SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1997
Commission file number 1-9802
SYMBOL TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 11-2308681
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Symbol Plaza, Holtsville, NY 11742
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 516-738-2400
Former name, former address and former fiscal year, if changed
since last report.
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the close of the period
covered by this report.
Class Outstanding at March 31, 1997 (1)
Common Stock, 39,310,418 shares
par value $0.01
(1) Reflects a three for two split of the Company's common stock
effected as a fifty percent stock dividend paid April 1,
1997 to shareholders of record as of March 10, 1997.
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
PAGE
PART I. FINANCIAL INFORMATION
ITEM I. Financial Statements
Condensed Consolidated Balance Sheets at
March 31, 1997 and December 31, 1996 2
Condensed Consolidated Statements of Earnings
Three Months Ended March 31, 1997 and 1996 3
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 1997 and 1996 4
Notes to Condensed Consolidated Financial
Statements 5 - 6
ITEM 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations 7 - 9
PART II. OTHER INFORMATION 10
SIGNATURES 11
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(All amounts in thousands, except stock par value)
March 31, December 31,
ASSETS 1997 1996 (1)
(Unaudited)
CURRENT ASSETS:
Cash and temporary investments $ 29,794 $ 34,290
Accounts receivable, less allowance for doubtful
accounts of $10,578 and $10,123, respectively 155,282 146,273
Inventories, net 130,297 133,637
Deferred income taxes 28,301 26,125
Prepaid expenses and other current assets 12,179 12,029
TOTAL CURRENT ASSETS 355,853 352,354
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation and amortization of $65,986 and
$60,444 respectively 100,894 101,331
INTANGIBLE AND OTHER ASSETS, net of accumulated
amortization of $63,111 and $58,288,
respectively 155,892 160,553
$612,639 $614,238
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 91,546 $ 99,241
Current portion of long-term debt 10,466 10,384
Income taxes payable 10,893 9,141
Deferred revenue 13,623 11,910
TOTAL CURRENT LIABILITIES 126,528 130,676
LONG-TERM DEBT, less current maturities 44,109 50,541
OTHER LIABILITIES AND DEFERRED REVENUES 21,893 22,304
COMMON EQUITY PUT OPTIONS 9,158 11,041
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, par value $1.00; authorized
10,000 shares, none issued or outstanding - -
Common stock, par value $0.01; authorized
100,000 shares; issued 42,922 shares and
28,195 shares, respectively 429 282
Retained earnings 220,978 206,331
Other stockholders' equity 189,544 193,063
410,951 399,676
$612,639 $614,238
See notes to condensed consolidated financial statements
(1) The consolidated balance sheet as of December 31, 1996 has been taken
from the audited financial statements at that date and condensed.
- -2-
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(All amounts in thousands, except per share data)
(Unaudited)
Three Months Ended
March 31,
1997 1996
NET REVENUE $178,271 $149,082
COST OF REVENUE 96,299 78,316
AMORTIZATION OF SOFTWARE DEVELOPMENT COSTS 2,917 2,503
GROSS PROFIT 79,055 68,263
OPERATING EXPENSES:
Engineering 13,036 10,756
Selling, general and administrative 39,543 35,166
Amortization of excess of cost over
fair value of net assets acquired 1,138 804
53,717 46,726
EARNINGS FROM OPERATIONS 25,338 21,537
INTEREST EXPENSE, net (822) (426)
EARNINGS BEFORE PROVISION FOR
INCOME TAXES 24,516 21,111
PROVISION FOR INCOME TAXES 9,071 8,022
NET EARNINGS $ 15,445 $ 13,089
EARNINGS PER SHARE:
Primary $0.38 $0.33
Fully-diluted $0.38 $0.33
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING:
Primary 40,919 40,131
Fully-diluted 40,919 40,131
See notes to condensed consolidated financial statements
- -3-
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts in thousands)
(Unaudited)
Three Months Ended March 31,
1997 1996
Cash flows from operating activities:
Net earnings $15,445 $13,089
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization of property,
plant and equipment 5,853 5,362
Other amortization 4,823 3,513
Provision for losses on accounts receivable 514 396
Changes in assets and liabilities net of
effects of acquisitions:
Accounts receivable (10,265) (12,180)
Sale of lease receivables - 12,495
Inventories 3,068 (7,037)
Prepaid expenses and other current assets (2,326) (4,724)
Intangible and other assets 1,798 (4,296)
Accounts payable and accrued expenses (7,962) (2,387)
Other liabilities and deferred revenues 3,053 4,268
Net cash provided by operating activities 14,001 8,499
Cash flows from investing activities:
Expenditures for property, plant and
equipment (5,524) (9,699)
Acquisition of subsidiaries (1,960) (4,080)
Net cash used in investing activities (7,484) (13,779)
Cash flows from financing activities:
Proceeds from issuance of notes payable 12,650 -
Principal repayments of notes payable
and long-term debt (19,000) (2,779)
Exercise of stock options and warrants 14,107 4,580
Dividends (798) -
Purchase of treasury shares (15,656) (6,465)
Net cash used in financing activities (8,697) (4,664)
Effects of exchange rate changes on cash (2,316) (246)
Net decrease in cash and
temporary investments (4,496) (10,190)
Cash and temporary investments, beginning
of period 34,290 63,650
Cash and temporary investments, end of
period $29,794 $53,460
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 1,389 $ 1,130
Income taxes $ 1,351 $ 3,156
See notes to condensed consolidated financial statements
-4-
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(All amounts in thousands, except per share data)
1. In the opinion of management, the accompanying unaudited condensed
consolidated financial statements include all necessary adjustments
(consisting of normal recurring accruals) and present fairly the
Company's financial position as of March 31, 1997, and the results of
its operations and its cash flows for the three months ended March 31,
1997 and 1996, in conformity with generally accepted accounting
principles for interim financial information applied on a consistent
basis. The results of operations for the three months ended March 31,
1997, are not necessarily indicative of the results to be expected for
the full year. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's
annual report on Form 10-K for the year ended December 31, 1996.
2. Primary and fully-diluted earnings per share are based on the weighted
average number of shares of common stock and common stock equivalents
(options and warrants) outstanding during the period, computed in
accordance with the treasury stock method.
On February 10, 1997 the Board of Directors approved a three for two
split of the Company's common stock to be effected as a 50 percent stock
dividend and a $0.03 semi-annual cash dividend both of which were
payable on April 1, 1997 to shareholders of record on March 10, 1997.
In this report, all earnings per share amounts and the weighted average
number of common shares outstanding have been retroactively restated to
reflect the stock split. In addition the number of common shares issued
have been adjusted to reflect the stock split, an amount equal to the
par value of the additional shares issued has been transferred from
additional paid in capital to common stock and the cash dividend has
been recorded as an adjustment to retained earnings as of March 31,
1997.
3. Classification of inventories is:
March 31, 1997 December 31, 1996
(Unaudited)
Raw materials $ 55,542 $ 54,534
Work-in-process 19,120 18,425
Finished goods 55,635 60,678
$130,297 $133,637
4. The Company is currently involved in matters of litigation arising from
the normal course of business. Management is of the opinion that such
litigation will not have a material adverse effect on the Company's
consolidated financial position or results of operations.
On April 1, 1996, PSC Inc. ("PSC") commenced suit against the Company
purporting to assert claims against the Company for alleged violations
of the federal antitrust laws, unfair competition and also seeking a
declaratory judgment of non-infringement and invalidity as to certain of
the Company's patents. PSC has served a Third Amended Complaint, which
purports to assert essentially the same antitrust and unfair competition
claims against the Company, and also seeks a declaratory judgment of
alleged non-infringement and validity of nine of the Company's patents,
and a declaratory judgment that PSC has not breached its two license
agreements with the Company and that those agreements have been
terminated. The Company has amended its suit against PSC to assert
infringement of four Symbol patents, breach of contract, and fraud. The
Company is also seeking damages of over $1 million plus interest on
unpaid royalties for each quarter since the second quarter of 1996. The
Company had also sued Data General Corporation ("Data General"), a
-5-
manufacturer of portable integrated scanning terminals incorporating a
component manufactured by PSC, for infringement of the same four patents
and five additional patents. The nine patents asserted against Data
General are the same nine Symbol patents as to which PSC is seeking
declaratory relief.
On October 9, 1996, the Court granted the Company's motion to sever and
stay PSC's antitrust, unfair competition and related claims. On the
same day, the Court denied Data General's motion to stay the Company's
claims against it.
The Company moved that an expedited hearing be held at the end of March,
1997 on three of the four patents asserted against PSC, and to stay all
non-patent discovery. PSC opposed the Company's motion and made a
cross-motion that no hearing be held until October, 1997 at the earliest
and that all issues be tried in the Spring of 1998 or thereafter. On
October 9, 1996, the Court set a one week trial for July 14, 1997 to
construe the claims in all nine patents asserted by Symbol against Data
General and PSC. The Court has stayed all proceedings on non-patent
claims.
The Company believes that all claims purportedly asserted against it by
PSC are factually and legally baseless, and wholly without merit. The
Company intends to vigorously defend the litigation.
5. During April 1997, the Company issued common equity put options on
150,000 shares of its common stock which are exercisable for a period of
one year from the date of issuance and give independent parties the
right to sell such shares to the Company at a strike price of $31.163
per share. The Company has not reflected this transaction in its
consolidated balance sheet as of March 31, 1997. Proceeds of $285,000
from the issuance of the April 1997 put options will be credited to
additional paid in capital.
The balance of the common equity put option account as of March 31, 1997
and December 31, 1996, represents the amount the Company would be
obligated to pay if all unexpired put options were exercised relating to
prior year transactions outstanding as of the respective balance sheet
dates. The decrease in the balance as of March 31, 1997 from December
31, 1996 is due to the expiration of an obligation associated with
47,000 shares of the Company's common stock at a strike price of $40.055
and corresponding reclassification to additional paid in capital. The
balance in the common equity put option account will be increased in the
amount of $4,674,000 which represents the Company's obligation if all
April 1997 put options were exercised.
-6-
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
Net revenue of $178,271,000 for the three months ended March 31,
1997 increased 19.6 percent over the comparable prior year period due to
increased worldwide sales of both scanner products and hand-held
computer systems. Foreign exchange rate fluctuations unfavorably
impacted net revenue by approximately one percent for the three months
ended March 31, 1997 due to a stronger U.S. dollar. Foreign exchange
rate fluctuations did not have a material impact on net revenue for the
three months ended March 31, 1996.
Geographically, North America revenue increased 13.8 percent and
International revenue increased 27.9 percent, respectively, over the
prior year. North America and International revenue continue to
represent approximately three-fifths and two-fifths of net revenue,
respectively.
Cost of revenue (as a percentage of revenue) of 54.0 percent for
the three months ended March 31, 1997 increased from 52.5 percent for
the three months ended March 31, 1996. This increase resulted primarily
from a change in the mix of the Company's products sold to a higher
percentage of lower margin products and an increase in revenue derived
from the Company's indirect sales channel.
Amortization of software development costs of $2,917,000 for the
three months ended March 31, 1997 increased from $2,503,000 for the
three months ended March 31, 1996 due to new product releases.
Engineering costs for the three months ended March 31, 1997
increased to $13,036,000 from $10,756,000 for the three months ended
March 31, 1996. While engineering expenses as a percentage of net
revenue remained relatively constant at 7.3 percent, in absolute
dollars, engineering expenses increased 21.2 percent from the prior year
period due to additional expenses incurred in connection with the
continuing research and development of new products and the improvement
of existing products partially offset by increased capitalized costs
incurred for internally developed product software where economic and
technological feasibility has been established.
Selling, general and administrative expenses of $39,543,000 for the
three months ended March 31, 1997 increased from $35,166,000 for the
three months ended March 31, 1996. While in absolute dollars, selling,
general and administrative expenses increased 12.4 percent from the
prior year period, as a percentage of revenue such expenses were reduced
to 22.2 percent for the three months ended March 31, 1997, from 23.6
percent in 1996. The increase in absolute dollars reflects expenses
incurred to support a higher revenue base and expenses incurred by three
subsidiaries acquired during 1996.
Amortization of excess of cost over fair value of net assets
acquired of $1,138,000 for the three months ended March 31, 1997
increased from $804,000 for the three months ended March 31, 1996 due to
the acquisition of three subsidiaries in the prior year.
Net interest expense increased to $822,000 for the three months
ended March 31, 1997 from $426,000 for the three months ended March 31,
1996 due to decreased interest income as a result of the decrease in
cash and temporary investments, a reduction in interest capitalized in
connection with the renovation of the Company's worldwide headquarters
in 1996 partially offset by a reduction in interest expense due to
repayments of outstanding debt.
The Company's effective tax rate of 37.0 percent for the three
months ended March 31, 1997 decreased from 38.0 percent in the prior
year primarily due to an increase in exempt earnings from foreign sales.
-7-
Liquidity and Capital Resources
The Company utilizes a number of measures of liquidity
including the following:
March 31, December 31,
1997 1996
Working Capital (in thousands) $229,325 $221,678
Current Ratio (Current Assets
to Current Liabilities) 2.8:1 2.7:1
Long-Term Debt to Capital 9.7% 11.2%
(Long-term debt to long-term
debt plus equity)
Current assets increased by $3,499,000 from December 31,
1996 principally due to an increase in accounts receivable as a
result of the increase in net revenue.
Current liabilities decreased $4,148,000 from December 31,
1996 primarily due to a decrease in accounts payable and accrued
expenses partially offset by an increase in income taxes payable
from the results of profitable operations, and increases in
deferred revenue.
The aforementioned activity resulted in a working capital
increase of $7,647,000 for the three months ended March 31, 1997.
The Company's current ratio at March 31, 1997 increased to 2.8:1
compared with 2.7:1 as of December 31, 1996.
Property, plant and equipment expenditures for the three
months ended March 31, 1997 totalled $5,524,000 compared to
$9,699,000 for the three months ended March 31, 1996. The
fluctuation from the prior year period was due to the renovation
of the Corporate Headquarters incurred in the prior year period.
Such expenditures were financed by existing cash and temporary
investments. The Company does not have any material commitments
for capital expenditures.
The Company's long-term debt to capital ratio decreased to
9.7 percent at March 31, 1997 from 11.2 percent at December 31,
1996 primarily due to increased equity from results of operations
and payments of the annual installment of the Company's 7.76
percent Series A Senior Notes and the first installment of the
Company's 7.76 percent Series B Senior Notes.
The Company has loan agreements with three banks pursuant to
which the banks have agreed to provide lines of credit totalling
$60,000,000. As of March 31, 1997, the Company had no outstanding
borrowings under these lines. These agreements expire between
June 30, 1997 and December 31, 1997.
- -8-
The Company generated over $14,000,000 positive cash flow from
operations for the three months ended March 31, 1997, but
experienced an overall decrease in cash of $4,496,000 for the
period. The positive cash flow provided by operations was offset
by cash used in investing and financing activities during the
period. Cash was used for the purchase of 315,830 shares of the
Company's common stock, the note repayments described above and
expenditures for property, plant and equipment. The purchases of
common stock include both shares purchased from officers related
to the exercise of stock options and shares purchased in open
market transactions. These purchases were partially offset by
cash flow generated from and tax benefits associated with the
exercise of stock options.
The Company believes that it has adequate liquidity to meet
its current and anticipated needs from working capital, results
of its operations, and existing credit facilities.
-9-
Part II - Other Information
NONE
-10-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SYMBOL TECHNOLOGIES, INC.
Dated: April 23, 1997 By: /s/ Jerome Swartz
Jerome Swartz, Chairman and
Chief Executive Officer
Dated: April 23, 1997 By: /s/ Brian T. Burke
Brian T. Burke
Vice President -
Chief Accounting Officer
- -11-
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 29,794,000
<SECURITIES> 0
<RECEIVABLES> 165,860,000
<ALLOWANCES> (10,578,000)
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