SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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 Identification No.)
incorporation or organization)
One Symbol Plaza
Holtsville, NY 11742-1300
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including
area code: (516) 738-2400
Securities registered pursuant to
Section 12(b) of the Act:
Common Stock, par value $.01 New York Stock Exchange
(Title of each class) (Name of each Exchange on
which registered)
Securities registered pursuant to Section 12(g) of the Act: None
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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
The aggregate market value of the voting stock held by persons other
than officers and directors (and their associates) of the registrant, as of
February 1, 1999 was approximately $ 3,139,000,000.
The number of shares outstanding of each of the registrant's classes of
common stock, as of December 31, 1998, was as follows:
Class Number of Shares
Common Stock, par value $.01 58,756,247
Documents Incorporated by Reference: The registrant's Proxy Statement to be
used in conjunction with the Annual Meeting of Shareholders to be held on
May 10, 1999 (the "Proxy Statement") is incorporated into Part III.
This Form 10-K/A is filed to amend the disclosure included in
footnote 14 of the accompanying Notes to the Consolidated
Financial Statements. There are no other changes (other than the
dating of the signature pages and Independent Auditors' Consent)
to the Company's annual report on Form 10-K which was previously
filed on March 2, 1999.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
(Registrant)
By: /s/Jerome Swartz
Jerome Swartz
Chairman of the Board
Dated: March 8, 1999
-62-
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.
Signature Title Date
/s/Jerome Swartz Chairman of the March 8, 1999
Jerome Swartz Board and Director
(Principal Executive
Officer)
/s/Tomo Razmilovic Director March 8, 1999
Tomo Razmilovic
/s/Raymond R. Martino Director March 8, 1999
Raymond R. Martino
/s/Harvey P. Mallement Director March 8, 1999
Harvey P. Mallement
/s/Frederic P. Heiman Director March 8, 1999
Frederic P. Heiman
/s/Saul P. Steinberg Director March 8, 1999
Saul P. Steinberg
/s/Lowell C. Freiberg Director March 8, 1999
Lowell C. Freiberg
/s/George Bugliarello Director March 8, 1999
George Bugliarello
/s/Charles B. Wang Director March 8, 1999
Charles B. Wang
/s/Kenneth V. Jaeggi Senior Vice President March 8, 1999
Kenneth V. Jaeggi Finance (Chief
Financial Officer)
/s/Brian T. Burke Senior Vice President March 8, 1999
Brian T. Burke and Controller (Chief
Accounting Officer)
-63-
SYMBOL TECHNOLOGIES, INC.
AND SUBSIDIARIES
------
CONSOLIDATED FINANCIAL STATEMENTS
COMPRISING ITEM 8 AND SCHEDULE II LISTED IN THE
INDEX AT ITEM 14(a)2 OF ANNUAL REPORT ON FORM 10-K
TO SECURITIES AND EXCHANGE COMMISSION FOR THE
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
I N D E X
PAGE
Independent auditors' report F-1
Consolidated financial statements:
Balance sheets F-2
Statements of earnings F-3
Statements of stockholders' equity F-4
Statements of cash flows F-5
Notes to consolidated financial
statements (1-15) F-6 through F-30
Additional financial information pursuant to the
requirements of Form 10-K:
Schedule:
II - Valuation and qualifying accounts S-1
Schedules not listed above have been omitted because they are
either not applicable or the required information has been
provided elsewhere in the consolidated financial statements or
notes thereto.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Symbol Technologies, Inc.
Holtsville, New York
We have audited the accompanying consolidated balance sheets
of Symbol Technologies, Inc. and subsidiaries as of December
31, 1998 and 1997, and the related consolidated statements of
earnings, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1998. Our audits
also included the financial statement schedule listed in the
index at Item 14(a)2. These financial statements and
financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an
opinion on the financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements
present fairly, in all material respects, the financial
position of Symbol Technologies, Inc. and subsidiaries as of
December 31, 1998 and 1997 and the results of their
operations and their cash flows for each of the three years
in the period ended December 31, 1998 in conformity with
generally accepted accounting principles. Also, in our
opinion, such financial statement schedule, when considered
in relation to the basic consolidated financial statements
taken as a whole, presents fairly in all material respects
the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
New York, New York
February 18, 1999
F-1
<TABLE>
<CAPTION>
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All amounts in thousands, except stock par value)
December 31, December 31,
ASSETS 1998 1997
<S> <C> <C>
CURRENT ASSETS:
Cash, including temporary investments of
$3,018 and $31,909 respectively $ 16,284 $ 59,970
Accounts receivable, less allowance for doubtful
accounts of $10,031 and $10,995, respectively 205,416 162,789
Inventories, net 196,986 128,155
Deferred income taxes 34,428 24,908
Other current assets 26,490 24,130
TOTAL CURRENT ASSETS 479,604 399,952
PROPERTY, PLANT AND EQUIPMENT, net 174,867 118,745
INTANGIBLE ASSETS, net 115,954 115,275
SOFTWARE DEVELOPMENT COSTS, net 43,571 26,649
OTHER ASSETS 24,403 18,569
$838,399 $679,190
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $149,938 $121,714
Current portion of long-term debt 10,594 10,384
Income taxes payable 9,858 13,580
Deferred revenue 13,897 12,428
TOTAL CURRENT LIABILITIES 184,287 158,106
LONG-TERM DEBT, less current maturities 64,596 40,301
DEFERRED REVENUES 10,683 2,410
OTHER LIABILITIES 47,905 19,957
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 66,439 shares and
43,519 shares, respectively 664 435
Additional paid-in capital 315,884 289,434
Cumulative translation adjustments (5,797) (7,792)
Retained earnings 365,950 274,976
676,701 557,053
Less:
Treasury stock at cost, 7,683 shares and
4,359 shares, respectively (145,773) (103,311)
530,928 453,742
$838,399 $679,190
</TABLE>
See notes to consolidated financial statements
F-2
<TABLE>
<CAPTION>
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(All amounts in thousands, except per share data)
Year ended December 31,
1998 1997 1996
<S> <C> <C> <C>
NET REVENUE $977,901 $774,345 $656,675
COST OF REVENUE 547,328 421,796 349,428
AMORTIZATION OF SOFTWARE
DEVELOPMENT COSTS 14,592 12,068 10,686
GROSS PROFIT 415,981 340,481 296,561
OPERATING EXPENSES:
Engineering 71,090 56,961 46,752
Selling, general and
administrative 194,775 165,647 149,602
Amortization of excess of
cost over fair value of
net assets acquired 4,812 4,859 3,679
Purchased research and
development and merger
integration costs - - 12,341
Charges related to
terminated acquisition 3,597 - -
274,274 227,467 212,374
EARNINGS FROM OPERATIONS 141,707 113,014 84,187
OTHER (EXPENSE)/INCOME:
Gain on sale of business 494 - -
Interest income 2,373 2,225 1,756
Interest expense (5,823) (5,501) (4,885)
(2,956) (3,276) (3,129)
EARNINGS BEFORE INCOME TAXES 138,751 109,738 81,058
PROVISION FOR INCOME TAXES 45,787 39,506 30,802
NET EARNINGS $ 92,964 $ 70,232 $ 50,256
EARNINGS PER SHARE:
Basic $1.58 $1.19 $0.86
Diluted $1.49 $1.15 $0.82
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING:
Basic 58,796 59,038 58,197
Diluted 62,436 61,236 60,928
</TABLE>
See notes to consolidated financial statements
F-3
<TABLE>
<CAPTION>
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(All amounts in thousands, except stock par value)
Accumulated Other
Common Stock Comprehensive
$0.01 Par Value Income
Additional Cumulative Total
Shares Paid-in Translation Retained Treasury Stockholders'
Issued Amount Capital Adjustments Earnings Stock Equity
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 27,229 $272 $245,728 ($8,299) $156,075 ($40,922) $352,854
Net earnings - - - - 50,256 - 50,256
Translation adjustments - - - 2,649 - - 2,649
Total comprehensive income 52,905
Exercise of stock options 919 10 22,701 - - - 22,711
Exercise of warrants 47 - 458 - - - 458
Proceeds from sale of common
equity put options - - 946 - - - 946
Reclassification of common
equity put options obligation - - (11,041) - - - (11,041)
Purchase of treasury shares - - - - - (19,157) (19,157)
BALANCE, DECEMBER 31, 1996 28,195 282 258,792 (5,650) 206,331 (60,079) 399,676
Net earnings - - - - 70,232 - 70,232
Translation adjustments - - - (2,142) - - (2,142)
Total comprehensive income 68,090
Exercise of stock options 1,218 12 24,062 - - - 24,074
Exercise of warrants 9 - 69 - - - 69
Proceeds from sale of common
equity put options - - 285 - - - 285
Reclassification of common
equity put options obligation - - 6,367 - - - 6,367
Purchase of treasury shares - - - - - (43,232) (43,232)
Stock split 14,097 141 (141) - - - -
Dividends paid - - - - (1,587) - (1,587)
BALANCE, DECEMBER 31, 1997 43,519 435 289,434 (7,792) 274,976 (103,311) 453,742
Net earnings - - - - 92,964 - 92,964
Translation adjustments - - - 1,995 - - 1,995
Total comprehensive income 94,959
Exercise of stock options 1,118 11 21,533 - - - 21,544
Exercise of warrants 43 - 461 - - - 461
Reclassification of common
equity put options obligation - - 4,674 - - - 4,674
Purchase of treasury shares - - - - - (42,462) (42,462)
Stock split 21,759 218 (218) - - - -
Dividends paid - - - - (1,990) - (1,990)
BALANCE, DECEMBER 31, 1998 66,439 $664 $315,884 ($5,797) $365,950 ($145,773) $530,928
</TABLE>
See notes to consolidated financial statements
F-4
<TABLE>
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
(All amounts in thousands)
Year ended December 31,
1998 1997 1996
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 92,964 $ 70,232 $ 50,256
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization of
property, plant and equipment 32,797 25,738 23,247
Other amortization 22,359 19,539 16,276
Provision for losses on accounts
receivable 2,921 2,253 2,270
Gain from sale of business (494) - -
Charge for purchased research and
development - - 10,741
Deferred income taxes 5,417 6,243 (2,835)
Changes in assets and liabilities net of
effect of acquisitions and divestitures:
Accounts receivable (43,006) (12,455) (24,481)
Sale of lease receivables - - 17,308
Inventories (64,948) 9,594 (33,880)
Other current assets (2,446) (11,583) 605
Software development costs (31,514) (14,743) (13,606)
Intangible assets (6,951) (3,387) (7,054)
Other assets (5,990) 2,053 (14,150)
Accounts payable and accrued expenses 22,021 15,113 10,981
Income taxes payable 7,217 4,380 (3,319)
Other liabilities and deferred revenue 13,152 (4,805) 1,496
Net cash provided by
operating activities 43,499 108,172 33,855
Cash flows from investing activities:
Note receivable - 2,500 500
Expenditures for property, plant
and equipment (89,334) (42,679) (34,680)
Proceeds from sale of business, net 11,911 - -
Acquisition of subsidiaries, net of
cash acquired (13,686) (8,026) (26,962)
Net cash used in investing activities (91,109) (48,205) (61,142)
Cash flows from financing activities:
Net proceeds from issuance and repayments
of long-term debt 24,505 (10,240) (6,814)
Exercise of stock options and warrants 22,005 24,143 23,169
Proceeds from common equity put options - 285 946
Dividends paid (1,990) (1,587) -
Purchase of treasury shares (42,462) (43,232) (19,157)
Net cash provided by/(used in)
financing activities 2,058 (30,631) (1,856)
Effects of exchange rate changes on cash 1,866 (3,656) (217)
Net (decrease)/increase in cash and
temporary investments (43,686) 25,680 (29,360)
Cash and temporary investments,
beginning of year 59,970 34,290 63,650
Cash and temporary investments, end
of year $ 16,284 $ 59,970 $ 34,290
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 3,496 $ 4,613 $ 4,987
Income taxes $ 21,281 $ 15,423 $ 19,685
</TABLE>
See notes to consolidated financial statements
F-5
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Principles of Consolidation
The consolidated financial statements include the accounts of
Symbol Technologies, Inc. and its subsidiaries (the "Company" or
"Symbol"), substantially all of which are wholly-owned.
Significant intercompany transactions and balances have been
eliminated in consolidation.
b. Temporary Investments
Temporary investments include highly liquid investments with
original maturities of three months or less and consist primarily
of money market funds and time deposits at December 31, 1998 and
1997. Temporary investments are stated at cost, which approximates
market value. These investments are not subject to significant
market risk.
c. Inventories
Inventories are stated at the lower of cost (determined on a
first-in, first-out basis) or market.
d. Property, Plant and Equipment
Property, plant and equipment is recorded at cost. Depreciation
and amortization is provided on a straight-line basis over the
following estimated useful lives:
Buildings and improvements 15 to 40 years
Machinery and equipment 3 to 7 years
Furniture, fixtures and office equipment 5 to 10 years
Computer hardware and software 3 to 7 years
Leasehold improvements (limited to terms
of the leases) 2 to 10 years
The Company capitalized interest costs of $350,000, zero, and
$258,000 for the years ended December 31, 1998, 1997 and 1996,
respectively.
F-6
e. Intangible Assets
The excess of cost over fair value of net assets acquired is being
amortized on a straight-line basis over periods ranging from 7 to
40 years.
Patents and trademarks, including costs incurred in connection
with the protection of patents, are amortized over their estimated
useful lives, not exceeding 20 years, using the straight-line
method.
f. Software Development Costs
The Company capitalizes costs incurred for internally developed
product software where economic and technological feasibility has
been established and for qualifying purchased product software.
Capitalized software costs are amortized on a straight-line basis
over the estimated useful product lives (normally three years).
g. Long-Lived Assets
The Company reviews its long-lived assets, including property,
plant and equipment, identifiable intangibles and software
development costs for impairment whenever events or changes in
circumstances indicate that the carrying amounts of the assets may
not be fully recoverable. To determine recoverability of its
long-lived assets, the Company evaluates the probability that
future undiscounted net cash flows, without interest charges, will
be less than the carrying amount of the assets. Impairment is
measured at fair value and had no effect on the Company's
consolidated financial statements for the years ended December 31,
1998 and 1997.
h. Research and Development Expenses
The Company expenses all research and development costs as
incurred. The Company incurred research and development expenses
of approximately $31,030,000, $29,991,000 and $20,164,000, for the
years ended December 31, 1998, 1997 and 1996, respectively, which
are classified in engineering expenses.
i. Revenue Recognition
Revenue from sales of the Company's products is recognized upon
shipment. In conjunction with these sales, field service
F-7
maintenance agreements are sold for certain products. When such
revenue is recorded prior to providing repair and maintenance
service, it is deferred and recognized over the term of the
related agreements.
j. Income Taxes
Deferred income tax assets and liabilities were recognized for the
expected future tax consequences of events that have been included
in the Company's financial statements or tax returns. Under this
method, deferred tax assets and liabilities are determined based
on the differences between the financial accounting and tax bases
of assets and liabilities using enacted tax rates in effect for
the year in which the differences are expected to reverse.
Investment, research and development and other tax credits are
accounted for by the flow-through method.
The cumulative amount of undistributed earnings of foreign
subsidiaries at December 31, 1998, approximates $36,000,000. The
Company does not provide deferred taxes on undistributed earnings
of foreign subsidiaries since the Company anticipates no
significant incremental U.S. income taxes on the repatriation of
these earnings as tax rates in foreign jurisdictions generally
approximate or exceed the U.S. Federal rate.
k. Earnings Per Share
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 which was paid on April 3, 1998 to
shareholders of record on March 17, 1998. In these financial
statements, all earnings per share amounts and the weighted
average number of common shares outstanding have been
retroactively restated to reflect the stock split. In addition,
the number of common shares issued have been adjusted to reflect
the stock split and an amount equal to the par value of the
additional shares issued has been transferred from additional
F-8
paid in capital to common stock. 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 which
was paid on April 1, 1997 to shareholders of record on March 10,
1997.
l. Foreign Currency Translation and Transactions
Assets and liabilities of foreign subsidiaries are translated at
year-end exchange rates. Results of operations are translated
using the average exchange rates prevailing throughout the year.
Gains and losses from foreign currency transactions are included
in net earnings for the year and are not material. Exchange rate
changes arising from translation are included in the cumulative
translation adjustments component of stockholders' equity.
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. The
Company enters into foreign currency forward exchange contracts to
hedge a portion of its intercompany accounts receivable
transactions. The effect of this practice is to minimize the
impact of foreign exchange rate movements on the Company's
operating results. The Company's hedging activities do not subject
the Company to exchange rate risk because gains and losses on
these contracts offset losses and gains on the related
intercompany receivables being hedged.
As of December 31, 1998, the Company had $39,246,000 forward
exchange contracts outstanding. The Company had no foreign
exchange contracts outstanding at December 31, 1997. The forward
exchange contracts generally have maturities that do not exceed 12
months and require the Company to exchange foreign currencies for
U.S. dollars at maturity, at rates agreed to at inception of the
contracts. The fair value of these contracts was equal to their
carrying value. These contracts are primarily denominated in
European currencies, Canadian dollars, Japanese yen and Australian
dollars and have been marked to spot as of December 31, 1998 with
the resultant gains and losses included in net earnings.
m. Pervasiveness of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
F-9
n. Comprehensive Income
In 1998 the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130").
This statement establishes rules for the reporting of
comprehensive income and its components. Comprehensive income
consists of net income and foreign currency translation
adjustments and is presented in the Consolidated Statement of
Shareholders' Equity. The adoption of SFAS 130 had no impact on
shareholders' equity. Prior year financial statements have been
reclassified to conform with these requirements.
o. Reclassifications
Certain reclassifications have been made to prior consolidated
financial statements to conform with current presentations.
2. ACQUISITIONS AND DIVESTITURES
During 1998 the Company incurred various pre-tax costs associated
with a publicly announced attempt to acquire another company. In
the fourth quarter of 1998 the Company formally terminated its
efforts to complete this acquisition. These pre-tax costs of
$3,597,000 primarily include legal, accounting, investment banking
and public relations fees which have been separately classified in
the Company's statement of earnings for the year ended December
31, 1998.
During the past three years the Company has established wholly
owned subsidiaries through the acquisition of various of its
international distributors. These acquisitions have been
accounted for as purchases and, accordingly, the related
acquisition costs have been allocated to net assets acquired
based upon fair values. The excess of cost over net assets
acquired related to these acquisitions is being amortized over
periods not exceeding twenty years. The following table
summarizes the terms of these acquisitions:
<TABLE>
<CAPTION>
Initial Excess of
Acquisition Subsidiary Purchase Cost over net
Date Location Price assets acquired
<S> <C> <C> <C>
October 1998 Finland $ 800,000 $ 550,000
July 1998 Sweden $5,300,000 $3,100,000
July 1997 Holland $3,000,000 $2,100,000
July 1997 Japan $4,700,000 $ 220,000
March 1996 Denmark $3,000,000 $2,700,000
January 1996 South Africa $4,080,000 $3,700,000
<FN>
F-10
Additional acquisition payments are contingent upon the
attainment of certain annual net revenue levels as defined in the
respective agreements during periods not exceeding five years
from the date of acquisition. The Company made additional
acquisition payments of $2,646,000 and $1,960,000, respectively
during the years ended December 31, 1998 and 1997 related to
these acquisitions.
Result of operations of these subsidiaries have been included in
consolidated operations as of their respective effective
acquisition dates. Pro forma results of operations, assuming
these acquisitions had been completed at the beginning of 1998,
1997 and 1996, would not differ materially from the reported
results.
In August, 1996, the Company acquired LIS Holdings Ltd., ("LIS")
headquartered in the United Kingdom. LIS was one of Europe's
largest providers of technology-based logistics management systems
providing technology solutions based on its own software products
in concert with bar code, wireless networking and ruggedized
terminals. The original terms of the acquisition included an
initial payment of $20,844,000 and subsequent additional payments
over a three year period which were renegotiated and settled
during 1998 in connection with the sale of Symbol LIS Limited,
described below. This acquisition had been accounted for as a
purchase. The purchase price(including acquisition costs)has been
allocated to net assets acquired based upon fair values. After
allocating the purchase price to net tangible assets, purchased
software, which had reached technological feasibility, was valued
using a cash flow model, under which future cash flows were
discounted utilizing an assessment of the life expectancy of the
purchased software. This purchased software of $1,000,000 had
been capitalized and is being amortized over three years.
Purchased research and development, which had not reached
technological feasibility and has no alternative future use was
valued using the same methodology. This purchased research and
development amounted to $10,741,000 and has been charged to
operations at the acquisition date. In addition, the Company has
charged 1996 operations with accrued merger integration costs of
$1,600,000, representing costs to be incurred associated primarily
with combining the Company's existing operations in the United
Kingdom with newly acquired facilities of LIS. The initial excess
of cost over net assets acquired, relating to the acquisition, is
being amortized over seven years.
F-11
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, various disposition
expenses 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 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.
</FN>
</TABLE>
<TABLE>
3. INVENTORIES
<CAPTION>
December 31, December 31,
1998 1997
(in thousands)
<S> <C> <C>
Raw materials $ 77,435 $ 57,872
Work-in-process 30,306 14,039
Finished goods 89,245 56,244
$196,986 $128,155
</TABLE>
<TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
<CAPTION>
December 31, December 31,
1998 1997
(in thousands)
<S> <C> <C>
Land $ 8,788 $ 8,516
Buildings and improvements 33,392 33,857
Machinery and equipment 83,078 65,256
Furniture, fixtures and office
equipment 34,749 29,910
Computer hardware and software 74,604 45,899
Leasehold improvements 11,071 8,030
Construction in progress 13,617 -
259,299 191,468
Less: Accumulated depreciation and
amortization 84,432 72,723
$174,867 $118,745
<FN>
In the fourth quarter of 1997 the Company began the expansion of
its existing Worldwide Headquarters facility, located in
F-12
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
make capital investments in major systems and networks
conversions. The Company does not have any other material
commitments for capital expenditures.
</FN>
</TABLE>
<TABLE>
5. INTANGIBLE ASSETS
<CAPTION>
December 31, December 31,
1998 1997
(in thousands)
<S> <C> <C>
Excess of cost over fair value
of net assets acquired $126,375 $123,668
Patents, trademarks and purchased
technologies 32,811 27,681
Executive retirement plan
unrecognized prior service
costs 722 835
159,908 152,184
Less: Accumulated amortization 43,954 36,909
$115,954 $115,275
</TABLE>
<TABLE>
6. SOFTWARE DEVELOPMENT COSTS
<CAPTION>
Year Ended December 31,
1998 1997 1996
(in thousands)
<S> <C> <C> <C>
Beginning of year $26,649 $23,974 $21,054
Amounts capitalized 31,514 14,743 13,606
58,163 38,717 34,660
Less: Amortization 14,592 12,068 10,686
End of year $43,571 $26,649 $23,974
</TABLE>
<TABLE>
7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<CAPTION>
December 31, December 31,
1998 1997
(in thousands)
<S> <C> <C>
Accounts payable $ 65,025 $ 60,185
Accrued payroll, bonuses, fringe
benefits and payroll taxes 34,598 27,810
Other accrued expenses 50,315 33,719
$149,938 $121,714
</TABLE>
F-13
<TABLE>
8. LONG-TERM DEBT
<CAPTION>
December 31, December 31,
1998 1997
(in thousands)
<S> <C> <C>
Revolving Credit Facility (a) $35,000 -
Senior Notes (b) 31,746 38,095
Industrial Development Bonds (c) 2,369 4,738
Assumed Revenue Bond Financing (d) 2,824 4,578
State Loan (e) 3,000 3,000
Other 251 274
75,190 50,685
Less: Current maturities 10,594 10,384
$64,596 $40,301
<FN>
(a) As of December 31, 1998, the Company had a $200,000,000
unsecured revolving credit facility with a syndicate of U.S.
and International banks. As of December 31, 1998 the Company
had outstanding borrowings of $35,000,000 under this
facility. These borrowings bear interest at either LIBOR
plus 75 basis points or the base rate of the syndication
agent bank, which approximated 7.5 percent at December 31,
1998. Since the proceeds under the credit agreement are
committed until 2003, the Company has classified these
borrowings as long-term obligations. The credit agreement
contains certain covenants regarding the maintenance of a
minimum level of tangible net worth, as well as certain
financial ratios, as defined, and certain restrictions
including limitations on indebtedness. As of December 31,
1997, the Company had loan agreements with three banks
pursuant to which the banks had agreed to provide lines of
credit totalling $75,000,000. There were no borrowings
outstanding under these lines at December 31, 1997.
(b) In March 1993 the Company issued $25,000,000 of its 7.76
percent Series A Senior Notes due February 15, 2003, and
$25,000,000 of its 7.76 percent Series B Senior Notes due
February 15, 2003, to three insurance companies. The Series A
Senior Notes are being repaid in equal annual installments of
$2,778,000 which began in February 1995. The Series B Senior
Notes are being repaid in equal annual installments of
$3,571,000 which began February 1997. Interest is payable
quarterly for these Notes. The financing agreements contain
certain covenants regarding the maintenance of a minimum
level of tangible net worth, as well as certain financial
ratios, as defined, and certain restrictions including
limitations on indebtedness.
F-14
(c) Borrowings under the Industrial Development Bond financing
accrue interest at the rate of 8.95 percent, payable
quarterly, and the loan is being repaid in equal annual
installments of $2,368,000 which began in October 1992. The
Company's owned facilities located in Bohemia, New York, are
pledged as collateral for this debt. The financing
agreements contain certain covenants regarding the
maintenance of a minimum level of tangible net worth and
working capital, as well as certain financial ratios, as
defined, and limitations on investments, dividends and
indebtedness.
(d) In June 1995 the Company assumed a $7,282,000 New York
Industrial Development bond which is collateralized by its
facilities located in Holtsville, New York. The bond bears
interest at 12.3 percent and principal and interest are being
repaid in ten equal semi-annual installments of $997,000
which began in October 1995. Based upon borrowing rates of
6.7 percent available to the Company at the time the
transaction occurred, a bond premium of $1,274,000 has been
recorded in long-term debt and is being amortized over the
life of the bond.
(e) In 1994, the Company received a $3,000,000 loan from an
agency of New York State. The loan bears interest at 1.0
percent, payable monthly, and the principal is to be repaid
in one installment in 2001. The interest rate is subject to
a covenant requiring a minimum level of full-time permanent
employees.
Based on the borrowing rates currently available to the Company
for bank loans with similar terms, the fair values of Senior
Notes and Industrial Development Bonds approximates their
carrying values. The fair value of the State Loan as of December
31, 1998, is approximately $2,577,000.
Long-term debt maturities are:
Year ending December 31, (in thousands)
1999 $10,594
2000 7,343
2001 9,377
2002 6,377
2003 41,377
Thereafter 122
$75,190
</FN>
</TABLE>
F-15
<TABLE>
9. INCOME TAXES
<CAPTION>
The provision for income taxes consists of:
Year Ended December 31,
1998 1997 1996
(in thousands)
<S> <C> <C> <C>
Current:
Federal $28,757 $23,371 $19,460
State and local 5,434 4,300 4,036
Foreign 6,179 5,592 10,141
40,370 33,263 33,637
Deferred:
Federal 5,483 5,531 16
State and local (396) 880 (697)
Foreign 330 (168) (2,154)
5,417 6,243 (2,835)
Total Provision
for Income Taxes $45,787 $39,506 $30,802
A reconciliation between the statutory U.S. Federal income tax
rate and the Company's effective tax rate is:
Year Ended December 31,
1998 1997 1996
Statutory U.S. Federal
rate 35.0% 35.0% 35.0%
State taxes, net of
Federal tax effect 2.4 3.1 2.7
Tax credits (3.0) (0.6) (2.6)
Amortization of excess of
cost over fair value of
net assets acquired 0.7 1.0 1.2
Exempt income of foreign
sales corporation (3.5) (3.0) (3.2)
Income of foreign
subsidiaries taxed at
(lower)higher tax rates 0.5 (0.1) 2.0
Other, net 0.9 0.6 2.9
33.0% 36.0% 38.0%
<FN>
At December 31, 1998, 1997 and 1996, other liabilities include
deferred income taxes of $28,088,000, $11,749,000 and $8,144,000
respectively. The deferred tax assets and liabilities at
December 31, 1998, 1997 and 1996, respectively, are comprised of:
F-16
Year Ended December 31,
1998 1997 1996
Deferred Tax Deferred Tax Deferred Tax
Assets/ Assets/ Assets/
(Liabilities) (Liabilities) (Liabilities)
(in thousands)
Receivables ($6,192) ($5,470) $3,176
Inventory 13,777 10,988 6,751
Net investment in
sales-type leases (4,240) (3,148) (3,360)
Accrued compensation
and associate benefits 5,692 4,944 4,051
Other accrued liabilities 14,196 6,403 4,509
Accrued restructuring
and severance costs 397 1,006 10
Deferred revenue - current 2,139 2,855 2,778
Deferred revenue - long term 4,209 950 1,689
Deferred patent and product
development costs (23,669) (15,708) (15,465)
Purchased technology &
other intangibles 3,938 5,175 4,814
Property, plant and
equipment (13,184) (5,255) (440)
Investments 158 158 557
Cumulative translation
adjustments 3,750 5,104 3,732
Tax credit carryforwards 2,883 2,185 2,438
Other, net 3,182 3,561 3,342
7,036 13,748 18,582
Less: Valuation allowance 696 589 601
Net Deferred Tax Asset $ 6,340 $13,159 $17,981
The valuation allowance increased by $107,000 during 1998 and
decreased $12,000 and $211,000, 1997 and 1996 respectively. The
valuation allowance relates to state investment tax credit
carryforwards which are likely to be recaptured.
</FN>
</TABLE>
F-17
<TABLE>
10. COMMITMENTS AND CONTINGENCIES
<CAPTION>
a. Lease Agreements
Future minimum annual rental payments required under non-
cancelable operating leases are:
Year ending December 31, (in thousands)
<C> <C>
1999 $11,652
2000 9,793
2001 8,229
2002 5,859
2003 4,685
Thereafter 31,365
$71,583
<FN>
Rent expense under substantially all operating leases was
$9,938,000, $7,446,000 and $6,728,000, for the years ended
December 31, 1998, 1997 and 1996, respectively.
</FN>
</TABLE>
b. Employment Contracts
The Company has executed employment contracts with certain
executives that range from one to ten years, for which the Company
has a minimum commitment aggregating approximately $5,163,000 at
December 31, 1998.
c. Sale of Lease Receivables
The Company offers lease financing of its products to its
customers. During 1996, the Company sold certain lease receivables
relating to sales-type leases for approximately $17,308,000, which
represents the present value of uncollected receivable balances
sold as of the date of sale. Due to the fact that the sale of
these lease receivables was with recourse, the Company retains the
same credit risk as if the receivables had not been sold. An
allowance for doubtful accounts is maintained at a level which the
Company believes is sufficient to cover potential losses on
receivables sold. The balance of uncollected receivables as of
December 31, 1998 sold approximated $2,620,000. The sale was
recorded as a reduction of other current assets and other assets.
F-18
d. Legal Matters
The Company is currently involved in matters of litigation
arising from the normal course of business including matters
described below. 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 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.("Spectra-
Physics") (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,
F-19
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 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. If the Company succeeds in the contract action, it believes
it will be owed, on an ongoing basis, additional royalties of
approximately $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.
On September 12, 1998, PSC filed a motion for partial summary
judgement alleging that the Company was guilty of patent "misuse"
since PSC is obligated under its 1991 Agreement with the Company
to pay royalties to the Company on sales of scan engines to
certain PSC customers who also pay royalties to the Company when
they incorporate these scan engines into their integrated
scanning terminals. On September 17, 1998, Judge Telesca, in
response to the filing by PSC of the motion, cancelled the
hearing which was scheduled to begin on October 13, 1998, and
will be rescheduled by the Court at a later time. In this
motion, PSC claimed that this practice should bar the Company
from collecting past royalties which the Company alleges are owed
by PSC under the 1991 Agreement. However, since July 1996, PSC
has not paid the Company any royalties under the 1991 Agreement
and has instead been paying royalties under agreements it
obtained in connection with the acquisition of Spectra-Physics.
The motion was argued on October 7, 1998 and on October 22, 1998
the Court issued a decision and order granting PSC's motion. The
ruling only prevents the Company from collecting past royalties
due and owing under the 1991 Agreement, none of which have been
paid to the Company or taken into income by the Company. Moreover,
the ruling does not affect PSC's future royalty obligations to the
F-20
Company except with respect to royalties owed to the Company
under the 1991 Agreement on scan engines sold to other licenses
of the Company since the Company intends to prospectively cure
the "misuse" without prejudice, subject to the outcome of its
appeal. The Company estimates that royalties owed on PSC scan
engines represent less than 10 percent of the additional
royalties PSC would owe the Company if it were paying royalties
under the 1991 Agreement. Furthermore, the decision has no other
impact on any royalties paid or to be paid to the Company by any
other licensee. Discovery by the Company and PSC has essentially
been completed.
On November 5, 1998, the Company made a Motion for
Reconsideration of the Court's misuse decision, based on what the
Company believes to be legal and factual matters that the Court
overlooked in making its decision. On the same day, the Company
made a separate motion to have the misuse decision entered as a
final judgment, or in the alternative, to have the decision
certified to the United States Court of Appeals for the Federal
Circuit, which could enable the Company to obtain immediate
appellate review of the misuse decision. Both motions are now
pending before the Court.
11. STOCKHOLDERS' EQUITY
a. Common Equity Put Options
During April 1997 the Company issued common equity put options on
225,000 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 $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 as of the respective balance
sheet dates. 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.
b. Stock Option Plans
There are a total of 12,069,131 shares of Common Stock reserved
for issuance under the Company's stock option plans at December
31, 1998. Stock options granted to date generally vest over a
four to five year period, expire after ten years and have exercise
prices equal to the market value of the Company's common stock at
the date of grant.
F-21
<TABLE>
<CAPTION>
A summary of changes in the stock option plans is:
Shares Under Option
Number of Weighted Avg.
Option Price Shares (in Exercise
per Share thousands) Price
<S> <C> <C> <C> <C>
Shares under option
at January 1, 1996 9,024 $ 8.58
Granted $16.67 to $21.11 1,897 $18.52
Exercised $ 2.88 to $13.28 (2,068) $ 5.85
Cancelled $ 4.00 to $20.88 (293) $11.54
Shares under option
at December 31, 1996 $2.44 to $21.11 8,560 $11.33
Granted $21.46 to $27.58 3,368 $22.86
Exercised $ 2.44 to $17.50 (1,827) $ 6.26
Cancelled $ 4.00 to $23.33 (378) $15.77
Shares under option
at December 31, 1997 $ 4.00 to $27.58 9,723 $16.11
Granted $24.87 to $53.75 2,287 $30.95
Exercised $ 4.88 to $21.11 (1,118) $ 9.75
Cancelled $ 5.33 to $49.50 (248) $22.18
Shares under option
at December 31, 1998 $ 4.00 to $53.75 10,644 $19.82
Shares exercisable
at December 31, 1998 $ 4.00 to $24.87 4,348 $14.94
The following table summarizes information concerning currently
outstanding and exercisable options:
Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Life Exercise Exercisable Exercise
Prices (In thousands) (years) Price (In thousands) Price
$ 4.00 - $ 6.00 869 3.5 $ 5.37 869 $ 5.37
$ 6.01 - $ 9.00 482 4.0 $ 8.02 428 $ 8 00
$ 9.01 - $13.50 1,242 5.8 $11.85 800 $11.75
$13.51 - $20.25 2,515 7.2 $17.23 1,051 $16.91
$20.26 - $30.37 4,989 8.4 $23.99 1,200 $24.74
$30.38 - $45.56 83 9.3 $37.19 - -
$45.57 - $53.75 464 9.7 $46.76 - -
10,644 4,348
F-22
<FN>
At December 31, 1998, an aggregate of 1,425,208 shares remain
available for grant under the stock option plans. The tax
benefits arising from stock option exercises during the years
ended December 31, 1998, 1997 and 1996, in the amount of
$13,144,000, $13,057,000, and $10,761,000, respectively, were
recorded in stockholders' equity as additional paid-in capital.
The Company applies APB opinion No. 25 and related interpretations
in accounting for its plans. Accordingly, no compensation cost
has been recognized for the fixed portion of its plans.
If compensation cost for the Company's fixed stock options
(including outside directors' options and stock purchase warrants
discussed below) had been determined consistent with Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation to Employees" ("SFAS No. 123"), the Company's net
income and earnings per share would have been the pro forma
amounts indicated below:
Year Ended December 31,
1998 1997 1996
(in thousands)
Net Income:
As Reported $92,964 $70,232 $50,256
Pro Forma $85,529 $65,557 $48,401
Basic Earnings Per Share:
As Reported $1.58 $1.19 $0.86
Pro Forma $1.45 $1.11 $0.83
Diluted Earnings Per Share:
As Reported $1.49 $1.15 $0.82
Pro Forma $1.37 $1.07 $0.79
The weighted average fair value of options granted during 1998,
1997 and 1996 was $10.28, $7.69 and $6.23 per option,
respectively. In determining the fair value of options and
outside directors' options and stock purchase warrants granted in
1998, 1997 and 1996 for pro forma purposes the Company used the
Black-Scholes option pricing model and assumed the following: a
risk free interest rate of 5.0 percent, 5.5 percent and 5.5
percent; an expected option life of 4.0 years, 4.5 years and 4.5
years; an expected volatility of 33 percent, 29 percent and 29
percent; and dividend yield of 0.14 percent per year. As required
by SFAS No. 123, the impact of outstanding non-vested stock
options granted prior to 1995 has been excluded from the pro-forma
calculation; accordingly, the pro-forma adjustments reflected
above are not indicative of future period pro-forma adjustments
when the calculation will apply to all applicable stock options.
</FN>
</TABLE>
F-23
<TABLE>
c. Outside Directors' Options and Stock Purchase Warrants
All options and stock purchase warrants issued to outside
directors vest over a two to four year period, expire after ten
years and have exercise prices equal to the market value of the
Company's common stock at the date of grant. The following table
indicates the number of common shares issuable upon exercise and
the exercise price per share of all outstanding outside Directors'
options and stock purchase warrants as of December 31, 1998:
Number of
Shares Exercise Shares
Exercisable Issuable Price Vested at
to Upon Exercise per Share December 31,1998
<S> <C> <C> <C>
2000 6,000 $ 3.61 6,000
2004 45,000 $11.22 to $12.33 45,000
2005 22,000 $14.94 22,000
2006 28,000 $20.89 28,000
2007 19,000 $22.00 9,000
2008 88,000 $24.88 to $33.19 -
208,000 110,000
<FN>
The weighted average exercise price for the number of shares
issuable upon exercise were $20.08, $12.95 and $11.15,
respectively, for the years ended December 31, 1998, 1997 and
1996. The weighted average exercise price of shares vested were
$15.19, $10.78 and $8.49, respectively, for the years ended
December 31, 1998, 1997 and 1996. The weighted average fair value
of outside directors options and stock purchase warrants granted
during 1998, 1997 and 1996 was $8.76, $7.39 and $7.02 per share,
respectively.
</FN>
</TABLE>
d. Employee Stock Purchase Plan
During 1997, the Company adopted an employee stock purchase plan
which was approved by the Company's stockholders at the annual
meeting of shareholders. Participants may purchase shares of
stock for an amount equal to 85% of the lesser of the closing
price of a share of stock on the first trading day of the period
or the last trading day of the period, as defined by the plan.
The Company's only expense for this plan is for its
administration. The stock sold to plan participants shall be
authorized but unissued common stock, treasury shares or shares
purchased in the open market. The aggregate number of shares
which may be issued pursuant to the plan is 562,500. As of
December 31, 1998, 122,810 shares were issued to participants and
subsequent to December 31, 1998, 58,215 shares were issued to
participants by the Company all of which were purchased in the
open market by the Company. The weighted average fair value of
shares sold in 1998 was $9.39.
F-24
e. Treasury Stock
Treasury stock is comprised of 2,656,000 shares of Common Stock
purchased for a total cost of $49,809,000 from certain officers in
connection with the exercise of stock options and 5,027,000 shares
purchased in open market transactions for a total cost of
$95,965,000 pursuant to the various stock repurchase programs
authorized by the Board of Directors.
12. ASSOCIATE BENEFIT PLANS
a. Profit Sharing Retirement Plan
The Company maintains a 401(k) profit sharing retirement plan for all
U.S. associates meeting certain service requirements. The Company
contributes monthly, 50.0 percent of associates' contributions up to
a maximum of 6.0 percent of annual compensation. Plan expense for
the years ended December 31, 1998, 1997 and 1996 was $5,339,000,
$4,591,000 and $3,469,000, respectively.
b. Health Benefits
The Company pays substantially all costs incurred in connection
with providing associate health benefits through programs
administered by various insurance companies. Such costs amounted
to $12,935,000, $10,275,000, and $9,701,000, for the years ended
December 31, 1998, 1997 and 1996, respectively.
c. Executive Retirement Plan
In February, 1998, The Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 132 "Employers'
Disclosures about Pensions and Other Post-Retirement Benefits - an
amendment of FASB Statement No. 87, 88 and 106" ("SFAS 132").
SFAS 132 revises employers' disclosures about pension and other
post-retirement benefit plans. It does not change the measurement
of recognition of those plans. The Company has adopted the
provisions of SFAS 132 in their disclosures below.
The Company maintains an Executive Retirement Plan (the "Plan") in
which certain highly compensated associates are eligible to
participate. Participants are selected by a committee of the
Board of Directors. Benefits vest after five years of service and
are based on a percentage of average compensation for the three
years immediately preceding termination of the participant's full-
time employment. As of December 31, 1998, 12 officers were
participants in the Plan. The Company's obligations under the Plan
are not funded apart from the Company's general assets.
F-25
<TABLE>
Change in benefit obligation:
<CAPTION>
Year Ended December 31,
1998 1997 1996
(in thousands)
<S> <C> <C> <C>
Benefit obligation at beginning
of year $8,234 $6,852 $5,548
Service cost 806 659 650
Interest cost 711 665 588
Amortization of unrecognized prior
service costs 112 112 112
Amendments - - -
Actuarial loss 8 - 8
Benefits paid (54) (54) (54)
Benefit obligation at end of year $9,817 $8,234 $6,852
Funded status (13,199) (9,596) (8,342)
Unrecognized actuarial loss 2,660 527 542
Unrecognized prior service cost 722 835 948
Net amount recognized ($9,817) ($8,234) ($6,852)
Amounts recognized in the balance
sheet consist of:
Accrued benefit liability (9,817) (8,234) (6,852)
Net amount recognized ($9,817) ($8,234) ($6,852)
<FN>
The Plan had $9,810,000, and $7,458,000 of vested benefit
obligations at December 31, 1998, and 1997, respectively, which
are included in other liabilities. The projected benefit
obligation at December 31, 1998, 1997 and 1996 was determined
using an assumed weighted average discount rate of 6.5 percent,
7.0 percent and 7.5 percent, respectively, and an assumed increase
in the long-term rate of compensation of 5.0 percent.
The Company has also purchased an annuity contract for former
executives who have been terminated. The annuity contract was
valued at approximately $2,500,000 at December 31, 1998 and is
included in other assets.
</FN>
</TABLE>
F-26
13. RECONCILIATION OF BASIC AND DILUTED EARNINGS PER SHARE
Basic earnings per common share are computed based on the
weighted-average number of common shares outstanding during each
period. Diluted earnings per common share are computed based on
the weighted-average number of common shares, after giving effect
to diluted common stock equivalents outstanding during each
period. The following table provides a reconciliation between
basic and diluted earnings per share:
<TABLE>
<CAPTION>
For The Year Ended
December 31, 1998 December 31, 1997 December 31, 1996
(in thousands, except per share amounts)
Per Per Per
Income Shares Share Income Shares Share Income Shares Share
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic EPS
Income available
to common
stockholders $92,964 58,796 $1.58 $70,232 59,038 $1.19 $50,256 58,197 $0.86
Effect of Dilutive
Securities
Options/Warrants - 3,640 ($0.09) - 2,198 ($0.04) - 2,731 ($0.04)
Diluted EPS
Income available to
common stockholders
plus assumed
exercises $92,964 62,436 $1.49 $70,232 61,236 $1.15 $50,256 60,928 $0.82
</TABLE>
14. INDUSTRY SEGMENT AND OPERATIONS BY GEOGRAPHIC AREAS
The Company manages its business on a geographic basis. The
Company's reportable segments have been aggregated into three
geographic reportable business segments, North America, Western
Europe and Other (which includes Asia Pacific).
Sales of the Company's bar code scanner products have accounted for
approximately 40 percent of the Company's total revenue for the
years ended December 31, 1998, 1997 and 1996. Sales of scanner
integrated application specific mobile computing systems accounted
for approximately 50 percent of the Company's total revenue for the
F-27
years ended December 31, 1998, 1997 and 1996. Maintenance and
support revenue contributed approximately 10 percent of the
Company's total revenue for the years ended December 31, 1998, 1997
and 1996. During 1998, sales to Lockheed Martin Corporation in
connection with the United States Postal Service contract amounted
to approximately 11 percent of total net revenue.
Summarized financial information concerning the Company's
reportable segments is shown in the following table. The
accounting policies of the segments are the same as those
described in the summary of significant accounting policies.
Sales are allocated to each of the reportable segments based upon
the location of the use of the products and services. The
"Corporate" column includes corporate related items not allocated
to reportable segments and the elimination of intercompany
transactions. In determining earnings before provision for income
taxes for each geographic area, sales and purchases between areas
have been accounted for on the basis of internal transfer prices
set by the Company. This has the effect of reducing reportable
European and Other operating profit.
Identifiable assets are those tangible and intangible assets used
in operations in each geographic area. Corporate assets are
principally temporary investments and the excess of cost over fair
value of net assets acquired.
F-28
<TABLE>
<CAPTION>
North Western
America Europe Other Corporate Consolidated
(in thousands)
Year ended December 31, 1998:
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated
customers $609,498 $278,836 $89,567 $ - $977,901
Transfers between
geographic areas 197,105 - - (197,105) -
Total net revenue $806,603 $278,836 $89,567 ($197,105) $977,901
Interest income $ 1,112 $ 778 $ 483 - $ 2,373
Interest expense $ 5,262 $ 145 $ 416 - $ 5,823
Depreciation and
amortization expense $ 49,154 $ 5,470 $ 532 - $ 55,156
Earnings before
provision for income
taxes $131,754 $ 8,919 $ 2,688 ($4,610) $138,751
Income tax expense $ 41,123 $ 3,741 $ 923 - $ 45,787
Identifiable assets $593,155 $120,657 $27,289 $ 97,298 $838,399
Year ended December 31, 1997:
Sales to unaffiliated
customers $448,220 $257,325 $68,800 $ - $774,345
Transfers between
geographic areas 167,996 - - (167,996) -
Total net revenue $616,216 $257,325 $68,800 ($167,996) $774,345
Interest income $ 1,269 $ 888 $ 68 - $ 2,225
Interest expense $ 5,292 $ 209 - - $ 5,501
Depreciation and
amortization expense $ 39,898 $ 4,908 $ 471 - $ 45,277
Earnings before
provision for income
taxes $ 96,360 $ 8,885 $ 1,518 $ 2,975 $109,738
Income tax expense $ 34,951 $ 4,170 $ 385 - $ 39,506
Identifiable assets $413,477 $115,365 $23,513 $126,835 $679,190
Year ended December 31, 1996:
Sales to unaffiliated
customers $389,519 $222,611 $44,545 $ - $656,675
Transfers between
geographic areas 140,126 - - (140,126) -
Total net revenue $529,645 $222,611 $44,545 ($140,126) $656,675
Interest income $ 1,356 $ 320 $ 80 - $ 1,756
Interest expense $ 4,660 $ 39 $ 186 - $ 4,885
Depreciation and
amortization expense $ 36,299 $ 2,889 $ 335 - $ 39,523
Earnings before
provision for income
taxes $ 84,447 $ 1,939(1) ($366) ($4,962) $ 81,058
Income tax expense $ 24,856 $ 5,355 $ 591 - $ 30,802
Identifiable assets $379,114 $108,871 $15,916 $110,337 $614,238
<FN>
(1) Includes a pre-tax charge of $10,741,000 related to acquisition costs
associated with purchased research and development.
F-29
The Company has customers in the retail industry which accounted
for approximately $55,586,000 and $40,317,000 in accounts
receivable at December 31, 1998 and 1997, respectively. The
carrying amounts of accounts receivable approximate fair value
because of the short maturity of these instruments.
</FN>
</TABLE>
15. SELECTED QUARTERLY FINANCIAL DATA (unaudited)
The following tables set forth unaudited quarterly financial
information for the years ended December 31, 1998, and 1997:
<TABLE>
<CAPTION>
Quarter Ended
March 31 June 30 September 30 December 31
(in thousands, except per share amounts)
Year Ended
December 31, 1998:
<S> <C> <C> <C> <C>
Net revenue $213,310 $238,981 $256,806 $268,804
Gross profit 92,956 100,118 108,629 114,278
Net earnings 19,630 23,506 25,096 24,732
Basic earnings per share: $0.33 $0.40 $0.43 $0.42 (1)
Diluted earnings per share: $0.32 $0.38 $0.40 $0.39 (1)
Year Ended
December 31, 1997:
Net revenue $178,271 $187,663 $201,876 $206,535
Gross profit 79,055 82,482 88,472 90,472
Net earnings 15,445 16,174 18,496 20,117
Basic earnings per share: $0.26 $0.27 $0.31 $0.34
Diluted earnings per share: $0.25 $0.26 $0.30 $0.33
<FN>
(1) Includes a pre-tax charge of $3,597,000 ($0.04 per share
after tax) related to terminated acquisition costs.
The quarterly earnings per share information is computed
separately for each period. Therefore, the sum of such quarterly
per share amounts may differ from the total for the year.
</FN>
</TABLE>
F-30
SCHEDULE II
<TABLE>
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(All amounts in thousands)
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
Additions
(1) (2)
Balance at Charged to Charged Balance
beginning cost and to other at end
Description of year expenses accounts Deductions of year
Allowance for doubtful
accounts:
<S> <C> <C> <C> <C> <C>
December 31, 1998 $10,995 $2,921 $ - (a) $3,885 (b) $10,031
December 31, 1997 $10,123 $2,253 $ 90 (a) $1,471 (b) $10,995
December 31, 1996 $7,816 $2,270 $890 (a) $ 853 (b) $10,123
<FN>
(a) Primarily collection of accounts previously written off.
(b) Uncollectible accounts written off.
</FN>
</TABLE>
S-1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration
Statements No. 333-48159, No. 333-26593, No. 333-01769, No.
2-81405, No. 2-94868, No. 2-94876, No. 33-3771, No. 33-13009,
No. 33-18748, No. 33-25509, No. 33-25484, No. 33-25567, No.
33-35821, No. 33-43580, No. 33-48025, No. 35-48026, No.
33-78622, No. 33-78678, No.33-59333 and No. 333-01769 on Form
S-8 and No. 33-18745, No. 33-25432, No. 33-43581, No. 33-43584
and No. 33-45016 on Form S-3 of Symbol Technologies, Inc. of
our report dated February 18, 1999, appearing in this Annual
Report on Form 10-K/A of Symbol Technologies, Inc. for the
year ended December 31, 1998.
s/Deloitte & Touche LLP
New York, New York
March 5, 1999
