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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2004
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
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [ ] NO [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
YES [X] NO [ ]
The number of shares outstanding of the registrant's classes of common
stock, as of July 27, 2004, was as follows:
Class Number of Shares
----- ----------------
Common Stock, par value $0.01 239,347,456
DOCUMENTS INCORPORATED BY REFERENCE: NONE.
SYMBOL TECHNOLOGIES, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED
JUNE 30, 2004
TABLE OF CONTENTS
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements.......................1
Condensed Consolidated Balance Sheets at
June 30, 2004 (Unaudited) and December 31, 2003.................1
Condensed Consolidated Statements of Operations for
the Three and Six Months Ended June 30, 2004 and
2003 (Unaudited) ...............................................2
Condensed Consolidated Statements of Cash Flows for
the Six Months Ended June 30, 2004 and 2003
(Unaudited) ....................................................3
Notes to Condensed Consolidated Financial
Statements (Unaudited) .........................................4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................27
Item 3. Quantitative and Qualitative Disclosures About Market Risk.......39
Item 4. Controls and Procedures..........................................39
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................41
Item 6. Exhibits and Reports on Form 8-K.................................41
Signatures....................................................................43
Certifications................................................................44
i
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share data)
JUNE 30, DECEMBER 31,
2004 2003
-------------- --------------
ASSETS (Unaudited)
- ------
Cash and cash equivalents.................................................... $ 143,686 $ 150,017
Accounts receivable, less allowance for doubtful accounts of $10,907 and
$13,946, respectively..................................................... 110,482 152,377
Inventories.................................................................. 216,363 212,862
Deferred income taxes........................................................ 167,629 182,571
Other current assets......................................................... 31,610 36,204
-------------- --------------
Total current assets...................................................... 669,770 734,031
Property, plant and equipment, net........................................... 211,375 210,888
Deferred income taxes........................................................ 223,218 228,470
Investment in marketable securities.......................................... 100,004 102,136
Goodwill..................................................................... 303,584 302,467
Intangible assets, net....................................................... 30,147 33,729
Restricted cash.............................................................. 50,005 --
Other assets................................................................. 31,684 34,797
-------------- --------------
Total assets.............................................................. $ 1,619,787 $ 1,646,518
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses........................................ $ 413,447 $ 496,134
Current portion of long-term debt............................................ 7,017 234
Deferred revenue............................................................. 40,171 34,615
Accrued restructuring expenses............................................... 6,975 5,240
-------------- --------------
Total current liabilities................................................. 467,610 536,223
Long-term debt, less current maturities...................................... 107,926 99,012
Deferred revenue............................................................. 16,778 19,729
Other liabilities............................................................ 45,078 70,956
Contingencies (Note 9)
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 269,609
shares and 256,897 shares, respectively................................... 2,696 2,569
Additional paid-in capital................................................... 1,453,217 1,342,229
Accumulated other comprehensive (loss) / earnings, net....................... (7,537) 4,498
Deferred compensation........................................................ (12,630) --
Accumulated deficit.......................................................... (156,408) (189,669)
-------------- --------------
1,279,338 1,159,627
LESS:
Treasury stock, at cost, 29,616 shares and 26,130 shares, respectively....... (296,943) (239,029)
-------------- --------------
Total stockholders' equity................................................ 982,395 920,598
-------------- --------------
Total liabilities and stockholders' equity......................... $ 1,619,787 $ 1,646,518
============== ==============
See notes to Condensed Consolidated Financial Statements.
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
(Unaudited)
FOR THE FOR THE
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------------------- -------------------------------------
2004 2003 2004 2003
------------- --------------- --------------- ---------------
REVENUE:
Product................................ $ 356,602 $ 290,296 $ 704,841 $ 600,999
Services............................... 76,183 83,523 147,595 159,167
------------- --------------- --------------- ---------------
432,785 373,819 852,436 760,166
COST OF REVENUE:
Product cost of revenue................ 186,123 165,047 352,318 321,386
Services cost of revenue............... 49,979 56,383 108,507 114,519
------------- --------------- --------------- ---------------
236,102 221,430 460,825 435,905
------------- --------------- --------------- ---------------
Gross profit........................... 196,683 152,389 391,611 324,261
------------- --------------- --------------- ---------------
OPERATING EXPENSES:
Engineering............................ 42,060 38,130 83,619 75,185
Selling, general and administrative.... 119,073 108,419 240,753 207,450
(Recovery)/provision for legal
settlements......................... (9,000) -- (9,000) 72,000
Stock based compensation expense....... 375 1,456 2,609 2,232
Restructuring and impairment charges... 509 136 509 223
------------- --------------- --------------- ---------------
153,017 148,141 318,490 357,090
------------- --------------- --------------- ---------------
Earnings/(loss) from operations........ 43,666 4,248 73,121 (32,829)
Other (expense) / income, net.......... (7,958) 4,522 (6,952) 488
------------- --------------- --------------- ---------------
Earnings/(loss) before income taxes.... 35,708 8,770 66,169 (32,341)
Provision for/(benefit from) income
taxes......................... 6,937 2,155 30,570 (7,943)
------------- --------------- --------------- ---------------
NET EARNINGS/(LOSS).................... $ 28,771 $ 6,615 $ 35,599 $ (24,398)
============= =============== =============== ===============
EARNINGS/(LOSS) PER SHARE:
Basic and diluted...................... $ 0.12 $ 0.03 $ 0.15 $ (0.11)
============= =============== =============== ===============
CASH DIVIDENDS DECLARED PER COMMON
SHARE......................... $ -- $ -- $ 0.01 $ 0.01
============= =============== =============== ===============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING:
Basic.................................. 235,531 230,770 233,608 230,649
Diluted................................ 239,541 236,820 239,302 230,649
See notes to Condensed Consolidated Financial Statements.
2
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
FOR THE
SIX MONTHS ENDED JUNE 30,
--------------------------
2004 2003
---------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings/(loss) .......................................... $ 35,599 $ (24,398)
ADJUSTMENTS TO RECONCILE NET EARNINGS/(LOSS) TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization of property, plant and equipment 28,462 26,202
Other amortization ........................................... 8,272 7,164
Provision for losses on accounts receivable .................. 973 8,420
Provision for inventory writedown ............................ 1,759 21,787
Deferred income tax provision/(benefit) ...................... 18,953 (7,943)
Non-cash stock based compensation expense .................... 2,609 2,232
Loss on disposal of property, plant and equipment ............ 334 --
Gain on sale of property, plant and equipment and other assets -- (89)
Change in fair value of derivative ........................... (164) 7,759
Unrealized holding loss / (gain) on marketable securities .... 2,454 (14,934)
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Accounts receivable ....................................... 36,111 30,721
Inventories ............................................... (5,735) 31,966
Other assets .............................................. 6,710 (2,252)
Accounts payable and accrued expenses ..................... (76,968) 24,828
Accrued restructuring expenses ............................ 1,735 2,386
Other liabilities and deferred revenue .................... 2,501 6,460
--------- ---------
Net cash provided by operating activities .............. 63,605 120,309
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in other companies, net of cash acquired .......... (4,610) (1,777)
Proceeds from sale of property, plant and equipment and other
assets .................................................... -- 521
Purchases of property, plant and equipment ................... (30,055) (24,494)
Restricted cash .............................................. (50,000) --
Investments in intangible and other assets ................... (1,862) (1,963)
--------- ---------
Net cash used in investing activities ..................... (86,527) (27,713)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes payable and long-term debt ................ (176) (71,636)
Proceeds from long-term debt ................................. 13,825 --
Proceeds from exercise of stock options and warrants ......... 33,956 4,623
Purchase of treasury shares .................................. (26,374) (5,110)
Dividends paid ............................................... (2,338) (2,312)
--------- ---------
Net cash provided by (used in) financing activities ....... 18,893 (74,435)
--------- ---------
Effects of exchange rate changes on cash ..................... (2,302) 3,694
--------- ---------
Net (decrease) / increase in cash and cash equivalents ....... (6,331) 21,855
Cash and cash equivalents, beginning of period ............... 150,017 76,121
--------- ---------
Cash and cash equivalents, end of period ............... $ 143,686 $ 97,976
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR:
Interest ..................................................... $ 6,768 $ 3,463
Income taxes ................................................. $ 7,508 $ 886
See notes to Condensed Consolidated Financial Statements.
3
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS AS OF JUNE 30, 2004 AND
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Overview
Symbol Technologies, Inc., The Enterprise Mobility Company(TM), and
subsidiaries delivers products and solutions that capture, move and manage
information in real time to and from the point of business activity. Symbol
enterprise mobility solutions integrate advanced data capture products, mobile
computing platforms, wireless infrastructure, mobility software and services
programs under the Symbol Enterprise Mobility Services brand.
The Condensed Consolidated Financial Statements include the accounts of
Symbol Technologies, Inc. and its majority-owned and controlled subsidiaries.
References herein to "we" or "our" or "us" or the "Company" refer to Symbol
Technologies, Inc. and subsidiaries unless the context specifically requires
otherwise. The Condensed Consolidated Financial Statements have been prepared by
us, without audit, pursuant to the rules and regulations of the United States
Securities and Exchange Commission (the "Commission" or "SEC").
In our opinion, the Condensed Consolidated Financial Statements include all
necessary adjustments (consisting of normal recurring accruals) and present
fairly our financial position as of June 30, 2004, and the results of our
operations and cash flows for the three and six months ended June 30, 2004 and
2003, in accordance with the instructions to Form 10-Q of the Commission and in
accordance with accounting principles generally accepted in the United States of
America applicable to interim financial information. The results of operations
for the three and six months ended June 30, 2004 are not necessarily indicative
of the results to be expected for the full year. For further information, refer
to the consolidated financial statements and footnotes thereto included in our
Annual Report on Form 10-K for the year ended December 31, 2003.
Stock-Based Compensation
We account for our employee stock option plans under the intrinsic value
method in accordance with the provisions of Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees" and related
interpretations. Under APB Opinion No. 25, generally no compensation expense is
recorded when the terms of the award are fixed and the exercise price of the
employee stock option equals or exceeds the fair value of the underlying stock
on the date of the grant. Except in connection with certain restricted stock
awards (see note 5a), no stock based compensation expense has been recognized
for the fixed portion of our plans; however, during the first quarter 2004 and
in 2003, certain stock-based compensation expenses have been recognized through
our operating results related to options of certain current and former
associates. We have adopted the disclosure-only requirements of Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," which allows entities to continue to apply the provisions of APB
Opinion No. 25 for transactions with employees and provide pro forma net
earnings and pro forma earnings per share disclosures for employee stock grants
made as if the fair value based method of accounting in SFAS No. 123 had been
applied to these transactions.
4
The following table illustrates the effect on net earnings/(loss) and
earnings/(loss) per share if we had applied the fair value recognition
provisions of SFAS No. 123 to stock-based employee compensation:
THREE MONTHS SIX MONTHS ENDED
ENDED JUNE 30, JUNE 30,
----------------------- ------------------------
2004 2003 2004 2003
---------- --------- ---------- ----------
Net earnings/(loss) - as reported ....................................... $ 28,771 $ 6,615 $ 35,599 $ (24,398)
Stock based employee compensation expense included in reported
net earnings/(loss), net of related tax effects ...................... 231 895 1,605 1,373
Less total stock based employee compensation expense determined
under the fair value based method for all awards, net of
related tax effects .................................................. (5,380) (4,812) (10,280) (9,374)
---------- --------- ---------- ----------
Pro forma net earnings/(loss) ........................................... $ 23,622 $ 2,698 $ 26,924 $ (32,399)
========== ========= ========== ==========
Basic net earnings/(loss) per share:
As reported .......................................................... $ 0.12 $ 0.03 $ 0.15 $ (0.11)
Pro forma ............................................................ $ 0.10 $ 0.01 $ 0.12 $ (0.14)
Diluted net earnings / (loss) per share:
As reported .......................................................... $ 0.12 $ 0.03 $ 0.15 $ (0.11)
Pro forma ............................................................ $ 0.10 $ 0.01 $ 0.11 $ (0.14)
The weighted average fair value of options granted during the three and six
months ended June 30, 2004 and 2003 was $7.16 and $8.41, and $7.31 and $7.01 per
option, respectively. In determining the fair value of options and stock
purchase warrants granted for purposes of calculating the pro forma results
disclosed above for the three and six months ended June 30, 2004 and 2003, we
used Black-Scholes option pricing model and assumed the following: a risk free
interest rate of 2.8 percent; an expected option life of 4.7 years; an expected
volatility of 61 percent; and a dividend yield of 0.16 percent per year.
Restricted Cash
Restricted cash at June 30, 2004 of $50,005 represents a deposit that
collateralizes a bond serving as security for the trial court judgment against
Telxon and Symbol for Telxon vs. SmartMedia of Delaware, Inc. pending appeal.
The cash is held in a trust and is restricted as to withdrawal or use, and is
currently invested in a short-term certificate of deposit. Interest income
earned from this investment is paid to the Company. (See note 9c)
2. INVENTORIES
JUNE 30, DECEMBER 31,
2004 2003
----------- -----------
Raw materials............................ $ 71,369 $ 66,500
Work-in-process.......................... 25,502 24,422
Finished goods........................... 119,492 121,940
----------- -----------
$ 216,363 $ 212,862
=========== ===========
5
The amounts shown above are net of inventory reserves of $68,048 and
$109,331 as of June 30, 2004 and December 31, 2003, respectively, and include
inventory on consignment of $46,779 and $34,564 as of June 30, 2004 and December
31, 2003, respectively.
3. GOODWILL AND INTANGIBLE ASSETS
The changes in the carrying amount of goodwill for the six months ended
June 30, 2004 are as follows:
PRODUCT SERVICES TOTAL
---------- ---------- ----------
Balance as of December 31, 2003................ $ 246,253 $ 56,214 $ 302,467
Brazil acquisition(a).......................... 1,552 253 1,805
Trio acquisition(b)............................ 560 -- 560
Translation adjustments........................ (1,067) (181) (1,248)
---------- ---------- ----------
Balance as of June 30, 2004.................... $ 247,298 $ 56,286 $ 303,584
========== ========== ==========
(a) See Note 8a.
(b) See Note 8b.
Other than goodwill, the Company's intangible assets, all of which are
subject to amortization, consist of the following:
JUNE 30, 2004 DECEMBER 31, 2003
----------------------------- ------------------------------
ACCUMULATED ACCUMULATED
GROSS AMOUNT AMORTIZATION GROSS AMOUNT AMORTIZATION
------------- -------------- ----------- ----------------
Patents, trademarks and tradenames............... $ 25,856 $ (16,034) $ 35,080 $ (24,670)
Purchased technology............................. 27,800 (11,641) 27,800 (9,652)
Other............................................ 7,250 (3,084) 7,250 (2,079)
------------- -------------- ----------- ----------------
$ 60,906 $ (30,759) $ 70,130 $ (36,401)
============= ============== =========== ================
The amortization expense for the three months ended June 30, 2004 and 2003
amounted to $2,474 and $2,285, respectively. The amortization expense for the
six months ended June 30, 2004 and 2003 amounted to $5,444 and $4,458,
respectively.
Estimated amortization expense for the above intangible assets, assuming no
additions or writeoffs, for the six months ended December 31, 2004 and for each
of the subsequent years ending December 31 is as follows:
2004 (six months)................................................... $ 4,560
2005................................................................. 8,832
2006................................................................. 6,510
2007................................................................. 5,057
2008................................................................. 4,046
Thereafter........................................................... 1,142
--------
$ 30,147
========
4. EARNINGS/(LOSS) PER SHARE AND DIVIDENDS
Basic earnings/(loss) per share are based on the weighted average number of
shares of common stock outstanding during the period. Diluted earnings/(loss)
per share are based on the weighted average
6
number of common and potentially dilutive common shares (options and warrants)
outstanding during the period, computed in accordance with the treasury stock
method.
The following table sets forth the computation of basic and diluted
earnings/(loss) per share:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- ------------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
Numerator:
Earnings/(loss) applicable to common
shares for basic and diluted calculation..... $ 28,771 $ 6,615 $ 35,599 $ (24,398)
========== ========== ========== ==========
Denominator:
Weighted-average common shares.................. 235,531 230,770 233,608 230,649
Effect of dilutive securities:
Stock options and warrants................... 4,008 6,050 5,677 --
Restricted Stock............................. 2 -- 17 --
---------- ---------- ---------- ----------
Denominator for diluted calculation............. 239,541 236,820 239,302 230,649
========== ========== ========== ==========
Stock options and warrants outstanding for the three months ended June 30,
2004 and 2003 aggregating 13,067 and 19,383, respectively, of potentially
dilutive shares have not been included in the diluted per share calculations
since their effect would be antidilutive.
Stock options and warrants outstanding for the six months ended June 30,
2004 and 2003 aggregating to 12,566 and 20,069, respectively, of potentially
dilutive shares have not been included in the diluted per share calculations
since their effect would be antidilutive.
5. SHAREHOLDERS' EQUITY
a. Restricted Stock
In May 2004, the Company granted 920,000 shares of restricted stock awards
to certain executives and non-employee directors of the Company. On the date of
grant, the market value of these restricted stock awards aggregated $13,005. The
non-employee director restricted stock awards totaled 20,000 shares and
cliff-vest at January 1, 2005. The remaining 900,000 executive restricted stock
awards cliff-vest in five years provided the Company's return on net assets for
four consecutive quarters does not exceed 16.4%. If the Company's return on net
assets for four consecutive quarters exceeds 16.4% or other greater return on
net asset target percentages as defined in grant document, portions of the
executive restricted stock awards vesting will be accelerated.
b. Comprehensive Earnings
The components of comprehensive earnings are as follows:
7
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
2004 2003 2004 2003
---------- ---------- ----------- ----------
Net earnings/(loss) $ 28,771 $ 6,615 $ 35,599 $ (24,398)
Other comprehensive income:
Change in unrealized gains and losses on
available-for-sale securities, net of tax (340) (3) 198 156
Change in unrealized fair value of derivative
instruments, net of tax (20) 345 (132) 960
Translation adjustments, net of tax (11,026) 6,829 (12,099) 8,807
---------- ---------- ---------- ---------
Total $ 17,385 $ 13,786 $ 23,566 $ (14,475)
========== ========== ========== =========
c. Dividends
On February 10, 2004, Symbol's Board of Directors approved a $0.01 per
share semi-annual cash dividend, which amounted to $2,338 and was paid on April
9, 2004 to shareholders of record on March 19, 2004.
6. RESTRUCTURING AND IMPAIRMENT CHARGES
a. Telxon Acquisition
We recorded certain restructuring, impairment and merger integration
related charges related to our Telxon acquisition during 2001 and 2002.
Approximately $61 relating to lease obligation costs charges was included in
accrued restructuring expenses as of December 31, 2003. During the six month
period June 30, 2004, $28 was paid and as of June 30, 2004, $33 remained in
accrued restructuring expenses.
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 during 2002 and 2001. During the
first quarter of 2004, the Company entered into a sub-lease arrangement at its
Bohemia, New York facility and recorded the anticipated sub-lease income of
approximately $2,860 as a reduction of the lease obligation cost, which had been
previously recorded in 2001. This amount has been recorded as a reduction to
product cost of revenue during the first quarter of 2004. Included in accrued
restructuring expenses as of June 30, 2004 is $1,001 of net lease obligations
relating to these manufacturing restructuring charges.
8
LEASE
OBLIGATION
COSTS
-------------
Balance at December 31, 2003............................ $ 4,356
Utilization/payments.................................... (304)
Provision reduction..................................... (2,860)
-------------
Balance at March 31, 2004............................... 1,192
Utilization/payments.................................... (191)
-------------
Balance at June 30, 2004................................ $ 1,001
=============
c. Global Services Transition
During the first quarter of 2003, our global services organization
initiated restructuring activities which included transitioning a portion 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 costs incurred in the first
quarter of 2003 in connection with this restructuring which related almost
entirely to workforce reductions, were approximately $1,066, of which $979 and
$87 was recorded as a component of cost of revenue and operating expenses,
respectively. These restructuring activities are expected to be completed by the
end of 2004.
During the first of quarter of 2003, we initiated additional restructuring
activities in connection with our decision to relocate additional product lines
from New York to Mexico. The costs associated with this restructuring relate to
workforce reductions and transportation costs. The total amount incurred in
connection with this restructuring activity was $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 connection with the global services transition, during 2004 the Company
recorded an additional provision of $1,629 in the first quarter of 2004 and
$3,836 in the second quarter of 2004, which relate to lease obligation costs net
of sub-lease income and further work force reductions. These amounts have been
recorded as a component of service cost of revenue in the first and second
quarters of 2004, respectively. Further global services transition restructuring
activities are being considered and future benefits are not yet defined,
therefore, we cannot reasonably estimate the remaining cost expected to be
incurred. These restructuring activities are expected to be completed by the end
of 2004.
During the second quarter of 2004, the shared services organization
initiated restructuring activities which included the consolidating and
transitioning of back office transactional activities to the Czech Republic. The
costs associated with this restructuring relate to workforce reductions. The
total amount incurred in connection with this restructuring activity was $509,
all of which was recorded as a component of operating expenses in the second
quarter of 2004. Further shared service restructuring activities are being
considered and future benefits are not yet defined, therefore, we cannot
reasonably estimate the remaining cost expected to be incurred. These
restructuring activities are expected to be completed in the first quarter of
2005.
Details of the global services transition restructuring charges and
remaining balances as of June 30, 2004 are as follows:
9
LEASE ASSET
WORKFORCE OBLIGATION IMPAIRMENTS
REDUCTIONS COSTS AND OTHER TOTAL
---------- ---------- ---------- ----------
Balance at December 31, 2003 $ 79 $ 572 $ 172 $ 823
Provision - cost of revenues 367 1,262 -- 1,629
Utilization/payments (41) (126) (23) (190)
---------- ---------- ---------- ----------
Balance at March 31, 2004 405 1,708 149 2,262
Provision - cost of revenues 1,463 2,323 50 3,836
Provision - operating expenses 509 -- -- 509
Translation adjustments -- -- 70 70
Utilization/payments (402) (269) (65) (736)
---------- ---------- ---------- ----------
Balance at June 30, 2004 $ 1,975 $ 3,762 $ 204 $ 5,941
========== ========== ========== ==========
7. LONG-TERM DEBT
On March 16, 2004, our $45,000 secured credit line was increased to
$60,000. Borrowings, which are secured by U.S. trade receivables, bear interest
at either LIBOR plus 175 basis points, which approximated 3.12% at June 30,
2004, or the base rate of the syndication agent bank, which approximated 4.25%
at June 30, 2004. This secured credit line expires in May 2006. As of June 30,
2004 and December 31, 2003, there were no borrowings outstanding under the
secured credit line.
On March 31, 2004, we entered into a secured installment loan with a bank
for $13,825. The loan is secured by U.S. trade receivables and is payable in
four semiannual installments of $3,655 commencing October 1, 2004. The proceeds
under the loan were used to finance certain software license arrangements.
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. 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. 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 No. 133. The
change in fair value of this derivative between reporting dates is recognized as
other income. The derivative has been combined with the debt instrument in
long-term debt as there is a legal right of offset and is in accordance with
Financial Accounting Standards Board Interpretation No. 39, "Offsetting of
Amounts Related to Certain Contracts." The SAILS liability, net of the
derivative asset, represents $100,974 and $98,927 of the total long-term debt
balance outstanding at June 30, 2004 and December 31, 2003, 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.
10
8. ACQUISITIONS
a. Brazil Acquisition
During 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.
The initial 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 were attained,
the minimum earnout payment was payable no later than March 31, 2009. Under the
initial terms, with each earnout payment, we would obtain a portion of Symbol
Brazil's shares owned by the minority shareholders such that we ultimately would
have owned 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
initial agreement, which was due on the date of the first earnout payment. 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.
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 Brazil owned by two
principals of Seal. The Company paid $4,050 and also forgave the pre-existing
$5,000 loan and related accrued interest of $92 that had been made to an entity
affiliated with the principals of Seal. Accordingly, the Company and Symbol
Technologies Holdings do Brasil Ltda. now own 85% of the capital of Symbol
Brazil. As a result of the transaction, the Company satisfied the obligation
related to the minimum earnout requirement of approximately $2,337 at January
10, 2004 and recorded the excess purchase price of approximately $1,805 as
goodwill. Under the terms of the relevant agreements, Symbol Brazil had its
corporate form changed into a corporation and it will eventually become a wholly
owned subsidiary of the Company, directly or indirectly. If Symbol Brazil meets
certain revenue targets over relevant time periods, the Company will be required
to purchase additional ownership interests from the minority shareholders.
As we control Symbol Brazil, we have consolidated this subsidiary. The
minority interest in earnings of operations of Symbol Brazil was immaterial for
the three and six months ended June 30, 2004 and 2003, respectively.
b. Trio Security, Inc.
In June 2004, we purchased all of the issued and outstanding capital stock
of Trio Security, Inc. ("Trio"), a privately held designer and developer of next
generation security solutions for enterprise networks and mobile applications
for handheld devices, for $600, excluding transaction costs. Pursuant to the
acquisition agreement, $500 of the purchase price was paid in June 2004 and $100
was paid in July 2004. The acquisition is expected to enhance and expand the
range of applications that Symbol offers. The acquisition was accounted for as a
purchase and accordingly, Trio's operating results since the acquisition date
have been included in Symbol's condensed consolidated financial statements. Trio
became part of the Company's Product segment. The assets acquired and
liabilities assumed have been
11
recorded at their estimated fair values. Substantially all of the purchase price
has been preliminarily allocated to goodwill at June 30, 2004.
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 condensed consolidated financial statements.
9. CONTINGENCIES
a. Guarantees and Product Warranties
We provide standard warranty coverage for most of our products for a period
of one year from the date of shipment. We record a liability for estimated
warranty claims based on historical claims, product failure rates and other
factors. This warranty liability, recorded as a component of accounts payable
and accrued expenses, 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:
Amount
-------------
Balance at December 31, 2003..................... $ 20,828
Charges to expense--cost of revenue.............. 13,042
Utilization/payment.............................. (14,324)
-------------
Balance at June 30, 2004......................... $ 19,546
=============
b. Derivative Instruments and Hedging Activities
We 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. Changes
in fair value of derivative instruments are recognized immediately in earnings
unless the derivative qualifies as a cash flow hedge. For derivatives qualifying
as cash flow hedges, the effective portion of changes in fair value of the
derivative instrument is recorded as a component of other comprehensive income /
(loss) and is reclassified to earnings in the same period during which the
hedged transaction affects earnings. Any ineffective portion (representing the
remaining gain or loss on the derivative instrument in excess of the cumulative
change in the present value of future cash flows of the hedged transaction) is
recognized in earnings as it occurs. For fair value hedges, changes in fair
value of the derivative, as well as the offsetting changes in fair value of the
hedged item, are recognized in earnings each period. We do not use these
derivative financial instruments for trading purposes.
As of June 30, 2004 and December 31, 2003, respectively, we had $42,653 and
$40,673 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 period with the
resulting gains and losses included as a component of cost of revenue in the
Condensed Consolidated Statement of Operations. The fair value of these forward
exchange contracts was ($153) as of June 30, 2004, which is recorded in current
liabilities and $107 as of December 31, 2003, which was recorded in current
assets.
12
c. 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 SEC 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 cooperated 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.
The United States Attorney's Office for the Eastern District of New York
(the "Eastern District") commenced a related investigation. We cooperated with
that investigation, and produced documents and witnesses in response to the
Eastern District's inquiries.
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 specific 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. The Company being subject to 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, inflate 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. In addition, on June 8, 2004,
the Eastern District announced the indictment of eight former Symbol employees,
including Tomo Razmilovic, former president and chief executive officer, Kenneth
Jaeggi, former senior vice president and chief financial officer, Leonard
Goldner, former
13
executive vice president and general counsel, Brian Burke, former senior vice
president (operations), Michael DeGennaro, former senior vice president
(finance), Frank Borghese, former senior vice president (worldwide sales and
service), Christopher Desantis, former vice president (finance) and James
Heuschneider, former director (finance). The Eastern District also announced
that three additional former Symbol employees pled guilty to conspiracy charges.
In addition, the Commission filed complaints against the 11 above identified
individuals charging them with with securities fraud and other violations of the
securities laws.
On June 3, 2004, we announced that Symbol had resolved the investigation by
the Eastern District by executing a non-prosecution agreement with the Eastern
District. As a result, no criminal complaint will be filed against Symbol. In
addition, Symbol announced an agreement with the Commission to resolve the
allegations against Symbol that were under investigation by the Commission since
May 2001. The agreements with the Eastern District and the Commission call for
Symbol to pay $37,000 in cash to a restitution fund for members of the class
consisting of purchasers of Symbol stock from February 15, 2000 to October 17,
2002, and $3,000 to the United States Postal Inspection Service Consumer Fraud
Fund. In addition to Symbol's agreement to make those payments, as part of its
agreements with the Eastern District and the Commission, Symbol acknowledged
responsibility for previous misconduct by certain former employees; agreed to
continue its cooperation with the Eastern District and Commission, to retain an
independent, government-approved examiner to review Symbol's internal controls,
financial reporting practices and its compliance with the settlement agreements,
and to establish and maintain an annual training and education program designed
to diminish the possibility of future violations of the federal securities laws.
Should Symbol violate the agreement with the Eastern District or commit other
crimes, Symbol shall be subject to prosecution for any offense, including any
offense related to Symbol's past accounting practices. Pursuant to the agreement
with the Commission, the Commission filed a proposed Final Consent Judgment in
the Eastern District of New York providing for injunctive relief, enjoining
Symbol from further violations of the securities laws, and a civil penalty in
the amount of $37,000, as described above. Symbol has made the payments totaling
$40,000 during the second quarter 2004, described above, as required by the
agreements with the Eastern District and the Commission, and the proposed Final
Consent Judgment has been entered by the Court. We currently estimate that this
$40,000 may not be deductible for tax purposes.
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
14
amended complaint extended the alleged class period to the time between April
26, 2000 and April 18, 2002. On June 3, 2004, we announced a settlement of the
Pinkowitz lawsuit. For detailed information on this settlement, see the
description under the Hoyle and Salerno caption below.
Hoyle v. Symbol Technologies, Inc., et al.
Salerno v. Symbol Technologies, Inc., et al.
On March 21, 2003, a separate purported class action lawsuit was filed,
entitled Edward Hoyle v. Symbol Technologies, Inc., Tomo Razmilovic, Kenneth V.
Jaeggi, Robert W. Korkuc, Jerome Swartz, Harvey P. Mallement, George
Bugliarello, Charles B. Wang, Leo A. Guthart and James H. Simons, in the United
States District Court for the Eastern District of New York. On May 7, 2003, a
virtually identical purported class action lawsuit was filed against the same
defendants by Joseph Salerno.
The Hoyle and Salerno complaints are brought on behalf of a purported class
of former shareholders of Telxon Corporation ("Telxon") who obtained Symbol
stock in exchange for their Telxon stock pursuant to Symbol's acquisition of
Telxon effective as of November 30, 2000. The complaint alleges that the
defendants violated the federal securities laws by issuing a Registration
Statement and Joint Proxy Statement/Prospectus in connection with the Telxon
acquisition that contained materially false and misleading statements that had
the effect of artificially inflating the market price of Symbol's securities.
On October 3, 2003, Symbol and the individual defendants moved to dismiss
the Hoyle action as barred by the applicable statute of limitations. Prior to a
decision of the Court on the motion to dismiss, the parties have reached an
agreement that the Hoyle and Salerno matters would be resolved as part of the
Pinkowitz settlement described above.
On June 3, 2004, we announced Symbol's settlement of the Pinkowitz, Hoyle
and Salerno lawsuits. Under the settlement, Symbol agreed to pay $98,000 in cash
and stock to the class. In addition, the $37,000 civil penalty by the
Commission, will be distributed to class members as described above. The
settlement is subject to court approval. Dr. Jerome Swartz, Symbol's co-founder
and former chairman, agreed to pay $4,000 in cash to the class to settle the
Pinkowitz and Hoyle class action claims with respect to him. This $4,000 has
been recorded as a component of recovery for legal settlements within operating
expenses during the three months ended June 30, 2004, as this was previously
recorded in the amount estimated to be paid by the Company. Claims brought by
the plaintiffs against former Symbol employees Tomo Razmilovic, Kenneth Jaeggi,
Brain Burke and Frank Borghese were not settled.
In connection with the above pending class actions and government
investigations, Symbol has recorded an accrued liability for legal settlements
of $98,000 as of June 30, 2004 which is reflected as a component of accounts
payable and accrued expenses in the accompanying condensed consolidated
financial statements.
Additionally and in connection with the class actions and government
settlement, the Company received $5,000 from one of its officer's liability
insurance carriers, which has been recorded as a component of recovery for legal
settlements within operating expenses during the three months ended June 30,
2004.
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,
15
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 still intends to defend
the case vigorously on the merits, but in the interim, has entered into
negotiations with the plaintiff regarding a possible settlement.
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 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 former
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 former 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 filed a motion to dismiss on March 29, 2004. On May 21, 2004,
plaintiff filed an amended complaint. On June 9, 2004, Symbol filed a motion
seeking to realign itself as plaintiff and take control of the litigation. That
motion has not yet been fully briefed. On July 27, 2004, the Court approved a
settlement that Symbol reached with the plaintiff in the Gold case. The
settlement calls for the lawsuit to continue as direct litigation by Symbol on
its own behalf against the defendants in Gold. As part of the settlement, the
plaintiff in the Gold lawsuit consents to entry of Symbol's proposed order,
under which Symbol will now be the plaintiff in this case. Symbol plans to
continue to pursue this lawsuit vigorously and as part of the settlement, has
agreed to pay $185 to cover the reasonable legal fees of the plaintiff's lawyer.
In addition, on June 3, 2004, Symbol announced it had reached a settlement
with Dr. Jerome Swartz, Symbol's co-founder and former chairman. The agreement
called for Dr. Swartz to pay $4,000 in cash to the class to settle the Pinkowitz
and Hoyle class action lawsuits as described above. Subject to his dismissal
from the Gold case, Dr. Swartz agreed to pay an additional $7,200 in cash to
Symbol and forfeit stock options having a value of $2,900 or to exercise those
options and pay approximately $2,900 in cash or stock to the Company. The
ability for Dr. Swartz to forfeit stock options ended July 1, 2004, his last day
of employment with the Company, therefore he will either pay $2,900 in cash or
stock to the Company. This settlement with Dr. Swartz is in addition to his
agreement in July 2003 to relinquish approximately two years of salary, bonus
and stock options remaining under his prior employment agreement.
16
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 anticipated that it would pay $37,000 to the class. As a
result of anticipated contributions by Telxon's insurers, Telxon expected that
its net payment would be no more than $25,000. 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. On February 27, 2004, we
paid $25,000 to the class in accordance with the settlement. 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 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 was completed on December 19, 2003. Expert discovery was
concluded on April 16, 2004. On April 20, 2004, PwC made a supplemental
production of documents to Telxon which included thousands of pages of materials
never previously produced in the litigation. Because fact and expert discovery
had already closed, Telxon filed a motion for sanctions against PwC, requesting,
among other things, the entry of default judgment against PwC for discovery
misconduct. The district court referred the motion to the magistrate judge for a
report and recommendation. On July 2, 2004, the magistrate judge issued a report
and recommendation that the district court enter default judgment on liability
against PwC and in favor of Telxon. PwC filed objections to the magistrate
judge's report and recommendation on July 19, 2004. Telxon has to reply to the
objections by August 2, 2004. The district court will then rule upon PwC's
objections and either accept, reject, or modify the recommended disposition of
the magistrate judge. The district court is not required to hold a hearing.
17
Assuming the district court follows the magistrate judge's report and
recommendation and enters default judgment against PwC and in favor of Telxon, a
trial on the issue of damages should occur in late 2004 or early 2005.
Wyser-Pratte Management Co. v. Telxon Corporation, et al.
On June 11, 2002, Wyser-Pratte Management Co., Inc. ("WPMC") filed a
complaint against Telxon and its former top executives alleging violations of
Sections 10(b), 18, 14(a) and 20(a) of the Securities and Exchange Act of 1934
(the "Exchange Act"), and alleging additional common law claims. This action is
related to the same set of facts as the In re Telxon class action described
above. On November 15, 2003, the parties reached an agreement in principle to
resolve the litigation under which Telxon would pay WPMC $3,300. The settlement
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 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.
18
Trial on the Symbol patents began on September 8, 2003. On September 12,
2003, the jury returned a verdict finding that two of the three asserted patents
(the '183 and '441 Patents) had been infringed by Proxim. Proxim dropped its
claims of invalidity as to all three Symbol patents, and consented to judgment
against Proxim on those invalidity claims. The jury awarded Symbol 6% royalties
on Proxim's past sales of infringing products, which include Proxim's OpenAir,
802.11 and 802.11b products. Based on Proxim's sales of infringing products from
1995 to the present, we estimate that damages for past infringement by Proxim
amount to approximately $23,000 before interest. On July 28, 2004, the Court
issued its opinion rejecting Proxim's equitable defenses, and directing that
judgment be entered in favor of the Company in the amount of $23,000 for
damages, plus $3,000 in interest. The Court denied Symbol's request for a 6 %
royalty on Proxim's future sales. Symbol therefore intends to seek an injunction
to prevent future infringing sales.
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, 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. The parties have entered into a settlement
agreement effective June 9, 2004, pursuant to which all asserted claims were
dismissed, except HHP retained the right to reassert its third-party complaint
to which the Company was not a party.
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. The parties have
19
entered into a settlement agreement effective June 9, 2004, pursuant to which
all asserted claims were dismissed.
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. Discovery is ongoing and a 4
day hearing before the arbitrator has been scheduled to commence on October 28,
2004.
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 has moved for
partial summary judgment on Metrologic's breach of contract claim, which has
been fully briefed by the parties. Symbol intends to defend the case vigorously
on the merits.
20
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.
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. The Lemelson Partnership filed a notice of appeal on June 23,
2004. Their brief on appeal is due on or about September 3, 2004 and further
appellate briefs from the parties will be due in the two month period following
the filing of the Lemelson Partnership's brief.
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.
21
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 was subsequently withdrawn
by SMI. 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.
On May 6, 2004 the Court entered judgment against Telxon for approximately
$218,000 in damages plus statutory interest from the date of the verdict. This
amount includes an award to an individual for approximately $6,000. The Court
also granted the individual's motion to add Symbol as a counterclaim defendant.
The Court denied Telxon's motions for judgment in its favor, for a new trial,
and for a reduction in the verdict. The Court rejected SMI's and the
individual's motions for prejudgment interest. Symbol and Telxon have appealed
these rulings, have posted $50,000 in cash as security for the judgment and have
obtained a stay of execution of the judgment. We believe that Symbol and Telxon
have strong grounds on which to appeal and do not currently believe that an
unfavorable outcome with respect to the SMI judgment is probable at this time.
Moreover, there can be no certainty at this time as to the likely amount of
loss, if any. Accordingly, we have not recorded a liability in our consolidated
financial statements with respect to the SMI judgment. However, there can be no
assurance that Symbol and or Telxon will not be found to be ultimately liable
for the damage awards.
Barcode Systems, Inc. ("BSI") v. Symbol Technologies Canada, Inc., et al.
On March 19, 2003, BSI filed an amended statement of claim in the Court of
Queen's Bench in Winnipeg, Canada, naming Symbol Technologies Canada, Inc. and
Symbol as defendants. BSI alleges that Symbol deliberately, maliciously and
willfully breached its agreement with BSI under which BSI purported to have the
right to sell Symbol product in western Canada and to supply Symbol's support
operations for western Canada. BSI has claimed damages in an unspecified amount,
punitive damages and special damages.
Symbol denies BSI's allegations and claims that it properly terminated any
agreements between BSI and Symbol. Additionally, Symbol filed a counterclaim
against BSI alleging trademark infringement, depreciation of the value of the
goodwill attached to Symbol's trademark and damages in the sum of Canadian
$1,281, representing the unpaid balance of product sold by Symbol to BSI.
Discovery in the matter is ongoing.
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 filed an appeal of the Tribunal's decision before the
Federal Court of Appeals on April 22, 2004.
22
On November 17, 2003, BSI filed an additional lawsuit in British Columbia,
Canada against Symbol and a number of its distributors alleging that Symbol
refused to sell products to BSI, conspired with the other defendants to do the
same and used confidential information to interfere with BSI's business. Symbol
considers these claims to be meritless and intends to defend against these
claims vigorously.
Lic. Olegario Cavazos Cantu, on behalf of Maria Leonor Cepeda Zapata vs. Symbol
de Mexico, Sociedad de R.L. de C.V.
Lic. Olegario Cavazos Cantu, on behalf of Maria Leonor Cepeda Zapata
("Plaintiff"), filed a lawsuit against Symbol de Mexico, Sociedad de R.L. de
C.V. ("Symbol Mexico") on or about October 21, 2003 for purposes of exercising
an action to reclaim property on which Symbol's Reynosa facility is located.
Such lawsuit was filed before the First Civil Judge of First Instance, 5th
Judicial District, in Reynosa, Tamaulipas, Mexico. Additionally, the First Civil
Judge ordered the recording of a lis pendens with respect to this litigation
before the Public Register of Property in Cd. Victoria, Tamaulipas. As of
November 13, 2003, such lis pendens was still pending recordation.
Plaintiff alleges that she is the legal owner of a tract of land of one
hundred (100) hectares in area, located within the area comprising the Rancho La
Alameda, Municipality of Reynosa, Tamaulipas, within the Bajo Rio San Juan,
Tamaulipas, irrigation district. Allegedly, such land was caused to be part of
the Parque Industrial Del Norte in Reynosa, Tamaulipas. Plaintiff further
alleges that Symbol Mexico, without any claim of right and without Plaintiff's
consent entered upon the tract of land, occupied such, and refused to return to
Plaintiff the portion of land and all improvements and accessions thereto
occupied by Symbol Mexico. Plaintiff is asking the court to order Symbol Mexico
to physically and legally deliver to the Plaintiff the portion of land occupied
by Symbol Mexico.
Symbol Mexico acquired title to the lots in the Parque Industrial Reynosa
from Edificadora Jarachina, S.A. de C.V. pursuant to a deed instrument. An
Owner's Policy of Title Insurance was issued by Stewart Title Guaranty Company
in connection with the above-mentioned transaction in the amount of $13,400. A
Notice of Claim and Request for Defense of Litigation was duly delivered on
behalf of Symbol to Stewart Title Guaranty Company on November 4, 2003. Symbol
intends to defend against this claim vigorously.
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.
10. INCOME TAXES
In the quarter ended March 31, 2004, we changed our estimate of the amount
for certain pending class action lawsuits and government fines, as discussed in
Note 9c, which may not be deductible for tax purposes. At December 31, 2003, our
estimate of the non-deductible amount was $5,000. Currently, we estimate such
non-deductible amount to approximate $40,000. Accordingly, we reversed a
previously recorded deferred tax asset of $13,475, as we believe this deferred
tax asset is unlikely to be realizable. Below are the components of our
provision for income taxes for the six months ended June 30, 2004.
23
Amount Percent
--------- ----------
Earnings before income taxes $ 66,169
Deferred tax asset impairment $ 13,475 20.4
Income tax expense 17,095 25.8
--------- ----------
Total provision for income taxes 30,570 46.2
--------- ==========
Net earnings $ 35,599
=========
11. EXECUTIVE RETIREMENT PLAN
We maintain an Executive Retirement Plan (the "Plan") in which certain
highly compensated associates are eligible to participate. Our obligations under
the Plan are not funded. The components of net periodic benefit cost for the
three and six months ended June 30, 2004 and 2003 are as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ---------------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
COMPONENTS OF NET PERIODIC BENEFIT COST:
Service cost $ 370 $ 371 $ 740 $ 744
Interest cost 322 338 644 676
Amortization of prior service cost 66 66 132 132
Recognized actuarial loss -- 53 -- 106
---------- ---------- ---------- ----------
Net periodic benefit cost $ 758 $ 828 $ 1,516 $ 1,658
========== ========== ========== ==========
EMPLOYER CONTRIBUTIONS TO THE PLAN
We previously disclosed in our financial statements for the year ended
December 31, 2003, that we expected to contribute approximately $372 to the Plan
to cover expected benefit payments during 2004. As of June 30, 2004, $151 has
been paid and we anticipate contributing an additional $230 to cover the
expected benefit payments for the Plan in 2004 for a total of $381.
12. BUSINESS SEGMENTS AND OPERATIONS BY GEOGRAPHIC AREAS
Our business consists of delivering products and solutions that capture,
move and manage information in real time to and from the point of business
activity. In addition we provide customer support for our products and
professional services related to these products and solutions. These services
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 products and solutions in the forms of advanced
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 data capture
equipment and mobile computing devices to wireless networks. This segment also
provides worldwide comprehensive repair and maintenance integration and support
in the form of service contracts or repairs on an as-needed basis. We use many
factors to measure performance and allocate resources to these two reportable
segments. The primary measurements are sales and standard costs. The accounting
policies of the two reportable segments are essentially the same as those used
to prepare our consolidated financial statements. We rely on our internal
management system to provide us with necessary sales and standard cost data by
reportable segment and we make financial decisions and allocate resources based
on the information we receive from this management system. In the measurement of
segment performance,
24
we do not allocate manufacturing variances, research and development, sales and
marketing, or general and administrative expenses. We do not use that
information to make key operating decisions and do not believe that allocating
these expenses is significant in evaluating performance.
Beginning January 1, 2004, we revised our internal reporting of certain
manufacturing costs, including but not limited to costs of re-working product,
warranty costs, obsolescence costs and costs to scrap and no longer include
these in our standard costing structure. As reflected in the table below, there
is an increase in our standard gross profit and our manufacturing variances and
other related costs for the three and six months ended June 30, 2004 as compared
to the comparable period in 2003.
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 the three and six months ended June 30, 2004 were
$182,346 and $348,831, respectively. Non-U.S. sales for the three and six months
ended June 30, 2003 were $151,317 and $322,287, respectively.
Identifiable assets are those tangible and intangible assets used in
operations in each geographic region. Corporate assets are principally temporary
investments and goodwill.
25
Summarized financial information concerning our reportable segments and
geographic regions is shown in the following table.
FOR THE THREE MONTHS ENDED
-----------------------------------------------------------------------------
JUNE 30, 2004 JUNE 30, 2003
------------------------------------- --------------------------------------
PRODUCTS SERVICES TOTAL PRODUCTS SERVICES TOTAL
----------- ----------- ----------- ----------- ----------- -----------
REVENUES:
The Americas...................... $ 220,528 $ 50,256 $ 270,784 $ 191,627 $ 55,890 $ 247,517
EMEA.............................. 100,852 23,320 124,172 76,180 24,253 100,433
Asia Pacific...................... 35,222 2,607 37,829 22,489 3,380 25,869
----------- ----------- ----------- ----------- ----------- -----------
Total net sales................... $ 356,602 $ 76,183 $ 432,785 $ 290,296 $ 83,523 $ 373,819
=========== =========== =========== =========== =========== ===========
STANDARD GROSS PROFIT:
The Americas...................... $ 122,230 $ 14,826 $ 137,056 $ 97,980 $ 13,670 $ 111,650
EMEA.............................. 59,126 8,505 67,631 40,587 8,812 49,399
Asia Pacific...................... 19,472 876 20,348 11,633 1,497 13,130
----------- ----------- ----------- ----------- ----------- -----------
Total gross profit at standard.... $ 200,828 $ 24,207 225,035 $ 150,200 $ 23,979 174,179
=========== =========== =========== ===========
Manufacturing variances & other
related costs.................. 28,352 21,790
----------- -----------
Total gross profit................ $ 196,683 $ 152,389
=========== ===========
FOR THE SIX MONTHS ENDED
-----------------------------------------------------------------------------
JUNE 30, 2004 JUNE 30, 2003
------------------------------------- --------------------------------------
PRODUCTS SERVICES TOTAL PRODUCTS SERVICES TOTAL
----------- ----------- ----------- ----------- ----------- -----------
REVENUES:
The Americas...................... $ 449,622 $ 95,533 $ 545,155 $ 376,707 $ 106,138 $ 482,845
EMEA.............................. 190,093 46,280 236,373 181,016 47,082 228,098
Asia Pacific...................... 65,126 5,782 70,908 43,276 5,947 49,223
----------- ----------- ----------- ----------- ----------- -----------
Total net sales................... $ 704,841 $ 147,595 $ 852,436 $ 600,999 $ 159,167 $ 760,166
=========== =========== =========== =========== =========== ===========
STANDARD GROSS PROFIT:
The Americas...................... $ 252,764 $ 23,358 $ 276,122 $ 192,860 $ 25,273 $ 218,133
EMEA.............................. 111,375 16,028 127,403 94,097 15,975 110,072
Asia Pacific...................... 37,381 2,249 39,630 22,072 2,326 24,398
----------- ----------- ----------- ----------- ----------- -----------
Total gross profit at standard.... $ 401,520 $ 41,635 443,155 $ 309,029 $ 43,574 352,603
=========== =========== =========== ===========
Manufacturing variances & other
related costs.................. 51,544 28,342
----------- -----------
Total gross profit................ $ 391,611 $ 324,261
=========== ===========
AS OF
AS OF DECEMBER
JUNE 30, 2004 31,2003
-------------- -----------
IDENTIFIABLE ASSETS:
The Americas...................... $ 904,873 $ 867,133
EMEA.............................. 303,350 316,406
Asia Pacific...................... 60,791 64,228
Corporate (principally goodwill,
intangible assets and investments) 350,773 398,751
-------------- -----------
Total........................ $ 1,619,787 $ 1,646,518
============== ===========
26
13. SUBSEQUENT EVENT
On July 26, 2004, we reached an agreement to purchase 100 percent of the
issued and outstanding capital stock of Matrics, Inc. ("Matrics"), a privately
held leader in the design and manufacturing of EPC (Electronic Product Code) -
compliant radio frequency identification ("RFID") system, for $230,000 cash,
excluding transaction costs. The acquisition of Matrics is a significant step in
executing our plan to be a leader in RFID, and is expected to expand our product
offerings in the advance data capture industry. We intend to finance the
acquisition with short-term borrowings under a new credit facility and expect to
refinance the borrowings in a capital markets equity or equity linked
transaction later this year, market conditions permitting. This acquisition,
which is subject to approval under the Hart-Scott-Rodino Antitrust Improvements
Act, is expected to close by September 30, 2004.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FORWARD-LOOKING STATEMENTS; CERTAIN CAUTIONARY STATEMENTS
This report contains forward-looking statements made in reliance upon the
safe harbor provisions of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. These
statements may be identified by their use of words, such as "anticipate,"
"estimates," "should," "expect," "guidance," "project," "intend," "plan,"
"believe" and other words and terms of similar meaning, in connection with any
discussion of Symbol's future business, results of operations, liquidity and
operating or financial performance or results. Such forward looking statements
involve significant material known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or achievements to be
materially different from any future results, performance or achievements
expressed or implied by such forward looking statements. For further information
related to other factors that have had, or may in the future have, a significant
impact on our business, financial condition or results of operations, see Item
1, "Risk Factors" in our Annual Report on Form 10-K for the year ended December
31, 2003 and Item 2, "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Risk Factors," in our quarterly report on
Form 10-Q for the three months ended March 31, 2004.
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 Condensed Consolidated Financial Statements and the notes thereto that
appear elsewhere in this report.
OVERVIEW
27
We are a recognized worldwide leader in enterprise mobility, delivering
products and solutions that capture, move and manage information in real time to
and from the point of business activity. Symbol enterprise mobility solutions
integrate advanced data capture products, mobile computing platforms, wireless
infrastructure, mobility software and services programs under the Symbol
Enterprise Mobility Services brand. 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 three and six months ended June 30, 2004,
we generated $432,785 and $852,436 of revenue, respectively.
Symbol manufactures products and provides services to capture, move and
manage 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,
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 three and six months ended June 30, 2004
increased 15.8 percent and 12.1 percent to $432,785 and $852,436 from $373,819
and $760,166 in the comparable prior year periods. The increase in revenue is
primarily attributable to expanding our available markets, 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 was 45.4 percent and 45.9 percent for the three and six
months ended June 30, 2004, an increase from 40.8 percent and 42.7 percent for
the three and six months ended June 30, 2003. The increase is primarily due to
our increased sales of higher margin product and efficiencies we have achieved
in our manufacturing, distribution and services operations.
We are committed and continue to invest in our people, processes and
systems to improve our control environments, our effectiveness with our
customers and our operational efficiencies. Accordingly, our selling, general
and administrative expenses were $119,073 and $240,753 for the three and six
months ended June 30, 2004, a 9.8 percent and a 16.1 percent increase from the
comparable prior years periods.
With continued focus on our balance sheet, our cash balance has remained
relatively consistent at $143,686 as of June 30, 2004 as compared to $150,017 at
December 31, 2003, however this balance as of June 30, 2004, includes
distributing approximately $65,000 in legal settlements and the posting of a
$50,000 bond as security for a trial court judgment on appeal, all of which
occurred during the six months ended June 30, 2004. Additionally, at June 30,
2004 and December 31, 2003, we had no current borrowings under our secured
credit line. We have also invested $34,665 in our business during the six months
ended June 30, 2004 through purchases of property and computer equipment and
related software of $30,055 and investments in other companies of $4,610. We
expect to continue to make investments in property plant and equipment over the
next 12 to 18 months in the range of $100,000 related primarily to our
information technology business transformation initiatives.
28
RESULTS OF OPERATIONS
The following table summarizes our revenue by geographic region and
then by reportable segment and geographic region for which we use to manage our
business:
FOR THE THREE MONTHS ENDED JUNE 30 FOR THE SIX MONTHS ENDED JUNE 30
------------------------------------------------- -------------------------------------------------
VARIANCE VARIANCE VARIANCE VARIANCE
IN IN IN IN
2004 2003 $'S PERCENT 2004 2003 $'S PERCENT
---------- ---------- ---------- ------- ---------- ---------- ---------- -----
Total Revenue
The Americas........... $ 270,784 $ 247,517 $ 23,267 9.4% $ 545,155 $ 482,845 $ 62,310 12.9%
EMEA................... 124,172 100,433 23,739 23.6 236,373 228,098 8,275 3.6
Asia Pacific........... 37,829 25,869 11,960 46.2 70,908 49,223 21,685 44.1
---------- ---------- ---------- ------- ---------- ---------- ---------- -----
Total Revenue...... 432,785 373,819 58,966 15.8 852,436 760,166 92,270 12.1
========== ========== ========== ======= ========== ========== ========== =====
Product Revenue
The Americas........... 220,528 191,627 28,901 15.1 449,622 376,707 72,915 19.4
EMEA................... 100,852 76,180 24,672 32.4 190,093 181,016 9,077 5.0
Asia Pacific........... 35,222 22,489 12,733 56.6 65,126 43,276 21,850 50.5
---------- ---------- ---------- ------- ---------- ---------- ---------- -----
Total Product Revenue. 356,602 290,296 66,306 22.8 704,841 600,999 103,842 17.3
========== ========== ========== ======= ========== ========== ========== =====
Service Revenue
The Americas........... 50,256 55,890 (5,634) (10.1) 95,533 106,138 (10,605) (10.0)
EMEA................... 23,320 24,253 (933) (3.8) 46,280 47,082 (802) (1.7)
Asia Pacific........... 2,607 3,380 (773) (22.9) 5,782 5,947 (165) (2.8)
---------- ---------- ---------- ------- ---------- ---------- ---------- ----
Total Service Revenue. $ 76,183 $ 83,523 $ (7,340) (8.8)% $ 147,595 $ 159,167 $ (11,572) (7.3)%
========== ========== ========== ======= ========== ========== ========== =====
Net product revenue for the three and six months ended June 30, 2004 was
$356,602 and $704,841 an increase of $66,306 or 22.8 percent and $103,842 or
17.3 percent from the comparable prior year periods. The increase is primarily
due to continued growth in our mobile computing product offerings, which is our
largest product line and represented approximately 59.6 percent and 66.3 percent
of the total product revenue growth, respectively. Contributing to this increase
is the growth from both our next generation mobile gun and portable data mobile
computing devices. Also contributing to the product revenue growth was growth in
advanced data capture of approximately 26.5 percent and 15.0 percent over the
comparable prior year periods which was primarily driven by continued growth in
next generation scanners as well as a large rollout of wireless point-of-sale
scanners to a nationwide retailer. In addition, wireless product revenue
increased by approximately 28.0 percent and 32.6 percent for the three and six
months ended June 30, 2004, respectively from the comparable prior year periods
due to the introduction of a new wireless switch. Offsetting these increases
were increases in rebates to our distributor and other channel partners of
approximately $2,395 and $5,280 over the comparable prior year periods, which is
recorded as a reduction to product revenue.
Net services revenue of $76,183 and $147,595 for the three and six months
ended June 30, 2004 decreased 8.8 percent and 7.3 percent respectively from
comparable prior year periods due to our continued drive to utilize third party
service providers for the lower margin professional service activities. Also
contributing to the decrease was a lower level of cash collections compared to
the comparable prior year period, as our U.S. service revenue is recognized on a
billed and collected basis.
Geographically, the Americas revenue increased 9.4 percent and 12.9 percent
for the three and six months ended June 30, 2004 from the comparable prior year
periods. EMEA revenue increased 23.6 percent and 3.6 percent, respectively, for
the three and six months ended June 30, 2004, from the comparable periods in
2003. The increases in the America's and EMEA revenues is mainly attributable to
strong growth in all of our product offerings. Asia Pacific revenue increased
46.2 percent and 44.1 percent for the three months and six months ended June 30,
2004, respectively, compared to the comparable prior year periods primarily the
result of continued penetration of all of our product offerings into this
marketplace. The Americas, EMEA and Asia Pacific represent approximately 62.6,
28.7 and 8.7
29
percent of revenue, respectively, for the three months ended June 30, 2004. The
Americas, EMEA and Asia Pacific represent approximately 64.0, 27.7 and 8.3
percent of revenue, respectively, for the six months ended June 30, 2004.
Product cost of revenue as a percentage of net product revenue was 52.2
percent and 50.0 percent for the three and six months ended June 30, 2004 as
compared to 56.9 percent and 53.5 percent in the comparable prior year periods.
This decrease is primarily due to product mix and increased efficiencies gained
in our manufacturing and distribution operations. Additionally, during the first
quarter of 2004, the Company recorded a $2,860 reduction in its accrued
restructuring expenses related to manufacturing transition activities. This
amount represents the estimated sub-lease income expected on our vacated
facility space in Bohemia, New York. The initial charge was recorded as a charge
to product cost of revenue.
Services cost of revenue as a percentage of net services revenue was 65.6
percent and 73.5 percent for the three and six months ended June 30, 2004 as
compared to 67.5 percent and 71.9 percent in the three and six months ended June
30, 2003, primarily due to increased efficiencies in our service depots, due to
the efforts of our global services transition, increased reliability of our
products and the transitioning of lower margin activities to outside third
parties. Also included in services cost of revenue for the three and six months
ended June 30, 2004 are global services transition restructuring costs of
approximately $3,836 and $5,465, respectively which relate to workforce
reductions and lease obligation costs as compared to $979 and $2,413 in the
comparable prior year period.
OPERATING EXPENSES
Operating expenses consist of the following for the three and six months
ended June 30:
FOR THE THREE MONTHS ENDED JUNE 30, FOR THE SIX MONTHS ENDED JUNE 30,
------------------------------------------------- -----------------------------------------------
VARIANCE VARIANCE VARIANCE VARIANCE
IN IN IN IN
2004 2003 $'S PERCENT 2004 2003 $'S PERCENT
------------ ------------ ------------ ----- ------------ ------------ ------------ -------
Engineering.............. $ 42,060 $ 38,130 $ 3,930 10.3% $ 83,619 $ 75,185 $ 8,434 11.2%
Selling, general and
administrative......... 119,073 108,419 10,654 9.8 240,753 207,450 33,303 16.1
(Recovery)/provision for
legal settlements...... (9,000) - (9,000) (100.0) (9,000) 72,000 (81,000) (112.5)
Stock based
compensation expense... 375 1,456 (1,081) (74.2) 2,609 2,232 377 16.9
Restructuring and
impairment charges..... 509 136 373 274.3 509 223 286 128.3
------------ ------------ ------------ ----- ------------ ------------ ------------ -------
$ 153,017 $ 148,141 $ 4,876 3.3% $ 318,490 $ 357,090 $ (38,600) (10.8)%
============ ============ ============ ===== ============ ============ ============ =======
Total operating expenses $153,017 increased 3.3 percent for the three
months ended June 30, 2004 from $148,141 for the comparable prior year period
while total operating expenses of $318,490 decreased $38,600 or 10.8 percent for
the six months ended June 30, 2004 from $357,090, for the comparable prior year
period. The $4,876 increase in operating expenses for the three month comparable
period is primarily the result of increases in our engineering expenses and
selling, general and administrative expenses of $3,930 and $10,654 offset by a
reduction in our provision for legal settlements of $9,000. The decrease of
$38,600 for the six month comparable period is largely driven by the fact that
the current year six months ended June 30, 2004 included a $9,000 reduction in
our provision for legal settlements while the prior year six month period ended
June 30, 2003 included a provision on legal settlements of $72,000. Offsetting
this decrease are increases in our engineering expenses and selling, general and
administrative expenses of $8,434 and $33,303 which represent a 11.2 percent and
16.1 percent increase respectively, for the six months ended June 30, 2004 as
compared to the comparable prior period of 2003.
30
Also included in total operating expenses are amounts associated with
non-cash compensation expenses associated with our stock option plans. 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, during the three month period ended June
30, 2004, the Board of Directors approved a restricted stock compensation plan
for certain executives and the Board of Directors which cause non-cash
compensation charges to be recognized for fair value of the restricted shares
granted, towards their vesting. Such stock based compensation expenses amounted
to $375, representing the compensation charge for the restricted shares and
$2,234, representing the compensation charge related to the abeyance program for
the six months ended June 30, 2004, respectively as compared to $1,456 and
$2,232 for the comparable prior year periods.
Engineering and selling, general and administrative expenses are summarized
in the following table:
FOR THE THREE MONTHS ENDED JUNE 30 FOR THE SIX MONTHS ENDED JUNE 30
--------------------------------------------- ---------------------------------------------
VARIANCE VARIANCE VARIANCE VARIANCE
IN IN IN IN
2004 2003 DOLLARS PERCENT 2004 2003 DOLLARS PERCENT
-------- --------- ------------ ---- ------- --------- ------------ ----
Engineering.............. $ 42,060 $ 38,130 $ 3,930 10.3% $83,619 $ 75,185 $ 8,434 11.2%
Percent of Net Sales... 9.7% 10.2% 9.8% 9.9%
Selling, general and
administrative......... $ 119,073 $ 108,419 $ 10,654 9.8% $240,753 $207,450 $ 33,303 16.1%
Percent of Net Sales... 27.5% 29.0% 28.2% 27.3%
Engineering costs for the three and six months ended June 30, 2004
increased 10.3 percent and 11.2 percent to $42,060 and $83,619 from $38,130 and
$75,185 for the three and six months ended June 30, 2003. The increase was due
to additional investments in mobility software, systems and solutions and RFID
(Radio Frequency Identification). The increase was consistent with our projected
expenditures and actual revenue growth as engineering spending as a percentage
of revenue remained relatively consistent.
Selling, general and administrative expenses for the three and six months
ended June 30, 2004 increased 9.8 and 16.1 percent to $119,073 and $240,753 from
$108,419 and $207,450 for the three and six months ended June 30, 2003. The
increase is primarily due to our increased revenues and our increased investment
in worldwide sales, marketing and financial personnel throughout 2003 and
through the first half of 2004. In addition, included in selling, general and
administrative expenses for the three and six months ended June 30, 2004, are
external consulting costs of approximately $2,500 and $4,700 for assistance with
the Company's efforts with compliance with the Sarbanes-Oxley Act of 2002. These
costs represent approximately 2.1 percent and 2.0 percent of selling, general
and administrative expenses for the three and six months ended June 30, 2004,
respectively. Also included in selling, general and administrative expense for
the six months ended June 30, 2004 is a pretax compensation and related benefits
charge of $2,800 recorded in connection with the resignation of our former Chief
Executive Officer, representing 1.2 percent of selling, general and
administrative expenses during the period. Selling, general and administrative
expenses for the three and six months ended June 30, 2003 included
31
expenses associated with our previously disclosed restatement and government
investigations of $14,500 and $19,800, respectively.
OTHER (EXPENSE)/INCOME, NET
In accordance with the provisions of SFAS No. 133, the gain or loss on the
change in fair value of the portion of our investment in Cisco common stock
classified as trading, coupled with the gain or loss on the change in fair value
of the embedded derivative has been recorded as a component of other income or
loss in each reporting period. The net impact of these fair value adjustments
included in other (expense) / income is $(6,285) and $(4,501) for the three and
six months ended June 30, 2004. Other (expense) / income was also increased by
interest expense of $(1,674) and $(2,438) for the three and six months ended
June 30, 2004. Included in other (expense) / income for the six months ended
June 30, 2003 is a write-down of $(3,025) for a cost method investment for which
impairment was considered to be other than temporary.
PROVISION FOR INCOME TAXES
Our effective rate for the six months ended June 30, 2004 and 2003 was
46.2% and 24.6%, respectively. In the quarter ended March 31, 2004 we changed
our estimate of the amount for certain pending class action lawsuits and
government fines, which may not be deductible for tax purposes. At December 31,
2003, our estimate of the non-deductible amount was $5,000, currently we
estimate such non-deductible amount to approximate $40,000. Accordingly, we
reversed a previously recorded deferred tax asset of $13,475, as we believe this
deferred tax asset is unlikely to be realizable. Below are the components of our
provision for income taxes for the six months ended June 30, 2004.
Amount Percent
------------ ------------
Earnings before income taxes $66,169
Deferred tax asset impairment $13,475 20.4
Income tax expense 17,095 25.8
------------ ------------
Total provision for income taxes 30,570 46.2
------------- ============
Net earnings $35,599
=============
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
The following table summarizes Symbol's cash and cash equivalent balances
as of June 30, 2004 and December 31, 2003 and the results of our statement of
cash flows for the six months ended June 30.
2004 2003 $ CHANGE
------------- ------------- -------------
Cash and cash equivalents..................................... $ 143,686 $ 150,017 $ 6,331
============= ============= =============
Net cash provided by /(used in):
Operating activities...................................... 63,605 120,309 (56,704)
Investing activities...................................... (86,527) (27,713) (58,814)
Financing activities...................................... 18,893 (74,435) 93,328
Effect of exchange rate changes on cash and cash equivalents (2,302) 3,694 (5,996)
------------- ------------- -------------
Net (decrease) / increase in cash and cash
equivalents......................................... $ (6,331) $ 21,855 $ (28,186)
============= ============= =============
32
Net cash provided by operating activities during the six months ended June
30, 2004 was $63,605, as compared to $120,309 for the same period last year. Net
cash provided by operating activities decreased $56,704 during the six months
ended June 30, 2004 as compared to the comparable prior year period primarily
due to our use of cash to reduce and pay down our outstanding accounts payable
and accrued expenses. Included in the use of cash was the $40,000 payments as
required by the Eastern District and the Securities and Exchange Commission to
resolve the government investigations and the $25,000 settlement related to the
Telxon class action lawsuit, that was paid in February 2004.
Net cash used in investing activities for the six months ended June 30,
2004 was $86,527, as compared to $27,713 for the same period last year. Net cash
used in investing activities principally consists of net investments in other
companies and capital expenditures for property, plant and equipment. The
increase of $58,814 during the six months ended June 30, 2004, when compared to
the same period last year, was primarily due to the $50,000 bond we posted as
security for a trail court judgment on appeal and our increased investments in
other companies and capital expenditures as we invested $34,665 and $26,271 of
cash during the six months ended June 30, 2004 and 2003, respectively.
Net cash provided by financing activities during the six months ended June
30, 2004 was $18,893, as compared to net cash used in financing activities of
$(74,435) during the same period last year. Net cash provided by financing
activities during the six months ended June 30, 2004 consists of proceeds from
stock option exercises and long-term debt of $33,956 and $13,825, respectively
offset by purchases of treasury stock of $(26,374) as compared to cash used in
financing activities for repayments on long-term debt of $(71,636) in the same
period last year.
The following table presents selected key performance measurements we use
to monitor our business for the three months ended June 30,
2004 2003
---- ----
Days sales outstanding (DSO)................ 23.0 31.0
Inventory turnover - product only........... 4.4 4.2
We continue to effectively manage our net accounts receivables, ending the
six months ended June 30, 2004 with receivables of $110,482, a decrease of
$41,895 from $152,377 at December 31, 2003. Through aggressive collection
strategies we have been able to reduce our average days sales outstanding to
23.0 days during the three months ended June 30, 2004 from an average of 31.0
days in the three months ended June 30, 2003.
We have also continued to improve our efficiencies in our manufacturing and
distribution operations while supporting continued revenue growth. As a result
of increased revenues and the efficiencies we have instituted in our
manufacturing and distribution operations we have been able to increase the
average number of times that our inventory turns to 4.4 from 4.2 for the three
months ended June 30, 2004 as compared to the comparable period in 2003.
33
OTHER LIQUIDITY MEASURES
Other measures of our liquidity including the following:
JUNE 30, DECEMBER 31,
2004 2003
-------- ------------
Working capital............................................. $202,160 $197,808
(current assets minus current liabilities)
Current ratio (current assets to current liabilities)....... 1.4:1 1.4:1
Current assets as of June 30, 2004 decreased by $64,261 from December 31,
2003, primarily due to the transfer of $50,000 of cash into long-term assets in
satisfaction of bond requirement serving as security for a trial court judgment
against the Company and a subsidiary which is currently on appeal and to
short-term deferred tax assets being converted into net operating losses which
are deemed to be long-term deferred tax assets. Additionally and as discussed in
Note 10 of the notes to the condensed consolidated financial statements, we
reversed a previously recorded deferred tax asset of $13,475 as we believe this
asset may not be realized. Accounts receivable also decreased due to improved
cash collections, however a portion of the cash generated was used to pay down
and reduce our outstanding accounts payable and accrued expenses. Current
liabilities as of June 30, 2004 decreased $68,613 from December 31, 2003
primarily due to a decrease in accounts payable and accrued expenses which was
largely driven by the $40,000 payments as required by the Eastern District and
the Commission to resolve the government investigations and a $25,000 payment
made in February 2004 related to the settlement of the Telxon class action
lawsuit which was included in accounts payable and accrued expenses at December
31, 2003. As a result, working capital increased $4,352 between June 30, 2004
and December 31, 2003. Our current ratio was 1.4:1 at June 30, 2004 and December
31, 2003.
FINANCING ACTIVITIES
As of June 30, 2004 and December 31, 2003, there were no borrowings
outstanding under our $60,000 secured credit line.
In addition to our secured credit line, we have additional uncommitted loan
agreements with various overseas banks pursuant to which the banks have agreed
to provide lines of credit totaling $25,132 with a range of borrowing rates and
varying terms. As of June 30, 2004, we had no loans outstanding under these
lines. These agreements continue until such time as either party terminates the
agreements.
During 2000, we entered into a $50,000 lease receivable securitization
agreement. This agreement matured on December 31, 2003, and was subsequently
renewed until March 2005 without the payment of amounts outstanding at such
time. During the six months ended June 30, 2004 and 2003, we did not securitize
any additional lease receivables. 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.
34
EXISTING INDEBTEDNESS
At June 30, 2004 and December 31, 2003 long-term debt outstanding,
excluding current maturities, was as follows:
JUNE 30, 2004 DECEMBER 31, 2003
----------- -----------
Secured credit line....................... $ -- $ --
Secured installment loan.................. 13,825 --
SAILS exchangeable debt................... 100,974 98,927
Other..................................... 144 319
----------- -----------
114,943 99,246
Less: current maturities.................. 7,017 234
----------- -----------
Long-term debt............................ $ 107,926 $ 99,012
=========== ===========
In March 2004, we entered into a secured installment loan agreement with a
bank for $13,825. The loan is payable in four semiannual installments of $3,655
commencing October 1, 2004. The proceeds received under the loan were used to
finance certain Company software license arrangements.
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 $98,592 at June 30, 2004 and $100,797 at
December 31, 2003. Such shares are held as collateral to secure the debt
instrument associated with the SAILS and are included in Investment in
Marketable Securities in the Consolidated Balance Sheets. This debt has a
seven-year maturity and we pay 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, "Accounting for
Derivative Instruments and Hedging Activities," as amended. 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.
The derivative has been combined with the debt instrument in long-term debt
in the Condensed 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 $100,974 at June 30, 2004.
The remaining portion of long-term debt outstanding relates primarily to
capital lease obligations.
CONTRACTUAL CASH OBLIGATIONS
The following is a summary of the contractual commitments associated with
our debt and lease obligations as of June 30, 2004.
35
YEARS ENDED DECEMBER 31,
SIX MONTHS ---------------------------------------------------------
TOTAL ENDED 2004 2005 2006 2007 2008 THEREAFTER
-------- ------- ------- ------- ------- -------- -------
Long-term debt................. $114,817 $3,455 $6,920 $3,463 $5 $100,974 $ --
Capital lease commitments...... 126 82 44 -- - -- --
Operating lease commitments.... 104,483 11,865 19,271 16,383 14,081 12,133 30,750
-------- ------- ------- ------- ------- -------- -------
Total.......................... $219,426 $15,402 $26,235 $19,846 $14,086 $113,107 $30,750
======== ======= ======= ======= ======= ======== =======
Additionally, through the normal course of our business, we purchase or
place orders for the necessary components of our products from a variety of
suppliers. We estimate that our purchase obligations at June 30, 2004 is between
$100,000 and $150,000. This range does not include purchase obligations recorded
on the balance sheet as current liabilities. Purchase obligations for the
purchase of goods or services are defined as agreements that are enforceable and
legally binding on Symbol and that specify all significant terms, including
fixed or minimum quantities to be purchased, fixed, minimum or variable prices
provisions, and the appropriate timing of the transaction. Our purchase orders
are based on our current manufacturing needs and are fulfilled by our vendors
within a short time frame.
Currently, our primary source of liquidity is cash flow from operations and
the secured credit line. Our primary liquidity requirements continue to be
working capital, engineering costs, and financing and investing activities.
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 line will be adequate to meet our future liquidity needs for the
next twelve months.
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 line in an amount sufficient to enable us to fund our
other liquidity needs or pay our indebtedness.
CRITICAL ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS
The preparation of financial statements and related disclosures in
conformity with accounting principles generally accepted in the United States of
America requires us to make judgments, assumptions and estimates that affect the
reported amounts of assets, liabilities, revenue and expenses, as well as the
disclosure of contingent assets and liabilities.
On an on-going basis, we evaluate our estimates and judgments, including
those related to product return reserves, 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 in
our Annual Report on Form 10-K. We believe
36
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.
Service and maintenance sales are recognized when there is persuasive
evidence of an arrangement, the services are rendered, the price is fixed and
determinable and collectibility is reasonably assured, which is primarily upon
receipt of payment.
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
37
strategy in dealing with these matters. Depending on how these matters are
resolved, these costs could be material.
INVENTORY VALUATION
We record our inventories at the lower of historical cost or market value.
In assessing the ultimate realization of recorded amounts, we are required to
make judgments as to future demand requirements and compare these with the
current or committed inventory levels. Projected demand levels, economic
conditions, business restructurings, technological innovation and product life
cycles are variables we assess when determining our reserve for excess and
obsolete inventories. We have experienced significant changes in required
reserves in recent periods due to these variables. 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.
GOODWILL IMPAIRMENTS
Our methodology for allocating the purchase price relating to purchase
acquisitions is determined through established valuation techniques in the
high-technology mobile computing industry. Goodwill is measured as the excess of
the cost of acquisition over the sum of the amounts assigned to tangible and
identifiable intangible assets acquired less liabilities assumed. We perform our
goodwill impairment test on an annual basis. In response to changes in industry
and market conditions, we could be required to strategically realign our
resources and consider restructuring, disposing of, or otherwise exiting
businesses, which could result in an impairment of goodwill.
DERIVATIVE INSTRUMENTS, HEDGING ACTIVITIES AND FOREIGN CURRENCY
38
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.
ACCESS TO INFORMATION
Symbol's Internet address is www.symbol.com. Through the Investor Relations
section of our Internet website, we make available, free of charge, our Annual
Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K
and any amendments to those reports filed or furnished pursuant to Section 13(a)
or 15(d) of the Securities and Exchange Act of 1934 (the "Exchange Act"), as
well as any filings made pursuant to Section 16 of the Exchange Act, as soon as
reasonably practicable after we electronically file such material with, or
furnish it to, the Commission. Copies are also available, without charge, from
Symbol Investor Relations, One Symbol Plaza, Holtsville, New York 11742. Our
Internet website and the information contained therein or incorporated therein
are not incorporated into this Quarterly Report on Form 10-Q.
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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes regarding Symbol's market risk position
from the information provided under Item 7A of Symbol's Annual Report on Form
10-K for the year ended December 31, 2003.
ITEM 4. CONTROLS AND PROCEDURES
39
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
inability to identify unlikely future events, and the inability to eliminate
misconduct completely. As a result, there can be no assurance that our
disclosure controls and procedures will prevent all errors or fraud or ensure
that all material information will be made known to management in a timely
manner.
During 2003 and 2002, we learned of certain deficiencies in our internal
control that existed in 2002 and prior years. Additionally, as of December 31,
2003, we identified a material weakness related to the manner in which we
process transactions to record our revenue as our current processes and
procedures to record revenue transactions requires substantive manual
intervention and are reliant on several departments in our sales and finance
organization. These deficiencies are summarized as follows:
o inadequate systems and systems interfaces;
o inadequate and untimely account reconciliations;
o numerous manual journal entries; and
o informal worldwide policies and procedures.
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 since the discovery of such deficiencies include, but are not
limited to, the following:
o centralized the responsibility of revenue under a revenue controller's
department, reporting directly to the Chief Accounting Officer;
o undertaken a project to establish formalized worldwide policies and
procedures to be approved by the Chief Executive Officer, Chief
Financial Officer and Chief Accounting Officer;
o undertaken a project to identify responsible associates for account
reconciliations, including approvals;
o implemented formal review processes of transactions where there still
exists manual intervention; and
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
40
procedures. The evaluation examined those disclosure controls and procedures as
of June 30, 2004, 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 June 30, 2004, 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 Condensed 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 Quarterly Report on Form 10-Q contains the information required to be
included in accordance with the Exchange Act.
During the six months ended June 30, 2004, we continued to make
improvements in our financial reporting by continuing to hire qualified
personnel and refine our processes and procedures of manual transactions. We
will continue to assess our disclosure controls and procedures and will take any
further actions that we deem necessary.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information set forth in Note 9 in the Condensed Consolidated
Financial Statements included in this Quarterly Report on Form 10-Q is hereby
incorporated by reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herein:
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.
41
(b) The following Reports on Form 8-K were filed during the quarter ended
June 30, 2004:
- -------------------------------------------------------------------------------------------
Date Filed Item No.(s) Description
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
April 1, 2004 5 and 7 Announcement and filing of new
employment agreement with William R.
Nuti.
- -------------------------------------------------------------------------------------------
April 1, 2004 5 and 7 Announcement and filing of letter
regarding change in Registrant's
certifying accountant.
- -------------------------------------------------------------------------------------------
May 7, 2004 5 and 7 Issuing of press release announcing
adverse ruling in SmartMedia
litigation.
- -------------------------------------------------------------------------------------------
May 12, 2004 7 and 12 Issuing of press release announcing
unaudited results for the first
quarter of 2004.
- -------------------------------------------------------------------------------------------
May 13, 2004 5 and 7 Issuing of press release announcing
update to status of SmartMedia
litigation.
- -------------------------------------------------------------------------------------------
42
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SYMBOL TECHNOLOGIES, INC.
Dated: July 30, 2004 By: /s/ William R. Nuti
-------------------
William R. Nuti
Chief Executive Officer, President
and Director
(principal executive officer)
Dated: July 30, 2004 By: /s/ Mark T. Greenquist
----------------------
Mark T. Greenquist
Senior Vice President and Chief Financial Officer
(principal financial officer)
Dated: July 30, 2004 By: /s/ James M. Conboy
-------------------
James M. Conboy
Vice President - Controller and Chief Accounting
Officer
(principal accounting officer)
43