SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 2001
Commission file number 1-9802
SYMBOL TECHNOLOGIES, INC.__________________
(Exact name of registrant as specified in its charter)
Delaware 11-2308681______
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Symbol Plaza, Holtsville, NY 11742_________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 631-738-2400
Former name, former address and former fiscal year, if changed
since last report.
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO ___________
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the close of the period
covered by this report.
Class Outstanding at March 31, 2001 (1)
Common Stock,
par value $0.01 226,555,133 shares
(1) Reflects a three for two split of the Company's common stock
effected as a fifty percent stock dividend paid April 16,
2001 to shareholders of record as of March 26, 2001.
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets at
March 31, 2001 and December 31, 2000 2
Condensed Consolidated Statements of Earnings
Three Months Ended March 31, 2001 and 2000 3
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 2001 and 2000 4
Notes to Condensed Consolidated Financial
Statements 5
ITEM 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
ITEM 3.
Quantitative and Qualitative Disclosures about
Market Risk 16
PART II. OTHER INFORMATION
ITEM 1.
Legal Proceedings 17
SIGNATURES 22
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(All amounts in thousands, except stock par value)
March 31, December 31,
ASSETS 2001 2000____
(Unaudited)
CURRENT ASSETS:
Cash and temporary investments $ 70,651 $ 63,411
Accounts receivable, less allowance for doubtful
accounts of $32,271 and $31,275, respectively 461,488 453,906
Inventories 318,166 285,413
Deferred income taxes 206,465 197,019
Prepaid and refundable income taxes 11,193 -
Other current assets 95,664 78,503
TOTAL CURRENT ASSETS 1,163,627 1,078,252
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation and amortization of $154,465 and
$151,953, respectively 242,206 234,467
INVESTMENT IN MARKETABLE SECURITIES 127,045 263,305
INTANGIBLE AND OTHER ASSETS, net of
accumulated amortization of $176,312
and $163,056, respectively 514,192 517,175
$2,047,070 $2,093,199
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $312,380 $325,670
Current portion of long-term debt 12,629 23,025
Income taxes payable - 6,629
Deferred revenue 31,806 30,227
Accrued restructuring expenses 43,451 72,487
TOTAL CURRENT LIABILITIES 400,266 458,038
CONVERTIBLE SUBORDINATED NOTES AND DEBENTURES 106,913 106,913
LONG-TERM DEBT, less current maturities 168,303 201,144
OTHER LIABILITIES AND DEFERRED REVENUE 127,417 125,408
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, par value $1.00; authorized
10,000 shares, none issued or outstanding - -
Common stock, par value $0.01; authorized
300,000 shares; issued 250,147 shares and
164,863 shares, respectively 2,501 1,649
Retained earnings 434,533 408,098
Treasury stock, at cost, 23,592 shares and
15,439 shares, respectively (199,649) (185,599)
Other stockholders' equity 1,006,786 977,548
1,244,171 1,201,696
$2,047,070 $2,093,199
See notes to condensed consolidated financial statements
-2-
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(All amounts in thousands, except per share data)
(Unaudited)
Three Months Ended
March 31,_______
2001 2000__
NET REVENUE $450,165 $320,011
COST OF REVENUE 275,547 181,410
AMORTIZATION OF SOFTWARE DEVELOPMENT COSTS 4,242 5,529
GROSS PROFIT 170,376 133,072
OPERATING EXPENSES:
Engineering 31,017 22,265
Selling, general and administrative 90,262 61,307
Amortization of excess of cost over
fair value of net assets acquired 3,957 1,393
125,236 84,965
EARNINGS FROM OPERATIONS 45,140 48,107
INTEREST EXPENSE, net (4,044) (1,437)
EARNINGS BEFORE PROVISION FOR
INCOME TAXES 41,096 46,670
PROVISION FOR INCOME TAXES 13,151 14,934
NET EARNINGS $ 27,945 $ 31,736
EARNINGS PER SHARE:
Basic $0.12 $0.16
Diluted $0.12 $0.14
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING:
Basic 225,459 202,194
Diluted 239,395 219,414
See notes to condensed consolidated financial statements
-3-
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts in thousands)
(Unaudited)
Three Months Ended March 31,
2001 2000__
Cash flows from operating activities:
Net earnings $27,945 $31,736
Adjustments to reconcile net earnings
to net cash used in operating activities:
Depreciation and amortization of property,
plant and equipment 13,170 11,603
Other amortization 8,916 7,605
Provision for losses on accounts receivable 816 575
Tax benefit from exercise of stock options
and warrants 25,520 32,086
Changes in assets and liabilities net of
effects of acquisitions and divestitures:
Accounts receivable (11,490) (21,701)
Inventories (33,430) (31,442)
Other current assets (15,565) (13,163)
Accounts payable and accrued expenses (13,444) (15,533)
Income taxes payable (17,822) (32,674)
Accrued restructuring expenses (29,036) -
Other liabilities and deferred revenue 3,587 158
Net cash used in operating
activities (40,833) (30,750)
Cash flows from investing activities:
Proceeds from termination of collar arrangement 88,046 -
Purchases of property, plant and
equipment (21,284) (17,681)
Investments in intangible and other assets (5,933) (16,355)
Acquisition of subsidiaries - (1,598)
Net cash provided by/(used in)
investing activities 60,829 (35,634)
Cash flows from financing activities:
Net proceeds from issuance and repayment
of notes payable and long-term debt (15,389) (36,679)
Exercise of stock options and warrants 20,130 15,878
Dividends paid (1,510) (1,365)
Purchase of treasury shares (14,050) (20,537)
Reissuance of treasury shares - 100,000
Net cash (used in)/provided by financing
activities (10,819) 57,297
Effects of exchange rate changes on cash (1,937) (397)
Net increase/(decrease) in cash and
temporary investments 7,240 (9,484)
Cash and temporary investments, beginning
of period 63,411 30,128
Cash and temporary investments, end of
period $70,651 $20,644
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $4,147 $ 1,912
Income taxes $4,214 $12,437
See notes to condensed consolidated financial statements
-4-
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(All amounts in thousands, except per share data)
1. In the opinion of management, the accompanying unaudited condensed
consolidated financial statements include all necessary adjustments
(consisting of normal recurring accruals) and present fairly the
Company's financial position as of March 31, 2001, and the results
of its operations and its cash flows for the three months ended
March 31, 2001 and 2000, in conformity with generally accepted
accounting principles for interim financial information applied on
a consistent basis. The results of operations for the three months
ended March 31, 2001, are not necessarily indicative of the results
to be expected for the full year. For further information, refer
to the consolidated financial statements and footnotes thereto
included in the Company's annual report on Form 10-K for the year
ended December 31, 2000. Certain reclassifications have been made
to prior consolidated financial statements to conform with current
presentations.
2.During 1999, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities" ("SFAS 133")
amended by No. 138, "Accounting for Certain Derivative Instruments
and Hedging Activities". SFAS 133 establishes accounting and
reporting standards for derivative instruments and for hedging
activities. It requires companies to recognize all derivatives as
either assets or liabilities in the statements of financial
position and measure those instruments at fair value. The Company
adopted SFAS 133 in the first quarter of 2001. The adoption of
SFAS 133 did not have a material impact on the Company's
consolidated financial statements.
During 2000, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 140, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities," ("SFAS 140"). SFAS 140 requires new disclosures
related to securitization transactions and residual interests when
the transaction is accounted for as a sale. It also adds
additional qualifications in order to be a Qualifying Special
Purpose Entity ("QSPE") and defines the financial statement
treatment of the QSPE's assets and liabilities. SFAS 140 applies
to new transfers of financial assets occurring after March 31, 2001
and requires securitization disclosures effective for fiscal years
ending before January 1, 2001.
3. Basic earnings per share are based on the weighted average number
of shares of common stock outstanding during the period. Diluted
earnings per share are based on the weighted average number of
shares of common stock and common stock equivalents (options and
warrants) outstanding during the period, computed in accordance
with the treasury stock method.
On February 26, 2001 the Board of Directors approved a three for
two split of the Company's common stock to be effected as a 50
-5-
percent stock dividend payable on April 16, 2001 to shareholders of
record on March 26, 2001. In these financial statements, all
earnings per share amounts and the weighted average number of
common shares outstanding have been retroactively restated to
reflect the stock split. In addition, the number of common shares
issued has been adjusted to reflect the stock split and an amount
equal to the par value of the additional shares issued has been
transferred from additional paid-in capital to common stock.
Telxon's convertible notes and debentures are convertible into the
Company's common stock. As a result of the stock split, the
conversion price for Telxon's 5.75 percent convertible notes
changed from $55 per common share to $36.67 per common share and
the conversion price of the 7.50 percent convertible debentures
changed from $53.50 per common share to $35.67 per common share.
4. Classification of inventories is:
March 31, 2001 December 31, 2000
(Unaudited)
Raw materials $181,400 $175,462
Work-in-process 18,050 25,106
Finished goods 118,716 84,845
$318,166 $285,413
5. The Company's total comprehensive earnings were as follows:
Three Months Ended
March 31,______
(Unaudited)
2001 2000__
Net earnings $ 27,945 $ 31,736
Other comprehensive (losses) earnings,
net of tax:
Change in equity due to foreign
currency translation adjustments (6,235) (1,814)
Change in equity due to unrealized (losses)
gains on marketable securities (9,994) 2,786
Comprehensive earnings $ 11,716 $ 32,708
6. In December 2000, the Company's management approved and adopted a
formal plan of restructuring as a result of the Telxon acquisition.
In connection with this acquisition, the Company accrued for
restructuring, impairment and integration related charges at
December 1, 2000. The accrual represented costs anticipated for
workforce reductions, asset impairments and lease terminations.
The Company's current exit plan, which focuses on the consolidation
of manufacturing operations, including plant closings and
elimination of redundant activities, is expected to be
substantially completed by June 30, 2001. The amount accrued for
workforce reductions related to the termination of 1,251 employees,
primarily in manufacturing, management, sales and administrative
support. As of March 31, 2001, 1,010 of these employees have been
-6-
terminated. Details of the unutilized restructuring expenses at
March 31, 2001 are as follows:
December 31, 2000 March 31, 2001
Accrual Utilized Accrual___
Workforce reductions $44,158 $ 21,069 $ 23,089
Impaired fixed asset
and other writeoffs 7,899 4,972 2,927
Lease cancellation costs 20,430 2,995 17,435
$72,487 $ 29,036 $ 43,451
7. The Company is currently involved in matters of litigation arising
from the normal course of business. Management is of the opinion
that such litigation will not have a material adverse effect on the
Company's consolidated financial position or results of operations.
In March 2001, Proxim Incorporated ("Proxim") sued the Company, 3 Com
Corporation, Wayport Incorporated and SMC Networks Incorporated in the
United States District Court in the District of Delaware for allegedly
infringing three patents owned by Proxim. Proxim did not identify any
specific products of the Company that allegedly infringe these three
patents. Proxim also filed a similar lawsuit in March 2001 in the
United States District Court in the District of Massachusetts against
Cisco Systems, Incorporated and Intersil Corporation. The complaint
against the Company seeks, among other relief, unspecified damages for
patent infringement, treble damages for willful infringement, and a
permanent injunction against the Company from infringing these three
patents. In a press conference held after the filing of the
complaints, Proxim indicated that it was interested in licensing the
patents that are the subject of the lawsuit against the Company.
On May 1, 2001, the Company filed an Answer and Counterclaim in
response to Proxim's suit. Symbol has responded by asserting its
belief that Proxim's asserted patents are invalid and not infringed
by any Symbol products. In addition, Symbol has asserted its
belief that Proxim's claims are barred under principles of equity,
estoppel and laches. Symbol has also filed counterclaims against
Proxim, asserting that Proxim's RF product offerings infringe four
Symbol patents relating to wireless LAN technology. Symbol has
requested the Court grant an unspecified amount of damages as well
as a permanent injunction against Proxim's sale of its wireless LAN
product offerings. Although Symbol believes that Proxim's claims
are without merit, it has requested that the District Court join
Intersil Corporation in the action, a supplier of key wireless LAN
chips to Symbol. Symbol believes Intersil has an obligation to
indemnify Symbol and hold it harmless in the event that Symbol's RF
products, all of which currently incorporate Intersil's chips, are
found to violate any Proxim patent.
-7-
On July 21, 1999, the Company and six other leading members of the
Automatic Identification and Data Capture industry jointly initiated a
litigation against the Lemelson Medical, Educational, & Research
Foundation, Limited Partnership (the "Lemelson Partnership"). The
suit, which is entitled Symbol Technologies, Inc. et. al. v. Lemelson
Medical, Educational & Research Foundation, Limited Partnership, was
commenced in the U.S. District Court, District of Nevada in Reno,
Nevada.
In the litigation, the Auto ID companies seek, among other remedies, a
declaration that certain patents, which have been asserted by the
Lemelson Partnership against end users of bar code equipment, are
invalid, unenforceable and not infringed. The Company has agreed to
bear approximately half of the legal and related expenses associated
with the litigation, with the remaining portion being borne by the
other Auto ID companies.
The Lemelson Partnership has contacted many of the Auto ID companies'
customers demanding a one-time license fee for certain so-called "bar
code" patents transferred to the Lemelson Partnership by the late
Jerome H. Lemelson. The Company and the other Auto ID companies have
received many requests from their customers asking that they undertake
the defense of these claims using their knowledge of the technology at
issue. Certain of these customers have requested indemnification
against the Lemelson Partnership's claims from the Company and the
other Auto ID companies, individually and/or collectively with other
equipment suppliers. The Company, and we understand, the other Auto ID
companies believe that generally they have no obligation to indemnify
their customers against these claims and that the patents being
asserted by the Lemelson Partnership against their customers with
respect to bar code equipment are invalid, unenforceable and not
infringed. However, the Company and the other Auto ID companies
believe that the Lemelson claims do concern the Auto ID industry at
large and that it is appropriate for them to act jointly to protect
their customers against what they believe to be baseless claims being
asserted by the Lemelson Partnership.
The Lemelson Partnership filed a motion to dismiss the lawsuit, or in
the alternative, to stay proceedings or to transfer the case to the
U.S. District Court in Arizona where there are pending cases involving
the Lemelson Partnership and other companies in the semiconductor and
electronics industries. On March 21, 2000, the U.S. District Court in
Nevada denied the Lemelson Partnership's motion to dismiss transfer of
stay the action. It also struck one of the four counts.
On April 12, 2000, the Lemelson Partnership filed its Answer to the
Complaint in the Symbol et al. v. Lemelson Partnership case. In the
Answer, the Lemelson Partnership included a counterclaim against the
Company and the other plaintiffs seeking a dismissal of the case.
Alternatively, the Lemelson Partnership's counterclaim seeks a
declaration that the Company and the other plaintiffs have contributed
to, or induced infringement of particular method claims of the
patents-in-suit by the plaintiffs' customers. The Company believes
there is no merit to the Lemelson Partnership's counterclaim.
-8-
On May 15, 2000, the Auto ID companies filed a motion seeking
permission to file an interlocutory appeal of the Court's decision to
strike the fourth count of the complaint (which alleged that the
Lemelson Partnership's delays in obtaining its patents rendered them
unenforceable for laches). The motion was granted by the Court on
July 14, 2000. The Court entered a clarifying, superseding order on
July 25, 2000. On September 1, 2000, the U.S. Court of Appeals for the
Federal Circuit granted the petition of the Auto ID companies for
permission to pursue this interlocutory appeal. The Company believes
the Federal Court will hear oral argument on the motion later in 2001.
On July 24, 2000, the Auto ID companies filed a motion for partial
summary judgment arguing that almost all of the claims of the Lemelson
Partnership's patents are invalid for lack of written description. On
August 8, 2000, the Lemelson Partnership filed a motion seeking an
extension of approximately ten weeks in which to file an answer to
this motion. On August 31, 2000, the Court granted the Lemelson
Partnership's motion for such an extension. On October 25, 2000, the
Lemelson Partnership filed a combined opposition to the motion of the
Auto ID companies for partial summary judgment and its own cross-
motion for partial summary judgment that many of the claims of the
Lemelson Partnership's patents satisfy the written description
requirement. On January 8, 2001, the Auto ID companies filed a
combined reply in support of their partial summary judgment motion and
opposition to the Lemelson Partnership's partial summary judgment
cross-motion. The Company believes the District Court will probably
hear oral arguments on this motion later in 2001.
From December through March 1999, a total of 27 class actions were
filed in the United States District Court, Northern District of Ohio,
by certain alleged stockholders of Telxon on behalf of themselves and
purported classes consisting of Telxon stockholders, other than the
defendants and their affiliates, who purchased stock during the period
from May 21, 1996 through February 23, 1999 or various portions
thereof, alleging claims for "fraud on the market" arising from
alleged misrepresentations and omissions with respect to Telxon's
financial performance and prospects and an alleged violation of
generally accepted accounting principles by improperly recognizing
revenues. The named defendants are Telxon, its former President and
Chief Executive Officer, Frank E. Brick, and its former Senior Vice
President and Chief Financial Officer, Kenneth W. Haver. The actions
were referred to a single judge. On February 9, 1999, the plaintiffs
filed a Motion to consolidate all of the actions and the Court heard
motions on naming class representatives and lead class counsel on
April 26, 1999.
On August 25, 1999, the Court appointed lead plaintiffs and their
counsel, ordered the filing of an Amended Complaint, and dismissed 26
of the 27 class action suits without prejudice and consolidated those
26 cases into the first filed action. The lead plaintiffs appointed
by the Court filed an Amended Class Action Complaint on September 30,
1999. The Amended Complaint alleges that the defendants engaged in a
scheme to defraud investors through improper revenue recognition
practices and concealment of material adverse conditions in Telxon's
business and finances. The Amended Complaint seeks certification of
-9-
the identified class, unspecified compensatory and punitive damages,
pre- and post-judgment interest, and attorneys' fees and costs.
Various appeals and writs challenging the District Court's August 25,
1999 rulings were filed by two of the unsuccessful plaintiffs but have
all been denied by the Court of Appeals.
On November 8, 1999, the defendants jointly moved to dismiss the
Amended Complaint, which was denied on September 29, 2000. Following
the denial, the parties filed a proposed joint case schedule,
discovery commenced, and the parties each filed their initial
disclosures. On October 30, 2000, defendants filed their answer to
the plaintiffs' amended complaint as well as a Motion for
Reconsideration or to Certify the Order Denying the Motion to Dismiss
for Interlocutory Appeal and request for oral argument, and a
memorandum of points and authorities in support of that motion. On
November 14, 2000, Plaintiffs filed a Memorandum in Opposition of
Defendants Motion. This Motion was denied on January 19, 2001. On
November 1, 2000, defendants filed a Motion for Application of the
Amended Federal Rules of Civil Procedure to the case, and on November
16, 2000, the Court granted this Motion in part and held that the
Court will apply the new rules of evidence and new rules of civil
procedure except to the extent those rules effectuate changes to Rule
26 of the Federal Rules for Civil Procedure. Discovery is in its
preliminary stages.
By letter dated December 18, 1998, the Staff of the Division of
Enforcement of the Securities and Exchange Commission (the
"Commission") advised Telxon that it was conducting a preliminary,
informal inquiry into trading of the securities of Telxon at or about
the time of Telxon's December 11, 1998 press release announcing that
Telxon would be restating the revenues for its second fiscal quarter
ended September 30, 1998. On January 20, 1999, the Commission issued
a formal Order Directing Private Investigation and Designating
Officers To Take Testimony with respect to the referenced trading and
specified accounting matters, pursuant to which subpoenas have been
served requiring the production of specified documents and testimony.
By letter dated March 9, 2001, the Division of Enforcement of the
Commission informed Telxon that it had made a preliminary
determination to recommend that the Commission initiate an action
against Telxon for violation of various sections of the federal
securities laws and regulations and to seek permanent injunctive
relief and appropriate monetary penalties against Telxon. The
Division of Enforcement has also indicated that it intends to
recommend similar action against one current and two former employees
of Telxon. The Commission has given Telxon an indefinite extension to
indicate in a written submission why Telxon believes no action should
be instituted against it. Telxon has not accrued for any fines or
penalties under Statement of Financial Accounting Standards No. 5,
"Accounting for Contingencies," because the ultimate outcome of this
matter cannot presently be determined and because the amount of any
fine or penalty cannot be reasonably estimated.
8. The Company manages its business on a geographic basis. The
Company's reportable business segment has been aggregated into three
geographic segments, 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).
-10-
Summarized financial information concerning the Company's geographic
segments is shown in the following table. Sales are allocated to
each of the geographic segments based upon the location of the use
of the products and services. The "Corporate" column includes
corporate related expenses (primarily various indirect manufacturing
operations costs, engineering and general and administrative
expenses) not allocated to geographic segments. This has the effect
of increasing geographic operating profit for The Americas, EMEA and
Asia Pacific.
Identifiable assets are those tangible and intangible assets used in
operations in each geographic area. Corporate assets are
principally temporary investments and the excess of cost over fair
value of net assets acquired.
The Asia
Americas EMEA Pacific Corporate
Consolidated
Three Months ended
March 31, 2001:
Sales to unaffiliated
customers $325,126 $104,678 $20,361 $ -
$450,165
Transfers between
geographic areas 92,295 - - (92,295)
- -
Total net revenue $417,421 $104,678 $20,361 $(92,295)
$450,165
Earnings before
provision for income
taxes $114,321 $ 25,855 $ 7,728 ($106,808) $
41,096
Identifiable assets $1,514,426 $175,268 $31,754 $ 325,622
$2,047,070
Three Months ended
March 31, 2000:
Sales to unaffiliated
customers $215,083 $ 88,106 $16,822 $ -
$320,011
Transfers between
geographic areas 79,361 - - (79,361)
- -
Total net revenue $294,444 $ 88,106 $16,822 $(79,361)
$320,011
Earnings before
provision for income
taxes $ 77,512 $ 21,013 $ 5,929 $(57,784) $
46,670
Identifiable assets $892,139 $121,731 $21,167 $104,133
$1,139,170
-11-
Safe harbor for forward looking statements under securities litigation act
of 1995; certain cautionary statements
This report contains forward-looking statements based on current
expectations, forecasts and assumptions that involve risks and uncertainties
that could cause actual outcomes and results to differ materially. These
risks and uncertainties include price and product competition, dependence on
new product development, reliance on major customers, customer demand for
the Company's products and services, control of costs and expenses,
international growth, general industry and market conditions and growth
rates and general domestic and international economic conditions including
interest rate and currency exchange rate fluctuations. For a further list
and description of such risks and uncertainties, see the reports filed by
the Company with the Securities and Exchange Commission. The Company
disclaims any intention or obligation to update or revise any forward-
looking statements, whether as a result of new information, future events or
otherwise.
-12-
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Dollars in thousands)
Results of Operations
Net revenue of $450,165 for the three months ended March 31,
2001 increased 40.7 percent over the comparable prior year period.
This increase in net revenue is primarily due to increased worldwide
equipment sales, as well as the addition of sales and service revenue
for Telxon, which was acquired on November 30, 2000. Foreign
exchange rate fluctuations unfavorably impacted net revenue 2.6
percent and 1.7 percent for the three months ended March 31, 2001 and
2000, respectively. Although the Company expects lower sequential
quarterly revenue growth in 2001 than originally planned due to the
uncertainty of the current economic climate, the Company continues to
expect significant year over year revenue growth for 2001 and beyond.
Geographically, The Americas, EMEA, and Asia Pacific revenue
increased 51.2 percent, 18.8 percent, and 21.0 percent, respectively,
over the comparable prior year period. The Americas, EMEA and Asia
Pacific revenue represent approximately 72 percent, 23 percent and 5
percent of net revenue, respectively.
Cost of revenue (as a percentage of net revenue) of 61.2 percent
for the three months ended March 31, 2001, increased from 56.7
percent for the comparable prior year period, due to a shift in
product mix in the fastest growing proportion of the Company's
business to lower margin products versus the historical mix of
products, the inclusion of Telxon's generally lower margin products
and the continued unfavorable impact of foreign currency exchange
rate fluctuations on net revenue.
Amortization of software development costs of $4,242 for the
three months ended March 31, 2001 decreased from $5,529 for the three
months ended March 31, 2000 due to a decrease in the book value of
software development costs resulting from the writeoff of impaired
assets in conjunction with the Telxon acquisition. This writeoff
occurred in the fourth quarter of 2000.
Engineering costs for the three months ended March 31, 2001
increased to $31,017 from $22,265 for the three months ended March
31, 2000. This represents an increase of 39.3 percent from the prior
year period due to additional expenses incurred in connection with
the continuing research and development of new products and the
improvement of existing products and Telxon products offset by a
decrease in the amount of capitalized costs incurred for internally
developed product software where economic and technological
feasibility has been established. As a percentage of net revenue
engineering expenses decreased slightly to 6.9 percent from 7.0
percent in the prior year period.
-13-
Selling, general and administrative expenses of $90,262 for the
three months ended March 31, 2001 increased from $61,307 for the
three months ended March 31, 2000. In absolute dollars, selling,
general and administrative expenses increased 47.2 percent from the
prior year period. As a percentage of revenue, such expenses
increased to 20.1 percent for the three months ended March 31, 2001,
from 19.2 percent for the comparable prior year period. The increase
resulted from additional expenses incurred to support a higher
revenue base as well as expenses due to the Telxon acquisition.
Amortization of excess of cost over fair value of net assets
acquired of $3,957 for the three months ended March 31, 2001
increased from $1,393, for the three months ended March 31, 2000
primarily due to the Telxon acquisition.
In an effort to reduce the impact on earnings from the
aforementioned anticipated lower revenue growth in 2001, the Company
is implementing certain cost reduction and cost avoidance initiatives
in the second quarter of 2001. These cost benefits are expected to
be fully realized beginning in the second half of this year.
Net interest expense increased to $4,044 for the three months
ended March 31, 2001 from $1,437 for the three months ended March 31,
2000 primarily due to the Mandatorily Exchangeable Securities
Contract For Shared Appreciation Income Linked Securities ("SAILS")
exchangeable debt (refer to Liquidity and Capital Resources for
further discussion), interest on Telxon's convertible subordinated
notes and debentures, partially offset by a reduction in interest
expense due to the repayment of the revolving credit facility and
annual mandatory repayments of other indebtedness.
The Company's effective tax rate of 32.0 percent for the three
months ended March 31, 2001 remained consistant with the comparable
prior year period.
Liquidity and Capital Resources
The Company utilizes a number of measures of liquidity including
the following:
March 31, December 31,
2001 2000_____
Working Capital $763,361 $620,214
Current Ratio (Current Assets
to Current Liabilities) 2.9:1 2.4:1
Long-Term Debt to Capital 18.1% 20.4%
(Convertible subordinated notes
and debentures plus long-term debt
to convertible subordinated notes
and debentures plus long-term
debt plus equity)
Current assets increased by $85,375 from December 31, 2000
principally due increases in accounts receivable resulting from
increased revenue, and an increase in inventories and other current
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assets resulting from increased operating levels.
Current liabilities decreased $57,772 from December 31, 2000
primarily due to the utilization of accrued restructuring expenses,
repayment of the current portion of long-term debt, and a decrease in
accounts payable and accrued expenses.
The aforementioned activity resulted in a working capital
increase of $143,147 for the three months ended March 31, 2001. The
Company's current ratio at March 31, 2001 increased to 2.9:1 compared
with 2.4:1 as of December 31, 2000.
Net cash used in operating activities was $40,833 for the three
months ended March 31, 2001. This included $29,036 of cash flows
related to accrued restructuring expenses as well as cash used in merger
integration activities. Overall, cash increased $7,240 for the period.
The positive cash flow provided by the termination of the collar
arrangement obtained in conjunction with the Telxon acquisition and the
exercise of stock options was partially offset by the aforementioned
cash used in operations, purchases of property, plant and equipment, net
payments of notes payable and long term debt and the repurchase of
434,010 (stock split effected) shares of the Company's common stock.
Property, plant and equipment expenditures for the three months
ended March 31, 2000 totaled $21,284, compared to $17,681 for the three
months ended March 31, 2000. During the fourth quarter of 2000 the
Company substantially completed construction of a 140,000 square foot
manufacturing and distribution facility in Reynosa, Mexico. In February
2001, the Company began a 150,000 square foot expansion of this
facility. The total cost for this project is estimated to be $7,800 and
is scheduled to be completed during 2002. Additionally, in February
2001, the Company began construction of a new 320,000 square foot
distribution center and data center in McAllen, Texas. The total cost
for this project is estimated to be $31,700 and is scheduled to be
completed by the first quarter of 2002. The Company continues to make
capital investments in major systems and network conversions but does
not have any other material commitments for capital expenditures.
The Company's long-term debt to capital ratio decreased to 18.1
percent at March 31, 2001 from 20.4 percent at December 31, 2000
primarily due to the repayment of outstanding borrowings under the
Company's revolving credit facility and the change in equity attributed
to net income, partially offset by the SAILS exchangeable debt
transaction completed in January 2001.
The Company maintains a revolving credit facility with a syndicate
of U.S. and international banks of $350 million for which the terms
extend to 2004. As of March 31, 2001, the Company had no outstanding
borrowings under this facility.
The Company has loan agreements with various banks pursuant to
which, the banks have agreed to provide lines of credit totaling
$95,000. As of March 31, 2001, the Company has $5,589 outstanding under
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these lines. These agreements continue until such time as either party
terminates the agreements.
In January 2001, the Company entered into a private SAILS
arrangement with a highly rated financial institution. The securities
which underlie the SAILS contract represent the Company's investment in
Cisco common stock, which was acquired in connection with the Telxon
acquisition. These securities have a seven-year maturity and pay a cash
coupon of 3.625 percent. The SAILS contain an embedded equity collar,
which effectively manages a large portion of the Company's exposure to
fluctuations in the fair value of its holdings in Cisco common stock.
At maturity, the SAILS will be exchangeable for shares of Cisco common
stock, or at the Company's option, cash in lieu of shares. Net proceeds
from the issuance of the SAILS and termination of an existing
freestanding collar agreement were approximately $262,246 which were
used for general corporate purposes, including the repayment of debt
outstanding under its revolving credit facility. The Company accounts
for the embedded equity collar as a derivative financial instrument in
accordance with the requirements of Statement of Financial Accounting
Standards No. 133, "Accounting for Certain Derivative Instruments and
Hedging Activities." The change in fair value of this derivative
between reporting dates is recognized through earnings and its intrinsic
value will substantially offset changes in the fair value of the
Company's holdings in Cisco's common stock that are classified as
trading securities.
The Company believes that it has adequate liquidity to meet its
current and anticipated needs from working capital, results of its
operations, and existing credit facilities.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
Refer to ITEM 7, in the Company's annual report on Form 10-K for the
year ended December 31, 2000 for required disclosure.
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PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
The Company is currently involved in matters of litigation arising
from the normal course of business. Management is of the opinion
that such litigation will not have a material adverse effect on
the Company's consolidated financial position or results of
operations.
In March 2001, Proxim Incorporated ("Proxim") sued the Company,
3 Com Corporation, Wayport Incorporated and SMC Networks
Incorporated in the United States District Court in the District
of Delaware for allegedly infringing three patents owned by
Proxim. Proxim did not identify any specific products of the
Company that allegedly infringe these three patents. Proxim
also filed a similar lawsuit in March 2001 in the United States
District Court in the District of Massachusetts against Cisco
Systems, Incorporated and Intersil Corporation. The complaint
against the Company seeks, among other relief, unspecified
damages for patent infringement, treble damages for willful
infringement, and a permanent injunction against the Company
from infringing these three patents. In a press conference held
after the filing of the complaints, Proxim indicated that it was
interested in licensing the patents that are the subject of the
lawsuit against the Company.
On May 1, 2001, the Company filed an Answer and Counterclaim
in response to Proxim's suit. Symbol has responded by
asserting its belief that Proxim's asserted patents are
invalid and not infringed by any Symbol products. In
addition, Symbol has asserted its belief that Proxim's claims
are barred under principles of equity, estoppel and laches.
Symbol has also filed counterclaims against Proxim, asserting
that Proxim's RF product offerings infringe four Symbol
patents relating to wireless LAN technology. Symbol has
requested the Court grant an unspecified amount of damages as
well as a permanent injunction against Proxim's sale of its
wireless LAN product offerings. Although Symbol believes
that Proxim's claims are without merit, it has requested that
the District Court join Intersil Corporation in the action, a
supplier of key wireless LAN chips to Symbol. Symbol
believes Intersil has an obligation to indemnify Symbol and
hold it harmless in the event that Symbol's RF products, all
of which currently incorporate Intersil's chips, are found to
violate any Proxim patent.
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On July 21, 1999, the Company and six other leading members of the
Automatic Identification and Data Capture industry jointly
initiated a litigation against the Lemelson Medical, Educational,
& Research Foundation, Limited Partnership (the "Lemelson
Partnership"). The suit, which is entitled Symbol Technologies,
Inc. et. al. v. Lemelson Medical, Educational & Research
Foundation, Limited Partnerships, was commenced in the U.S.
District Court, District of Nevada in Reno, Nevada.
In the litigation, the Auto ID companies seek, among other
remedies, a declaration that certain patents, which have been
asserted by the Lemelson Partnership against end users of bar code
equipment, are invalid, unenforceable and not infringed. The
Company has agreed to bear approximately half of the legal and
related expenses associated with the litigation, with the
remaining portion being borne by the other Auto ID companies.
The Lemelson Partnership has contacted many of the Auto ID
companies' customers demanding a one-time license fee for certain
so-called "bar code" patents transferred to the Lemelson
Partnership by the late Jerome H. Lemelson. The Company and the
other Auto ID companies have received many requests from their
customers asking that they undertake the defense of these claims
using their knowledge of the technology at issue. Certain of
these customers have requested indemnification against the
Lemelson Partnership's claims from the Company and the other Auto
ID companies, individually and/or collectively with other
equipment suppliers. The Company, and we understand, the other
Auto ID companies believe that generally they have no obligation
to indemnify their customers against these claims and that the
patents being asserted by the Lemelson Partnership against their
customers with respect to bar code equipment are invalid,
unenforceable and not infringed. However, the Company and the
other Auto ID companies believe that the Lemelson claims do
concern the Auto ID industry at large and that it is appropriate
for them to act jointly to protect their customers against what
they believe to be baseless claims being asserted by the Lemelson
Partnership.
The Lemelson Partnership filed a motion to dismiss the lawsuit, or
in the alternative, to stay proceedings or to transfer the case to
the U.S. District Court in Arizona where there are pending cases
involving the Lemelson Partnership and other companies in the
semiconductor and electronics industries. On March 21, 2000, the
U.S. District Court in Nevada denied the Lemelson Partnership's
motion to dismiss transfer of stay the action. It also struck one
of the four counts.
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On April 12, 2000, the Lemelson Partnership filed its Answer to
the Complaint in the Symbol et al. v. Lemelson Partnership case.
In the Answer, the Lemelson Partnership included a counterclaim
against the Company and the other plaintiffs seeking a dismissal
of the case. Alternatively, the Lemelson Partnership's
counterclaim seeks a declaration that the Company and the other
plaintiffs have contributed to, or induced infringement of
particular method claims of the patents-in-suit by the plaintiffs'
customers. The Company believes there is no merit to the Lemelson
Partnership's counterclaim.
On May 15, 2000, the Auto ID companies filed a motion seeking
permission to file an interlocutory appeal of the Court's decision
to strike the fourth count of the complaint (which alleged that
the Lemelson Partnership's delays in obtaining its patents
rendered them unenforceable for laches). The motion was granted
by the Court on July 14, 2000. The Court entered a clarifying,
superseding order on July 25, 2000. On September 1, 2000, the U.S.
Court of Appeals for the Federal Circuit granted the petition of
the Auto ID companies for permission to pursue this interlocutory
appeal. The Company believes the Federal Court will hear oral
argument on the motion later in 2001.
On July 24, 2000, the Auto ID companies filed a motion for partial
summary judgment arguing that almost all of the claims of the
Lemelson Partnership's patents are invalid for lack of written
description. On August 8, 2000, the Lemelson Partnership filed a
motion seeking an extension of approximately ten weeks in which to
file an answer to this motion. On August 31, 2000, the Court
granted the Lemelson Partnership's motion for such an extension.
On October 25, 2000, the Lemelson Partnership filed a combined
opposition to the motion of the Auto ID companies for partial
summary judgment and its own cross-motion for partial summary
judgment that many of the claims of the Lemelson Partnership's
patents satisfy the written description requirement. On January
8, 2001, the Auto ID companies filed a combined reply in support
of their partial summary judgment motion and opposition to the
Lemelson Partnership's partial summary judgment cross-motion. The
Company believes the District Court will probably hear oral
arguments on this motion later in 2001.
From December through March 1999, a total of 27 class actions were
filed in the United States District Court, Northern District of
Ohio, by certain alleged stockholders of Telxon on behalf of
themselves and purported classes consisting of Telxon
stockholders, other than the defendants and their affiliates, who
purchased stock during the period from May 21, 1996 through
February 23, 1999 or various portions thereof, alleging claims for
"fraud on the market" arising from alleged misrepresentations and
omissions with respect to Telxon's financial performance and
prospects and an alleged violation of generally accepted
accounting principles by improperly recognizing revenues. The
named defendants are Telxon, its former President and Chief
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Executive Officer, Frank E. Brick, and its former Senior Vice
President and Chief Financial Officer, Kenneth W. Haver. The
actions were referred to a single judge. On February 9, 1999, the
plaintiffs filed a Motion to consolidate all of the actions and
the Court heard motions on naming class representatives and lead
class counsel on April 26, 1999.
On August 25, 1999, the Court appointed lead plaintiffs and their
counsel, ordered the filing of an Amended Complaint, and dismissed
26 of the 27 class action suits without prejudice and consolidated
those 26 cases into the first filed action. The lead plaintiffs
appointed by the Court filed an Amended Class Action Complaint on
September 30, 1999. The Amended Complaint alleges that the
defendants engaged in a scheme to defraud investors through
improper revenue recognition practices and concealment of material
adverse conditions in Telxon's business and finances. The Amended
Complaint seeks certification of the identified class, unspecified
compensatory and punitive damages, pre- and post-judgment
interest, and attorneys' fees and costs. Various appeals and
writs challenging the District Court's August 25, 1999 rulings
were filed by two of the unsuccessful plaintiffs but have all been
denied by the Court of Appeals.
On November 8, 1999, the defendants jointly moved to dismiss the
Amended Complaint, which was denied on September 29, 2000.
Following the denial, the parties filed a proposed joint case
schedule, discovery commenced, and the parties each filed their
initial disclosures. On October 30, 2000, defendants filed their
answer to the plaintiffs' amended complaint as well as a Motion
for Reconsideration or to Certify the Order Denying the Motion to
Dismiss for Interlocutory Appeal and request for oral argument,
and a memorandum of points and authorities in support of that
motion. On November 14, 2000, Plaintiffs filed a Memorandum in
Opposition of Defendants Motion. This Motion was denied on
January 19, 2001. On November 1, 2000, defendants filed a Motion
for Application of the Amended Federal Rules of Civil Procedure to
the case, and on November 16, 2000, the Court granted this Motion
in part and held that the Court will apply the new rules of
evidence and new rules of civil procedure except to the extent
those rules effectuate changes to Rule 26 of the Federal Rules for
Civil Procedure. Discovery is in its preliminary stages.
On February 20, 2001, Telxon filed a Motion for Leave to File and
Serve Instanter a Summons and Third-Party Complaint against Third-
Party Defendant PricewaterhouseCoopers LLP ("PwC") in
shareholders' class action complaints. Telxon's third-party
complaint against PwC concerns PwC's role in the original issuance
and restatements of Telxon's financial statements for its fiscal
years 1996, 1997, 1998 and its interim financial statements for
its first and second quarters of fiscal year 1999, the subject of
the class action litigation against Telxon. Telxon states causes
of action against PwC for contribution under federal securities
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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.
On April 30, 2001, the Court granted Telxon's motion to file and
serve its third-party complaint against PwC. The Court reserved
judgment on Telxon's request to have the Complaint deemed filed
instanter on the date of Telxon's motion for leave to file the
same - February 20, 2001. The Court has ordered the parties to
submit by May 21, 2001 briefs on the issue of Telxon's motion for
leave to file and serve the third-party complaint instanter.
By letter dated December 18, 1998, the Staff of the Division of
Enforcement of the Securities and Exchange Commission (the
"Commission") advised Telxon that it was conducting a preliminary,
informal inquiry into trading of the securities of Telxon at or
about the time of Telxon's December 11, 1998 press release
announcing that Telxon would be restating the revenues for its
second fiscal quarter ended September 30, 1998. On January 20,
1999, the Commission issued a formal Order Directing Private
Investigation and Designating Officers To Take Testimony with
respect to the referenced trading and specified accounting
matters, pursuant to which subpoenas have been served requiring
the production of specified documents and testimony.
By letter dated March 9, 2001, the Division of Enforcement of the
Commission informed Telxon that it had made a preliminary
determination to recommend that the Commission initiate an action
against Telxon for violation of various sections of the federal
securities laws and regulations and to seek permanent injunctive
relief and appropriate monetary penalties against Telxon. The
Division of Enforcement has also indicated that it intends to
recommend similar action against one current and two former
employees of Telxon. The Commission has given Telxon an
indefinite extension to indicate in a written submission why
Telxon believes no action should be instituted against it. Telxon
has not accrued for any fines or penalties under Statement of
Financial Accounting Standards No. 5, "Accounting for
Contingencies," because the ultimate outcome of this matter cannot
presently be determined and because the amount of any fine or
penalty cannot be reasonably estimated.
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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: May 3, 2001 By: /s/ Tomo Razmilovic
Tomo Razmilovic, President -
Chief Executive Officer
Dated: May 3, 2001 By: /s/ Kenneth V. Jaeggi
Kenneth V. Jaeggi
Senior Vice President -
Chief Financial Officer
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