SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- - - - - - -
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report(Date of earliest event reported)
October 8, 2003
Symbol Technologies, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 1-9802 11-2308681
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(State or other (Commission File (IRS Employer
Jurisdiction of Number) Identification No.)
Incorporation)
One Symbol Plaza
Holtsville, New York 11742
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(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including
area code: (631) 738-2400
Former name or former address, if changed
since last report: Not Applicable
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
The following exhibits are included herein:
Exhibit 99.1 Press Release dated October 8, 2003
"Symbol Technologies Reports Unaudited Results
for 2003's First and Second Quarters and
Unaudited Results for Period of Financial
Restatement, 1998 through 2002"
Exhibit 99.2 Webcast Presentation dated October 8, 2003
"Q2 2003 Earnings and Restatement of Prior Period
Financials"
Exhibit 99.3 Transcript, dated October 8, 2003, of the
registrant's teleconference and the questions
and answers session immediately following.
ITEM 12. RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
The registrant is furnishing herewith its Press Release dated
October 8, 2003 disclosing unaudited 2003 first and second
quarter results as well as the impact of the pending restatement
on previously reported financial results for years 1998 through
2002, also unaudited. The Press Release is attached hereto as
Exhibit 99.1 and is incorporated herein by reference. On
October 8, 2003, the registrant also hosted a teleconference and
webcast to discuss the subjects covered by the Press Release.
The teleconference and webcast were pre-announced and were
available to the public through live teleconference and webcast,
and was available through audio and webcast replay until October
15, 2003. A copy of the registrant's Webcast Presentation is
attached hereto as Exhibit 99.2 and is incorporated herein by
reference. A copy of the Transcript of the registrant's
teleconference including the questions and answers session
immediately following the call is attached hereto as Exhibit
99.3 and is incorporated herein by reference.
The information in this Form 8-K and the exhibits attached
hereto shall not be deemed "filed" for purposes of Section 18 of
the Securities Exchange Act of 1934 (the "Exchange Act") or
otherwise subject to the liabilities of that section, nor shall
it be deemed incorporated by reference in any filing under the
Securities Act of 1933 or the Exchange Act, regardless of any
general incorporation language in such filing.
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 hereunto duly authorized.
SYMBOL TECHNOLOGIES, INC.
Date: October 16, 2003 By: _/s/ Mark T. Greenquist________
Name: Mark T. Greenquist
Title: Senior Vice President
and Chief Financial
Officer
EXHIBIT INDEX
Exhibit Description
Exhibit 99.1 Press Release dated October 8, 2003
"Symbol Technologies Reports Unaudited
Results for 2003's First and Second Quarters
and Unaudited Results for Period of
Financial Restatement, 1998 through 2002"
Exhibit 99.2 Webcast Presentation dated October 8, 2003
"Q2 2003 Earnings and Restatement of Prior
Period Financials"
Exhibit 99.3 Transcript, dated October 8, 2003, of the
registrant's teleconference and the
questions and answers session immediately
following.
EXHIBIT 99.1
Symbol Technologies Reports Unaudited Results for 2003's
First and Second Quarters and Unaudited Results for
Period of Financial Restatement, 1998 through 2002
Second-Quarter 2003 Revenue Was $375 Million with EPS
of $0.04
First-Quarter 2003 Results Updated to Revenue of
$379 Million and EPS of $0.08
HOLTSVILLE, N.Y., Oct. 8, 2003 - Symbol Technologies,
Inc. (NYSE:SBL) today reported unaudited results for the
second quarter of 2003, updated previously announced unaudited
results for the first quarter of 2003 and also reported
unaudited results for the period impacted by its pending
financial restatement, 1998 through 2002. While the results
reported today are unaudited, Symbol believes that these
results accurately reflect, in all material respects, the
results that will be reported in the Company's 2002 Annual
Report on Form 10-K as well as the quarterly reports on Form
10-Q for the first and second quarters of 2003. However, until
the audit is complete for 2002 and prior years and the
documents are filed, these results are subject to change.
Unaudited Second-Quarter 2003 Results
Revenue for the second quarter ended June 30, 2003, was
$375 million, a 15 percent increase over the restated second-
quarter 2002 revenue of $327 million. Product revenue of $289
million represented a year-over-year increase of 16 percent,
and service revenue of $86 million showed a year-over-year
increase of 12 percent. Second-quarter 2003 gross margin was
$154 million, or 41.1 percent, an increase of $57 million, or
11 percentage points, from the prior year's second-quarter
restated gross margin of $97 million, or 29.7 percent.
Operating expense in the quarter was $146 million. Included in
second-quarter operating expense was $14.5 million in costs
related to restatement activities, primarily fees for
professional services. Net earnings in the period were $9
million, representing $0.04 per share.
"The financial results of the second quarter are
gratifying because they indicate that our fundamental business
is on track," William Nuti, Symbol president and chief
operating officer, said. "Even as we continue working on
bringing to closure the financial issues of the past, the
Symbol of today is operating with a new management system and
planning process that are driving a compelling new vision for
Symbol as the leader in enterprise mobility solutions."
Unaudited First-Quarter 2003 Results
First-quarter 2003 results were disclosed and discussed
during an April 29, 2003, teleconference, and previously
reported first-quarter results have been updated to reflect
the impact of the pending restatement of prior period results.
Restated revenue for the first quarter ended March 31, 2003,
was $379 million, $22 million higher than the previously
reported $357 million and 19 percent higher than restated 2002
first-quarter revenue. First-quarter gross margin increased
$21 million from the previously reported results to $160
million, representing a gross margin of 42.2 percent and a
year-over-year increase of $81 million, or approximately 17
percentage points. First-quarter 2003 operating expense was
$136 million, $5 million higher than previously reported,
primarily due to a correction in how the Company accounts for
engineering expense in its restated numbers. Expenses related
to restatement activities were $5.3 million in the 2003 first
quarter. First-quarter 2003 net earnings of $18 million
increased $13 million from the previously reported net
earnings of $5 million, and earnings per share of $0.08
increased $0.06 from previously reported EPS of $0.02.
Results of Restatement
In announcing the unaudited restated results, the Company
outlined some of the factors that it believes led to the need
to restate its results for the years 1998 through 2002. During
that time period, the Company was overly aggressive in
establishing its sales and earnings growth targets, routinely
overproduced products, made premature and excessive shipments
primarily to the sales channel and generated numerous errors
and irregularities in the books and records of the Company in
order to support senior management's immediate financial
objectives. As previously disclosed, the Company also
discovered irregularities that occurred prior to July 2002 in
the administration of the executive stock option program.
"There previously existed in the Company an atmosphere
and culture that, we believe, allowed for and fostered a
working environment that, ultimately, led to the difficulties
we're now working so hard to correct," stated Richard Bravman,
Symbol interim chairman and chief executive officer. "Let me
assure you that the Company's Board, the current leadership
team - and I, personally - are very committed to setting this
right, definitively putting the issues uncovered through our
investigation behind us and realizing the potential that we
know is inherent in Symbol."
The pending restatement had a significant impact on the
previously reported financial results during 1998 through
2002. Following are some of the major changes to the
previously reported financial results of the cumulative five-
year period. For further information on these changes, a set
of presentation charts is available in PDF format on the
Company's investor relations Web site,
www.symbol.com\investors, or by contacting the Company at 1-
800-927-9626.
- Revenue over the 1998 to 2002 period was reduced by $223
million to a cumulative $6.116 billion from a previously
reported $6.339 billion.
- Gross margin over the 1998 to 2002 period was reduced by
$101 million to a cumulative $2.146 billion from a
previously reported $2.247 billion.
- Operating expense, excluding the impact of variable plan
accounting on stock options, over the 1998 to 2002 period
was increased by a cumulative $237 million to $2.266
billion from a previously reported $2.029 billion.
- Compensation expense over the 1998 to 2002 period related
to variable plan accounting for certain stock options
increased by $230 million.
- Shareholders' equity at year-end 2002 was $956 million,
representing a $255 million reduction from the previously
reported $1.211 billion. At the end of the June 30,
2003, quarter, shareholders' equity had increased to $997
million.
Mark Greenquist, Symbol chief financial officer, said,
"We're working to bring the restatement work and external
audit to a close, and we look forward to moving beyond the
difficulties of the past. With the improving financial
performance of the last several quarters and the June 30
balance sheet showing nearly $100 million in cash, a debt
level near zero and demonstrated progress on working capital
management - as well as substantial shareholders' equity -
we're confident that Symbol is on a sound foundation today and
is poised for future growth and shareholder value
appreciation."
The previously reported investigations by the SEC and the
U.S. Attorney's office are ongoing. Symbol has not filed its
Annual Report on Form 10-K for the year ended Dec. 31, 2002,
with the Securities and Exchange Commission, and is working to
finalize the document and the Company's external auditors are
working to complete their audit. Upon the approval of the
Form 10-K, as well as the Form 10-Qs, by the Symbol board of
directors, they will be filed with the Commission. At this
point, the Company hasn't provided a timetable for those
filings.
Teleconference and Web Presentation Details
Those interested in participating in the conference call
should dial 719-457-2645 at least 10 minutes prior to
commencement of the call, which also will be available as an
audio Web cast via the Symbol Web site,
www.symbol.com/investors. A telephonic replay will be
available beginning at noon ET October 9 through October 15,
2003, on a 24-hour non-stop basis. The dial-in number to
access this replay is: 719-457-0820 - Access Code: 610777.
In addition to the teleconference, the Company will host
a simultaneous Web cast presentation via WebEx, an online
PowerPoint document sharing Web site. Those interested in
viewing the WebEx presentation should go to
http://symbol.webex.com at least 10 minutes prior to the start
of the teleconference. At the site, log in to the "Symbol
Technologies- Q2 '03 Earnings Release" by clicking the "join"
button; you are required to provide your name and e-mail
address. Please be advised that WebEx permits you to enroll
prior to the conference, but this is not mandatory for
participation. This is an unrestricted Web site and a password
is not required. A synchronized WebEx and audio replay will be
available on the Company's investor homepage beginning at noon
ET October 9 through October 15, 2003, on a 24-hour non-stop
basis.
A copy of the presentation will be posted in PDF format
on the Company's investor homepage (www.symbol.com/investors).
Forward-Looking Statements
Statements contained in this release may constitute
"forward-looking statements" with the meaning of the Private
Securities Litigation Reform Act of 1995. These statements
involve a number of risks, uncertainties and other factors
that could cause actual results to differ materially, as
discussed in the Company's filings with the Securities and
Exchange Commission.
About Symbol Technologies
Symbol Technologies, Inc. delivers enterprise mobility
solutions that enable anywhere, anytime data and voice
communication designed to increase productivity, reduce costs
and realize competitive advantage. Symbol systems and services
integrate rugged mobile computing, advanced data capture,
wireless networking and mobility software for the world's
leading retailers, transportation and logistics companies and
manufacturers as well as government agencies and providers of
healthcare, hospitality and security. More information is
available at www.symbol.com.
# # # #
For media information: For financial information:
Patricia Hall Nancy Tully
Symbol Technologies, Inc. Symbol Technologies, Inc.
631-738-5636 631-738-5050
EXHIBIT 99.2
[symbol LOGO OMITTED]
Symbol Technologies, Inc.
Q2 2003 EARNINGS AND RESTATEMENT
OF PRIOR PERIOD FINANCIALS
October 8, 2003
PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995 SAFE HARBOR PROVISION
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During the course of this presentation, we may make projections or other
forward-looking statements regarding future events or the future financial
performance of the company.
Such statements are just estimates, and actual events or results may differ
materially. We refer you to the documents that Symbol files from time to time
with the SEC. These documents contain and identify forward factors, risks and
uncertainties that could cause actual results to differ materially from those
contained in our projections or forward-looking statements.
Copies of our SEC filings are available upon request or by accessing our
company website at www.symbol.com.
2
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AGENDA
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o Summary of the Investigation
o Results of the Restatement 1998-2002
o Financial Results for Q1 & Q2 2003
o Current State of Business & Guidance
3
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ORIGINS OF INVESTIGATION & RESTATEMENT
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CAUSE
o Lack of intellectual integrity (Facts 'interpreted' to meet desired
financial outcome)
o Intimidation (Honest questions and criticism discouraged)
o Short-term focus vs. view toward Symbol's long-term health
o Lack of investment in leadership talent, processes and systems to scale
the Company
EFFECT
o Abusive and oppressive culture and environment
o Overly aggressive sales and earnings growth targets
o Encouraged and rewarded inappropriate activities in sales, services,
operations and finance
o Generated numerous errors and irregularities in books and records
4
[symbol LOGO OMITTED] Confidential
APPROACH TO INVESTIGATION
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o Board undertook thorough investigation led by independent external
counsel, who hired forensic auditing team
o Fully and extensively cooperated with government
o Applied findings to eventual restatement and changes in internal
financial practices
5
[symbol LOGO OMITTED] Confidential
PROCEDURES INVOLVED IN INVESTIGATION
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o Interviewed 200+ current and former employees
o Reviewed 400,000+ e-mails
o Reviewed 600,000+ pages of documents
o Analyzed 600,000+ product & service invoices
o Evaluated 200+ channel partners (representing 90% of revenue)
o Analyzed 1000+ entries to accrual, prepayment, and reserve accounts
6
[symbol LOGO OMITTED] Confidential
External Hire
Internal Promotion
BUILD-OUT OF EXECUTIVE TEAM No Change
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[GRAPHIC OMITTED]
CEO & VICE CHAIRMAN
(ACTING CHAIRMAN)
R. Bravman appointed CEO in Aug 2002
COO & PRESIDENT GENERAL COUNSEL, SVP
B. Nuti joined company in Aug 2002 P. Lieb joins company in Oct 2003
WORLDWIDE SALES & MARKETING, SVP CUSTOMER SERVICE, SVP CHIEF FINANCIAL
OFFICER, SVP
T. Abbott joined company in Nov 2002 A. O'Donnell joined company in
Jul 2003 M. Greenquist joined company in Feb 2003
OPERATIONS, VP GLOBAL PRODUCTS GROUP, SVP CHIEF INFORMATION OFFICER
T. Collins appointed in Jul 2003 T. Hewlin joined company in Jun
2003 & BUS. DEV., SVP
J. Bruno joined company in Nov 2002
HUMAN RESOURCES, SVP SPECIAL PROJECT INITIATIVES, SVP CHIEF MARKETING
OFFICER, SVP
C. DeMayo has led since Jul 2001 R. Goldman new assignment P. Juliano
joins company in Oct 2003
Oct 2003
ENGINEERING, SVP R&D, SVP
B. Metlitsky has led since J. Katz has led since Feb 1994
Feb 1994
7
[symbol LOGO OMITTED] Confidential
[symbol LOGO OMITTED]
RESULTS OF RESTATEMENT 1998-2002
AREAS OF FOCUS
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o Revenue Recognition
o Inventory
o Accruals, Reserves & Pre-payments
o Acquisitions & Investments
o Restructurings
o Stock Options
9
[symbol LOGO OMITTED] Confidential
REVENUE
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$US MILLIONS 1998 1999 2000 2001 2002 CUM
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As Restated 945 1,071 1,215 1,487 1,398 6,116
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As Reported 978 1,139 1,449 1,453 1,320 6,339
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Over/(Under) (33) (68) (234) 34 78 (223)
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o Bill & Collected - Service (2) (2) (14) (28) 4 (42)
o Bill & Collected - Product (9) (33) (43) (15) 31 (69)
o Sales Out - Disti -- 1 (27) 17 (18) (27)
o Timing Related Adjustments (16) (29) (69) 61 38 (15)
o Other Adjustments (6) (5) (81) (1) 23 (70)
-- -- --- -- -- ---
o Total (33) (68) (234) 34 78 (223)
- -----------------------------------------------------------------------------
- -----------------------------
Unaudited - Subject to change
until 2002 audit completed
- -----------------------------
10
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GROSS MARGIN
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- -----------------------------------------------------------------------------
$US MILLIONS 1998 1999 2000 2001 2002 CUM
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As Restated 381 445 393 441 486 2,146
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As Reported 416 485 460 394 492 2,247
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Over/(Under) (35) (40) (67) 47 (6) (101)
- -----------------------------------------------------------------------------
o Revenue Related (16) (53) (169) (5) 17 (226)
o Engineering Related 14 19 64 25 17 139
o Inventory Reserves (31) (6) 15 (7) (20) (49)
o Restructuring Related (2) -- 23 34 (20) 35
-- --- -- -- --- --
o Total (35) (40) (67) 47 (6) (101)
- ----------------------------------------------------------------------------
- -----------------------------
Unaudited - Subject to change
until 2002 audit completed
- -----------------------------
11
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OPERATING EXPENSES
(EXCLUDES OPTION EXPENSES)
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- -----------------------------------------------------------------------------
$US MILLIONS 1998 1999 2000 2001 2002 CUM
- -----------------------------------------------------------------------------
As Restated 308 349 556 514 539 2,266
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As Reported 274 308 528 455 464 2,029
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Over/(Under) 34 41 28 59 75 237
- -----------------------------------------------------------------------------
o Engineering Related 25 28 31 32 19 135
o Restructuring Related -- -- (21) 30 13 22
o Other Adjustments 9 13 18 (3) 43 80
-- -- -- -- -- --
o Total 34 41 28 59 75 237
- -----------------------------------------------------------------------------
- -----------------------------
Unaudited - Subject to change
until 2002 audit completed
- -----------------------------
12
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STATEMENT OF OPERATIONS - 1998 THRU 2002
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
1998 1998 1999 1999 2000 2000 2001 2001 2002 2002
$US Millions As As As As As As As As As As
Restated Reported Restated Reported Restated Reported Restated
Reported Restated Reported
- -----------------------------------------------------------------------------
Product 809 841 899 969 1,007 1,232 1,206 1,147 1,100 1,027
Services 136 137 172 170 208 217 281 306 298 293
--- --- --- --- --- --- --- --- --- ---
Total 945 978 1,071 1,139 1,215 1,449 1,487 1,453 1,398 1,320
- ---------------------------------------------------------------------------
Gross Margin 381 416 445 485 393 460 441 394 486 492
40.3% 42.5% 41.5% 42.6% 32.3% 31.7% 29.7% 27.1% 34.8% 37.3%
- ----------------------------------------------------------------------------
Operating Exp 308 274 349 308 556 528 514 455 539 464
Stock Options 179 -- 203 -- 9 -- (93) -- (68) --
Other -- 3 6 6 12 12 14 18 (3) 13
--- --- --- --- --- --- --- --- --- ---
Earnings/(Loss) (106) 139 (113) 171 (184) (80) 6 (79) 18 15
Before Tax
- -----------------------------------------------------------------------------
NET
EARNINGS/(LOSS) (56) 93 (57) 116 (133) (69) (3) (54) 4 10
- -----------------------------------------------------------------------------
EARNINGS PER SHARE
Basic ($0.28) $0.47 $0.29) $0.59 ($0.64) ($0.33) ($0.01)
($0.24) $0.02 $0.05
Diluted ($0.28) $0.44 ($0.29) $0.55 ($0.64) ($0.33) ($0.01)
($0.24) $0.02 $0.04
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-----------------------------
Unaudited - Subject to change
until 2002 audit completed
-----------------------------
13
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RECEIVABLES
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- -----------------------------------------------------------------------------
$US MILLIONS 1998 1999 2000 2001 2002
- -----------------------------------------------------------------------------
As Restated 142 147 174 146 153
o DSOs 55 50 52 36 40
- -----------------------------------------------------------------------------
As Reported 205 252 454 308 268
o DSOs 77 81 114 77 74
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Increase/(Decrease) (63) (105) (280) (162) (115)
o DSOs (22) (31) (62) (41) (34)
- -----------------------------------------------------------------------------
o Revenue Related (64) (66) (200) 71 89
o Reclassifications -- 16 13 15 (15)
o Other Adjustments 1 8 12 32 (27)
o Prior Period Rollforward -- (63) (105) (280) (162)
--- ---- ---- ---- ----
o Total (63) (105) (280) (162) (115)
- -----------------------------------------------------------------------------
- -----------------------------
Unaudited - Subject to change
until 2002 audit completed
- -----------------------------
14
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INVENTORY
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- -----------------------------------------------------------------------------
$US MILLIONS 1998 1999 2000 2001 2002
- -----------------------------------------------------------------------------
As Restated 156 193 376 336 261
o Turns 3.6 3.2 2.2 3.1 3.5
- -----------------------------------------------------------------------------
As Reported 197 217 285 311 335
o Turns 2.9 3.0 3.5 3.4 2.5
- -----------------------------------------------------------------------------
Increase/(Decrease) (41) (24) 91 25 (74)
o Turns 0.7 0.2 (1.3) (0.3) 1.0
- -----------------------------------------------------------------------------
o Revenue Related 8 29 58 (31) (52)
o Reserves (49) (5) 16 (17) (23)
o In-Transit / Pre-Paid -- 6 37 (19) (14)
o Other Adjustments -- (13) 4 1 (10)
o Prior Period Rollforward -- (41) (24) 91 25
--- --- -- -- ---
o Total (41) (24) 91 25 (74)
- -----------------------------------------------------------------------------
- -----------------------------
Unaudited - Subject to change
until 2002 audit completed
- -----------------------------
15
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BALANCE SHEET - 1998 THRU 2002
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
1998 1998 1999 1999 2000 2000 2001 2001 2002 2002
$US MILLIONS As As As As As As As As As As
Restated Reported Restated Reported Restated Reported Restated
Reported Restated Reported
- -----------------------------------------------------------------------------
Cash 16 16 24 30 53 63 70 81 76 76
Receivables 142 205 147 252 174 454 146 308 153 268
Inventory 156 197 193 217 376 285 336 311 261 335
Other Current 49 61 277 85 430 276 351 301 214 225
-- -- --- -- --- --- --- --- --- ---
Total Current 363 479 641 584 1,033 1,078 903 1,001 704 904
Assets
Fixed Assets 172 175 201 206 236 234 251 241 208 222
Other 275 184 203 258 743 781 555 651 615 607
--- --- --- --- --- --- --- --- --- ---
Total Assets 810 838 1,045 1,048 2,012 2,093 1,709 1,893 1,527 1,733
- -----------------------------------------------------------------------------
Current Liab. 187 184 245 233 473 458 331 340 361 322
Long Term Liab. 119 123 174 175 439 433 370 372 210 200
Equity 504 531 626 640 1,100 1,202 1,008 1,181 956 1,211
--- --- --- --- ----- ----- ----- ----- --- -----
Total Liabilities & 810 838 1,045 1,048 2,012 2,093 1,709 1,893 1,527 1,733
Equity
- -----------------------------------------------------------------------------
-----------------------------
Unaudited - Subject to change
until 2002 audit completed
-----------------------------
16
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[symbol LOGO OMITTED]
FINANCIAL RESULTS FOR
Q1 & Q2 2003
STATEMENT OF OPERATIONS - Q1 2003
- ----------------------------------------------------------------------------
Q1'03 Q1'03 Q4'02 Q1'02
$US MILLIONS As Restated As Reported As Restated As Restated
- ----------------------------------------------------------------------------
Product 303 285 291 256
Services 76 72 81 63
-- -- -- --
Total 379 357 372 319
- -----------------------------------------------------------------------------
Gross Margin 160 139 150 79
42.2% 38.9% 40.3% 24.8%
- -----------------------------------------------------------------------------
Operating Expense 136 131 148 116
Stock Options -- -- -- (51)
Other 1 1 2 4
Earnings/(Loss) 23 7 -- 10
Before Tax
- -----------------------------------------------------------------------------
NET EARNINGS/(LOSS) 18 5 -- 2
- -----------------------------------------------------------------------------
EARNINGS PER SHARE
Basic $0.08 $0.02 ($0.00) $0.01
Diluted $0.08 $0.02 ($0.00) $0.01
- -----------------------------------------------------------------------------
- ------------------------
MEMO:
- -----
Restatement Expenses
Included In Oper Exp
Q1'03 $5.3
Q4'02 $5.1
- ------------------------
-----------------------------
Unaudited - Subject to change
-----------------------------
18
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STATEMENT OF OPERATIONS - Q2 2003
- ----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Q2'03 Q1'03 Q2'02
$US MILLIONS As Restated As Restated
- -----------------------------------------------------------------------------
Product 289 303 250
Services 86 76 77
-- -- --
Total 375 379 327
- ---------------------------------------------------------------------------
Gross Margin 154 160 97
41.1% 42.2% 29.7%
- ---------------------------------------------------------------------------
Operating Expense 146 136 161
Stock Options -- -- (28)
Other (3) 1 (1)
Earnings/(Loss) 11 23 (35)
Before Tax
- ---------------------------------------------------------------------------
NET EARNINGS/(LOSS) 9 18 (8)
- ---------------------------------------------------------------------------
EARNINGS PER SHARE
Basic $0.04 $0.08 ($0.04)
Diluted $0.04 $0.08 ($0.04)
- ---------------------------------------------------------------------------
- -------------------------------
MEMO:
Restatement Expenses
Included In Oper Exp
Q2'03 $14.5
Q1'03 $ 5.3
Q2'02 $ 1.0
- --------------------------------
-----------------------------
Unaudited - Subject to change
-----------------------------
19
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BALANCE SHEET - 2003
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Q2'03 Q1'03 Q1'03 Q4'02
$US MILLIONS As Reported As Restated As Restated
- -----------------------------------------------------------------------------
Cash 98 99 99 76
Receivables 124 134 228 153
o DSOs 30 32 58 38
Inventory 207 236 310 261
o Turns 4.2 3.7 2.8 3.4
Other Current 207 209 246 214
--- --- --- ---
Total Current 636 678 883 704
Assets
Fixed Assets 206 205 220 208
Other 626 611 607 615
--- --- --- ---
Total Assets 1,468 1,494 1,710 1,527
- -----------------------------------------------------------------------------
Current Liabilities 330 391 369 361
Long Term Liabilities 141 125 120 210
Equity 997 978 1,221 956
- ------ --- --- ----- ---
Total Liabilities & 1,468 1,494 1,710 1,527
Equity
- -----------------------------------------------------------------------------
-----------------------------
Unaudited - Subject to change
-----------------------------
20
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[symbol LOGO OMITTED]
CURRENT STATE OF BUSINESS
REVENUE DISTRIBUTION BY SALES THEATER
- -----------------------------------------------------------------------------
[PIE CHART]
Q1'03
7.0% 29.0% 64.0%
AP EMEA TASS
[PIE CHART]
Q2'03
8.0% 27.0% 65.0%
AP EMEA TASS
22
[symbol LOGO OMITTED] Confidential
REVENUE DISTRIBUTION BY PRODUCT
- -----------------------------------------------------------------------------
[PIE CHART]
Q1'03
20% 6% 60% 9% 5%
Scanners Scan Engines Mobile Computers Wireless Other
[PIE CHART]
Q2'03
18% 7% 59% 11% 5%
Scanners Scan Engines Mobile Computers Wireless Other
23
[symbol LOGO OMITTED] Confidential
SERVICES ORGANIZATION UPDATE (GSS)
- -----------------------------------------------------------------------------
ART O'DONNELL
Senior Vice President, Global Systems & Services
o Q2 revenue up modestly Q-Q and Y-Y
o Consolidation of services operations
o Strategy in place for higher attach rates
o Continued margin improvement
o Change in services relative to reseller program
24
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PARTNERSELECT WORLDWIDE PROGRAM
- -----------------------------------------------------------------------------
JAN BURTON
Vice President of Worldwide Channels
[GRAPHIC OMITTED]
PARTNERS APPROVED INTO PROGRAM
157 149 5032 -492
Solution Business Authorized Applicants
Providers Partners Resellers Declined
PROGRAM INTRODUCED WORLDWIDE:
May 2003 2004
o North America
o Latin America o Asia-Pacific
o EMEA
SYMBOL
PARTNERSELECT
PROGRAM
25
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NEW PRODUCT INTRODUCTIONS
- -----------------------------------------------------------------------------
[PHOTO] MK 2000 Micro Kiosk
[PHOTO] LS 2208
[PHOTO] PDT 8100 XScale(TM)
[PHOTO] LS 9208
26
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MC 9000-G
- -----------------------------------------------------------------------------
o XScale(TM) processor
o Multiple Windows CE versions
o Three scan/imaging options
o Wireless networking (LAN, PAN)
o Platform Modularity - Investment Protection
o Customizable
o Highly ruggedized
LARGE COLOR DISPLAY
o 3.8 inch color/mono
o 1/4 VGA
o Touch panel
o LED backlit
VALUE-ADDED FEATURES
- ------------------------------------------------------------------------
o Voice over IP (future PBX option)
o Voice dictation/messaging
o API/SDK for portable printing
o Full-shift battery life in typical applications
- ------------------------------------------------------------------------
27
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J.C. PENNEY COMPANY, INC.
- -----------------------------------------------------------------------------
SYMBOL WIRELESS SWITCH SUPPORTS
ENTERPRISE MOBILITY APPLICATIONS
---------------------------------------------------------------------------
o Receiving o Ticketing
o Cycle counts o Sign making
o Return to vendor o Kiosks
o Point-of-sale o Portable phones using VoIP
o Flash sales reporting o Advanced customer service
o Bridal registry
---------------------------------------------------------------------------
-------------------------------
WLAN DEPLOYMENT IN 1000+ STORES
-------------------------------
28
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ALLIED BAKERIES
- -----------------------------------------------------------------------------
REAL-TIME LOGISTICS
- -----------------------------------------------------------
o Complete visibility and control of delivery operations
o Improved customer service and efficiency
- -----------------------------------------------------------
SYMBOL PARTNER
- -----------------------------------------------------------
MICROLISE
- -----------------------------------------------------------
29
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ALBERT HEIJN - ENTERPRISE MOBILITY SOLUTION
- -----------------------------------------------------------------------------
ETOS [AIRBEAMSMART(R) LOGO
OMITTED]
------------------------
3200 PPT 2846
------------------------
------------------------
700 WIRELESS SWITCHES
1000 ACCESS PORTS
------------------------
- ------------------------
430 PPT 8846
- ------------------------
- ------------------------
349 ACCESS POINTS
- ------------------------
ALBERT HEIJN
30
[symbol LOGO OMITTED] Confidential
SYMBOL WINNING IN PUBLIC SAFETY
- -----------------------------------------------------------------------------
- ------------------------------------ ------------------------------------
MTA NYPD
- ------------------------------------ ------------------------------------
o Update debit account information o Traffic Summons Solution
o Track defective EZ pass stations
SYMBOL PARTNER DUNCAN
------------
150 PDT 8146 -------------
------------ 1500 PPT 2800
-------------
----------------
SPECTRUM 24
WIRELESS NETWORK
----------------
- ------------------------------------
LAPD
- ------------------------------------
o Pedestrian
o Traffic stop
o Citation reporting
--------------
SYMBOL PARTNER
VYTEK
--------------
-------------
1200 PDT 8146
-------------
31
[symbol LOGO OMITTED] Confidential
NEW REPORTED METRICS, Q3 & Q4
OUTLOOK AND GUIDANCE
- -----------------------------------------------------------------------------
[BARCHART]
Q4'02 Q1'03 Q2'03 Q3'03 Q4'03
Backlog-Curr Qtr 133 132 102 119 148
Gross Bookings 280 261 271 326
Product Revenue 291 303 289
NOTE:
Backlog - Current Quarter does NOT represent total backlog in aggregate, only
backlog scheduled to ship in the current quarter.
32
[symbol LOGO OMITTED] Confidential
THANK YOU
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
THE PHONE LINES ARE OPEN FOR QUESTIONS
- -----------------------------------------------------------------------------
- ---------------------
DIAL IN PHONE NUMBER:
1+(719) 457-2645
- ---------------------
33
[symbol LOGO OMITTED] Confidential
EXHIBIT 99.3
SYMBOL TECHNOLOGIES
Moderator: Mark Greenquist
10-08-03/4:00 p.m. CT
Confirmation # 610777
Operator: Good day, everyone. Thank you for holding, and welcome
to today's Symbol conference call. Today's call is
being recorded.
At this time for opening remarks and introductions, I
would like to turn the conference over the Mr. Mark
Greenquist. Please go ahead, Mark.
Mark Greenquist: Thank you. Thank you for joining us for
today's teleconference and online conference.
Some of you may be having difficulty locating the
presentation on our Web site. You should go to
www.symbol.com/investors. Then click on Webcast.
Then you should scroll down to the line Supporting
Materials and click on the words at the left - not
on the PDF icon - and hopefully that will - that
will help you that are having some difficulties.
OK. So, with us on the call today are Rich Bravman,
Symbol Vice-Chairman and CEO, and Bill Nuti,
President and COO.
The primary purpose of our call today is to bring
you up to date on Symbol's operating results and the
status of the Company's internal investigation.
We'll also provide you with some news of some key
customer wins as well as progress on our
organizational build-out. We have opened up the
conference line for two-and-a-half hours to allow us
to thoroughly explain to you this information and
also to allow ample time for Q&A.
Before we start, a brief disclaimer reflecting the
Safe Harbor Provision of the Private Securities
Litigation Reform Act of 1995. For those of you not
on WebEx, I'm now on slide two. Displayed on the
screen is the customary Safe Harbor Provision.
Beyond that, let me caution that the numbers that we
are providing on today's call and in today's news
release are unaudited. We believe, however, that
these reported results accurately reflect in all
material respects, the results that will be reported
in our 2002 Annual Report on form 10-K, as well as
forms 10-Q for the first and second quarters of this
year.
As you all aware, we have not filed our December 31,
2002, year-end results with the SEC, as we're
finalizing the document and our external auditors
are completing their audit. We are working extremely
hard with our external auditors to bring these
matters to a close as soon as possible. And upon
approval of the 10-K, as well as the 10-Qs, by
Symbol's Board of Directors, we will file them with
the Commission. However, at this point, we're not
in a position to provide a timetable for those
filings and until the audit is complete and the
documents are filed; these results are subject to
change.
Now, during the course of this conference call, we
may make projections or other forward-looking
statements regarding future events for the future
financial performance of the Company. Such
statements are just projections and actual events or
results may differ materially. Likewise, as we
previously disclosed and reiterate here, while we're
comfortable with the accuracy of the numbers we're
presenting today, these numbers are subject to
change as a result of the audit. Any forward-looking
statements are further qualified by risks and
uncertainties identified in filings Symbol makes
periodically with the SEC. Copies of our SEC filings
are available upon request, whereby accessing our
company Web site, www.symbol.com.
Now, I'll turn the mike over to Rich.
Rich Bravman: Thank you, Mark, and thank you all for joining
us. I'm now on slide three, the agenda. First this
afternoon, I'll cover the status of our internal
investigation and related matters. And I'll outline
for you, our progress toward our financial
restatement and briefly discuss some recent key
additions to our leadership team. Following my
update, Mark will come back with a drill-down on the
unaudited restated financials, both the restated
numbers for 1998 through 2002, as well as results
for this year's first and second quarters. Then,
Bill will provide detail on progress in our various
markets, updates on some Symbol products and
programs, several key customer wins and a look at
third quarter guidance. And of course, we'll open
the line for your questions.
While we believe that we are in the final stages in
the restatement process, it is not yet complete.
Nevertheless, we felt it important to hold this
conference now to give as much visibility as
possible to the current state of our business. We've
approached the investigation and restatement
processes with urgency and a commitment to
thoroughness and accuracy. Details of our efforts
will be included into my later remarks. I can assure
you, however, that during the time they've been
underway, the vast majority of the Company has been
focused on laying the organizational groundwork to
allow Symbol to scale for future growth. Planning
and developing innovative solutions for our
customers going forward and bringing new products to
market, and importantly booking orders for our
products and enterprise mobility solutions. Bill
will tell you about some of those wins today and in
this quarter and next, you can anticipate the
introduction of some exciting new products.
The earlier reported Securities and Exchange
Commission and Department of Justice investigations
are continuing, and will continue to provide updates
on the course of these investigations as events
warrant. My remarks today as well as those made by
Mark are intended to comprehensively cover what
we've learned as a result of our internal
investigation and restatement process. And I believe
we'll be able to answer all of your questions
regarding what happened, the restatement's causes,
and its impact on our numbers. However, as the SEC
and DOJ investigations are ongoing, we cannot and
will not discuss specific transactions or the role
of specific individuals in past inappropriate or
illegal activities, and we won't be able to
elaborate on those details in today's Q&A.
Now, on slide four. As this slide depicts, there
previously existed in the Company, an atmosphere and
culture that we believe allowed for and fostered a
working environment that ultimately lead to the
difficulties we're now working so hard to correct.
The admission of fraud by two former company
financial executives, underscores the serious nature
of the problems that existed at the Company. In
short, company executives during that time period
were overly aggressive in setting and sales earnings
growth targets, which lead to increase pressure to
achieve results and an exceedingly short-term focus.
In addition to this quarterly pressure, poor
integrity in the execution of accounting activities
and a range of operational deficiencies such as
poorly integrated processes and systems
infrastructure, combined to result in the
introduction of a wide array of errors and
irregularities in the Company's books and records.
A combination of these and other factors resulted in
a range of inappropriate activities in sales,
services, operations, and finance. In that period
and in that environment it seems, when the facts
didn't support the immediate objective the facts
were interpreted to achieve the desired outcome. And
during that timeframe, the environment was such that
individuals who may have spoken out against these
practices likely were ignored, overwhelmed, or
driven out of the Company by certain former senior
executives. There was a pattern of learned, bad
behavior in the ranks. This is what our work over
the past year-and-a-half discovered.
Now, let me turn to a brief description of how.
Slide five. Symbol learned in early 2001, that the
SEC was initiating an inquiry into the Company,
triggered by an anonymous letter they received
earlier. The Board ordered an investigation of
revenue recognition practices related to this
inquiry. We learned much later that as a result of
the apparently intentional actions of one or more
former company officers during this initial internal
investigation, it was rendered superficial and
ineffective and that the Board was mislead regarding
its conduct and findings.
Late in 2001, the Senior VP for Worldwide Sales
exited the Company. Later, in February of 2002, the
Board asked for and accepted the resignation of then
CEO and President, Tomo Razmilovic. I was appointed
President, Jerry Swartz reassumed the role of CEO,
and plans to recruit an executive partner for me was
set in motion by the Board. These efforts resulted
in Bill Nuti being appointed to the President - to
the post of President and COO in August 2002, and my
assumption of the duties of CEO and Vice-Chairman at
that same time.
Let's look back again to the first quarter of 2002,
when the Board hired a second external, independent
legal firm to undertake a complete and autonomous
investigation. They, in turn, brought on board a
forensic team from an external auditing firm to
assist that investigation. While this investigation
ultimately proved to be effective in revealing the
problems I summarized earlier, its early progress
was initially hindered by an apparent cover-up
effort by a former senior officer of the Company.
That officer and others were subsequently exited
from the Company.
As the second investigation progressed, we: fully
and extensively cooperated with the SEC and the U.S.
Attorney's office; accumulated the data toward the
eventual restatement of our financials and
simultaneously took steps to exit from the Company,
those individuals found responsible for
inappropriate activities; correct internal
procedures and methodologies; build a culture of
integrity; and lay down the processes and systems
infrastructure required to scale Symbol for growth.
Slide six. The investigation has been an enormous
undertaking, involving hundreds of people, tens of
thousands of hours of effort and tens of millions of
dollars of expense. Here you can see the scope of
the undertaking. The outside counsel conducted more
than 200 interviews with current and former
employees and hundreds of thousands of e-mails,
documents and invoices were examined. We reviewed
and evaluated Symbol's historical business with more
than 200 channel partners and examined and analyzed
tens of thousands of accounting entries, including a
substantial portion of the entries related to the
recognition of revenue and the booking and releasing
of reserves.
In specific accounts that the investigation had
flagged as problem areas and where prior management
had inappropriately applied its discretion and
judgment, we literally reconstructed activity in
those accounts entry by entry. It's been thorough
and yes it has taken considerably more time than any
of us would have imagined when it got underway 17
months ago. I regret that I did not fully anticipate
the extent to which this would be a process of
discovery, and that we've had to change our
estimates for completion of our work on several
occasions. I take full responsibility for this and
appreciate your patience.
Throughout this process we've endeavored to deal
aggressively with issues as they emerged, while
simultaneously working on a foundation for a strong
Symbol going forward. Let me assure you that the
Company's Board, the current leadership team and I
personally are very committed to setting this right.
Definitively putting the issues uncovered through
our investigation behind us and realizing the
potential that we know is inherent in Symbol.
Slide seven. During the last year, with the support
of the Board, Bill and I have been building out our
new leadership team with some key senior executives.
Most recently the additions of Phil Juliano as Chief
Marketing Officer. He joins us after seven years in
key marketing positions at IBM and a wealth of
experience in technology marketing. And Peter Lieb
as General Counsel. Peter joins us from
International Paper, a $25 billion company where he
was Deputy General Counsel and Chief Counsel for
Litigation. Earlier in his career he served as a
Federal prosecutor as well as a law clerk to Supreme
Court Chief Justice, Warren Burger.
His experience spans the facets of corporate
governance, intellectual property, (M&A) and both
criminal and civil litigation. This chart shows the
current, new leadership team that the Board and I
are extremely proud to have assembled here at
Symbol. Of the 14 key management positions shown
here, eight are occupied by executives recently
recruited to Symbol. These appointments have been
made not only with the immediate goal of corrective
action where required, but also with the objective
of today, building the Symbol that will take us
securely, confidently, proudly and profitably in to
the future.
In addition to building out the executive leads, in
the last 18 months, we've also significantly
supplemented the management ranks at the next level;
installed the fundamentally new management system
and planning process. Use them to create a
compelling new vision for Symbol's role as a leader
in enterprise mobility and to drive significant
gains in operational excellence and financial
performance. Installed a new go to market strategy,
anchored by a scalable, channel partnership program.
(Conceived) an initiated new technology and product
development programs aimed at realizing our vision
for end-to-end enterprise mobility. Made significant
gains in our supply chain performance. Restructured
our services for productivity and our global
products group a more responsive market facing model
and are articulated and drove a new culture focused
on integrity, excellence, innovation, commitment,
and customer success.
Beyond driving these strategic initiatives, we are
working with the Board to strengthen its structure,
membership, and procedures to effectively play its
crucial role in our future development and
governance.
Now, on to slide eight. Now, Mark will provide a
closer look a the pending restated financials as
well as results to date in 2003. Bare in mind that
this is the first occasion in which where reporting
the results reflecting the impact of the pending
restatement. Although the investigation was well
underway at the time of our last conference call
in April, the characterization of the Q1 results
discussed at that time didn't include any of the
impact of the pending restatement that you'll see
today.
That said, I'll turn it over to Mark.
Mark Greenquist: Thanks, Rich. And thanks again for all of you
for joining us today. As you might imagine, we've
had discussions at many levels around the decision
to report unaudited numbers. And because we believe
the transparency and frank disclosure are the right
way to go, we felt it was the right move in order to
help you understand the current state of the
business.
As Rich mentioned earlier, this restatement was a
process of discovery, and the more we peel back the
onion, the more the Company realized the
pervasiveness of the accounting issues that needed
to be addressed and rectified. With the advantage
now in hindsight, I can characterize the
restatement this way: first, we now understand that
Symbol's accounting issues were more pervasive and
reached further back into the Company's history than
originally thought. That said, while the issues were
extensive, they were nevertheless pretty
straightforward, mostly involving the acceleration
of revenue recognition and the deferral of costs and
expenses.
Second, because of the wide range, pervasiveness,
and long duration of the issues involved, the task
of unraveling everything was more complicated and
complex than originally thought.
And third, the task of investigating such a large
number of transactions over such a long period of
time, was further complicated by the fact that the
records hadn't been kept with the thought in mind
that someday we'd have to reconstruct and analyze,
end-to-end, all of these transactions.
Just to give you some perspective on the breadth of
the impact of our work to date, ultimately the
restatement process affected substantially all line
items of the Company's financial statements from
1998 through 2002.
Now, moving to slide nine. That being said, I can
essentially categorize the impact in to six key
areas of focus. They are revenue recognition,
inventory, accruals, reserves, and prepayments,
acquisitions and investments, restructuring, and
stock options. Let me take a moment to briefly
discuss each of those.
Number one is revenue recognition. The investigation
showed that the Company consistently recognized
revenue earlier than appropriate and recorded
erroneous revenue during the restatement period.
Restated numbers you're seeing today reflect the
proper recognition of revenue in accordance with
(SAB-101).
Second. The investigation uncovered numerous errors
and irregularities in the area of inventory,
including reserves for excess and obsolete
inventory. In order to correct these, we restated
(E&O) reserves using a consistent and objective
method, which has resulted in generally higher
levels of (E&O) reserves throughout the period
covered by the restatement. I should also note that
the inventory write-downs that were previously
recorded in the fourth quarter of 2000, as well as
the third quarter of 2001, had been reversed and
therefore don't appear in the restated numbers.
Third, accruals, reserves and prepayments are areas
of judgment where we found numerous problems. As
part of the restatement, we've reviewed all of these
areas and made appropriate changes to the previous
accounting.
Fourth, we found errors and irregularities related
to the accounting for the Company's various
acquisitions and investments. We've reviewed these
transactions one by one and, as part of the
restatement, made the appropriate changes.
Fifth. Restructurings. We encountered numerous
problems in the accounting for the Company's various
restructurings throughout the time period. As part
of the restatement, we've reviewed all of these
restructurings and made appropriate changes.
And lastly, the issue of stock options as reported
in our August 29th news release, we discovered
errors and irregularities in the omission,
administration of our executive stock option
program. These irregularities have triggered
variable or market-to-market accounting for a
certain portion of the options, which is reflected
in the restated numbers.
Now, before we jump right in to the full income
statement, we'd like to review some of the key line
items starting with revenue.
Now, moving to slide 10. As you can see on this
chart, during the five-year period 1998 through
2002, the Company generated just over six billion in
revenue. However, the restated revenue is
cumulatively 230 million less than previously
reported, with fiscal year 2000 being the most
troublesome period. In 2000, previously reported
revenue was $234 million higher than the restated
revenue.
There were a number of primary drivers to these
changes to revenue. First, we analyzed our service
revenue of the restatement period, and when we
applied (SAB-101), the recognition of that revenue,
we encountered many difficulties in determining if
persuasive evidence of an arrangement actually
existed. As a result, we've adopted a building
collected approach to recognizing service revenue,
which essentially means that revenue is not
recognized or deferred contract revenue does not
begin to amortize until cash has been collected from
the customer.
Second, as we analyzed and evaluated our channel
partners, we discovered that many didn't have
sufficient economic substance such that we would be
reasonably assured of payment. In short, they could
not pay for product acquired from Symbol without
reselling it to an end user. As such, for sales
through these channel partners, we have also adopted
a building collected approach to revenue
recognition, hence deferring the recognition of this
revenue until payment is received from the channel
partner.
Third. The sales through our distribution partners
here in North America, we've adopted a sales out
approach to revenue recognition. Going forward, we
intend to have all sales through distribution on a
sales out basis starting in 2004.
Fourth. There were numerous timing related
adjustments for items like extended payment terms,
(FOB) destination transactions, staging
transactions, as well as bill and hold transactions.
And finally, the other line represents adjustments
to revenue related reserves such as credit (member)
reserves as well as adjustments to correct for
inappropriate transactions such as the candy deals,
referred to in the SEC complaints or investment
related revenue transactions such as the air (click)
transaction, which was entered into in the second
half of 2000. As you can see, these sorts of
transactions were primarily concentrated in fiscal
year 2000.
Now, moving to slide 11. Now, let's turn to gross
margin. As you can see in this chart, in the
cumulative five-year period, the Company generated
just over two billion of gross margin. However the
restated gross margin is cumulatively 101 million
less than the previously reported gross margin.
There are four main causes for this reduction in
gross margin.
First, the retiming of more than 200 million of
revenue caused a 226 million reduction in gross
margin over the restatement period. The very high
flow through of revenue loss to gross margin is
explained by the relatively high margin impact from
the revenue losses in 1998 through 2000, only being
partially offset by the relatively low margin on the
revenue pick up in 2001 and 2002. Also as we
mentioned previously, we re-evaluated the level of
inventory reserves and generally increased inventory
reserves across the restatement period. As you can
see in this chart, these incremental charges for
inventory reserves adversely impacted gross margins
for most periods.
Offsetting the negative impact of revenue retiming
and inventory reserves, we have reversed the
amortization of previously capitalized engineering
expenses. In this regard, the Company had
inappropriately capitalized period engineering
expenses and then amortized those capitalized those
expenses through gross margin in later periods. The
reversal of this practice has a beneficial impact to
gross margin in every year of the restatement
period. As you'll see on the next slide, though,
there's an offsetting increase to operating expense
from this change.
Finally, as we also mentioned previously, we have
analyzed the accounting for the Company's previous
restructuring charges and we've made numerous
adjustments to the accounting for these charges.
Here you see the impact of those adjustments on
gross margin. A cumulative increase of $35 million
over the restatement period.
Now, moving to slide 12. Now, let's turn to
operating expenses. As you can see on this slide
during the five-year period, the Company incurred
just over two billion of operating expenses,
excluding the impact of variable accounting for
stock options, which I'll address on the next slide.
The restated operating expenses are cumulatively 237
million higher than the previously reported
expenses, which can be attributed primarily to three
factors.
First, as we discussed on the previous slide, the
effect of expensing of period engineering expenses
rather than capitalizing them and amortizing them in
later periods as a part of cost to sales. Second,
the impact from the adjustments made to the
accounting for the Company's previous restructuring
charges. And third, a number of other adjustments
that showed the highest impact in fiscal 2002, due
primarily to changes in the timing and amounts of
entries to accrual accounts.
I'm now moving to slide 13. Now, let's turn to the
full income statement. We've already discussed
revenue, gross margin, and operating expense in
detail. Below the operating expense line you can see
the impact of variable accounting on the stock
option program. To summarize, about 42 million
options representing roughly 52-percent of the total
of 81 million stock ops granted, are subject to
variable accounting during the restatement period.
In July 2002, variable accounting for options ceased
when irregularities in the administration of the
exercise of options was stopped. The cumulative
pretax charge to expense, during the period 1998
through July 31, `02, is $230 million.
One result of these changes to prior period
accounting is that restated earnings before taxes
were lower than previously reported in 1998 through
2000, and slightly higher than previously reported
pretax earnings in 2001 and 2002. However it should
be noted, that the 2001 and 2002 improvement was due
to the impact of stock option accounting. Excluding
that impact, restated earnings before taxes were
lower than previously reported numbers in each
period. Restated earnings after tax and EPS tracked
the same trend as the pretax numbers. That means
that excluding the swings caused by the stock option
accounting, the restated numbers are lower than the
previously reported numbers in each year, 1998
through 2002.
Now, moving to slide 14. Now, let's turn to the
impact of the (team) restatement on the balance
sheet. However before we get in to the full balance
sheet, let's look at the impact of receivables and
inventory. As you can see on this chart, restated
receivables are considerably lower than the
previously reported numbers, largely because of the
adoption of billing-collected accounting for certain
channel partners as well as for service revenue.
As a result, you also see a significant improvement
in (DSOs) in each period. The primary factor
impacting receivables was the retiming and reversal
of revenue. However partially offsetting revenue
related impacts was the reversal of a number of
balance sheet reclassifications that had been done
to give the appearance of lower receivable balances
and improved working capital performance. In
addition, other adjustments such as adjustments to
various reserve accounts also partially offset the
revenue related reductions to receivables.
Now, let's move to inventory. And that's slide 15.
Of note here, the restated inventory is lower in
1998, 1999, and 2002, but higher in 2002 and 2001.
In addition, you'll see that inventory turns have
improved versus the previously reported numbers in
`98 and `99, as well as 2002, but were worse in 2000
and 2001. The main, the two main drivers of these
changes are the reversal and retiming of revenue;
hence, product returning to inventory as well as the
adjustments made to inventory accounts in
particular, reserves for excess and obsolete
inventory.
Now, let's turn to slide 16; the full balance sheet.
As you can see on this slide, in addition to the
divergence between restated and previously reported
receivables and inventory, you'll note significant
changes in other current assets and other assets
with the differences primarily driven by changes in
deferred taxes resulting from the stock option
accounting change. Those are the major changes to
the asset side of the balance sheet.
On the other side of the balance sheet, restated
liabilities roughly, are roughly in line with
previously reported numbers. The main impact of the
pending restatement is seen in shareholders' equity
which, at the end of 2002, was 956 million,
representing a 255 million drop from the previously
reported 1.211 billion of shareholders' equity.
That's a greater drop than we had previously
expected; however, it's important to note that as
you'll see shortly, at the end of the June 2003
quarter, shareholders' equity returned to
approximately $1 billion in line with our prior
disclosures regarding the impact of the restatement.
Now, slide 17. I know that's a lot to absorb. We'll
be happy to answer your questions during the Q&A
period, and be aware that these charts are posted to
the Symbol investor relations Web site, so you can
go there to take a closer look at the `98 through
'02 numbers.
Now, we'll move on to results for the first and
second quarter of `03. These next few charts are
also posted on the investor Web site. Turning
to slide 18. First, let's take a moment to update Q1
2003 results and the impact of restatement on the
previously reported numbers. First quarter revenue
of 379 million is 22 million higher than the
previously reported 357 million, due primarily to
better collections of product revenue from channel
partners who are now on a billing collected basis.
In short, we collected more cash from and as a
result, recognized revenue deferred from prior
periods with these channel partners than we had sold
in to them in Q1, which was our prior revenue
recognition basis.
As restated, this represents a sequential seven
million or two-percent increase from Q4 `02, and a
year-over-year increase of $60 million or 19-percent
versus the year ago quarter. Primarily as a result
of this increase in revenue, gross margin - gross
margin increased 21 million to 160 million from the
previously reported gross margin of 139 million,
with sequential in year-over-year increases of 10
and $81 million respectively. Gross margins expanded
to 42.2-percent from 40.3-percent in the fourth
quarter of `02, and 24.8-percent in the first
quarter of `02.
Now, let's turn to operating expenses. Restated
operating expenses increased 5 million to 136
million from the previously reported 131 million.
The increase is due to the change in how we account
for engineering expenses. As we mentioned
previously, the Company is no longer capitalizing
period engineering (expenses), and subsequently
amortizing that capitalized engineering through cost
of sales in later periods. Of note, included in
operating expenses is 5.3 million of expense related
to the restatement activities in the first quarter.
As a result of these changes to previously reported
revenue, gross margin and operating expenses, net
earnings increased $13 million to $18 million from a
previously reported five million. And EPS increased
six cents to eight cents per share from a previously
reported two cents per share.
Now, we'll move to this year's second quarter
results and that's slide 19. Second quarter revenue
of 375 million was four million lower than Q1
revenue of 379 million. This sequential decrease was
driven by a 14 million reduction in product revenue,
partially offset by a 10 million increase in
services revenue. Driving these sequential changes
are lower collections from channel partners on a
bill and collected revenue basis, partially offset
by better sales out performance from distribution.
As you'll recall, the first quarter this year had
been a very strong collection quarter for channel
partners on a bill and collected basis. Also of
note, there was a year-over-year increase of 48
million or 15-percent with a $39 million or 16-
percent increase in product revenue and a $9 million
or 12-percent increase in services revenue. The
lower revenue drove a sequential decrease of six
million in gross margin to 154 million. Year-over-
year gross margin increased by $57 million. Gross
margin shrank one percentage point to 41.1-percent
from 42.2 in Q1 `03, but expanded more than 11
percentage points from 29.7-percent in Q2 `02.
Operating expenses in the quarter increased 10
million to 146 million from Q1 (outbacks) of 136
million. Driving the increase was 14.5 million of
expense related to restatement activities in Q2 `03,
an increase of about nine million from the Q1 `03
level of restatement expenses. This resulted in net
- in a net earnings decrease of $9 million - to $9
million from 18 million Q1 `03, and a decrease in
EPS of four cents to four cents per share from eight
cents per share in Q1.
Now, let's take a look at the `03 balance sheet, and
this is slide 20. Of note here is the Company's
continuing progress in managing receivables and
inventory, both of which trended lower during the
first half of the year. We ended the second quarter
with 124 million in receivables, representing (DSOs)
of 30 days and down from 153 million at year-end
`02. And we had 207 million in inventory, down from
261 million at the close of `02. Inventory turns
rose above four in the second quarter, continuing
the positive trend that we've seen over the last few
quarters.
On the liability side of the balance sheet, current
liabilities continued to drop in the second quarter
as a result of the further pay-down of bank debt. We
ended second quarter with about 15 million in bank
debt, but currently we have nothing drawn against
our bank credit facility.
Finally, as I stated earlier, shareholders' equity
at the end of Q2 was roughly $1 billion. In short,
Symbol's balance sheet is in excellent condition
with nearly 100 million of cash, debt at near zero,
reduced capital tied up in receivables and
inventory, and substantial shareholders' equity.
Before handing it over to Bill, let me comment
briefly on Symbol's financial performance from 1998
through the second quarter of `03. In light of the
breadth of the impact of the restatement as well as
the significant reduction in earnings, in the
restated numbers over 1998 through 2000, through,
1998 through 2002 period. Basically, the Company
made modest amounts of money in 1998 and 1999, and
then lost money in 2000, 2001 and 2002.
However, I don't believe that this happened, because
the Company's business model is flawed, rather this
was the result of some extraordinarily poor
operating decisions; mainly over-producing to meet
extremely aggressive sales targets and then trying
to mask that over production by stuffing the
channel. Absent that sort of behavior, we believe
that this can be an extremely successful company.
You can see this in the improving financial
performance over the past few quarters, as Rich,
Bill and team have implemented our management
system, bringing improved rigor and discipline to
the operations of the Company and moving closer to
our goal of operational excellence.
In addition, I personally believe that we've made
significant changes to the culture and environment
here at Symbol that will ensure a high degree of
integrity and reliability in our financial numbers
going forward. We're looking forward to providing
you regular updates on our progress toward
operational excellence and its positive impact on
the performance and financial results of the
Company.
With that, I'll turn things over to Bill, who will
provide commentary on the current state of Symbol's
business. Bill.
Bill Nuti: Thank you, Mark. We're on slide 21. On the back end
of what has been an improved operational performance
by the Symbol team, let me extend our sincerest
thanks and appreciate to all Symbol associates
worldwide for their hard work, dedication, and
results over the past year. Our company has been
faced with tough internal and external challenges
yet, has made solid organizational, cultural and
operational progress.
Today, I'll provide some texture and color on the
business from a geographic and product mix
perspective, a status report on the progress we're
making at transforming our services organization
into a world-class operation, and an update on the
implementation and roll-out of our channel program,
PartnerSelect. Additionally, I'll introduce some of
our newer products, discuss significant customer
wins, and close with guidance.
Throughout today's talk, I will also make reference
to Q3 bookings performance so as to provide further
clarity on business trends. You'll notice that we've
not included information about our vertical market
and application area splits in today's presentation.
We'll return to vertical and application reporting
when we have greater confidence in the accuracy of
our sales out data, most likely in the second half
of 2004.
I'm now on slide 22. This chart shows first and
second quarter revenue split by geographic theatre.
Quarter to quarter we saw revenue growth in the
Americas expand slightly to 65-percent of sales from
64-percent.
The drivers were our core retail business as well as
strong OEM sales. The Americas, which has been
challenged to the lackluster macroeconomic
conditions and a weak business investment
environment, experienced solid sequential bookings
growth in Q3. Improved earnings, a moderate upswing
in IT investment, and a management system discipline
we have instilled throughout the Americas has had a
positive impact on sales velocity. But more
importantly, the quality of our bookings and
backlog.
Asia Pacific also saw improved performance as
revenue grew to eight-percent of Q2 sales from
seven-percent in Q1. Of particular note is the trend
of our business in Japan; a traditionally
challenging market for Symbol. There we experienced
roughly 15-percent sequential revenue growth; almost
50-percent year-over-year growth and good bookings
velocity in to Q3. The counter trend was EMEA, where
revenue declined to 27-percent of total in Q2, down
from 29-percent in Q1.
In Europe, Q2 sales were impacted by necessary and
important operational changes. In particular, the
full implementation of our management system as well
as significant changes in organization; particularly
sales leadership, finance, and channel management.
We expect that the re-building of our EMEA
leadership team combined with the full
implementation of our management system and focus on
our growth strategy will yield improved results in
the coming quarters. Although there is more work to
be done in EMEA, we look forward to reporting on our
progress in the future.
I'm now on slide 23. This chart, depicting a simple
revenue breakdown by major product area, illustrates
a relatively consistent sequential product mix.
However, our wireless networking business unit did
experience a solid quarter-over-quarter revenue
growth in Q2, expanding to 11-percent of total
revenue from nine-percent in Q1. As discussed on
previous calls, our award winning wireless switching
system has been selected by several Fortune 500
companies as their wireless networking standard,
particularly when rolling out enterprise mobility
applications or when they need to support
(portability) and mobility are key decision factors.
As wireless switching continues to mature, it is
quickly being adopted by many of our customers over
that of earlier generation wireless technologies
such as traditional access points.
Q2 saw a relatively flat, sequential quarter out of
our advanced data capture business unit, which
combines our scanning and scan engine businesses. As
you can see on this slide, scanning was down a bit
as a percent of sales due to new product transition
within the line of discreet scanner products.
However, it was offset by an uptick in our scan
engine OEM business.
Mobile computing, the largest of our three core
businesses, also experienced a flat, sequential
revenue performance in Q2. Revenue in mobile
computing represented 59-percent of Q2 revenue
basically unchanged from 60-percent in Q1. Q2 along
with our most recent quarter Q3, were also product
transition quarters for Symbol and our mobile
computing business unit. We experienced several
product transitions across our key platforms, while
also completing the beta testing process on our
newest mobile computing system, code name Gemini.
Gemini announced publicly on Monday as our new
MC9000-G product line is a groundbreaking product in
the world of enterprise mobility. I'll talk more
about this product later on in my presentation.
We're now moving to slide 24. We as a company are
committed to bringing the services area of our
business up to world-class status. Key to this
effort was the addition of Art O'Donnell, a 20-year
veteran services management to our senior leadership
team. In the three months that Art has been on
board, he's already had a positive impact. In
particular, he's addressing the transition issue
that emerged in the move of our repair/depot center
from Chicago to Mexico, as well as shoring up our
help desk and technical assistance call centers.
This chart indicates some of the progress as well as
challenges and corrective actions that we faced
and/or have aggressively underway as we speak to
drive greater customer satisfaction and
correspondingly increase the effectiveness of this
sector of the business, and to boost its revenue and
profit contribution. As you saw in Mark's slides,
the services contribution was up both sequentially
and year-on-year. However, we're still not happy
with the services attach rates and we're tackling
that from several angles. It is also important to
note, that most of the progress in services revenue
we are reporting is due to the retiming of revenue
based on the restatement impact not improved core
services performance.
While services realized a top line improvement,
service margins are also starting to benefit from
cost savings related to repair/depot consolidation
and the opening last month of our new centralized,
international repair center in the Czech Republic.
Over time, the restructuring work we will continue
to do in services, coupled with the introduction of
new services products and much improved attach
rates, should provide us with an opportunity to
enhance customer satisfaction, unlock trapped value,
and expand overall revenue growth.
Now, a quick snapshot of progress in our
PartnerSelect program introduced during Q2 in the
Americas and EMEA with the Asia Pacific rollout set
for 2004. We're now going to slide 25. PartnerSelect
is going well. We are pleased with the uptake of
qualified partners, the reaction of our end users to
our program, the excitement of our authorized
partners, and the effect our channel policies are
having on selecting quality partners. The count as
of last month was more than 5,000 partners approved
in to the program, including solutions providers,
business partners, and authorized resellers. A
positive for Symbol customers, the new channel
authorization and certification programs have
resulted in slightly fewer but more committed and
technically capable partners. And because of our new
channel policies, our two-tier distributors are
reporting increased Symbol revenues.
As we've really just implemented this new channel
strategy in the first half of 2003, it's too early
to see its impact on sales. However, preliminary
indications from sales out numbers for July and
August, show an improving trend and give us
increased confidence that our high-touch, (channel-
centric) approach is starting to gain traction. In
addition, we have made good progress toward managing
inventory in the channel, where inventories in two-
tiered distribution are down roughly 30-percent
since year-end 2002 and feel that we are approaching
optimal inventory balances in two-tier distribution.
We feel that progress such as this combined with
improving sales out data, demonstrates that the
program is starting to show solid improvement and
tangible benefits.
Lastly, it important to reemphasize that we are in
the early stages of PartnerSelect and although we
are pleased with our progress to date, we know that
it will require diligence to make it successful.
That said, building a healthy, vibrant channel
requires talented people and we certainly have that
in our new leader of global channels, (Jan Burton).
It also requires courage. The guts to say no to
certain channels who do not meet our criteria for
authorization. You'll inevitably hear from both
constituents as this program matures. In the course
of building a disciplined, high-quality channel, the
loudest voices will probably be of the latter group
versus those that are most satisfied.
We're now moving to slide number 26. Before I get in
to some recent customer wins, I'd like to comment on
this week's product announcement, a follow-on to
significant product launches earlier in the year and
in the vanguard of a number of new products this
quarter and next, that are setting the stage for our
enterprise mobility systems and solutions growth in
the future.
Here from the top left, is what we call the
Information Station; the MK 2000 Micro Kiosk,
capable not only of scanning, but also ready to
display interactive, full color video and audio
messages. This product is useful for the many
burgeoning CRM applications going in to the retail
space; CRM being customer relationship management.
And top right, is the (LS2208), introduced in March
incorporating a range of new design ideas, the
(LS2208) is the price performance leader in the
scanning market today. It's already enjoying strong
customer acceptance and is ramping nicely in unit
volume.
At lower right is the compact LS9208 Omni
Directional Scanner which, because of its high
performance decode capability, increases
productivity at check out. The LS9208 is our product
line replacement for the popular (LS9100), the de
facto standard in the projection scanning category
for almost 10 years. The LS9208s greatly enhanced
features and performance make it a winner. In May,
we announced the introduction of advanced imaging
and voice-over Wi-Fi in the PDT 8100 XScale, ideal
for data capture, data management and communications
and the growing enterprise mobility workforce. The
PDT 8100, a force in our enterprise mobility lineup
of mobile computing products, is ramping well and
achieved solid revenue growth in the latest quarter,
Q3.
That brings us to today. We're now on slide 27. This
week, Symbol introduced the MC9000-G, an advanced,
ruggedized mobile computer that enables plug-in-play
customization and convenient expandability for
greater customer satisfaction. The MC9000 feature
(range) re-sets the bar in the industry. The
modularity is customer, developer, and supply chain
friendly. The ruggedization reflects the long
lifecycle customers expect. The battery performance
in unparalleled. The display is bigger and brighter,
and it ships as a full system, including software,
accessories and options.
The MC9000 is designed around an innovative
standards-based modular platform that is important
for two reasons; it lets customers select feature
sets for the specific tactical and strategic supply
chain application needs, and it provides our
customers with an investment protection technology
foundation for future solution sets from Symbol. Of
particular note is that the MC9000 has been in pilot
with a number of customers. In the UK, both Royal
Mail and leading food retailer Waitrose and, here in
the states, (HEB), one of the largest independently
owned food retailers.
Early response from customers has been very positive
with (HEB's Shawn Sedate), Vice-President of the
Company's supply chain systems commenting, "We
selected the Symbol MC9000-G due to its multiple
configurations and support of a wide variety of
application architectures that make deploying it
enterprise wide much easier than other products. We
will be ramping up production of the MC9000 next
month, and will keep you posted on its progress."
Now, some highlights of a few customer wins in the
last few months. We're moving to slide 28. As we've
discussed on previous calls, expanding our wireless
(land) infrastructure business is an important
objective for Symbol. On our April call, we had said
three of the top ten U.S. retailers were beginning
to deploy our wireless switch. One such noteworthy
deployment here in the U.S. is J.C. Penny. With more
than 1,000 department stores coast to coast, J.C.
Penny is standardizing on the Symbol wireless switch
for in-store enterprise mobility applications.
We're moving to slide 29. Another area of focus that
we've discussed previously is the whole area of
mobile, customer relationship management, which
includes route accounting, sales force automation,
and field service automation. Here's an example of
the progress we're making in that business. In the
UK, Allied Bakeries, where, with our partner
(Microlize), we're rolling out a real time logistic
solution covering its nearly 1000 vehicle fleet
operating from 21 bakeries and distribution centers.
Slide number 30. (Albert Hine), the Dutch-based
retailer has standardized on a Symbol end-to-end
enterprise mobility solution. (Albert Hine) is
deploying the unique value added combination of our
Symbol wireless switch and our mobile computers for
roll-out in both his (Albert Hine) food stores,
which comprises 700 locations, and (ATOS), a chain
of 430 health and beauty care stores. The two chains
in aggregate are installing: 700 Symbol wireless
switches; more than 1,300 access ports and access
points and 3,600 of our mobile computers; both the
PPT 8800 and the PPT 2800. This is a great example
of how we're transforming Symbol into a provider of
end-to-end solutions instead of just a seller of
discreet devices.
Slide 31. Another key emerging vertical that we've
discussed previously and have targeted as a vertical
area of focus going forward is government. In our
state and local government vertical, we've logged
bi-coastal wins in Los Angeles and New York City.
The Los Angeles police department is providing
Symbol PDT 8100 handheld computers to its officers
to automate and improve the accuracy of pedestrian
stop, traffic stop, and citation reporting
applications. Symbol worked with channel partner
(Vi-tech) to develop the applications and deploy the
solution.
You'll see the press release announcing this
tomorrow. And here in New York, the Metropolitan
Transit Authority is using the Symbol PDT 8100
mobile computer at bridge and tunnel toll plazas.
When a vehicle is stopped at a toll plaza, because
of a defective E-ZPass, an MTA officer armed with
our handheld, is able to scan the E-ZPass and record
the information to the city's system so that the
driver's account can be debited and the defective E-
ZPass replaced. And the system paid for itself in
less than a year of deployment.
You may also have heard the recent news that New
York City is deploying our mobile computers to
decrease errors associated with issuing parking
violations. It's estimated that the Symbol solution
will help the city recoup 17 million of lost revenue
because of errors associated with handwritten
citations. New York City Mayor Michael Bloomberg
told "The New York Times" that this would help solve
a 20-year old problem. "When parking agents make a
mistake, we bill the wrong people and a lot of fines
never get collected. Using the technology is an idea
whose time has come. Finally, I think we got it
right."
We're now on to slide 32. I'll close with guidance
today. A look at a few new metrics we plan to share
with you on an ongoing basis and a perspective on
our initial guidance, FY `03 guidance of 15 to 20-
percent revenue growth against the previously
reported 2002 revenue of 1.32 billion. Before I get
in to guidance, let me explain the chart in front of
you. The first bar in red, illustrates product
backlog scheduled for the current quarter on the
first day of the quarter.
Let me go off script here for a moment. I just want
to be clear, that you understand that, that is not
total backlog, it just is product backlog scheduled
for the current quarter on the first day of the
quarter. The second blue colored bar shows gross
product bookings for the quarter and the third,
yellow colored bar illustrates product revenue for
the quarter. Net-net, we are going to provide to you
each quarter, with our income in current quarter
backlog as well as our previous quarter bookings.
As you can see from the chart, product revenues have
been out-pacing product bookings for the past three
quarters. Going forward our goal will be to generate
product bookings at or above the level of product
revenues for the purposes of building backlog and
deriving the subsequent operational and financial
benefits of backlog visibility.
In contrast to Q2, you can see that Q3 bookings
growth of 20-percent over Q2 afforded us the
opportunity to build a Q4 opening backlog of
approximately $148 million, scheduled for Q4
shipment, which is $29 million of improvement over
the opening Q3 backlog of 119 million; $46 million
larger than our Q2 opening backlog of 102 million
and $15 million larger than our Q4 `02 opening
backlog of 133 million. Opening quarter backlog only
tells some of the story as to the underlying product
revenue performance of our company.
You'll note that a significant portion of our
quarterly revenue represents same quarter sales
turns in a range of 50 to 65-percent in any given
quarter. This represents both a risk as well as
additional supply chain challenges. More
importantly, as you work on your financial models,
it will be important to understand that the
relationship of incoming backlog, quarterly sales
turns, and linearity of bookings all play an
integral role in our overall revenue performance.
For example, it would not be appropriate to expect
Q3 revenues to be 20-percent over Q2 simply because
Q3 bookings were up 20-percent sequentially. That
said, you can now better appreciate our focus on
backlog growth and visibility to our revenue
pipeline.
Fiscal 2003 guidance needs to be adjusted based on
our restated 2002 revenue results versus the
previously reported 2002 results. Without all of the
changes required as a result of the restatement, we
most likely would have achieved 12 to 13-percent
year-over-year revenue growth, versus our 15 to 20-
percent guidance against the previously reported
2002 revenue of 1.32 billion. However, against our
restated fiscal year 2002 revenue performance of
1.398 billion, we now anticipate year-over-year 2003
revenue growth of approximately 10-percent. As is
always the case, our guidance may not be a predictor
of the actual results that we may achieve. Thank
you.
We'll come back to you in a few weeks to give more
detail around our Q3 performance. And thanks for
joining us today. We'll now open up the lines for
questions.
Operator, are you there? Do we have any questions?
Operator: I am here. Absolutely. If anyone would like to ask a
question today, you may do so by pressing the star
key followed by the digit one on your telephone
keypad. At this time, we will only be taking
questions through the phone lines. Any questions
submitted through WebEx will not be answered at this
time. Again if you do have a question that you would
like an immediate response to, please press star one
now.
And your first question comes from Peter Barry with
Bear Stearns.
Male: Hey, Peter.
Peter Barry: I have one very brief question and given your
assessment of the restatements as much as you've
been able to do that to date, are you able to
measure Symbol's real earning power and specifically
we know that in the best of times the Company was
able to earn an operating margin in the neighborhood
of 15-percent, which I think is still a long, or was
a long-term objective. Could you speak to those
elements and are you able to unequivocally say this
company has the capacity to generate margins that
are in that neighborhood?
Bill Nuti: Peter, this is Bill. First of all, good to hear
your voice, Peter. Let me give you a perspective
based on the business model that we have provided to
you in previous quarters, which we are very
comfortable with going forward. However I want to
give you a perspective on that because with the
termination of both amortization and consequently
capitalized engineering, the business model that we
described, Rich and I previously, of 45-percent
gross margins, 30-percent operating expenses and 15-
percent operating margins changed.
They changed by about 1.5-percent in either
direction, so the new model would like 46.5-percent
gross margins, 31.5-percent operating expenses, and
the same 15 in terms of operating margins. Both Rich
and I and Mark feel strongly that, that we can
achieve that model now. In doing so, we think there
is a bit more upside, probably more on gross margin
and less so on operating expenses in the short-term.
However longer term, we remain committed to the 15-
percent operating margins that we did describe
earlier. So, that should give you a sense for the
earnings power of the Company that we see longer
term.
Rich Bravman: And Peter, I think - this is Rich. I think if
you look year-over-year at the progress made going
in to Q1 and Q2 from the prior year periods, I think
you see strongly trending direction that indicates
progress against achievement of that model.
Peter Barry: And just one final one for me. Do you expect that
audit and legal fees of the order of magnitude in Q2
will continue in Q3 and perhaps Q4 as well?
Mark Greenquist: Peter, it's Mark. I don't think that they'll
run at the same level as Q2, but they're going to be
substantial.
Peter Barry: Likely to end by year-end, do you think, Mark?
Mark Greenquist: I think as soon as we can wrap up the audit
and get the you know, get current with the filings
with the SEC then they should tail off very quickly.
Peter Barry: And any specific date on Q3 results?
Mark Greenquist: I don't - we don't have a specific date yet,
but I'd like to think that we could come back in
three or four weeks and be able to give you those
results. So, you know, the intention here is to get
back on, you know, the regular earnings release in
line with the time that we've normally been doing it
after the close of a quarter.
Peter Barry: Thank you all for a very comprehensive job.
Male: Thank you Peter.
Male: Thanks, Peter.
Operator: We'll move to Arindam Basu with Morgan Stanley.
Male: Hey, Arindam.
Arindam Basu: Hi, guys. I have one question for Mark and one
for Bill. Mark, once the filings are - once the
filings are completed, your access to lines of
credit will increase, but then they'll be expiring
in January correct? And they'll have to be
renegotiated. I'm trying to assess or get a sense of
how you guys have assessed how that's going to
impact your interest expenses as far as you can tell
given the types of financing opportunities you're
seeing these days.
Mark Greenquist: Well, first of all you know, with regard to
the interest expense line, keep in mind that we
don't currently have any, any drawings against the
facilities, so that should help interest expense.
And then we've recently reduced the size of the
facility and in conjunction with the banks and that
helps the amount of undrawn fees that we're paying.
Although, I think in the greater scheme of things,
those are extremely minor numbers. I would like to
renew the credit facility, which I think should be
very doable going in to next year. But you know, if
we continue to operate like we're operating, and
generating cash then I don't expect that you know,
you're going to see a big increase in borrowings and
hence interest expense. So, the lines will be redone
to give the Company access to liquidity, but that
doesn't necessarily mean that they're going to be
drawn and as such you know, have us incur interest
expense.
Arindam Basu: Right. And just in general, do you think that
terms of future lines of credit are going to be
easier or harder than your current lines?
Mark Greenquist: Well, I mean, since - from the time that that
line was actually negotiated just terms in the bank,
market generally have become more expensive. So, I'm
assuming that that'll be the case here, but I don't
think that's going to be as a result of anything
specific to the Company. I think that's going to be
driven more by just conditions in the bank credit
markets.
Arindam Basu: OK, got it. The second question. Bill, I was a
little confused about the products on the
application side being difficult to define right
now, because I'm trying to figure out how you guys
are going to do planning on the service - services
side and obviously on the production side as well if
the customer applications will pull through isn't
clearly definable for a year from now. So, could you
kind of talk a little bit about the process for you
know, scaling and focusing on the service side when
you're still in this channel flux issue when the
customer applications aren't so clear.
Bill Nuti: So, Arindam, let me answer it this way. First,
we're going to be moving to 100-percent sales out
throughout the course of 2004 through the channel
and in doing so, we're going to get very good, high
quality data out of the channel with respect to
vertical markets, in terms of where our product is
being placed in the market. And today, we decided
that we were going to not provide vertical market
in to our applications data, although it's good
trending information, it is not to the level of
specificity we think will help either you or us
internally manage towards that goal. Over time, we
will be getting more of the sales out information in
`04. We hope to begin to see early indications of
that in Q1, but it's more likely a Q2 deliverable.
That has little to no bearing, however, on the
services business, and what we're doing on the
services side of the Company.
When we talk about services, we talk about two real
main factors. First is the repair/depot services
which are, is day (to) support. And then, of course,
the help desk function, which is a combination of
help desk and technical assistance center. Today, we
have fairly basic services products that we offer
our customers. But we are working on new products
and services, advanced services if you will, that
when added to the current offerings, will provide us
both with an opportunity to drive appreciable
financial success we hope in the future, but more
importantly greater customer satisfaction out of the
services business. We don't count on vertical
information today or application information today
as it relates to the channel to really drive the
services business.
Am I missing a piece of your question there,
Arindam?
Arindam Basu: Well, you know, actually I was referring to the
second part of the strategy where you're kind of
going to get in to more of a hand-holding
consultative approach with customers, and you know,
that's going to require some knowledge of the
application mix.
Bill Nuti: Got it.
Arindam Basu: So, you could kind of go in to those customers
and say, you know, I have idea A, B and C, and I can
point out you know, let's say, you know, (DS), (GHL)
or J.C. Penny...
Bill Nuti: Sure.
Arindam Basu:... or this European grocery company as an
example of somebody that's going to have similar
needs as yours, and this is what we did for them on
a customized level.
Bill Nuti: So, first, before we make the decision to get in
to, if you will the consulting business or that
aspect of services, that's a fairly significant
business model change for the Company and we have to
consider the fact that we also have partners in that
business who are very successful and do a wonderful
job for our company in that space.
So, we're not going to be competing with our
partners. However, to your point, the one thing we
will be doing is looking at advanced services that
are more tailored by vertical market to the needs of
vertical customers, and that's exactly what we're
working on right now, which we hope to roll out in
some form in 2004. However, I would not be surprised
if you don't see any of those new tailored products
until 2005. By that time, we will have been well
down the track of sales out and the information that
we need to more target that audience.
Rich Bravman: Right. And just one last point (there), Arindam,
this is Rich. The information that we have
internally does include of course, good drill down
domain knowledge and information available real time
from the result of our business activities in each
one of our verticals. The reason that we held back
this time on providing information is because of our
concern that it statistically may not be meaningful;
it might in fact be deceptive because it's built off
of a base of incomplete reporting through our
channel on the one hand. And on the other hand,
since we're now talking about numbers on a restated
basis, the restatement is done in a way that doesn't
- that doesn't always flow through the previous
coding of application and vertical data. So, we were
concerned that we might present a distorting view,
and rather than do that, we decided to hold off
until we're confident that a trend line and a set of
data points can be presented that is truly
meaningful. But in terms of having the information
internally to drive our business, we feel very
confident we have that.
Arindam Basu: OK. Well, Rich, if you could put that on a
floppy and drop that in the mail to me, I'd really
appreciate it.
Rich Bravman: No problem.
Arindam Basu: Thanks a lot guys. I really appreciate it.
Male: Thank you, Arindam.
Operator: Paul Coster with J.P. Morgan.
Paul Coster: Just a quick question - it's for Mark - if I may.
You previously talked about exiting 2004 with an
operating expense base of under 130 million or
thereabouts. Is that still an objective?
Mark Greenquist: Well, Paul, we're currently putting together
the 2004 plan, as Bill mentioned, with the
accounting or engineering expense different, you
know, being done differently now. To be honest, I'm
not sure that that really is, you know, doable. And
I'm not even sure that it's wise to be honest with
you, and I think we'll be coming back once we do the
2003 year-end earnings. And I think by then we'll
have our `04 plan done, and I think we're going to
give you a much better view as to exactly what we
believe the right mix is, is, you know, between
growing revenue and maybe having incur some
incremental expense there versus you know, perhaps,
you know, holding back on expense. So, I really
can't answer your question right now, is the short
way to put it.
Male: Paul, just to further set expectations. Our practice
will be to at the beginning of each year, at the
appropriate point, provide guidance for that coming
year, with regard to a range of bottom line (VS)
numbers and a range of top-line growth. And to the
extent that there would be an appropriate need to
change the guidance that Bill spoke to a moment ago,
with regard to the long-term income statement model,
we would do so at that time.
Male: I'd just add, though, Paul, that I mean you've got a
group of people here that are very focused on
improving operating margins and getting to that 15-
percent operating margin model. Now, if we don't do
it exactly as we said before, you know, I'm not
particularly troubled by that. And that's basically
you know, what the shareholders pay us for, is to
make those decisions as to, you know, what the right
balance is and, you know, when we need to step on
the brake a bit and when we should be stepping on
the gas.
Paul Coster: OK. Where do we stand in terms of the
restructuring costs and the restructuring activity?
Can you give us some sense of sort of what
percentage you've completion, where we stand at in
2003? I believe that the costs were going to extend
all the way through the year, originally.
Mark Greenquist: And I don't have really an update
specifically on what the restructuring costs are
likely to be through the remainder of the year, but
I do think that there will be some. Because as Bill
mentioned in his talk, we're opening up a new
service center over in Europe in the Czech Republic,
and that will cause us to do some restructuring over
there. And we'll likely, you know, have us incurring
some restructuring charges. I think though that that
right now if I think about the timing, is probably
going to be more back loaded; any charges will -
back loaded in the year, would be in the fourth
quarter as opposed to hitting the third quarter.
Rich Bravman: Yes, Paul. In terms of restructuring activities,
they're ongoing in our global services organization.
They're ongoing in global sales, referencing Mark's
point on EMEA, and those are really the two
organizations that we're focused on from a total
restructuring perspective. And you're likely to see
that move in to first calendar quarter of `04 as
well, particularly in EMEA on the sales side of the
house. But as Mark said, we'll get a lot more detail
to you on the coming call when we can drill down on
Q3.
Paul Coster: But relative to where you plan to be by this
stage in the year, do you feel like you're on track?
Male: Yes. We're very much on track. And if I had to put it in
percentage terms of you, Paul, I'd say we're
probably 40-percent through, 100-percent planned.
Paul Coster: OK. Last question, which is on the litigation
front. In terms of shareholder lawsuits, do you -
have you made any provisions for them and do you see
any implications from the restatement as thus far
articulated in terms of the impact that it has on
them?
Male: Well, no, Paul. So, first, with regard to your first
question, we've not made provisions. It is not
possible to estimate what provisions would be
required and so it's not appropriate to take such
provisions at this time. That's the same - as we've
reflected in our earlier comments, remains true
today.
With regard to what impact our disclosures today
will have on that, I think you can look at it as a
step forward towards closure of the process and
create the situation within which we can bring that
matter; the class action suit to a close at the
earliest possible point. This was clearly a required
step along the way, and we feel good in having taken
it today.
Paul Coster: OK. Thanks very much.
Male: You're welcome. Thank you.
Operator: And next we'll go to Jeff Kessler with Lehman
Brothers.
Jeff Kessler: Thank you. A couple questions. First, could you
just fill us in again, perhaps (elucidate) a little
bit on the revenue growth guidance that you gave. I
realize that you're talking about on restated base
of 2002 of 10-percent. I understand that. Why are
you reducing previous guidance from, we'll call the
15-percent area, down to the 12 to 13-percent area
for 2003 guidance, pre a restatement of 2002?
Male: So, Jeff, one thing you'll notice is in each of the
quarters, both Q1 and Q2, restatement impact on
revenues was approximately 32 million, I believe, at
the end of the second half. So...
Male: The first half.
Male: I'm sorry, the first half. What we did not want to do is
include any of the restatement impact in terms of
revenue timing with respect to the guidance that we
gave you earlier in the year, which was off of the
$1.32 billion base...
Jeff Kessler: Right.
Male: And so, we just wanted to tell you the facts as they
are.
Jeff Kessler: OK. The second is, you gave a presentation; a
good one of the various, some of the various new
products and the markets that these products are
going serve. Noticing that a number of these are in
non-retail, we'll call them even non-logistics
areas. In fact, some areas would be considered
manufacturing, some areas could, particularly the
public safety area, perhaps other - without going
into specifically what these new vertical market
percentages may look like, because you're obviously
not going to do that at this point, until you get a
better trend line. It seems to me that there is a
trend to get some of these non - a bigger percentage
of your business looking forward, looks to be in
some of these non-traditional Symbol areas; areas
that you would normally have categorized as either
other or perhaps manufacturing.
Male: Yes, that's true, Jeff. So, if my - if our Senior Vice-
President of Worldwide Sales were here, Todd Abbott,
I'm sure he would be explicit in telling you that
we're very focused on six key vertical markets, and
getting coverage in those six key vertical markets
and in the future, penetrating them to the same
extent that we have in retail. They are retail,
manufacturing, warehouse and distribution,
healthcare, government - and I'm missing one more,
Rich. Transportation.
Rich Bravman: Transportation.
Male: Transportation.
Male: And so, that is where the current focus in from a
vertical market point of view. And your point is
correct. We are getting greater focus in those
vertical markets. We are winning in vertical markets
outside of retail, but what's important for you to
really understand is that as part of our five-phase
growth strategy that Rich and I, I think, presented
to you all two to three quarters ago, this was one
of the items we told you we were going to focus on.
We have focused on it, and our worldwide sales team
is executing extremely well.
On the flip side of that. If you take a look at what
we're doing in PartnerSelect, our channel program,
we're now aligning our channels by vertical market
to get greater penetration by geography so that we
can get greater thrust, not just in to the tier-one
space of each one of these verticals, but tier-two
and tier-three, which would largely be served
through distribution. So, we have had some greater
success in sales in other vertical markets,
particularly government and healthcare. And as part
of our five-phase plan, you're going to hopefully
see a better balance over the longer term in to
those six key vertical markets that we're focused on
today.
Jeff Kessler: OK. One final question. That is, there have been
a number of perhaps articles out there about
competition in your older space; we'll call it the,
perhaps the lower margin scanner based retail
business. Competition from some other, from
obviously your, the most well known companies,
perhaps taking advantage of the dislocations in the
PartnerSelect program as they originally started.
Can you talk about where you are in your we'll call
it, (course) older scanner business and whether or
not you have perhaps taken back some share that you
may have lost earlier on the beginning of the
program?
Rich Bravman: Yes. Jeff, this is Rich. We think we're well
positioned with regard to what you heard described
earlier as our advanced data capture segment, which
incorporates the scanning segments that - you know,
from earlier reports. The 2208 product that Bill
described in his remarks, we think, in particular,
is very strongly positioned to allow us to go after
the lower end of the market. It's a great entry-
level product. It has really tremendous performance
and a great, great price point. Really a
breakthrough price point for the kind of performance
that's there. Combined with the channel program that
Bill described, I think it ideally positions to go
back and get that share and it's something that is
another one of our key growth initiatives, which is
to use our channel, the growing channel share to
grow the revenue base of the business.
And further, I would just add kind of connecting to
your earlier question, that while we are very
pleased to see that our plans to build growth in
additional markets are baring fruit, you shouldn't
under estimate the growth potential left in our most
core markets; in retailing, transportation, and
logistics. There are, we believe very strong
opportunities remaining there. You noted the roll
out of our wireless switch product by J.C. Penny.
There are numerous other opportunities that we could
talk about in the same vein that are happening real
time in retail and the other traditional core
markets, and I just didn't want to leave this
impression that we're shifting away from them in any
way whatsoever.
Male: Yes. Jeff, the only other remark I'd make on that is we
hope to show you or give you some progress report on
scanning on our scanning (BU). In the upcoming Q3
call, we did see in Q3, I think, good velocity in
that space.
Jeff Kessler: OK. One quick, final question. When are you
going to be - I know you said that when you're able
to talk about PartnerSelect, you will talk about it.
Do you have some idea of when you're going to be
able to give us some better clarity on the success
of PartnerSelect? Or lack of success for that
matter?
Male: So, Jeff, what we're going to do is we're going to give
you quarterly updates on how we're doing in
PartnerSelect...
Jeff Kessler: OK.
Male: We know that this is something that is very interesting
to you all and, by the way, it's extremely important
to us, so we monitor it daily, weekly, monthly and
quarterly. But you can guarantee that, every
quarter, we're going to give you a PartnerSelect
update.
Jeff Kessler: OK. Thank you very much. And thank you for the
thorough presentation.
Male: Thank you.
Male: Thank you.
Operator: Next, we'll move to Reik Read with Robert Baird &
Company.
Reik Read: Good afternoon.
Male: Hi, Reik.
Reik Read: Can you guys talk a little bit more about the
maintenance service program and Bill as I
understand, the PartnerSelect program, you guys
are going to be taking more and more of that revenue
in-house. How much will be brought back in?
And then, can you talk a little bit more about some
of the advanced areas you might be getting in and
what type of growth you're expecting to get out of
that kind of day (to) services you talk about it?
Bill Nuti: Sure. So, Reik, today, it's mainly day (to)
services, repair center services. Over the course of
2004, we're going to be introducing new products,
advanced services products that will hang off of the
day (to) support. If you consider it this way, we're
going to try to do our very level best to take
advantage of our fixed cost infrastructure to drive
annuity based advanced services on top of that; both
Symbol to the customer and Symbol through the
channel, where our channel can re-brand many of
these services and also sell them through the
channel.
Our real key challenge Reik is attach rates. Today
our attach rates in the channel are abysmal. Meaning
when we talk about attach rates, we are talking
about the fact that when our sales team goes out and
sells hardware, that we sell services at the very
same time. At the point of invoice to product, it
would be a point of invoice to service. At the
point of (PO) for hardware or product, there would
be a point (PO) for services against.
Today, we're really focused on two things. One,
restructuring our (GS) organization so we can yield
that kind of benefit out of it and that's got to be
our fundamental focus. For example, we're still very
focused on our repair center consolidation. Some of
the challenges that we've had with respect to the
move from Chicago to El Paso, the move we need to
make from London to Czech Republic. So, very much
infrastructure focused. And if you look at it this
way, we're focused on people, organization, process,
and tools. Throughout 2004, I would expect us to
make good progress with respect to day (to) support
as our attach rates come up substantially as well as
when we announce more of these advanced services
capabilities.
From the point of view of our partners, where we
have some discipline in the channel now with respect
to services and partners who were once competing
against us, we will see some of that revenue flow
through over time, but remember, these are annuity
based, these are annuity based contracts, that in
some cases have not yet even come to closure with
some of those partners, so we've not picked off that
business as yet. We'll see that happen over the next
several years. This is not a three-month transition
or a one-year transition; it's a several year
transition. But we hope to add over the numbers of
those years, substantively to our revenue and top
line performance in services.
Reik Read: And as you look out, Bill, a couple of years, where
will the services be as a percentage of revenues?
Have you looked at it that way?
Bill Nuti: We have. And we would like to maintain as top line
growth and product is now out-pacing that of
services, approximately an 18 to 22-percent range of
the business and services. As you've noticed over
the last several quarters, services has been
approximately 20-percent of our total. We'd like to
keep it in that range, but in a world where top line
is growing through greater hardware and product
traction.
Reik Read: OK. And then I just wanted to ask too; you just
talked about the moves that you're making, both to
Mexico and the Czech Republic. Can you talk a little
bit about the savings that you guys expect? And
maybe this is a broader question as you guys talk
about expense reduction. And I'll ignore the
expenses that you might be making with respect to
the restatement.
What are some of the savings that you'll get from
the moves that you're talking about, as well as the
last quarter, you talked about getting a greater
focus on some of the discretionary expenses. As we
move in to `04, how much, how much will be coming
out of those expense categories?
Bill Nuti: So, on the services front, the best way I could
describe it to you, Reik, is the following. On
average - and on a per repair basis, when we were
doing repairs in Chicago - the average cost per
repair was approximately 27 to 28 U.S. dollars. The
move now down to El Paso (Juarez), has got our
average, we expect to yield an average repair rate
in the 17 to $18 range; approximately a $10 per
unit, per repair base.
The same can be said in the move from London to the
Czech Republic, only it's more exacerbated because
the cost of both the land and the headcount in
London were significantly higher than they were in
Chicago. In the move from London to the Czech
Republic, we would expect to yield a $13 difference
from London to the Czech Republic on a per repair
basis.
So, it is substantial however, the costs associated
with this, from a restructuring point of view, and
additional expenses will continue to be incurred
over the next several quarters. So, I want to
balance your enthusiasm with gross margin
potentially gains with that of the operating
expenses it takes to make some of these fundamental
changes. It should contribute a couple of points of
gross margin to our top line, once we've completed
the transition in total.
Reik Read: And that transition will be completed when, again,
Bill?
Bill Nuti: The end of next year.
Reik Read: OK. And then, just a comment on discretionary
spending?
Bill Nuti: Discretionary spending actually improved quarter-
on-quarter for us in all categories. We've got a
good focus across the Company. I don't have the
specific figures in front of me, Reik, but I do know
that they have improved. The area where they have
not improved of course is in the area of the
restatement expenses, where restatement expenses as
Mark pointed out earlier in Q2, were approximately
14.5 million. And that was related, I believe,
restatement expenses only to consulting and auditing
fees - not to the legal side of the that equation,
which also on top of the 14.5 million could be
restated related. So, that's the area where it
throws it off. But if you look at all of the other
sub-categories of discretionary expenses, we've
improved sequentially and we continue to have a
great focus around the Company on that.
Male: You know, Reik, I unfortunately have the fate of being
probably the sole area that was not able to improve
discretionary spending.
Reik Read: OK.
Male: So, you can imagine I have many interesting
conversations with Bill.
Reik Read: I don't doubt it. Guys, thank you very much. And
I'd also like to add, thank you for your candor and
the presentation. Very helpful.
Male: Thank you.
Male: Thanks, Reik.
Operator: We'll move to Chris Quilty, Raymond James &
Associates.
Chris Quilty: Good evening, gentlemen. You're not actually
going to stay on the full two-and-a-half, are you?
Male: Well, whatever it takes, Chris.
Male: Whatever, exactly.
Chris Quilty: OK. Question for you on the EMEA region, where
it seems a lot of companies in the industry have
actually been getting a lot of traction as of late.
Foreign exchange helping that situation somewhat. Is
there a fundamental, is it just an organizational
issue or is it a product issue that it seems you're
losing some ground there?
Male: Well there's a couple of things that I want to point out
here. EMEA in Q2 was actually up year-on-year. It
was down quarter-on-quarter in terms of percentage
of the business, but it was actually up year-on-
year. And I would give you a range; I don't have it
in front of me. The range was approximately 20 to
25-percent up year-on-year, so I really want to make
sure you understand it from a balance point of view.
Now, that being said, in EMEA we are doing some
fundamental changes organizationally. We've replaced
the head of the EMEA. We brought in a gentleman by
the name of Steve Priestley, who's now running that
operation. We replaced our head of sales in the
Germanic countries. We replaced our head of sales in
the North, and we replaced our head sales in the
South. So, a complete shift.
We also brought in a brand new channel leader in to
that team as well. (Four-X) unfortunately doesn't
help Symbol all that much. Quite honestly because we
do change our pricing local and market and we have
a commitment to our channels and our customers to
change pricing and adjust it based on the
fluctuation of the Euro to the dollar. So, we don't
see a lot of flow through benefit from foreign
exchange as it relates to top line or gross margin.
So, we don't really benefit all that much because we
do adjust our pricing.
The going forward plan for EMEA does involve yet
more restructuring as we're going to be moving EMEA
to a de-layering. We're actually taking a full layer
of the organization out and we're also going to be
looking at a shared services model; they're moving
to a regional shared services model, which should
drive further gains. Today in EMEA, we only have
approximately 50 sales headcount on the street,
carrying bags, carrying quotas. We're going to
hopefully double that over the course of the next
six to eight months, simply out of some of this
restructuring. Self-funding a lot of this effort and
in fact yielding better opex performance out of the
team beyond the self-funding of an additional 30 or
40 headcount just through this one exercise.
Chris Quilty: OK. The addition of (X) additional sales people
in Europe seems counter intuitive to (Scan Source),
which has created a very successful two-tier
distribution model in the U.S. and I know they're
fielding up an effort over there. Would the direct
sales force be a compliment to that initiative? Or
you know, is that separate from your activity?
Male: Yes, the issue is we just don't have enough sales people
covering the tier-one accounts. And absolutely high-
touch, (channel-centric), go to market model is a
worldwide focus that Todd Abbott has. This is not
just a U.S. focus. So, what we need are tier-one
enterprise mobility sales people covering the top
accounts, driving demand, creating demand for our
products that will be fulfilled through the channel.
And in fact if you look at Q2 as an example -
although we didn't report this today - I want to
give you some guidance on this as well, or I want to
give you some information. We saw a good solid shift
to the channel in Europe, where the channel in
Europe was approximately 60 to 70-percent of our
total top line and only approximately 30 to 40-
percent went through direct. So, we've got to get
greater coverage at the top; cover the tier-ones
more efficiently. Create demand and drive demand for
the channel and make sure that the demand is
preferenced, the preference is Symbol.
Chris Quilty: OK. And a final question here. I want to circle
back to something that's already been asked at least
once on the internal revenue growth. On the
comparable numbers, we're looking at a 12 to 13-
percent over prior year as restated. And I know you
haven't given substantial guidance for `04 yet, but
given the weight of your business being in the
retailing segment, which hasn't yet really shown a
substantial pick up, is that a sustainable growth
rate in the absence of a retail recovery going in to
`04, by some of the other initiatives? Or do you
really need a little bit of help from the retail
segment?
Male: So, first and foremost, we're going to come back to you
with our guidance in on the Q4 call, we're currently
going through our `04 planning process, which is
going to, out of that is going to fall out our go to
market and business model in to next year. So, we'll
come back to you in terms of what we think the
growth rate will look like in `04.
That being said, I just want to correct one thing
that you said. The 12 to 13-percent year-over-year
guidance was on the reported 2002, 1.3 billion not
the restated 1.398 billion, which is where we've
restated guidance to 10-percent above the 1.397
billion.
Chris Quilty: Too many numbers. I misspoke.
Male: That's OK. No worries. I just want to make sure we were
clear on it.
Chris Quilty: OK. Thank you very much.
Male: Thank you.
Male: Thanks.
Operator: Dick Davis with Richard W. Davis.
Dick Davis: Yes, congratulations on a very good presentation.
I think I mostly understand it, but on the revenue
numbers, are you saying that the revenue estimate
for this year should be in the neighborhood of a
1.537 billion, which is roughly 10-percent more than
1.398 billion?
Male: That's correct.
Male: Exactly.
Dick Davis: OK. And does that, assumes that the third quarter
will be North of the second quarter, is that correct
or am I incorrect? Or aren't you saying?
Male: I think that what's fair to say there Dick, is that in
the second half, we expect to generate enough
revenue in the second half of the year to get to
that 1537. We don't want to give you guidance on Q3
at this moment in time. We want to come back to Q3
in a few weeks. But what's I think important to
yield out of this discussion also is the fact that
of the 1.537 a portion of that, approximately $50
million is going to be derived from restatement
impact coming in to the year to restate the revenue.
Dick Davis: Oh, I see. I see.
Male: That's the difference, Dick. I think you're struggling
with from the 1.537 to the 12 to 13-percent above
the 1.320.
Dick Davis: OK.
Male: Yes, Dick, I mean, you know, last year if you look at
the restated versus reported, you know, there's a
$78 million pick up to 1.398 from 1.320. And so,
what - you know, what Bill's saying is that there,
when you look at the changes that were made, there's
less of a pick up going forward, which is actually
pretty logical if you're looking at the receivables
as well, because some of the pick up is due to
better collections, and as a result with these bill
and collected customers, it tends to increase the
revenue over the prior way we were recognizing it.
But as we clean that up, as receivables come down,
you know, then really on a going forward basis, it
ends up being that the difference between how we're
recognizing revenue now on an ongoing basis versus
how we were doing it before, becomes actually quite
small - might bounce around from quarter to quarter,
but over time, it shouldn't really matter.
Male: And lastly, Dick, I'd just call your attention as you're
trying to get a picture for what the second half
looks like, call your attention to the information
that Bill presented with regard to bookings and
backlog. That's the information that we'll be
providing on an ongoing basis to help answer those
type of questions.
Dick Davis: Oh, very good. One other question. Relative to the
new, two-tier distribution system. Does this mean
that if we use say, (Aznet) as an example that you
sell to (Aznet). And then, (Aznet) may sell to some
second and third-tier distributors who might not be
financially as good condition as you'd might like,
but they may (Aznet) in itself, may offer them terms
to sell your product. Do I have that sense right, or
am I wrong?
Male: Well, in those specific circumstances where there are
thinly capitalized smaller value added resellers
that do business with distributors, our distributors
have the choice obviously of how they want to work
with those individual (bars). Whether or not they
change their terms or how they do business with them
is of their own volition.
However your point in terms of how the two-tier
actually works is correct. Our two-tier distributors
sell to a number of our resellers which measure in
the thousands, Dick. And then in terms of sales out,
what we get from an (Aznet) if you will to use them
purely as an example, would be sales out in terms of
where they actually sold that kit, where it landed
at the end of the day.
Dick Davis: Got you. Thank you very much.
Male: Thank you.
Operator: And we'll move to Scott Ciccarelli, Harris Nesbitt
Gerard.
Male: Hey, Scott. You there?
Male: Scott?
Male: Are you on mute, Scott?
Operator: His line is open. He may have stepped away.
We'll move to Ted Wheeler with Buckingham Research.
Ted Wheeler: Good evening. Again, great, great detail here and
thanks. Just on the numbers that are out here for
the revenues. With the, I guess I'm just confused on
one point here. The backlog opening numbers that you
talk about; the shippable backlog entering quarter,
plus the bookings data for the third quarter that
you've shown us, would seem to me to indicate some
sequential lift in revenues as - go through the
year. And you really don't get much when you kind of
run through the numbers that you gave us for
guidance. Is there some change in the revenues that
are not associated with that shippable opening
backlog? Is there some change in the rest of the
year from what we've seen so far to account for that
seeming discrepancy?
Male: No. Ted, on this chart, what you're really seeing in Q4
in the opening backlog is simply the effect of the
20-percent sequential bookings growth we had in Q3
over Q2 adding to our backlog position. The other
point I want to make - again, I want to really re-
emphasize this - it would be a mistake for you to
assume that Q4 revenues or Q3 revenues would be 20-
percent higher because we had a 20-percent
sequential bookings growth in the quarter. Remember,
our goal is to build backlog. It really is important
to us. If you take a look at our supply chain today,
Ted, the better backlog visibility we have, the
lower cost it is for us to do business.
Now, the con-side of that equation is you do grow
lead times in terms of your ability to meet customer
demand and we've got to balance those two worlds.
That's what we're working on right now as a team to
figure that out. But the greater backlog we have,
the more visibility we have, the lower cost it is
for our company to do business across our entire
supply chain.
Ted Wheeler: Well, if we call that backlog - the visible
backlog that you're just describing, wouldn't that
be the backlog that's not shippable in the quarter
that's coming up? In other words...
Male: Oh, I see what you're saying Ted, so here's...
Ted Wheeler: Yes.
Male: So, here's what you're missing, Ted. We have changed our
bookings rules in the Company. We've tightened them
up dramatically. So, backlog in the our quarters has
come down fairly significantly. We now have bookings
rules of six month (intervals), so basically what
that means is; we've sharpened up our bookings
rules. Where we used to have bookings rules that
would allow you to bring in a booking and we would
actually slate in backlog in the out years, what we
now do is take a booking only that can be realized
in revenue over a six-month period.
Ted Wheeler: OK.
Male: So, you're out quarters of backlog will be smaller. So,
we have a very solid six-month backlog with which
we're showing you here is the opening backlog for
Q4. What you're not seeing is the opening backlog
for Q1.
Ted Wheeler: Right.
Male: We had them backlogging in Q1. That could be, I think,
where the confusion is.
Ted Wheeler: OK. But what you're showing us here, what you
expect out of backlog to ship in that quarter?
Male: That's correct.
Male: Right.
Male: So, the 148 million we're showing in Q4 is all scheduled
to ship in Q4. That doesn't...
Ted Wheeler: OK. But yes.
Male: ... mean it's all going to ship.
Ted Wheeler: Scheduled only. OK.
Male: Scheduled only. Now, a couple of things could be the
case here. A customer could push out a shipment.
That does happen when rollouts get delayed. And then
we will simply move that backlog and adjust it to
the next period. The other thing that could happen
with backlog is with respect to not just moving it
out, because customers decide they don't want to
ship it, we could have supply chain challenges and
not be able to meet the demand that the backlog
suggests and that may move out because of our own
inefficiencies and operational deficiencies.
Ted Wheeler: OK. OK. But assuming those things are linear and
are comparable, the backlog that was shippable in
the second quarter was slightly north of 100 and for
fourth quarter...
Male: Correct.
Ted Wheeler: ... approaching 150...
Male: Exactly.
Male: That's correct.
Ted Wheeler: ... which is kind of getting to the question I
started out with about sequential revenues. They're
seeming to be flat rest of the year and yet that
shippable backlog is discernibly up. Now, the other
revenues I realize that don't flow through backlog
and you talked about that. So, that was sort of my
question.
Male: So, yes, the issue there again is we are consciously
going to build backlog for the remainder of this
fiscal year going in to it. We also have been
running the business at a lower book to build than
we would have liked to run it, so we have some catch
up there to do as well.
Male: And lastly, the effects of the restatement were higher
in the first half of the year than they will be in
the second half of the year. That explains the full
situation as you described it, Ted.
Ted Wheeler: Oh, OK. OK. That was my next, and then just to
nit-pick. On the second quarter, you had some other
income at a very low tax rate. What should we think
about the rest of the year just in terms of the
other income and the tax rate?
Male: With regard to the other income, keep in mind that
you've go you know, between the operating expenses,
stock options, I've got the interest in there as
well, so - you know, as debt's been paid down.
Ted Wheeler: So, that might just continue I take it?
Male: Well yes, you've got debt paid down and unless we as we
were talking earlier on the call, unless we were
going to ramp, you know, debt balances up, which I
don't foresee, you know, you wouldn't have that
interest expense going forward. And then with regard
to the tax rate, that's really an artifact of the -
of relatively low pretax book income. You know,
you've still got the permanent differences between
the statutory rate and the effective tax rate. Those
amounts really aren't driven by the amount of
income, and therefore they have a bigger effect on
the effective tax rate when you get to lower book
income numbers. Is that clear?
Ted Wheeler: All right.
Male: You know things like research...
Ted Wheeler: Yes, I understand...
Male: How to get tax credits and stuff like that.
Ted Wheeler: Yes, I understand how we got there. My question
would be is that a good (bogie) for going forward
for the rest of this year?
Male: For the rest of this year? I think it is, yes.
Ted Wheeler: OK.
Operator: And we'll attempt to move back to Scott Ciccarelli
with Harris Nesbitt Gerard.
Scott Ciccarelli: Hi. Can you guys hear me this time?
Male: Yes, we can.
Male: How are you doing?
Male: We got you, Scott.
Scott Ciccarelli: Hi, sorry about that. I guess this was kind
of following up on Ted's question a little bit. Has
there actually been a change in the accounting for
your revenue recognition? Because I guess I'm still
not clear as to why you're kind of lowering what the
revenue expectation is. You know, let's forget the
restatements for a second, but on a real current run
rate, when the bookings are up, you know, what
looked on a relatively sharp basis, and maybe I'm
missing the point.
Male: I guess the way I would characterize it is that we
haven't changed our revenue recognition policies as
much as what we've done is corrected what we think
were errors in the past. And we've gone and we've
applied GAAP, you know, under (SAB-101), you know,
to the revenue recognition, and that's really what's
guided us through the restatement.
So, that - you know, those rules were always there
and you know, so basically we should have been
looking at channel partners and making sure that
they did have the economics, the substance to pay
and that they you know, weren't only able to pay us
when they sold it through, and if they were, then
they should have been on this bill and collected
basis all along. And you know, for example, with the
services as well, it's the same story.
So, you know, I don't want to characterize this as
like we've gone back and changed accounting
policies, because that's not what we've done. What
we've gone back and done is created errors, what
we've gone back and done is reversed errors in the
application of what the accounting policies are. And
so, that's recast these numbers.
Scott Ciccarelli: OK. Let me phrase it another way. Has
something changed on the fundamental side, where
business has slowed down a little bit or is it
now that you guys are properly recognizing revenue
how you should have done it before, and on that
basis this what the new revenue expectation is?
Male: It's the latter. Very much the latter.
Scott Ciccarelli: OK. All right, that makes a lot more sense.
And then the second question is, you know, as you
guys try an move forward in terms of moving to that
15-percent operating margin structure, you know,
obviously, you know, the various restatement fees
and stuff is you know, let's call that (one-timish)
in nature. You know, what is a reasonable timeline
to expect that?
Male: I think over the next two to three years.
Scott Ciccarelli: OK, and we move from you know, what is a
reasonable range, you know, for next year at this
point? I know you guys are still putting together
your models...
Male: Somewhere (between)...
Scott Ciccarelli: But you know, what kind of ramp should we be
looking for I guess is the question?
Male: Scott, we're going to come back to you in Q4 and
absolutely lay out for you, clearly what the
guidance will be for 2004. Right now as we're
going through the planning process. The point I made
earlier, I want to re-emphasize; I think there is a
bit more gross margin leverage than we originally
anticipated in our business model we provided. But I
also think there is a little bit less optimism or
more down side on the operating expenses side.
So, we have a model now that may adjust itself
coming in to Q4. We'll provide it to you then. To
give you a prediction today of when we get to 15-
percent operating margins would be inappropriate.
But over the next two to three years, it is this
team's intention to reach that business model and
we're going to continue along the way to provide you
with transparency as to what the guidance is and how
we're going to get there.
Scott Ciccarelli: Fair. And then the last question is, you
know, you made comments that you're going to move to
kind of a (sell) through revenue recognition for
your channel partners, starting in `04. Now, what
kind of impact should we expect to see in `04 when
that occurs?
Male: Well actually as part of this restatement, we're already
on a (sell) through for the two-tier distribution
here in North America. That's really probably the
biggest impact that we would have - you know, that
we would have, that would have hit us from going to
(sell) through on two-tier (DSD) in `04. And what
we're going to do is, you know, for the rest of the
world go to two-tier, go to (sell) through on two-
tier (DSD) in the beginning of `04.
So, I - long story short, I don't know exactly what
the impact is going to be. I don't think it's going
to be huge and when we do it, we'll certainly make
that transparent to you, but I think the bulk of
that change is behind us because we've already done
that as part of the restatement for two-tier (DSD)
here in North America.
Scott Ciccarelli: OK, so it's not like we wind up seeing a
massive drop in revenue, because now we've changed
our - we've already kind of assumed all that in to
the restated numbers.
Male: Most of it with the exception of EMEA two-tier
distribution.
Scott Ciccarelli: Got it. Thanks guys.
Male: You're welcome.
Male: Thanks.
Operator: We'll go next to Laurence Zuriff, Granite Capital.
Laurence Zuriff: Hi. A question on taxes. It looks you
probably overpaid your taxes from `98 to 2001; as a
result of, you know, improperly recording revenue
and then improper earnings. Do you get any of that
back in any type of refund from the government, or
do you collect any (NOLs) going forward that may
have a positive impact on your you know, cash
outlays over the next few years?
Male: Yes, we do have - we do have (NOLs) going forward. And
you know, there should be some positive benefit, but
I don't believe that there's, you know, any ability
to go back an get refunds.
Laurence Zuriff: OK.
Operator: Patrick Tenney, Eastbourne.
Patrick Tenney: A couple of quick questions. Can you give us
the cash flow from operations for the first and
second quarters as well as cap ex and depreciation
for those quarters?
Male: Patrick, you're going to see all of that when we - you
know, when we file the 10-K and the 10-Qs. You know,
I don't have that detail right now, and, you know,
once again, you saw the statements and there in some
reformat. You know, once we go and finalize the
audit, make sure we've got, you know, everything -
everything right, then you're going to - you know,
absolutely right, then you're going to see those
statements in those filings.
Patrick Tenney: Fair enough. Can you give us - how about
restated revenue for Q3 `02 and Q4 `02? Do you have
those handy?
Male: Hold on just one second. I've given you Q1 and Q2. Just
bare with me one moment and I will get you that. So,
the Q3 `02 revenue number was 380 million. That was
302 product, 78 services. And what else did you
want? The...
Patrick Tenney: Q4 `02 revenue restated.
Male: That was - yes, that was 372 with 291 product and 81
services.
Patrick Tenney: OK. Fair enough. And so, I'll try and ask the
same question a different way. I'm trying to
understand how, if we're looking at revenue on an
apples to apples basis, meaning that the slight
change in guidance from the 15-percent year-over-
year revenue growth to the 12 to 13. If we're
looking at the same accounting, how can accounting
be the change of, be the reason for the change?
Male: I don't think that that's what was said. We did not. You
know, the change from 15 to 20-percent down to 12 to
13-percent is not driven by accounting. What's
driven by accounting is a 10-percent year-over-year
growth on a restated basis versus the 12 to 13-
percent.
Patrick Tenney: OK, I got that. So, on an apples to apples
basis, what's the change from the 15 to the 12 to
13?
Male: Oh, I'm sorry. On apples to apples basis?
Patrick Tenney: So, prior guidance was for 15-percent.
Male: Right.
Patrick Tenney: Now, it's 12 to 13. I'm trying to understand
what that change is a result of.
Male: The only change, the difference, sorry. What the change
is a result of in terms of why we've taken our
growth slightly down?
Patrick Tenney: Yes.
Bill Nuti: OK. So, there's a few key reasons for this. One, I
think that from a supply chain perspective, we are a
bit more inefficient as a company than we need to be
on a go forward basis. Secondarily, we did
experience some softness in the business in both Q2
and to a less extent in Q1 also, because Q1 is a
traditionally challenging quarter.
We undertook a tremendous amount of internal change
in the Company, some of which as Mark and Rich both
pointed out with discovery along the way, had an
impact no doubt on the corporation to some extent
and the employee base, our customers and our
partners, which had a small on impact on this as
well. And economically from a business investment
perspective, things did not pick up to the extent
that we expected them originally to both in Q3 and
in Q4.
And lastly, on the sales front, we could have, in
the first half of the year, executed a little bit
better against our plan rates. The difference of two
percentage points is approximately - however, I'm
going to put this into perspective - is
approximately $26 million.
Patrick Tenney: Fair enough. In terms of the implementation of
sales on accounting as well as I guess now - I'll
rephrase. The bill and collected revenue recognition
that is now in place for service and product was
actually a net positive in `02, right?
Male: That would - that's right. That's correct.
Patrick Tenney: OK. And that was - it looks it was about 30 to
$35 million.
Male: Hold on just one second. If we just go back to that
revenue slide, (about)
right. Yes.
Patrick Tenney: That's all I've got for now. I appreciate it.
Bill Nuti: The only other point I want to make with respect to
your question was one, it's about a $30 million miss
on the $1.32 billion base. We just did a little
quick math here. That's the 15 to 13-percent. And
the other only point I really want to drive home is
our focus on building backlog. That's not an excuse
for missing, but is an important element in this
discussion.
Male: And Bill forgive me if this is a repetition, but if you
didn't mention (CS). I think our plan coming in to
this year showed more (CS) growth coming into (203)
- 2003 over 2003 than what we achieved, Bill did
make reference to that in his earlier remarks. I'm
not sure if he included it in his answer to your
most recent question. That was definitely a part of
it as well.
Male: Patrick, did you have another question on the bill and
collected for `02 or not? Did I misunderstand?
Male: You turned off for him?
Male: Patrick, are you there?
Male: I think he hung off. Next. Operator, we'll move to the
next caller.
Operator: We'll go to Arindam Basu for a follow-up question.
Male: Hey, Arindam.
Arindam Basu: OK. Hi. I just need to clarify something; the
response to one of Patrick's questions. So, Bill,
you gave four reasons why the revenue guidance is
modified. First was softness in the second quarter.
Second was weakness in the distribution channel.
Third was, yes, a tremendous number of internal
changes, and the fourth was the weaker third and
fourth quarter business environment. Is that right?
Bill Nuti: Yes.
Arindam Basu: OK. So, the fourth - the fourth point, you're
judging - when you make the comment about fourth
quarter of `03, you're talking about because of your
concern about pre, pre-quarter shippable backlog
going in to the quarter?
Bill Nuti: No, what I was talking about there Arindam, was the
fact that we had expected business investment in
general IT investment to pick up in the second half
of the year somewhat. Now, we're beginning to see
some of that pick up, quite honestly, with respect
to the bookings rate that we showed you today in Q3.
But I was talking to the fact that this still a
little bit of a show me economy.
We have cap ex at our customer base that was (baked)
in at the beginning of the year. Those plan rates
have not changed in our customer environment. Some
cap ex in IT investment spend is beginning to show
it's way to the forefront based on the backend of
improved earnings in the corporate sector, an
improved macroeconomic set of conditions that we're
working in. But I was specifically to the business
environment in Q2 and in Q3 in general.
Male: Let me just to (kick)...
Bill Nuti: Then to Rich's point, I think that Rich had a very
important point that the made which was with respect
to the (CS) revenue. We had a much higher
expectations for customer services revenue coming in
to this year than we've actually achieved. Partly
that's our own fault, because in the move from
Chicago to El Paso (Juarez), we didn't execute as
well as we should have, and that did cost us some
revenue.
Arindam Basu: OK. And then Bill, on the European question that
you had answered earlier, there was a - you know,
there were some competitors or people in adjacent
sectors talking about some strength in Europe so,
and you said that two things, you had a change, you
know, a lot, many changes at the top of the sales
organizations, and that generally tends to freeze
people a little bit.
And then number two, that you guys don't really
generally get the benefit of currency fluctuations
because you're operating in local currencies. Right?
Bill Nuti: That's correct.
Arindam Basu: OK, so do you believe that the operating
environment in, within Europe where other people are
seeing success. Do you think that what they're
seeing is only currency related? So, you're not
seeing any, do you think there's some inherent
improvement in the Europe, European environment in
and of itself to the extent that you know?
Bill Nuti: I think it's largely (Four-X) and currency benefits
that you're seeing coming out. Now, that being said,
we are also encouraged with respect to the forward-
looking forecast in Europe. I do think the business
environment is improving somewhat, but you're really
also talking about a set of macroeconomic conditions
throughout the major countries in Europe, for
example, Germany where they're very, very
challenged.
So, Europe has a number of recessionary threats and
in fact deflationary threats that they're dealing
with. We of course have political instability in
parts of that world that emanate in to the business
environment, but in general to answer your question,
I think some of it is (Four-X) related, some of it
is improved business environment related and also
market share. It is fair to say we probably lost a
few points of market share in some of our key
markets in Europe last quarter. We intend to win
that back going forward.
Arindam Basu: OK, and then, last question. Adjacent to that is
the new sales leaders in those markets. So, you've
already gotten a sense of a plan from them? They've
been in place long enough to kind of give you some
sense of a forecast already?
Bill Nuti: You bet.
Arindam Basu: OK.
Bill Nuti: And we've wonderful sales leaders there. We're
really pleased. Steve Priestley who now heads up
Europe for us. We brought on just great leaders
across the board in channel. Also in finance. We've
made some sweeping changes organizationally in
Europe as - by the way, as we have in all of the
sales areas. Todd Abbott has done a spectacular job
in restructuring the entire worldwide sales
organization and at the same time, keeping the
business going in the right direction. We're really
proud of his efforts and his whole team.
Arindam Basu: OK, so basically what you are saying I don't
really have to kind of model in some modest momentum
build. I can basically say that these guys are now
on the ground and running.
Bill Nuti: No, I wouldn't do that. I would say that we've made
progress quarter-on-quarter with respect to
restructuring. We've got more restructuring taking
place this quarter of Q4 and a bit more in Q1. We're
basically re-leveling the organization in Q3, taking
out a layer of the organization and reinvesting
those monies in feet on the street sales people,
both in the channel and high-touch.
In Q1 you're likely going to see us reorganize
around a shared services model, a regional
structure, which is going to allow us to get much
more productive in terms of the way we do business
and much more opex efficient from the perspective
that as an example, we won't have discreet finance
organizations in each and every country. That'll be
centralized, if you will, in a regional area. We
won't have many of the (G&A) functions that are
shared services be replicated in terms of overlap
and redundancies in each country. We're going to
have that in a shared services methodology,
regionalized, and we'll be much more quick to market
and much more nimble and agile as a company because
of it. We may also inherently get some tax benefits
from this in forward-looking years.
Arindam Basu: OK. All right. Well thanks for repeating
everything. I appreciate you doing that for me.
Bill Nuti: Thank you.
Operator: We'll take a follow-up from Dick Davis.
Dick Davis: Yes, just one question about what are your direct
sales as a percent of revenues in the prior area
right now versus channel?
Bill Nuti: It's a, Dick, it's a approximately 40-percent. It's
in that range. It's between 40 and 45-percent. Dick,
you're going to see that number come down quarter-
on-quarter if we're doing our job right. If we're
doing our job right and PartnerSelect is rolling out
the way we expected, you're going to see a much
greater percentage of our business flow through the
channel and less of our business flow through
direct.
Now, I don't want you to interpret that as we're
moving to a channel based model. When we talk about
high-touch channel-centric, our high-touch sales
force does everything that a direct sales person
would do with the exception at the end of the day of
taking the order. We actually expect a higher level
of sales professionalism and sales preference
building in the tier-one market through a high-touch
sales force than we do a direct sales force.
Dick Davis: OK. Thank you.
Operator: And our final question in the queue today is a
follow-up from Chris Quilty.
Chris Quilty: No, actually my question had been asked about
three times since I entered the queue. But since I
got the last question, I'll leave you with a product
question since nobody's asked anything on that end.
The MC9000, as I understand the product offering, it
looks like the main feature set that you're bringing
to market here is really, is a modular design? Is it
a you know, a cost savings? Or are there extra
feature sets in there that I'm missing as something
new in the market place?
Male: Yes, it's both Chris. It turns out that there are a set
of richer features. I think in Bill's remarks he
listed some of them. For example bigger, brighter
display and so on. But in addition, you're correct
to focus on the modularity. That is a key going
forward and in fact it anticipates an architectural
direction that we're taking across our mobile
computing line and you will see even more strongly
featured in products rolling out in to next year.
It's a way to allow us to scale the business, gain
cost efficiencies, gain development efficiencies,
gain support engineering, cost efficiencies. And it
will have a strong contributing role ultimately to
the operational excellence goal, which you heard us
talk about before. But from a customer's
perspective, we've had enough feedback now from the
early field trials in which we've placed this unit,
to gain a strong level of confidence that the
feature set that we targeted as we conceived the
product, about a year-and-a-half ago or so, is
really proving to be very attractive to customers.
So, it's new features today and architecturally
derived leverage tomorrow.
Chris Quilty: OK. And for a product area that you know, has
become certainly the bulk of your revenues, is it
correct in assessing that that market place has
become much more competitive in the last two years?
And you know, what do you do to stay out in front of
the competition?
Male: Yes, I'm not sure that I would agree Chris that it's
become much more competitive. We faced strong
competition from (Telxon) in earlier years. We faced
competition from any number of players today. We
have to be on our best game to win. That best game
involves not only doing the kind of thing as I
mentioned with the 9000, which is building feature
advantage at the product level, but also building
the end-to-end enterprise mobility advantage as a
result of delivering features that uniquely link our
mobile computing products, our wireless
infrastructure products and software connected
issue in a way that our competition cannot match.
So, we're really attacking on both of those fronts.
We've seen very strong traction of that strategy out
in market and we're confident that it's the basis
for maintaining a competitive advantage in mobile
computing and, in fact, the other business units in
the Company going forward.
Chris Quilty: OK, thank you. And thanks for not doing the full
two-and-a-half.
Male: OK. Thank you.
Operator: And did any of our speakers have any additional
comments today?
Male: No, just wanted to thank all of you. And again, thank
you for your patience throughout this process. We
genuinely appreciate it and thank you for your
continuing interest in the Company. Take care. We'll
talk to you in a few weeks.
Operator: That will conclude today's audio conference. Again,
we do thank everyone for their participation.
END