to
70
ensure that information required to be disclosed in Symbol's reports filed or
submitted under the Exchange Act was accumulated and communicated to Symbol's
management, including its Chief Executive Officer and its Chief Financial
Officer, as appropriate to allow timely decisions regarding required disclosure.
Since the commencement of the investigations, Symbol has terminated a number of
employees whose improper activities resulted in inaccurate accounting and
financial reporting. In addition, Symbol has implemented the following
initiatives to improve Symbol's internal controls, including disclosure controls
and procedures, and to address the areas of weakness identified during the
investigations and the restatement:
NEW MANAGEMENT
We appointed new executive officers who have primary
responsibility for financial reporting, including a new Chief Executive
Officer, President and Chief Operating Officer, a new Chief Financial
Officer and a new Senior Vice President - Finance and Business Controller.
In addition, we appointed a new Chief Information Officer, a new Senior
Vice President, General Counsel and Secretary and new Senior Vice
Presidents in our Sales, Operations, Global Products and Customer Service
organizations.
CENTRALIZED FINANCE FUNCTION
Previously, each regional office in the United States was
responsible for its financial controls and processes, with the business
manager in each regional office acting relatively autonomously from
Symbol's headquarters. Now, all finance personnel from our regional offices
in the United States are required to report directly to the finance
department in Symbol's headquarters and ultimately to the Chief Financial
Officer. Similar procedures are in place with respect to our foreign
regional offices, with the head of finance for each country, or groups of
countries, reporting directly to the Chief Financial Officer.
ADDITIONAL FINANCE PERSONNEL
We have created two new controller positions: business controller
and revenue controller. The business controller is responsible for ensuring
the accuracy and completeness of our internal reporting functions. The
revenue controller, who will report directly to the Chief Accounting
Officer, is responsible for ensuring that revenue is recognized properly.
We have also hired additional employees for our accounting, finance and
audit divisions with the aim of broadening our collective knowledge on a
variety of technical accounting issues.
REVIEW OF SIGNIFICANT AND NON-STANDARD TRANSACTIONS
We have implemented a formal review process of all transactions
involving amounts over $500,000 and all transactions that are structured
differently from our normal business procedures (e.g., "bill and hold"
transactions). The "deals desk," which is comprised of members from the
finance department, must approve any significant or non-standard
transaction prior to booking. In addition, all sales transactions are now
reported directly to headquarters rather than the regional business
manager, as was the prior practice.
STRENGTHENED INTERNAL AUDIT PROCESS
We have augmented the month-end review process by performing
random testing of transactions to insure that they have been accounted for
properly. Also, during each month-end review process, certain members of
the finance department will focus on any variances from
71
expectations, significant transactions (including charges relating to
restructurings and acquisitions), transactions that required the use of
judgment and balance sheet accounts. The Chief Financial Officer, the Chief
Accounting Officer, and the revenue controller will participate in the
month-end review process. We are also in the process of developing
procedures to ensure more timely reconciliations on a monthly basis.
NEW DISCLOSURE COMMITTEE
We have formed a new Disclosure Committee comprised of the Chief
Executive Officer, President and Chief Operating Officer, Chief Financial
Officer, Senior Vice President - Finance and Business Controller, Chief
Accounting Officer and General Counsel. The Disclosure Committee meets
prior to significant filings with the Commission, and issuances of
significant press releases.
EXPANSION OF BOARD OF DIRECTORS
As of December 15, 2003, we have expanded our Board of Directors
and added three new members. Also, we are actively searching for additional
qualified individuals to serve as independent members on our Board of
Directors. In addition, the Audit Committee charter has been revised to
grant the Audit Committee greater responsibility and authority to oversee
financial matters.
THE CONTROL ENVIRONMENT
In connection with the implementation of the foregoing
initiatives, Symbol's Board of Directors and senior management team,
including the Chief Executive Officer and Chief Financial Officer, have
stressed the importance of creating a control environment based on
integrity and honesty.
o CODE OF CONDUCT AND COMPLIANCE POLICIES. We amended our code
of conduct and compliance policies to include company-wide
principles and procedures for maintaining the integrity and
transparency of our compliance, accounting, and reporting
systems.
o CONFIDENTIAL HOTLINE. We have created a confidential hotline
number to provide a means for employees to anonymously
report any suspected violations of law or our standards of
conduct. In recent memos and meetings with our employees, we
have urged anyone with knowledge of improper or unethical
conduct to report that conduct to outside counsel or any
trusted supervisor or officer or directly to the Commission.
SOFTWARE AND SYSTEMS UPGRADE
Our new management has approved a $20 million software and systems
upgrade that will improve the integration of our sales and finance
departments and improve the adequacy of accounting journal entries. We have
engaged an outside consultant to assist in these efforts.
We believe the efforts we have and are taking address the material
weaknesses that previously affected our internal controls. However, it will take
some time before we have in place the rigorous disclosure controls and
procedures, including internal controls and procedures, that our Board of
Directors and senior management are striving for. As a result of our efforts as
of the date hereof, we believe that our Consolidated Financial Statements fairly
present, in all material respects, our financial condition, results of
operations and cash flows as of, and for, the periods presented and that this
Annual
72
Report on Form 10-K contains the information required to be included in
accordance with the Exchange Act.
Our management, including our Chief Executive Officer and Chief
Financial Officer, has concluded that, except for the internal control
deficiencies as described herein, as of the evaluation date and the filing date
of this report, our disclosure controls and procedures are designed, and are
effective, to give reasonable assurance that information we must disclose in
reports filed with the Commission is properly recorded, processed, summarized
and reported in conformance with the rules and regulations of the Commission.
Other than as summarized above, since the evaluation date, there have
been no significant changes in our internal control structure, policies and
procedures over financial reporting or in other areas that could significantly
affect our internal controls. We will continue to assess our disclosure controls
and procedures as we prepare our delinquent filings and will take any further
actions that we deem necessary.
73
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Identification of Directors:
The following table sets forth the names, positions and offices held by
Symbol's directors, as of December 31, 2002 and the date of this report, and
their ages as of the date of this report:
CURRENT DIRECTORS
POSITIONS AND OFFICES HAS BEEN A
NAME AGE PRESENTLY HELD WITH SYMBOL DIRECTOR SINCE
- ---- --- -------------------------- --------------
Salvatore Iannuzzi................ 50 Director, Chairman of the Board of Directors 2003
Harvey P. Mallement............... 63 Director 1977
Raymond R. Martino................ 65 Director 1983
George Bugliarello................ 76 Director 1992
Leo A. Guthart.................... 66 Director 1999
James Simons...................... 65 Director 2000
Robert J. Chrenc.................. 59 Director 2003
William R. Nuti................... 40 Director, Chief Executive Officer, 2003
President and Chief Operating Officer
Melvin A. Yellin.................. 60 Director 2003
FORMER DIRECTORS
POSITIONS AND OFFICES HAD BEEN A
NAME AGE HELD WITH SYMBOL DIRECTOR SINCE
- ---- --- ---------------- --------------
Richard Bravman................... 48 Vice Chairman of the Board of Directors 2002
and Chief Executive Officer
Jerome Swartz..................... 63 Executive Chairman of the Board of 1987
Directors and Chief Scientist
Mr. Iannuzzi was appointed non-executive Chairman of the Board of
Directors as of December 30, 2003. He has been employed as the Chief
Administrative Officer of CIBC World Markets, Inc. since June 2000. From 1982 to
2000, he held several senior positions at Bankers Trust Company/Deutsche Bank,
including senior control officer and head of corporate compliance.
Mr. Mallement is a founding and general partner of Harvest Partners,
Inc., a private equity and leveraged buyout investment management company formed
in April 1981. He serves on the board of several of Harvest's portfolio
companies including Community Distributors, Inc., a retail drugstore chain;
Edgen Corporation, a value-added distributor of carbon and specialty steel pipe
utilized in the energy industry; Home Care Industries, Inc., a leading
manufacturer of vacuum cleaner filter bags and air filtration products; Home
Care Supply, Inc., the largest privately held provider of home healthcare
supplies and equipment; Logisco Inc., an integrated third-party logistics
company; and priNexus, Inc., a marketing communications company providing, on an
integrated basis, the creation, production and distribution of electronic and
printed marketing materials.
74
Mr. Martino was Symbol's president and chief operating officer from
December 1983 until June 1994. He is currently employed by us on a part-time and
consulting basis.
Dr. Bugliarello has been chancellor of Polytechnic University since
July 1994. For the prior 21 years, he was president of Polytechnic University. A
member of several scientific organizations, he is past chairman of the Board of
Science and Technologies for International Development of the National Academy
of Sciences. He is a member of the National Academy of Engineering and the
Council on Foreign Relations. He is a member of the board of directors of
several organizations including Comtech Telecommunications Corp.
Dr. Guthart is currently employed as the managing partner of Topspin
Partners, L.P., a private equity management company. He previously served as
executive vice president of the Honeywell Corporation from February 2000 to
December 2002. He also was vice chairman of the board of Pittway Corporation
from 1987 until 2000 and served as chief executive officer of its Security Group
for many years. This group includes ADEMCO, a manufacturer of alarm equipment;
ADI, the largest U.S. distributor of security equipment; First Alert
Professional Security Systems, a brand name marketing program for alarm dealers;
and AlarmNet, a cellular radio service that transmits alarm and security signals
in major U.S. cities. He has also served as chairman of Security and Fire
Solutions of Honeywell International since February 2000. Dr. Guthart has served
as a director of the Acorn Investment Trust, a growth-oriented mutual fund,
since 1997. Since 1996, he has also served as non-executive chairman of Cylink
Corporation, a supplier of information security encryption equipment, and since
1993 as a director of AptarGroup, Inc., a producer of dispensing valves, pumps
and closures for the pharmaceutical and fragrance industries. From 1960 to 1963
Dr. Guthart served on the faculty of Harvard Business School and from 1993 to
1996 he was chairman of the Board of Trustees of Hofstra University.
Dr. Simons has been the president of Renaissance Technologies
Corporation since 1982. Renaissance Technologies Corporation is an investment
firm dedicated to the use of mathematical methods. From 1968 to 1975, Dr. Simons
served as chairman of the Mathematics Department of S.U.N.Y. Stony Brook. Dr.
Simons has been a founder and director of Franklin Electronic Publishers, Inc.
since 1981 and Cylink Corporation since 1983. Dr. Simons has been chairman of
the board and a director of Segue Software, Inc. since 1988. Dr. Simons serves
as chair emeritus of the Stony Brook Foundation Board at S.U.N.Y. Stony Brook,
is a member of the Board of Governors of the New York Academy of Science and is
a director of B.S.A., the management organization of Brookhaven National
Laboratories. Dr. Simons has taught mathematics at M.I.T. and Harvard University
and served as a cryptanalyst at the Institute of Defense Analysis in Princeton,
New Jersey.
Mr. Chrenc was Executive Vice President and Chief Administrative
Officer at ACNielsen, a leading provider of marketing information based on
measurement and analysis of marketplace dynamics and consumer attitudes and
behavior, from February 2001 until his retirement in December 2001. From June
1996 to February 2001, he served as ACNielsen's Executive Vice President and
Chief Financial Officer.
Mr. Nuti was appointed President and Chief Operating Officer of Symbol
on August 1, 2002 and was appointed Chief Executive Officer and Director on
December 30, 2003. Mr. Nuti joined Symbol from Cisco Systems, Inc., where he was
senior vice president of U.S. Theatre and Worldwide Service Provider Operations,
responsible for Cisco's field operations, systems engineering, professional
services and marketing for the global service provider arena. In his 10-year
career at Cisco, Mr. Nuti served as president of Europe, the Middle East and
Africa ("EMEA") operations, vice president for the Cisco Asia Pacific region and
various sales management positions.
75
Mr. Yellin has been the president of Stone Point Corporation since July
2003. Stone Point Corporation concentrates primarily on risk management and
corporate solutions for its corporate clients. From 1999 to 2003, Mr. Yellin was
of counsel to Skadden Arps Slate Meagher & Flom LLP. Prior to that, Mr. Yellin
served as Executive Vice President and General Counsel of Bankers Trust Company.
In 2002, Mr. Yellin served as chairman and president of the New York
Metropolitan Chapter of the National Association of Corporate Directors and has
been a frequent lecturer for The Conference Board on governance issues.
Mr. Bravman has been employed by Symbol since 1978. Mr. Bravman is
currently a senior advisor to Mr. Nuti and Symbol's Board of Directors. From
August 1, 2002 to December 30, 2003, Mr. Bravman was Symbol's Chief Executive
Officer and Vice Chairman of the Board of Directors. From February 2002 to
July 2002, Mr. Bravman served as President and Chief Operating Officer. In 2001,
he established our Integrated Systems Division. For six months prior to that, he
served as Senior Vice President and General Manager of Symbol's Western Area
Sales and Services Division. From 1999 until early 2001, Mr. Bravman served as
senior vice president and general manager of the Mobile and Wireless Systems
Division. Prior to that, he held various senior management positions including
12 years as chief marketing officer.
Dr. Swartz co-founded Symbol and had been employed by Symbol since it
commenced operations in 1975. He served as Chairman of the Board of Directors
for more than 15 years and served as Chief Executive Officer of Symbol for more
than 15 years until July 1, 2000. Dr. Swartz re-assumed the Chief Executive
Officer position on February 14, 2002 until July 1, 2002, and resigned from the
positions Executive Chairman of the Board of Directors, Director and Chief
Scientist on July 7, 2003.
Directors serve one-year terms and are elected annually. Executive
officers serve until they resign or replacements are appointed by the Board of
Directors.
(b) Identification of Executive Officers:
See Item 4A, "Executive Officers of the Registrant."
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our directors and executive
officers (as defined therein), and persons who beneficially own more than 10% of
a registered class of Symbol common stock, to file a report of holdings and
transactions in Symbol common stock with the Commission and the New York Stock
Exchange and to furnish us with copies of all Section 16(a) forms they file.
Based on our records and other information furnished to us, we believe that,
during 2002 executive officers, directors and persons who beneficially own more
than 10% of Symbol's common stock complied with all filing requirements
applicable to them, except that Jerome Swartz filed one Form 4 three business
days late with respect to a single transaction.
As a result of our internal investigation into Symbol's past accounting
practices, irregularities with respect to certain option exercises by certain of
Symbol's executives and directors were discovered. More detail regarding these
irregularities may be found in Note 2 to the Consolidated Financial Statements.
76
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
In the following Summary Compensation Table you can find compensation
information about Symbol's chief executive officer as of December 31, 2002, its
former chief executive officers and the four other executive officers who were
the most highly paid as of December 31, 2002.
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
SECURITIES
OTHER ANNUAL RESTRICTED STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION* YEAR SALARY BONUS (H) COMPENSATION (I) AWARDS OPTIONS COMPENSATION
- ------------------------------ ---- ------------- ----------- ---------------- ---------------- ----------- -------------
Jerome Swartz........... 2002 $1,000,000(A) $ -- $ -- $ -- 583,000 $ 76,797(J)
Executive Chairman of the 2001 1,000,002(B) -- -- -- 300,000 75,325(J)
Board and Chief Scientist 2000 958,578(B) 1,092,800 -- -- 375,000 72,519(J)
and Former Chief Executive
Officer
Richard Bravman......... 2002 580,067(C) -- -- -- 634,000 5,000(K)
Vice Chairman 2001 390,330(D) -- -- -- 90,000 4,250(K)
of the Board, Chief 2000 271,378(D) -- 50,000 -- 37,500 4,250(K)
Executive Officer
Tomo Razmilovic...... 2002 476,932(G) -- -- -- 375,000 6,948,674(N)
President and Chief 2001 1,000,002(B) -- -- -- 937,500 10,453(O)
Executive Officer 2000 832,770(B) 949,400 260,000 -- -- 12,955(O)
Leonard H. Goldner...... 2002 465,774(E) -- -- -- 375,000 5,500(K)
Executive Vice 2001 458,904(B) -- -- -- 937,500 5,100(K)
President and General 2000 415,854(B) 237,000 75,000 -- 5,100(K)
Counsel and Secretary
77
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
SECURITIES
OTHER ANNUAL RESTRICTED STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION* YEAR SALARY BONUS (H) COMPENSATION (I) AWARDS OPTIONS COMPENSATION
- ------------------------------ ---- ------------- ----------- ---------------- ---------------- ----------- -------------
Kenneth V. Jaeggi .......... 2002 $ 438,922(E) $ -- $ -- $ -- 137,000 $ 5,500(K)
Senior Vice President and 2001 433,002(B) -- -- -- 120,000 64,323(L)
Chief Financial Officer 2000 400,442(B) 228,300 72,000 -- 30,000 42,651(L)
Satya Sharma................ 2002 400,005(A) -- -- -- 176,000 5,500(K)
Senior Vice President & 2001 349,566(B) -- -- -- 120,000 5,100(K)
GM Corporate Quality and 2000 313,955(B) 179,000 50,000 -- 30,000 5,100(K)
Operations
William Nuti................ 2002 242,315(F) -- -- 2,992,000(M) 800,000 --
President and Chief
Operating Officer
*This table presents the principal positions of Symbol's executive officers for
the year ended December 31, 2002. See Item 4A, "Executive Officers of the
Registrant" for a listing of Symbol's current executive officers and principal
positions.
- --------------------------------------------------------------------------------
(A) Includes $11,000 in contributions by the officer to Symbol's 401(k)
deferred compensation plan.
(B) Includes $10,200 in contributions by the officer to Symbol's 401(k)
deferred compensation plan.
(C) Includes $10,000 in contributions by the officer to Symbol's 401(k)
deferred compensation plan.
(D) Includes $8,500 in contributions by the officer to Symbol's 401(k) deferred
compensation plan.
(E) Includes $12,000 in contributions by the officer to Symbol's 401(k)
deferred compensation plan.
(F) Represents base salary paid to Mr. Nuti since his appointment as President
and Chief Operating Officer of Symbol in July 2002.
(G) Represents base salary paid to Mr. Razmilovic from January 1, 2002 until
his resignation from Symbol effective as of February 14, 2002, plus $11,000
in contributions to Symbol's 401(k) defined compensation plan.
(H) Represents amounts earned and accrued pursuant to Symbol's Executive Bonus
Plan. Amounts indicated are earned and accrued in the fiscal year indicated
but are generally paid in the first quarter of the next succeeding year.
(I) Includes special one-time bonus awards. Not included are the amounts of
certain perquisites and other personal benefits provided by Symbol since
such amounts in aggregate do not exceed the lesser of (i) $50,000 or (ii)
10% of the total annual salary and bonus reported in the table for any
named executive officer.
78
(J) Represents:
- $5,100 in 2000 and 2001 and $5,500 in 2002 in matched contributions by
Symbol to Symbol's 401(k) deferred compensation plan;
- $27,419 in 2000, $30,225 in 2001 and $31,297 in 2002 for:
- premiums paid on his behalf on term life insurance policies, under
which Dr. Swartz's family members are the beneficiaries, and the
estimated economic benefit of insurance premium payments made by
Symbol for a split-dollar whole life insurance arrangement as
projected on an actuarial basis. Dr. Swartz's family members are
beneficiaries of these split-dollar policies but, under the
arrangement, Symbol will recover all its premiums paid; and
- a non-reimbursable expense allowance of $40,000 in 2000, 2001 and
2002.
(K) Represents matched contributions by Symbol to Symbol's 401(k) deferred
compensation plan.
(L) Represents:
- $5,100 in 2000 and 2001 in matched contributions by Symbol to Symbol's
401(k) deferred compensation plan; and
- $37,551 and $59,223 in 2000 and 2001, respectively for retroactive
reimbursement of relocation expenses associated with Mr. Jaeggi's
relocation to the Long Island area.
(M) Represents a grant of 400,000 restricted shares of common stock which had a
market value on the date of issuance equal to $2,992,000. These shares of
common stock are deemed to be "restricted securities" as the term is
defined in Regulation 144 promulgated pursuant to the Securities Act of
1933, as amended, and accordingly, Mr. Nuti's ability to resell these
shares is restricted by applicable federal securities laws. In addition, in
connection with his employment agreement with Symbol, Mr. Nuti agreed not
to resell or otherwise transfer these shares for two years after the date
of issuance unless he is no longer employed by Symbol. As of December 31,
2002, the value of these shares was $3,288,000.
(N) Represents:
- $11,000 in contributions to Symbol's 401(k) deferred compensation
plan;
- $5,000,000 pursuant to Mr. Razmilovic's termination agreement; and
- $1,943,191 due to Mr. Razmilovic's deferred option gain on restricted
stock; and $5,483 for the estimated economic benefit of insurance
premium payments made by Symbol for a split-dollar whole life
insurance arrangement as projected on an actuarial basis. Mr.
Razmilovic's family members are beneficiaries of these policies but,
under the arrangement, Symbol will recover all its premiums paid.
(O) Represents:
- $5,100 in 2000 and 2001 in contributions to Symbol's 401(k) deferred
compensation plan; and $7,855 and $5,353 in 2000 and 2001,
respectively, for the estimated economic benefit of insurance premium
payments made by Symbol for a split-dollar whole life insurance
arrangement as projected on an actuarial basis. Mr. Razmilovic's
family members are beneficiaries of these policies but, under the
arrangement, Symbol will recover all of its premiums paid.
79
EMPLOYMENT AGREEMENTS
In July 2000, we entered into an employment agreement with Dr. Swartz
that was scheduled to terminate on June 30, 2005. Pursuant to that agreement,
Dr. Swartz received an annual base salary of $1,000,000 until his resignation
from Symbol on July 7, 2003. On July 7, 2003, we entered into a separation,
release and employment agreement with Dr. Swartz that supersedes his 2000
employment agreement with us. Pursuant to this new agreement, Dr. Swartz will be
employed as chief scientist emeritus until July 1, 2004, at base salary of $1
for the term of his employment by Symbol. Dr. Swartz will not be eligible to
participate in Symbol's Executive Bonus Plan.
In August 2002, we entered into an employment agreement with Mr.
Bravman that terminates on July 31, 2007. Mr. Bravman receives an annual base
salary of $750,000. Mr. Bravman's salary will be reviewed in July 2004. Mr.
Bravman also participates in Symbol's Executive Bonus Plan. The target amount of
his bonus is 100% of his base salary. If his employment is terminated for any
reason (other than due to his death or disability or for cause or his voluntary
resignation), Mr. Bravman will receive payments equal to one year's (if such
termination occurs after August 1, 2004) or two years' (if such termination
occurs before such date) annual base salary and bonus during the last completed
fiscal year immediately before any such termination.
In August 2002, we entered into an employment agreement with Mr. Nuti
that terminates on July 31, 2007. Mr. Nuti receives an annual base salary of
$600,000. Mr. Nuti's salary will be reviewed in July 2004. Mr. Nuti also
participates in Symbol's Executive Bonus Plan. The target amount of his bonus is
100% of his base salary. If his employment is terminated for any reason (other
than due to his death or disability or for cause or his voluntary resignation),
Mr. Nuti will receive payments equal to one year's (if such termination occurs
after August 1, 2004) or two years' (if such termination occurs before such
date) annual base salary and bonus during the last completed fiscal year
immediately before any such termination. Mr. Nuti's employment agreement will be
amended in 2004 in consideration of Mr. Nuti's appointment as Symbol's Chief
Executive Officer.
In December 2000, we entered into an employment agreement with Mr.
Goldner that was scheduled to terminate on December 31, 2005. Mr. Goldner
received an annual base salary of $465,775 until his resignation as of June 30,
2003.
On July 8, 2003, we entered into an interim resignation agreement with
Mr. Goldner for his resignation effective June 30, 2003 that provides that,
until a definitive agreement is negotiated between the parties with respect to
the terms and conditions of his resignation, Mr. Goldner will serve as a legal
consultant to Symbol, at a rate of $475 per hour, primarily in connection with
our current and ongoing intellectual property litigation matters. Symbol may
terminate this arrangement at any time in its sole and absolute discretion. In
this interim resignation agreement, neither Symbol nor Mr. Goldner waived any
rights, remedies or claims against the other.
In 2000, we entered into a new employment agreement with Mr. Martino, a
current member of our Board of Directors, that terminates on February 15, 2005.
He is employed as a part-time consultant, assisting the executive chairman of
the Board of Directors and the president. In 2003, Mr. Martino will receive
$100,000. In February 2002, Mr. Martino was awarded options under the 1997
Employee Stock Option Plan to purchase 25,000 shares of Symbol's common stock at
an exercise price of $8.09 per share, which was the closing price of our common
stock on the date the option was granted. Ten percent of these options vested on
January 1, 2003, 15 percent vested on July 1, 2003 and 15 percent will vest on
January 1, 2004 and each of the four next consecutive six-month anniversary
dates of that date. On August 12, 2002, Mr. Martino was awarded options under
the 1997 Employee Stock Option Plan to purchase 50,000 shares of our common
stock at an exercise price of $9.05 per share, which was the
80
closing price of our common stock on the date the option was granted. Ten
percent of these options vested on August 12, 2003, and 15 percent will vest on
February 12, 2004, and each of the five next consecutive six-month anniversary
dates of that date. On May 5, 2002, Mr. Martino was awarded options under
Symbol's 2002 Director Stock Option Plan to purchase 20,000 shares of our common
stock at an exercise price of $8.17 per share, which was the closing price of
our common stock on the date the option was granted. Ten percent of these
options vested on May 6, 2003, and 15 percent will vest on November 6, 2003 and
each of the five next consecutive six-month anniversary dates of that date.
In 2000, we entered into an employment agreement with Mr. Razmilovic
that was scheduled to terminate on June 30, 2005. Under that agreement, Mr.
Razmilovic received a base salary of $1,000,000 until his resignation from
Symbol, effective as of February 14, 2002. In February 2002, we entered into new
agreements with Mr. Razmilovic that superseded and replaced the earlier
agreement. The new agreements provide for:
- the payment to Mr. Razmilovic of Five Million Dollars in March
2002;
- the payment to Mr. Razmilovic of Two Million Dollars in May 2003;
and
- the termination and cancellation of 1,818,750 outstanding stock
options previously granted to Mr. Razmilovic.
The new agreements provide for Mr. Razmilovic to remain as a full-time
employee through May 6, 2002 at an annual salary of $1,000,000 and then to be
employed on a part-time and consulting basis for a period of five years
beginning May 7, 2002. Pursuant to these new agreements, Mr. Razmilovic was
entitled to receive $200,000 per annum during this five year period and was to
continue to participate in fringe benefit programs in effect as of February 14,
2002.
On May 6, 2003, we entered into a tolling agreement with Mr.
Razmilovic, that suspends the obligations of both parties under the 2002
agreements for a period of twelve months beginning April 1, 2003 and ending
March 31, 2004. Mr. Razmilovic will bear the full expense of participating in
any fringe benefit programs during this suspension period. Both parties have
reserved all rights and claims against the other in connection with this
agreement and have agreed that neither party will commence any legal actions
against each other during the period that the tolling agreement is in effect.
EXECUTIVE BONUS PLAN
In 1999, Symbol adopted and the Board of Directors and shareholders
ratified, a new Executive Bonus Plan which was substantially similar to our
previous executive bonus plan. The purpose of the plan is to tie the level of
annual executive incentive compensation to Symbol's financial performance. All
executive officers of Symbol participate in the Executive Bonus Plan.
Under the Executive Bonus Plan, the Compensation Committee each year
establishes corporate financial performance objectives (exclusive of
extraordinary revenues and charges) based on earnings per share. There are three
levels of performance:
o threshold performance, at which the minimum award (one-half a
participant's target bonus) will be earned and below which no
award will be earned;
o target performance, at which the target award will be earned; and
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o maximum performance, at which the maximum award (generally two
times, but in 2003, one and one half times, a participant's
target bonus) will be earned and above which no additional award
will be earned.
For 2003, threshold performance has been established at results equal
to 85% of the 2003 business plan; target performance has been established at
results equal to 100% of the 2003 business plan; and maximum performance has
been established at results equal to or greater than 115% of the 2003 business
plan.
Each participant in the Executive Bonus Plan has been assigned a target
bonus representing a percentage of the participant's base salary. The target
bonus for 2003 is 100% for Messrs. Bravman and Nuti. These target bonuses
conform to their individual employment agreements and their levels of
responsibility. Mr. Bravman will still be eligible to receive a bonus pursuant
to the Executive Bonus Plan for the fiscal year ended December 31, 2003. The
target bonuses for other participants in the Executive Bonus Plan are
established by the Chief Executive Officer based on the individual's performance
and relative level of responsibility and range from 25% to 100% of base salary.
75% of all participants' bonuses are based on corporate financial
performance. The remaining 25% are based on the attainment of a specified level
of improvement in customer satisfaction based on surveys conducted on behalf of
Symbol during the year. In 2001 and 2002, no bonuses were paid to any
participant in the Executive Bonus Plan. In 2000, all participants in the
Executive Bonus Plan received bonuses equal to 114.3% of their target bonus.
DIRECTOR COMPENSATION
Directors who are not employees of Symbol are paid an annual retainer
of $15,000, in equal quarterly installments. They also receive a fee of $2,500
for each Board of Directors meeting they attend or each meeting of a committee
that is not held in conjunction with a Board of Directors meeting. The chairman
of the Audit Committee and the chairman of the Compensation/Stock Option
Committee each also is paid an annual retainer of $5,000 in equal quarterly
installments. Directors who are employees do not receive additional compensation
for serving as directors or for attending Board of Directors or committee
meetings. Symbol reimburses directors for their expenses in connection with
attending meetings of the Board of Directors or committees of the Board of
Directors.
Directors also receive an option to purchase 50,000 shares of the
Corporation's Common Stock upon their initial election to the Board of Directors
pursuant to the 2000 Directors' Stock Option Plan (the "2000 Plan"). Under the
2000 Plan, each option has a ten-year term; twenty-five percent (25%) will
become exercisable beginning on the first anniversary of the date of the grant
and twenty-five percent (25%) shall become exercisable each year thereafter. The
options will have an option exercise price equal to the closing price of shares
of Symbol's common stock on the date of the grant. Directors are entitled to
additional option awards pursuant to the 2002 Directors' Stock Option Plan (the
"2002 Plan"). The 2002 Plan authorizes the Compensation/Stock Option Committee
of the Board of Directors to grant options to each person who is not a full-time
employee of Symbol or one of its subsidiaries, who has been a director for at
least eleven (11) months and is re-elected at the annual meeting of
shareholders, shall be granted an option to purchase 20,000 shares of Symbol's
common stock. Each option has a ten-year term; ten percent (10%) will become
exercisable beginning on the first anniversary of the date of grant and fifteen
percent (15%) shall become exercisable every six (6) months thereafter; the
options will have an option exercise price equal to 100 percent of the fair
market value of shares of Symbol's common stock on the date of grant. The
options will generally not be transferable except to the extent that options may
be exercised by an executor or administrator provided, however, with the prior
approval of the Board of Directors, options under the 2002 Directors' Plan may
be transferred to an optionee's spouse, children, grandchildren or trusts or
partnerships for the benefit of such persons.
82
See Item 10 "Directors and Executive Officers of the Registrant --
Employment Agreements" for a discussion of Mr. Martino's employment agreement.
OPTION GRANTS
We currently maintain two stock option plans for the benefit of our
employees, the 2001 Non-Executive Stock Option Plan (the "2001 Plan") and the
1997 Employee Stock Option Plan (the "1997 Plan"). Under these plans, options
are granted to selected employees of Symbol.
The 2001 Plan authorizes the Compensation/Stock Option Committee of the
Board of Directors to grant options to key employees of Symbol other than
corporate officers. Under the 2001 Plan, each option has a ten-year term; twenty
percent (20%) will become exercisable beginning on the first anniversary of the
date of grant and ten percent (10%) shall become exercisable every six (6)
months thereafter. The options will have an option exercise price equal to 100%
of the fair market value of shares of Symbol's common stock on the date of
grant.
Under the 1997 Plan, the Compensation/Stock Option Committee can grant
options to key employees, including those who are officers of Symbol.
Under the 1997 Plan, an individual may not be awarded options to
purchase more than 1% of the then outstanding shares of Symbol common stock in
any calendar year. The Compensation/Stock Option Committee may determine at the
time of grant that some options are qualified under the Internal Revenue Code of
1986 as incentive stock options and some of the options may be non-qualified
options. None of the options granted under the 1997 Plan are exercisable for a
period of more than ten years. Incentive stock options granted under the 1997
Plan to owners of 10% or more of Symbol common stock are not exercisable for a
period exceeding five years. As of November 30, 2003, there have been no
incentive stock options granted under the 1997 Plan. Ten percent (10%) will
become exercisable beginning on the first anniversary of the date of grant and
fifteen percent (15%) shall become exercisable every six (6) months thereafter.
The exercise price of an option under the 1997 plan must be at least 100% of the
closing price of Symbol common stock on the date of grant.
Incentive stock options must comply with provisions of the Internal
Revenue Code of 1986 relating to the maximum amount that can be vested by an
optionee in any one calendar year and the minimum exercise price of an incentive
stock option and other matters. The 2001 Plan terminates on February 25, 2011,
and the 1997 Plan terminates on February 9, 2007.
The following table shows certain information about stock options
granted to the individuals named in the Summary Compensation Table under all of
our stock option plans:
83
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL
INDIVIDUAL GRANTS IN 2002 RATES OF STOCK PRICE APPRECIATION FOR OPTION TERM
----------------------------------------- ------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES IN EXERCISE OR 5% STOCK 10% STOCK
GRANTED (NO.) FISCAL YEAR BASE PRICE EXPIRATION PRICE PRICE
NAME (B) (O) (P) DATE (Q) DOLLAR GAIN (Q) DOLLAR GAIN
- ------------- ------------- ------------ ------------ ---------- --------- ----------- --------- -----------
William Nuti 800,000(C) 9.22 $ 9.35 7/11/12 $ 15.23 $4,704,132 $24.25 $11,921,194
Richard Bravman 200,000(D) 2.31% 8.09 2/18/12 13.18 1,017,552 20.98 2,578,675
350,000(E) 4.04 7.39 7/11/12 12.04 1,626,636 19.17 4,122,215
84,000(F) 0.97 9.05 8/11/12 14.74 478,086 23.47 1,211,563
Jerome Swartz 150,000(G) 1.73 8.09 2/18/12 13.18 763,164 20.98 1,934,006
433,000(H) 4.99 9.05 8/11/12 14.74 2,464,418 23.47 6,245,319
Leonard Goldner 75,000(I) 0.86 8.09 2/18/12 13.18 381,582 20.98 967,003
121,000(J) 1.40 9.05 8/11/12 14.74 688,671 23.47 1,745,228
Satya Sharma 60,000(K) 0.69 8.09 2/18/12 13.18 305,265 20.98 773,603
116,000(L) 1.34 9.05 8/11/12 14.74 660,214 23.47 1,673,111
Kenneth Jaeggi 60,000(M) 0.69 8.09 2/18/12 13.18 305,265 20.98 773,603
77,000(N) 0.89 9.05 8/11/12 14.74 438,245 23.47 1,110,599
Tomo Razmilovic -- -- -- -- -- -- -- --
- ----------------------
(A) Total dollar gains based on the assumed annual rates of appreciation of the
exercise price of each option. The actual amount, if any, an executive will
realize will depend on the excess of the market price over the exercise
price on the date the option is actually exercised. The amount actually
realized by an executive may not be at or near the values estimated in this
table.
(B) 80,000 of these options vested on July 12, 2003. Of the remaining 720,000
options, 120,000 will vest on January 12, 2004, and each of the five next
consecutive six-month anniversary dates of that date.
(C) If a change in control of Symbol were to occur, all of the then unvested
portion of each option would become immediately exercisable.
(D) 20,000 of these options vested on January 1, 2003 and 30,000 of these
options vested on July 1, 2003. Of the remaining 150,000 options, 30,000
will vest on January 1, 2004 and each of the four next consecutive
six-month anniversary dates of that date.
(E) 35,000 of these options vested on July 12, 2003. Of the remaining 315,000
options, 52,500 will vest on January 12, 2004, and each of the five next
consecutive six month anniversary dates of that date.
84
(F) 8,400 of these options vested on August 12, 2003. Of the remaining 75,600
options, 12,600 will vest on February 12, 2004, and each of the five next
consecutive six-month anniversary dates of that date.
(G) 15,000 of these options vested on January 1, 2003. The remaining 135,000
options were canceled as of June 30, 2003.
(H) These options were canceled as of June 30, 2003.
(I) 7,500 of these options vested on January 1, 2003. The remaining 67,500
options were canceled as of June 30, 2003.
(J) These options were canceled as of June 30, 2003.
(K) 6,000 of these options vested on January 1, 2003 and 9,000 vested on July
1, 2003. The remaining 45,000 options were canceled on July 11, 2003.
(L) These options were canceled as of July 11, 2003.
(M) 6,000 of these options vested on January 1, 2003. All vested and unvested
options were canceled as of March 20, 2003.
(N) All of these options were canceled as of March 20, 2003.
(O) Based on 8,673,700 options granted to all employees in 2002.
(P) 100% of the closing price on the New York Stock Exchange of Symbol's common
stock on the date of grant.
(Q) The stock price represents the price of Symbol's common stock if the
assumed annual rates of stock price appreciation are achieved over the term
of the options.
85
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table shows information about unexercised options to
purchase Symbol's common stock on December 31, 2002 and the value realized upon
the exercise of options in 2002 by the individuals named in the Summary
Compensation Table. Number of Securities Value of Unexercised, Underlying
Unexercised In-The-Money Options
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED, IN-THE-MONEY
NUMBER OF UNEXERCISED OPTIONS HELD AT OPTIONS HELD AT
SHARES DECEMBER 31, 2002 DECEMBER 31, 2002(A)
ACQUIRED ON --------------------------------- ----------------------------------
EXERCISE IN VALUE
2002 REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ----------- ------------- -------------- ----------- --------------
William Nuti -- $ -- -- -- $ -- $ --
Richard Bravman -- -- 152,999 781,188 -- 313,000
Jerome Swartz(B) 379,688 1,313,569 8,399,246 1,296,250 18,719,088 19,500
Leonard Goldner(C) 75,000 258,240 723,745 410,688 973,070 9,750
Kenneth V. Jaeggi(D) -- -- 55,350 298,476 -- 7,800
Satya P. Sharma(E) -- -- 826,692 379,157 1,615,945 7,800
Tomo Razmilovic 1,744,630 14,388,567 236,250 -- -- --
- ----------
(A) Based on the closing price of Symbol's common stock on the New York Stock
Exchange on that date of $8.22.
(B) Includes options to purchase 2,783,437 shares held by trusts for the
benefit of his children. 2,597,062 of these options were exercisable and
186,375 were unexercisable. The value of these exercisable options was
$2,863,375 and the value of these unexercisable options was $9,750. Dr.
Swartz disclaims beneficial ownership of the options held by these trusts.
As of June 30, 2003, all of Dr. Swartz's and the trusts' unvested options
were canceled in connection with his resignation from Symbol.
(C) Includes options to purchase 253,123 shares held by a trust for the benefit
of his wife and children. All of these options were exercisable. His wife
is a co-trustee of this trust. The value of these options was $376,781. Mr.
Goldner disclaims beneficial ownership of the shares owned by this trust.
Also includes 361,875 options held by a trust for the benefit of him and
his children. 92,437 of these options were exercisable and 269,438 were
unexercisable. Mr. Goldner is a co-trustee of this trust. The value of the
unexercisable options was $9,750.
(D) In connection with his resignation from Symbol, as of March 20, 2003, all
of Mr. Jaeggi's vested and unvested options were canceled.
(E) In connection with his termination from Symbol, as of July 11, 2003, all of
Mr. Sharma's unvested options were canceled.
86
401(K) PLAN
Our U.S. employees are eligible to participate in a 401(k) deferred
compensation plan after 90 days of service. With some limitations, a participant
may make pre-tax contributions to the plan. Except for participants over the age
of 50, the maximum contribution a participant was allowed to make in 2002 was
$11,000 and in 2003 is $12,000. Participants over the age of 50 were entitled to
contribute a maximum of $12,000 in 2002 and will be entitled to contribute up to
$14,000 in 2003. The Plan matches 50% of up to 6% of salary contributed by each
participant during each pay period. The employee's contribution is vested
immediately. Our contribution is 100% vested after one year of service. Amounts
accumulated under this plan are normally paid to a participant on retirement or
termination of employment.
Payments depend on the following:
- the amounts contributed by the participant;
- the manner in which contributions have been invested;
- the amount of any prior withdrawal; and
- other factors.
EXECUTIVE RETIREMENT PLAN
We maintain an Executive Retirement Plan for a select group of senior
management employees. The Executive Retirement Plan is a non-qualified deferred
compensation plan. The Compensation/Stock Option Committee of the Board of
Directors selects participants. The following table illustrates the estimated
annual retirement benefits payable under the Executive Retirement Plan to a
participant at specified average compensation levels and years of service.
PENSION PLAN TABLE
3-YEAR AVERAGE ANNUAL
COMPENSATION 5 YEARS OF SERVICE 10 YEARS OF SERVICE 15 YEARS OF SERVICE
------------ ------------------ ------------------- -------------------
$ 400,000 $ 100,000 $ 200,000 $ 200,000
800,000 200,000 400,000 400,000
1,200,000 300,000 600,000 600,000
1,600,000 400,000 800,000 800,000
2,000,000 500,000 1,000,000 1,000,000
2,400,000 600,000 1,200,000 1,200,000
On January 1, 2002, Messrs. Nuti, Razmilovic, Bravman, Goldner, Jaeggi,
and Sharma had 0, 12, 15, 12, five, and eight years of credited service,
respectively. Benefits under the Executive Retirement Plan are not offset for
Social Security benefits. Benefits payable under the Executive Retirement Plan
will be reduced by the value of any retirement income of the participant
attributable to contributions by us to any qualified pension plan adopted by us
(excluding our current 401(k) deferred compensation plan).
Under the Executive Retirement Plan, the maximum benefit a participant
may be paid is the participant's average compensation (base salary plus bonus)
for the three highest fiscal years in the five-year period immediately prior to
the date the participant is no longer a full time employee multiplied by five
(the "Benefit Ceiling Amount"). After five successive years of participation in
the Executive Retirement Plan, a participant is entitled to 50% of the Benefit
Ceiling Amount. After each additional
87
year of participation in the Executive Retirement Plan up to five additional
years of participation, a participant is entitled to an additional 10% of the
Benefit Ceiling Amount. Benefits are normally payable in equal monthly
installments over a 10-year period after retirement, beginning after the
participant attains age 65 or age 60 with at least 15 years of credited service.
Participants with more than 10 years of credited service will receive 12 equal
monthly installments for each year of creditable service above 10 years, with a
maximum of five additional years of service. Upon death or disability, payment
is accelerated and made in a lump sum but the amount is reduced to the then
present value of the benefit payments which would have been made under the
normal mode of payment. Currently, Mr. Nuti, Mr. Bravman, Mr. Goldner, Mr.
Jaeggi and Dr. Sharma are participants in the Executive Retirement Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our Compensation/Stock Option Committee of our Board of Directors is
composed entirely of outside directors. Messrs. Guthart and Mallement were, in
2002, the members of the Compensation/Stock Option Committee. Mr. Yellin
became a member of this committee in 2003. During the last ten years, they have
not been officers or employees of Symbol.
None of Symbol's executive officers currently serves, or in the past,
has served, on the Board of Directors or Compensation Committee of any other
company that has one or more executive officers serving on Symbol's Board of
Directors or Compensation/Stock Option Committee.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The following table sets forth the beneficial ownership of Symbol
common stock by (i) those persons known by Symbol to own beneficially more than
5% of Symbol's outstanding common stock; (ii) each executive officer named in
the Summary Compensation Table under "Item 11. Executive Compensation"; (iii)
each director; and (iv) all directors and executive officers of Symbol as a
group.
AMOUNT AND NATURE OF PERCENT OF COMMON
NAME OF INDIVIDUAL OR IDENTITY OF GROUP BENEFICIAL OWNERSHIP (1) STOCK
--------------------------------------- ------------------------ -----------------
FMR Corp.
82 Devonshire Street
Boston, Massachusetts 02109............................... 27,911,138 (2) 12.1%
Jerome Swartz............................................. 9,260,615 (3) 4.0%
Harvey P. Mallement....................................... 407,165 (4) *
Raymond R. Martino........................................ 665,327 (5) *
George Bugliarello........................................ 271,614 (6) *
Leo A. Guthart............................................ 139,375 (7) *
James Simons.............................................. 68,750 (8) *
Richard Bravman........................................... 528,009 (9) *
Leonard H. Goldner........................................ 1,091,336(10) *
Kenneth V. Jaeggi......................................... 456,506(11) *
William Nuti.............................................. 600,000(12) *
Satya P. Sharma........................................... 1,130,811(13) *
Tomo Razmilovic........................................... 884,549(14) *
All executive officers and directors as a group
(consisting of 13 individuals)............................ 2,803,870(15) 1.2%(16)
- ----------------------
* Less than 1%.
88
(1) The amounts shown are the number of shares of common stock owned
beneficially as of November 30, 2003, (except for FMR Corp., where the
amounts are as of May 12, 2003, and Messrs. Razmilovic, Jaeggi, Sharma,
Goldner and Swartz where the amounts are as of the date they resigned from,
or were terminated by Symbol) or as otherwise indicated in these footnotes.
The persons identified in this table have sole voting and investment power
over the shares of Symbol common stock stated above, except as stated
otherwise in these footnotes. This chart was prepared from information the
directors, and executive officers have given to us and from publicly
available documents filed or furnished to the Commission.
(2) The amount shown and following information is derived from Schedule 13G
dated May 12, 2003 filed by FMR Corp., a holding company on behalf of the
following persons or entities as described in this footnote. Fidelity
Management & Research Company ("Fidelity"), 82 Devonshire Street, Boston,
Massachusetts 02109, a wholly-owned subsidiary of FMR Corp. and an
investment adviser registered under Section 203 of the Investment Advisers
Act of 1940, is the beneficial owner of 25,198,010 shares or 10.899% of the
common stock outstanding of Symbol) as a result of acting as investment
adviser to various investment companies registered under Section 8 of the
Investment Company Act of 1940. Edward C. Johnson 3d, FMR Corp., through
its control of Fidelity, and the funds each has sole power to dispose of
the 25,198,010 shares owned by the Funds. Neither FMR Corp. nor Edward C.
Johnson 3d, chairman of FMR Corp., has the sole power to vote or direct the
voting of the shares owned directly by the Fidelity funds, which power
resides with the funds' boards of trustees. Fidelity carries out the voting
of the shares under written guidelines established by the funds' boards of
trustees. Fidelity Management Trust Company, 82 Devonshire Street, Boston,
Massachusetts 02109, a wholly-owned subsidiary of FMR Corp. and a bank as
defined in Section 3(a)(6) of the Exchange Act, is the beneficial owner of
1,386,565 shares or 0.600% of the common stock outstanding of Symbol as a
result of its serving as investment manager of the institutional
account(s). Edward C. Johnson 3d and FMR Corp., through its control of
Fidelity Management Trust Company, each has sole dispositive power over
1,386,565 shares and sole power to vote or to direct the voting of
1,377,865 shares, and no power to vote or to direct the voting of 8,700
shares of common stock owned by the institutional account(s) as reported
above. Strategic Advisers, Inc., 82 Devonshire Street, Boston, MA 02109, a
wholly-owned subsidiary of FMR Corp. and an investment adviser registered
under Section 203 of the Investment Advisers Act of 1940, provides
investment advisory services to individuals. As such, FMR Corp.'s
beneficial ownership includes 1,363 shares, or 0.001%, of the common stock
outstanding of Symbol, beneficially owned through Strategic Advisers, Inc.
Members of the Edward C. Johnson 3d family are the predominant owners of
Class B shares of common stock of FMR Corp., representing approximately 49%
of the voting power of FMR Corp. Mr. Johnson 3d owns 12.0% and Abigail
Johnson owns 24.5% of the aggregate outstanding voting stock of FMR Corp.
Mr. Johnson 3d is chairman of FMR Corp. and Abigail P. Johnson is a
director of FMR Corp. The Johnson family group and all other Class B
shareholders have entered into a shareholders' voting agreement under which
all Class B shares will be voted in accordance with the majority vote of
Class B shares. Accordingly, through their ownership of voting common stock
and the execution of the shareholders' voting agreement, members of the
Johnson family may be deemed, under the Investment Company Act of 1940, to
form a controlling group with respect to FMR Corp. Fidelity International
Limited, Pembroke Hall, 42 Crowlane, Hamilton, Bermuda, and various
foreign-based subsidiaries provide investment advisory and management
services to a number of non-U.S. investment companies (the "International
Funds") and certain institutional investors. Fidelity International Limited
("FIL") is the beneficial owner of 1,325,200 shares or 0.573% of the common
stock outstanding of Symbol. FMR Corp. and FIL are of the view that they
are not acting as a "group" for purposes of Section 13(d) under the
Exchange Act and that they are not otherwise required to attribute to each
other the "beneficial ownership" of securities "beneficially owned" by the
other corporation within the meaning of Rule 13d-3 promulgated under the
Exchange Act. Therefore, they are of the view that the shares held by the
other corporation need not be aggregated for purposes of Section 13(d).
(3) This number includes:
- 5,981,809 shares which may be acquired upon the exercise of options
within 60 days of June 30, 2003.
- 86,736 shares owned by his wife.
- 173,152 shares held in trust of which Dr. Swartz is the income
beneficiary and his children are the residual beneficiaries. All of
these shares are subject to "European Collar" arrangements.
- 2,908,050 shares owned by Dr. Swartz. 757,404 of these shares are
subject to "European Collar" arrangements. Dr. Swartz has shared
investment power over the shares covered by these arrangements.
- 110,868 shares held by charitable trusts.
- Dr. Swartz disclaims beneficial ownership of shares owned by or for
the benefit of members of his family, and held by charitable trusts.
89
(4) This number includes 241,243 shares that may be acquired upon the exercise
of options within 60 days of November 30, 2003 and 165,922 shares owned by
Mr. Mallement.
(5) This number includes 126,875 shares that may be acquired upon the exercise
of options within 60 days of November 30, 2003 and 538,452 shares owned by
Mr. Martino.
(6) This number includes 260,225 shares that may be acquired upon the exercise
of options within 60 days of November 30, 2003 and 11,389 shares owned
jointly by Dr. Bugliarello and his wife.
(7) This number includes 111,875 shares that may be acquired upon the exercise
of options within 60 days of November 30, 2003 and 27,500 shares owned by
Dr. Guthart.
(8) This number includes 61,250 shares that may be acquired upon the exercise
of options within 60 days of November 30, 2003 and 7,500 shares owned by
Dr. Simons.
(9) This number includes 395,837 shares that may be acquired upon the exercise
of options within 60 days of November 30, 2003 and 132,172 shares owned by
Mr. Bravman.
(10) This number includes the following:
- 830,758 shares that may be acquired upon the exercise of options
within 60 days of June 30, 2003. 253,123 of these options are held by
a trust for the benefit of his wife and children. Mr. Goldner's wife
is a co-trustee of this trust. 143,925 of these options are held by a
trust for the benefit of him and his children. Mr. Goldner is a
co-trustee of this trust.
- 188,357 shares owned by Mr. Goldner and 72,221 shares owned by his
wife. 90,594 of the shares owned by Mr. Goldner are subject to
"European Collar" arrangements. Mr. Goldner has shared investment
power over the shares covered by these arrangements. Mr. Goldner
disclaims beneficial ownership of the options held in trust for the
benefit of his wife and children and any shares owned by his wife.
(11) This number includes 105,226 shares that could have been acquired upon the
exercise of options within 60 days of January 2, 2003 and 351,280 shares
owned by Mr. Jaeggi. All of Mr. Jaeggi's options were canceled on March 20,
2003.
(12) This number includes 200,000 shares that may be acquired upon the exercise
of options within 60 days of November 30, 2003 and 400,000 restricted
shares owned by Mr. Nuti.
(13) This number includes 935,811 shares that may be acquired upon the exercise
of options within 60 days of June 30, 2003 and 195,000 shares owned by Dr.
Sharma.
(14) This number includes 236,250 shares that may be acquired upon the exercise
of options within 60 days of February 15, 2002 and 648,299 shares owned
by Mr. Razmilovic.
(15) This number includes 1,794,998 shares that may be acquired upon the
exercise of options within 60 days of November 30, 2003 and excludes the
number of shares beneficially owned by Messrs. Swartz, Goldner, Jaeggi,
Sharma, Razmilovic, Goldman and Metlitsky, as of November 30, 2003, as they
were no longer directors or executive officers as of such date.
(16) As of November 30, 2003.
90
Equity Compensation Plan Information
The following table presents information as of December 31, 2002 with
respect to compensation plans under which shares of Symbol's common stock are
authorized for issuance.
EQUITY COMPENSATION PLAN INFORMATION
(AS OF DECEMBER 31, 2002)
(C)
NUMBER OF SECURITIES
(A) (B) REMAINING AVAILABLE FOR
NUMBER OF SECURITIES TO BE WEIGHTED-AVERAGE EXERCISE FUTURE ISSUANCE UNDER
ISSUED UPON EXERCISE OF PRICE OF OUTSTANDING EQUITY COMPENSATION PLANS
OUTSTANDING OPTIONS, OPTIONS, WARRANTS AND (EXCLUDING SECURITIES
PLAN CATEGORY WARRANTS AND RIGHTS RIGHTS REFLECTED IN COLUMN (A))
---------------------------- ---------------------------- -----------------------------
Equity compensation plans
approved by security holders
(1)........................ 18,837,381 $11.05 9,225,319(3)
Equity compensation plans not
approved by security holders
(2)........................ 19,079,069 14.64 7,411,990
---------------------------- ---------------------------- -----------------------------
Total...................... 37,916,450 $12.86 16,637,309
(1) Approved Plans: 1991 Employee Stock Plan, 1994 Directors' Stock Option
Plan, 1997 Employee Stock Plan, 2000 Directors' Stock Option Plan and 2002
Directors' Stock Option Plan.
(2) Non-Approved Plans: 1990 Non-Executive Stock Option Plan, 1998 Directors'
Warrants, 1999 Directors' Warrants and 2001 Non-Executive Stock Option
Plan.
Symbol has assumed stock options under the 1990 Employee and 1990
Non-Employee Stock Option plans of Telxon Corporation, pursuant to which
such stock options are exercisable for 1,117,854 shares of Company common
stock. These options have a weighted average exercise price of $18.56 per
share. No further awards will be made under these plans.
Under the 1990 Non-Executive Stock Option Plan, the Compensation/Stock
Option Committee of the Board of Directors was permitted to grant options
to key employees of Symbol and its subsidiaries other than executive
officers, with similar terms and vesting periods as those contained in the
2001 Plan. The 1990 Non-Executive Stock Option Plan terminated on April 30,
2003.
In January 1998, pursuant to the 1998 Directors' Warrants, certain members
of the then current Board of Directors, including Messrs. Mallement and
Bugliarello, were awarded warrants to purchase 15,000 shares (pre-split) of
common stock at an exercise price of $24.88 (pre-split) per share, which
was the closing price of Symbol's common stock on the date such warrants
were granted. The warrants have a term of ten years; twenty-five percent
(25%) became exercisable on January 1, 1999 and twenty-five percent (25%)
became exercisable each year thereafter.
In May 1999, pursuant to the 1999 Directors' Warrants, certain members of
the then current Board of Directors, including Messrs. Mallement and
Bugliarello, were awarded warrants to purchase 15,000 shares (pre-split) of
common stock. The exercise price of those options and warrants was $35.54
(pre-split) per share, which was the closing price of Symbol's common stock
on the date the warrants were granted. The warrants have a term of ten
years; twenty-five percent (25%) became exercisable on May 10, 2000 and
twenty-five percent (25%) became exercisable each year thereafter.
For a description of the material terms of the 2001 Non-Executive Stock
Option Plan, see Item 11 "Executive Compensation--Option Grants."
(3) Of these shares, 2,421,612 shares remain available for purchase under the
Employee Stock Purchase Plan.
91
For additional information concerning our equity compensation plans,
see the discussion in Item 11 "Executive Compensation" and Notes 17 and 18 to
the Consolidated Financial Statements included elsewhere herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain of the information required by this Item appears in Item 11.
"Executive Compensation" and Item 12. "Security Ownership of Certain Beneficial
Owners and Related Stockholder Matters."
Jerome Swartz' daughter, Nikola Swartz, was employed by Symbol as an
account manager in the Northern Sales Division until December 2003. Ms. Swartz'
aggregate compensation for the fiscal year ending 2002 was $72,710.
Raymond Martino's son, Raymond Martino, Jr., is employed by Symbol as
vice president of Wireless Network Product Marketing. Mr. Martino's aggregate
compensation for the fiscal year 2002 was $228,276. His compensation is not
subject to approval by the Board of Directors. On February 19, 2002, Mr. Martino
was awarded options under our 2001 Plan to purchase 15,000 shares of our common
stock at an exercise price of $8.09 per share, which was the closing price of
our common stock on the date the option was granted. Twenty percent of these
options vested on January 1, 2003, 10 percent vested on July 1, 2003 and 10
percent will vest on January 1, 2004 and each of the six next consecutive
six-month anniversary dates of that date. On August 12, 2002, Mr. Martino was
awarded options under our 2001 Plan to purchase 55,500 shares of Symbol's common
stock at an exercise price of $9.05 per share, which was the closing price of
our common stock on the date the option was granted. Twenty percent of these
options vested on August 12, 2003, and 10 percent will vest on February 12,
2004, and each of the seven next consecutive six-month anniversary dates of that
date.
Raymond Martino's daughter, Denise Martino, was employed by Symbol as a
marketing manager in the Business Operations and Planning Division until August
2003. Ms. Martino's aggregate compensation for the fiscal year 2002 was $87,759.
On February 19, 2002, Ms. Martino was awarded options under our 2001 Plan to
purchase 500 shares of our common stock at an exercise price of $8.09 per share,
which was the closing price of our common stock on the date the option was
granted. Twenty percent of these options vested on January 1, 2003 and 10
percent vested on July 1, 2003. The remaining option were canceled in August of
2003. On August 12, 2002, Ms. Martino was awarded options under our 2001 Plan to
purchase 500 shares of our common stock at an exercise price of $9.05 per share,
which was the closing price of our common stock on the date the option was
granted. Twenty percent of these options vested on August 12, 2003 and the
remaining options were canceled as of August 22, 2003.
In October 1999 and February 2002, we loaned Richard Bravman, our
former Vice Chairman of the Board of Director, Chief Executive Officer and
Director, $500,000 and $1,000,000, respectively, for relocation expenses and the
purchase of new residences in connection with his employment by Symbol. See Note
9 to the Consolidated Financial Statements included elsewhere herein.
In January 2003, we loaned $500,000 to our current Senior Vice
President and Chief Information Officer, who is not considered an "officer" as
such term is defined in Rule 16a-1(f) of the Exchange Act and for purposes of
Section 16(a) of the Exchange Act. See Note 22 to the Consolidated Financial
Statements included elsewhere herein.
92
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. FINANCIAL STATEMENTS:
2. FINANCIAL STATEMENT SCHEDULES
Included in Part IV of this report:
Schedules:
II. Valuation and Qualifying Accounts
Other schedules are omitted because of the absence of conditions under
which they are required or because the required information is given in the
Consolidated Financial Statements or notes thereto.
Individual financial statements of the subsidiaries of Symbol are
omitted as Symbol is primarily an operating company and the subsidiaries
included in the Consolidated Financial Statements filed are substantially wholly
owned and are not indebted to any person other than the parent in amounts which
exceed 5 percent of total consolidated assets at the date of the latest balance
sheet filed, excepting indebtedness incurred in the ordinary course of business
which is not overdue and which matures within one year from the date of its
creation, whether evidenced by securities or not, and indebtedness which is
collateralized by the parent by guarantee, pledge, assignment or otherwise.
93
3. Exhibits
3.1 Certificate of Incorporation of Symbol Technologies, Inc. as amended.
(Incorporated by reference to Exhibit 3.1 to Symbol's Annual Report on
Form 10-K for the year ended December 31, 1999 (the "1999 Form 10-K"))
3.3 Amended and Restated By-Laws of Symbol. (Incorporated by reference to
Exhibit 3.2 to the Quarterly Report on Form 10-Q for the quarter ended
June 30, 2002)
4.1 Form of Certificate for Shares of the Common Stock of Symbol.
(Incorporated by reference to Exhibit 4.1 to Symbol's Annual Report on
Form 10-K for the year ended December 31, 1998)
4.2 Rights Agreement, dated as of August 13, 2001, between Symbol and The
Bank of New York, as Rights Agent, which includes the Form of
Certificate of Designations with respect to the Series A Junior
Participating Preferred Stock as Exhibit A, the Form of Right
Certificate as Exhibit B and the Summary of Rights to Purchase Shares
of Preferred Stock as Exhibit C. (Incorporated by reference to Exhibit
4 to Symbol's Current Report on Form 8-K dated August 21, 2001)
10.1 Form of 2008 Stock Purchase Warrant issued to certain directors.
(Incorporated by reference to Exhibit 10.1 to Symbol's Annual Report on
Form 10K for the year ended December 31, 1997)
10.2 1994 Directors' Stock Option Plan. (Incorporated by reference to
Exhibit 4.1 to Registration Statement No. 33- 78678 on Form S-8)
10.3 2000 Directors' Stock Option Plan. (Incorporated by reference to
Exhibit 4 to Registration Statement No. 333-78599 on Form S-8)
10.4 2002 Directors' Stock Option Plan. (Incorporated by reference to
Exhibit 4.1 to Registration Statement No. 333-89668 on Form S-8)
10.5 1997 Employee Stock Purchase Plan, as amended. (Incorporated by
reference to Exhibit 4.3 to Registration Statement No. 333-89668 on
Form S-8)
10.6 1997 Employee Stock Option Plan. (Incorporated by reference to Exhibit
4.2 to Registration Statement No. 333-73322 on Form S-8)
10.7 1991 Employee Stock Option Plan. (Incorporated by reference to Exhibit
10.1 to Symbol's Annual Report on Form 10-K for the year ended December
31, 1991)
10.8 1990 Non-Executive Stock Option Plan, as amended. (Incorporated by
reference to Exhibit 10.1 of Symbol's Annual Report on Form 10-K for
the year ended December 31, 1995 (the "1995 Form 10-K"))
10.9* Telxon Corporation 1990 Employee Stock Option Plan.
10.10* Telxon Corporation 1990 Non-Employee Stock Option Plan.
10.11 2001 Non-Executive Stock Option Plan. (Incorporated by reference to
Exhibit 10.8 of Symbol's Annual Report on Form 10-K for the year ended
December 31, 2000 (the "2000 Form 10-K"))
10.12 Employment Agreement by and between Symbol and Jerome Swartz, dated as
of July 1, 2000. (Incorporated by reference to Exhibit 10.9 to the 2000
Form 10-K)
94
10.13* Separation, Release and Employment Agreement by and between Symbol and
Jerome Swartz, dated as of July 7, 2003.
10.14 Employment Agreement by and between Symbol and Leonard H. Goldner,
dated as of December 15, 2000. (Incorporated by reference to Exhibit
10.10 to the 2000 Form 10-K)
10.15* Without Prejudice Resignation Agreement by and between Symbol and
Leonard Goldner, dated as of June 30, 2003.
10.16 Employment Agreement by and between Symbol and William R. Nuti, dated
as of July 15, 2002. (Incorporated herein by reference to Exhibit 10.1
to Symbol's Quarterly Report on Form 10-Q for the quarter ended June
30, 2002)
10.17 Employment Agreement by and between Symbol and Richard Bravman, dated
as of August 1, 2002. (Incorporated herein by reference to Exhibit 10.1
to Symbol's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2002)
10.18 Employment Agreement by and between Symbol and Tomo Razmilovic, dated
as of February 14, 2002. (Incorporated by reference to Exhibit 10.12 to
the 2001 Form 10-K)
10.19 Separation, Release and Non-Disclosure Agreement between Symbol and
Tomo Razmilovic, dated as of February 14, 2002. (Incorporated by
reference to Exhibit 10.13 to the 2001 Form 10-K)
10.20* Tolling Agreement by and between Symbol and Tomo Razmilovic, dated as
of May 6, 2003.
10.21 Executive Retirement Plan, as amended. (Incorporated by reference to
Exhibit 10.2 to Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2002)
10.22* 2002 Executive Stock Ownership and Option Retention Program, dated as
of December 16, 2002.
10.23 Summary of Symbol Technologies, Inc. Executive Bonus Plan.
(Incorporated by reference to Exhibit 10.13 of the 1999 Form 10-K)
10.24 2000 Amended and Restated Credit Agreement dated as of August 3, 2000,
among Symbol Technologies, Inc., the lending institutions identified in
the Credit Agreement and Bank of America, N.A., as agent and as letter
of credit issuing bank. (Incorporated by reference to Exhibit 10.17 to
the 2000 Form 10-K)
10.25 First Amendment dated March 28, 2001, to 2000 Amended and Restated
Credit Agreement among Symbol Technologies, Inc., the lending
institutions identified in the Credit Agreement and Bank of America,
N.A., as agent and as letter of credit issuing bank. (Incorporated by
reference to Exhibit 10.18 to the 2000 Form 10-K)
10.26 Second Amendment dated as of July 25, 2001, to 2000 Amended and
Restated Credit Agreement among Symbol Technologies, Inc., the lending
institutions identified in the Credit Agreement and Bank of America,
N.A. as agent. (Incorporated by reference to Exhibit 10.20 to the 2001
Form 10-K)
10.27 Amended and Restated Second Amendment dated as of September 11, 2001,
to 2000 Amended and Restated Credit Agreement among Symbol
Technologies, Inc., the lending institutions
95
identified in the Credit Agreement and the Bank of America, N.A. as
agent. (Incorporated by reference to Exhibit 10.21 to the 2001 Form
10-K)
10.28* Third Amendment dated as of March 29, 2002, to 2000 Amended and
Restated Credit Agreement among Symbol Technologies, Inc., the lending
institutions identified in the Credit Agreement and the Bank of
America, N.A. as agent.
10.29* Waiver Agreement dated as of March 26, 2003, to 2000 Amended and
Restated Credit Agreement by and among Symbol Technologies, Inc., the
lending institutions identified in the Credit Agreement and the Bank of
America, N.A. as agent.
10.30* Guarantor Consent Agreement dated as of March 26, 2003, to 2000 Amended
and Restated Credit Agreement by and among Symbol Technologies, Inc.,
the lending institutions identified in the Credit Agreement and the
Bank of America, N.A. as agent and certain Guarantors (as defined in
the 2000 Amended and Restated Credit Agreement).
10.31* Consent dated as of July 3, 2003, to the Waiver Agreement, dated as of
March 26, 2003, by and among Symbol Technologies, Inc., the lending
institutions identified in the Credit Agreement and the Bank of
America, N.A. as agent.
10.32* Consent and Waiver dated as of August 14, 2003, to the Waiver
Agreement, dated as of March 26, 2003, by and among Symbol
Technologies, Inc., the lending institutions identified in the Credit
Agreement and the Bank of America, N.A. as agent.
10.33* Credit Agreement, dated as of November 17, 2003, among Symbol
Technologies, Inc., the lending institutions identified in the Credit
Agreement and Fleet National Bank, as administrative agent.
10.34* Guaranty Agreement, dated as of November 17, 2003, among Telxon
Corporation and @pos.com, Inc. in favor of, and for the benefit of, the
lending institutions identified in the Credit Agreement, dated as of
November 17, 2003, and Fleet National Bank, as administrative agent.
22.* Subsidiaries.
23.* Consent of Deloitte & Touche LLP.
31.1* Certification of Chief Executive Officer, pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2* Certification of Chief Financial Officer, pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
32.1* Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2* Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
- ------------
* Filed herewith.
96
(b) Reports on Form 8-K
Not Applicable.
97
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SYMBOL TECHNOLOGIES, INC.
(Registrant)
By: /s/ William R. Nuti
------------------------------------
William R. Nuti
Chief Executive Officer, President,
Chief Operating Officer and Director
Dated: December 30, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ William R. Nuti Chief Executive Officer, President, Chief December 30, 2003
- ------------------------------------- Operating Officer and Director
William R. Nuti (principal executive officer)
Director, Chairman of the Board of Directors December 30, 2003
- -------------------------------------
Salvatore Iannuzzi
/s/ Harvey P. Mallement Director December 30, 2003
- -------------------------------------
Harvey P. Mallement
/s/ Raymond R. Martino Director December 30, 2003
- -------------------------------------
Raymond R. Martino
/s/ George Bugliarello Director December 30, 2003
- -------------------------------------
George Bugliarello
/s/ Leo A. Guthart Director December 30, 2003
- -------------------------------------
Leo A. Guthart
Director December 30, 2003
- -------------------------------------
James Simons
Director December 30, 2003
- -------------------------------------
Robert J. Chrenc
Director December 30, 2003
- -------------------------------------
Melvin A. Yellin
/s/ Mark T. Greenquist Senior Vice President Finance, Chief Financial December 30, 2003
- ------------------------------------- Officer/Acting Chief Accounting Officer
Mark T. Greenquist (principal financial and accounting officer)
98
SYMBOL TECHNOLOGIES, INC.
AND SUBSIDIARIES
--------
CONSOLIDATED FINANCIAL STATEMENTS
COMPRISING ITEM 8 AND SCHEDULE II LISTED IN THE
INDEX AT ITEM 15 OF ANNUAL REPORT ON FORM 10-K
TO SECURITIES AND EXCHANGE COMMISSION
AS OF DECEMBER 31, 2002 AND 2001 AND
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2002
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES AS OF DECEMBER 31, 2002 AND 2001
AND FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2002
I N D E X
PAGE
----
Independent auditors' report F-1
Consolidated financial statements:
Balance sheets F-2
Statements of operations F-3
Statements of stockholders' equity F-4
Statements of cash flows F-7
Notes to consolidated financial statements (1-22) F-8
Additional financial information pursuant to the requirements of Form 10-K:
Schedule:
II - Valuation and qualifying accounts S-1
Schedules not listed above have been omitted because they are either not
applicable or the required information has been provided elsewhere in the
Consolidated Financial Statements or notes thereto.
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
SYMBOL TECHNOLOGIES, INC.
HOLTSVILLE, NEW YORK
We have audited the accompanying consolidated balance sheets of Symbol
Technologies, Inc. and subsidiaries (the "Company") as of December 31, 2002 and
2001, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 2002. Our audits also included the financial statement schedules listed in
the index at Item 15. These financial statements and financial statement
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on the financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Symbol Technologies, Inc.
and subsidiaries as of December 31, 2002 and 2001, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2002 in conformity with accounting principles generally accepted
in the United States of America. Also, in our opinion, such financial statement
schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
As discussed in Note 2 to the consolidated financial statements, the
accompanying 2001 and 2000 consolidated financial statements have been restated.
As discussed in Note 7 to the consolidated financial statements, in
2002 the Company changed its method of accounting for goodwill and other
intangible assets to conform to Statement of Financial Accounting Standards No.
142.
/s/ DELOITTE & TOUCHE LLP
New York, New York
December 30, 2003
F-1
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share data)
DECEMBER 31,
2001
DECEMBER 31, (AS RESTATED -
ASSETS 2002 SEE NOTE 2)
- ------ ------------- --------------
CURRENT ASSETS:
Cash and cash equivalents ................................................ $ 76,121 $ 70,365
Accounts receivable, less allowance for doubtful accounts of $34,272 and
$27,168, respectively .................................................. 151,417 141,327
Inventories .............................................................. 261,096 338,165
Deferred income taxes .................................................... 167,364 288,402
Prepaid and refundable income taxes ...................................... 1,360 22,498
Other current assets ..................................................... 32,933 34,563
----------- -----------
Total current assets ..................................................... 690,291 895,320
Property, plant and equipment, net ....................................... 208,209 250,784
Deferred income taxes .................................................... 222,600 78,429
Investments in marketable securities ..................................... 54,939 76,004
Goodwill, net ............................................................ 301,023 292,780
Intangible assets, net ................................................... 37,125 36,887
Other assets ............................................................. 58,008 75,167
----------- -----------
Total assets .......................................................... $ 1,572,195 $ 1,705,371
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses .................................... $ 427,568 $ 272,486
Current portion of long-term debt ........................................ 6,681 6,548
Deferred revenue ......................................................... 32,903 42,766
Accrued restructuring expenses ........................................... 6,948 13,640
----------- -----------
Total current liabilities ............................................. 474,100 335,440
Convertible subordinated notes and debentures ............................ -- 85,052
Long-term debt, less current maturities .................................. 135,614 220,521
Deferred revenue ......................................................... 15,821 11,723
Other liabilities ........................................................ 58,921 53,520
Commitments and contingencies (Note 16)
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
256,589 shares and 253,313 shares, respectively ........................ 2,566 2,533
Additional paid-in capital ............................................... 1,323,085 1,373,432
Accumulated other comprehensive loss, net ................................ (13,911) (29,594)
Accumulated deficit ...................................................... (187,525) (125,152)
----------- -----------
1,124,215 1,221,219
LESS:
Treasury stock at cost, 25,962 shares and 24,849 shares, respectively .... (236,476) (222,104)
----------- -----------
Total stockholders' equity ............................................ 887,739 999,115
----------- -----------
Total liabilities and stockholders' equity ......................... $ 1,572,195 $ 1,705,371
=========== ===========
See notes to Consolidated Financial Statements.
F-2
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------
2001 2000
(AS RESTATED - (AS RESTATED -
2002 SEE NOTE 2) SEE NOTE 2)
----------- ----------- -----------
REVENUE:
Product .................................................. $ 1,103,070 $ 1,206,176 $ 1,005,787
Services ................................................. 298,547 281,280 207,476
----------- ----------- -----------
1,401,617 1,487,456 1,213,263
COST OF REVENUE:
Product cost of revenue .................................. 693,980 826,766 658,149
Services cost of revenue ................................. 219,985 219,310 162,709
----------- ----------- -----------
913,965 1,046,076 820,858
----------- ----------- -----------
Gross profit ............................................. 487,652 441,380 392,405
----------- ----------- -----------
OPERATING EXPENSES:
Engineering .............................................. 142,602 149,523 127,740
Selling, general and administrative ...................... 343,971 329,044 326,117
Stock based compensation expense/(recovery) under variable
plan accounting ....................................... (68,084) (92,760) 9,402
Loss provision for legal settlements ..................... 98,300 -- --
Restructuring and impairment charges ..................... 2,590 10,218 4,761
In-process research and development ...................... -- -- 87,600
Merger integration charges ............................... -- 9,238 6,785
Amortization of goodwill ................................. -- 14,823 6,347
----------- ----------- -----------
519,379 420,086 568,752
----------- ----------- -----------
(Loss)/earnings from operations .......................... (31,727) 21,294 (176,347)
----------- ----------- -----------
OTHER (EXPENSE)/INCOME:
Interest income .......................................... 2,322 2,876 4,484
Interest expense ......................................... (16,801) (22,145) (19,405)
Impairment of investments ................................ (53,110) (1,521) --
Other income, net ........................................ 16,676 4,177 --
----------- ----------- -----------
(50,913) (16,613) (14,921)
----------- ----------- -----------
(Loss)/earnings before
income taxes .......................................... (82,640) 4,681 (191,268)
(Benefit from)/provision for
income taxes .......................................... (24,865) 8,775 (53,602)
----------- ----------- -----------
Net loss ................................................. $ (57,775) $ (4,094) $ (137,666)
=========== =========== ===========
LOSS PER SHARE:
Basic and diluted ........................................ $ (0.25) $ (0.02) $ (0.67)
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING:
Basic and diluted ........................................ 229,593 227,173 206,347
=========== =========== ===========
See notes to Consolidated Financial Statements
F-3
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000, 2001, AND 2002
(AS RESTATED FOR THE YEARS ENDED DECEMBER 31, 2000 AND 2001-SEE NOTE 2)
(Amounts in thousands, except per share data)
COMMON STOCK $0.01 PAR VALUE ADDITIONAL RETAINED
---------------------------- PAID-IN DEFERRED EARNINGS/
SHARES ISSUED AMOUNT CAPITAL COMPENSATION (DEFICIT) TREASURY STOCK
------------- ------------- ---------- ----------- ----------- -----------
STOCKHOLDERS' EQUITY
BALANCE,
DECEMBER 31, 1999 (as
previously reported).... 229,023 $ 2,290 $ 361,577 $ - $ 479,806 $ (200,861)
Prior period adjustments
(See Note 2) ........... - - 439,697 - (456,659) (2,761)
- --------------------------- ---------- ----------- ---------- ----------- ----------- -----------
BALANCE, JANUARY 1, 2000 . 229,023 2,290 801,274 - 23,147 (203,622)
Comprehensive loss:
Net loss.................. - - - - (137,666) -
Translation adjustments,
net of tax ............. - - - - - -
Unrealized losses on
available for sale
securities, net of tax.. - - - - - -
Minimum pension liability
adjustment, net of tax.. - - - - - -
Total comprehensive loss.. - - - - - -
Exercise of stock options. 5,052 51 48,379 - - -
Exercise of warrants...... 57 1 381 - - -
Stock based compensation
expense/(recovery) under
variable plan accounting - - 9,402 - - -
Issuance of common stock
and vested stock options
related to acquisition.. 13,163 131 404,644 - - -
Deferred compensation
expense on remeasured
unvested stock options.. - - 1,869 (1,869) - -
Compensation expense on
remeasured unvested
stock options........... - - - 408 - -
Purchase of treasury
shares.................. - - - - - (49,801)
ACCUMULATED
OTHER
COMPREHENSIVE COMPREHENSIVE
INCOME (LOSS) INCOME (LOSS) TOTAL
------------ ----------- ------------
STOCKHOLDERS' EQUITY
BALANCE,
DECEMBER 31, 1999 (as
previously reported).... $ (2,352) $ 640,460
Prior period adjustments
(See Note 2) ........... 3,025 (16,698)
- --------------------------- ------------ ----------- ------------
BALANCE, JANUARY 1, 2000 . 673 623,762
Comprehensive loss:
Net loss.................. $ (137,666) (137,666)
Translation adjustments,
net of tax ............. (3,028) (3,028) (3,028)
Unrealized losses on
available for sale
securities, net of tax.. (8,572) (8,572) (8,572)
Minimum pension liability
adjustment, net of tax.. (215) (215) (215)
------------
Total comprehensive loss.. $ (149,481) - -
============
Exercise of stock options. - 48,430
Exercise of warrants...... - 382
Stock based compensation
expense/(recovery) under
variable plan accounting - 9,402
Issuance of common stock
and vested stock options
related to acquisition.. - 404,775
Deferred compensation
expense on remeasured
unvested stock options.. - -
Compensation expense on
remeasured unvested
stock options........... - 408
Purchase of treasury
shares.................. - (49,801)
See notes to Consolidated Financial Statements
F-4
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000, 2001, AND 2002
(AS RESTATED FOR THE YEARS ENDED DECEMBER 31, 2000 AND 2001-SEE NOTE 2)
(Amounts in thousands, except per share data)
COMMON STOCK, $0.01 PAR VALUE ADDITIONAL RETAINED
-------------------------------- PAID-IN DEFERRED EARNINGS/ TREASURY
SHARES ISSUED AMOUNT CAPITAL COMPENSATION (DEFICIT) STOCK
--------------- ------------ ----------- ------------ ------------ ---------
Re-issuance of treasury
shares ................. - - 142,811 - - 64,641
Dividends paid............ - - - - (2,742) -
--------------- ------------ ----------- ------------ ------------ ---------
BALANCE, DECEMBER 31,
2000 ................... 247,295 2,473 1,408,760 (1,461) (117,261) (188,782)
Comprehensive loss:
Net loss.................. - - - - (4,094) -
Translation adjustments,
net of tax ............. - - - - - -
Unrealized losses on
available for sale
securities, net of tax.. - - - - -
Minimum pension liability
adjustment, net of tax.. - - - - - -
Total comprehensive loss.. - - - - - -
Exercise of stock options. 6,018 60 57,432 - - -
Stock based compensation
expense/(recovery) under
variable plan accounting - - (92,760) - - -
Compensation expense on
remeasured unvested
stock options .......... - - - 1,461 - -
Purchase of treasury
shares.................. - - - - - (41,275)
ACCUMULATED
OTHER
COMPREHENSIVE COMPREHENSIVE
INCOME (LOSS) INCOME (LOSS) TOTAL
------------- ---------------- --------
Re-issuance of treasury - 207,452
shares .................
Dividends paid............ - (2,742)
------------- ------------ -----------
BALANCE, DECEMBER 31,
2000 ................... (11,142) 1,092,587
Comprehensive loss:
Net loss.................. $ (4,094) - (4,094)
Translation adjustments,
net of tax ............. (6,409) (6,409) (6,409)
Unrealized losses on
available for sale
securities, net of tax.. (12,258) (12,258) (12,258)
Minimum pension liability
adjustment, net of tax.. 215 215 215
-----------
Total comprehensive loss.. $ (22,546) - -
===========
Exercise of stock options. - 57,492
Stock based compensation
expense/(recovery) under
variable plan accounting - (92,760)
Compensation expense
remeasured unvested
stock options .......... - 1,461
Purchase of treasury
shares.................. - (41,275)
See notes to Consolidated Financial Statements
F-5
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000, 2001, AND 2002
(AS RESTATED FOR THE YEARS ENDED DECEMBER 31, 2000 AND 2001-SEE NOTE 2)
(Amounts in thousands, except per share data)
COMMON STOCK, $0.01 PAR VALUE ADDITIONAL RETAINED
---------------------------- PAID-IN DEFERRED EARNINGS/ TREASURY
SHARES ISSUED AMOUNT CAPITAL COMPENSATION (DEFICIT) STOCK
----------- ----------- ----------- ---------- ----------- -----------
Re-issuance of treasury
shares .................... - - - - - 7,953
Dividends paid.............. - - - - (3,797)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31,
2001 ...................... 253,313 2,533 1,373,432 - (125,152) (222,104)
Comprehensive loss:
Net loss.................... - - - - (57,775) -
Translation adjustments,
net of tax ................ - - - - -
Unrealized gains on
available for sale
securities, net of tax..... - - - - -
Total comprehensive loss.... - - - - - -
Exercise of stock options... 3,099 31 17,579 - - -
Exercise of warrants........ 177 2 912 - - -
Stock based compensation
expense/(recovery) under
variable plan accounting... - - (68,084) - - -
Purchase of treasury shares. - - - - - (26,092)
Re-issuance of treasury
shares..................... - - (754) - - 11,720
Dividends paid.............. - - - - (4,598) -
----------- ----------- ----------- ----------- ----------- -----------
BALANCE,
DECEMBER 31, 2002......... 256,589 $ 2,566 $ 1,323,085 $ - $ (187,525) $ (236,476)
=========== =========== =========== =========== =========== ===========
ACCUMULATED
OTHER
COMPREHENSIVE
COMPREHENSIVE INCOME
INCOME (LOSS) (LOSS) TOTAL
-------------- ----------- -----------
Re-issuance of treasury
shares .................... - - 7,953
Dividends paid.............. - - (3,797)
----------- ----------- -----------
BALANCE, DECEMBER 31,
2001 ...................... - (29,594) 999,115
Comprehensive loss:
Net loss.................... $ (57,775) - (57,775)
Translation adjustments,
net of tax ................ 6,663 6,663 6,663
Unrealized gains on
available for sale
securities, net of tax..... 9,020 9,020 9,020
-----------
Total comprehensive loss.... $ (42,092) - -
===========
Exercise of stock options... - 17,610
Exercise of warrants........ - 914
Stock based compensation
expense/(recovery) under
variable plan accounting... - (68,084)
Purchase of treasury shares. - (26,092)
Re-issuance of treasury
shares..................... - 10,966
Dividends paid.............. - (4,598)
----------- -----------
BALANCE,
DECEMBER 31, 2002......... $ (13,911) $ 887,739
=========== ===========
See notes to Consolidated Financial Statements
F-6
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------
2002 2001 2000
(AS RESTATED - (AS RESTATED -
SEE NOTE 2) SEE NOTE 2)
----------- -------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.............................................................. $ (57,775) $ (4,094) $ (137,666)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH PROVIDED BY/(USED IN)
OPERATING ACTIVITIES:
Depreciation and amortization of property, plant and equipment........ 56,460 61,376 57,508
Other amortization.................................................... 12,877 29,215 11,360
Provision for losses on accounts receivable........................... 15,975 6,936 3,927
Provision for inventory writedown..................................... 37,011 166,445 69,609
Non cash restructuring, asset impairment and other charges............ 67,684 13,520 6,847
Non cash stock based compensation (recoveries) charges................ (65,092) (91,299) 9,810
Loss on sale of property, plant and equipment......................... 3,031 2,895 3,032
Unrealized holding loss on marketable securities...................... 17,090 98,862 -
Increase in fair value of derivative.................................. (37,787) (90,063) -
Deferred income taxes (benefit) provision............................. (31,014) 26,931 (106,497)
Tax benefit on exercise of stock options and warrants................. 139 20,454 21,446
Acquired in-process research and development.......................... - - 87,600
CHANGES IN OPERATING ASSETS AND LIABILITIES, NET OF EFFECTS OF
ACQUISITIONS AND DIVESTITURES:
Accounts receivable................................................... (25,572) 18,718 28,416
Inventories........................................................... 40,648 (128,790) (200,125)
Other assets.......................................................... 5,835 (43,097) (4,602)
Net proceeds (payments) from lease securitizations.................... (3,930) 8,516 22,159
Accounts payable and accrued expenses................................. 152,771 (106,632) 6,842
Accrued restructuring expenses........................................ (6,692) (37,885) (1,444)
Other liabilities and deferred revenue................................ (4,189) 5,577 9,958
----------- ----------- -----------
Net cash provided by/(used in) operating activities.............. 177,470 (42,415) (111,820)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cost of companies purchased, net of cash acquired..................... (10,796) (2,872) (1,714)
Proceeds from termination of collar arrangement....................... - 88,046 -
Investment in AirClic Inc............................................. - - (35,010)
Proceeds from sale of property, plant and equipment................... 4,243 1,463 44
Purchases of property, plant and equipment............................ (34,703) (99,489) (83,371)
Investments in intangible and other assets............................ (2,376) (7,995) (16,634)
----------- ----------- -----------
Net cash used in investing activities............................ (43,632) (20,847) (136,685)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable and long-term debt............ - 169,949 132,190
Repayment of notes payable and long-term debt......................... (51,837) (85,747) (61,793)
Repurchase of convertible notes and debentures........................ (84,432) (20,665) -
Proceeds from exercise of stock options, warrants and employee stock
purchase plan ....................................................... 15,074 38,142 25,047
Reissuance of treasury shares......................................... - - 200,587
Purchase of treasury shares........................................... (8,772) (15,421) (14,291)
Dividends paid........................................................ (4,598) (3,797) (2,742)
----------- ----------- -----------
Net cash (used in)/provided by financing activities.............. (134,565) 82,461 278,998
----------- ----------- -----------
Effects of exchange rate changes on cash.............................. 6,483 (1,458) (1,374)
----------- ----------- -----------
Net increase in cash and cash equivalents............................. 5,756 17,741 29,119
----------- ----------- -----------
Cash and cash equivalents, beginning of year.......................... 70,365 52,624 23,505
----------- ----------- -----------
Cash and cash equivalents, end of year........................... $ 76,121 $ 70,365 $ 52,624
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID (RECEIVED) DURING THE YEAR FOR:
Interest.............................................................. $ 15,598 $ 18,748 $ 11,909
Income taxes.......................................................... (11,513) 2,662 25,351
See notes to Consolidated Financial Statements
F-7
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002 AND
2001 AND FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Description of Business and Principles of Consolidation
Symbol Technologies, Inc. and subsidiaries is a provider of secure mobile
information systems that integrate application-specific hand-held computers with
wireless networks for data, voice and bar code data capture. The Consolidated
Financial Statements include the accounts of Symbol Technologies, Inc. and its
majority-owned and controlled subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation. References
herein to "Symbol," "Company," "we," "us," or "our" refer to Symbol
Technologies, Inc. and its subsidiaries unless the context specifically states
or implies otherwise.
b. Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments with original
maturities of three months or less and consist primarily of money market funds
and time deposits at December 31, 2002 and 2001. Such investments are stated at
cost, which approximates market value and were $19,249 and $1,765 in 2002 and
2001, respectively. These investments are not subject to significant market
risk.
c. Allowance for Doubtful Accounts
Our allowance for doubtful accounts is based on our assessment of the
collectibility of specific customer accounts and an assessment of international,
political and economic risks, as well as the aging of the accounts receivable.
d. Inventories
Inventories are stated at the lower of cost (determined on a first-in, first-out
basis) or market. The Company evaluates its inventories to determine excess or
slow moving products based on quantities on hand, current orders and expected
future demand. For those items in which the Company believes it has an excess
supply or for items that are obsolete, the Company estimates the net amount that
the Company expects to realize from the sale of such products.
e. Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation and
amortization is provided on a straight-line basis over the following estimated
useful lives:
Buildings and improvements.............................. 15 to 40 years
Machinery and equipment................................. 3 to 7 years
Furniture, fixtures and office equipment................ 3 to 10 years
Computer hardware and software.......................... 3 to 7 years
Leasehold improvements (limited to terms of the leases). 2 to 10 years
f. Goodwill and Intangible Assets
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other
Intangible Assets." Under SFAS No. 142, goodwill and indefinite life intangible
assets acquired in a business combination will no longer be
F-8
amortized but rather be subject to an assessment for impairment at least
annually using a prescribed fair-value-based test. We, therefore, stopped
amortizing goodwill and adopted the provisions of this Statement effective
January 1, 2002. See Note 7 for a discussion of the results of our periodic
assessment for impairment of goodwill.
Patents and trademarks, including costs incurred in connection with the
protection of patents, are amortized using the straight-line method over six
years. The Company does not have any indefinite-life intangible assets.
Finite-life intangible assets are evaluated whenever events or changes in
circumstances indicate that the carrying value of the asset may be impaired. An
asset is impaired if its estimated undiscounted cash flow is less than the asset
carrying value. An impairment loss is recognized for an intangible asset to the
extent that the asset's carrying value exceeds its fair value, which is
determined based upon the estimated future cash flows expected to result from
the use of the asset, including disposition.
g. Research and Development including Software Development Costs
Research and development costs are charged to expense as incurred and are
included as a component of engineering costs. Such costs, including charges for
overhead, were $72,845, $93,682, and $81,591 for the years ended December 31,
2002, 2001 and 2000, respectively. Software development costs are expensed as
incurred until technological feasibility has been established. After
technological feasibility is established, any additional costs would be
capitalized in accordance with SFAS No. 86, "Accounting for the Cost of Computer
Software to Be Sold, Leased or Otherwise Marketed." To date, no software
development costs have been capitalized, as such costs have not been significant
and we believe our current process for developing this software is essentially
completed concurrently with the establishment of technological feasibility.
h. Marketable Securities
All marketable equity securities are classified as either "available-for-sale"
or "trading" under SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." Unrealized gains and losses, net of tax, related to
available-for-sale securities are included in accumulated other comprehensive
income or loss within stockholders' equity. Unrealized gains and losses on
trading securities, realized gains and losses on trading and available for sale
securities and unrealized other than temporary losses on available for sale
securities are reflected in other income in the Consolidated Statements of
Operations.
We evaluated the carrying value of our investments in marketable equity
securities considered available-for-sale as required under the provisions of
SFAS No. 115. Based on the evidence reviewed in each year, we determined certain
declines in market value for these investments were other-than-temporary. In
accordance with the provisions of SFAS No. 115, we recorded a pre-tax impairment
charge of $53,110 and $1,521 in 2002 and 2001, respectively. These charges are
shown as a component of other income/(expense) in the Consolidated Statements of
Operations.
i. Long-Lived Assets
We review our long-lived assets, other than intangible assets with indefinite
lives and goodwill, including property, plant and equipment, for impairment
whenever events or circumstances indicate that their carrying amounts may not be
recoverable. We determined recoverability of the assets by comparing the
carrying amount of the asset to net future undiscounted cash flows that the
asset was expected to generate. If such cash flows did not equal or exceed the
carrying value, we recognized an impairment equal to the amount by which the
carrying amount exceeded the discounted value of expected cash flows (fair
value) of the asset.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS No. 144 supercedes SFAS No. 121 and
requires that long-lived assets held for sale
F-9
be measured at the lower of carrying amount or fair value less cost to sell,
whether reported in continuing operations or in discontinued operations. SFAS
No. 144 also modified the accounting and reporting of discontinued operations.
We adopted the provisions of SFAS No. 144 on January 1, 2002. The adoption of
this statement did not have a material impact on our Consolidated Financial
Statements.
j. Securitization Transactions
We periodically securitize certain of our lease receivables which have
unguaranteed residual values. Our retained interest in these securitized lease
receivables is classified as a component of other assets in the Consolidated
Balance Sheets. These retained interests are initially recorded at their
allocated carrying amounts based on the relative fair value of assets sold and
retained. Retained interests, other than unguaranteed residuals, are reviewed
and adjusted to fair value on a monthly basis as trading securities. Since
quoted market prices are generally not available, we estimate fair value of
these retained interests by determining the present value of future expected
cash flows using modeling techniques that incorporate our best estimates of key
assumptions, which include credit losses, prepayment speed and discount rates
commensurate with the risks involved.
k. Revenue Recognition
We sell our products and systems to end users for their own consumption as well
as to value-added resellers, distributors and original equipment manufacturers
(OEMs or channel partners). Channel partners may provide a service or add
componentry in order to resell our product to end users. Revenue from the direct
sale of our products and systems to end users and OEMs is 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 recognition of revenues related to
sales of our products or systems to our value-added resellers is dependent upon
the reseller's ability to pay for the product without reselling it to the end
user. Sales to resellers that are financially sound are recognized when products
are shipped to the resellers, the title and risk of loss has passed to the
reseller, the sales price is fixed or determinable and collectibility is
reasonably assured. Sales to resellers that lack economic substance or cannot
pay for our products without reselling them to their customers are recognized
when the revenue is billed and collected. Revenue on sales to distributors is
recognized when our products and systems are sold through to the end user.
Service and maintenance sales are recognized when these services are billed and
collected and as services are rendered, generally over the contract term.
When a sale involves multiple elements, such as sales of products that include
services, the entire revenue from the arrangement is allocated to each
respective element based on its relative fair value and is recognized when the
revenue recognition criteria for each element are met. Fair value for each
element is established based on the sales price charged when the same element is
sold separately.
We record a provision for estimated product returns on a net basis as part of
our recorded revenue. The estimated amount is based on historical experience of
similar products to our customers.
1. Warranty
We provide standard warranty coverage for most of our products for a period of
one year from the date of shipment. We record a liability for estimated warranty
claims based on historical claims, product failure rates and other factors. This
warranty liability primarily includes the anticipated cost of materials, labor
and shipping necessary to repair and service the equipment.
F-10
The following table illustrates the changes in our warranty reserves for the
years ended December 31, 2002, 2001 and 2000, respectively:
2002 2001 2000
-------- -------- ---------
Balance, beginning of year ........... $ 12,556 $ 12,953 $ 9,190
Charges to expense - cost of revenue.. 39,249 29,314 31,211
Utilization/payment .................. (36,771) (29,711) (29,175)
Other ................................ -- -- 1,727(a)
-------- -------- ---------
Balance, end of year ................. $ 15,034 $ 12,556 $ 12,953
======== ======== ========
(a) Telxon related warranty reserve (See Note 3)
m. Income Taxes
Deferred income tax assets and liabilities are recognized for the expected
future tax consequences of events that have been included in our financial
statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the differences between the financial
accounting and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse. We
evaluate the likelihood of recovering our deferred tax assets and the adequacy
of the related valuation allowance by estimating sources of taxable income and
the impact of tax planning strategies. Realization of our deferred tax assets is
dependent on our ability to generate sufficient future taxable income.
Research, experimental and other tax credits are accounted for by the
flow-through method. The cumulative amount of undistributed earnings of foreign
subsidiaries at December 31, 2002 approximates $46,749. We do not provide
deferred taxes on undistributed earnings of foreign subsidiaries since we
anticipate no significant incremental U.S. income taxes on the repatriation of
these earnings as tax rates in foreign jurisdictions generally approximate or
exceed the U.S. Federal rate.
n. Loss Per Share
Basic loss per share is based on the weighted average number of shares of common
stock outstanding during the period. Diluted per share amounts are based on the
weighted average number of shares of common and potentially dilutive common
shares outstanding during the period. For the years ended December 31, 2002,
2001 and 2000, the effect of approximately 40,037.8, 41,806.5 and 27,952.5,
respectively, of potentially dilutive common shares for outstanding stock
options, warrants and convertible subordinated notes and debentures were
excluded from the calculations of diluted loss per share because the effects
were anti-dilutive.
o. Stock-Based Compensation
As permitted by the provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation," we apply the intrinsic value method as described in Accounting
Principles Board Opinion No. 25 and related interpretations in accounting for
our employee stock based compensation plans. No compensation cost has been
recognized for the fixed portion of our plans. However, as described in Note 17,
compensation expense has been recognized for certain options granted through
July 30, 2002.
F-11
The following table illustrates the effect on net loss and loss per share if we
had applied the fair value recognition provisions of SFAS No. 123 to stock-based
employee compensation:
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------
2002 2001 2000
--------- --------- ---------
Net loss - as reported .................. $ (57,775) $ (4,094) $(137,666)
Stock based employee compensation
(recovery)/expense included in reported
net loss, net of related tax effects .. (41,872) (57,047) 5,705
Less total stock based employee
compensation expense determined
under fair value based method for
all awards, net of related tax
effects................................ (21,034) (21,363) (15,435)
--------- --------- ---------
Pro forma net loss ...................... $(120,681) $ (82,504) $(147,396)
========= ========= =========
Loss per share:
Basic and diluted - as reported ......... $ (0.25) $ (0.02) $ (0.67)
========= ========= =========
Basic and diluted - pro forma ........... $ (0.53) $ (0.36) $ (0.71)
========= ========= =========
The weighted average fair value of options granted during 2002, 2001, and 2000
was $4.53, $11.21, and $12.75 per option, respectively. In determining the fair
value of options and stock purchase warrants granted for purposes of calculating
the pro forma results disclosed above, we used the Black-Scholes option pricing
model and assumed the following: a risk free interest rate of 4.0 percent for
2002 and 5.5 percent for 2001 and 2000; an expected option life of 4.7 years for
2002 and 4 years for 2001 and 2000; an expected volatility of 59 percent, 45
percent, and 43 percent; and a dividend yield of 0.14 percent per year. As
required by SFAS No. 123, the impact of outstanding non-vested stock options
granted prior to 1995 has been excluded from the pro forma calculation.
See Note 17 for further details regarding our Stock Compensation Plans.
p. Derivative Instruments, Foreign Currency and Hedging Activities
Assets and liabilities of foreign subsidiaries where the local currency is the
functional currency are translated at year-end exchange rates. Changes arising
from translation are recorded in the accumulated other comprehensive
income/(loss) component of stockholders' equity. Results of operations are
translated using the average exchange rates prevailing throughout the year.
Gains and losses from foreign currency transactions are included in the
Consolidated Statements of Operations for the periods presented and are not
material.
On January 1, 2001, we adopted the provisions of SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended. SFAS No. 133
requires the recognition of all derivative instruments as either assets or
liabilities in the consolidated balance sheet measured at fair value. Changes in
fair value are recognized immediately in earnings unless the derivative
qualifies as a cash flow hedge. For derivatives qualifying as cash flow hedges,
the effective portion of changes in fair value of the derivative instrument is
recorded as a component of other comprehensive income/(loss) and is reclassified
to earnings in the same period during which the hedged transaction affects
earnings. Any ineffective portion (representing the remaining gain or loss on
the derivative instrument in excess of the cumulative change in the present
value of future cash flows of the hedged transaction) is recognized in earnings
as it occurs. For fair value hedges, changes in fair value of the derivative, as
well as the offsetting changes in fair value of the hedged item, are recognized
in earnings each period. The cumulative effect of adopting this accounting
change was immaterial.
F-12
We formally designate and document each derivative financial instrument as a
hedge of a specific underlying exposure as well as the risk management
objectives and strategies for entering into the hedge transaction upon
inception. We also assess whether the derivative financial instrument is
effective in offsetting changes in the fair value or cash flows of the hedged
item. We did not recognize any gain or loss related to hedge ineffectiveness in
2002 or 2001.
The embedded equity collar contained in the private Mandatorily Exchangeable
Contract for Shared Appreciation Income Linked Securities ("SAILS") arrangement
(See Note 6) is considered an economic hedge of the Cisco shares that are
accounted for as trading securities. Accordingly, any change in fair value of
this derivative financial instrument between reporting dates is recognized
through operations in other income. In addition, the change in market value of
Cisco shares between reporting dates is recognized through operations in other
income.
We also utilize derivative financial instruments to hedge the risk exposures
associated with foreign currency fluctuations for payments denominated in
foreign currencies from our international subsidiaries. These derivative
instruments are designated as either fair value or cash flow hedges, depending
on the exposure being hedged, and have maturities of less than one year. Gains
and losses on these derivative financial instruments and the offsetting losses
and gains on hedged transactions are reflected in the Consolidated Statements of
Operations. We do not use these derivative financial instruments for trading
purposes.
As of December 31, 2002 and 2001, respectively, we had $25,267 and $61,090 in
notional amounts of forward exchange contracts outstanding. The forward exchange
contracts generally have maturities that do not exceed 12 months and require us
to exchange foreign currencies for U.S. dollars at maturity at rates agreed to
at inception of the contracts. These contracts are primarily denominated in
British pounds, Euros, Australian dollars, Canadian dollars and Japanese yen and
have been marked to market each year with the resulting gains and losses
included in the Consolidated Statement of Operations. The fair value of these
forward exchange contracts was ($1,732) as of December 31, 2002, which was
recorded in current liabilities, and $1,363 as of December 31, 2001, which was
recorded in current assets.
q. Segment Information
We follow the provisions of SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which establishes standards for reporting
information about operating segments. SFAS No. 131 requires disclosures about
products and services, geographic areas and major customers. (See Note 20)
r. Use of Estimates
The preparation of financial statements requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could materially differ from those estimates.
Our most significant use of estimates relates to the determination of provisions
for uncollectible accounts receivable, excess and obsolete inventory,
recoverability of goodwill, warranty costs, product return costs, tax valuation
allowances and litigation contingencies.
s. Stock Splits
During each of the years ended December 31, 2001 and 2000, our Board of
Directors approved a three for two split of our common stock to be effected as a
50 percent stock dividend. In the Consolidated Financial Statements, all per
share amounts and the weighted average number of common shares outstanding have
been retroactively restated to reflect each of the respective stock splits. In
addition, the number of common shares issued has been adjusted to reflect the
stock split and an amount equal to the
F-13
par value of the additional shares issued has been transferred from additional
paid-in capital to common stock.
t. Recently Issued Accounting Pronouncements
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." This standard requires that the fair value of obligations that are
legally enforceable and unavoidable and are associated with the retirement of a
tangible long-lived asset be recorded in the period in which it is incurred.
This amount is accounted for like an additional element of cost and is
depreciated over the corresponding assets' useful life. The standard is
effective for fiscal years beginning after June 15, 2002. The adoption of SFAS
No. 143 is not expected to have a material impact on our consolidated financial
statements.
In April 2002, the FASB issued SFAS No. 145, "Recission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections."
This statement eliminates the automatic classification of a gain or loss on the
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." We elected to adopt this Statement in 2002. As a result, gains on
the extinguishments of debt of $832 and $1,196 for the years ended December 31,
2002 and 2001, respectively, have been recorded as a component of other income
in the Consolidated Statements of Operations. (See Note 13)
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." This statement addresses financial accounting
and reporting for costs associated with exit or disposal activities. SFAS No.
146 requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred. This statement is
effective for exit or disposal activities initiated after December 31, 2002. The
adoption of SFAS No. 146 is not expected to have a material impact on our
consolidated financial statements.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others." This interpretation requires that upon issuance of a
guarantee (including those embedded in a purchase or sales agreement), the
guarantor must disclose and recognize a liability for the fair value of the
guarantee. This interpretation also requires detailed information about each
guarantee or group of guarantees even if the likelihood of making a payment is
remote. The recognition and measurement provisions of this interpretation are
applicable on a prospective basis for guarantees issued or modified after
December 31, 2002. The disclosure requirements are effective for us as of
December 31, 2002 and are applicable to our product warranty liability. The
adoption of the recognition and measurement provisions of this interpretation is
not expected to have a material impact on our consolidated financial statements.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure, an amendment of FASB Statement No.
123." This statement amends SFAS No. 123 to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based compensation and requires more prominent disclosure about the
method used. This statement is effective for fiscal years ending after December
15, 2002. Since we account for stock-based compensation using the intrinsic
value approach, only the disclosure provisions of this statement apply and such
disclosure is included in Note 1(o) above.
In December 2002, the EITF reached a consensus on EITF Issue No. 00-21, "Revenue
Arrangements with Multiple Deliverables." This consensus addresses certain
aspects of the accounting by a vendor for arrangements under which it will
perform multiple revenue-generating activities. In some arrangements, the
different revenue-generating activities (deliverables) are sufficiently
separable and there exists sufficient evidence of their fair values to
separately account for some or all of the deliverables (i.e., there are separate
units of accounting). In other arrangements, some or all of the deliverables are
not
F-14
independently functional, or there is not sufficient evidence of their fair
values to account for them separately. This consensus addresses when and, if so,
how an arrangement involving multiple deliverables should be divided into
separate units of accounting. This consensus does not change otherwise
applicable revenue recognition criteria. The guidance in this consensus is
effective prospectively for revenue arrangements entered into by the Company in
fiscal periods beginning after June 15, 2003. We are currently evaluating the
impact of adopting this consensus on our consolidated financial statements.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities," which was revised in December 2003. This
interpretation requires the primary beneficiary to consolidate a variable
interest entity (VIE) if it has a variable interest that will absorb a majority
of the entity's expected losses if they occur, receive a majority of the
entity's expected residual returns if they occur, or both. The provisions of
this interpretation, as revised, are effective for periods ending after December
15, 2003. We are currently evaluating the impact of adopting this interpretation
on our Consolidated Financial Statements.
In April 2003, the FASB issued SFAS No. 149, "Amendments of Statement 133 on
Derivative Instruments and Hedging Activities," which amends and clarifies
financial accounting and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities
under SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 149 requires that contracts with comparable
characteristics be accounted for similarly and clarifies under what
circumstances a contract with an initial net investment meets the characteristic
of a derivative and when a derivative contains a financing component. SFAS No.
149 also amends the definition of an underlying to conform it to language used
in Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others." SFAS
No. 149 is effective for contracts entered into or modified after June 30, 2003,
with certain exceptions. We do not believe that the adoption of SFAS No. 149
will have a material impact on our consolidated financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity," which
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. SFAS
No. 150 requires that an issuer classify a financial instrument that falls
within its scope as a liability (or an asset in some circumstances). SFAS No.
150 is effective for financial instruments entered into or modified after May
31, 2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003, which for us is the quarter ended
September 30, 2003. We do not believe that the adoption of SFAS No. 150 will
have a material impact on our consolidated financial statements.
2. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
Subsequent to the issuance of the Company's December 31, 2001 financial
statements, management of the Company identified certain accounting errors and
irregularities, as discussed below, in its previously issued financial
statements that extended back to 1998. As a result, the Consolidated Financial
Statements as of December 31, 2001 and for the years ended December 31, 2001 and
2000 have been restated from the amounts previously reported.
The adjustments necessary to restate our financial statements relate primarily
to the correction of errors related to the timing and amount of product and
service revenue recognized, as well as certain reserves, restructurings, the
administration of certain option programs and several categories of cost of
revenue and operating expenses. As a result, the Consolidated Financial
Statements have been restated to give effect to the correction of these errors.
The principal adjustments are summarized below:
F-15
Revenue Recognition
Our investigation in the area of revenue recognition identified numerous
instances where the timing or amount of revenue recognized was not appropriate.
SEC Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial
Statements" (SAB 101) expresses the SEC Staff's views regarding the application
of accounting principles generally accepted in the United States of America
("U.S. GAAP") to revenue recorded in financial statements. Provided below is a
summary of the nature of the adjustments to revenue that were necessary to our
Consolidated Financial Statements:
Persuasive evidence of an arrangement exists
We identified situations when the customer arrangements were not available, were
not documented or were superceded by separate written agreements or verbal
arrangements. In many of these instances, the customer returned most or all of
the merchandise shipped in a subsequent accounting period based on these
separate agreements or arrangements. The existence of these separate agreements
and arrangements indicates that the original agreement was not binding and,
therefore, the recognition of revenue was inappropriate at that time and should
have been deferred until such time as persuasive evidence of an arrangement
existed.
Delivery had not occurred or services had not been rendered
We identified situations in which we had recognized revenue at the time we
shipped our product to an intermediate staging area or location where we
performed additional configuration services to meet customer requirements. The
recognition of revenue was inappropriate at that time and should have been
deferred until such time as our products had been shipped or services had been
rendered to our customer.
The seller's price to the buyer was not fixed or determinable
We identified situations in which significant price concessions were made based
on prior or ongoing negotiations or in which subsequent credits were issued to a
customer based on sales volume or in which separate agreements existed that were
not considered in the revenue recognition process. These arrangements indicate
that the price of goods and services was not fixed or determinable at the time
of the sale and, therefore, the recognition of revenue was inappropriate and
should have been deferred until the price was fixed or determinable.
Collectibility is reasonably assured
We identified situations in which sales were made to customers who had no
financial means for payment other than from the resale of our products to third
parties. Effectively these customers were acting as our distributors or agents
and our sales to them were on a consignment basis since we readily accepted any
returns they provided. Accordingly, the recognition of such sales to
distributors with unlimited or extremely broad return capability was
inappropriate and should have been deferred until such time as the sale was made
to the ultimate customer and collectibility was reasonably assured.
Restructuring Reserves
In December 2000, we recorded restructuring, impairment and merger integration
charges associated with the Telxon acquisition (See Note 3). We determined that
both the amount and timing of certain components of this charge as well as the
subsequent utilization of the established reserve were inappropriate.
In September 2001, we recorded a restructuring charge primarily related to the
reorganization of our manufacturing facilities. Similarly, we determined that
both the amount and timing of certain
F-16
components of this charge as well as the subsequent utilization of the
established reserve were inappropriate.
Inventory
We identified numerous errors and irregularities in the area of inventory. Our
previous methodology for identifying excess and obsolete inventory, which relied
heavily on historical usage, did not properly consider the rapid nature of
technology changes and reduced product life cycles during the past several
years. In addition, in June 2001 a $110,000 write down was recorded and
disclosed as being related to Palm and radio inventory. The nature, timing and
amount of these charges were inappropriate.
Computer Hardware and Software Costs
We determined that certain computer hardware costs had been incorrectly
capitalized. In addition, as a result of our investigation, we determined that
the criteria provided in SFAS No. 86 to determine when technological feasibility
has been established had been misapplied resulting in an error in the
capitalization of development costs of software which should have been expensed.
Patent Costs
Certain patent-related costs were being incorrectly amortized beyond the life of
the related patent. Additionally, other instances were noted in which we could
not associate various legal costs incurred with a specific patent. Accordingly,
the Consolidated Financial Statements reflect adjustments to correct the
amortization of costs to coincide with the remaining life of the related patent
and to write-off legal costs that could not be directly associated with a
patent. In addition, because of rapidly changing technology, we determined that
our prior policy of amortizing patents generally over a 17 year period was not
appropriate and the Consolidated Financial Statements reflect adjustments to
reduce the patent amortization period to six years.
AirClic Transaction
In the third quarter of 2000, we received a non-cancelable purchase order from
AirClic for the development of certain technologies, molding designs and other
rights and recorded $15,000 of revenue and gross profit. In the fourth quarter
of 2000, the terms of the purchase order were materially changed and were tied
to a $50,000 cash investment we made in AirClic, a cost method investee. In the
second quarter of 2002, we determined that a decline in the value of our
investment in AirClic was other than temporary and wrote off $47,200 of the
$50,000 investment as an impairment charge as a component of operating expenses.
We have determined that our previous accounting for the transactions with
AirClic was inappropriate and the Consolidated Financial Statements reflect the
elimination of the $15,000 revenue and gross profit originally recognized in the
third quarter of 2000 and the previously recorded $50,000 investment has been
recorded as $35,000, which reflects the net effect of the 2000 transactions.
Lastly, the $47,200 impairment charge recorded in 2002 has been reduced to
$32,200 and is shown as an impairment in investments as a component of other
income/(expense) in the Consolidated Statements of Operations.
Telxon Transaction
As discussed in Note 3 to the Consolidated Financial Statements, on November 30,
2000, we completed the acquisition of the Telxon Corporation. The acquisition
was accounted for as a purchase and the excess of the purchase price over the
fair value of the assets acquired and liabilities assumed was recorded as
goodwill. Subsequent to the acquisition date, we adjusted goodwill for revisions
to the fair values of the assets and liabilities acquired. We subsequently
determined that certain of the adjustments to goodwill did not relate to
contingencies existing at the time of the acquisition. Furthermore, we
F-17
discovered that while certain adjustments to the net assets acquired from Telxon
were appropriate, the impact of these adjustments was incorrectly recorded in
accounts other than goodwill.
Brazil Acquisition
As discussed in Note 3 to the Consolidated Financial Statements, during the
second quarter of 2002, we entered into an agreement with the owners of a
Brazilian corporation that was a distributor of our products, whereby we created
a majority-owned subsidiary of Symbol. In our previously reported financial
statements, we recorded payments to two individuals aggregating approximately
$5,300 as part of the purchase price. As a result of our investigation, we
determined that we should have treated these payments as operating expenses.
Accruals, Reserves and Prepayments
We identified errors in the accounting for certain accruals and prepayments.
Specifically, we identified instances in which we established reserves or
released reserves in error.
Statement of Operations Reclassifications
We discovered numerous instances in which certain categories of expenses were
inappropriately classified in the statements of operations.
Stock Option Accounting
We identified certain irregularities and improper administration of option
exercises related to our stock option plans. In particular, an informal practice
began in or around the early 1990's, whereby certain officers and directors were
afforded a look-back period (no more than 30 days) for purposes of determining
the market price to be used in connection with specific option exercises. In
addition, certain of these individuals were given an extended period of time in
which to pay for their option exercises. These practices were contrary to the
terms of the relevant option plans.
As this practice allowed certain participants to choose exercise dates outside
of the approved plan terms and also allowed these participants to extend the
period of time in which to pay for their option exercise, the price of the
option at the grant date was not fixed. Accordingly, in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," the Consolidated Financial Statements reflect as compensation
expense the change in market price of the common stock underlying these options
granted to plan participants that could have participated in this practice.
Effective July 30, 2002, this practice of options exercise ended resulting in
ceasing the accounting for such options under variable plan accounting.
Executive Life Insurance
As a benefit to some of our key executives, we paid the premiums to provide
split dollar life insurance. As part of this program, the premiums on the
policies accumulate as cash surrender value that must be repaid to us upon the
termination of employment or death of the employee. We determined that the
amount we recorded as a recoverable asset exceeded the amount we could realize
as cash surrender value under the policies.
Interest Expense
Our primary source of liquidity during 1999 through most of 2003 was a Credit
Agreement signed in December 1998 and voluntarily terminated in November 2003.
Pricing terms of this Credit Agreement were covered under a "credit grid" that
provided for interest charges on both drawn and undrawn
F-18
committed lines of credit, and was based on a quarterly calculation of a
leverage ratio of outstanding debt divided by earnings before income taxes,
depreciation and amortization. Interest charges were either lowered the further
the leverage ratio fell below 2.5 times or raised if the ratio moved toward 2.5
times. The agreement also provided for additional fees in the event of
additional leverage or events of default. Through a series of waivers and
amendments granted by the bank group during the life of the Credit Agreement, no
event of default occurred. However, these waivers and amendments did not provide
protection from the obligations under the "credit grid" pricing.
We determined that our previously recorded interest expense during the period
covered by the restatement needed to be recalculated based on our restated
results, which resulted in adjustments in our Consolidated Financial Statements
to appropriately reflect interest expense due under the terms of the Credit
Agreement.
Balance Sheet Adjustments and Reclassifications
We identified errors associated with the cut off of cash receipts. In these
instances, recording of cash receipts was inappropriately accelerated into
earlier accounting periods. In addition, reclassifications were made incorrectly
to certain balance sheet accounts such as accounts receivable and other assets.
Other Restatement-Related Adjustments
We identified instances where marketable securities, property, plant and
equipment and other long-lived assets were carried at amounts exceeding their
net realizable values.
Income Taxes
As a result of the adjustments described above, we have adjusted our tax
provisions and related accounts for the periods involved.
F-19
The following table presents the effects of the aforementioned adjustments on
pre-tax loss as previously reported:
(Increase) decrease in pre-tax loss (in thousands):
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
2001 2000
--------- ---------
Pre-tax loss, previously reported ............ $ (79,193) $ (79,558)
REVENUE ADJUSTMENTS:
Product ...................................... 59,306 (226,533)
Service ...................................... (24,547) (9,694)
--------- ---------
34,759 (236,227)
COST OF REVENUE ADJUSTMENTS:
Product revenue cost ......................... (29,394) 70,805
Service revenue cost ......................... 4,236 1,433
Restructuring reserves ....................... 25,586 25,103
Excess and obsolete inventory ................ (24,613) 10,099
Computer software ............................ 24,105 63,995
Telxon transaction ........................... (1,539) (1,285)
Accruals, reserves and prepayments ........... 17,329 147
Other, net ................................... (3,206) (2,018)
--------- ---------
12,504 168,279
OPERATING AND OTHER EXPENSES:
Restructuring reserves ....................... (22,677) 20,375
Computer hardware and software costs ......... (37,574) (37,075)
Patent costs ................................. (5,094) (2,642)
Telxon transaction ........................... (16,531) (573)
Brazil acquisition ........................... -- (3,250)
Accruals and prepayments ..................... 19,693 (5,972)
Stock option accounting ...................... 92,760 (9,402)
Executive life insurance ..................... (1,824) (1,932)
Impairment of investments .................... (1,521) --
Interest expense ............................. (691) (3,125)
Bad debt impact of revenue adjustments ....... 7,254 (542)
Other, net ................................... 2,816 376
--------- ---------
36,611 (43,762)
(Increase) decrease in pre-tax loss .......... 83,874 (111,710)
--------- ---------
Earnings (loss) before income taxes, as
restated ..................................... $ 4,681 $(191,268)
========= =========
F-20
The following is a summary of the significant effects of the restatement on our
previously reported results of operations and financial position:
YEAR ENDED YEAR ENDED
DECEMBER 31, 2001 DECEMBER 31, 2000
------------------------------ ------------------------------
AS PREVIOUSLY AS PREVIOUSLY
REPORTED AS RESTATED REPORTED AS RESTATED
---------- ---------- ---------- ----------
(All amounts in thousands, except per share data)
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenue................................... $1,452,697 $1,487,456 $1,449,490 $1,213,263
Cost of revenue........................... 1,058,580 1,046,076 989,137 820,858
---------- ---------- ---------- ----------
Gross profit.............................. 394,117 441,380 460,353 392,405
Stock based compensation (recovery)/expense
under variable plan accounting......... - (92,760) - 9,402
Other operating expenses.................. 455,335 512,846 527,691 559,350
---------- ---------- ---------- ----------
(Loss)/earnings from operations........... (61,218) 21,294 (67,338) (176,347)
(Loss)/earnings before income taxes....... (79,193) 4,681 (79,558) (191,268)
Net loss.................................. (53,907) (4,094) (68,966) (137,666)
NET LOSS PER COMMON SHARE:
Basic and diluted......................... (0.24) (0.02) (0.33) (0.67)
AS OF
DECEMBER 31, 2001
------------------------------
AS PREVIOUSLY
REPORTED AS RESTATED
------------- --------------
(All amounts in thousands)
CONSOLIDATED BALANCE SHEET DATA:
Accounts receivable, net ................. $ 307,576 $ 141,327
Inventories............................... 310,924 338,165
Total current assets...................... 1,000,208 895,320
Goodwill and other intangible assets, net. 413,308 329,667
Total assets.............................. 1,892,674 1,705,371
Accounts payable and accrued expenses..... 279,615 272,486
Deferred revenue, current................. 34,641 42,766
Total current liabilities................. 339,733 335,440
Deferred revenue, non-current............. 7,084 11,723
Total other liabilities................... 365,068 359,093
Total stockholders' equity................ 1,180,789 999,115
F-21
3. ACQUISITIONS
a. Telxon Acquisition
On November 30, 2000, we completed the acquisition of Telxon Corporation
("Telxon") through a merger of Telxon with one of our wholly-owned subsidiaries.
In the merger, each outstanding share of Telxon common stock was converted into
the right to receive 0.5 shares of our common stock, resulting in the issuance
of 13,163 shares, comprising approximately $378,375 of the total purchase price.
In addition, each outstanding option to purchase Telxon common stock was
converted into an option to purchase 0.5 shares of our common stock at an
exercise price equal to two times the pre-acquisition exercise price of the
Telxon options. This resulted in 2,610 options granted to replace Telxon
options. The fair value of vested stock options at the time of the acquisition
was $26,400, resulting in a total purchase price of $404,775. The fair value of
unvested stock options at the time of the acquisition amounted to $1,869 and was
accounted for as deferred compensation and excluded from the total purchase
price.
The acquisition was accounted for by the purchase method of accounting and,
accordingly, the Consolidated Statements of Operations include the results of
operations of Telxon beginning December 1, 2000. The assets acquired and
liabilities assumed were recorded at estimated fair values. After allocating the
purchase price, purchased technology that had reached technological feasibility
was valued at $22,800 and is reflected in intangible assets, net in the
Consolidated Balance Sheets and is being amortized over eight years.
In addition, a portion of the purchase price was allocated to in-process
research and development ("IPR&D"). IPR&D of $87,600 was charged to operations
at the acquisition date as the IPR&D had not reached technological feasibility
and had no alternative future use.
As a result of the acquisition of Telxon, we incurred incremental costs to exit
and consolidate activities at Telxon locations, to involuntarily terminate
Telxon employees, and other costs to integrate operating locations and other
activities of Telxon with the Company. The portion of these expenses that are
not associated with the generation of future revenue and have no future economic
benefit are assumed liabilities in the allocation of the purchase price to the
net assets acquired. These restructuring costs, primarily relating to severance
and abandonment of leased facilities, were recorded in the purchase price
allocation and amounted to $57,118. Severance relates to the termination of
1,026 employees primarily in manufacturing, management, sales and administrative
support. As of December 31, 2001, all these employees had been terminated. (See
Note 12)
The preliminary purchase price allocation resulted in goodwill that amounted to
$198,793 at December 31, 2000. The original purchase price was allocated as
follows:
Investments in marketable equity securities ........... $ 262,538
Deferred tax asset .................................... 17,614
Purchased technology .................................. 22,800
Other intangible assets ............................... 17,215
Convertible subordinated notes and debentures assumed.. (106,913)
Net liabilities assumed ............................... (94,872)
In process research and development costs expensed .... 87,600
Goodwill .............................................. 198,793
---------
Purchase price .................................. $ 404,775
=========
During the allocation period, additional information became available regarding
the fair value of net assets acquired from Telxon. Based on this additional
information, we adjusted our preliminary allocation of purchase price by $8,836
during the year ended December 31, 2001. This adjustment
F-22
resulted in a decrease in the fair value allocated to the net assets acquired
and an increase in goodwill. Additionally, during 2002, we reduced goodwill by
$5,443 primarily to reduce certain liabilities recorded at the time of
acquisition. Through December 31, 2001, goodwill had been amortized using the
straight-line method over an estimated 20 year life. (see Note 1(e))
Unaudited pro forma results of operations for the year ended December 31, 2000,
as if we acquired Telxon at the beginning of 2000, are presented below. The pro
forma results include estimates and assumptions which management believes are
reasonable. However, pro forma results do not include the realization of cost
savings from operating efficiencies, synergies or other effects resulting from
the acquisition, and are not necessarily indicative of the actual consolidated
results of operations had the acquisition occurred on the date assumed, nor are
they necessarily indicative of future consolidated results of operations.
UNAUDITED PRO-FORMA
FOR THE YEAR ENDED DECEMBER 31, 2000(1)
---------------------------------------
Net revenue......................... $1,507,757
Net earnings........................ 15,809
Diluted earnings per share.......... 0.07
(1) The fiscal 2000 unaudited pro forma results include certain Telxon-related
matters as follows: a gain on exchange of Aironet shares of $396,161, or
$1.15 diluted earnings per share, offset by pre-tax charges for inventory
obsolescence writeoffs, bad debt charges, Akron to Cincinnati headquarter
transition costs and loss on a major domestic retailer sales contract
aggregating $51,900, or $0.15 diluted earnings per share.
b. Brazil Acquisition
During the second quarter of 2002, we entered into an agreement with the owners
of Seal Sistemas e Technologia Da Informacao Ltda. ("Seal"), a Brazilian
corporation that had operated as a distributor and integrator of our 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 a minimum of $9,550 to a maximum of $14,800 contingent upon the attainment
of certain annual net revenue levels of Symbol Brazil. In the event that none of
the specified revenue levels are attained, the minimum earnout payment is
payable no later than March 31, 2009. With each earnout payment, we will obtain
a portion of Symbol Brazil's shares owned by the minority shareholders such that
we will ultimately own 100 percent of Symbol Brazil no later than March 31,
2009. We advanced these minority shareholders $5,000 at the time of the
agreement, which will be offset on the date the first earnout payment is
triggered. The present value of net future minimum earnout payments of $4,550
amounted to $1,992 and was recorded as part of the purchase price resulting in a
total purchase price of $6,992. Any additional earnout payments will be
accounted for as additional purchase price and recorded as goodwill.
Management allocated the purchase price and considered a number of factors,
including independent appraisals and, as a result of such procedures, the total
purchase price has been classified as goodwill. We have not shown the pro-forma
effects of this acquisition as the results of operations of the acquired company
prior to our acquistion was immaterial in relation to our Consolidated Financial
Statements.
As we control Symbol Brazil and are obligated to purchase the remaining
ownership interest, we have consolidated this subsidiary. The minority interest
is accounted for as accrued purchase price and is recorded in other liabilities.
F-23
c. @POS.Com Acquisition
On September 16, 2002, we completed the acquisition of @POS.com, Inc. ("@POS")
through a merger of @POS with one of our wholly owned subsidiaries. @POS
manufactures and markets a range of interactive customer transaction terminals
with advanced signature capture technology and features. In the acquisition, we
purchased all outstanding shares of @POS common stock and preferred stock for
approximately $5,446.
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. After allocating the purchase
price, including acquisition costs to net tangible assets, purchased technology
that has reached technological feasibility was valued by independent appraisal
at $1,800. 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 with a useful life of 9.5 years.
We have not shown the pro forma effects of this acquisition as the results of
operations of the acquired company prior to our acquisition was immaterial in
relation to our Consolidated Financial Statements.
d. Other Acquisitions
In addition to the aforementioned acquisitions, we established wholly-owned
subsidiaries through the acquisition of certain of our international
distributors and developers of various of our products during the past three
years. These acquisitions have been accounted for as purchases and, accordingly,
the related acquisition costs have been allocated to net assets acquired based
upon fair values.
Additional acquisition payments related to these acquisitions are contingent
upon the attainment of certain annual net revenue levels and achievement of
other milestones as defined in the respective agreements during periods not
exceeding five years from the date of acquisition. We made additional
acquisition payments of $282, $1,660, and $6,365 during the years ended December
31, 2002, 2001, and 2000, respectively, related to these acquisitions, which has
been recorded as goodwill.
4. INVENTORIES
DECEMBER 31, DECEMBER 31,
2002 2001
----------- -----------
Raw materials............ $ 82,115 $ 176,241
Work-in-process.......... 39,931 11,522
Finished goods........... 139,050 150,402
----------- -----------
$ 261,096 $ 338,165
=========== ===========
The amounts shown above are net of inventory reserves of $190,575 and $221,467
as of December 31, 2002 and 2001, respectively, and include inventory on
consignment of $49,182 and $54,774 as of December 31, 2002 and 2001,
respectively.
F-24
5. PROPERTY, PLANT AND EQUIPMENT
DECEMBER 31, DECEMBER 31,
2002 2001
--------- ---------
Land ............................................. $ 11,006 $ 12,085
Buildings and improvements ....................... 74,063 61,121
Machinery and equipment .......................... 106,603 124,965
Furniture, fixtures and office equipment ......... 38,002 42,860
Computer hardware and software ................... 165,214 162,108
Leasehold improvements ........................... 15,884 15,000
Construction in progress ......................... -- 19,726
--------- ---------
410,772 437,865
Less: Accumulated depreciation and amortization.. (202,563) (187,081)
--------- ---------
$ 208,209 $ 250,784
========= =========
During 2001, we substantially completed construction of a 140,000 square foot
manufacturing and distribution facility in Reynosa, Mexico. Early in 2001, we
began a 150,000 square foot expansion of this facility. During 2001, we
determined that the majority of the space created by the expansion project was
not going to be utilized. As such, we recorded an impairment charge of $4,636,
which has been reported as a component of product cost of revenue in 2001. This
charge includes the costs incurred for the project, as well as additional costs
for which we were committed.
6. INVESTMENT IN MARKETABLE SECURITIES
As a result of the acquisition of Telxon (see Note 3(a)), we obtained 4,166.1
shares of Cisco Systems, Inc. common stock (the "Cisco shares").
We also obtained two derivative financial instruments related to the Cisco
shares (referred to collectively herein as the "Collar"). The Collar essentially
hedged our risk of loss on the Cisco shares by utilizing purchased put options.
Conversely, the Collar arrangement also limited the potential gain by employing
written call options.
In January 2001, we sold 6,086 of the Cisco shares and simultaneously terminated
the existing Collar and entered into a private Mandatorily Exchangeable
Securities Contract for Shared Appreciation Income Linked Securities ("SAILS")
arrangement (see Note 14(i)) with a highly rated financial institution for the
remaining 4,160 shares. These shares had a market value of $54,496 at December
31, 2002. Such shares are held as collateral to secure the debt instrument
associated with the SAILS and are included in Investment in Marketable
Securities in the Consolidated Balance Sheets. The SAILS contain an embedded
equity collar, which effectively manages a large portion of our exposure to
fluctuations in the fair value of our holdings in the Cisco shares. At maturity,
the SAILS will be exchangeable for shares of Cisco common stock or, at our
option, cash in lieu of shares. We account for the embedded equity collar as a
derivative financial instrument in accordance with the requirements of SFAS No.
133 and the change in fair value of this derivative between reporting dates is
recognized as other income/(expense). As there is a legal right of offset, the
derivative has been combined with the debt instrument and presented as net
long-term debt in the Consolidated Balance Sheets.
At December 31, 2002, 3,411.2 of the Cisco shares have been economically hedged
in conjunction with the SAILS arrangement and have been classified as trading
securities. However, because these securities collateralize the long-term debt
underlying the SAILS arrangement, they have been classified as non-current
assets at December 31, 2002. The changes in market value of these trading
securities of approximately $16,275 and $4,647 for the years ended December 31,
2002, and 2001, respectively, have been included in other income in the
Consolidated Statements of Operations. The remaining 748.8 Cisco shares have
been classified as available-for-sale securities in accordance with SFAS No.
115. Under
F-25
SFAS No. 115, available-for-sale securities are required to be carried at their
fair value, with unrealized gains and losses, net of income taxes, recorded as a
component of accumulated other comprehensive income/(loss). Information
regarding marketable securities classified as available-for-sale is presented in
the table below:
DECEMBER 31, DECEMBER 31,
2002 2001
-------- ---------
Cost basis ..................................... $ 11,416 $ 32,326
Gross unrealized holding losses on
available-for-sale securities.................. (1,164) (18,099)
-------- ---------
Aggregate fair market value .................... $ 10,252 $ 14,227
======== ========
During 2002, we recognized a pretax loss of $20,910 due to an
other-than-temporary decline in the market value of our investment in Cisco
classified as available-for-sale securities. This loss is included in impairment
of investments and is included as a component of other income/(expense) in the
Consolidated Statements of Operations.
During 2001, we recognized a pretax loss of $1,521 relating to several other
investments in marketable securities. We determined that market value declines
in these investments to be other than temporary. This loss is included in
impairment of investments and is included as a component of other
income/(expense) in the Consolidated Statements of Operations.
Information regarding marketable securities classified as trading securities is
presented in the table below:
DECEMBER 31, DECEMBER 31,
2002 2001
----------- ------------
Cost basis....................................... $ 142,844 $ 142,844
Gross unrealized holding losses on
trading securities.............................. (98,157) (81,067)
--------- ---------
Aggregate fair market value...................... $ 44,687 $ 61,777
========= =========
7. GOODWILL AND OTHER INTANGIBLE ASSETS
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." Under SFAS No. 142, goodwill and indefinite life intangible assets are
no longer amortized, but rather subject to assessment for impairment at least
annually. We adopted the provisions of this statement on January 1, 2002.
Based on the initial impairment testing performed as of January 1, 2002, we
determined there was no impairment of goodwill upon initial adoption of this
statement.
Subsequent to the initial adoption of SFAS No. 142, we elected to perform our
annual goodwill impairment testing on September 30th of each year beginning in
2002. We completed the impairment test as of September 30, 2002 using the same
methodology as described in Note 1. The results indicated no impairment of
goodwill at September 30, 2002.
F-26
The changes in the carrying amount of goodwill for the year ended December 31,
2002 are as follows:
PRODUCTS SERVICES TOTAL
--------- --------- ---------
Balance as of January 1, 2002 ... $ 237,152 $ 55,628 $ 292,780
Goodwill acquired during the year 11,330 2,307 13,637
Translation adjustments ......... (423) 32 (391)
Other adjustments, net (1) ...... (4,045) (958) (5,003)
--------- --------- ---------
Balance as of December 31, 2002 . $ 244,014 $ 57,009 $ 301,023
========= ========= =========
(1) Includes $5,443 related to the reduction of certain liabilities recorded at
the time of the Telxon acquisition (see Note 3).
Adjusted financial information assuming SFAS No. 142 had been adopted as of
January 1, 2000 is as follows:
YEAR ENDED DECEMBER 31,
---------------------------------------------
2002 2001 2000
----------- ---------- --------------
Net loss, as reported....................................... $ (57,775) $ (4,094) $ (137,666)
Goodwill amortization, net of tax .......................... - 14,823 6,347
----------- ---------- --------------
Adjusted net (loss)/earnings................................ $ (57,775) $ 10,729 $ (131,319)
========== ========= =============
BASIC PER SHARE AMOUNTS:
Net loss, as reported ...................................... $ (0.25) $ (0.02) $ (0.67)
Goodwill amortization, net of tax........................... - 0.07 0.03
----------- ---------- --------------
Adjusted net (loss)/earnings................................ $ (0.25) $ 0.05 $ (0.64)
========== ========= =============
DILUTED PER SHARE AMOUNTS:
Net loss, as reported ...................................... $ (0.25) $ (0.02) $ (0.67)
Goodwill amortization, net of tax........................... - 0.07 0.03
----------- ---------- --------------
Adjusted net (loss)/earnings................................ $ (0.25) $ 0.05 $ (0.64)
========== ========= =============
Other than goodwill, finite life intangible assets, all of which are subject to
amortization, consist of the following:
DECEMBER 31, 2002 DECEMBER 31, 2001
------------------------------ -------------------------------
ACCUMULATED ACCUMULATED
GROSS AMOUNT AMORTIZATION GROSS AMOUNT AMORTIZATION
--------- ---------- --------- ----------
Patents, trademarks and tradenames.......... $ 31,624 $ (19,956) $ 28,746 $ (16,190)
Purchased technology........................ 24,817 (6,069) 23,669 (3,088)
Other....................................... 6,865 (156) 3,804 (54)
--------- ---------- --------- ----------
$ 63,306 $ (26,181) $ 56,219 $ (19,332)
========= ========== ========= ==========
F-27
These assets have estimated useful lives ranging from 4 to 10 years.
Amortization expense for these assets was $6,849, $8,381 and $4,711 for the
years ended December 31, 2002, 2001 and 2000, respectively. Estimated future
amortization expense for the above finite life intangible assets, assuming no
additions or writeoffs, for each of the years ending December 31, is as follows:
2003............................. $ 8,426
2004............................. 7,919
2005............................. 7,560
2006............................. 5,009
2007............................. 3,217
8. AIRCLIC TRANSACTIONS
In November 2000, we invested $35,000 in and licensed certain intellectual
property to AirClic Inc. ("AirClic"), a business which allows wireless devices
to scan bar codes and transmit data to the Internet. In return, we received
convertible preferred stock of AirClic. We do not currently have the right to
convert the preferred stock into common stock of AirClic and our ability to do
so in the future is subject to certain contractual restrictions. As we do not
have the ability to exercise significant influence over AirClic, we account for
this investment using the cost method. We periodically test the carrying value
of this investment for impairment. In consideration of the outlook of AirClic's
business, the general decline in the economy and the decline in information
technology spending, we determined that the decline in the value of our
investment in AirClic was other than temporary in June 2002. We obtained an
independent appraisal of our investment in AirClic and wrote down the carrying
amount of the investment to its estimated fair value of $2,800 by recording an
impairment of the investment of $32,200 which is shown as a component of other
income/(expense) in the Consolidated Statements of Operations.
In January 2003, we invested an additional $750 in AirClic in exchange for
convertible preferred stock. This additional investment has also been accounted
for under the cost method and increased our investment in AirClic to $3,550.
In March 2003, AirClic received additional financing from other investors but
the negative outlook for AirClic's business and the lack of a rebound in the
information technology sector and the economy in general prompted us to record
an additional impairment charge of $3,025 related to this investment during the
three months ended March 31, 2003. We subsequently wrote off our remaining
investment in AirClic of $525 by September 2003.
During the year ended December 31, 2001, we had accumulated certain component
inventories in anticipation of orders from AirClic. As a result, during 2001,
AirClic paid $7,000 with respect to this component inventory. This payment was
accounted for as an advance payment for future inventory purchases. At December
31, 2002, an accrued liability of $6,147 remained outstanding under this
obligation.
In July 2003, we reached an agreement with AirClic as it related to this
obligation. The remaining obligation of $4,992 was settled by making a cash
payment of $2,497 to AirClic. Accordingly, we recognized other income of $2,495
in the third quarter of 2003.
9. OFFICER LOANS
In February 2002, we loaned $1,000 to our former Chief Executive Officer,
Director and Vice Chairman of the Board of Directors. This loan bears interest
at an annual rate of LIBOR plus 100 basis points, which approximated 2.4 percent
at December 31, 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 our common stock now owned by either of them or hereafter
acquired (other than shares sold to pay the exercise price and taxes
F-28
resulting from the exercise of any options originally granted to this officer by
us), 100 percent of the net proceeds of such sales shall be applied immediately
to reduce any outstanding indebtedness under this loan.
In addition, we also loaned our former Chief Executive Officer, Director and
Vice Chairman of the Board of Directors $500 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. Accrued interest 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 our common stock 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 us), 100 percent
of the net proceeds of such sales shall be applied immediately to reduce any
outstanding indebtedness under this loan.
The purpose of these loans were for relocation expenses and the purchase of new
residences in connection with his employment by Symbol. These loans are
unsecured and are classified as other assets in the Consolidated Balance Sheet.
10. LEASE SECURITIZATIONS
During 2000, we entered into a $50,000 lease receivable securitization
agreement. This agreement is currently scheduled to mature on December 31, 2003,
but is expected to be renewed for an additional three months without the payment
of amounts outstanding at such time. After December 31, 2003, we will not be
able to securitize additional lease receivables until we provide certain
financial information to the financial institution. During the years ended
December 31, 2002 and 2001, we securitized approximately $17,219 and $32,227,
respectively, of our lease receivables in accordance with the terms of the
agreement. Losses on lease securitizations during 2002 and 2001 were
approximately $610 and $1,954, respectively. We realized a gain of approximately
$209 in 2000. For a discussion of retained interest, see note 1(j).
Key economic assumptions used in measuring the fair value of retained interests
at the date of securitization resulting from securitizations completed during
2002 and 2001 (weighted based on principal amounts securitized) were as follows:
AS OF DECEMBER 31,
----------------------
2002 2001
------- -------
Prepayment rate................................. N/A (1) N/A (1)
Weighted-average remaining life (in years)...... 3.26 2.03
Expected credit losses.......................... $172 $322
Discount rate................................... 9 percent 9 percent
F-29
The following table presents the fair values of retained interest as of December
31, 2002 and 2001, along with key economic assumptions used to derive the values
as of year-end. The table also presents the sensitivity of the current fair
value to immediate 10 percent and 20 percent adverse changes in the listed
economic assumptions:
AS OF DECEMBER 31,
--------------------------------------
2002 2001
------------ --------------
Fair value of retained interest........................... $12,874 $14,134
Weighted average remaining life (in years)................ 2.54 1.86
Prepayment speed assumption............................... N/A (1) N/A (1)
Impact on fair value of 10 percent adverse change.... - -
Impact on fair value of 20 percent adverse change.... - -
Expected credit losses (annual rate)...................... 1.0% 1.0%
Impact on fair value of 10 percent adverse change.... $12,839 $14,118
Impact on fair value of 20 percent adverse change.... $12,803 $14,103
Discount rate............................................. 9.0% 9.0%
Impact on fair value of 10 percent adverse change.... $12,748 $13,987
Impact on fair value of 20 percent adverse change.... $12,624 $13,844
(1) Our lease portfolios historically have not been subject to prepayment risk.
These sensitivities are hypothetical and should be used with caution. As the
amounts indicate, changes in fair value based on a 10 percent and 20 percent
variation in assumptions generally cannot easily be extrapolated because the
relationship of the change in the assumptions to the change in fair value may
not be linear. Also, in the above table, the effect that a change in a
particular assumption may have on the fair value is calculated without changing
any other assumption. In reality, changes in one factor may result in changes in
another, which might magnify or counteract the sensitivities. Static pool credit
losses are calculated by summing actual and projected future credit losses and
dividing them by the original balance of each securitization pool. At December
31, 2002 and 2001, static pool net credit losses for leases securitized were not
material.
The table below summarizes certain cash flows received from/(paid to)
securitization trusts:
YEAR ENDED DECEMBER 31,
---------------------------------
2002 2001
--------- ---------
Proceeds from new securitizations............................. $ 10,000 $ 18,700
Collections used by the trust to purchase new balances in
revolving securitizations.................................. 9,111 6,446
Servicing fees received....................................... 417 330
Purchases of delinquent assets................................ (27) (188)
The table below presents information about delinquencies and components of
reported and securitized financial assets at December 31, 2002 and 2001:
2002 2001
----------------------------------- ------------------------------------
TOTAL PRINCIPAL DELINQUENT TOTAL PRINCIPAL DELINQUENT
AMOUNT OF PRINCIPAL OVER AMOUNT OF PRINCIPAL OVER
LEASES 90 DAYS LEASES 90 DAYS
---------- -------- --------- ------
Leases held in portfolio............ $ 3,865 $ 1,994 $ 4,288 $ 631
Leases held for securitization...... 4,618 2 5,130 43
Leases securitized ................. 40,609 12 42,445 13
---------- -------- --------- ------
Total leases managed................ $ 49,092 $ 2,008 $ 51,863 $ 687
========== ======== ========= ======
Leases securitized of $40,609 and $42,445 at December 31, 2002 and 2001,
respectively, is comprised of our retained interest in future cash flows of
those leases measured at fair value of $12,874 and $14,134,
F-30
respectively, and the financial institution's interest in those leases of
$27,735 and $28,311, respectively, and is shown as a component of other assets
on the Consolidated Balance Sheets.
We monitor our potential credit risk associated with lease securitizations and
provide for an allowance for doubtful accounts which is maintained at a level
that we believe is sufficient to cover potential losses on leases securitized.
Credit losses historically have not been material.
11. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
DECEMBER 31, 2002 DECEMBER 31, 2001
----------------- -----------------
Accounts payable............................................. $ 124,846 $ 125,798
Accrued compensation, fringe benefits and related
payroll taxes............................................... 60,663 50,761
Accrued litigation........................................... 110,300 -
Accrued purchase commitments................................. 2,227 13,822
Accrued professional fees.................................... 25,292 15,071
Accrued warranty............................................. 15,034 12,556
Accrued rebates.............................................. 8,332 6,022
Other accrued expenses....................................... 80,874 48,456
------------ ------------
$ 427,568 $ 272,486
============ ============
12. RESTRUCTURING AND IMPAIRMENT CHARGES
a. Telxon Acquisition
In December 2000, management approved and adopted a formal plan of restructuring
associated with the Telxon acquisition. In connection with this acquisition, our
operating results for the years ended December 31, 2000 and 2001 reflect charges
for restructuring, impairment and merger integration related charges of $14,340
and $14,678, respectively.
The 2000 Telxon restructuring charge of $7,555, of which $2,794 was recorded as
a component of product cost of revenue and $4,761 was recorded as a component of
operating expenses, includes workforce reduction and asset impairment costs.
These costs are not associated with the generation of future revenues and have
no future economic benefit. An additional $6,785 of the charge recorded in
December 2000 relates to the integration of Telxon's business and operations
resulting in revenue-producing activities. These costs consist primarily of
professional services and consulting fees, travel and other related charges and
were recorded as incurred as merger integration charges in the Consolidated
Statements of Operations.
The 2001 Telxon restructuring charge of $5,440, of which $2,543 was recorded as
a component of product cost of revenue and $2,897 was recorded as a component of
operating expenses, includes workforce reduction and asset impairment costs.
These costs are not associated with the generation of future revenues and have
no future economic benefit. An additional $9,238 of the charge recorded in
December 2001 relates to the integration of Telxon's business and operations
resulting in revenue-producing activities. These consist primarily of
professional services and consulting fees, travel and other related charges and
were recorded as incurred as merger integration charges in the Consolidated
Statements of Operations.
Our exit plan, which focused on the consolidation of manufacturing operations,
including plant closings and elimination of redundant activities, has been
completed. As part of this plan, we recorded workforce reduction charges of
$2,964 and $5,128 for the years ended December 31, 2000 and 2001, respectively.
These charges relate to the termination of 225 employees primarily in
manufacturing, management, sales and administrative support. As of December 31,
2001, all these employees have been terminated.
F-31
Details of the Telxon restructuring balances are as follows:
WORKFORCE LEASE OBLIGATION
REDUCTIONS COSTS ASSET IMPAIRMENT TOTAL
------------ --------------- ---------------- -----------
Balance January 1, 2000 ...................... $ -- $ -- $ -- $ --
Amounts recorded in Telxon Acquisition........ 30,191 19,550 7,377 57,118
Provision .................................... 2,964 20 4,571 7,555
Utilization/payments ......................... (734) (428) (7,838) (9,000)
-------- -------- -------- --------
Balance December 31, 2000 .................... 32,421 19,142 4,110 55,673
Additional provision ......................... 5,128 -- 312 5,440
Utilization/payments ......................... (36,915) (16,690) (4,150) (57,755)
-------- -------- -------- --------
Balance December 31, 2001 .................... 634 2,452 272 3,358
Utilization/payments ......................... (476) (1,256) (272) (2,004)
-------- -------- -------- --------
Balance December 31, 2002 .................... $ 158 $ 1,196 $ -- $ 1,354
======== ======== ======== ========
b. Manufacturing Transition
In 2001, we began to transition volume manufacturing away from our Bohemia, New
York facility to lower cost locations, primarily our Reynosa, Mexico facility
and Far East contract manufacturing partners. As a result of these activities,
we incurred restructuring charges of $10,282 and $1,366 in the years ended
December 31, 2001 and 2002, respectively. These charges relate to workforce
reduction and lease termination costs.
The 2001 manufacturing restructuring charge of $10,282, which was recorded as a
component of product cost of revenue, related entirely to lease obligation costs
on our Bohemia facilities. These costs are not associated with the generation of
future revenues and have no future economic benefit.
The 2002 manufacturing restructuring charge of $1,366, of which $1,823 was
recorded as a component of operating expenses and $457 was recorded as a
reduction of cost of revenue, included workforce reduction costs of $4,843 and
the reversal of lease obligation costs of $3,477 resulting from sub-lease
arrangement entered into in 2002. The anticipated sub-lease income under these
agreements was recorded as a reduction of the restructuring charge recorded in
2002. Workforce reduction charges relate to the termination of approximately 350
employees, primarily manufacturing associates. As of December 31, 2002, all of
these employees have been terminated. Details of the manufacturing restructuring
balances are as follows:
WORKFORCE REDUCTIONS LEASE OBLIGATION COSTS TOTAL
-------------------- ---------------------- ---------
Balance December 31, 2000 .................. $ -- $ -- $ --
Provision .................................. -- 10,282 10,282
------- -------- --------
Balance December 31, 2001 .................. -- 10,282 10,282
Additional provision (reduction) ........... 4,843 (3,477) 1,366
Utilization/payments ....................... (4,843) (1,211) (6,054)
------- -------- --------
Balance December 31, 2002 .................. $ -- $ 5,594 $ 5,594
======== ======== ========
c. Supplier Relationships
In December 2001, we recorded a $7,959 impairment charge related to supplier
relationship management computer software we received from i2 Technologies, Inc.
("i2"). At that time, we decided to utilize another vendor for our enterprise
software applications and as such, the supplier relationship software
F-32
program we purchased from i2 had no future use. This impairment charge included
the cost of the software of $4,250, the future software maintenance payments of
$2,465 we were contractually obligated to pay plus the cost of inventory of
$1,244 which we were contractually obligated to provide. The $1,244 was recorded
as a component of product cost of sales, while the remaining $6,715 was recorded
as a component of restructuring and impairment charges in the Consolidated
Statements of Operations.
A summary of the combined restructuring, impairment and related charges
(reductions) incurred in each period are as follows:
YEAR ENDED DECEMBER 31,
-----------------------------------------------
2002 2001 2000
--------- -------- ---------
Product cost of revenue (Telxon) ............................... $ - $ 2,543 $ 2,794
Product cost of revenue (Manufacturing) ........................ (3,477) 10,282 -
Product cost of revenue (Manufacturing) ........................ 3,020 - -
Product cost of revenue (Suppliers) ............................ - 1,244 -
Product cost of revenue (Reynosa Manufacturing Plant -
Note 5)........................................................ - 4,636 -
-------- -------- --------
Total product cost of revenue................................... $ (457) $ 18,705 $ 2,794
======== ======== ========
Merger integration charges ..................................... $ - $ 9,238 $ 6,785
======== ======== ========
i2 impairment................................................... $ - $ 6,715 $ -
Workforce reductions............................................ 1,823 2,897 2,593
Other .......................................................... 767 606 2,168
-------- -------- --------
Restructuring and impairment charges............................ $ 2,590 $ 10,218 $ 4,761
======== ======== ========
13. CONVERTIBLE SUBORDINATED NOTES AND DEBENTURES
At the time of our Telxon acquisition, Telxon had outstanding $82,500 of 5.75
percent convertible subordinated notes (the "5.75 percent notes"), and $24,413
of 7.5 percent convertible subordinated debentures (the "7.5 percent
debentures").
During the year ended December 31, 2001, we purchased in the open market $21,861
of Telxon's 5.75 percent notes for $20,665. Borrowings from our line of credit
were used to finance the repurchase. During the year ended December 31, 2002, we
purchased the remaining $60,639 of the 5.75 percent convertible notes and the
remaining $24,413 of the 7.5 percent notes for $60,188 and $24,244,
respectively. We obtained such funds from borrowings under our line of credit.
In accordance with SFAS No. 145 (see Note 1(t)), the gain on extinguishment of
this debt has been included in other income in the Consolidated Statements of
Operations.
14. LONG-TERM DEBT
DECEMBER 31, 2002 DECEMBER 31, 2001
----------------- -----------------
Revolving credit facility (a)...................... $ 80,000 $125,439
Senior notes (b)................................... 6,349 12,698
SAILS exchangeable debt (c) ....................... 55,194 88,559
Other (d) ......................................... 752 373
142,295 227,069
-------- --------
Less: Current maturities........................... 6,681 6,548
-------- --------
$135,614 $220,521
======== ========
F-33
(a) We had a $350,000 unsecured revolving credit facility with a syndicate of
U.S. and international banks. These borrowings bear interest at either LIBOR
plus 100 basis points (which approximated 2.4 percent and 3.1 percent at
December 31, 2002 and 2001, respectively), or the base rate of the syndication
agent bank, contingent upon various stipulations by the lender, which
approximated 4.25 percent and 4.75 percent at December 31, 2002 and 2001,
respectively. Since the proceeds under the Credit Agreement were committed until
2004, we have classified these borrowings as long-term obligations. As of
December 31, 2002, we had outstanding borrowings of $80,000 under this facility.
This Credit Agreement had certain restrictive covenants. Certain of the
covenants were waived in order to complete the Telxon acquisition and such
related transactions. As a result of the impact of the restatement (see Note 2),
we incurred additional borrowing costs based on recalculated financial tests
under our revolving credit facility for the years 1999 through 2002, which have
been reflected as interest expense in the appropriate periods.
As a result of the length of time necessary to restate our financial statements
(see Note 2) beginning on September 16, 2003, we would have been in violation of
one of the covenants of our Credit Agreement that requires the timely filing of
financial statements with the SEC. On September 15, 2003, we reached an
agreement with the bank group and obtained a waiver to provide us additional
time to become current with our periodic filings with the SEC. Under the revised
Credit Agreement, the credit facility was reduced from $350,000 to $100,000 and
we voluntarily agreed to limit our usage of the credit facility to $50,000 until
such time as we became current with our periodic filings. In addition, we
pledged our U.S. trade receivables and agreed to retain $75,000 of unencumbered,
worldwide cash until that time. In November 2003, this credit facility was
replaced with a $30,000 secured credit line which expires in May 2006.
(b) In March 1993, we issued $25,000 of 7.76 percent Series A Senior Notes due
February 15, 2003 and $25,000 of 7.76 percent Series B Senior Notes due February
15, 2003 to two insurance companies. The Series A Senior Notes are being repaid
in equal annual installments of $2,778 which began in February 1995. The Series
B Senior Notes are being repaid in equal annual principal installments of $3,571
which began in February 1997. Interest is payable quarterly for these notes. The
remaining balance of the Senior Notes of $6,349 as of December 31, 2002 was
fully repaid in February 2003.
(c) In January 2001, we entered into a private Mandatorily Exchangeable
Securities Contract for Shared Appreciation Income Linked Securities ("SAILS")
with a highly rated financial institution. The securities that underlie the
SAILS contract represent our investment in Cisco common stock, which was
acquired in connection with the Telxon acquisition (see Note 6). This debt has a
seven-year maturity and bears interest at a cash coupon rate of 3.625 percent.
At maturity, the SAILS are exchangeable for shares of Cisco common stock or, at
our option, cash in lieu of shares. Net proceeds from the issuance of the SAILS
and termination of an existing freestanding collar arrangement were
approximately $262,246 which were used for general corporate purposes, including
the repayment of debt outstanding under our revolving credit facility. The SAILS
contain an embedded equity collar, which effectively manages a large portion of
our exposure to fluctuations in the fair value of our holdings in Cisco common
stock. We account for the embedded equity collar as a derivative financial
instrument in accordance with the requirements of SFAS 133. The change in fair
value of this derivative between reporting dates is recognized as other income.
The derivative has been combined with the debt instrument in long-term debt as
there is a legal right of offset and is in accordance with FASB Interpretation
No. 39, "Offsetting of Amounts Related to Certain Contracts." The SAILS
liability, net of the derivative asset, represents $55,194 of the total
long-term debt balance outstanding at December 31, 2002. We have the option to
terminate the SAILS arrangement prior to its scheduled maturity. If we terminate
the SAILS arrangement prior to its scheduled maturity by delivering our Cisco
common stock our cash payment would not exceed the present value of our future
coupon payments at the time of termination. At the present time, we do not
anticipate terminating the SAILS arrangement prior to its scheduled maturity
date.
F-34
(d) We have available $55,000 in uncommitted U.S. dollar and foreign currency
lines of credit with several global banks with a range of borrowing rates and
varying terms that continue until such time as either party wishes to terminate
the agreements. As of December 31, 2002, there were no outstanding borrowings
under this agreement. The remaining balances in other long-term debt of $752 and
$373 at December 31, 2002 and 2001, respectively, represent capital lease
obligations and various other loans maturing through 2007.
Based on the borrowing rates currently available to us for bank loans with
similar terms, the fair values of borrowings under the Credit Agreement, senior
notes and promissory notes, approximate their carrying values, excluding the
embedded derivative as described above.
Our capital lease obligations are included in long-term debt in the Consolidated
Balance Sheets. The combined aggregate amount of long-term debt and capital
lease maturities for each of the years ending December 31 are as follows:
2003......................... $ 6,681
2004......................... 80,262
2005......................... 97
2006......................... 33
2007......................... 28
Thereafter................... 55,194
--------
Total.................... $142,295
========
15. INCOME TAXES
The (benefit from)/provision for income taxes consists of:
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
2002 2001 2000
----------- ------------ -----------
CURRENT:
- -------
Federal............................... $ - $ (21,476) $ 39,721
State and local....................... - - 7,871
Foreign............................... 6,149 3,320 5,303
----------- ------------ -----------
6,149 (18,156) 52,895
----------- ------------ -----------
DEFERRED:
- --------
Federal............................... (30,327) 12,008 (89,092)
State and local....................... (3,961) 7,028 (16,416)
Foreign............................... 3,274 7,895 (989)
----------- ------------ -----------
(31,014) 26,931 (106,497)
----------- ------------ -----------
Total (benefit from)/provision for income
taxes............................... $ (24,865) $ 8,775 $ (53,602)
=========== ============ ===========
F-35
A reconciliation between the statutory U.S. Federal income tax rate and our
effective tax rate is as follows:
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
2002 2001 2000
----------------------- ----------------------- -------------------------
AMOUNT % OF PRETAX AMOUNT % OF PRETAX AMOUNT % OF PRETAX
-------- --------- -------- ----------- ---------- ------------
Statutory U.S. Federal rate
(benefit)/provision............. $(28,924) (35.0)% $ 1,638 35.0% $ (66,944) (35.0)%
State taxes, net of federal tax
effect.......................... (2,574) (3.1) 4,568 97.6 (5,560) (2.9)
Tax credits......................... (4,491) (5.4) (5,242) (111.9) (14,133) (7.4)
Amortization of goodwill............ - - 4,350 92.9 1,285 0.7
Write-off of IP R&D................. - - - - 30,660 16.1
Exempt income of foreign sales
corporation..................... - - - - (1,668) (0.9)
Income of foreign subsidiaries
taxed at higher tax rates....... 1,064 1.3 137 3.0 3,072 1.6
Change in valuation allowance....... 6,166 7.4 1,776 38.0 - -
Non-deductible compensation......... 2,895 3.5 - - - -
Executive life insurance............ 249 0.3 424 9.0 559 0.3
Other non-deductible items.......... 580 0.7 1,202 25.6 - -
Other, net.......................... 170 0.2 (78) (1.7) (873) (0.5)
-------- ----- -------- ----- ---------- -----
$(24,865) (30.1)% $ 8,775 187.5% $ (53,602) (28.0)%
======== ===== ======== ===== ========== =====
Our effective tax rate will change from year to year based on recurring factors
including the geographical mix of income before taxes, the timing and amount of
foreign dividends, state and local taxes, the ratio of permanent items to pretax
book income and the implementation of various global tax strategies, as well as
nonrecurring events.
Net tax benefits of $8,600 in 2002, $13,521 in 2001 and $11,520 in 2000 were
recorded directly through equity which included net tax benefits related to
currency translations, unrealized losses on available for sale securities and
certain employee benefit plans.
F-36
The components of our deferred tax assets and liabilities at December 31, 2002
and 2001, are as follows:
AT DECEMBER 31
-----------------------------------
2002 2001
------------ -----------
DEFERRED TAX ASSETS:
Receivables........................................................ $ 36,989 $ 34,855
Inventory.......................................................... 69,331 93,573
Accrued compensation and associate benefits........................ 22,738 55,897
Other accrued liabilities.......................................... 55,047 18,306
Accrued restructuring and severance costs.......................... 2,345 -
Deferred revenue - current......................................... 15,821 41,554
Deferred revenue - long term....................................... 20,257 608
Purchased technology and other intangibles......................... 28,762 16,515
Property, plant and equipment...................................... - 1,053
Cumulative translation adjustments................................. 12,256 15,889
Net operating loss carryforwards................................... 144,714 133,148
Tax credit carryforwards........................................... 79,265 41,515
Charitable contribution carryforwards.............................. 1,367 523
Other, net......................................................... 7,984 12,488
------------ -----------
Total deferred tax assets.......................................... 496,876 465,924
Valuation allowance................................................ (31,436) (8,098)
------------ -----------
Net deferred tax assets............................................ 465,440 457,826
------------ -----------
DEFERRED TAX LIABILITIES:
Investments........................................................ (45,259) (53,066)
Net investment in sales - type leases.............................. (7,825) (10,156)
Accrued restructuring and severance costs.......................... - (5,283)
Deferred patent and product development costs...................... (21,971) (22,490)
Property, plant and equipment...................................... (421) -
------------ -----------
Total deferred tax liabilities..................................... (75,476) (90,995)
------------ -----------
Net deferred income tax assets..................................... $ 389,964 $ 366,831
============ ===========
Amounts recognized as deferred tax assets in the Consolidated Balance Sheets
consists of:
AT DECEMBER 31
------------------------------------
2002 2001
------------ ------------
Current............................................................ $ 167,364 $ 288,402
Non-current........................................................ 222,600 78,429
------------ -----------
Total.............................................................. $ 389,964 $ 366,831
============ ===========
We had available federal and state and local net operating loss carryforwards of
approximately $1,066,245 at December 31, 2002. Such loss carryforwards expire in
accordance with provisions of applicable tax law and have remaining lives
ranging from one to 20 years. Certain loss carryforwards are likely to expire
unused.
We also had available federal and state credit carryforwards of approximately
$83,142 at December 31, 2002. Such credits have expiration dates ranging from
one to 20 years, and $20,930 of these credits have no expiration date.
The valuation allowance increased by $23,338 and $1,140 during 2002 and 2001,
respectively. The increase in 2002 relates mainly to limitations of federal net
operating loss carryforwards of acquisitions, foreign tax credits and state and
local loss carryforwards that are more likely than not going to expire before we
can use them. The increases in 2001 relate to net operating loss carryforwards
acquired as part
F-37
of the Telxon acquisition. Subsequent recognition of a substantial portion of
the deferred tax asset relating to such net operating loss carryforwards against
which a valuation allowance has been recorded would result in a reduction of
goodwill recorded in connection with the Telxon and @POS acquisitions.
16. COMMITMENTS AND CONTINGENCIES
a. Lease Agreements
The combined aggregate amount of required future minimum rental payments under
non-cancelable capital and operating leases for each of the years ending
December 31 are as follows:
CAPITAL LEASES OPERATING LEASES
-------------- ----------------
2003................................................ $350 $ 19,020
2004................................................ 246 15,970
2005 ............................................... 69 14,344
2006................................................ - 13,075
2007................................................ - 11,395
Thereafter.......................................... - 34,194
---- --------
Total minimum payments.............................. 665 $107,998
========
Less amounts representing interest.................. 63
----
Present value of future lease payments.............. 602
Less current portion................................ 307
----
Long-term capital lease obligation.................. $295
====
Rent expense under operating leases was $17,103, $16,263 and $13,198 for the
years ended December 31, 2002, 2001 and 2000, respectively.
b. Employment Contracts
We have executed employment contracts with certain senior executives that vary
in length, for which we have a minimum commitment aggregating approximately
$12,064 at December 31, 2002. In February 2002, our former President and Chief
Executive Officer announced his retirement. In connection therewith, we recorded
a pre-tax compensation and related benefits charge of $8,597 in 2002 which is
included in selling, general and administrative expenses in the Consolidated
Statements of Operations.
c. Letters of Credit and Purchase Commitments
At December 31, 2002, we had outstanding letters of credit of $1,179. As of
December 31, 2002, we have included in our accrued liabilities $2,227 for
purchase commitments for which a loss was recognized.
F-38
d. Legal Matters
We are a party to lawsuits in the normal course of business. Litigation in the
normal course of business, as well as the lawsuits and investigations described
below, can be expensive, lengthy and disruptive to normal business operations.
Moreover, the results of complex legal proceedings and government investigations
are difficult to predict. Unless otherwise specified, Symbol is currently unable
to estimate, with reasonable certainty, the possible loss, or range of loss, if
any, for the lawsuits and investigations described herein. An unfavorable
resolution to any of the lawsuits or investigations described below could have a
material adverse effect on Symbol's business, results of operations or financial
condition.
GOVERNMENT INVESTIGATIONS
The Securities and Exchange Commission (the "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 Symbol during the period of January 1, 2000
through December 31, 2001 as well as the accounting for certain reserves,
restructurings, certain option programs and several categories of cost of
revenue and operating expenses. We are cooperating with the Commission, and have
produced hundreds of thousands of documents and numerous witnesses in response
to the Commission's inquiries. Symbol and approximately ten or more former
employees have received so-called "Wells Notices" stating that the Commission
Staff in the Northeast Regional Office is considering recommending to the
Commission that it authorize civil actions against Symbol and the individuals
involved alleging violations of various sections of the federal securities laws
and regulations. Pursuant to an action against Symbol, the Commission may seek
permanent injunctive relief and appropriate monetary relief, including a fine,
from us.
The United States Attorney's Office for the Eastern District of New York (the
"Eastern District") has commenced a related investigation. We are cooperating
with that investigation, and have produced documents and witnesses in response
to the Eastern District's inquiries. The Eastern District could file criminal
charges against Symbol and seek to impose a fine and other appropriate relief
upon us.
At this time, we have not made any reserves for the imposition of potential
fines. However, any criminal and/or civil action or any negotiated resolution
may involve, among other things, injunctive and equitable relief, including
material fines, which could have a material adverse effect on our business,
results of operations and financial condition.
In addition, as a result of the investigations, various governmental entities at
the federal, state and municipal levels may conduct a review of our supply
arrangements with them to determine whether we should be considered for
debarment. If we are debarred, we would be prohibited for a specified period of
time from entering into new supply arrangements with such government entities.
In addition, after a government entity has debarred Symbol, other government
entities are likely to act similarly, subject to applicable law. Governmental
entities constitute an important customer group for Symbol, and debarment from
governmental supply arrangements at a significant level could have an adverse
effect on our business, results of operations and financial condition.
In March 2003, Robert Asti, Symbol's former Vice President--North America Sales
& Services--Finance, who left Symbol in March 2001, pleaded guilty to two counts
of securities fraud in connection with matters that are the subject of the
Eastern District and Commission investigations, as well as our own
investigation. These counts included allegations that Mr. Asti acted together
with other unnamed high-ranking corporate executives at Symbol to, among other
things, manufacture revenue through sham "round-trip" transactions. The
Commission also has filed a civil complaint asserting similar allegations
against Mr. Asti.
In June 2003, Robert Korkuc, Symbol's former Chief Accounting Officer, who left
Symbol in March 2003, pleaded guilty to two counts of securities fraud in
connection with matters that are the subject of the Eastern District and
Commission investigations, as well as our own investigation. These counts
included allegations that Mr. Korkuc acted with others at Symbol in a fraudulent
scheme to inflate various measures of Symbol's financial performance. The
Commission also has filed a civil complaint asserting similar allegations
against Mr. Korkuc.
Symbol is attempting to negotiate a resolution with each of the Commission and
the Eastern District to the mutual satisfaction of the parties involved. In
either case, an agreement has not yet been reached and there is no guarantee
that Symbol will be able to successfully negotiate a resolution.
F-39
SECURITIES LITIGATION MATTERS
Pinkowitz v. Symbol Technologies, Inc., et al.
On March 5, 2002, a purported class action lawsuit was filed, entitled Pinkowitz
v. Symbol Technologies, Inc., et al., in the United States District Court for
the Eastern District of New York on behalf of purchasers of the common stock of
Symbol between October 19, 2000 and February 13, 2002, inclusive, against
Symbol, 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 Symbol's securities. Subsequently, a
number of additional purported class actions containing substantially similar
allegations were also filed against Symbol and certain Symbol officers in the
Eastern District of New York.
On September 27, 2002, a consolidated amended complaint was filed in the United
States District Court for the Eastern District of New York, consolidating the
previously filed purported class actions. The consolidated amended complaint
added Harvey P. Mallement, George Bugliarello and Leo A. Guthart (the current
members of the Audit Committee of Symbol's Board of Directors) and Brian Burke
and Frank Borghese (former employees of Symbol) as additional individual
defendants and broadened the scope of the allegations concerning revenue
recognition. In addition, the consolidated amended complaint extended the
alleged class period to the time between April 26, 2000 and April 18, 2002.
Discovery in the Pinkowitz action has recently commenced. In addition, on
October 15, 2003, plaintiffs moved for class certification of the Pinkowitz
action. Trial of the Pinkowitz action is scheduled to commence on June 8, 2004.
Symbol intends to defend the case vigorously on the merits.
Hoyle v. Symbol Technologies, Inc., et al.
Salerno v. Symbol Technologies, Inc., et al.
On March 21, 2003, a separate purported class action lawsuit was filed, entitled
Edward Hoyle v. Symbol Technologies, Inc., Tomo Razmilovic, Kenneth V. Jaeggi,
Robert W. Korkuc, Jerome Swartz, Harvey P. Mallement, George Bugliarello,
Charles B. Wang, Leo A. Guthart and James H. Simons, in the United States
District Court for the Eastern District of New York. On May 7, 2003, a virtually
identical purported class action lawsuit was filed against the same defendants
by Joseph Salerno.
The Hoyle and Salerno complaints are brought on behalf of a purported class of
former shareholders of Telxon Corporation ("Telxon") who obtained Symbol stock
in exchange for their Telxon stock pursuant to Symbol's acquisition of Telxon
effective as of November 30, 2000. The complaint alleges that the defendants
violated the federal securities laws by issuing a Registration Statement and
Joint Proxy Statement/Prospectus in connection with the Telxon acquisition that
contained materially false and misleading statements that had the effect of
artificially inflating the market price of Symbol's securities.
On October 3, 2003, Symbol and the individual defendants moved to dismiss the
Hoyle action as barred by the applicable statute of limitations. The Court has
not ruled on the motion. Symbol intends to defend the case vigorously on the
merits.
In connection with the above pending class actions, Symbol recorded a charge of
$70,000 in the fourth quarter of 2002.
Bildstein v. Symbol Technologies, Inc., et. al.
On April 29, 2003, a lawsuit was filed, entitled Bildstein v. Symbol
Technologies, Inc., et. al., in the United States District Court for the Eastern
District of New York against Symbol and Jerome Swartz, Harvey P. Mallement,
Raymond R. Martino, George Bugliarello, Charles B. Wang, Tomo Razmilovic, Leo A.
Guthart, James Simons, Saul F. Steinberg and Lowell Freiberg. The plaintiff
alleges that the defendants violated Section 14(a) of the Securities Exchange
Act of 1934 and Rule 14a-9 promulgated
F-40
thereunder, and common and state law, by authorizing the distribution of proxy
statements in 2000, 2001 and 2002. Plaintiff seeks the cancellation of all
affirmative votes at the annual meetings for 2000, 2001 and 2002, canceling all
awards under the option plans, enjoining implementation of the option plans and
any awards thereunder and an accounting by the defendants for all damage to
Symbol, plus all costs and expenses in connection with the action. Symbol has
filed a motion to dismiss that is now fully briefed and pending before the
Court. Symbol intends to defend the case vigorously on the merits.
Gold v. Symbol Technologies, Inc., et al.
On December 18, 2003, a purported class action lawsuit was filed, entitled Gold
v. Symbol Technologies, Inc., et al., in the Court of Chancery of the State of
Delaware against Symbol and Tomo Razmilovic, Kenneth V. Jaeggi, Dr. Jerome
Swartz, Frank Borghese, Brian Burke, Richard M. Feldt, Satya Sharma, Harvey P.
Mallement, Raymond R. Martino, George Bugliarello, Dr. Leo A. Guthart, Dr. James
H. Simons, Leonard H. Goldner, Saul P. Steinberg, Lowell C. Freiberg and Charles
Wang. The complaint alleges that the defendants violated the federal securities
laws by issuing materially false and misleading statements from January 1, 1998
through December 31, 2002 that had the effect of artificially inflating the
market price of Symbol's securities and that they to failed to properly oversee
or implement policies, procedures and rules to ensure compliance with federal
and state laws requiring the dissemination of accurate financial statements,
ultimately caused Symbol to be sued for, and exposed to liability for,
violations of the anti-fraud provisions of the federal securities laws, engaged
in insider trading in Symbol's common stock, wasted corporate assets and
improperly awarded a severance of approximately $13,000 to Mr. Razmilovic.
Plaintiff seeks to recover incentive-based compensation paid to senior members
of Symbol's management in reliance on materially inflated financial statements
and to impose a trust to recover cash and other valuable assets received by the
management defendants and former Symbol board members in the form of proceeds
garnered from the sale of Symbol common stock (including option related sales)
from at least January 1, 1998 through December 31, 2002.
In re Telxon Corporation Securities Litigation
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, consolidated and an amended
complaint was filed by lead counsel. 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.
On November 13, 2003, Telxon and the plaintiff class reached a tentative
settlement of all pending shareholder class actions against Telxon. Under the
settlement, Telxon anticipates that it will pay $37,000 to the class. As a
result of anticipated contributions by Telxon's insurers, Telxon expects that
its net payment will be no more than $25,000. Telxon has not settled its lawsuit
against its former auditors, PricewaterhouseCoopers LLP ("PwC"), and, as part of
the proposed settlement of the class action, Telxon has agreed to pay to the
class, under certain circumstances, up to $3,000 of the proceeds of that
lawsuit.
F-41
The settlement is subject to the negotiation and execution of final settlement
documentation, approval by the board of directors, the agreement of Telxon
insurers and approval by the Court.
Accordingly, we have recorded a $25,000 pre-tax charge in the Consolidated
Statements of Operations for the year ended December 31, 2002 and have reflected
as an accrued liability the estimated settlement of $37,000 and have recorded a
non-current asset for the insurance proceeds of $12,000 which we expect to
receive in the first quarter of 2004.
On February 20, 2001, Telxon filed a motion for leave to file and serve a
summons and third-party complaint against third-party defendant PwC in the
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 and 1998 and its interim
financial statements for its first and second quarters of fiscal year 1999,
which are 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.
Fact discovery has been substantially completed. Trial is scheduled to commence
sometime in 2004.
Wyser-Pratte Management Co. v. Telxon Corporation, et. al.
On June 11, 2002, Wyser-Pratte Management Co., Inc. ("WPMC") filed a complaint
against Telxon and its former top executives alleging violations of Sections
10(b), 18, 14(a) and 20(a) of the Securities and Exchange Act of 1934 (the
"Exchange Act"), and alleging additional common law claims. This action is
related to the same set of facts as the In re Telxon class action described
above. On November 15, 2003, the parties reached an agreement in principle to
resolve the litigation under which Telxon would pay WPMC $3,300. The settlement
is subject to the negotiation and execution of final settlement documentation,
approval by WPMC and the Telxon board of directors, and approval by the Court.
Accordingly, we have recorded a $3,300 pre-tax charge in the Consolidated
Statements of Operations for the year ended December 31, 2002.
PENDING PATENT AND TRADEMARK LITIGATION
Proxim v. Symbol Technologies, Inc., 3 Com Corporation, Wayport Incorporated and
SMC Networks Incorporated
In March 2001, Proxim Incorporated ("Proxim") sued Symbol, 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 (the "Proxim v. 3Com et al. Action"). 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 Symbol sought, among other relief, unspecified damages for
patent infringement, treble damages for willful infringement and a permanent
injunction against Symbol from infringing these three patents.
Symbol answered and filed counterclaims against Proxim, asserting that Proxim's
RF product offerings infringe four of our patents relating to wireless LAN
technology.
On December 4, 2001, we filed a complaint against Proxim in the United States
District Court in the District of Delaware (the "Symbol v. Proxim Action")
asserting infringement of the same four patents that were asserted in our
counterclaim against Proxim in the Proxim v. 3Com et al. Action prior to the
F-42
severance of this counterclaim by the Court. On December 18, 2001, Proxim filed
an answer and counterclaims in the Symbol v. Proxim Action, seeking declaratory
judgments for non-infringement, invalidity and unenforceability of the four
patents asserted by Symbol, injunctive and monetary relief for our alleged
infringement of one additional Proxim patent (the "'634 Patent") involving
wireless LAN technology, monetary relief for our alleged false patent marking,
and injunctive and monetary relief for our alleged unfair competition under the
Lanham Act, common law unfair competition and tortious interference.
On March 17, 2003, Intersil and Proxim announced that a settlement between the
companies had been reached, whereby Proxim agreed, inter alia, to dismiss with
prejudice all of Proxim's claims in the Proxim v. 3Com et al. Action (the
"Proxim/Intersil Agreement"). Proxim also agreed in the Proxim/Intersil
Agreement to release us from past and future liability for alleged infringement
of the '634 Patent in the Symbol v. Proxim Action, with respect to any of our
products that incorporate Intersil's wireless radio chipsets. On April 5, 2003,
the Court signed that Stipulation and Order of Dismissal, dismissing all of
Proxim's claims in that action with prejudice. On July 30, 2003, among other
rulings, the Court dismissed Proxim's unfair competition claim.
Trial on the Symbol patents began on September 8, 2003. On September 12, 2003,
the jury returned a verdict finding that two of the three asserted patents (the
'183 and '441 Patents) had been infringed by Proxim. Proxim dropped its claims
of invalidity as to all three Symbol patents, and consented to judgment against
Proxim on those invalidity claims. The jury awarded us 6% royalties on Proxim's
past sales of infringing products, which include Proxim's OpenAir, 802.11 and
802.11b products. Based on Proxim's sales of infringing products from 1995 to
the present, we estimate that damages for past infringement by Proxim amount to
approximately $23,000, before interest. In addition, Proxim continues to sell
the infringing products, and we expect that future sales would be subject to a
6% royalty as well. A one day bench trial on Proxim's remaining equitable
defenses took place on November 24, 2003. The Court has not ruled on these
defenses.
Trial on the Proxim patent began on September 15, 2003. On September 29, 2003,
the jury returned a verdict, finding the patent valid but not infringed by
Symbol.
Symbol Technologies, Inc. v. Hand Held Products, Inc. and HHP-NC, Inc.
On January 21, 2003, we filed a complaint against Hand Held Products, Inc. and
HHP-NC, Inc. (collectively, "HHP") for patent infringement and declaratory
judgment. We alleged that HHP infringes 12 of our patents, that 36 of HHP's
patents are not infringed by us, that the HHP patents are otherwise invalid or
unenforceable, and that the court has jurisdiction to hear the declaratory
judgment action. We requested that the court enjoin HHP from further
infringement, declare that our products do not infringe HHP's patents, and award
us costs and damages.
On March 12, 2003, HHP filed a Motion to Dismiss, which was denied on November
14, 2003. With respect to our claim for a declaratory judgment that 36 of HHP's
patents are not infringed by us, or that they are otherwise invalid or
unenforceable, the Court denied HHP's motion to dismiss with respect to 10 of
the patents, granted HHP's motion to dismiss with respect to 25 of the patents
based on lack of subject matter jurisdiction, and granted HHP's motion to
dismiss as to one HHP patent based on HHP's representation to the Court that the
patent had been dedicated to the public and that HHP would not assert it against
us. Pursuant to a stipulation between the parties, we have dismissed without
prejudice our claim that HHP infringes 5 of the 12 Symbol patents and our action
seeking a declaratory judgment with respect to the 10 HHP patents that remained
in the case. We expect discovery to commence in 2004.
Symbol Technologies, Inc. v. Metrologic Instruments, Inc.
Symbol and Metrologic Instruments, Inc. ("Metrologic") entered into a
cross-licensing agreement executed on December 16, 1996 and effective as of
January 1, 1996 (the "Metrologic Agreement").
F-43
On April 12, 2002, we filed a complaint in the United States District Court in
the Eastern District of New York against Metrologic, alleging a material breach
of the Metrologic Agreement. We moved for summary judgment seeking a ruling on
the issues, inter alia, that Metrologic had breached the Metrologic Agreement
and that we had the right to terminate Metrologic's rights under the Metrologic
Agreement. The Court denied the summary judgment motion on March 31, 2003, and
held that the issues were subject to resolution by arbitration. We have appealed
the Court's decision. On December 23, 2003, the Court of Appeals dismissed the
appeal for lack of appellate jurisdiction because the District Court judgment
was not final. We may seek reconsideration of the Court of Appeals decision.
In the interim, we are proceeding with the arbitration. Metrologic had filed a
Demand for Arbitration in 2002 that was stayed pending the decisions by the
Court. On June 26, 2003, we filed an Amended Answer and Counterclaims to
Metrologic's Demand for Arbitration, asserting that (a) Metrologic's accused
products are royalty bearing products, as defined under the Metrologic
Agreement, and (b) in the alternative, those products infringe upon one or more
of our patents. Metrologic replied to our counterclaims on July 31, 2003,
denying infringement and asserting that the arbitrator was without jurisdiction
to hear our counterclaims. Pursuant to the decision made by the arbitration
panel, an arbitrator is now in place to hear the arbitration. On December 22,
2003, Metrologic withdrew its Demand for Arbitration; however, our counterclaims
are still being heard.
In a separate matter relating to the Metrologic Agreement, we filed a demand for
an arbitration against Metrologic seeking a determination that certain of our
new bar code scanning products are not covered by Metrologic patents licensed to
us under the Metrologic Agreement. We do not believe that the products infringe
any Metrologic patents, but in the event there were a ruling to the contrary,
our liability would be limited to the previously negotiated royalty rate. On
June 6, 2003, the arbitrator ruled that whether we must pay royalties depends on
whether our products are covered by one or more claims of Metrologic's patents,
and that this issue must be litigated in court, not by arbitration. The
arbitrator further ruled that we could not have materially breached the
Metrologic Agreement, since the threshold infringement issue has not yet been
determined. On June 19, 2003, after the arbitrator ruled that Metrologic's
infringement allegations must be adjudicated in court, Metrologic filed a
complaint against us in the District Court for the District of New Jersey,
alleging patent infringement and breach of contract, and seeking monetary
damages and termination of the Metrologic Agreement. On July 30, 2003, Symbol
answered the complaint and asserted counterclaims for declaratory judgments of
invalidity and noninfringement of Metrologic's patents and for non-breach of the
Agreement. Discovery is proceeding. Symbol intends to defend the case vigorously
on the merits.
Symbol Technologies, Inc. et. al. v. Lemelson Medical, Educational & Research
Foundation, Limited Partnership
On July 21, 1999, we and six other members of the Automatic Identification and
Data Capture industry ("Auto ID Companies") jointly initiated a lawsuit 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 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. Symbol
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 Symbol and the
other Auto ID Companies, individually and/or collectively with other equipment
suppliers. Symbol believes, and its understanding is that 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.
F-44
A 27-day non-jury trial was held before the Court beginning on November 18,
2002, and concluding on January 17, 2003. Post-trial briefing was completed in
late June 2003 and the parties are awaiting a decision to be rendered by the
Court.
OTHER LITIGATION
Telxon v. Smart Media of Delaware, Inc. ("SMI")
On December 1, 1998, Telxon filed suit against SMI in the Court of Common Pleas
for Summit County, Ohio in a case seeking declaratory judgment that, contrary to
SMI's position, Telxon did not contract to develop SMI's products or to fund
SMI, and that it did not fraudulently induce SMI to refrain from engaging in
business with others or interfere with SMI's business relations. On March 12,
1999, SMI filed its Answer and Counterclaim denying Telxon's allegations and
alleging claims against Telxon for negligent misrepresentation, estoppel,
tortious interference with business relationship and intentional
misrepresentation and seeking approximately $10,000 in compensatory damages,
punitive damages, fees and costs.
On September 17, 2003, a jury awarded approximately $218,000 in damages against
Telxon. This sum included an award of approximately $6,000 to an individual. On
September 24, 2003, the individual and SMI moved to add Symbol as a substitute
or counterclaim defendant. That motion has subsequently been withdrawn by SMI
although it is still being pursued by the individual. The motion has been fully
briefed and Symbol is awaiting a decision. There can be no assurance that SMI
will not renew this motion at a later date. On October 7, 2003, Telxon made a
motion to impound and secure the trial record of certain exhibits, and on
October 8, 2003, Telxon made motions for judgment in its favor notwithstanding
the jury's verdicts, and for a new trial. In the event this relief is not
granted, Telxon requested that the amount of the jury's verdicts be reduced.
Also, Telxon requested that the execution of any judgment against Telxon entered
by the Court be stayed without the posting of a bond, or in the alternative,
that a bond be set at a maximum of $3,700. In support of its motions, Telxon
argued that the jury's verdicts were based upon inadmissible evidence being
improperly provided to the jury during its deliberations; that the absence of
liability on the part of Telxon was conclusively established by the documents in
evidence; and that the amounts awarded to SMI were based on legally irrelevant
projections, and are wildly speculative, particularly given that SMI never had
any revenue or profits. In addition, Telxon argued that the jury verdicts
incorrectly awarded damages more than once for the same alleged injury by adding
together two separate awards for lost profits, and by improperly combining
different measures of damages. The court has not ruled on any post-trial
motions.
There can be no assurance that Symbol will not be found to be ultimately liable
for the damage awards.
Barcode Systems, Inc. ("BSI") v. Symbol Technologies Canada, Inc., et al.
On March 19, 2003, BSI filed an amended statement of claim in the Court of
Queen's Bench in Winnipeg, Canada, naming Symbol Technologies Canada, Inc. and
Symbol as defendants. BSI alleges that Symbol deliberately, maliciously and
willfully breached its agreement with BSI under which BSI purported to have the
right to sell Symbol product in western Canada and to supply Symbol's support
operations for western Canada. BSI has claimed damages in an unspecified amount,
punitive damages and special damages.
Symbol denies BSI's allegations and claims that it properly terminated any
agreements between BSI and Symbol. Additionally, Symbol filed a counterclaim
against BSI alleging trademark infringement, depreciation of the value of the
goodwill attached to Symbol's trademark and damages in the sum of Canadian
$1,281, representing the unpaid balance of product sold by Symbol to BSI.
On October 30, 2003, BSI filed an Application For Leave with the Canadian
Competition Tribunal ("Tribunal"). BSI is seeking an Order from the Tribunal
that would require Symbol to accept BSI as a
F-45
customer on the "usual trade terms" as they existed prior to the termination of
their agreement in April 2003. The Tribunal has not yet granted leave for BSI to
proceed with its claim against Symbol.
On November 17, 2003, BSI filed an additional lawsuit in British Columbia,
Canada against Symbol and a number of its distributors alleging that Symbol
refused to sell products to BSI, conspired with the other defendants to do the
same and used confidential information to interfere with BSI's business. Symbol
considers these claims to be meritless and intends to defend against these
claims vigorously.
Lic. Olegario Cavazos Cantu, on behalf of Maria Leonor Cepeda Zapata vs. Symbol
de Mexico, Sociedad de R.L. de C.V.
Lic. Olegario Cavazos Cantu, on behalf of Maria Leonor Cepeda Zapata
("Plaintiff"), filed a lawsuit against Symbol de Mexico, Sociedad de R.L. de
C.V. ("Symbol Mexico") on or about October 21, 2003 for purposes of exercising
an action to reclaim property on which Symbol's Reynosa facility is located.
Such lawsuit was filed before the First Civil Judge of First Instance, 5th
Judicial District, in Reynosa, Tamaulipas, Mexico. Additionally, the First Civil
Judge ordered the recording of a lis pendens with respect to this litigation
before the Public Register of Property in Cd. Victoria, Tamaulipas. As of
November 13, 2003, such lis pendens was still pending recordation.
Plaintiff alleges that she is the legal owner of a tract of land of one hundred
(100) hectares in area, located within the area comprising the Rancho La
Alameda, Municipality of Reynosa, Tamaulipas, within the Bajo Rio San Juan,
Tamaulipas, irrigation district. Allegedly, such land was caused to be part of
the Parque Industrial Del Norte in Reynosa, Tamaulipas. Plaintiff further
alleges that Symbol Mexico, without any claim of right and without Plaintiff's
consent entered upon the tract of land, occupied such, and refused to return to
Plaintiff the portion of land and all improvements and accessions thereto
occupied by Symbol Mexico. Plaintiff is asking the court to order Symbol Mexico
to physically and legally deliver to the Plaintiff the portion of land occupied
by Symbol Mexico.
Symbol Mexico acquired title to the lots in the Parque Industrial Reynosa from
Edificadora Jarachina, S.A. de C.V. pursuant to a deed instrument. An Owner's
Policy of Title Insurance was issued by Stewart Title Guaranty Company in
connection with the above-mentioned transaction in the amount of $13,400. A
Notice of Claim and Request for Defense of Litigation was duly delivered on
behalf of Symbol to Stewart Title Guaranty Company on November 4, 2003. Symbol
intends to defend against this claim vigorously.
17. STOCKHOLDERS' EQUITY
On February 26, 2001, our Board of Directors declared a three-for-two stock
split effective April 16, 2001 to shareholders of record on March 26, 2001. On
February 14, 2000, our Board of Directors declared a three-for-two stock split
effective April 5, 2000 to shareholders of record on March 13, 2000. All share
and per share data for all periods presented have been restated to reflect the
stock splits.
F-46
a. Stock Option Plan
There are a total of 50,779,812 shares of common stock reserved for issuance
under our stock option plans at December 31, 2002. Stock options granted to date
generally vest over a one-to-five year period, expire after 10 years and have
exercise prices equal to the market value of our common stock at the date of
grant. A summary of changes in the stock option plans is as follows:
SHARES UNDER OPTION
WEIGHTED
OPTION PRICE SHARES AVERAGE
PER SHARE (IN THOUSANDS) EXERCISE PRICE
----------------- -------------- --------------
Shares under option at January 1, 2000............... $ 1.19 to $25.22 37,681 $ 8.15
Granted.............................................. $20.75 to $41.22 4,155 $31.59
Granted to replace Telxon options.................... $10.63 to $39.50 2,610 $17.99
Exercised............................................ $ 1.45 to $14.67 (5,022) $ 5.34
Cancelled............................................ $ 3.46 to $35.83 (983) $16.02
Shares under option at December 31, 2000............. $ 1.19 to $41.22 38,441 $11.57
Granted.............................................. $12.55 to $27.97 5,436 $26.93
Exercised............................................ $ 1.19 to $33.75 (6,022) $ 6.42
Cancelled............................................ $ 1.45 to $39.50 (1,548) $20.72
Shares under option at December 31, 2001............. $ 1.58 to $41.22 36,307 $14.33
Granted.............................................. $ 7.40 to $ 9.62 8,674 $ 8.69
Exercised............................................ $ 1.58 to $11.02 (3,150) $ 6.06
Cancelled............................................ $ 2.44 to $37.11 (3,655) $23.82
------ -------
Shares under option at December 31, 2002............. $ 1.58 to $41.22 38,176 $12.82
====== ======
Shares exercisable at December 31, 2002.............. $ 1.58 to $41.22 21,249 $10.23
====== ======
Shares exercisable at December 31, 2001.............. $ 1.58 to $33.75 20,516 $ 8.31
====== ======
Shares exercisable at December 31, 2000.............. $ 1.19 to $39.50 20,539 $ 7.03
====== ======
The following table summarizes information concerning outstanding and
exercisable options as of December 31, 2002:
NUMBER REMAINING NUMBER
OUTSTANDING (IN LIFE WEIGHTED AVERAGE EXERCISABLE WEIGHTED AVERAGE
RANGE OF EXERCISE PRICES THOUSANDS) (YEARS) EXERCISE PRICE (IN THOUSANDS) EXERCISE PRICE
- ------------------------ ---------------- ---------- ---------------- ------------- -----------------
$ 1.58 - $ 2.37 113 0.3 $ 1.72 113 $ 1.72
$ 2.38 - $ 3.55 1,533 1.9 $ 3.35 1,533 $ 3.35
$ 3.56 - $ 5.33 3,103 2.8 $ 4.63 3,103 $ 4.63
$ 5.34 - $ 8.00 9,603 4.4 $ 6.73 8,623 $ 6.67
$ 8.01 - $12.00 9,927 8.6 $ 8.90 1,595 $ 9.48
$12.01 - $18.00 6,604 5.8 $16.07 4,174 $15.79
$18.01 - $27.00 1,703 6.5 $24.86 930 $24.14
$27.01 - $40.50 5,532 7.5 $30.02 1,163 $31.07
$40.51 - $41.22 58 7.1 $41.22 15 $41.22
------ ------
38,176 21,249
====== ======
F-47
At December 31, 2002, an aggregate of 12,603 shares remain available for grant
under the stock option plans. The tax benefits arising from stock option
exercises during the years ended December 31, 2002, 2001, and 2000 in the amount
of $139, $20,454, and $21,446, respectively, were recorded in stockholders'
equity as additional paid-in capital.
As an accommodation to certain stock option plan participants (including certain
officers and directors), an informal practice began in or around the early
1990's, whereby certain officers and directors were afforded a look-back period
(no more than 30 days) for purposes of determining the market price to be used
in connection with the specific exercise. In addition, these individuals were
given an extended period of time in which to pay for their option exercises.
These practices were contrary to the terms of the relevant option plans.
As this practice allowed certain participants to choose exercise dates outside
of the approved plan terms and also allowed these participants to extend the
period of time in which to pay for their option exercise, the price of the
option at grant date was not fixed and determinable. Accordingly, in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," our financial statements reflect as compensation expense the change
in market price of the common stock underlying these options granted to plan
participants that could have participated in this practice from the date of
grant until the options either expired or were exercised.
Effective July 30, 2002, this practice of options exercise ended resulting in
ceasing the accounting for such options under variable plan accounting.
F-48
b. Outside Directors' Options and Stock Purchase Warrants
All options and stock purchase warrants issued to outside directors vest over a
one-to-four year period, expire after 10 years and have exercise prices equal to
the market value of our common stock at the date of grant. A summary of changes
in the outside directors' options and stock purchase warrants is as follows:
NUMBER OF SHARES (IN WEIGHTED AVERAGE
OPTION PRICE PER SHARE THOUSANDS) EXERCISE PRICE
---------------------- -------------------- --------------
Shares under option
at January 1, 2000.................. $ 3.33 to $25.22 828 $ 9.13
Granted......................... $32.00 to $35.83 750 $35.45
Exercised....................... $ 3.33 to $15.80 (145) $ 7.91
Cancelled....................... $ 7.37 to $35.83 (335) $27.99
Shares under option
at December 31, 2000 ............... $ 3.33 to $35.83 1,098 $21.52
Granted......................... - - - -
Exercised....................... - - - -
Cancelled....................... - - - -
Shares under option
at December 31, 2001 ............... $ 3.33 to $35.83 1,098 $21.52
Granted......................... $ 8.17 100 $ 8.17
Exercised....................... $ 3.33 to $ 7.37 (177) $ 5.16
Cancelled....................... $ 9.83 to $35.83 (163) $29.31
Shares under option
at December 31, 2002 ............... $ 3.33 to $35.83 858 $21.87
======== ========
Shares exercisable
at December 31, 2002 ............... $ 3.33 to $35.83 534 $19.50
======== ========
Shares exercisable
at December 31, 2001 ............... $ 3.33 to $35.83 615 $14.06
======== ========
Shares exercisable
at December 31, 2000................ $ 3.33 to $25.22 397 $ 7.21
======== ========
F-49
The following table indicates the number of common shares issuable upon exercise
and the exercise price per share of all outstanding outside directors' options
and stock purchase warrants as of December 31, 2002:
NUMBER OF SHARES ISSUABLE SHARES EXERCISABLE AT
UPON EXERCISE DECEMBER 31, 2002
EXERCISABLE TO (IN THOUSANDS) EXERCISE PRICE PER SHARE (IN THOUSANDS)
-------------- -------------------------- ------------------------ ---------------------
2004 19 $ 3.33 19
2005 38 $ 4.43 38
2006 38 $ 6.19 38
2007 25 $ 6.52 25
2008 118 $ 7.37 to $ 9.83 118
2009 107 $15.80 to $25.22 90
2010 413 $32.00 to $35.83 206
2012 100 $ 8.17 -
--- ---
858 534
=== ===
c. Employee Stock Purchase Plan
Under our employee stock purchase plan, participants may purchase shares of
stock for an amount equal to 85 percent of the lesser of the closing price of a
share of stock on the first trading day of the period or the last trading day of
the period.
The stock sold to plan participants shall be authorized but unissued common
stock, treasury shares or shares purchased in the open market. The aggregate
number of shares which may be issued pursuant to the plan is 4,898.4. As of
December 31, 2002, 2,116.7 shares were issued to participants and subsequent to
December 31, 2002, 360.1 shares were issued to participants, all of which were
purchased in the open market.
d. Stockholder Rights Plan
In August 2001, our Board of Directors adopted a stockholder rights plan. In
connection with the adoption of the rights plan, the Board designated and
reserved 500 shares of Series A Junior Participating preferred stock and has
declared a dividend of one preferred stock purchase right (the "rights") for
each share of our common stock outstanding on September 14, 2001. The rights
will continue to be represented by, and trade with, our common stock
certificates unless the rights become exercisable. The rights become exercisable
(with certain exceptions) only in the event that any person or group acquires
beneficial ownership of, or announces a tender or exchange offer for, 15 percent
or more of the outstanding shares of our common stock. The rights will expire on
August 13, 2011, unless earlier redeemed, exchanged or terminated in accordance
with the rights plan.
e. Treasury Stock
Treasury stock is comprised of 20,676 shares purchased in open market
transactions pursuant to programs authorized by the Board of Directors for a
total cost of $146,127. Approximately 450 of these shares were purchased during
the year ended December 31, 2002 for a cost of $3,631.
Additionally, in accordance with the provisions in our stock option plans,
executive officers are permitted to tender shares to us (with certain
restrictions) to pay option prices and taxes in connection with stock option
exercises. Treasury stock is comprised of 12,945 shares of common stock for a
total cost of $150,091 related to this program. During the year ended December
31, 2002, executive officers exercised options for the purchase of 1,745 shares
of common stock for which approximately 1,084 shares were
F-50
tendered to us in satisfaction of $16,436 of the exercise price. The surrender
of these shares to us by executive officers resulted in such officers acquiring
approximately 661 additional shares of common stock pursuant to the
aforementioned exercises.
Additionally, in connection with our employee stock purchase plan ("ESPP"), we
periodically purchase shares in the open market to be re-issued to participants
in the plan. Until such time as these shares are issued, they are accounted for
as treasury stock. At December 31, 2002, treasury stock included approximately
270 shares of common stock for a total cost of $2,113 that were acquired for
reissuance in connection with the ESPP.
During the year ended December 31, 2000, 7,529 shares of treasury shares with a
book value of $57,776 were reissued in two private placement offerings for
proceeds of $200,587.
In addition, in 2002, we re-issued 400 shares of treasury stock with a cost of
$3,656 to our new President and Chief Operating Officer. Such shares had a
market value of $2,992 at the date of issuance. If he remains our employee, this
officer is restricted from selling or transferring these shares for a period of
two years from the date of issuance.
18. ASSOCIATE BENEFIT PLANS
a. Profit Sharing Retirement Plan
We maintain a 401(k) profit sharing retirement plan for all U.S. associates
meeting certain service requirements. We contribute monthly 50 percent of up to
6 percent of associates' contributions, up to the maximum amount allowed by law.
Plan expense for the years ended December 31, 2002, 2001 and 2000 was $8,155,
$8,220 and $8,878, respectively.
b. Health Benefits
We pay a portion of costs incurred in connection with providing associate and
dependant health benefits through programs administered by various insurance
companies. Such costs amounted to $19,381, $23,076 and $16,683 for the years
ended December 31, 2002, 2001 and 2000, respectively.
c. Executive Retirement Plan
We maintain an Executive Retirement Plan (the "Plan") in which certain highly
compensated associates are eligible to participate. Participants are selected by
a committee of the Board of Directors. Benefits vest after five years of service
and are based on a percentage of average compensation (base salary plus bonus)
for the three highest fiscal years in the five-year period immediately preceding
termination of the participant's full-time employment. As of December 31, 2002,
14 officers were participants in the Plan. Our obligations under the Plan are
not funded.
F-51
YEAR ENDED DECEMBER 31,
-------------------------------------
2002 2001 2000
---- ---- ----
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year.................... $ 16,422 $ 17,483 $ 13,730
Service cost............................................... 881 865 1,086
Interest cost.............................................. 1,205 1,233 885
Amendments................................................. 1,571 - -
Actuarial loss (gain)...................................... 314 (1,762) 3,359
Settlements................................................ - (1,343) (1,523)
Benefits paid.............................................. (127) (54) (54)
------------ ----------- -----------
Benefit obligation at end of year.......................... $ 20,266 $ 16,422 $ 17,483
============ =========== ===========
FUNDED STATUS:
Funded status at end of year............................... $ (20,266) $ (16,422) $ (17,483)
Unrecognized actuarial loss................................ 3,966 3,881 5,981
Unrecognized prior service cost............................ 1,926 447 538
------------ ----------- -----------
Net amount recognized...................................... $ (14,374) $ (12,094) $ (10,964)
============ =========== ===========
AS OF DECEMBER 31,
---------------------
AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS: 2002 2001
---- ----
Accrued benefit liability.................................. $ (16,035) $ (12,299)
Intangible asset........................................... 1,661 205
----------- -----------
Net amount recognized...................................... $ (14,374) $ (12,094)
=========== ===========
YEAR ENDED DECEMBER 31,
-------------------------------------
COMPONENTS OF NET PERIODIC BENEFIT COST: 2002 2001 2000
---- ---- ----
Service cost............................................... $ 881 $ 865 $ 1,086
Interest cost.............................................. 1,205 1,233 885
Amortization of unrecognized prior service cost............ 92 92 92
Recognized net actuarial loss.............................. 229 337 97
------------ ----------- -----------
Net periodic benefit cost.................................. $ 2,407 $ 2,527 $ 2,160
============ =========== ===========
The plan had $16,035 and $12,299 of vested benefit obligations as of December
31, 2002 and 2001, respectively, which are included in other liabilities. The
projected benefit obligation at December 31, 2002, 2001 and 2000 was determined
using an assumed weighted average discount rate of 6.75 percent, 7.5 percent and
8.0 percent, respectively, and an assumed increase in the long-term rate of
compensation of 4.5 percent, 5 percent and 6 percent for December 31, 2002, 2001
and 2000, respectively.
19. LOSS PER SHARE
The weighted average number of shares used for computing basic loss per share
for the years ended December 31, 2002, 2001 and 2000 was 229,593, 227,173 and
206,347, respectively. The effect of approximately 40,037.8, 41,806.4 and
27,952.5 of potentially dilutive common shares for outstanding stock options,
warrants and convertible subordinated notes and debentures were excluded from
the calculation of diluted loss per share because the effects were
anti-dilutive.
20. BUSINESS SEGMENTS AND OPERATIONS BY GEOGRAPHIC AREAS
Our 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
F-52
related to these systems. These service activities are coordinated under one
global services organization. As a result, our activities are conducted in two
reportable segments, Products and Services.
The Products segment sells bar code data capture equipment, mobile computing
devices, wireless communication equipment and other peripheral products and
receives royalties. The Services segment provides wireless communication
solutions that connect our 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. We use many factors to measure performance and
allocate resources to these two reportable segments. The primary measurements
are sales and standard costs. The accounting policies of the two reportable
segments are essentially the same as those used to prepare our Consolidated
Financial Statements. We rely on our internal management system to provide us
with necessary sales and standard cost data by reportable segment and we make
financial decisions and allocate resources based on the information we receive
from this management system. We do not allocate manufacturing variances,
research and development, sales and marketing, or general and administrative
expenses to these segments, nor to our geographic regions, as we do not use that
information to make key operating decisions and do not believe that allocating
these expenses is significant in evaluating performance.
Our 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.
We operate 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). Sales are
allocated to each region based upon the location of the use of the products and
services. Non - U.S. sales for each of the years ended December 31, 2002, 2001
and 2000 were $542,886, $543,083 and $437,424, respectively.
Indentifiable assets are those tangible and intangible assets used in operations
in each geographic region. Corporate assets are principally temporary
investments and goodwill.
Summarized financial information concerning our reportable segments and
geographic regions is shown in the following table.
F-53
FOR YEAR ENDED DECEMBER 31,
--------------------------------- -------------------------------- --------------------------------
2002 2001 2000
--------------------------------- -------------------------------- --------------------------------
PRODUCTS SERVICES TOTAL PRODUCTS SERVICES TOTAL PRODUCTS SERVICES TOTAL
---------- -------- ---------- ---------- -------- ---------- ---------- -------- ----------
REVENUES:
The Americas (a)........ $ 728,294 $205,876 $ 934,170 $ 818,091 $195,527 $1,013,618 $ 687,372 $138,735 $ 826,107
EMEA.................... 300,130 82,716 382,846 313,299 77,553 390,852 246,691 63,583 310,274
Asia Pacific............ 74,646 9,955 84,601 74,786 8,200 71,724 5,158 76,882
---------- -------- ---------- ---------- -------- ---------- ---------- -------- ----------
Total net sales......... $1,103,070 $298,547 $1,401,617 $1,206,176 $281,280 $1,487,456 $1,005,787 $207,476 $1,213,263
========== ======== ========== ========== ======== ========== ========== ======== ==========
STANDARD GROSS PROFIT:
The Americas............ $ 348,783 $ 74,177 $ 422,960 $ 408,840 $ 76,766 $ 485,606 $ 340,386 $ 43,382 $ 383,768
EMEA.................... 147,671 19,381 167,052 148,586 15,923 164,509 107,552 15,471 123,023
Asia Pacific............ 37,957 4,395 42,352 38,080 3,597 34,768 1,690 36,458
---------- -------- ---------- ---------- -------- ---------- ---------- -------- ----------
Total gross profit at
standard............ $ 534,411 $ 97,953 632,364 $ 595,506 $ 96,286 691,792 $ 482,706 $ 60,543 543,249
========== ======== ========== ======== ========== ========
Manufacturing
variances and other
related costs.......... 144,712 250,412 150,844
---------- ---------- ----------
Total gross profit...... $ 487,652 $ 441,380 $ 392,405
========== ========== ==========
AS OF AS OF AS OF
DECEMBER DECEMBER DECEMBER
31, 2002 31, 2001 31, 2000
---------- ---------- ----------
IDENTIFIABLE ASSETS:
The Americas............ $ 900,563 $1,030,661 $1,266,927
EMEA.................... 280,538 305,660 285,933
Asia Pacific............ 34,652 70,548
Corporate
(principally intangible
assets and
investments)........... 356,442 331,030 385,633
---------- ---------- ----------
Total............. $1,572,195 $1,705,371 $2,009,041
========== ========== ==========
F-54
(a) Included in The Americas are revenues of approximately $75,439, $69,245 and
$50,268 from non-U.S. countries, mainly Canada, Brazil and Mexico, for the
years ended December 31, 2002, 2001 and 2000, respectively.
F-55
21. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following tables set forth unaudited quarterly financial information for the
years ended December 31, 2002 and 2001.
As discussed in Note 2, the unaudited quarterly information for the first three
quarters of the year ended December 31, 2002 and the four quarters of the year
ended December 31, 2001 have been restated. A comparison of previously reported
and restated unaudited quarterly financial information is presented within the
tables below:
F-56
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------------------- ------------------------ ---------------------- -----------
AS AS AS
PREVIOUSLY PREVIOUSLY PREVIOUSLY
REPORTED AS RESTATED REPORTED AS RESTATED REPORTED AS RESTATED
---------- ----------- ---------- ----------- ---------- -----------
YEAR ENDED DECEMBER 31, 2002:
Revenue ............................ $301,312 $317,644 $315,849 $329,087 $339,510 $382,028 $372,858
Cost of revenue..................... 195,968 238,774 198,881 230,735 211,671 221,565 222,891
Gross profit........................ 105,344 78,870 116,968 98,352 127,839 160,463 149,967
Stock based compensation
(recovery)/expense under variable
plan accounting................... - (51,302) - (27,648) - 8,818 2,048
Loss provision for legal settlements - - - - - - 98,300
Other operating expenses............ 98,651 118,462 146,868 111,330 105,578 113,410 145,961
Earnings/(loss) from
operations........................ 6,693 11,710 (29,900) 14,670 22,261 38,235 (96,342)
Net earnings/(loss)................. 1,752 5,354 (22,745) (26,017) 13,056 31,555 (68,667)
NET EARNINGS/(LOSS) PER
COMMON SHARE:
Basic............................... $ 0.01 $ 0.02 $ (0.10) $ (0.11) $ 0.06 $ 0.14 $ (0.30)
Diluted............................. $ 0.01 $ 0.02 $ (0.10) $ (0.11) $ 0.06 $ 0.14 $ (0.30)
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------------------- ------------------------ ---------------------- ----------------------
AS AS AS AS
PREVIOUSLY PREVIOUSLY PREVIOUSLY PREVIOUSLY
REPORTED AS RESTATED REPORTED AS RESTATED REPORTED AS RESTATED REPORTED AS RESTATED
---------- ----------- ---------- ----------- ---------- ----------- ---------- -----------
YEAR ENDED DECEMBER 31, 2001:
Revenue............................. $450,165 $424,515 $340,210 $391,729 $331,191 $333,302 $331,131 $337,910
Cost of revenue .................... 279,789 263,192 322,093 292,700 258,158 251,823 198,540 238,361
Gross profit........................ 170,376 161,323 18,117 99,029 73,033 81,479 132,591 99,549
Stock based compensation
expense/(recovery) under variable
plan accounting................... 14,272 - (10,103) - (165,682) - 68,753
Other operating expenses............ 125,236 143,281 113,067 132,439 109,169 114,971 107,863 122,155
Earnings/(loss) from
operations........................ 45,140 3,770 (94,950) (23,307) (36,136) 132,190 24,728 (91,359)
Net earnings/(loss) ................ 27,945 2,556 (59,553) 8,890 (35,693) (68,221) 13,394 52,681
NET EARNINGS/(LOSS) PER
COMMON SHARE:
Basic............................... 0.12 0.01 (0.27) 0.04 (0.16) (0.30) 0.06 0.23
Diluted............................. 0.12 0.01 (0.27) 0.04 (0.16) (0.30) 0.06 0.23
F-57
22. SUBSEQUENT EVENTS
In January 2003, we loaned $500 to our Senior Vice President and Chief
Information Officer. This loan is payable upon the earlier of: (1) 180 days
after he ceases to be an employee of the Company if terminated without cause,
(2) 30 days after he ceases to be an employee of the Company for any other
reason, or (3) January 10, 2008. In addition, if the officer or his wife sell
any shares of our common stock 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 us), 100 percent
of the net proceeds of such sales shall be applied immediately to reduce any
outstanding indebtedness under this loan if the equity in any real property
owned by this officer and his wife is insufficient to satisfy this loan. If this
loan is not paid when due, interest will accrue at an annual rate of 12 percent
or the highest rate allowed by law. Our Senior Vice President and Chief
Information Officer is not considered to be an "officer" as such term is defined
in Rule 16a-1(f) of the Exchange Act and for purposes of Section 16(a) of the
Exchange Act.
In January 2003, we completed the purchase of certain software and related
assets from Imageware Technologies, Inc. for an initial purchase price of $750.
We are obligated to pay Imageware additional consideration of $500 and $750 for
the years ended December 31, 2003 and 2004, respectively, if the Imageware
assets generate revenue in each year that meet established thresholds as defined
in the agreement, and if certain other conditions are met.
In January 2003, we purchased 216,000 shares of voting common stock in Cuesol,
Inc. ("Cuesol") for $1,000. Cuesol creates wireless, customer-interactive
solutions that empower retailers to communicate with customers on an individual
basis. Since our investment is less than 20 percent and we lack the ability to
exercise significant influence over Cuesol, we account for this investment using
the cost method.
During the first half of 2003, our global services organization initiated
restructuring activities which included transferring a large percentage of our
repair operations to Mexico and the Czech Republic, reorganizing our
professional services group to utilize third party service providers for lower
margin activities, and reorganizing our European management structure from a
country based structure to a regional structure. The total costs expected to be
incurred in connection with this restructuring, which related almost entirely to
workforce reductions, is approximately $3,324, of which $1,066 was incurred in
the first quarter of 2003, $1,434 was incurred in the second quarter of 2003 and
$220 was incurred in the third quarter of 2003. These restructuring activities
are expected to be completed by December 2003.
During the first half of 2003, we initiated additional restructuring activities
in connection with our decision to relocate additional product lines from New
York to Mexico. The costs associated with this restructuring relate to workforce
reductions and transportation costs. The total amount incurred in connection
with this restructuring activity is approximately $926, of which $749 was
incurred in the first quarter of 2003 and $177 was incurred in the second
quarter of 2003. These restructuring activities were completed by June 30, 2003.
On March 10, 2003, the Board of Directors approved a $0.01 semi-annual cash
dividend, which amounted to $2,312 and was paid on April 28, 2003 to
shareholders of record on April 14, 2003.
On August 11, 2003, the Board of Directors approved a $0.01 semi-annual cash
dividend which amounted to $2,312 and was paid on September 26, 2003 to
shareholders of record on September 5, 2003.
In July 2003, we purchased all of the outstanding shares of Covigo, Inc., a
creator of software used in developing and deploying mobile computing
applications, for approximately $13,000.
F-58
SCHEDULE II
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(All amounts in thousands)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------- -------- -------- -------- --------
Additions
-----------------------------------
Balance at Charged to
beginning of costs and Charged to Balance at end
Description year expenses other accounts Deductions of year
- --------------------------------------------------------------------------------------------------------------------
Allowance for doubtful
accounts:
2002 $ 27,168 $ 15,975 $ -- $ 8,871 (b) $ 34,272
=========== =========== =========== =========== =============
2001, as restated $ 24,322 $ 6,936 $ -- $ 4,090 (b) $ 27,168
=========== =========== =========== =========== =============
2000, as restated $ 6,949 $ 3,927 $ 16,856 (a) $ 3,410 (b) $ 24,322
=========== =========== =========== =========== =============
Inventory reserve:
2002 $ 221,467 $ 37,011 $ -- $ 67,903 (c) $ 190,575
=========== =========== =========== =========== =============
2001, as restated $ 139,385 $ 166,445 $ -- $ 84,363 (c) $ 221,467
=========== =========== =========== =========== =============
2000, as restated $ 92,146 $ 69,609 $ -- $ 22,370 (c) $ 139,385
=========== =========== =========== =========== =============
Deferred tax
valuation allowance
December 31, 2002 $ 8,098 $ 6,166 $ 17,172 (d) $ -- $ 31,436
=========== =========== =========== =========== =============
December 31, 2001 $ 6,958 $ 1,776 $ -- $ 636 $ 8,098
=========== =========== =========== =========== =============
December 31, 2000 $ -- $ -- $ 6,958 (e) $ -- $ 6,958
=========== =========== =========== =========== =============
- --------------------------
(a) Telxon-related allowance for doubtful accounts.
(b) Uncollectible accounts written off.
(c) Inventory disposed of.
(d) True-up for tax rates on Pre-2002 State Net Operating Losses and valuations
allowances recorded in goodwill for deferred tax assets related to acquired
businesses.
(e) Valuation allowances recorded in goodwill for deferred tax assets related
to acquired businesses.
S-1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
ANNUAL REPORT
ON
FORM 10-K
FOR FISCAL YEAR ENDED
DECEMBER 31, 2002
----------------------------------
SYMBOL TECHNOLOGIES, INC.
EXHIBITS
3. Exhibits
--------
3.1 Certificate of Incorporation of Symbol Technologies, Inc., as amended.
(Incorporated by reference to Exhibit 3.1 to Symbol's Annual Report on
Form 10-K for the year ended December 31, 1999 (the "1999 Form 10-K"))
3.3 Amended and Restated By-Laws of Symbol. (Incorporated by reference to
Exhibit 3.2 to the Quarterly Report on Form 10-Q for the quarter ended
June 30, 2002)
4.1 Form of Certificate for Shares of the Common Stock of Symbol.
(Incorporated by reference to Exhibit 4.1 to the Annual Report on Form
10-K for the year ended December 31, 1998)
4.2 Rights Agreement, dated as of August 13, 2001, between Symbol and The
Bank of New York, as Rights Agent, which includes the form of
Certificate of Designations with respect to the Series A Junior
Participating Preferred Stock as Exhibit A, the form of Right
Certificate as Exhibit B and the Summary of Rights to Purchase Shares
of Preferred Stock as Exhibit C. (Incorporated by reference to Exhibit
4 to the Current Report on Form 8-K dated August 21, 2001)
10.1 Form of 2008 Stock Purchase Warrant issued to certain directors.
(Incorporated by reference to Exhibit 10.1 to the Annual Report on Form
10-K for the year ended December 31, 1997)
10.2 1994 Directors' Stock Option Plan. (Incorporated by reference to
Exhibit 4.1 to Registration Statement No. 33- 78678 on Form S-8)
10.3 2000 Directors' Stock Option Plan. (Incorporated by reference to
Exhibit 4 to Registration Statement No. 333- 78599 on Form S-8)
10.4 2002 Directors' Stock Option Plan. (Incorporated by reference to
Exhibit 4.1 to Registration Statement No. 333-89668 on Form S-8)
10.5 1997 Employee Stock Purchase Plan, as amended. (Incorporated by
reference to Exhibit 4.3 to Registration Statement No. 333-89668 on
Form S-8)
10.6 1997 Employee Stock Option Plan. (Incorporated by reference to Exhibit
4.2 to Registration Statement No. 333-73322 on Form S-8)
10.7 1991 Employee Stock Option Plan. (Incorporated by reference to Exhibit
10.1 to the Annual Report on Form 10- K for the year ended December 31,
1991)
10.8 1990 Non-Executive Stock Option Plan, as amended. (Incorporated by
reference to Exhibit 10.1 to the Annual Report on Form 10-K for the
year ended December 31, 1995 (the "1995 Form 10-K"))
10.9* Telxon Corporation 1990 Employee Stock Option Plan.
10.10* Telxon Corporation 1990 Non-Employee Stock Option Plan.
10.11 2001 Non-Executive Stock Option Plan. (Incorporated by reference to
Exhibit 10.8 to the Annual Report on Form 10-K for the year ended
December 31, 2000 (the "2000 Form 10-K"))
10.12 Employment Agreement by and between Symbol and Jerome Swartz, dated as
of July 1, 2000. (Incorporated by reference to Exhibit 10.9 to the 2000
Form 10-K)
10.13* Separation, Release and Employment Agreement by and between Symbol and
Jerome Swartz, dated as of July 7, 2003.
10.14 Employment Agreement by and between Symbol and Leonard H. Goldner,
dated as of December 15, 2000. (Incorporated by reference to Exhibit
10.10 to the 2000 Form 10-K)
10.15* Without Prejudice Resignation Agreement by and between Symbol and
Leonard Goldner, dated as of June 30, 2003.
10.16 Employment Agreement by and between Symbol and William R. Nuti, dated
as of July 15, 2002. (Incorporated herein by reference to Exhibit 10.1
to the Quarterly Report on Form 10-Q for the quarter ended June 30,
2002)
10.17 Employment Agreement by and between Symbol and Richard Bravman, dated
as of August 1, 2002. (Incorporated herein by reference to Exhibit 10.1
to the Quarterly Report on Form 10-Q for the quarter ended September
30, 2002)
10.18 Employment Agreement by and between Symbol and Tomo Razmilovic, dated
as of February 14, 2002. (Incorporated by reference to Exhibit 10.12 to
the 2001 Form 10-K)
10.19 Separation, Release and Non-Disclosure Agreement between Symbol and
Tomo Razmilovic, dated as of February 14, 2002. (Incorporated by
reference to Exhibit 10.13 to the 2001 Form 10-K)
10.20* Tolling Agreement by and between Symbol and Tomo Razmilovic, dated as
of May 6, 2003.
10.21 Executive Retirement Plan, as amended. (Incorporated by reference to
Exhibit 10.2 to Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2002)
10.22* 2002 Executive Stock Ownership and Option Retention Program, dated as
of December 16, 2002.
10.23 Summary of Symbol Technologies, Inc. Executive Bonus Plan.
(Incorporated by reference to Exhibit 10.13 of the 1999 Form 10-K)
10.24 2000 Amended and Restated Credit Agreement dated as of August 3, 2000,
among Symbol Technologies, Inc., the lending institutions identified in
the Credit Agreement and Bank of America, N.A., as agent and as letter
of credit issuing bank. (Incorporated by reference to Exhibit 10.17 to
the 2000 Form 10-K)
10.25 First Amendment dated March 28, 2001, to 2000 Amended and Restated
Credit Agreement among Symbol Technologies, Inc., the lending
institutions identified in the Credit Agreement and Bank of America,
N.A., as agent and as letter of credit issuing bank. (Incorporated by
reference to Exhibit 10.18 to the 2000 Form 10-K)
10.26 Second Amendment dated as of July 25, 2001, to 2000 Amended and
Restated Credit Agreement among Symbol Technologies, Inc., the lending
institutions identified in the Credit Agreement and Bank of America,
N.A., as agent. (Incorporated by reference to Exhibit 10.20 to the 2001
Form 10-K)
10.27 Amended and Restated Second Amendment dated as of September 11, 2001,
to 2000 Amended and Restated Credit Agreement among Symbol
Technologies, Inc., the lending institutions
identified in the Credit Agreement and the Bank of America, N.A. as
agent. (Incorporated by reference to Exhibit 10.21 to the 2001 Form
10-K)
10.28* Third Amendment dated as of March 29, 2002, to 2000 Amended and
Restated Credit Agreement among Symbol Technologies, Inc., the lending
institutions identified in the Credit Agreement and the Bank of
America, N.A., as agent.
10.29* Waiver Agreement dated as of March 26, 2003, to 2000 Amended and
Restated Credit Agreement by and among Symbol Technologies, Inc., the
lending institutions identified in the Credit Agreement and the Bank of
America, N.A., as agent.
10.30* Guarantor Consent Agreement dated as of March 26, 2003, to 2000 Amended
and Restated Credit Agreement by and among Symbol Technologies, Inc.,
the lending institutions identified in the Credit Agreement and the
Bank of America, N.A., as agent, and certain Guarantors (as defined in
the 2000 Amended and Restated Credit Agreement).
10.31* Consent dated as of July 3, 2003, to the Waiver Agreement, dated as of
March 26, 2003, by and among Symbol Technologies, Inc., the lending
institutions identified in the Credit Agreement and the Bank of
America, N.A., as agent.
10.32* Consent and Waiver dated as of August 14, 2003, to the Waiver
Agreement, dated as of March 26, 2003, by and among Symbol
Technologies, Inc., the lending institutions identified in the Credit
Agreement and the Bank of America, N.A., as agent.
10.33* Credit Agreement, dated as of November 17, 2003, among Symbol
Technologies, Inc., the lending institutions identified in the Credit
Agreement and Fleet National Bank, as administrative agent.
10.34* Guaranty Agreement, dated as of November 17, 2003, among Telxon
Corporation and @pos.com, Inc. in favor of, and for the benefit of, the
lending institutions identified in the Credit Agreement, dated as of
November 17, 2003, and Fleet National Bank, as administrative agent.
22.* Subsidiaries.
23.* Consent of Deloitte & Touche LLP.
31.1* Certification of Chief Executive Officer, pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2* Certification of Chief Financial Officer, pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
32.1* Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2* Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
- ------------
* Filed herewith.
(b) Reports on Form 8-K
-------------------
Not Applicable.