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 June 30, 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 June 30, 2001
Common Stock, 227,625,648 shares
par value $0.01
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets at
June 30, 2001 and December 31, 2000 2
Condensed Consolidated Statements of Operations
Three and Six Months Ended June 30, 2001 and 2000 3
Condensed Consolidated Statements of Cash Flows
Three and Six Months Ended June 30, 2001 and 2000 4
Notes to Condensed Consolidated Financial
Statements 6
ITEM 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations 16
ITEM 3.
Quantitative and Qualitative Disclosures about
Market Risk 20
PART II. OTHER INFORMATION
ITEM 1.
Legal Proceedings 21
ITEM 4.
Submission of Matters to a Vote of Security Holders 26
SIGNATURES 28
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)
June 30, December 31,
ASSETS 2001 2000____
(Unaudited)
CURRENT ASSETS:
Cash and temporary investments $ 71,333 $ 63,411
Accounts receivable, less allowance for doubtful
accounts of $30,395 and $31,275, respectively 445,073 453,906
Inventories 321,515 285,413
Deferred income taxes 205,186 197,019
Prepaid and refundable income taxes 66,967 -
Other current assets 88,598 78,503
TOTAL CURRENT ASSETS 1,198,672 1,078,252
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation and amortization of $164,660 and
$151,953, respectively 261,535 234,467
INVESTMENT IN MARKETABLE SECURITIES 130,985 263,305
INTANGIBLE AND OTHER ASSETS, net of accumulated
amortization of $187,024 and $163,056,
respectively 530,670 517,175
$2,121,862 $2,093,199
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $348,193 $325,670
Current portion of long-term debt 11,097 23,025
Income taxes payable - 6,629
Deferred revenue 36,779 30,227
Accrued restructuring expenses 25,304 72,487
TOTAL CURRENT LIABILITIES 421,373 458,038
CONVERTIBLE SUBORDINATED NOTES AND DEBENTURES 106,913 106,913
LONG-TERM DEBT, less current maturities 270,950 201,144
OTHER LIABILITIES AND DEFERRED REVENUE 126,218 125,408
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
600,000 shares; issued 251,697 shares and
164,863 shares, respectively 2,517 1,649
Retained earnings 374,980 408,098
Treasury stock, at cost, 24,071 shares
and 15,439 shares, respectively (212,796) (185,599)
Other stockholders' equity 1,031,707 977,548
1,196,408 1,201,696
$2,121,862 $2,093,199
See notes to condensed consolidated financial statements
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SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(All amounts in thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,______
2001 2000 2001 2000__
NET REVENUE $340,210 $341,398 $790,375 $661,409
COST OF REVENUE 317,616 194,518 593,163 375,928
AMORTIZATION OF SOFTWARE
DEVELOPMENT COSTS 4,477 5,799 8,719 11,328
GROSS PROFIT 18,117 141,081 188,493 274,153
OPERATING EXPENSES:
Engineering 28,341 22,805 59,358 45,070
Selling, general and
administrative 80,684 61,512 170,946 122,819
Amortization of excess
of cost over fair value
of net assets acquired 4,042 1,406 7,999 2,799
113,067 85,723 238,303 170,688
(LOSS) EARNINGS FROM OPERATIONS (94,950) 55,358 (49,810) 103,465
INTEREST EXPENSE, net (3,952) (2,156) (7,996) (3,593)
(LOSS) EARNINGS BEFORE
INCOME TAXES (98,902) 53,202 (57,806) 99,872
(BENEFIT FROM)/PROVISION FOR
INCOME TAXES (39,349) 17,025 (26,198) 31,959
NET (LOSS) EARNINGS ($ 59,553) $ 36,177 ($ 31,608) $ 67,913
(LOSS) EARNINGS PER SHARE:
Basic ($0.27) $0.18 ($0.14) $0.33
Diluted ($0.27) $0.16 ($0.14) $0.31
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING:
Basic 224,597 205,377 225,025 203,786
Diluted 224,597 221,120 225,025 219,887
See notes to condensed consolidated financial statements
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SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts in thousands)
(Unaudited)
Three Months Ended June 30,
2001 2000____
Cash flows from operating activities:
Net (loss) earnings ($59,553) $36,177
Adjustments to reconcile net (loss) earnings
to net cash used in operating activities:
Depreciation and amortization of property,
plant and equipment 13,676 11,865
Other amortization 10,712 7,898
Provision for losses on accounts receivable 806 593
Writedown due to probable losses from customers 16,000 -
Provision for inventory writedown 110,000 -
Tax benefit on exercise of stock
options and warrants 12,580 14,712
Changes in assets and liabilities
net of effects of acquisitions & divestitures:
Accounts receivable 126 (27,977)
Inventories (126,517) (37,079)
Other current assets 7,943 (22,376)
Accounts payable and accrued expenses 35,439 (5,624)
Income taxes payable (55,774) (962)
Accrued restructuring expenses (18,147) -
Other liabilities and deferred revenue 3,774 163
Net cash used in operating activities (48,935) (22,610)
Cash flows from investing activities:
Purchases of property, plant and
equipment (32,931) (25,208)
Investments in intangible and other assets (13,895) (20,527)
Net cash used in investing activities (46,826) (45,735)
Cash flows from financing activities:
Net proceeds from issuance and repayment
of notes payable and long-term debt 101,115 96,054
Exercise of stock options and warrants 10,419 5,729
Purchase of treasury shares (13,147) (13,900)
Net cash provided by financing activities 98,387 87,883
Effects of exchange rate changes on cash (1,944) (629)
Net increase in cash and temporary
investments 682 18,909
Cash and temporary investments, beginning
of period 70,651 20,644
Cash and temporary investments, end of
period $71,333 $39,553
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 3,624 $ 1,617
Income taxes $ 2,508 $ 2,489
See notes to condensed consolidated financial statements
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SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts in thousands)
(Unaudited)
Six Months Ended June 30,
2001 2000__
Cash flows from operating activities:
Net (loss) earnings ($31,608) $67,913
Adjustments to reconcile net (loss) earnings
to net cash used in operating activities:
Depreciation and amortization of property,
plant and equipment 26,846 23,468
Other amortization 19,628 15,503
Provision for losses on accounts receivable 1,622 1,168
Writedown due to probable losses from customers 16,000 -
Provision for inventory writedown 110,000 -
Tax benefit on exercise of stock options
and warrants 38,100 46,798
Changes in assets and liabilities
net of effects of acquisitions & divestitures:
Accounts receivable (11,364) (49,678)
Inventories (159,947) (68,521)
Other current assets (7,622) (35,539)
Accounts payable and accrued expenses 21,995 (21,157)
Income taxes payable (73,596) (33,636)
Accrued restructuring expenses (47,183) -
Other liabilities and deferred revenue 7,361 321
Net cash used in operating activities (89,768) (53,360)
Cash flows from investing activities:
Proceeds from termination of
collar arrangement 88,046 -
Purchases of property, plant and
equipment (54,215) (42,889)
Investments in intangible and other assets (19,828) (36,882)
Acquisition of subsidiaries - (1,598)
Net cash provided by/(used in) investing
activities 14,003 (81,369)
Cash flows from financing activities:
Net proceeds from issuance and repayment
of notes payable and long-term debt 85,726 59,375
Exercise of stock options and warrants 30,549 21,607
Dividends paid (1,510) (1,365)
Purchase of treasury shares (27,197) (34,437)
Reissuance of treasury shares - 100,000
Net cash provided by financing activities 87,568 145,180
Effects of exchange rate changes on cash (3,881) (1,026)
Net increase in cash and
temporary investments 7,922 9,425
Cash and temporary investments, beginning
of period 63,411 30,128
Cash and temporary investments, end of
period $71,333 $39,553
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 7,771 $ 3,529
Income taxes $ 6,722 $14,926
See notes to condensed consolidated financial statements
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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 June
30, 2001, and the results of its operations and its cash flows
for the three and six months ended June 30, 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 and six months ended
June 30, 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 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. The adoption of SFAS 140 did not have a material impact on
the Company's consolidated financial statements.
In July 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 141, "Business
Combinations" ("SFAS 141") and Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets"
("SFAS 142"). SFAS 141 requires that all business combinations
be accounted for under the purchase method only and that certain
acquired intangible assets in a business combination be
recognized as assets apart from goodwill. SFAS 142 requires
that ratable amortization of goodwill be replaced with periodic
tests of the goodwill's impairment and that intangible assets
other than goodwill should be amortized over their useful lives.
Implementation of SFAS 141 and SFAS 142 is required for fiscal
2002. The Financial Accounting Standards Board published SFAS
141 and SFAS 142 in late July 2001. Management is currently
assessing the impact SFAS 141 and SFAS 142 will have on its
results of operations.
3. Basic earnings per share are based on the weighted average
number of shares of common stock outstanding during the period.
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For the three and six months ended June 30, 2001, stock options
and warrants outstanding and the effect of convertible
subordinated notes and debentures have not been included in the
net loss per share calculation since their effect would be
antidilutive. For the three and six months ended June 30, 2000,
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
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:
June 30, 2001 December 31, 2000
(Unaudited)
Raw materials $200,866 $175,462
Work-in-process 13,805 25,106
Finished goods 106,844 84,845
$321,515 $285,413
In the quarter ended June 30, 2001 the Company recorded a
$110,000 non-recurring charge for a writedown of the Company's
radio frequency infrastructure and systems inventory, which was
primarily comprised of raw materials.
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5. The Company's total comprehensive (loss) earnings were as
follows:
Three Months Ended Six Months Ended
June 30, June 30,____
(Unaudited) (Unaudited)
2001 2000 2001 2000 _
Net (loss) earnings ($59,553) $ 36,177 ($31,608) $67,913
Other comprehensive
(losses) earnings, net
of tax:
Change in equity due to
foreign currency
translation adjustments (1,600) (2,845) (7,835) (4,659)
Change in equity due to
unrealized gains (losses)
on marketable securities 3,275 (8,856) ( 6,719) (6,070)
Comprehensive (loss)
earnings ($57,878) $ 24,476 ($46,162) $ 57,184
6. In December 2000, the Company's management approved and adopted
a formal plan of restructuring as a result of the acquisition of
Telxon in November 2000. 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 exit plan,
which focused on the consolidation of manufacturing operations,
including plant closings and elimination of redundant
activities, was substantially completed by June 30, 2001. The
Company expects all payments related to the restructuring plan
to be completed by September 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 June 30, 2001, all of these
employees have been terminated. Details of the unutilized
restructuring expenses at June 30, 2001 are as follows:
December 31, 2000 June 30, 2001
Accrual Utilized Accrual___
Workforce reductions $ 44,158 $ 33,523 $ 10,635
Impaired fixed asset
and other writeoffs 7,899 7,466 433
Lease cancellation costs 20,430 6,194 14,236
$ 72,487 $ 47,183 $ 25,304
7. In January 2001, the Company entered into a private Manditorily
Exchangeable Securities Contract for Shared Appreciation Income
Linked Securities ("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
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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.
8. The Company is currently involved in matters of litigation arising
from the normal course of business. Management is of the opinion
that such litigation will not have a material adverse effect on
the Company's consolidated financial position or results of
operations.
In March 2001, Proxim Incorporated ("Proxim") sued the Company, 3 Com
Corporation, Wayport Incorporated and SMC Networks Incorporated in the
United States District Court in the District of Delaware for
allegedly infringing three patents owned by Proxim. Proxim did not
identify any specific products of the Company that allegedly
infringe these three patents. Proxim also filed a similar lawsuit
in March 2001 in the United States District Court in the District of
Massachusetts against Cisco Systems, Incorporated and Intersil
Corporation. The complaint against the Company seeks, among other
relief, unspecified damages for patent infringement, treble damages
for willful infringement, and a permanent injunction against the
Company from infringing these three patents. In a press conference
held after the filing of the complaints, Proxim indicated that it
was interested in licensing the patents that are the subject of the
lawsuit against the Company.
On May 1, 2001, the Company filed an answer and counterclaim in
response to Proxim's suit. The Company has responded by asserting its
belief that Proxim's asserted patents are invalid and not infringed by
any of the Company's products. In addition, the Company has asserted
its belief that Proxim's claims are barred under principles of equity,
estoppel and laches. The Company has also filed counterclaims against
Proxim, asserting that Proxim's RF product offerings infringe four of
the Company's patents relating to wireless LAN technology. The
Company has requested the Court grant an unspecified amount of damages
as well as a permanent injunction against Proxim's sale of its
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wireless LAN product offerings. The Company has also filed a
motion to disqualify Howrey, Simon, Arnold & White, LLP, one of
the primary law firms representing Proxim in the Delaware action,
because of its past associations with, and representation of, the
Company.
On May 14, 2001, the Company announced that an agreement had been
reached with Intersil Corporation, a supplier of key wireless LAN
chips to the Company. Under this agreement, Intersil will
indemnify and defend the Company against Proxim's infringement
suit.
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
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the Lemelson Partnership and other companies in the semiconductor and
electronics industries. On March 21, 2000, the U.S. District Court in
Nevada denied the Lemelson Partnership's motion to dismiss, transfer,
or stay the action. It also struck one of the four counts.
On April 12, 2000, the Lemelson Partnership filed its answer to the
complaint in the Symbol et al. v. Lemelson Partnership case. In the
answer, the Lemelson Partnership included a counterclaim against the
Company and the other plaintiffs seeking a dismissal of the case.
Alternatively, the Lemelson Partnership's counterclaim seeks a
declaration that the Company and the other plaintiffs have contributed
to, or induced infringement of particular method claims of the
patents-in-suit by the plaintiffs' customers. The Company believes
there is no merit to the Lemelson Partnership's counterclaim.
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 Circuit 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. On June 15, 2001, the District Court heard oral
arguments on this motion. On July 12, 2001, the District Court denied
both the Auto ID companies' motion and Lemelson's cross-motion. In
doing so, the Court did not rule on the merits of the matters raised
in the motions, but instead held that there remain triable issues of
material fact that preclude granting summary judgment in favor of
either party.
On May 14, 2001, the Auto ID companies filed another motion for
summary judgment arguing that Lemelson's patents at issue are
unenforceable because of Lemelson's inequitable conduct before the
U.S. Patent and Trademark Office. On June 19, 2001, the Lemelson
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Partnership filed a combined opposition to the motion of the Auto
ID companies for summary judgment and its own cross-motion for partial
summary judgment that no such inequitable conduct occurred. The
Company believes oral arguments on the motion will be heard later in
2001.
On July 25, 2001 the Court entered an order setting a schedule that
culminates with a trial currently scheduled for August 2002.
From December 1998 through March 1999, a total of 27 class actions
were filed in the United States District Court, Northern District of
Ohio, by certain alleged stockholders of Telxon on behalf of
themselves and purported classes consisting of Telxon stockholders,
other than the defendants and their affiliates, who purchased stock
during the period from May 21, 1996 through February 23, 1999 or
various portions thereof, alleging claims for "fraud on the market"
arising from alleged misrepresentations and omissions with respect to
Telxon's financial performance and prospects and an alleged violation
of generally accepted accounting principles by improperly recognizing
revenues. The named defendants are Telxon, its former President and
Chief Executive Officer, Frank E. Brick, and its former Senior Vice
President and Chief Financial Officer, Kenneth W. Haver. The actions
were referred to a single judge. On February 9, 1999, the plaintiffs
filed a motion to consolidate all of the actions and the Court heard
motions on naming class representatives and lead class counsel on
April 26, 1999.
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
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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. There has not been an accrual 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.
9. 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).
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.
-13-
The Asia/
Americas EMEA Pacific Corporate Consolidated
Three Months ended
June 30, 2001:
Sales to unaffiliated
customers $230,868 $ 89,790 $19,552 $ - $340,210
Transfers between
geographic areas 166,289 - - (166,289) -
Total net revenue $397,157 $ 89,790 $19,552 ($166,289) $340,210
(Loss) Earnings before
income taxes $ 79,330 $ 21,913 $ 7,655 ($207,800) ($98,902)
Identifiable assets $1,569,732 $194,645 $36,038 $321,447 $2,121,862
Three Months ended
June 30, 2000:
Sales to unaffiliated
customers $235,290 $ 84,927 $21,181 $ - $341,398
Transfers between
geographic areas 153,766 - - (153,766) -
Total net revenue $389,056 $ 84,927 $21,181 ($153,766) $341,398
Earnings before
income taxes $ 80,969 $ 22,178 $ 7,384 ($57,329) $ 53,202
Identifiable assets $987,832 $138,085 $23,448 $111,636 $1,261,001
Six Months ended
June 30, 2001:
Sales to unaffiliated
customers $555,994 $194,468 $39,913 $ - $790,375
Transfers between
geographic areas 258,584 - - (258,584) -
Total net revenue $814,578 $194,468 $39,913 ($258,584) $790,375
(Loss) Earnings before
income taxes $193,651 $ 47,768 $15,383 ($314,608) ($57,806)
Six Months ended
June 30, 2000:
Sales to unaffiliated
customers $450,373 $173,033 $38,003 $ - $661,409
Transfers between
geographic areas 233,127 - - (233,127) -
Total net revenue $683,500 $173,033 $38,003 ($233,127) $661,409
Earnings before
income taxes $158,481 $ 43,191 $13,313 ($115,113) $ 99,872
-14-
10. In July 2001, the Company announced its plans to reorganize its
manufacturing facilities by further shifting volume manufacturing
away from its Bohemia, New York facility to lower-cost locations,
including its Reynosa, Mexico facility and Far East partners. The
Company expects to record a non-recurring pre-tax charge of
approximately $50,000 related to this reorganization in the third
quarter ended September 30, 2001.
In August 2001, the Company announced that its Board of Directors
has adopted a stockholder rights plan. In connection with the
adoption of the rights plan, the Board has designated and reserved
five hundred thousand shares of Series A Junior Participating
Preferred Stock and has declared a dividend of one preferred stock
purchase right (the "rights") for each share of the Company's
common stock outstanding on September 14, 2001. The rights will
continue to be represented by, and trade with, the Company's
common stock certificates unless the rights become exercisable.
The rights become exercisable (with certain exceptions) only in
the event that any person or group acquires beneficial ownership
of, or announces a tender or exchange offer for, 15 percent or
more of the outstanding shares of the Company's common stock. The
rights will expire on August 13, 2011, unless earlier redeemed or
exchanged or terminated in accordance with the rights plan.
On August 13, 2001 the Board approved a $.01 per share semi-annual
cash dividend payable on October 5, 2001 to shareholders of record
on September 14, 2001.
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.
-15-
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Dollars in thousands)
Results of Operations
Although net revenue of $790,375 for the six months ended June
30, 2001 increased 19.5 percent over the comparable prior year period,
net revenue of $340,210 for the three months ended June 30, 2001 was
approximately equal to the comparable prior year period. In
comparison to the three months ended March 31, 2001, revenue declined
from $450,165. The lower sequential revenue for the three months
ended June 30, 2001 versus the three months ended March 31, 2001 is
due to a global slowdown in information technology spending. Foreign
exchange rate fluctuations unfavorably impacted net revenue by
approximately 2.4 percent and 2.5 percent for the three and six months
ended June 30, 2001, respectively. Foreign exchange rate fluctuations
unfavorably impacted net revenue by approximately 2.4 percent and 2.1
percent for the three and six months ended June 30, 2000,
respectively.
Geographically, the Americas revenue decreased 1.9 percent for
the three months ended June 30, 2001, but increased 23.5 percent for
the six months ended June 30, 2001 as compared to the comparable prior
year periods. EMEA revenue increased 5.7 percent and 12.4 percent,
respectively, for the three and six months ended June 30, 2001, as
compared to the comparable prior year periods. Asia Pacific revenue
decreased 7.7 percent for the three months ended June 30, 2001, but
increased 5.0 percent for the six months ended June 30, 2001 as
compared to the comparable prior year periods. The Americas, EMEA and
Asia Pacific revenue represent approximately 68 percent, 26 percent
and 6 percent of net revenue, respectively for the three months ended
June 30, 2001 and 70 percent, 25 percent and 5 percent of net revenue,
respectively for the six months ended June 30, 2001.
The Company has forecasted revenues of $350,000 and $385,000 for
the third and fourth quarters of 2001, respectively. This forecast is
principally based on the current levels of backlog for the remainder
of the year and the assumption that the booking/shipment ratio for
both quarters will be approximately equal to that experienced in the
second quarter of 2001. Attainment of this forecast is dependent on
many factors, some of which are beyond the Company's control,
including those previously enumerated as well as the assumption that
at a minimum there is no further deterioration in actual or perceived
domestic or international economic conditions.
Cost of revenue (as a percentage of net revenue) before a non-
recurring charge of $110,000 was 61.0 percent and 61.1 percent for the
three and six months ended June 30, 2001. This represents an increase
from 57.0 percent and 56.8 percent for the comparable prior year
periods due to a shift in product mix in the fastest growing
proportion of the Company's business to lower margin products versus
-16-
the historical mix of products, the inclusion of Telxon's generally
lower margin products, and the continued unfavorable impact of foreign
exchange rate fluctuations on net revenue. Included in cost of
revenue for the three and six months ended June 30, 2001 is a $110,000
non-recurring charge recorded in the second quarter of 2001 for a
writedown of the Company's radio frequency (RF) infrastructure and
systems inventory. The writedown was recorded as a result of lower
demand for the Company's current RF products, coupled with
technological obsolescence due to planned introductions of new RF
infrastructure products and mobile computing appliances.
In addition, in its continuing effort to rationalize
manufacturing and improve its overhead cost structure, the Company
expects to record a non-recurring charge of approximately $50,000 in
the third quarter of 2001 for costs associated with a reorganization
of its manufacturing facilities. The Company plans to further shift
volume manufacturing away from its Bohemia, New York facility to
lower-cost locations, including its Reynosa, Mexico facility and Far
East partners.
Amortization of software development costs of $4,477 and $8,719
for the three and six months ended June 30, 2001 decreased from $5,799
and $11,328 in the comparable prior year periods 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 and six months ended June 30,
2001 increased to $28,341 and $59,358 from $22,805 and $45,070,
respectively, for the comparable prior year periods. This represents
an increase of 24.3 percent and 31.7 percent, respectively, from the
prior year periods 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 partially 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 increased to 8.3 percent and 7.5 percent for the
three and six months ended June 30, 2001 compared to 6.7 percent and
6.8 percent, respectively, for the comparable prior year periods.
Selling, general and administrative expenses of $80,684 and
$170,946 for the three and six months ended June 30, 2001 increased
from $61,512 and $122,819, respectively, for the comparable prior year
periods. In absolute dollars, selling, general and administrative
expenses increased 31.2 percent and 39.2 percent, respectively, from
the prior year periods, and as a percentage of net revenue such
expenses increased to 23.7 percent and 21.6 percent for the three and
six months ended June 30, 2001 from 18.0 percent and 18.6 percent,
respectively, in the comparable prior year periods. The increase
resulted from additional expenses due to the Telxon acquisition and
additional expenses incurred to support a revenue base that is lower
than that originally planned for in 2001.
-17-
In the quarter ended June 30, 2001 the Company recorded a pre-tax
charge of approximately $16,000 for probable losses expected to be
incurred due to challenges faced by the Company's OEM partners of
selling products in the deteriorating capital spending environment.
Amortization of excess of cost over fair value of net assets
acquired of $4,042 and $7,999 for the three and six months ended June
30, 2001, increased from $1,406 and $2,799, respectively, for the
comparable prior year periods primarily due to the Telxon acquisition.
Net interest expense increased to $3,952 and $7,996 for the three
and six months ended June 30, 2001 from $2,156 and $3,593 for the
comparable prior year periods primarily due to the SAILS exchangeable
debt, (refer to Liquidity and Capital Resources for further
discussion), and interest on Telxon's convertible subordinated notes
and debentures, partially offset by a reduction in interest expense
due to annual mandatory repayments of other indebtedness.
The Company's effective tax benefit for the three and six months
ended June 30, 2001 was 39.8 percent and 45.3 percent, respectively.
This differs from the statutory rate primarily as a result of a non-
recurring charge associated with an inventory writedown.
In an effort to reduce the impact on earnings from lower revenue
growth in 2001, the Company implemented 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. Based on the aforementioned forecast level of
revenue, the Company expects diluted earnings per share, before non-
recurring items, to be in the range of $0.15 - $0.20 for the second
half of 2001.
Liquidity and Capital Resources
The Company utilizes a number of measures of liquidity including
the following:
June 30, December 31,
2001 2000_____
Working Capital $777,299 $620,214
Current Ratio (Current Assets
to Current Liabilities) 2.8:1 2.4:1
Long-Term Debt to Capital 24.0% 20.4%
(Convertible subordinated notes
and debentures plus long-term
debt to convertible subordinated
notes and debentures plus
long-term debt plus equity)
-18-
Current assets increased by $120,420 from December 31, 2000
principally due to an increase in inventories and other current assets
due to an anticipated increase in operating levels and prepaid and
refundable income taxes resulting from a non-recurring charge associated
with an inventory writedown, and the tax benefits of stock option
exercises.
Current liabilities decreased $36,665 from December 31, 2000
primarily due to the utilization of accrued restructuring expenses and
repayment of the current portion of long-term debt offset by an
increase in accounts payable and accrued expenses.
The aforementioned activity resulted in a working capital
increase of $157,085 for the six months ended June 30, 2001. The
Company's current ratio at June 30, 2001 increased to 2.8:1 compared
with 2.4:1 as of December 31, 2000.
The Company used $48,935 in operating activities for the three
months ended June 30, 2001, but experienced an increase in cash of $682
for the period. The positive cash flow provided by the net issuance of
notes payable and long term debt and cash flow generated from the
exercise of stock options and warrants was partially offset by cash used
in operations, investing activities and the repurchase of 479,584 (stock
split effected) shares of the Company's common stock. In May 2001, the
Board of Directors approved a three year extension to the Company's
stock repurchase program. The program now authorizes the Company to
repurchase up to six million shares of the Company's common stock.
Property, plant and equipment expenditures for the six months ended
June 30, 2001 totaled $54,215 compared to $42,889 for the six months
ended June 30, 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 $7,000 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 $31,000 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 increased to 24.0
percent at June 30, 2001 from 20.4 percent at December 31, 2000
primarily due to the SAILS exchangeable debt transaction completed in
January 2001, the decrease in equity due to the net loss and the
repurchase of treasury shares, partially offset by net repayments under
the Company's revolving credit facility, and the increase in equity due
to stock option exercises.
-19-
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 June 30, 2001 the Company had outstanding
borrowings of $117,922 under this facility, as compared to $187,329
outstanding at December 31, 2000.
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 June 30, 2001 the Company has $4,080 outstanding under
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.
-20-
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. The Company has responded by
asserting its belief that Proxim's asserted patents are
invalid and not infringed by any of the Company's products.
In addition, the Company has asserted its belief that
Proxim's claims are barred under principles of equity,
estoppel and laches. The Company has also filed
counterclaims against Proxim, asserting that Proxim's RF
product offerings infringe four of the Company's patents
relating to wireless LAN technology. The Company has
requested the Court grant an unspecified amount of damages as
well as a permanent injunction against Proxim's sale of its
wireless LAN product offerings. The Company has also filed a
motion to disqualify Howrey, Simon, Arnold & White, LLP, one
of the primary law firms representing Proxim in the Delaware
action, because of its past associations with, and
representation of, the Company.
On May 14, 2001, the Company announced that an agreement had
been reached with Intersil Corporation, a supplier of key
wireless LAN chips to the Company. Under this agreement,
Intersil will indemnify and defend the Company against
Proxim's infringement suit.
-21-
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, or stay the action. It also struck
one of the four counts.
-22-
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 Circuit 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. On
June 15, 2001, the District Court heard oral arguments on this
motion. On July 12, 2001, the District Court denied both the Auto
ID companies' motion and Lemelson's cross-motion. In doing so,
the Court did not rule on the merits of the matters raised in the
motions, but instead held that there remain triable issues of
material fact that preclude granting summary judgment in favor of
either party.
On May 14, 2001, the Auto ID companies filed another motion for
summary judgment arguing that Lemelson's patents at issue are
unenforceable because of Lemelson's inequitable conduct before the
U.S. Patent and Trademark Office. On June 19, 2001, the Lemelson
Partnership filed a combined opposition to the motion of the Auto
-23-
ID companies for summary judgment and its own cross-motion for
partial summary judgment that no such inequitable conduct
occurred. On July 10, 2001, the Auto ID companies filed a
combined reply in support of their summary judgment motion and
opposition to the Lemelson Partnership's partial summary judgment
cross-motion. The Company believes oral arguments on the motion
will be heard later in 2001.
On July 25, 2001 the Court entered an order setting a schedule
that culminates with a trial currently scheduled for August 2002.
Under this timetable, the Auto ID companies' arguments relating to
invalidity, unenforceability and/or non-infringement of the so-
called bar code patents will be briefed by motion at the
appropriate time, or at trial.
On August 1, 2001, the Auto ID companies filed another motion for
partial summary judgment arguing that the Lemelson Partnership is
not entitled, as a matter of law, to rely on a now-abandoned
Lemelson patent application filed in 1954 to provide a filing date
or disclosure for the claims of the patents-in-suit. If the Court
grants this motion, the issues in the case will be significantly
simplified because the parties and the Court will not need to
further consider the 1954 patent application, which is entirely
different from the common specification of all the patents-in-
suit. The Company believes that briefing will be completed and
oral argument will be heard for this motion by the end of 2001.
From December 1998 through March 1999, a total of 27 class actions
were filed in the United States District Court, Northern District
of Ohio, by certain alleged stockholders of Telxon on behalf of
themselves and purported classes consisting of Telxon
stockholders, other than the defendants and their affiliates, who
purchased stock during the period from May 21, 1996 through
February 23, 1999 or various portions thereof, alleging claims for
"fraud on the market" arising from alleged misrepresentations and
omissions with respect to Telxon's financial performance and
prospects and an alleged violation of generally accepted
accounting principles by improperly recognizing revenues. The
named defendants are Telxon, its former President and Chief
Executive Officer, Frank E. Brick, and its former Senior Vice
President and Chief Financial Officer, Kenneth W. Haver. The
actions were referred to a single judge. On February 9, 1999, the
plaintiffs filed a motion to consolidate all of the actions and
the Court heard motions on naming class representatives and lead
class counsel on April 26, 1999.
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
-24-
those 26 cases into the first filed action. The lead plaintiffs
appointed by the Court filed an amended class action complaint on
September 30, 1999. The amended complaint alleges that the
defendants engaged in a scheme to defraud investors through
improper revenue recognition practices and concealment of material
adverse conditions in Telxon's business and finances. The amended
complaint seeks certification of the identified class, unspecified
compensatory and punitive damages, pre- and post-judgment
interest, and attorneys' fees and costs. Various appeals and
writs challenging the District Court's August 25, 1999 rulings
were filed by two of the unsuccessful plaintiffs but have all been
denied by the Court of Appeals.
On November 8, 1999, the defendants jointly moved to dismiss the
amended complaint, which was denied on September 29, 2000.
Following the denial, the parties filed a proposed joint case
schedule, discovery commenced, and the parties each filed their
initial disclosures. On October 30, 2000, defendants filed their
answer to the plaintiffs' amended complaint as well as a motion
for reconsideration or to certify the order denying the motion to
dismiss for interlocutory appeal and request for oral argument,
and a memorandum of points and authorities in support of that
motion. On November 14, 2000, plaintiffs filed a memorandum in
opposition of defendants' motion. This motion was denied on
January 19, 2001. On November 1, 2000, defendants filed a motion
for application of the Amended Federal Rules of Civil Procedure to
the case, and on November 16, 2000, the Court granted this motion
in part and held that the Court will apply the new rules of
evidence and new rules of civil procedure except to the extent
those rules effectuate changes to Rule 26 of the Federal Rules for
Civil Procedure. Discovery is in its preliminary stages.
On February 20, 2001, Telxon filed a motion for leave to File and
serve instanter a summons and third-party complaint against third-
party defendant PricewaterhouseCoopers LLP ("PWC") in
shareholders' class action complaints. Telxon's third-party
complaint against PWC concerns PWC's role in the original issuance
and restatements of Telxon's financial statements for its fiscal
years 1996, 1997, 1998 and its interim financial statements for
its first and second quarters of fiscal year 1999, the subject of
the class action litigation against Telxon. Telxon states causes
of action against PWC for contribution under federal securities
law, as well as state law claims for accountant malpractice,
fraud, constructive fraud, fraudulent concealment, fraudulent
misrepresentation, negligent misrepresentation, breach of
contract, and breach of fiduciary duty. With respect to its
federal claim against PWC, Telxon seeks contribution from PWC for
all sums that Telxon may be required to pay in excess of Telxon's
proportionate liability, if any, and attorney fees and costs.
With respect to its state law claims against PWC, Telxon seeks
compensatory damages, punitive damages, attorney fees and costs,
in amounts to be determined at trial.
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
-25-
instanter on the date of Telxon's motion for leave to file the
same - February 20, 2001. Pursuant to the Court's request the
parties have submitted 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. There
has not been an accrual 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.
ITEM 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Shareholders was held on May 21,
2001. At the meeting eight directors nominated by the Company
were elected. The votes cast on a pre-stock split basis for each
nominee were as follows:
For Against_
George Bugliarello 125,881,363 1,381,125
Leo A. Guthart 125,893,692 1,368,796
Harvey P. Mallement 125,617,816 1,644,672
Raymond R. Martino 125,629,658 1,632,830
Tomo Razmilovic 125,629,142 1,633,346
James Simons 125,897,809 1,364,679
Jerome Swartz 113,886,770 13,375,718
Charles B. Wang 125,843,134 1,419,354
The shareholders also approved proposals to (i) amend the
Certificate of Incorporation, (ii) amend the 1997 Employee Stock
Option Plan and (iii) ratify the appointment of Deloitte & Touche
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LLP as auditors for fiscal 2001. The number of shares voted for,
voted against or abstained from voting upon, each proposal was as
follows:
For Against Abstain_
Proposal to amend the Certificate
of Incorporation 124,485,849 2,219,359 557,280
Proposal to amend the 1997
Employee Stock Option Plan 101,960,287 24,567,644 734,557
Proposal to ratify the appointment
of Deloitte & Touche LLP as
auditors for Fiscal 2001 126,279,463 465,038 517,987
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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: August 13, 2001 By: /s/ Tomo Razmilovic________
Tomo Razmilovic, President and
Chief Executive Officer
Dated: August 13, 2001 By: /s/ Kenneth V. Jaeggi
Kenneth V. Jaeggi
Senior Vice President -
Chief Financial Officer
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