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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, 2003
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 [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
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 the registrant's classes of common
stock, as of March 9, 2004, was as follows:
CLASS NUMBER OF SHARES
----- ----------------
Common Stock, par value $0.01 233,440,995
DOCUMENTS INCORPORATED BY REFERENCE: CERTAIN PORTIONS OF THE DEFINITIVE PROXY
STATEMENT TO BE FILED IN CONNECTION WITH THE REGISTRANT'S 2004 ANNUAL MEETING OF
SHAREHOLDERS ON APRIL 26, 2004 (INCORPORATED BY REFERENCE UNDER PART III)
SYMBOL TECHNOLOGIES, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2003
TABLE OF CONTENTS
PAGE NUMBER
-----------
PART I............................................................................................................1
Item 1. Business....................................................................................1
Item 2. Properties.................................................................................22
Item 3. Legal Proceedings..........................................................................22
Item 4. Submission of Matters to a Vote of Security Holders........................................31
Item 4A. Executive Officers of the Registrant.......................................................31
PART II..........................................................................................................33
Item 5. Market for the Registrant's Common Equity and Related Security Holder Matters..............33
Item 6. Selected Financial Data....................................................................33
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations......34
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.................................47
Item 8. Financial Statements and Supplementary Data................................................48
Item 9. Disagreements on Accounting and Financial Disclosure.......................................48
Item 9A. Controls and Procedures....................................................................48
PART III.........................................................................................................49
Item 10. Directors and Executive Officers of the Registrant.........................................49
Item 11. Executive Compensation.....................................................................49
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters........................................................................50
Item 13. Certain Relationships and Related Transactions.............................................50
Item 14. Principal Accountant Fees and Services.....................................................50
PART IV..........................................................................................................50
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K............................50
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.
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 four core technologies - bar code reading and image
recognition, mobile computing, networking systems and mobility software. 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. Operating and
geographic segment financial information is found in Note 18 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.
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, 2003, Product Segment
net revenue was $1,224 million, which represented 80 percent of total revenues.
See Note 18 of the Notes 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 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
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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.
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.
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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 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
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requirements. With an integrated laser scan engine, the M 2000 is capable of
scanning in a rotating omni-directional scan pattern for reading linear bar
codes in any orientation, a smart raster scan pattern for reading
two-dimensional bar codes and a high- density single-line scan pattern for
reading poorly printed and damaged bar codes. Designed for retail and light
industrial use, the M 2000's ergonomic built-in stand provides for both 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 and 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 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.
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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 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.
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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
@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 2 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, 2003, Services Segment net revenue was $306
million, which represented 20% of total revenues. See Note 18 to the
Consolidated Financial Statements included elsewhere herein.
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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 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.
8
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.
The following table sets forth certain information as to international
revenues of Symbol(1):
YEAR ENDED DECEMBER 31,
-----------------------
(IN MILLIONS)
AREA 2003 2002 2001
- ------------------------------------------------------------------- ------ ------ ------
EMEA(2)............................................................ $438.6 $382.8 $390.9
Asia Pacific....................................................... 112.6 84.6 83.0
Other(3)........................................................... 92.9 75.5 69.2
------ ------ ------
Total.............................................................. $644.1 $542.9 $543.1
====== ====== ======
- --------------
(1) See Note 18 of the Notes 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 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.
9
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 $108,800,
$72,845 and $93,682 for research and development during the years ended December
31, 2003, 2002 and 2001, 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 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.
10
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 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
11
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, 2003, we had approximately 5,300 full-time employees.
Of these, approximately 2,700 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.
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 INVESTIGATIONS
WE ARE BEING INVESTIGATED BY THE SECURITIES AND EXCHANGE COMMISSION
(THE "SEC" OR THE "COMMISSION") AND THE EASTERN DISTRICT OF NEW YORK (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 financial statements, which we filed with the SEC on Form
10-K/A on February 25, 2004. 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. However, any criminal and/or civil action or
any negotiated resolution may involve, among other things, injunctive and
equitable relief, including
12
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.
PENDING LITIGATION MAY HAVE A MATERIAL ADVERSE EFFECT ON OUR RESULTS OF
OPERATIONS, FINANCIAL CONDITION AND CASH FLOW.
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. We currently have accrued $142.0
million related to the pending class action 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. On December
19, 2003, the settlement received preliminary approval from the Court. On
February 12, 2004, the Court granted its final approval of the settlement. As a
result of contributions by Telxon's insurers, Telxon paid $25 million to the
class on February 27, 2004.
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, pleaded guilty to two counts of
securities fraud in connection with the government investigations described
above. The Commission has 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, we 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. As of December 31, 2003 and
2002, we have not recorded any liability in our consolidated financial
statements with respect to this matter.
13
We are also subject to lawsuits in the normal course of business, which
can be expensive and 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 Part I, Item 3, "Legal
Proceedings" for additional information regarding material litigation.
IF WE ARE UNABLE TO EFFECTIVELY AND EFFICIENTLY IMPLEMENT OUR PLAN TO REMEDIATE
DEFICIENCIES WHICH HAVE BEEN IDENTIFIED IN OUR INTERNAL CONTROLS AND PROCEDURES,
THERE COULD BE A MATERIAL ADVERSE EFFECT ON OUR OPERATIONS OR FINANCIAL RESULTS.
Throughout 2003 and continuing in 2004, we have and are implementing
various initiatives to address the material weaknesses and other deficiencies in
our internal controls identified by our internal investigations, conducted with
the oversight by our Audit Committee, into our past practices.
These initiatives are intended to materially improve our internal
controls and procedures, address systems and personnel issues 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, documentation and information systems. See
Item 9A, "Controls and Procedures."
The implementation of these initiatives 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 deficiencies in our internal 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 OF 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 resulted in a restatement of our previous
years financial statements that were filed delinquently with the SEC. The
Commission may provide us with comments on this filing or any of our previous
filings, which would require us to amend or restate previously filed periodic
reports. The NYSE did not take any delisting or other action against Symbol in
connection with its previous delinquent filings, 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 our previous 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 that which 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.
14
MANY OF THE INDIVIDUALS WHO 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 of 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 be assured of the level of IT spending, the
deterioration of 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
15
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 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 or 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.
16
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
computer, network and communications industry participants who have
substantially greater financial, technical, marketing and manufacturing
resources than we do. 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 2003, foreign sales accounted for approximately 42.1% 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 increased security requirements;
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;
17
o lengthy 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 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 2003, approximately 54% 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 2004.
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 on which our facility in Reynosa is located. See
Part II, Item 1, "Legal Proceedings--Other Litigation--Lic. Olegario
18
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. 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, 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 properly anticipate customer
demand 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 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
19
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, 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 effect 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 are 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 their safety 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 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 RECRUIT AND RETAIN 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.
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. The
loss of, or the inability to recruit, key employees could have a material
adverse effect on our business.
20
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.
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
21
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. 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.
SIZE (SQ.
LOCATION PRINCIPAL USE 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. Fishponds Customer Service 18,923 Owned
RoadWokingham, Berkshire England
Valley Oak Technology Campus Network Systems Engineering, Marketing 100,000 Leased: expires
San Jose, California August 12, 2009
El Paso, Texas Customer Service Center and Warehouse 62,660 Leased: expires
December 14, 2007
Berkshire Place Winnersh EMEA Headquarters, Marketing and 55,500 Leased: expires
Triangle Winnersh, Wokingham Administration and U.K. Headquarters December 31, 2012
Berkshire, England
Juarez, Mexico Customer Service Center and Warehouse 50,000 Leased: expires
April 13, 2004
(month-to-month
thereafter)
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
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 SEC 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 SEC, and have produced hundreds of thousands of documents and numerous
witnesses in response to the SEC's inquiries. Symbol and approximately ten or
more former employees have
22
received so-called "Wells Notices" stating that the SEC 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 upon us and other
relief the Eastern District deems appropriate.
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 Commission and the Eastern District investigations. 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 has also 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. 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 entitled Pinkowitz
v. Symbol Technologies, Inc., et al., was filed 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
former 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
23
amended complaint added Harvey P. Mallement, George Bugliarello and Leo A.
Guthart (the then 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 continues to vigorously assert its defenses in this litigation.
Hoyle v. Symbol Technologies, Inc., et al.
Salerno v. Symbol Technologies, Inc., et al.
On March 21, 2003, a separate purported class action lawsuit 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, was filed 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 litigate the case
vigorously on the merits.
In connection with the above pending class actions and government
investigations, Symbol recorded additional loss provisions on legal settlements
of $72,000 in the first quarter of 2003 and $70,000 in the fourth quarter of
2002 bringing the estimated liability to $142,000 as of December 31, 2003,
compared to $70,000 as of December 31, 2002. This is reflected as a component of
accounts payable and accrued expenses in the accompanying Consolidated Financial
Statements.
Bildstein v. Symbol Technologies, Inc., et. al.
On April 29, 2003, a lawsuit entitled Bildstein v. Symbol Technologies,
Inc., et. al., was filed 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. On February 4, 2004, Symbol argued its motion to dismiss before
the Court and is awaiting the Court's decision. Symbol intends to defend the
case vigorously on the merits.
Gold v. Symbol Technologies, Inc., et al.
On December 18, 2003, a purported derivative action lawsuit entitled
Gold v. Symbol Technologies, Inc., et al., was filed in the Court of Chancery of
the State 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.
24
Mallement, Raymond R. Martino, George Bugliarello, Dr. Leo A. Guthart, Richard
Bravman, 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
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, which 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.
Symbol intends to litigate the case vigorously.
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. On December 19, 2003, the settlement received preliminary approval from
the Court. On February 12, 2004, the Court granted its final approval of the
settlement.
Accordingly, we recorded a $25,000 pre-tax charge in the Consolidated
Statements of Operations in 2002 and have reflected as an accrued liability as
of December 31, 2003 the estimated settlement of $37,000 and have recorded an
asset for the insurance proceeds of $12,000 which we expect to receive in the
first quarter of 2004. On February 27, 2004, we paid $25,000 to the class in
accordance with the settlement.
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
25
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. We recorded a
$3,300 pre-tax charge in the Consolidated Statements of Operations during 2002.
The settlement was finalized and paid by the Company in December 2003, and a
stipulation of dismissal was filed in January 2004.
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 on four Symbol 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
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
26
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") in the United States District Court
for Delaware 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. On December 12, 2003, HHP asserted counterclaims against Symbol and
Telxon (which had previously owned some of the patents asserted by Symbol)
seeking a declaratory judgment that the Symbol patents were not infringed, were
invalid and/or unenforceable. On the same day, HHP filed a third party complaint
against 12 of its suppliers which, HHP claims, are liable to defend and/or
indemnify HHP with respect to Symbol's infringement claims. We expect discovery
to commence during 2004.
Hand Held Products, Inc. and HHP-NC, Inc. v. Symbol Technologies, Inc. and
Telxon Corporation
On January 7, 2004, Symbol was served with a summons and complaint
filed in the United States District Court for the Eastern District of Virginia
alleging that certain of its products infringe 4 patents owned by HHP. Three of
the patents concern the design of a finger groove on the surface of a hand held
computer, and the fourth concerns a decoding algorithm for 2 dimensional bar
codes. These patents had been the subject of Symbol's declaratory judgment
complaint, described above, but had been dismissed by the Court based on HHP's
representation to the Court that Symbol had no reasonable apprehension of being
sued by HHP for infringement of these patents. Symbol intends to defend this
case vigorously on the merits.
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.
27
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 was 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.
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.
On January 23, 2004, the Court concluded that Lemelson's patent claims
are unenforceable under the equitable doctrine of prosecution laches; that the
asserted patent claims as construed by the Court are not infringed by Symbol
because use of the accused products does not satisfy one or more of the
limitations of each and every
28
asserted claim; and that the claims are invalid for lack of written description
and enablement even if construed in the manner urged by Lemelson. In so
concluding, the Court found that judgment should be entered in favor of
plaintiffs Symbol and the other members of the Auto ID Companies and against
defendant Lemelson Partnership on Symbol's and the Auto ID Companies' complaint
for declaratory judgment. The Court issued its judgment on January 23, 2004.
Lemelson is proceeding with post judgment motions and no appealable and final
judgment has been entered as of the date of this Annual Report.
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. As of December 31, 2003 and 2002, we
have not recorded any liability in our consolidated financial statements with
respect to the SMI judgment.
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.
29
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 granted leave for BSI to proceed with its claim against
Symbol on January 15, 2004. Symbol intends to appeal the Tribunal's decision.
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 list pendens with respect to this litigation
before the Public Register of Property in Cd. Victoria, Tamaulipas. As of
November 13, 2003, such list 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.
Bruck Technologies Handels GmbH European Commission ("EC") Complaint
In February 2004, Symbol became aware of a notice from the European
Competition Commission (the "EC") of a complaint lodged with it by Bruck
Technologies Handels GmbH ("Bruck") that certain provisions of the Symbol
PartnerSelect program violate Article 81 of the EC Treaty. Symbol considers this
claim to be without merit and intends to vigorously defend itself.
PSC Litigation
On June 26, 2002, Symbol filed an action against PSC Inc. and PSC
Scanning, Inc. (collectively, "PSC") in New York State Supreme Court in Suffolk
County, New York asserting claims for breach of contract and tortious
interference with prospective business relations stemming from PSC's failure to
deliver products to Symbol under a preexisting supply and distribution
agreement. On August 22, 2002, PSC filed a separate action in the same Court
against Symbol alleging that Symbol breached its obligations under a separate
supply and distribution agreement with PSC for the supply of Symbol's bar code
readers. On November 22, 2002, during the pendency of the two contract actions,
PSC filed petitions in the United States Bankruptcy Court for the Southern
District of New York seeking relief under Chapter 11 of the United States
Bankruptcy Code. As part of a Bankruptcy Court's mandated mediation process, on
April 7, 2003, the parties entered into a settlement agreement settling all
existing disputes between them. The settlement agreement was approved by the
Bankruptcy Court as part of PSC's Final Plan of Reorganization, as confirmed on
June 19, 2003, and became effective on June 30, 2003. On June 30, 2003, in
30
accordance with the terms of the settlement, PSC made a one-time payment of
$6,000 to Symbol. In addition, the parties executed an amended patent license
and supply agreements that permit PSC to purchase certain Symbol bar code scan
engine products for use by PSC in the manufacture of certain bar code reading
products. The parties also terminated the two pre-existing distribution
agreements that were the subject of pending litigations between the parties, and
dismissed, with prejudice, the two pending contract actions relating to those
agreements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names, positions and offices held by
Symbol's executive officers, as of December 31, 2003 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
John G. Bruno................. 39 Senior Vice President-Business Development and Chief Information
Officer(1)
Carole DeMayo................. 47 Senior Vice President-Human Resources
Mark T. Greenquist............ 45 Senior Vice President-Finance and Chief Financial Officer
Todd Hewlin................... 37 Senior Vice President-Global Products Group
Peter M. Lieb................. 48 Senior Vice President, General Counsel and Secretary
James M. Conboy............... 38 Vice President-Controller and Chief Accounting Officer(2)
FORMER EXECUTIVES
NAME AGE POSITION
---- --- --------
Joseph Katz.................... 51 Senior Vice President-Research and Development (3)
- --------------
(1) Executive Officer as of March 10, 2004.
(2) Executive Officer as of February 9, 2004.
(3) Resignation effective February 17, 2004
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
31
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.
Mr. Bruno joined Symbol as its Senior Vice President-Business
Development and Chief Information Officer in November 2002 from Cisco Systems,
Inc. At Cisco Systems, Inc. he served as Vice President of Technology Marketing
and Vice President of Information Technology during the period of June 2000 to
October 2002. Prior to that, Mr. Bruno served as Executive Director of
Information Technology for Bristol-Myers Squibb, Inc. from September 1998 to May
of 2000 and as Director of Information Technology at United Parcel Service from
August of 1990 to August of 1998.
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. Greenquist joined Symbol as its Senior Vice President-Finance and
Chief Financial 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.
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.
Mr. Conboy joined Symbol as its Vice President-Controller and Chief
Accounting Officer in February 2004 from D.P. Healy CPA, P.C., a forensic
accounting firm, where he was a director. Since March 2003, Mr. Conboy assisted
Symbol, in the capacity as a consultant, in various accounting matters related
to the restatement of our previously issued financial statements. From January
2000 to December 2002, Mr. Conboy held positions at AT&T Corp. as Financial
V.P.-Auditing and Corporate Security and Assistant Corporate Controller. Before
joining AT&T Corp., Mr. Conboy was based in Zurich, Switzerland with General
Motors Europe as Chief Accounting Officer.
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 in which capacity he served, until his resignation,
effective February 17, 2004.
32
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, 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, 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 17.70 11.94 --
On March 9, 2004, the closing price of Symbol's common stock was
$14.75. As of March 9, 2004, there were 1,702 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 on our future
earnings, capital requirements and financial condition.
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, 2003. 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."
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------
2003 2002(1) 2001 2000 1999
---------- ---------- ---------- ---------- ----------
OPERATING RESULTS:
Total net revenue......... $1,530,278 $1,401,617 $1,487,456 $1,213,263 $1,067,027
Net earnings/(loss)....... 3,295 (44,915) (17,769) (137,666) (59,639)
Basic and diluted
earnings/(loss) per
share(2)................ 0.01 (0.20) (0.08) (0.67) (0.30)
FINANCIAL POSITION:
Total assets.............. $1,646,518 $1,572,195 $1,705,371 $2,009,041 $1,042,987
Working capital........... 197,808 216,316 559,880 543,829 393,141
Long-term debt, less
current maturities...... 99,012 135,614 220,521 201,144 99,623
Stockholders' equity...... 920,598 887,739 999,115 1,092,588 623,762
Cash dividends per share(2) 0.02 0.02 0.0167 0.0144 0.0104
33
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------
2003 2002(1) 2001 2000 1999
---------- ---------- ---------- ---------- ----------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING:
Basic(2).................. 230,710 229,593 227,173 206,347 198,600
Diluted................... 236,449 229,593 227,173 206,347 198,600
- --------------
(1) Symbol changed its method of accounting for goodwill and other
intangibles effective January 1, 2002.
(2) Adjusted to reflect three-for-two stock splits that became effective on
April 16, 2001, April 5, 2000 and June 14, 1999.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(Amounts in thousands, except per share amounts and percentages)
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 13.
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.
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, 2003, we generated $1,530,278
of revenue.
Symbol manufactures products and provides services to capture, manage
and communicate data using four core technologies - bar code reading and image
recognition, mobile computing, networking systems and mobility software
applications. 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,
34
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.
EXECUTIVE OVERVIEW OF PERFORMANCE
Our total revenue for the year ended December 31, 2003 was $1,530,278,
an increase of 9.2 percent from total revenue of $1,401,617 for the year ended
December 31, 2002. The increase in revenue is primarily attributable to gradual
strengthening in the global economy and increased spending in the information
technology sector which resulted in growth in our product segment, particularly
in mobile computing.
Our gross profit overall was 44.1 percent for the year ended December
31, 2003, an increase from 34.8 percent for 2002. The increase is primarily due
to our sales of higher margin product and efficiencies we have achieved in our
manufacturing and distribution operations. Also contributing to the improved
operating results is the absence of several charges recorded during 2002 for the
impairment of certain software assets, a provision for a loss contract, as well
as severance, restructuring and warranty-related charges. These charges
aggregated $25,400 in 2002.
We have continued to incur costs related to our restatement and ongoing
investigations. Such costs were approximately $35,900 or 8.5 percent of our
selling, general and administrative costs of $421,132 for the year ended
December 31, 2003 as compared to $9,200 incurred in 2002 when the restatement
and investigations were initiated.
With continued focus on our balance sheet, we have increased our cash
to $150,017 at December 31, 2003, an increase of $73,896 from $76,121 at
December 31, 2002, reducing our bank debt and senior notes by approximately
$87,000 and ending December 2003 with no current borrowings under our bank
credit facility. We have also invested $79,268 in our business during 2003
through purchases of property and equipment as well as certain strategic
acquisitions.
We continue to effectively manage our net accounts receivables, ending
2003 with $152,377, an increase of only $960 from $151,417 at December 31, 2002
despite an increase in revenues during 2003 of $128,661. A key performance
indicator we use to monitor our receivables collection is days sales
outstanding. Through aggressive collection strategies we have been able to
reduce our average days sales outstanding to 33 days in 2003 from an average of
38 days in 2002.
We have also continued to improve our efficiencies in our manufacturing
and distribution operations and have decreased our inventory levels by $48,234
to $212,862 at December 31, 2003 from $261,096 at December 31, 2002. A key
performance indicator used to monitor our inventory levels is inventory
turnover. As a result of the efficiencies we have instituted in our
manufacturing and distribution operations we have been able to increase the
average number of times per year that our inventory turns over to 4.0 in 2003
from 3.4 in 2002.
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,
--------------------------------------
2003 2002 2001
------ ------ ------
REVENUE:
Product revenue................................................... 80.0% 78.7% 81.1%
Services revenue.................................................. 20.0 21.3 18.9
------ ------ ------
100.0 100.0 100.0
35
PERCENTAGE OF REVENUE
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------
2003 2002 2001
------ ------ ------
COST OF REVENUE:
Product cost of revenue........................................... 41.5 49.5 55.6
Services cost of revenue.......................................... 14.4 15.7 14.7
------ ------ ------
55.9 65.2 70.3
Gross profit...................................................... 44.1 34.8 29.7
------ ------ ------
OPERATING EXPENSES:
Engineering....................................................... 10.2 10.2 10.1
Selling, general and administrative............................... 27.5 24.5 22.1
Stock based compensation expenses/(recovery)...................... 1.1 (4.9) (6.2)
Provision for legal settlements................................... 4.7 7.0 --
Restructuring and impairment charges.............................. 0.1 0.2 0.7
Merger integration charges........................................ -- -- 0.6
Amortization of goodwill.......................................... -- -- 1.0
------ ------ ------
43.6 37.0 28.3
------ ------ ------
Earnings/(loss) from operations................................... 0.5 (2.2) 1.4
Impairment of investments......................................... -- (2.3) (1.6)
Net other income/(expense)........................................ (0.2) 0.1 (1.0)
------ ------ ------
Earnings/(loss) before income taxes............................... 0.3 (4.4) (1.2)
Provisions for/(benefit from) income taxes........................ 0.1 (1.2) 0.0
------ ------ ------
Net earnings/(loss)............................................... 0.2% (3.2)% (1.2)%
====== ====== ======
The following table summarizes our revenue by geographic region and
then by reportable segment and geographic region:
FOR THE YEARS ENDED DECEMBER 31
------------------------------------------------------------------------------------------------------
VARIANCE IN VARIANCE IN VARIANCE IN VARIANCE IN
2003 2002 $'S PERCENT 2002 2001 $'S PERCENT
------------ ------------ ------------ ----------- ------------ ------------ ------------ -----------
Total Revenues
The Americas........... $ 979,099 $ 934,170 $ 44,929 4.8% $ 934,170 $ 1,013,618 $ (79,448) (7.8)%
EMEA................... 438,615 382,846 55,769 14.6% 382,846 390,852 (8,006) (2.0)%
Asia Pacific........... 112,564 84,601 27,963 33.1% 84,601 82,986 1,615 1.9%
----------- ----------- ----------- ----------- ----------- -----------
Total Revenues........ $ 1,530,278 $ 1,401,617 $ 128,661 9.2% $ 1,401,617 $ 1,487,456 $ (85,839) (5.8)%
=========== =========== =========== =========== =========== ===========
Product Revenues
The Americas........... $ 777,105 $ 728,294 $ 48,811 6.7% $ 728,294 $ 818,091 $ (89,797) (11.0)%
EMEA................... 345,983 300,130 45,853 15.3% 300,130 313,299 (13,169) (4.2)%
Asia Pacific........... 100,765 74,646 26,119 35.0% 74,646 74,786 (140) (0.2)%
----------- ----------- ----------- ----------- ----------- -----------
Total Product Revenues $ 1,223,853 $ 1,103,070 $ 120,783 10.9% $ 1,103,070 $ 1,206,176 $ (103,106) (8.5)%
=========== =========== =========== =========== =========== ===========
Service Revenues
The Americas........... $ 201,994 $ 205,876 $ (3,882) (1.9)% $ 205,876 $ 195,527 $ 10,349 5.3%
EMEA................... 92,632 82,716 9,916 12.0% 82,716 77,553 5,163 6.7%
Asia Pacific........... 11,799 9,955 1,844 18.5% 9,955 8,200 1,755 21.4%
----------- ----------- ----------- ----------- ----------- -----------
Total Service Revenues $ 306,425 $ 298,547 $ 7,878 2.6% $ 298,547 $ 281,280 $ 17,267 6.1%
=========== =========== =========== =========== =========== ===========
FOR THE YEAR ENDED DECEMBER 31, 2003
Net product revenue for the year ended December 31, 2003 was
$1,223,853, an increase of 10.9 percent from $1,103,070 reported in 2002. The
increase in net product revenue of $120,783 is primarily due to continued growth
in our mobile computing product offerings, our largest product line and
represented $52,535 or 43.5 percent of the total product revenue growth. Also
contributing to the product revenue growth was growth in automatic data
36
capture and wireless network systems. Net services revenue of $306,425 for the
year ended December 31, 2003 increased 2.6 percent from $298,547 reported in
2002 due to stronger period-over-period cash collections.
Geographically, the Americas revenue for the year ended December 31,
2003 was $979,099, an increase of 4.8 percent from the $934,170 reported in
2002. EMEA revenue of $438,615 increased 14.6 percent for the year ended
December 31, 2003 from $382,846 reported in 2002. Asia Pacific revenue increased
33.1 percent for the year ended December 31, 2003 from $84,601 reported in 2002.
The Americas, EMEA and Asia Pacific represent approximately 64.0, 28.6 and 7.4
percent of revenue, respectively, for the year ended December 31, 2003.
FOR THE YEAR ENDED DECEMBER 31, 2002
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.
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.
The table below summarizes cost of revenue and gross profit by business
segment:
FOR THE YEARS ENDED DECEMBER 31
------------------------------------------------------------------------------------------------------
VARIANCE IN VARIANCE IN
2003 2002 VARIANCE PERCENT 2002 2001 VARIANCE PERCENT
------------ ------------ ------------ ----------- ------------ ------------ ------------ -----------
Product Revenue.......... $ 1,223,853 $ 1,103,070 $ 120,783 10.9% $ 1,103,070 $ 1,206,176 $ (103,106) (8.5)%
Product Cost of Revenue.. 635,103 693,980 (58,877) (8.5)% 693,980 826,766 (132,786) (16.1)%
----------- ----------- ----------- ----------- ----------- -----------
Product Gross Profit... $ 588,750 $ 409,090 $ 179,660 43.9% $ 409,090 $ 379,410 $ 29,680 7.8%
=========== =========== =========== =========== =========== ===========
Product Cost of Revenue
as a Percentage of
Product Revenue........ 51.9% 62.9% 62.9% 68.5%
Product Gross Profit
Percentage............. 48.1% 37.1% 37.1% 31.5%
Services Revenue......... $ 306,425 $ 298,547 $ 7,878 2.6% $ 298,547 $ 281,280 $ 17,267 6.1%
Services Cost of Revenue. 219,926 219,985 (59) -- 219,985 219,310 675 0.3%
----------- ----------- ----------- ----------- ----------- -----------
Services Gross Profit.. $ 86,499 $ 78,562 $ 7,937 10.1% $ 78,562 $ 61,970 $ 16,592 26.8%
=========== =========== =========== =========== =========== ===========
Services Cost of Revenue
as a Percentage of
Services Revenue....... 71.8% 73.7% 73.7% 78.0%
Services Gross Profit
Percent................ 28.2% 26.3% 26.3% 22.0%
FOR THE YEAR ENDED DECEMBER 31, 2003
Product cost of revenue as a percentage of net product revenue was 51.9
percent for the year ended December 31, 2003 as compared to 62.9 percent in
2002. This decrease is due to an overall shift in product mix to higher margin
products, increased manufacturing absorption due to higher sales volumes and
increased efficiencies gained in our manufacturing and distribution operations.
Contributing to the improved cost structure is the absence of the following 2002
charges: an $11,800 impairment charge related to manufacturing equipment
software, a $4,900 provision for a loss contract, severance charges of $4,500
additional warranty costs of $1,900 and other
37
restructuring-related costs of $2,300. Also contributing to the lower costs as a
percentage of net product revenue is the sale in the fourth quarter of 2003 of
approximately $10,000 of inventory that had previously been reserved for.
Services cost of revenue as a percentage of net services revenue was
71.8 percent for the year ended December 31, 2003 as compared to 73.7 percent in
2002. The majority of the decrease is due to the efficiencies gained from the
consolidation and elimination of repair centers as well as increased revenue due
to the timing of cash collections.
FOR THE YEAR ENDED DECEMBER 31, 2002
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 $164,099 in 2001 as compared to $26,339 in 2002, partially offset
by several restructuring and impairment related charges aggregating $25,400 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 and selling, general and administrative expenses are
summarized in the following table:
FOR THE YEARS ENDED DECEMBER 31
------------------------------------------------------------------------------------------------------
VARIANCE IN VARIANCE IN VARIANCE IN VARIANCE IN
2003 2002 DOLLARS PERCENT 2002 2001 DOLLARS PERCENT
------------ ------------ ------------ ----------- ------------ ------------ ------------ -----------
Engineering.............. $ 156,328 $ 142,602 $ 13,726 9.6% 142,602 $ 149,523 $ (6,921) (4.6)%
Percent of Net Sales... 10.2% 10.2% 10.2% 10.1
Selling, general and
administrative......... $ 421,132 $ 343,971 $ 77,161 22.4% 343,971 $ 329,044 $ 14,927 4.5%
Percent of Net Sales..... 27.5% 24.5% 24.5% 22.1
OPERATING EXPENSES - FOR THE YEAR ENDED DECEMBER 31, 2003
Total operating expenses of $667,728 increased 28.6 percent for the
year ended December 31, 2003 from $519,379 in 2002. These increases are largely
driven by accounting consequences related to our stock-based compensation plans
which resulted in a recovery of $68,084 in 2002 but additional costs of $17,087
for the year ended December 31, 2003. Also contributing to the increased
operating expenses are costs associated with our restatement and the ongoing
government investigation as further described below.
Included in total operating expenses, and as more fully described in
our Note 15 to the Consolidated Financial Statements are amounts associated with
non-cash compensation expenses associated with our stock option plans. Such
amounts were expenses of $17,087 and recoveries of $68,084 for the year ended
December 31, 2002. As of March 31, 2003, due to the inability of Symbol to make
timely filings with the Commission, our stock option plans were held in
abeyance, meaning that our employees could not exercise their options until we
became current with our filings. As an accommodation to both current and former
Symbol associates whose options were impacted by this suspension, the
Compensation Committee of the Board approved an abeyance program that allowed
associates whose options were affected during the suspension period the right to
exercise such options up to 90 days after the end of the suspension period. This
resulted in a new measurement date for those options, which led to a non-cash
accounting compensation charge for the intrinsic value of those vested options
when the employee either terminated employment during the suspension period or
within the 90 day period after the end of the suspension period. On February 25,
2004, the date on which we became current with our regulatory filings with the
SEC, this suspension period ended. In addition, due to our delinquent filings
with the SEC, we incurred non-cash compensation expenses associated with our
Employee Stock Purchase Plan ("ESPP") as the ESPP lost its exempt tax status.
38
Engineering costs for the year ended December 31, 2003 increased 9.6
percent to $156,328 from $142,602 for 2002. The increase was due to the
acquisition of Covigo to expand our software solutions offerings, and continued
investment in our product offerings. The increase was consistent with projected
and actual revenue growth as engineering spending as a percentage of revenue
remained relatively consistent in the 10 percent range. The increased spending
was spread across all product lines.
Selling, general and administrative expenses for the year ended
December 31, 2003 increased 22.4 percent to $421,132 from $343,971 for 2002. The
increase was attributable to additional professional fees associated with our
internal investigation as well as higher variable costs due to a 9.2 percent
increase in revenues, partially offset by the absence of a $8,597 pre-tax
severance charge recorded in 2002 for our former President and Chief Executive
Officer. 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
of $35,900 in 2003 as compared with $9,200 incurred in 2002. The increase was
also attributable to severance costs incurred during 2003 aggregating
approximately $13,208 primarily for the reorganization and releveling of the
international sales organization.
Excluding the restatement and investigation costs from both 2003 and
2002, the severance costs from 2003 and the executive compensation and benefits
charge from 2002, selling, general and administrative expenses for the year
ended December 31, 2003 increased 14.1 percent to $372,024 from $326,174
primarily due to higher variable costs associated with the increase in revenues.
As a percentage of total revenue, selling, general and administrative expenses,
excluding the above mentioned items, increased to 24.3 percent in 2003 as
compared to 23.3 percent in 2002.
As more fully described in Note 14 of the Notes to the Consolidated
Financial Statements we continue to negotiate with regard to the investigations
and our outstanding class action lawsuits. During the quarter ended March 31,
2003 we recorded a $72,000 loss provision for legal settlements as compared to a
charge in the quarter ended December 31, 2002 of $70,000.
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 expenses and more
fully described in Note 14 of the Notes to the Consolidated Financial Statements
is a charge of $28,300 related to these matters, which was recorded in the
fourth quarter of 2002.
OPERATING EXPENSES - FOR THE YEAR ENDED DECEMBER 31, 2002
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 the additional professional fees of $9,245 associated
with our internal investigation and the severance charge of $8,597 recorded in
2002 for our former President and Chief Executive Officer. 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 our
Telxon acquisition in November 2000. 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.
As more fully described in Note 14 of the Notes to the Consolidated
Financial Statements we continue to negotiate with regard to the investigations
and our outstanding class action lawsuits. During the quarter ended December 31,
2002 we recorded a $70,000 loss provision for legal settlements. Also, in
November 2003 we reached a tentative settlement of certain litigation related to
Telxon, one of our wholly owned subsidiaries, enabling
39
us to quantify our likely liability. Reflected in total operating expenses is a
charge of $28,300 related to these matters, which was recorded in the fourth
quarter of 2002. No such charges were recorded in 2001.
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 Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("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, 2003 and
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,
2003 and 2002, respectively.
Adjusted financial information assuming SFAS No. 142 had been adopted
as of January 1, 2000 is as follows:
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------
2003 2002 2001
---------- ----------- ----------
Net earnings/(loss), as reported............................ $ 3,295 $ (44,915) $ (17,769)
Goodwill amortization, net of tax........................... -- -- 14,823
---------- ----------- ----------
Adjusted net (loss)/earnings................................ $ 3,295 $ (44,915) $ (2,946)
========== =========== ==========
BASIC LOSS PER SHARE:
Net loss, as reported....................................... $ 0.01 $ (0.20) $ (0.08)
Goodwill amortization, net of tax........................... -- -- 0.07
---------- ----------- ----------
Adjusted net (loss)/earnings................................ $ 0.01 $ (0.20) $ (0.01)
=========== =========== ===========
DILUTED LOSS PER SHARE:
Net loss as-reported........................................ $ 0.01 $ (0.20) $ (0.08)
Goodwill amortization, net of tax........................... -- -- 0.07
---------- ----------- ----------
Adjusted net (loss)/earnings................................ $ 0.01 $ (0.20) $ (0.01)
=========== =========== ===========
OTHER (EXPENSE)/INCOME
Interest expense for the year ended December 31, 2003 decreased to
$10,590 or 37.0 percent from $16,801 in 2002 primarily due to reduced debt
levels as a result of the repurchase in 2002 of Telxon's remaining convertible
debt, net repayments under our revolving credit facility and annual mandatory
repayments of other indebtedness, without incurring any new borrowings in 2002
or 2003. 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 reduced debt
levels.
Interest income for the year ended December 31, 2003 increased 27.9
percent to $2,969 from $2,322 for 2002, primarily due to the investments of
additional cash from operations into overnight deposits with local banks,
primarily in our non-U.S. locations. Interest income for the year ended December
31, 2002 decreased 19.3 percent
40
to $2,322 from $2,876 for 2001 primarily due to lower cash balances available
for very short term investments particularly during the first half of 2002.
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. 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.
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 as of September 30, 2001. Our conclusion was based on the fact that
Cisco common stock had been trading substantially below our historical cost for
eight months as of September 30, 2001, with no clear evidence at the time that
its trading price would recover to our historical cost. In accordance with SFAS
No. 115, "Accounting for Certain Investments in Debt and Equity Securities," a
pre-tax impairment charge of $22,236 was included in impairment of investments
as a component of other income/(expense) in the Consolidated Statements of
Operations. In addition, 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.
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 (expense)/income
in each reporting period. The net impact of these fair value adjustments
resulted in other (expense)/income of $(1,140) for 2003, $16,275 for 2002, and
$4,647 for 2001. On April 1, 2003 we designated a portion of the embedded equity
collar as a fair value hedge of our Cisco shares classified as available for
sale securities. Since the collar was effective, the change in the fair value of
Cisco shares classified as available for sale of $8,379 was recorded as other
income.
Our effective income tax rate was 15.5 percent for 2003. 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
2003, the effective rate was reduced by the impact of research and
experimentation credits and export sales benefits partially offset by valuation
allowances and nondeductible items. Our effective income tax rate was (27.2)
percent for 2002 as the favorable impact of tax credits was more than offset by
additional valuation allowances and the unfavorable impact of non-deductible
compensation expenses. Our effective income tax rate was 1.2 percent in 2001 as
the favorable impact of tax credits was more than offset by state tax provisions
and the non tax-deductibility of the amortization of goodwill as well as
additional valuation allowances.
LIQUIDITY AND CAPITAL RESOURCES (AMOUNT IN THOUSANDS)
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 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 2003, we generated positive cash flow from operating activities
of $233,765 and experienced an overall increase in cash of $73,896. The positive
cash flow provided by operating activities as well as the proceeds from the
exercise of stock options, warrants and the employee stock purchase plan were
used to repay long-term debt, purchase property, plant and equipment, invest 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, 2003 increased to $233,765 a 31.7 percent improvement from the $177,470
reported in 2002. The improvement was primarily attributable to
41
improved gross profit margins as well as continued improvement in managing
receivables and inventory. Net cash used in investing activities for the year
ended December 31, 2003 was $79,268 a 81.7 percent increase from $43,632
reported in 2002 primarily resulting from increased purchases of property, plant
and equipment due to investments made in administrative software and systems to
enhance our back office capabilities and improve customer service. Over the next
12-18 months we expect to continue to make investments in property, plant and
equipment in the range of $100,000. Cash flow used in financing activities for
the year ended December 31, 2003 was $92,338 a 31.4 percent decrease from
$134,565 reported in 2002 as a result of lower debt repayments in 2003. During
2002 the Company paid off in full its remaining obligation under its convertible
notes and debentures and in 2003 paid off in full its remaining obligations
under its revolving credit facility.
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, invest 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.
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, 2003, we had no loans
outstanding under these lines. These agreements continue until such time as
either party terminates the agreements.
OTHER LIQUIDITY MEASURES
Other measures of our liquidity including the following:
YEAR ENDED DECEMBER 31,
---------------------------------------
2003 2002 2001
-------- -------- --------
Working capital...................................................... $197,808 $216,316 $559,880
(current assets minus current liabilities)
Current ratio (current assets to current liabilities)................ 1.4:1 1.5:1 2.7:1
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)....................................................... 9.7% 13.3% 23.4%
Current assets as of December 31, 2003 increased by $43,615 from
December 31, 2002, principally due to an increase in cash due to improved cash
flows from operations partially offset by a decrease in inventories due to
improved inventory management techniques. Current liabilities as of December 31,
2003 increased $62,123 from December 31, 2002 primarily due to an increase in
accounts payable and accrued expenses of which $72,000 was an additional
liability established in 2003 for settlements of certain shareholder litigation
and government investigations. As a result, working capital decreased $18,508
between December 31, 2002 and December 31, 2003. Our current ratio of 1.4:1 at
December 31, 2003 decreased from 1.5:1 at December 31, 2002.
The decline in working capital and the current ratio as of December 31,
2003 as compared to December 31, 2002 continues a trend in the decline of these
liquidity measures reported for December 31, 2002 as compared to December 31,
2001. The primary factors contributing to this trend are a decline in inventory
balances of $338,165 as of December 31, 2001 due to improved inventory
management techniques and a decline in deferred income taxes
42
from $288,402 as of December 31, 2001. Also contributing to the trend in these
declining liquidity measures is an increase in accounts payable and accrued
expenses from $272,486 as of December 31, 2001 primarily as a result of net
liabilities established in both 2002 and 2003 of $98,300 and $72,000,
respectively, for various legal settlements. These declines were partially
offset by increased cash balances as a result of improved cash flow from
operations in both 2002 and 2003.
Our long-term debt to capital ratio decreased to 9.7 percent at
December 31, 2003, from 13.3 percent at December 31, 2002, 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 matured on December 31, 2003, but was renewed for an
additional three months without the payment of amounts outstanding at such time.
Subsequent to December 31, 2003, we have been unable to securitize additional
lease receivables until we provide certain financial information to the
financial institution. During the years ended December 31, 2003 and 2002, we
securitized approximately $7,275 and $17,219, respectively, of lease receivables
which resulted in up front proceeds from new securitizations of $4,400 and
$10,000, 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 of the Notes to the Consolidated Financial Statements included
elsewhere herein.
EXISTING INDEBTEDNESS
At December 31, 2003 and 2002, long-term debt outstanding, excluding
current maturities, was as follows:
DECEMBER 31, 2003 DECEMBER 31, 2002
----------------- -----------------
(IN THOUSANDS)
Revolving credit facility ............................. $ -- $ 80,000
Senior notes .......................................... -- 6,349
SAILS exchangeable debt ............................... 98,927 55,194
Other ................................................. 319 752
-------- --------
99,246 142,295
Less: current maturities .............................. 234 6,681
-------- --------
Long-term debt ........................................ $ 99,012 $135,614
======== ========
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 shares of Cisco
common stock had a market value of $54,496 at December 31, 2002 and $100,797 at
December 31, 2003. Such shares are held as collateral to secure the debt
43
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").
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 Cisco shares classified as trading securities. As a result of the
April 1, 2003 designation of a portion of the embedded equity collar as a fair
value hedge of our Cisco common stock classified as available for sale
securities, changes in the fair value of those securities between accounting
periods are recorded in other income/(expense) to the extent the embedded collar
is effective.
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 Related to Certain
Contracts," as there exists a legal right of offset. The SAILS liability, net of
the derivative asset, represents $98,927 at December 31, 2003.
The remaining portion of long-term debt outstanding relates to capital
lease obligations and various other loans maturing through 2007.
CONTRACTUAL CASH OBLIGATIONS
The following is a summary of the contractual commitments associated
with our debt and lease obligations as of December 31, 2003.
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------------
TOTAL 2004 2005 2006 2007 2008 THEREAFTER
--------- -------- --------- --------- --------- --------- -----------
Long-term debt................. $ 98,946 $ -- $ 8 $ 6 $ 5 $ 98,927 $ --
Capital lease commitments...... 300 234 66 -- -- --
Operating lease commitments.... 106,015 20,774 18,050 15,436 13,307 11,317 27,131
--------- -------- --------- --------- --------- --------- -------
Total.......................... $ 205,261 $ 21,008 $ 18,124 $ 15,442 $ 13,312 $ 110,244 $27,131
========= ======== ========= ========= ========= ========= =======
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 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.
44
On an on-going basis, we evaluate our estimates and judgments,
including those related to product return reserves, allowance for doubtful
accounts 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 of the Notes 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, PRODUCT RETURN RESERVES AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
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.
We record accounts receivable, net of an allowance for doubtful
accounts. Throughout the year, we estimate our ability to collect outstanding
receivables and establish an allowance for doubtful accounts. In doing so, we
evaluate the age of our receivables, past collection history, current financial
conditions for key customers, and economic conditions. Based on this evaluation,
we establish a reserve for specific accounts receivable that we believe are
uncollectible. A deterioration in the financial condition of any key customer or
a significant slow down in the economy could have a material negative impact on
our ability to collect a portion or all of the accounts receivable. We believe
that analysis of historical trends and current knowledge of potential collection
problems provides us significant information to establish a reasonable estimate
for an allowance for doubtful accounts. However, since we cannot predict with
certainty future changes in the financial stability of our customers, our actual
future losses from uncollectible accounts may differ from our estimates, which
could have an adverse effect on our financial condition and results of
operations.
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 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.
45
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. 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 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.
46
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In January 2003, the FASB issued FASB Interpretation ("FIN") No. 46,
"Consolidation of Variable Interest Entities." In December 2003, the FASB issued
FIN No. 46 (Revised) ("FIN 46-R") to address certain FIN 46 implementation
issues. This interpretation requires that the assets, liabilities, and results
of activities of a Variable Interest Entity ("VIE") be consolidated into the
financial statements of the enterprise that has a controlling interest in the
VIE. FIN 46-R also requires additional disclosures by primary beneficiaries and
other significant variable interest holders. For entities acquired or created
before February 1, 2003, this interpretation is effective no later than the end
of the first interim or annual reporting period ending after March 15, 2004,
except for those VIE's that are considered to be special purpose entities, for
which the effective date is no later than the end of the first interim or annual
reporting period ending after December 15, 2003. The Company does not hold any
significant interests in VIE's that would require consolidation or additional
disclosures.
In November 2003, the EITF reached partial consensus on EITF 03-1, "The
Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments." EITF 03-1 provides guidance on the new requirements for
other-than-temporary impairment and its application to debt and marketable
equity investments that are accounted for under SFAS No. 115. The new
requirements on disclosures are effective for fiscal years ending after December
15, 2003. The implementation of EITF 03-1 did not 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 2003, 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, 2003, a five percent strengthening of the
U.S. dollar against every applicable foreign currency would have had a $24,500
negative impact on our revenues for the year ended December 31, 2003. While a
five percent weakening of the U.S. dollar against every applicable foreign
currency would have had a $27,100 positive impact on our revenues We did not use
foreign exchange contracts to hedge expected revenues for the year ended
December 31, 2003. 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.
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, 2003, a five percent strengthening of the U.S. dollar against every
applicable currency would have had a $13,700 negative impact on the value of the
realized cash remittances from our subsidiaries during the year ended December
31, 2003. While a five percent weakening of the U.S. dollar against every
applicable currency would have had a $15,100 positive impact on the value of the
realized cash remittances from our subsidiaries. We routinely use foreign
exchange contracts to hedge cash flows that are either firm commitments or those
which may be forecasted to occur.
47
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, 2003 is U.S.
dollar denominated at fixed rates of interest. During 2003, 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, 2003,
approximately 3,411.2 shares are classified as trading and 748.8 shares are
classified as available for sale securities. 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, 2003, 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 $1,818, while a 10 percent increase (decrease) in the assumed
volatility used to value the option would have a positive (negative) earnings
impact of approximately $700.
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 are subject
to certain limitations, including the exercise of judgment by individuals, the
difficulty to identify unlikely future events, and the difficulty 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.
During 2002 and 2003, we learned of certain deficiencies in our
internal controls that existed in 2002 and prior years. These deficiencies are
summarized as follows:
o decentralized accounting structure for operations in the United
States;
o inadequate hiring of qualified and experienced personnel;
o inadequate training and supervision of personnel;
o inadequate systems and systems interfaces;
o errors and irregularities related to the timing and amount of
revenue recognized;
o errors and irregularities in the timing and recording of certain
reserves.
We have taken measures to improve the effectiveness of our internal controls and
we believe these efforts address the matters described above. Certain measures
we have taken through December 31, 2003 include, but are not limited to, the
following:
o centralized our United States regional finance organizations,
with direct reporting responsibilities to the Chief Financial
Officer;
o hired additional qualified and experienced personnel, specifically
in finance, including a business controller;
o established training plans for personnel;
o restructured our finance organization to ensure adequate
supervision of personnel;
o implemented formal review processes of transactions where there
still exists manual intervention;
48
o approved and are implementing a software and systems upgrade that
will improve the integration of our sales finance departments.
However, as of December 31, 2003, there are still several deficiencies in our
internal controls relating to the adequacy and timelines of account
reconciliations, formalized worldwide policies and procedures, and the amount of
manual journal entries required to record transactions. In addition, we have
identified a material weakness related to the manner in which we process
transactions to record our revenue. Our current processes and procedures to
record revenue transactions require substantial manual intervention and are
reliant on several departments in our sales and finance organization.
Management has and is continuing to address this weakness as follows:
o Centralized the responsibility for ensuring the accuracy and
completeness of reporting revenue with a Revenue Controller who
reports directly to the Chief Accounting Officer;
o Investing in software and hardware systems upgrades that will
improve the integration of our sales, finance and accounting
departments, and improve the accuracy of our revenue reporting.
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, 2003, the end of the period covered by this
report. Based upon the evaluation, Symbol's management, including its Chief
Executive Officer and its Chief Financial Officer, concluded that, as of
December 31, 2003, Symbol's disclosure controls and procedures were effective,
except as described above, at the reasonable assurance level to 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.
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, however, 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 Report on Form 10-K contains the information required to be included in
accordance with the Exchange Act.
During the fourth quarter 2003, we continued to make improvements in
our financial reporting by continuing to hire qualified personnel and refine
our formal review processes of manual transactions. We will continue to assess
our internal controls and procedures and will take any further actions that we
deem necessary.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding Directors and Executive Officers appearing
under the headings "Proposal 1: Election of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance" of our 2004 Proxy Statement is
incorporated by reference in this section. The information under the heading
"Executive Officers of the Registrant" in Item 4A of this Form 10-K is also
incorporated by reference in this section.
ITEM 11. EXECUTIVE COMPENSATION
The information appearing under the headings "Executive Compensation,"
"Option Grants in Last Fiscal Year," "Option Exercises and Fiscal Year-End
Values," "Employment Agreements," "Option Plans," "401(k) Plan,"
49
"Executive Retirement Plan," "Equity Compensation Plan Information," and
"Compensation Committee Interlocks and Insider Participation" of the 2004 Proxy
Statement is incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information appearing in our 2004 Proxy Statement under the heading
"Security Ownership of Certain Beneficial Owners and Management" is incorporated
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing in our 2004 Proxy Statement under the heading
"Certain Relationships and Related Transactions" is incorporated by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The information appearing in our 2004 Proxy Statement under the
headings "Report of the Audit Committee of the Board of Directors," "Fees to
Independent Auditors for Fiscal 2003 and 2002" and "Appointment of Certified
Public Accountants" is incorporated by reference.
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.
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)
50
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 2001 Non-Executive Stock Option Plan, as amended and restated.
(Incorporated by reference to Exhibit 10.9 on Form 10-K/A for the year
ended December 31, 2002)
10.10 Telxon Corporation 1990 Employee Stock Option Plan. (Incorporated by
reference to Exhibit 10.9 of Symbol's Annual Report on Form 10-K for
the year ended December 31, 2002 (the "2002 Form 10-K"))
10.11 Telxon Corporation 1990 Non-Employee Stock Option Plan. (Incorporated
by reference to Exhibit 10.10 of the 2002 Form 10-K)
10.12 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"))
10.13 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)
10.14 Separation, Release and Employment Agreement by and between Symbol and
Jerome Swartz, dated as of July 7, 2003. (Incorporated by reference to
Exhibit 10.13 of the 2002 Form 10-K)
10.15 Employment Agreement by and between Symbol and Leonard R. Goldner,
dated as of December 15, 2000. (Incorporated by reference to Exhibit
10.10 to the 2000 Form 10-K)
10.16 Without Prejudice Resignation Agreement by and between Symbol and
Leonard Goldner, dated as of June 30, 2003. (Incorporated by reference
to Exhibit 10.15 to the 2002 10-K)
10.17 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)
51
10.18 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)
10.19* Letter Agreement by and between Symbol and Richard Bravman, dated as of
March 1, 2004.
10.20 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)
10.21 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)
10.22 Tolling Agreement by and between Symbol and Tomo Razmilovic, dated as
of May 6, 2003. (Incorporated by reference to Exhibit 10.20 to the 2002
Form 10-K)
10.23 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)
10.24 2002 Executive Stock Ownership and Option Retention Program, dated as
of December 16, 2002. (Incorporated by reference to Exhibit 10.22 of
the 2002 Form 10-K)
10.25 Summary of Symbol Technologies, Inc. Executive Bonus Plan.
(Incorporated by reference to Exhibit 10.13 of the 1999 Form 10-K)
10.26 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.
(Incorporated by reference to Exhibit 10.33 of the 2002 Form 10-K)
10.27 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.
(Incorporated by reference to Exhibit 10.34 of the 2002 Form 10-K)
21* 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
-------------------
The following Reports on Form 8-K were filed during the quarter ended December
31, 2003:
Date Filed Item No(s). Description
- ---------- ----------- ------------
October 14, 2003 5 Filing of a press release updating the
status of the litigation between Symbol's
wholly owned subsidiary, Telxon
Corporation, and Smart Media.
October 15, 2003 5 Amendment to October 14, 2003 filing.
(8-K/A)
October 16, 2003 7 and 12 Filing of a press release, webcast
presentation and teleconference
transcript disclosing unaudited results
for the first and second quarter of
fiscal year 2003 as well as the impact of
the pending restatement on previously
reported financial results for fiscal
years 1998 through 2002.
November 4, 2003 7 and 12 Filing of a press release reporting
unaudited results for the third quarter
of fiscal year 2003.
December 30, 2003 5, 7 and 12 Filing of a press release regarding the
resignation of Symbol's Chief Executive
Officer and Acting Chairman of the Board
of Directors, the appointments of (i)
President and COO William Nuti as Chief
Executive Officer and member of the Board
of Directors and (ii) lead independent
director Salvatore Iannuzzi as
non-executive Chairman of the Board of
Directors, and other matters related to
the restatement and the filing of
Symbol's annual report on Form 10-K for
the fiscal year ended December 31, 2002.
52
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: March 12, 2004
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/ George Bugliarello Director March 12, 2004
- --------------------------------
George Bugliarello
/s/ Robert J. Chrenc Director March 12, 2004
- --------------------------------
Robert J. Chrenc
/s/ Leo A. Guthart Director March 12, 2004
- --------------------------------
Leo A. Guthart
/s/ Salvatore Iannuzzi Director, Chairman of the Board of Directors March 12, 2004
- --------------------------------
Salvatore Iannuzzi
Director
- --------------------------------
Edward Kozel
/s/ Harvey P. Mallement Director March 12, 2004
- --------------------------------
Harvey P. Mallement
/s/ Raymond R. Martino Director March 12, 2004
- --------------------------------
Raymond R. Martino
/s/ William R. Nuti Chief Executive Officer, President, Chief Operating March 12, 2004
- -------------------------------- Officer and Director (principal executive officer)
William R. Nuti
Director
- --------------------------------
George Samenuk
/s/ James Simons Director March 12, 2004
- --------------------------------
James Simons
53
SIGNATURE TITLE DATE
- -------------------------------- -------------------------------------------------- -----------------------
/s/ Melvin A. Yellin Director March 12, 2004
- --------------------------------
Melvin A. Yellin
/s/ Mark T. Greenquist Senior Vice President Finance-Chief Financial March 12, 2004
- -------------------------------- Officer (principal financial officer)
Mark T. Greenquist
/s/ James M. Conboy Vice President-Controller and Chief Accounting March 12, 2004
- -------------------------------- Officer (principal accounting officer)
James M. Conboy
54
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, 2003 AND 2002 AND
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2003
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES AS OF DECEMBER 31, 2003 AND 2002 AND FOR EACH OF
THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2003
I N D E X
PAGE
----
Independent auditors' report F-1
Consolidated financial statements:
Balance sheets F-2
Statements of operations F-3
Statements of stockholders' equity F-4
Statements of cash flows F-6
Notes to consolidated financial statements (1-19) F-7
Additional financial information pursuant to the requirements of Form 10-K:
Schedule:
II - Valuation and qualifying accounts S-1
Schedules not listed above have been omitted because they are either not
applicable or the required information has been provided elsewhere in the
Consolidated Financial Statements or notes thereto.
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF SYMBOL TECHNOLOGIES, INC.
HOLTSVILLE, NEW YORK
We have audited the accompanying consolidated balance sheets of Symbol
Technologies, Inc. and subsidiaries (the "Company") as of December 31, 2003 and
2002, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 2003. 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, 2003 and 2002, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2003 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 6 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
March 12, 2004
F-1
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share data)
DECEMBER 31, DECEMBER 31,
ASSETS 2003 2002
- ------ ------------ ------------
CURRENT ASSETS:
Cash and cash equivalents ........................................................... $ 150,017 $ 76,121
Accounts receivable, less allowance for doubtful accounts of $13,946 and $34,272
respectively ...................................................................... 152,377 151,417
Inventories ......................................................................... 212,862 261,096
Deferred income taxes ............................................................... 182,571 167,489
Prepaid and refundable income taxes ................................................. -- 1,360
Other current assets ................................................................ 36,204 32,933
----------- -----------
Total current assets .............................................................. 734,031 690,416
Property, plant and equipment, net .................................................. 210,888 208,209
Deferred income taxes ............................................................... 228,470 222,475
Investments in marketable securities ................................................ 102,136 54,939
Goodwill, net ....................................................................... 302,467 301,023
Intangible assets, net .............................................................. 33,729 37,125
Other assets ........................................................................ 34,797 58,008
----------- -----------
Total assets ..................................................................... $ 1,646,518 $ 1,572,195
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses ............................................... $ 490,666 $ 427,568
Current portion of long-term debt ................................................... 234 6,681
Deferred revenue .................................................................... 34,615 32,903
Income taxes payable ................................................................ 5,468 --
Accrued restructuring expenses ...................................................... 5,240 6,948
----------- -----------
Total current liabilities ........................................................ 536,223 474,100
Long-term debt, less current maturities ............................................. 99,012 135,614
Deferred revenue .................................................................... 19,729 15,821
Other liabilities ................................................................... 70,956 58,921
Commitments and contingencies (Note 14)
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 256,897 shares
and 256,589 shares, respectively .................................................. 2,569 2,566
Additional paid-in capital .......................................................... 1,342,229 1,323,085
Accumulated other comprehensive earnings/(loss), net ................................ 4,498 (13,096)
Accumulated deficit ................................................................. (189,669) (188,340)
----------- -----------
1,159,627 1,124,215
LESS:
Treasury stock at cost, 26,130 shares and 25,962 shares, respectively ............... (239,029) (236,476)
----------- -----------
Total stockholders' equity ....................................................... 920,598 887,739
----------- -----------
Total liabilities and stockholders' equity ..................................... $ 1,646,518 $ 1,572,195
=========== ===========
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,
---------------------------------------------------
2003 2002 2001
----------- ----------- -----------
REVENUE:
Product ............................................. $ 1,223,853 $ 1,103,070 $ 1,206,176
Services ............................................ 306,425 298,547 281,280
----------- ----------- -----------
1,530,278 1,401,617 1,487,456
COST OF REVENUE:
Product cost of revenue ............................. 635,103 693,980 826,766
Services cost of revenue ............................ 219,926 219,985 219,310
----------- ----------- -----------
855,029 913,965 1,046,076
----------- ----------- -----------
Gross profit ........................................ 675,249 487,652 441,380
----------- ----------- -----------
OPERATING EXPENSES:
Engineering ......................................... 156,328 142,602 149,523
Selling, general and administrative ................. 421,132 343,971 329,044
Stock based compensation expense/(recovery) ......... 17,087 (68,084) (92,760)
Loss provision for legal settlements ................ 72,000 98,300 --
Restructuring and impairment charges ................ 1,181 2,590 10,218
Merger integration charges .......................... -- -- 9,238
Amortization of goodwill ............................ -- -- 14,823
----------- ----------- -----------
667,728 519,379 420,086
----------- ----------- -----------
Earnings/(loss) from operations ..................... 7,521 (31,727) 21,294
----------- ----------- -----------
OTHER (EXPENSE)/INCOME:
Interest income ..................................... 2,969 2,322 2,876
Interest expense .................................... (10,590) (16,801) (22,145)
Impairment of investments ........................... (3,550) (32,200) (23,757)
Other income, net ................................... 7,551 16,676 4,177
----------- ----------- -----------
(3,620) (30,003) (38,849)
----------- ----------- -----------
Earnings/(loss) before income taxes ................. 3,901 (61,730) (17,555)
Provision for/(benefit from) income taxes ........... 606 (16,815) 214
----------- ----------- -----------
Net earnings/(loss) ................................. $ 3,295 $ (44,915) $ (17,769)
=========== =========== ===========
EARNINGS/(LOSS) PER SHARE:
Basic and diluted ................................... $ 0.01 $ (0.20) $ (0.08)
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING:
Basic ............................................... 230,710 229,593 227,173
=========== =========== ===========
Diluted ............................................. 236,449 229,593 227,173
=========== =========== ===========
See notes to Consolidated Financial Statements
F-3
NY\857228.24
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2001, 2002, AND 2003
(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
------------- ------- ---------- ------------ ---------- ----------
BALANCE, JANUARY 1, 2001.... 247,295 $2,473 $1,408,760 $(1,461) $(117,261) $(188,782)
Comprehensive loss:
Net loss.................... -- -- -- -- (17,769) --
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)
Re-issuance of treasury
shares.................... -- -- -- -- -- 7,953
Dividends paid.............. -- -- -- -- (3,797)
------- --------- ---------- ----------- --------- ---------
BALANCE, DECEMBER 31, 2001.. 253,313 $2,533 $1,373,432 -- $(138,827) $(222,104)
ACCUMULATED
OTHER
COMPREHENSIVE COMPREHENSIVE
EARNINGS (LOSS) EARNINGS (LOSS) TOTAL
--------------- --------------- -----------
BALANCE, JANUARY 1, 2001.... $(11,142) $1,092,587
Comprehensive loss:
Net loss.................... $ (17,769) -- (17,769)
Translation adjustments, net
of tax.................... (6,409) (6,409) (6,409)
Unrealized losses on
available for sale
securities, net of tax.... 1,417 1,417 1,417
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 on
remeasured unvested stock
options................... -- 1,461
Purchase of treasury shares. -- (41,275)
Re-issuance of treasury
shares.................... -- 7,953
Dividends paid.............. -- (3,797)
--------- ---------
BALANCE, DECEMBER 31, 2001.. $(15,919) $999,115
See notes to Consolidated Financial Statements
F-4
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2001, 2002, AND 2003
(Amounts in thousands, except per share data)
COMMON STOCK $0.01 PAR VALUE ADDITIONAL RETAINED
---------------------------- PAID-IN EARNINGS/ TREASURY
SHARES ISSUED AMOUNT CAPITAL (DEFICIT) STOCK
------------- ------- ---------- ---------- ----------
Comprehensive loss:
Net loss.................... -- $ -- $ -- $(44,915) $ --
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 (188,340) (236,476)
Comprehensive earnings:
Net earnings................ -- -- -- 3,295 --
Translation adjustments, net --
of tax.................... -- -- -- --
Unrealized gains on --
available for sale
securities, net of tax.... -- -- -- --
Total comprehensive --
earnings.................. -- -- -- --
Stock option abeyance....... -- -- 10,539 -- --
Exercise of stock options... 308 3 2,119 -- --
ESPP differential........... -- -- 6,137 -- --
Stock based compensation
expense................... -- -- 349 -- --
Purchase of treasury shares. -- -- -- -- (2,553)
Dividends paid.............. -- -- -- (4,624) --
------- --------- ---------- --------- ---------
BALANCE, DECEMBER 31, 2003 256,897 $ 2,569 $1,342,229 $(189,669) $(239,029)
======= ========= ========== ========= =========
ACCUMULATED
OTHER
COMPREHENSIVE COMPREHENSIVE
EARNINGS (LOSS) EARNINGS (LOSS) TOTAL
--------------- --------------- -----------
Comprehensive loss:
Net loss.................... $ (44,915) $ -- $(44,915)
Translation adjustments, net
of tax.................... 6,663 6,663 6,663
Unrealized gains on
available for sale
securities, net of tax.... (3,840) (3,840) (3,840)
-----------
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.. (13,096) 887,739
Comprehensive earnings:
Net earnings................ 3,295 -- 3,295
Translation adjustments, net
of tax.................... 17,009 17,009 17,009
Unrealized gains on
available for sale
securities, net of tax.... 585 585 585
-----------
Total comprehensive
earnings.................. $ 20,889 -- --
===========
Stock option abeyance....... -- 10,539
Exercise of stock options... -- 2,122
ESPP differential........... -- 6,137
Stock based compensation
expense................... -- 349
Purchase of treasury shares. -- (2,553)
Dividends paid.............. -- (4,624)
--------- ---------
BALANCE, DECEMBER 31, 2003 $ 4,498 $ 920,598
========= =========
See notes to Consolidated Financial Statements
F-5
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------
2003 2002 2001
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings/(loss).................................... $ 3,295 $ (44,915) $ (17,769)
ADJUSTMENTS TO RECONCILE NET EARNINGS/ (LOSS) TO NET CASH
PROVIDED BY / (USED IN) OPERATING ACTIVITIES:
Depreciation and amortization of property, plant and
equipment............................................ 52,949 56,460 61,376
Other amortization..................................... 15,838 12,877 29,215
Provision for losses on accounts receivable............ 7,564 15,975 6,936
Provision for inventory writedown...................... 20,132 26,339 164,099
Provision for legal settlements........................ 72,000 98,300 --
Non cash restructuring, asset impairment and other charges 4,433 46,774 35,756
Non cash stock based compensation expense/(recovery)... 17,087 (65,092) (91,299)
Loss on sale of property, plant and equipment.......... 2,751 3,031 2,895
Unrealized holding (gain)/loss on marketable securities... (46,549) 17,090 98,862
Increase/(decrease) in fair value of derivative........ 39,311 (37,787) (90,063)
Deferred income taxes (benefit) provision.............. (6,232) (22,964) 18,370
Tax benefit on exercise of stock options and warrants.. 439 139 20,454
CHANGES IN OPERATING ASSETS AND LIABILITIES, NET OF
EFFECTS OF ACQUISITIONS AND DIVESTITURES:
Accounts receivable.................................... 3,588 (25,572) 18,718
Inventories............................................ 33,522 51,320 (126,444)
Other assets........................................... (1,239) 5,835 (43,097)
Net proceeds (payments) from lease securitizations..... 9,395 (3,930) 8,516
Accounts payable and accrued expenses.................. (7,447) 54,471 (106,632)
Accrued restructuring expenses......................... (1,708) (6,692) (37,885)
Other liabilities and deferred revenue................. 14,636 (4,189) 5,577
----------- ----------- -----------
Net cash provided by/(used in) operating activities.. 233,765 177,470 (42,415)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cost of companies purchased, net of cash acquired...... (14,993) (10,796) (2,872)
Proceeds from termination of collar arrangement........ -- -- 88,046
Proceeds from sale of property, plant and equipment.... 1,381 4,243 1,463
Purchases of property, plant and equipment............. (60,573) (34,703) (99,489)
Investments in intangible and other assets............. (5,083) (2,376) (7,995)
----------- ----------- -----------
Net cash used in investing activities................ (79,268) (43,632) (20,847)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable and long-term debt -- -- 169,949
Repayment of notes payable and long-term debt.......... (86,782) (51,837) (85,747)
Repurchase of convertible notes and debentures......... -- (84,432) (20,665)
Proceeds from exercise of stock options, warrants and
employee stock purchase plan......................... 4,178 15,074 38,142
Purchase of treasury shares............................ (5,110) (8,772) (15,421)
Dividends paid......................................... (4,624) (4,598) (3,797)
----------- ----------- -----------
Net cash (used in)/provided by financing activities.. (92,338) (134,565) 82,461
----------- ----------- -----------
Effects of exchange rate changes on cash............... 11,737 6,483 (1,458)
----------- ----------- -----------
Net increase in cash and cash equivalents.............. 73,896 5,756 17,741
Cash and cash equivalents, beginning of year........... 76,121 70,365 52,624
----------- ----------- -----------
Cash and cash equivalents, end of year............... $ 150,017 $ 76,121 $ 70,365
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID (RECEIVED) DURING THE YEAR FOR:
Interest............................................... $ 11,132 $ 15,598 $ 18,748
Income taxes........................................... 4,698 (11,513) 2,662
See notes to Consolidated Financial Statements
F-6
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2003 AND 2002
AND FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(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, 2003 and 2002. Such investments are stated at
cost, which approximates market value and were $63,021 and $19,249 in 2003 and
2002, 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 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. We performed an
F-7
impairment analysis in 2003 and 2002, as required by SFAS No. 142, and concluded
that the carrying amount of goodwill was not impaired (see Note 6).
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 $108,800, $72,845, and $93,682 for the years ended December 31,
2003, 2002 and 2001, 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. Investments
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
earnings 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 evaluate the carrying value of our investments in marketable
equity securities considered available-for-sale as required under the provisions
of SFAS No. 115.
Non-marketable Securities
We account for non-marketable investments using the equity method of accounting
if the investment gives the Company the ability to exercise significant
influence, but not control, over an investee. Significant influence generally
exists if the Company has an ownership interest representing between 20% and 50%
of the voting stock of the investee. Under the equity method of accounting,
investments are stated at initial cost and are adjusted for subsequent
additional investments and the Company's proportionate share of income or losses
and distributions. The Company records its share of the investees' earnings or
losses in other income (expense) in the Consolidated Statement of Operations.
Additional investments by other parties in the investee will result in a
reduction in the Company's ownership interest, and the resulting gain or loss
will be recorded in other income (expense) in the consolidated statement of
operations. Where the Company is unable to exercise significant influence over
the investee, investments are accounted for under the cost method. Under the
cost method, investments are carried at cost and adjusted only for the
other-than-temporary declines in fair value or additional investments.
i. Long-Lived Assets
We review our long-lived assets, other than intangible assets with indefinite
lives and goodwill, including property, plant and equipment and finite-lived
intangible assets, 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 do not equal or exceed the carrying value, we will recognize an impairment
equal to the amount by which the carrying amount exceeded the discounted value
of expected cash flows (fair value) of the asset.
F-8
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.
l. Guarantees and Product Warranties
FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN
45"), requires that upon issuance of a guarantee, the guarantor must disclosure
and recognize a liability for the fair value of the obligation it assumes under
that guarantee. The disclosure requirements of FIN 45 are applicable to the
Company's product warranty liability.
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.
Management reviews these estimates on a regular basis and adjusts the warranty
reserves as actual experience differs from historical estimates or other
information becomes available. This warranty liability primarily includes the
anticipated cost of materials, labor and shipping necessary to repair and
service the equipment.
The following table illustrates the changes in our warranty reserves for the
years ended December 31, 2003, 2002 and 2001, respectively:
F-9
2003 2002 2001
----------- ----------- -----------
Balance, beginning of year.......................................... $ 15,034 $ 12,556 $ 12,953
Charges to expense - cost of revenue................................ 34,559 39,249 29,314
Revisions in estimates.............................................. 2,800 -- --
Utilization/payment................................................. (31,565) (36,771) (29,711)
----------- ----------- -----------
Balance, end of year................................................ $ 20,828 $ 15,034 $ 12,556
=========== =========== ===========
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, 2003 approximates $77,194. 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. Earnings/(Loss) Per Share
Basic earnings/(loss) per share are based on the weighted average number of
shares of common stock outstanding during the period. Diluted earnings per share
amounts are based on the weighted average number of common and potentially
dilutive common shares (options and warrants) outstanding during the period
computed in accordance with the treasury stock method.
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 15,
during 2003, compensation expenses have been recognized related to options of
certain current and former associates and stock purchases under our Employee
Stock Purchase Plan ("ESPP"). Also during 2002, compensation expense has been
recognized for certain options granted through July 30, 2002.
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:
F-10
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------
2003 2002 2001
-------------- -------------- --------------
Net earnings/(loss) - as reported $ 3,295 $ (44,915) $ (17,769)
Stock based employee compensation expense/(recovery) included
in reported net earnings (loss), net of related tax effects.. 6,702 (41,872) (57,047)
Less total stock based employee compensation expense
determined under fair value based method for all awards, net
of related tax effects....................................... (20,510) (21,034) (21,363)
-------------- -------------- --------------
Pro forma net loss............................................. $ (10,513) $ (107,821) $ (96,179)
============== ============== ==============
Earnings/(loss) per share:.....................................
Basic and diluted - as reported................................ $ 0.01 $ (0.20) $ (0.08)
============== ============== ==============
Basic and diluted - pro forma.................................. $ (0.05) $ (0.47) $ (0.42)
============== ============== ==============
The weighted average fair value of options granted during 2003, 2002, and 2001
was $7.02, $4.53, and $11.21, 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 2.8 percent for 2003,
4.0 percent for 2002 and 5.5 percent for 2001; an expected option life of 4.7
years for 2003 and 2002, and 4 years for 2001; an expected volatility of 61
percent for 2003, 59 percent for 2002, and 45 percent for 2001; 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.
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 earnings/(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.
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
2003, 2002 or 2001.
The embedded equity collar contained in the private Mandatorily Exchangeable
Contract for Shared Appreciation Income Linked Securities ("SAILS") arrangement
(See Note 5) is considered 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, designated as trading securities, between reporting dates is
recognized through
F-11
operations in other income. As of April 1, 2003, we designated a portion of the
embedded equity collar as a fair value hedge of our Cisco shares designated as
available-for-sale securities.
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, 2003 and 2002, respectively, we had $40,673 and $25,267 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 $107 as of December 31, 2003, which was recorded
in the current assets and ($1,732) as of December 31, 2002, which was recorded
in current liabilities.
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 18)
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 the year ended December 31, 2001 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 the stock split. In addition, the number of common shares issued has
been adjusted to reflect the stock split and an amount equal to the par value of
the additional shares issued has been transferred from additional paid-in
capital to common stock.
t. Fair Value of Financial Instruments
The fair value of the Company's financial instruments, including cash and cash
equivalents, accounts payable and accrued expenses, approximate cost because of
their short maturities. The fair value of investments in marketable securities
is determined using quoted market prices.
u. Recently Issued Accounting Pronouncements
In January 2003, the FASB issued FASB Interpretation ("FIN") No. 46,
"Consolidation of Variable Interest Entities." In December 2003, the FASB issued
FIN No. 46 (Revised) ("FIN 46-R") to address certain FIN 46 implementation
issues. This interpretation requires that the assets, liabilities, and results
of activities of a Variable Interest Entity ("VIE") be consolidated into the
financial statements of the enterprise that has a controlling interest in
F-12
the VIE. FIN 46-R also requires additional disclosures by primary beneficiaries
and other significant variable interest holders. For entities acquired or
created before February 1, 2003, this interpretation is effective no later than
the end of the first interim or annual reporting period ending after March 15,
2004, except for those VIE's that are considered to be special purpose entities,
for which the effective date is no later than the end of the first interim or
annual reporting period ending after December 15, 2003. The Company does not
hold any significant interests in VIE's that would require consolidation or
additional disclosures.
In November 2003, the EITF reached partial consensus on EITF 03-1, "The Meaning
of Other-Than-Temporary Impairment and Its Application to Certain Investments."
EITF 03-1 provides guidance on the new requirements for other-than-temporary
impairment and its application to debt and marketable equity investments that
are accounted for under SFAS No. 115. The new requirements on disclosures are
effective for fiscal years ending after December 15, 2003. The implementation of
EITF 03-1 did not have a material impact on our consolidated financial
statements.
2. ACQUISITIONS
a. 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 loaned an entity affiliated with the minority shareholders $5,000 at
the time of the agreement, which was due 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 acquisition 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.
On January 10, 2004, the parties amended this transaction, whereby Symbol
Technologies Holdings do Brasil Ltda., a wholly owned subsidiary of the Company,
purchased an additional 34% ownership interest of Symbol Technologies do Brazil
Ltda. owned by two principals of Seal. The Company paid $4,050 and also forgave
the pre-existing $5,000 loan that had been made to an entity affiliated with the
principals of Seal. As a result of this transaction, the Company and Symbol
Technologies Holdings do Brasil Ltda. now owns 85% of the capital of Symbol
Technologies do Brasil Ltda. The principals of Seal can now earn up to a maximum
of approximately $3,900 if Symbol Technologies do Brasil Ltda. meets certain
sales targets over relevant time periods. Under the terms of the relevant
agreements, Symbol Technologies do Brasil Ltda. had its corporate form changed
into a corporation and it will eventually become a wholly owned subsidiary of
the Company, directly or indirectly.
F-13
b. @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.
c. Covigo Acquisition
In July 2003, we purchased all of the outstanding common and preferred shares of
Covigo, Inc. ("Covigo"), a creator of software used in developing and deploying
mobile computing applications, for approximately $12,500. The acquisition is
expected to enhance and expand the range of such applications that Symbol
offers. The acquisition was accounted for as a purchase and accordingly,
Covigo's operating results since the acquisition date have been included in
Symbol's Consolidated Financial Statements. Covigo became part of the Company's
Product segment. The assets acquired and liabilities assumed have been recorded
at their estimated fair values.
The following table summarizes the allocation of the purchase price to the
assets acquired and liabilities assumed at the date of acquisition.
Current assets $ 137
Property, plant and equipment 60
Deferred income taxes 7,665
Purchased software (five-year life) 3,200
Customer relationship (five-year life) 200
Goodwill 4,709
Other assets 18
Liabilities (3,480)
-------
$12,509
=======
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. Imageware Technologies, Inc.
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.
e. Cuesol, Inc.
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
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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.
f. 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 $709, $282 and $1,660 during the years ended December
31, 2003, 2002 and 2001, respectively, related to these acquisitions, which has
been recorded as goodwill.
3. INVENTORIES
DECEMBER 31, 2003 DECEMBER 31, 2002
----------------- -----------------
Raw materials .......................................................... $ 66,500 $ 82,115
Work in progress ....................................................... 24,422 39,931
Finished goods ......................................................... 121,940 139,050
--------- ---------
$ 212,862 $ 261,096
========= =========
The amounts shown above are net of inventory reserves of $109,331 and $170,057
as of December 31, 2003 and 2002, respectively, and include inventory on
consignment of $34,564 and $49,182 as of December 31, 2003 and 2002,
respectively.
4. PROPERTY, PLANT AND EQUIPMENT, NET
DECEMBER 31, 2003 DECEMBER 31, 2002
----------------- -----------------
Land ................................................................... $ 10,057 $ 11,006
Buildings and improvements ............................................. 72,380 74,063
Machinery and equipment ................................................ 121,530 106,603
Furniture, fixtures and office equipment ............................... 41,821 38,002
Computer hardware and software ......................................... 198,658 165,214
Leasehold improvements ................................................. 18,169 15,884
--------- ---------
462,615 410,772
Less: Accumulated depreciation and amortization ........................ (251,727) (202,563)
--------- ---------
$ 210,888 $ 208,209
========= =========
5. INVESTMENT IN MARKETABLE SECURITIES
As a result of the November 2000 acquisition of Telxon Corporation, 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 6.1 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 12(c)) with a highly rated financial institution for the
remaining 4,160 shares. These shares had a market value of $100,797 and $54,496
at December 31, 2003 and 2002, respectively. Such shares are held as collateral
to secure the debt instrument associated with the SAILS and are included in
Investment
F-15
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.
Approximately 3,411.2 of the Cisco shares are economically hedged in conjunction
with the SAILS arrangement and are 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. The changes in
market value of these trading securities and related derivative instrument of
approximately $(1,140), $16,275 and $4,647 for the years ended December 31,
2003, 2002, and 2001, respectively, have been included in other (expense)/income
in the Consolidated Statements of Operations. The remaining 748.8 Cisco shares
are classified as available-for-sale securities in accordance with SFAS No. 115
and on April 1, 2003 a portion of the embedded equity collar described above was
designated as a fair value hedge of these securities. To the extent the collar
is effective, the change in fair value of the Cisco shares classified as
available for sale securities are recorded as a component of other income or
expense rather than as other comprehensive income.
Under 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, 2003 DECEMBER 31, 2002
----------------- -----------------
Cost basis ............................................................. $ 10,090 $ 10,090
Gross unrealized holding gain on available-for-sale securities ......... 119 162
Gross unrealized holding gain on hedged available-for-sale
securities ............................................................. 9,069 --
--------- ---------
Aggregate fair market value ............................................ $ 19,278 $ 10,252
========= =========
Based on the provisions of SFAS No. 115 and the evidence reviewed, we determined
that there were no declines in market value for these investments which were
other than temporary in 2003, however certain declines in market value for these
investments were other-than-temporary in 2001. In accordance with the provisions
of SFAS No. 115, we recorded a pre-tax impairment charge of $23,757 in 2001.
These charges are shown 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, 2003 DECEMBER 31, 2002
----------------- -----------------
Cost basis ............................................................. $ 142,844 $ 142,844
Gross unrealized holding losses on trading securities .................. (59,986) (98,157)
--------- ---------
Aggregate fair market value ............................................ $ 82,858 $ 44,687
========= =========
F-16
6. GOODWILL AND OTHER INTANGIBLE ASSETS
The changes in the carrying amount of goodwill for the years ended December 31,
2003 and 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
Covigo acquisition.............................................. 4,709 -- 4,709
Translation adjustments......................................... 3,274 818 4,092
@POS goodwill adjustments (2)................................... (4,511) (1,128) (5,639)
Sweden earnout payment.......................................... 709 -- 709
Telxon goodwill adjustments..................................... (1,942) (485) (2,427)
-------------- -------------- --------------
Balance as of December 31, 2003................................. $ 246,253 $ 56,214 $ 302,467
============== ============== ==============
- -------------
(1) Includes $5,443 related to the reduction of certain liabilities
recorded at the time of the Telxon acquisition.
(2) Adjustment related to recording certain deferred tax assets in
connection with the acquisition.
Adjusted financial information assuming SFAS No. 142 had been adopted as of
January 1, 2001 is as follows:
YEAR ENDED DECEMBER 31,
------------------------------------------------
2003 2002 2001
-------------- -------------- --------------
Net earnings/(loss), as reported................................... $ 3,295 $ (44,915) $ (17,769)
Goodwill amortization, net of tax.................................. -- -- 14,823
-------------- -------------- --------------
Adjusted net earnings/(loss)....................................... $ 3,295 $ (44,915) $ (2,946)
============== ============== ==============
BASIC PER SHARE AMOUNTS:
Net earnings/(loss), as reported................................... $ 0.01 $ (0.20) $ (0.08)
Goodwill amortization, net of tax.................................. -- -- 0.07
-------------- -------------- --------------
Adjusted net earnings/(loss)....................................... $ 0.01 $ (0.20) $ (0.01)
============== ============== ==============
DILUTED PER SHARE AMOUNTS:
Net earnings/(loss), as reported................................... $ 0.01 $ (0.20) $ (0.08)
Goodwill amortization, net of tax.................................. -- -- 0.07
-------------- -------------- --------------
Adjusted net earnings/(loss)....................................... $ 0.01 $ (0.20) $ (0.01)
============== ============== ==============
Other than goodwill, finite life intangible assets, all of which are subject to
amortization, consist of the following:
DECEMBER 31, 2003 DECEMBER 31, 2002
----------------------------- -----------------------------
ACCUMULATED ACCUMULATED
GROSS AMOUNT AMORTIZATION GROSS AMOUNT AMORTIZATION
------------ ------------ ------------ ------------
Patents, trademarks and tradenames........... $ 35,080 $ (24,670) $ 31,624 $ (19,956)
Purchased technology......................... 27,800 (9,652) 24,817 (6,069)
Other........................................ 7,250 (2,079) 6,865 (156)
--------- --------- --------- ---------
$ 70,130 $ (36,401) $ 63,306 $ (26,181)
========= ========= ========= =========
These assets have estimated useful lives ranging from 3 to 10 years.
Amortization expense for these assets was $10,220, $6,849 and $8,381 for the
years ended December 31, 2003, 2002 and 2001, 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:
F-17
2004........................................................ $9,231
2005........................................................ 8,872
2006........................................................ 6,340
2007........................................................ 4,547
2008........................................................ 3,939
7. 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 2002.
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 as of July 2003 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.
8. 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 3.0 percent
and 2.4 percent at December 31, 2003 and 2002, respectively. Accrued interest
due under this loan is $3 at December 31, 2003. 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 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 due under
this loan is $6 at December 31, 2003. 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
F-18
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.
In January 2003, we loaned $500 to our Senior Vice President, Business
Development and Chief Information Officer. At the time of the loan, he was 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. This loan
was non-interest bearing and was repaid in full as of March 1, 2004. He became
an officer of the Company as defined in Rule 16a-1(f) of the Exchange Act and
for purposes of Section 16(a) of the Exchange Act on March 10, 2004.
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 Sheets.
9. LEASE SECURITIZATIONS
During 2000, we entered into a $50,000 lease receivable securitization
agreement. This agreement matured on December 31, 2003, but was renewed for an
additional three months without the payment of amounts outstanding at such time.
Since December 31, 2003, we have not been able to securitize additional lease
receivables until we provide certain financial information to the financial
institution. During the years ended December 31, 2003 and 2002, we securitized
approximately $7,275 and $17,219, respectively, of our lease receivables in
accordance with the terms of the agreement. Losses on lease securitizations
during 2003, 2002 and 2001 were approximately $273, $610 and $1,954,
respectively. 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
2003 and 2002 (weighted based on principal amounts securitized) were as follows:
AS OF DECEMBER 31,
----------------------------
2003 2002
--------- ----------
Prepayment rate............................................ N/A(1) N/A(1)
Weighted-average remaining life (in years)................. 2.75 3.26
Expected credit losses..................................... $73 $172
Discount rate.............................................. 9 percent 9 percent
The following table presents the fair values of retained interest as of December
31, 2003 and 2002, 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,
-----------------------
2003 2002
------- -------
Fair value of retained interest ............................ $ 8,720 $12,874
Weighted-average remaining life (in years) ................. 1.72 2.54
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 ....... $ 8,695 $12,839
Impact on fair value of 20 percent adverse change ....... $ 8,671 $12,803
Discount rate .............................................. 9.0% 9.0%
Impact on fair value of 10 percent adverse change ....... $ 8,652 $12,748
Impact on fair value of 20 percent adverse change ....... $ 8,585 $12,624
(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
F-19
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, 2003 and 2002, 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,
--------------------------------
2003 2002
--------- ---------
Proceeds from new securitizations ...................................... $ 4,400 $ 10,000
Collections used by the trust to purchase new balances in revolving
securitizations ..................................................... 11,440 9,111
Servicing fees received ................................................ 356 417
Purchases of delinquent assets ......................................... (44) (27)
The table below presents information about delinquencies and components of
reported and securitized financial assets at December 31, 2002 and 2001:
2003 2002
---------------------------------- -----------------------------------
DELINQUENT DELINQUENT
TOTAL PRINCIPAL PRINCIPAL OVER TOTAL PRINCIPAL PRINCIPAL OVER
AMOUNT OF LEASES 90 DAYS AMOUNT OF LEASES 90 DAYS
---------------- -------------- ---------------- ---------------
Leases held in portfolio ............ $ 2,750 $ 2,368 $ 3,865 $ 1,994
Leases held for securitization ...... 969 0 4,618 2
Leases securitized .................. 27,728 78 40,609 12
------- ------- ------- -------
Total leases managed ................ $31,447 $ 2,446 $49,092 $ 2,008
======= ======= ======= =======
Leases securitized of $27,728 and $40,609 at December 31, 2003 and 2002,
respectively, is comprised of our retained interest in future cash flows of
those leases measured at fair value of $8,720 and $12,874, respectively, and the
financial institution's interest in those leases of $19,008 and $27,735,
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.
10. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
DECEMBER 31, 2003 DECEMBER 31, 2002
----------------- -----------------
Accounts payable.............................................. $ 104,305 $ 124,846
Accrued compensation, fringe benefits and related payroll taxes 71,765 60,663
Accrued litigation............................................ 179,000 110,300
Accrued professional fees..................................... 11,805 25,292
Accrued warranty.............................................. 20,828 15,034
Accrued rebates............................................... 13,161 8,332
Other accrued expenses........................................ 89,802 83,101
------------ ------------
$ 490,666 $ 427,568
============ ============
11. RESTRUCTURING AND IMPAIRMENT CHARGES
a. Telxon Acquisition
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
F-20
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
$5,128 for the year ended December 31, 2001. 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.
Details of the Telxon restructuring balances are as follows:
WORKFORCE LEASE
REDUCTIONS OBLIGATION COSTS ASSET IMPAIRMENT TOTAL
---------- ---------------- ---------------- ----------
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
Utilization/payments....................... (158) (1,135) -- (1,293)
--------- --------- --------- -----------
Balance December 31, 2003.................. $ -- $ 61 $ -- $ 61
========= ========= ========= ===========
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 LEASE OBLIGATION
REDUCTIONS 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
Utilization/payments..................................... -- (1,238) (1,238)
--------- --------- ---------
Balance December 31, 2003................................ $ -- $ 4,356 $ 4,356
========= ========= =========
F-21
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 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.
d. 2003 Restructuring Charges
In 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 incurred in connection with this
restructuring, which related almost entirely to workforce reductions, is
approximately $2,856, of which $2,633 and $223 was recorded as a component of
cost of revenue and operating expenses, respectively, in 2003. These
restructuring activities are expected to be completed during the first quarter
of 2004.
In 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 $961, all of which was recorded as a
component of cost of revenue in 2003. These restructuring activities were
completed by June 30, 2003.
In 2003, we initiated additional restructuring activities to exit buildings that
were acquired with the acquisition of @POS and Covigo, Inc. The costs associated
with this restructuring relate primarily to lease obligation costs, adjusted for
anticipated sub-lease income. The total amount incurred in connection with this
restructuring activity was $958, all of which was recorded as a component of
operating expenses. These restructuring activities were completed by September
30, 2003.
Details of the 2003 restructuring charges and remaining balances are as follows:
LEASE ASSET
WORKFORCE OBLIGATION IMPAIRMENTS
REDUCTIONS COSTS AND OTHER TOTAL
------------- ------------- ------------- -------------
Balance of December 31, 2002...................... $ -- $ -- $ -- $ --
Provision - cost of revenue....................... 3,429 2 208 3,639
Provision - operating expenses.................... 137 721 323 1,181
Utilization/payments.............................. (3,487) (151) (359) (3,997)
------------- ------------- ------------- -------------
Balance at December 31, 2003...................... $ 79 $ 572 $ 172 $ 823
============= ============= ============= =============
A summary of the combined restructuring, impairment and related charges
(reductions) incurred in each period are as follows:
YEAR ENDED DECEMBER 31,
2003 2002 2001
------- ------- -------
Product cost of revenue (Telxon) .................................. $ -- $ -- $ 2,543
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
Product cost of revenue 2003 Restructuring Charge ................. 3,922 -- --
------- ------- -------
Total product cost of revenue ..................................... $ 3,922 $ (457) $18,705
======= ======= =======
Merger integration charges ........................................ $ -- $ -- $ 9,238
======= ======= =======
i2 impairment ..................................................... $ -- $ -- $ 6,715
Workforce reductions .............................................. 137 1,823 2,897
Other ............................................................. 1,044 767 606
------- ------- -------
Restructuring and impairment charges .............................. $ 1,181 $ 2,590 $10,218
======= ======= =======
F-22
12. LONG-TERM DEBT
DECEMBER 31, 2003 DECEMBER 31, 2002
----------------- -----------------
Revolving credit facility (a)..................................... $ -- $ 80,000
Senior notes (b).................................................. -- 6,349
SAILS exchangeable debt (c)....................................... 98,927 55,194
Other (d)......................................................... 319 752
---------- ----------
99,246 142,295
Less: Current maturities.......................................... 234 6,681
---------- ----------
$ 99,012 $ 135,614
========== ==========
(a) Through September 15, 2003, we had a $350,000 unsecured revolving credit
facility with a syndicate of U.S. and international banks. These borrowings bore
interest at either LIBOR plus 75 and 100 basis points at September 15, 2003 and
December 31, 2002 (which approximated 1.86 percent and 2.4 percent at such
dates, respectively), or the base rate of the syndication agent bank, contingent
upon various stipulations by the lender, which approximated 4.0 percent and 4.25
percent at September 15, 2003 and December 31, 2002, respectively. As of
December 31, 2002, we had outstanding borrowings of $80,000 under this facility.
Since the proceeds under the Credit Agreement were committed until 2004, we
classified these borrowings as long-term obligations at December 31, 2002. As a
result of the length of time necessary to restate our financial statements
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. These borrowings which are secured by
U.S. trade receivables bear interest at either LIBOR plus 200 basis points which
approximated 3.1% at December 31, 2003 or, the base rate of the syndication
agent bank, which approximated 4.0% at December 31, 2003. As of December 31,
2003, there were no borrowings outstanding under the secured credit line. On
February 27, 2004, this credit facility was increased to $45,000 with the same
interest provisions.
(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 5). This debt has a
seven-year maturity and bears interest at a cash coupon rate of 3.625 percent of
the original notional amount of debt of $174,200. 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
F-23
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
$98,927 and $55,194 of the total long-term debt balance outstanding at December
31, 2003 and 2002, respectively. 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.
(d) We have available $25,000 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, 2003, there were no outstanding borrowings
under this agreement. The remaining balances in other long-term debt of $319 and
$752 at December 31, 2003 and 2002, 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 Sheet. The combined aggregate amount of long-term debt and capital lease
maturities for each of the years ending December 31 are as follows:
2004...................................................... $ 234
2005...................................................... 74
2006...................................................... 6
2007...................................................... 5
2008...................................................... 98,927
Thereafter................................................ --
----------
Total............................................ $ 99,246
==========
13. INCOME TAXES
The provision for (benefit from) income taxes consists of:
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------
2003 2002 2001
----------- ----------- -----------
CURRENT:
Federal............................................................ $ 52 $ -- $ (21,476)
State and local.................................................... -- -- --
Foreign............................................................ 6,786 6,149 3,320
----------- ----------- -----------
6,838 6,149 (18,156)
----------- ----------- -----------
DEFERRED:
Federal............................................................ (12,114) (23,402) 4,645
State and local.................................................... 3,306 (2,836) 5,830
Foreign............................................................ 2,576 3,274 7,895
----------- ----------- -----------
(6,232) (22,964) 18,370
----------- ----------- -----------
Total provision for (benefit from) income taxes....................... $ 606 $ (16,815) $ 214
=========== =========== ===========
F-24
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,
--------------------------------------------------------------------------------
2003 2002 2001
------------------------- ------------------------- -----------------------
AMOUNT % OF PRETAX AMOUNT % OF PRETAX AMOUNT % OF PRETAX
--------- ----------- --------- ----------- --------- ------------
Statutory U.S. Federal rate provision
(benefit) ............................ $ 1,365 35% $(21,605) (35.0)% $ (6,144) (35.0)%
State taxes, net of federal tax effect ... 2,149 55.1 (1,843) (3.0) 3,789 21.6
Tax credits .............................. (5,892) (151.1) (4,491) (7.2) (5,242) (29.9)
Amortization of goodwill ................. -- -- -- -- 4,350 24.8
Non-deductible fines ..................... 1,750 44.9 -- -- -- --
Extraterritorial income exemption ........ (1,037) (26.6) -- -- -- --
Income of foreign subsidiaries taxed at
differing tax rates .................. (757) (19.4) 1,064 1.7 137 0.8
Change in valuation allowance ............ 2,180 55.9 6,166 10.0 1,776 10.1
Non-deductible compensation .............. 370 9.5 2,895 4.7 -- --
Executive life insurance ................. 69 1.7 249 0.4 424 2.4
Other non-deductible items ............... 564 14.5 580 0.9 1,202 6.8
Other, net ............................... (155) (4.0) 170 0.3 (78) (0.4)
-------- ---- -------- ----- -------- ---
$ 606 15.5% $(16,815) (27.2)% $ 214 1.2%
======== ==== ======== ===== ======== ===
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 (costs)/benefits of $(12,419) in 2003, $16,650 in 2002 and $4,921 in
2001 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. In addition, net tax benefits of
$13,329 were recorded as part of goodwill in connection with the @POS and Covigo
acquisitions.
The components of our deferred tax assets and liabilities at December 31, 2003
and 2002, are as follows:
AT DECEMBER 31,
------------------------------
2003 2002
------------ ------------
DEFERRED TAX ASSETS:
Receivables..................................................................... $ 46,220 $ 36,989
Inventory....................................................................... 49,226 69,331
Accrued compensation and associate benefits..................................... 36,793 22,738
Other accrued liabilities....................................................... 80,296 55,047
Accrued restructuring and severance costs....................................... 400 2,345
Deferred revenue - current...................................................... 16,102 15,821
Deferred revenue - long term.................................................... -- 20,257
Purchased technology and other intangibles...................................... 20,777 28,762
Property, plant and equipment................................................... 1,764 --
Cumulative translation adjustments.............................................. 157 12,256
Net operating loss carryforwards................................................ 164,048 144,714
Capital loss carryforwards...................................................... 12,493 --
Tax credit carryforwards........................................................ 96,169 79,265
Charitable contribution carryforwards........................................... 2,114 1,367
Other, net...................................................................... 5,510 7,984
------------ ------------
Total deferred tax assets....................................................... 532,069 496,876
Valuation allowance............................................................. (43,936) (31,436)
------------ ------------
Net deferred tax assets......................................................... 488,133 465,440
------------ ------------
DEFERRED TAX LIABILITIES:
Investments..................................................................... (57,095) (45,259)
Net investment in sales - type leases........................................... (5,991) (7,825)
Deferred revenue - long-term.................................................... (5,244) --
Deferred patent and product development costs................................... (8,762) (21,971)
Property, plant and equipment................................................... -- (421)
------------ ------------
Total deferred tax liabilities.................................................. (77,092) (75,476)
------------ ------------
Net deferred income tax assets.................................................. $ 411,041 $ 389,964
============ ============
Amounts recognized as deferred tax assets in the Consolidated Balance Sheets
consists of:
F-25
AT DECEMBER 31,
------------------------------
2003 2002
------------ ------------
Current..................................... $ 182,571 $ 167,489
Non-current................................. 228,470 222,475
------------ ------------
Total....................................... $ 411,041 $ 389,964
============ ============
We have available federal, state and foreign net operating loss carryforwards of
approximately $388,520, $802,577 and $5,166, respectively, at December 31, 2003.
Such loss carryforwards expire in accordance with provisions of applicable tax
law and have remaining lives ranging from 1 to 20 years. Certain loss
carryforwards are more likely than not to expire unused.
We also have a capital loss carryforward of approximately $32,450 for federal
and state purposes at December 31, 2003. Such loss carryforward expires in 5
years in accordance with provisions of applicable tax laws.
We also have available federal, state and foreign credit carryforwards of
approximately $85,652, $15,316 and $907, respectively, at December 31, 2003.
Such credits have expiration dates ranging from 1 to 20 years, and $24,467 of
these credits has no expiration date. Certain credit carryforwards are more
likely than not to expire unused.
The valuation allowance increased by $12,500 during 2003 and increased by
$23,338 during 2002. The increase in 2003 relates to limitations on Federal net
operating loss carryforwards and tax credits of acquisitions, foreign tax
credits and state and local and foreign loss carryforwards that are more likely
than not to expire before the Company can use them. The increase in 2002 relates
to limitations on Federal net operating loss carryforwards of acquisitions,
foreign tax credits and state and local loss carryforwards that are more likely
than not to expire before the Company can use them. 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, @POS
and Covigo acquisitions.
14. 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
-------------- ----------------
2004 $ 246 $ 20,774
2005 69 18,050
2006 -- 15,436
2007 -- 13,307
2008 -- 11,317
Thereafter -- 27,131
-------- ----------
Total minimum payments 315 $ 106,015
Less amounts representing interest 21 ==========
--------
Present value of future lease payments 294
Less current portion 228
--------
Long-term capital lease obligation $ 66
========
Rent expense under operating leases was $19,979, $17,103 and $16,263 for the
years ended December 31, 2003, 2002 and 2001, 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
$5,519 and $12,064 at December 31, 2003 and 2002, respectively. In February
2002, our former President and Chief Executive Officer announced his retirement.
In
F-26
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, 2003, we had outstanding letters of credit of $2,943. As of
December 31, 2003 and 2002, we have included in our accrued liabilities $1,110
and $2,227, respectively, for purchase commitments for which a loss was
recognized.
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 ("SEC") 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 SEC, and have
produced hundreds of thousands of documents and numerous witnesses in response
to the SEC's inquiries. Symbol and approximately ten or more former employees
have received so-called "Wells Notices" stating that the SEC 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 upon us and other
relief the Eastern District deems appropriate.
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 Commission and the Eastern District investigations. These counts
included allegations that Mr. Asti acted together with other unnamed
high-ranking corporate executives at Symbol to, among other things,
F-27
manufacture revenue through sham "round-trip" transactions. The Commission has
also 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. 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 then 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 continues to vigorously assert its defenses in this litigation.
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.
F-28
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 litigate the case
vigorously on the merits.
In connection with the above pending class actions and government
investigations, Symbol recorded a loss provision on legal settlements of $72,000
in the first quarter of 2003 and $70,000 in the fourth quarter of 2002, bringing
the estimated liability to $142,000 as of December 31, 2003 as compared to
$70,000 as of December 31,2002, which is reflected as a component of accounts
payable and accrued expenses in the accompanying consolidated financial
statements.
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. On February 4, 2004, Symbol argued its motion to dismiss before
the Court and is awaiting the Court's decision. Symbol intends to defend the
case vigorously on the merits.
Gold v. Symbol Technologies, Inc., et al.
On December 18, 2003, a purported derivative action lawsuit was filed,
entitled Gold v. Symbol Technologies, Inc., et al., in the Court of Chancery of
the State 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, Richard Bravman, 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 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, which 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. Symbol
intends to litigate the case vigorously.
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
F-29
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. On December 19, 2003, the settlement received preliminary approval from
the Court. On February 12, 2004, the Court granted its final approval of the
settlement.
Accordingly, we recorded a $25,000 pre-tax charge in the Consolidated
Statements of Operations for the quarter ended December 31, 2002 and have
reflected as an accrued liability as of December 31, 2002 and 2003 for the
estimated settlement of $37,000 and have recorded a non-current asset for the
insurance proceeds of $12,000 as of December 31, 2002 which we expect to receive
in the first quarter of 2004. The insurance proceeds of $12,000 are classified
as a component of other current assets as of December 31, 2003. On February 27,
2004, we paid $25,000 to the class in accordance with the settlement.
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. Accordingly, we
recorded a $3,300 pre-tax charge in the Consolidated Statements of Operations
for the quarter ended December 31, 2002. The settlement was finalized and paid
by the Company in December 2003, and a stipulation of dismissal was filed in
January 2004.
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,
F-30
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 on 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
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. On December 12,
F-31
2003, HHP asserted counterclaims against Symbol and Telxon (which had previously
owned some of the patents asserted by Symbol) seeking a declaratory judgment
that the Symbol patents were not infringed, were invalid and/or unenforceable.
On the same day, HHP filed a third party complaint against 12 of its suppliers
which, HHP claims, are liable to defend and/or indemnify HHP with respect to
Symbol's infringement claims. We expect discovery to commence in 2004.
Hand Held Products, Inc and HHP-NC, Inc. v. Symbol Technologies, Inc. and Telxon
Corporation
On January 7, 2004, Symbol was served with a summons and complaint
alleging that certain of its products infringe 4 patents owned by HHP. Three of
the patents concern the design of a finger groove on the surface of a hand held
computer, and the fourth concerns a decoding algorithm for 2 dimensional bar
codes. These patents had been the subject of Symbol's declaratory judgment
complaint, described above, but had been dismissed by the Court based on HHP's
representation to the Court that Symbol had no reasonable apprehension of being
sued by HHP for infringement of these patents. Symbol intends to defend this
case vigorously on the merits.
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.
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 was 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.
F-32
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.
On January 23, 2004, the Court concluded that Lemelson's patent claims
are unenforceable under the equitable doctrine of prosecution laches; that the
asserted patent claims as construed by the Court are not infringed by Symbol
because use of the accused products does not satisfy one or more of the
limitations of each and every asserted claim; and that the claims are invalid
for lack of written description and enablement even if construed in the manner
urged by Lemelson. In so concluding, the Court found that judgment should be
entered in favor of plaintiffs Symbol and the other members of the Auto ID
Companies and against defendant Lemelson Partnership on Symbol's and the Auto ID
Companies' complaint for declaratory judgment. The Court entered its judgment on
January 23, 2004.
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
F-33
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. As of December 31, 2003 and 2002, we
have not recorded a liability in our consolidated financial statements with
respect to the SMI judgment.
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 customer on the "usual
trade terms" as they existed prior to the termination of their agreement in
April 2003. The Tribunal granted leave for BSI to proceed with its claim against
Symbol on January 15, 2004. Symbol intends to appeal the Tribunal's decision.
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 list pendens with respect to this litigation
before the Public Register of Property in Cd. Victoria, Tamaulipas. As of
November 13, 2003, such list 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.
F-34
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.
Bruck Technologies Handels GmbH European Commission ("EC") Complaint
In February 2004, Symbol became aware of a notice from the European
Competition Commission (the "EC") of a complaint lodged with it by Bruck
Technologies Handels GmbH ("Bruck") that certain provisions of the Symbol
PartnerSelect program violate Article 81 of the EC Treaty. Symbol considers
these claims to be without merit and intends to vigorously defend against them.
PSC Litigation
On June 26, 2002, Symbol filed an action against PSC Inc. and PSC Scanning, Inc.
(collectively, "PSC") in New York State Supreme Court in Suffolk County, New
York asserting claims for breach of contract and tortious interference with
prospective business relations stemming from PSC's failure to deliver products
to Symbol under a preexisting supply and distribution agreement. On August 22,
2002, PSC filed a separate action in the same Court against Symbol alleging that
Symbol breached its obligations under a separate supply and distribution
agreement with PSC for the supply of Symbol's bar code readers. On November 22,
2002, during the pendency of the two contract actions, PSC filed petitions in
the United States Bankruptcy Court for the Southern District of New York seeking
relief under Chapter 11 of the United States Bankruptcy Code. As part of a
Bankruptcy Court's mandated mediation process, on April 7, 2003, the parties
entered into a settlement agreement settling all existing disputes between them.
The settlement agreement was approved by the Bankruptcy Court as part of PSC's
Final Plan of Reorganization, as confirmed on June 19, 2003, and became
effective on June 30, 2003. On June 30, 2003, in accordance with the terms of
the settlement, PSC made a one-time payment of $6,000 to Symbol. Approximately
$1,500 of such amount has been included within other income in Consolidated
Statements of Operations in June 30, 2003. As of June 30, 2003, the remaining
balance of approximately $4,500 is recorded as deferred revenue and is being
deferred over the fifty-four month term of the OEM Agreement which was signed in
conjunction with the settlement agreement. In addition, the parties executed an
amended patent license and supply agreements that permit PSC to purchase certain
Symbol bar code scan engine products for use by PSC in the manufacture of
certain bar code reading products. The parties also terminated the two
pre-existing distribution agreements that were the subject of pending
litigations between the parties, and dismissed, with prejudice, the two pending
contract actions relating to those agreements
15. 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. All
share and per share data for all periods presented have been restated to reflect
the stock splits.
On March 10, 2003, Symbol's Board of Directors approved a $0.01 per share
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.
a. Stock Option Plan
There are a total of 49,439,041 shares of common stock reserved for issuance
under our stock option plans at December 31, 2003. 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:
F-35
SHARES UNDER OPTION
----------------------------------------------------------
WEIGHTED
OPTION PRICE PER SHARES AVERAGE
SHARE (IN THOUSANDS) EXERCISE PRICE
------------------- -------------- --------------
Shares under option at January 1, 2001............... $ 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 8,676 $ 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 38,178 $ 12.82
Granted.............................................. $ 10.25 to 16.79 7,068 $ 13.51
Exercised............................................ $ 1.65 to 8.67 (308) $ 5.43
Cancelled............................................ $ 1.80 to 41.22 (4,784) $ 16.68
Shares under option at December 31, 2003............. $ 1.58 to $41.22 40,154 $ 12.54
======== =========
Shares exercisable at December 31, 2003.............. $ 1.58 to 41.22 24,332 $ 11.19
========= =========
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
======== =========
The following table summarizes information concerning outstanding and
exercisable options as of December 31, 2003:
WEIGHTED WEIGHTED
RANGE OF EXERCISE NUMBER OUTSTANDING REMAINING LIFE AVERAGE NUMBER EXERCISABLE AVERAGE
PRICES (IN THOUSANDS) (YEARS) EXERCISE PRICE (IN THOUSANDS) EXERCISE PRICE
- ----------------- -------------- -------------- -------------- -------------- --------------
$ 1.58 -$2.37 20 0.3 $ 1.74 20 $ 1.74
$ 2.38 -$3.55 1,529 0.9 $ 3.35 1,529 $ 3.35
$ 3.56 -$5.33 3,096 1.7 $ 4.63 3,096 $ 4.63
$ 5.34 -$8.00 9,081 3.0 $ 6.72 8,202 $ 6.67
$ 8.01 -$12.00 8,745 7.2 $ 9.04 3,315 $ 9.07
$ 12.01-$18.00 12,038 6.8 $ 14.96 5,218 $ 15.95
$ 18.01-$27.00 1,355 4.7 $ 24.47 1,149 $ 24.35
$ 27.01-$40.50 4,238 6.0 $ 30.36 1,774 $ 31.33
$ 40.51-$41.22 52 5.4 $ 41.22 29 $ 41.22
-------- ----------
40,154 24,332
======== ==========
At December 31, 2003, an aggregate of 9,285 shares remain available for grant
under the stock option plans. The tax benefits arising from stock option
exercises during the years ended December 31, 2003, 2002, and 2001 in the amount
of $439, $139 and $20,454, 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
F-36
July 30, 2002, this practice of options exercise ended resulting in ceasing the
accounting for such options under variable plan accounting.
As of March 31, 2003, due to the inability of Symbol to make timely filings with
the Commission, our stock option plans were held in abeyance, meaning that our
employees could not exercise their options until we became current with out
filings. As an accommodation to both current and former Symbol associates whose
options were impacted by this suspension, the Compensation Committee of the
Board approved an abeyance program that allowed associates whose options were
affected during the suspension period the right to exercise such options up to
90 days after the end of the suspension period. This resulted in a new
measurement date for those options, which led to a non-cash accounting
compensation charge of $10,539 for the intrinsic value of those vested options
when the employee either terminated employment during the suspension period or
within the 90 day period after the end of the suspension period. On February 25,
2004 this suspension period ended.
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, 2001 $ 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
Granted................................... $ 16.79 150 $ 16.79
Exercised................................. $ -- -- $ --
Cancelled................................. $ -- -- $ --
Shares under option at December 31, 2003.... $ 3.33 to $35.83 1,008 $ 21.11
========= ========
Shares exercisable at December 31, 2003..... $ 3.33 to $35.83 680 $ 21.36
========= ========
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
========= ========
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, 2003:
NUMBER OF SHARES ISSUABLE UPON SHARES EXERCISABLE AT
EXERCISE EXERCISE PRICE PER DECEMBER 31, 2002
EXERCISABLE TO (IN THOUSANDS) 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 $25.22 107
2010 413 $32.00 to $35.83 310
2012 100 $8.17 25
2013 150 $16.79 --
----- ---
1,008 680
===== ===
F-37
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, 2003, 2,476.8 shares were issued to participants and subsequent to
December 31, 2003, 617.0 shares were issued to participants, all of which were
purchased in the open market.
During 2003, as a result of our delinquent filings with the SEC, we incurred a
non-cash compensation expense of $6,137 associated with our ESPP as the ESPP
loss its tax exempt status.
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. There were no shares purchased under these programs
during the year ended December 31, 2003.
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 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 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, 2003, treasury stock included approximately 438 shares of common stock for a
total cost of $4,238 that were acquired for reissuance in connection with the
ESPP.
In addition, in 2002, we re-issued 400 shares of treasury stock with a cost of
$3,656 to our new President and Chief Executive 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.
16. ASSOCIATE BENEFIT PLANS
a. Profit Sharing Retirement Plan
We maintain a profit sharing retirement plan for all associates meeting certain
service requirements. Generally, we contribute monthly 50 percent of up to 6
percent of associates' contributions, up to the maximum amount allowed by
F-38
law. Plan expense for the years ended December 31, 2003, 2002 and 2001 was
$8,564, $8,155 and $8,220, 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 $20,824, $19,381 and $23,076 for the years
ended December 31, 2003, 2002 and 2001, 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, 2003,
7 officers were participants in the Plan. Our obligations under the Plan are not
funded. The Company uses a November 1 measurement date for the Plan.
YEAR ENDED DECEMBER 31,
-------------------------
2003 2002
--------- ---------
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year............................................. $ 20,266 $ 16,422
Service cost........................................................................ 1,486 881
Interest cost....................................................................... 1,353 1,205
Amendments.......................................................................... -- 1,571
Actuarial loss (gain)............................................................... (2,180) 314
Settlements......................................................................... -- --
Benefits paid....................................................................... (140) (127)
--------- ---------
Benefit obligation at end of year................................................... $ 20,785 $ 20,266
========== =========
FUNDED STATUS:
Funded status at end of year........................................................ $ (20,785) $ (20,266)
Unrecognized actuarial loss......................................................... 1,572 3,966
Unrecognized prior service cost..................................................... 1,662 1,926
--------- ---------
Net amount recognized............................................................... $ (17,551) $ (14,374)
========= =========
AS OF DECEMBER 31,
-------------------------
AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS: 2003 2002
--------- ---------
Accrued benefit liability........................................................... $ (17,551) $ (16,035)
Intangible asset.................................................................... -- 1,661
--------- ---------
Net amount recognized............................................................... $ (17,551) $ (14,374)
========== ==========
The accumulated benefit obligation for the Plan was $17,472 and $16,035 at
December 31, 2003 and 2002, respectively.
YEAR ENDED DECEMBER 31,
-------------------------------------
COMPONENTS OF NET PERIODIC BENEFIT COST: 2003 2002 2001
------- ------- -------
Service cost........................................................... $ 1,486 $ 881 $ 865
Interest cost.......................................................... 1,353 1,205 1,233
Amortization of unrecognized prior service cost........................ 264 92 92
Recognized net actuarial loss.......................................... 213 229 337
------- ------- -------
Net periodic benefit cost.............................................. $ 3,316 $ 2,407 $ 2,527
======= ======= =======
F-39
Assumptions
The weighted-average assumptions used to determine benefit obligations at
December 31, were as follows:
YEAR ENDED DECEMBER 31,
---------------------------
2003 2002
---- ----
Discount rate .......................................................... 6.25% 6.75%
Rate of compensation increases ......................................... 4.00% 4.50%
The weighted-average assumptions used to determine net periodic benefit cost for
the year end December 31, were as follows:
YEAR ENDED DECEMBER 31,
---------------------------
2003 2002
---- ----
Discount rate .......................................................... 6.75% 7.50%
Rate of compensation increases ......................................... 4.50% 5.00%
Corridor ............................................................... 10.00% 10.00%
Contributions
We expect to contribute $372 to the Plan in 2004.
17. EARNINGS/(LOSS) PER SHARE
The following table sets forth the computation of basic and diluted
earnings/(loss) per share:
YEAR ENDED DECEMBER 31,
---------------------------------------
2003 2002 2001
------------ ---------- --------
Numerator:
Earnings/(loss) applicable to common shares for basic and diluted
calculation......................................................... $ 3,295 $ (44,915) $(17,769)
============ ========== ========
Denominator:
Weighted-average common shares...................................... 230,710 229,593 227,173
Effect of dilutive securities:
Stock options and warrants..................................... 5,739 -- --
------------ ---------- --------
Denominator for diluted calculation.................................... 236,449 229,593 227,173
============ ========== ========
For the years ended December 31, 2003, 2002 and 2001, the effect of
approximately 19,710.1, 40,037.8 and 41,806.4, respectively, of potentially
dilutive common shares for outstanding stock options, warrants and convertible
subordinated notes and debentures were excluded from the calculation of diluted
earnings/(loss) per share because the effects were anti-dilutive.
18. 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 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
F-40
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, 2003, 2002
and 2001 were $644,085, $542,886, and $543,083, respectively.
Identifiable assets are those tangible and intangible assets used in operations
in each geographic region. Corporate assets are principally temporary
investments and goodwill.
F-41
Summarized financial information concerning our reportable segments and
geographic regions is shown in the following table.
FOR YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------------------
2003 2002 2001
------------------------------ ------------------------------- ------------------------------
PRODUCTS SERVICES TOTAL PRODUCTS SERVICES TOTAL PRODUCTS SERVICES TOTAL
-------- -------- ----- -------- -------- ----- -------- -------- -----
REVENUES:
The Americas (a).. $777,105 $201,994 $979,099 $728,294 $205,876 $934,170 $818,091 $195,527 $1,013,618
EMEA.............. 345,983 92,632 438,615 300,130 82,716 382,846 313,299 77,553 390,852
Asia Pacific...... 100,765 11,799 112,564 74,646 9,955 84,601 74,786 8,200 82,986
---------- -------- ---------- ---------- -------- ---------- ---------- -------- ----------
Total net sales... $1,223,853 $306,425 $1,530,278 $1,103,070 $298,547 $1,401,617 $1,206,176 $281,280 $1,487,456
========== ======== ========== ========== ======== ========== ========== ======== ==========
STANDARD GROSS
PROFIT:
The Americas...... $405,558 $ 50,604 $456,162 $348,783 $ 74,177 $422,960 $408,840 $ 76,766 $485,606
EMEA.............. 179,500 31,994 211,494 147,671 19,381 167,052 148,586 15,923 164,509
Asia Pacific...... 52,059 4,605 56,664 37,957 4,395 42,352 38,080 3,597 41,677
---------- -------- ---------- ---------- -------- ---------- ---------- -------- ----------
Total gross profit
at standard.... $637,117 $ 87,203 724,320 $534,411 $ 97,953 632,364 $595,506 $ 96,286 691,792
======== ======== ======== ======== ======== ========
Manufacturing
variances and
other related
costs........... 49,071 144,712 250,412
-------- -------- --------
Total gross profit $675,249 $487,652 $441,380
======== ======== ========
AS OF AS OF AS OF
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2003 2002 2001
------------ ------------ ------------
IDENTIFIABLE
ASSETS:
The Americas...... $867,133 $900,563 $1,030,661
EMEA.............. 316,406 280,538 305,660
Asia Pacific...... 64,228 34,652 38,020
Corporate
(principally
intangible
assets and
investments).... 398,751 356,442 331,030
---------- ---------- ----------
Total............. $1,646,518 $1,572,195 $1,705,371
========== ========== ==========
(a) Included in The Americas are revenues of approximately $92,906, $75,439 and
$69,245 from non-U.S. countries, mainly Canada, Brazil and Mexico, for the
years ended December 31, 2003, 2002 and 2001, respectively.
19. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following tables set forth unaudited quarterly financial information for the
years ended December 31, 2003 and 2002.
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
------------- -------------- -------------- --------------
YEAR ENDED DECEMBER 31, 2003:
Revenue....................................... $ 386,347 $ 373,819 $ 377,110 $ 393,002
Cost of revenue............................... 214,475 221,430 210,208 208,916
Gross profit.................................. 171,872 152,389 166,902 184,086
Stock based compensation expense.............. 776 1,456 7,640 7,215
Loss provision for legal settlements.......... 72,000 -- -- --
Other operating expenses...................... 136,173 146,685 141,264 154,519
(Loss)/earnings from operations............... (37,077) 4,248 17,998 22,352
Net (loss)/earnings........................... (31,013) 6,615 11,519 16,174
NET (LOSS)/EARNINGS PER COMMON SHARE:
Basic......................................... $(0.13) $0.03 $0.05 $0.07
Diluted....................................... $(0.13) $0.03 $0.05 $0.07
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MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
------------- -------------- -------------- --------------
YEAR ENDED DECEMBER 31, 2002:
Revenue....................................... $317,644 $329,087 $382,028 $372,858
Cost of revenue............................... 238,774 230,735 221,565 222,891
Gross profit.................................. 78,870 98,352 160,463 149,967
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 118,462 111,330 113,410 145,961
Earnings/(loss) from operations............... 11,710 14,670 38,235 (96,342)
Net earnings/(loss)........................... 5,354 (13,157) 31,555 (68,667)
NET EARNINGS/(LOSS) PER COMMON SHARE:
Basic......................................... $0.02 $(0.06) $0.14 $(0.30)
Diluted....................................... $0.02 $(0.06) $0.14 $(0.30)
F-43
SCHEDULE II
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(All amounts in thousands)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ----------------------------------------- ------------ ------------------------ ----------- ------------
ADDITIONS
------------------------
BALANCE AT CHARGED TO CHARGED TO
BEGINNING OF COSTS AND OTHER BALANCE AT
DESCRIPTION YEAR EXPENSES ACCOUNTS DEDUCTIONS END OF YEAR
- ----------------------------------------- ------------ ----------- ----------- ------------ ------------
Allowance for doubtful accounts:
2003 $ 34,272 $ 7,564 $ -- $ 27,890(a) $ 13,946
========== ========== ========= ========== ==========
2002 $ 27,168 $ 15,975 $ -- $ 8,871(a) $ 34,272
========== ========== ========= ========== ==========
2001 $ 24,322 $ 6,936 $ -- $ 4,090(a) $ 27,168
========== ========== ========= ========== ==========
Inventory reserve:
2003 $ 170,057 $ 20,132 $ 863 $ 81,721(b) $ 109,331
========== ========== ========= ========== ==========
2002 $ 211,621 $ 26,339 $ -- $ 67,903(b) $ 170,057
========== ========== ========= ========== ==========
2001 $ 139,540 $ 164,099 $ -- $ 92,018(b) $ 211,621
========== ========== ========= ========== ==========
Deferred tax valuation allowance:
2003 $ 31,436 $ 6,523 $ 5,977(d) $ -- $ 43,936
========== ========== ========= ========== ==========
2002 $ 8,098 $ 6,166 $ 17,172(c) $ -- $ 31,436
========== ========== ========= ========== ==========
2001 $ 6,958 $ 1,776 $ -- $ 636 $ 8,098
========== ========== ========= ========== ==========
- --------------
(a) Uncollectible accounts written off. In 2003 $19,752 related to Telxon were
written off.
(b) Inventory disposed of.
(c) 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.
(d) Valuation allowances recorded in goodwill for deferred tax assets related
to acquired businesses.
S-1