SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1998
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, N.Y. 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 June 30, 1998
Common Stock, 58,817,745 shares
par value $0.01
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
PAGE
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM I. Financial Statements
Condensed Consolidated Balance Sheets at
June 30, 1998 and December 31, 1997 2
Condensed Consolidated Statements of Earnings
Three and Six Months Ended June 30, 1998 and 1997 3
Condensed Consolidated Statements of Cash Flows
Three and Six Months Ended June 30, 1998 and 1997 4 - 5
Notes to Condensed Consolidated Financial
Statements 6 - 9
ITEM 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations 10 - 13
PART II. OTHER INFORMATION 14 - 15
SIGNATURES 16
</TABLE>
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(All amounts in thousands, except stock par value)
<TABLE>
June 30, December 31,
ASSETS 1998 1997 (1)
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and temporary investments $ 15,384 $ 59,970
Accounts receivable, less allowance for doubtful
accounts of $11,909 and $10,995, respectively 199,714 162,789
Inventories, net 165,722 128,155
Deferred income taxes 26,019 24,908
Other current assets 24,201 24,130
TOTAL CURRENT ASSETS 431,040 399,952
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation and amortization of $83,738 and
$72,723, respectively 141,436 118,745
INTANGIBLE AND OTHER ASSETS, net of accumulated
amortization of $82,446 and $72,043,
respectively 162,053 160,493
$734,529 $679,190
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $138,163 $121,714
Current portion of long-term debt 10,538 10,384
Income taxes payable 13,641 13,580
Deferred revenue 12,670 12,428
TOTAL CURRENT LIABILITIES 175,012 158,106
LONG-TERM DEBT, less current maturities 32,921 40,301
OTHER LIABILITIES AND DEFERRED REVENUE 32,782 22,367
COMMON EQUITY PUT OPTIONS - 4,674
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 65,864 shares and
43,519 shares, respectively 659 435
Retained earnings 317,299 274,976
Other stockholders' equity 175,856 178,331
493,814 453,742
$734,529 $679,190
See notes to condensed consolidated financial statements
(1) The consolidated balance sheet as of December 31, 1997 has been taken
from the audited financial statements at that date and condensed.
</TABLE>
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SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(All amounts in thousands, except per share data)
(Unaudited)
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
NET REVENUE $238,981 $187,663 $452,291 $365,934
COST OF REVENUE 135,652 102,336 252,489 198,635
AMORTIZATION OF SOFTWARE
DEVELOPMENT COSTS 3,211 2,845 6,728 5,762
GROSS PROFIT 100,118 82,482 193,074 161,537
OPERATING EXPENSES:
Engineering 17,102 14,021 33,237 27,057
Selling, general and
administrative 46,949 40,702 91,388 80,245
Amortization of excess
of cost over fair value
of net assets acquired 1,162 1,209 2,423 2,347
65,213 55,932 127,048 109,649
EARNINGS FROM OPERATIONS 34,905 26,550 66,026 51,888
GAIN ON SALE OF BUSINESS 494 - 494 -
INTEREST EXPENSE, net (713) (877) (1,162) (1,699)
EARNINGS BEFORE PROVISION
FOR INCOME TAXES 34,686 25,673 65,358 50,189
PROVISION FOR INCOME TAXES 11,180 9,499 22,222 18,570
NET EARNINGS $ 23,506 $16,174 $ 43,136 $ 31,619
EARNINGS PER SHARE:
Basic $0.40 $0.27 $0.73 $0.54
Diluted $0.38 $0.26 $0.70 $0.52
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING:
Basic 58,858 59,043 58,839 58,975
Diluted 62,178 61,115 61,957 61,265
See notes to condensed consolidated financial statements
</TABLE>
-3-
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts in thousands)
(Unaudited)
<TABLE>
Three Months Ended June 30,
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net earnings $23,506 $16,174
Adjustments to reconcile net earnings
to net cash from operating activities:
Depreciation and amortization of property,
plant and equipment 7,960 6,928
Other amortization 5,136 4,880
Provision for losses on accounts receivable 769 749
Gain from sale of business (494) -
Changes in assets and liabilities
net of effects of acquisitions & divestitures:
Accounts receivable (21,825) 1,901
Inventories (25,471) (3,642)
Other current assets (183) (3,930)
Intangible and other assets (10,512) (5,340)
Accounts payable and accrued expenses 18,496 (2,788)
Other liabilities and deferred revenue 3,111 3,882
Net cash provided by operating activities 493 18,814
Cash flows from investing activities:
Note receivable - 2,500
Expenditures for property, plant and
equipment (23,619) (7,911)
Proceeds from sale of business, net 11,911 -
Acquisition of subsidiaries (5,000) (1,800)
Net cash used in investing activities (16,708) (7,211)
Cash flows from financing activities:
Proceeds from issuance of notes payable 652,605 77,330
Principal repayments of notes payable
and long term debt (653,476) (78,148)
Exercise of stock options and warrants 1,321 2,338
Proceeds from common equity put options - 285
Purchase of treasury shares (7,671) (8,412)
Net cash used in financing activities (7,221) (6,607)
Effects of exchange rate changes on cash 913 (66)
Net (decrease) increase in cash and
temporary investments (22,523) 4,930
Cash and temporary investments, beginning
of period 37,907 29,794
Cash and temporary investments, end of
period $15,384 $34,724
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 871 $ 1,191
Income taxes 6,531 3,902
See notes to condensed consolidated financial statements
</TABLE>
-4-
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts in thousands)
(Unaudited)
<TABLE>
Six Months Ended June 30,
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net earnings $43,136 $31,619
Adjustments to reconcile net earnings to
net cash from operating activities:
Depreciation and amortization of property,
plant and equipment 15,861 12,781
Other amortization 10,403 9,703
Provision for losses on accounts receivable 1,260 1,263
Gain from sale of business (494) -
Changes in assets and liabilities
net of effects of acquisitions & divestitures:
Accounts receivable (39,003) (8,364)
Inventories (37,937) (574)
Other current assets (1,881) (6,256)
Intangible and other assets (15,770) (3,542)
Accounts payable and accrued expenses 14,768 (10,750)
Other liabilities and deferred revenue 12,056 6,935
Net cash provided by operating
activities 2,399 32,815
Cash flows from investing activities:
Note receivable - 2,500
Expenditures for property, plant and
equipment (39,286) (13,435)
Proceeds from sale of business, net 11,911 -
Acquisition of subsidiaries (6,168) (3,760)
Net cash used in investing activities (33,543) (14,695)
Cash flows from financing activities:
Proceeds from issuance of notes payable 813,420 89,980
Principal repayments of notes payable
and long term debt (820,646) (97,148)
Exercise of stock options and warrants 10,491 16,445
Proceeds from common equity put options - 285
Dividends paid (813) (798)
Purchase of treasury shares (16,016) (24,068)
Net cash used in financing activities (13,564) (15,304)
Effects of exchange rate changes on cash 122 (2,382)
Net (decrease) increase in cash and
temporary investments (44,586) 434
Cash and temporary investments, beginning
of period 59,970 34,290
Cash and temporary investments, end of
period $15,384 $34,724
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 1,719 $ 2,580
Income taxes 7,191 5,253
See notes to condensed consolidated financial statements
</TABLE>
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SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(All amounts in thousands, except per share data)
1. In the opinion of management, the accompanying unaudited condensed
consolidated financial statements include all necessary adjustments
(consisting of normal recurring accruals) and present fairly the
Company's financial position as of June 30, 1998, and the results of
its operations and its cash flows for the three and six months ended
June 30, 1998 and 1997, in conformity with generally accepted
accounting principles for interim financial information applied on a
consistent basis. The results of operations for the three and six
months ended June 30, 1998, 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, 1997.
2. Basic earnings per share are based on the weighted average number of
shares of common stock outstanding during the period. Diluted
earnings per share are based on the weighted average number of
shares of common stock and common stock equivalents (options and
warrants) outstanding during the period, computed in accordance with
the treasury stock method.
On February 9, 1998 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 $0.02 per share (pre split basis) semi-annual
cash dividend both of which were payable on April 3, 1998 to
shareholders of record on March 17, 1998. 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,
1998.
3. Classification of inventories is:
<TABLE>
June 30, 1998 December 31, 1997
(Unaudited)
<S> <C> <C>
Raw materials $ 68,460 $ 57,872
Work-in-process 26,853 14,039
Finished goods 70,409 56,244
$165,722 $128,155
</TABLE>
4. Effective January 1, 1998 the Company has adopted Financial
Accounting Standards No. 130 "Reporting Comprehensive Income" which
requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be
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reported in the financial statements. The Company's total
comprehensive earnings were as follows:
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net earnings $ 23,506 $ 16,174 $ 43,136 $ 31,619
Other comprehensive
earnings(losses), net
of tax:
Change in equity due to
foreign currency
translation adjustments (352) 1,050 (1,325) (2,655)
Comprehensive earnings $ 23,154 $ 17,224 $ 41,811 $ 28,964
</TABLE>
5. 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 in Federal District Court for the Western District of New
York, 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 which it estimates now exceed $10,000,000 plus
interest on unpaid royalties since the second quarter of 1996.
The Company had also sued Data General Corporation ("Data General"),
a manufacturer of portable integrated scanning terminals which
incorporate scan engines from 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.
-7-
The Court also set a one week trial (a "Markman" hearing) for July
14, 1997, to construe the claims in all nine patents asserted by
Symbol against Data General and PSC. On May 8, 1997, the Court
postponed the "Markman" hearing and in the interest of judicial
economy, the Court also stayed discovery on the patent claims until
a non-judicial arbitration which PSC had initiated on March 10, 1997
was completed. The arbitration involved an interpretation of
certain provisions of 1985 and 1995 license agreements between the
Company and Spectra-Physics Scanning Systems, Inc. (which had been
acquired by PSC) concerning whether purchasers of PSC's scan engines
were free to incorporate these scan engines into their integrated
scanning terminals without any royalty payment to Symbol beyond that
paid by PSC on the scan engine itself. The arbitration was heard on
July 22-24, 1997. On December 29, 1997, the Arbitrator rendered his
decision in favor of the Company and against PSC. The Arbitrator
ruled that the sale of PSC's scan engines passed no immunity to
PSC's customers under Symbol patents covering the integration of the
scan engine into integrated scanning terminals. The Arbitrator's
decision has been confirmed by the Court.
The Company requested that the Court lift the stay it entered in the
litigation, to permit the Company to seek a ruling that the
Company's agreements with PSC, which PSC argues have been terminated
and under which it has ceased paying royalties for more than two
years, remain in full force and effect and require royalty payments
to be made to the Company pursuant to those agreements. PSC
initially objected to the Company's request and asked the Court that
it continue to hold the contract issues in abeyance and instead lift
the stay with respect to the pending patent issues and that
discovery in these claims be reopened. On April 3, 1998 the court,
with the consent of the parties, lifted the stay with respect to the
contract issues and scheduled a trial on this aspect of the
litigation which is currently scheduled to commence on October 13,
1998.
6. During April 1997, the Company issued common equity put options on
225,000 shares of its common stock which were 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 $20.775 per share.
The balance of the common equity put option account as of December
31, 1997, represents the amount the Company would be obligated to
pay if all unexpired put options were exercised relating to
unexpired transactions outstanding. On April 9, 1998 the obligation
associated with the common equity put options expired. As a result
the balance in the common equity put option account of $4,674,000
was reclassified to additional paid in capital in April,1998.
-8-
7. Effective May 31, 1998, the Company sold all of the stock and certain
assets of Symbol LIS Limited, a wholly owned subsidiary, engaged in
the business of providing systems and technology with respect to
logistics and warehouse management systems operations to a third
party. Proceeds from the sale of $15,000,000 were offset by the
value of net assets sold and the write-off of the proportional share
of excess of cost over net assets acquired, relating to the original
acquisition of LIS Holdings Ltd., in 1996. This resulted in a gain
from the sale of business of $494,000 which is classified as non-
operating income in the consolidated statement of earnings.
Additional acquisition payments to be made to the Company are
contingent upon the attainment of certain annual net revenue levels
during the next six years, subject to a minimum earnout amount as
defined in the stock purchase agreement.
8. In July 1998, the Company established a wholly owned subsidiary in
Sweden through the acquisition of substantially all of the assets of
ISE Data AB, a distributor of the Company's products. This
acquisition will be accounted for as a purchase and, accordingly, the
related acquisition cost will be allocated to net assets acquired
based upon fair values. The initial cash consideration related to
this acquisition amounted to $4,000,000 and is subject to adjustment
based upon the final valuation of the net assets to be acquired. The
fair value of net assets to be acquired is estimated at approximately
$750,000. The excess of cost over net assets acquired relating to
this acquisition will be amortized over twenty years.
Additional acquisition payments will be contingent upon the
attainment of certain annual net revenue levels, as defined in the
stock purchase agreement, during the next five years.
Results of operations of this subsidiary are not reflected in the
Company's consolidated financial statements as of June 30, 1998 as
they will be included in consolidated operations as of its effective
acquisition date. Pro forma results of operations, assuming this
acquisition had been completed at the beginning of 1998, would not
differ materially from the reported results.
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Safe harbor for forward looking statements under Securities Litigation
Act of 1995; certain cautionary statements
Pursuant to the safe harbor provision of the Private Securities
Litigation Reform Act of 1995, certain comments included herein are
forward looking statements. The actual results may differ materially
from those projected in the forward looking statements. Furthermore,
such forward looking statements are subject to a number of risks and
uncertainties including, but not limited to the state of the US and
European economies, the level of competition within the industry and its
effect on product prices, the Company's ability to timely launch new
products, and various other factors. Additional information concerning
these factors is set forth herein and in the Company's Annual Report on
Form 10-K which was filed with the Securities and Exchange Commission in
March, 1998.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
Net revenue of $238,981,000 and $452,291,000 for the three and six
months ended June 30, 1998 increased 27.3 percent and 23.6 percent,
respectively, over the comparable prior year periods. The increase for
the three and six months ended June 30, 1998 is due to increased sales of
worldwide scanner and North America hand held computer systems. Foreign
exchange rate fluctuations unfavorably impacted the growth in net revenue
by approximately 1.5 percent and 2.0 percent, respectively for the three
and six months ended June 30, 1998 and unfavorably impacted net revenue
by approximately 1.3 percent and 1.0 percent, respectively, for the three
and six months ended June 30, 1997.
Geographically, North America revenue increased 40.5 percent and
35.0 percent, respectively, for the three and six months ended June 30,
1998 over the comparable prior year periods. International revenue
increased 10.2 percent and 8.9 percent, respectively, for the three and
six months ended June 30, 1998 over the comparable prior year periods.
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 56.8 percent and
55.8 percent for the three and six months ended June 30, 1998 increased
from 54.5 percent and 54.3 percent, respectively, for the comparable
prior year periods. This increase is principally due to the unfavorable
impact of foreign exchange rate fluctuations on net revenue previously
described and due to the Company's initial roll out of its contract
related to the United States Postal Service which represents a lower
margin order relative to historical orders. This is the largest contract
in the Company's history and represents over $100,000,000 of revenue. The
Company anticipates an increase in the cost of revenue (as a percentage of
net revenue), in the subsequent quarters of 1998 due to a higher
proportional share of the roll out of its contract related to the United
Postal Service. In the first half of 1998, the U.S. dollar continued to
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appreciate from year end 1997 levels. Even if there is no further change
in foreign exchange rates, the Company anticipates that this combination
of factors will have an adverse impact on the 1998 to 1997 comparison of
cost of revenue (as a percentage of net revenue).
Amortization of software development costs of $3,211,000 and
$6,728,000 for the three and six months ended June 30, 1998 increased
from $2,845,000 and $5,762,000 in the comparable prior year periods due
to new product releases.
Engineering expenses for the three and six months ended June 30,
1998 increased to $17,102,000 and $33,237,000 from $14,021,000 and
$27,057,000, respectively, for the comparable prior year periods. In
absolute dollars engineering expenses increased 22.0 percent and 22.8
percent, respectively, from the prior year periods. However, as a
percentage of net revenue such expenses decreased to 7.2 percent and 7.3
percent, respectively for the three and six months ended June 30, 1998
compared to 7.5 and 7.4 percent, respectively, in the comparable prior
year periods. The increase in absolute dollars is 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 $46,949,000 and
$91,388,000 for the three and six months ended June 30, 1998 increased
from $40,702,000 and $80,245,000, respectively, for the comparable prior
year periods. While in absolute dollars, selling, general and
administrative expenses increased 15.3 percent and 13.9 percent,
respectively, from the prior year periods, as a percentage of net revenue
such expenses decreased to 19.6 percent and 20.2 percent for the three
and six months ended June 30, 1998 from 21.7 percent and 21.9 percent,
respectively, in the comparable prior year periods. The increase in
absolute dollars reflects expenses incurred to support a higher revenue
base and expenses incurred by two subsidiaries acquired in 1997.
Amortization of excess of cost over fair value of net assets
acquired of $1,162,000 and $2,423,000 for the three and six months ended
June 30, 1998, decreased from $1,209,000 and increased from $2,347,000,
respectively for the comparable prior year periods. The decrease for
the three months ended June 30, 1998 is due to foreign exchange
fluctuations coupled with the sale of stock and certain assets of Symbol
LIS Limited described below partially offset by the increase resulting
from the acquisition of two subsidiaries in 1997. The increase for the
six months ended June 30, 1998 is primarily due to the acquisition of two
subsidiaries in 1997 which resulted in an increase in the gross value of
excess of cost over fair value of net assets acquired.
The gain from the sale of business resulted from the sale of the
stock and certain assets of Symbol LIS Limited, a wholly owned
subsidiary, engaged in the business of providing systems and technology
with respect to logistics and warehouse management systems operations to
a third party.
-11-
Net interest expense decreased to $713,000 and $1,162,000 for the
three and six months ended June 30, 1998 from $877,000 and $1,699,000 for
the comparable prior year periods due to annual mandatory repayments of
indebtedness and increased interest income resulting from an increase in
temporary investments versus the prior year period.
The Company's effective tax rate of 32.2 percent and 34.0 percent,
respectively, for the three and six months ended June 30, 1998,
respectively, decreased from 37.0 percent for the three and six months
ended June 30, 1997 primarily due to an increase in the federal tax
credits and exempt earnings of the foreign sales corporation.
Liquidity and Capital Resources
The Company utilizes a number of measures of liquidity including the
following:
<TABLE>
June 30, December 31,
1998 1997
<S> <C> <C>
Working Capital (in thousands) $256,028 $241,846
Current Ratio (Current Assets
to Current Liabilities) 2.5:1 2.5:1
Long-Term Debt to Capital 6.2% 8.1%
(Long-term debt to long-term
debt plus equity)
</TABLE>
Current assets increased by $31,088,000 from December 31, 1997
principally due to an increase in accounts receivable and inventories to
support higher operating levels, partially offset by the decrease in cash.
Current liabilities increased $16,906,000 from December 31, 1997
primarily due to increases in accounts payable and accrued expenses, also
resulting from the support of higher operating levels.
The aforementioned activity resulted in a working capital increase of
$14,182,000 for the six months ended June 30, 1998. The Company's current
ratio at June 30, 1998 remained stable with 2.5:1 at December 31, 1997.
Property, plant and equipment expenditures for the six months ended
June 30, 1998 totalled $39,286,000 compared to $13,435,000 for the six
months ended June 30, 1997. In the fourth quarter of 1997 the Company
entered into a construction commitment to expand its existing Worldwide
Headquarters facility, located in Holtsville, New York, by approximately
125,000 square feet. The project cost, including furniture, fixtures and
equipment, is estimated at approximately $20,000,000 and is anticipated
to be completed in March 1999. In addition, the Company continues to
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make capital investments in major systems and networks conversions. The
Company does not have any other material commitments for capital
expenditures.
The Company's long-term debt to capital ratio decreased to 6.2
percent at June 30, 1998 from 8.1 percent at December 31, 1997 primarily
due to increased equity from the results of operations and payment of the
annual installment of the Company's 7.76 percent Series A and B Senior
Notes.
The Company has loan agreements, which expire June 30, 1999 with six
banks pursuant to which the banks have agreed to provide lines of credit
totalling $135,000,000.
The Company generated positive cash flow from operations for the three
months ended June 30, 1998, but experienced an overall decrease in cash of
$22,523,000 for the period. The positive cash flow provided by operations
was offset by cash used in investing activities and financing activities
during the period. Cash was used for expenditures for property, plant and
equipment, acquisition related payments and the purchase of 230,000 shares
of the Company's common stock. The purchases of common stock represent
shares purchased in open market transactions. These uses of cash were
partially offset by cash flow generated from and tax benefits associated
with the exercise of stock options as well as proceeds from the sale of
stock and certain assets of a wholly owned subsidiary.
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.
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Part II - Other Information
Item 1. Legal Proceedings
On April 1, 1996, PSC Inc. ("PSC") commenced suit against the Company
in Federal District court for the Western District of New York, 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 seek a declaratory judgment of alleged non-infringement
and invalidity 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 had also sued Data General Corporation
("Data General"), a manufacturer of portable integrated scanning terminals
which incorporate scan engines from 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 Court also set a one week trial (a "Markman"
hearing) for July 14, 1997, to construe the claims in all nine patents
asserted by Symbol against Data General and PSC. On May 8, 1997, the Court
postponed the "Markman" hearing and in the interest of judicial economy,
the Court also stayed discovery on the patent claims until a non-judicial
arbitration which PSC had initiated on March 10, 1997 was completed. The
arbitration involved an interpretation of certain provisions of 1985 and
1995 license agreements between the Company and Spectra Physics Scanning
Systems, Inc. (which had been acquired by PSC) concerning whether
purchasers of PSC's scan engines were free to incorporate such scan engines
into their integrated scanning terminals without any royalty payment to the
Company beyond that paid by PSC on the scan engine itself. The arbitration
was heard on July 22-24, 1997. On December 29, 1997, the Arbitrator
rendered his decision in favor of the Company and against PSC. The
Arbitrator ruled that the sale of PSC's scan engines passed no immunity to
PSC's customers under Symbol patents covering the integration of the scan
engine into integrated scanning terminals. The Arbitrator's decision has
been confirmed by the Court.
By letter dated January 22, 1998, the Company requested that the Court lift
the stay it entered in the litigation, to permit the Company to seek a
ruling that the Company's agreements with PSC, which PSC argues have been
terminated and under which it has ceased paying royalties for more than two
-14-
years, remain in full force and effect and require royalty payments to be
made to the Company pursuant to those agreements. PSC initially objected
to the Company's request and asked the Court that it continue to hold the
contract issues in abeyance and instead lift the stay with respect to the
pending patent issues and that discovery in these claims be reopened. On
April 3, 1998 the Court, with the consent of the parties, lifted the stay
previously in effect with respect to the contractual issues in the
litigation and ordered that a trial on these issues be held commencing on
October 13, 1998. The Company and PSC are currently conducting discovery
which is scheduled to be completed by the end of the third quarter. If the
Company succeeds in the contract action, it believes it is entitled to
receive damages in excess of $10,000,000 plus interest in unpaid royalties
since the second quarter of 1996 and that it will be owed, on an ongoing
basis, additional royalties in excess of $5,000,000 per annum. If the
Company does not prevail in the action, it will continue to receive royalty
payments from PSC at the same rate and on the same products as it currently
is receiving them.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Shareholders was held on May 11,
1998. At the meeting all nine directors nominated by the Company were
reelected. The votes cast for each nominee were as follows:
<TABLE>
For Against
<S> <C> <C>
Jerome Swartz 35,104,487 209,735
Harvey P. Mallement 35,102,337 211,885
Frederic P. Heiman 35,107,657 206,565
Raymond R. Martino 35,106,734 207,488
Saul P. Steinberg 35,100,521 213,701
Lowell C. Freiberg 35,101,270 212,952
George Bugliarello 35,085,422 228,800
Charles B. Wang 35,107,516 206,706
Tomo Razmilovic 35,106,889 207,333
</TABLE>
Shareholders also ratified the appointment of Deloitte & Touche
LLP as the Company's auditors for fiscal 1998 by a vote of 35,252,903 in
favor, 35,666 opposed and 25,653 abstaining.
-15-
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.
<TABLE>
<S> <C>
Dated: July 24, 1998 By: /s/ Jerome Swartz
Jerome Swartz, Chairman and
Chief Executive Officer
Dated: July 24, 1998 By: /s/ Kenneth V. Jaeggi
Kenneth V. Jaeggi
Senior Vice President -
Chief Financial Officer
</TABLE>
-16-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 15,384,000
<SECURITIES> 0
<RECEIVABLES> 211,623,000
<ALLOWANCES> (11,909,000)
<INVENTORY> 165,722,000
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<DEPRECIATION> (83,738,000)
<TOTAL-ASSETS> 734,529,000
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<BONDS> 32,921,000
0
0
<COMMON> 659,000
<OTHER-SE> 493,155,000
<TOTAL-LIABILITY-AND-EQUITY> 734,529,000
<SALES> 452,291,000
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<CGS> 252,489,000
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</TABLE>
