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, 1999
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, 1999
Common Stock, 88,235,389 shares
par value $0.01
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
PAGE
PART I. FINANCIAL INFORMATION
ITEM I. Financial Statements
Condensed Consolidated Balance Sheets at
June 30, 1999 and December 31, 1998 2
Condensed Consolidated Statements of Earnings
Three and Six Months Ended June 30, 1999 and 1998 3
Condensed Consolidated Statements of Cash Flows
Three and Six Months Ended June 30, 1999 and 1998 4 - 5
Notes to Condensed Consolidated Financial
Statements 6 - 10
ITEM 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations 11 - 16
ITEM 3.
Quantitative and Qualitative Disclosure
About Market Risk 16
PART II. OTHER INFORMATION 17 - 18
SIGNATURES 19
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(All amounts in thousands, except stock par value)
June 30, December 31,
ASSETS 1999 1998 (1)
(Unaudited)
CURRENT ASSETS:
Cash and temporary investments $ 24,240 $ 16,284
Accounts receivable, less allowance for doubtful
accounts of $10,956 and $10,031, respectively 214,173 205,416
Inventories 180,530 196,986
Deferred income taxes 36,951 34,428
Other current assets 30,069 26,490
TOTAL CURRENT ASSETS 485,963 479,604
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation and amortization of $101,569 and
$84,432, respectively 194,869 174,867
INTANGIBLE AND OTHER ASSETS, net of accumulated
amortization of $100,621 and $87,828,
respectively 207,208 183,928
$888,040 $838,399
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $123,970 $149,938
Current portion of long-term debt 10,637 10,594
Income taxes payable 22,091 9,858
Deferred revenue 16,833 13,897
TOTAL CURRENT LIABILITIES 173,531 184,287
LONG-TERM DEBT, less current maturities 82,277 64,596
OTHER LIABILITIES AND DEFERRED REVENUE 62,684 58,588
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
300,000 shares; issued 100,366 shares and
66,439 shares, respectively 1,004 664
Retained earnings 416,897 365,950
Other stockholders' equity 151,647 164,314
569,548 530,928
$888,040 $838,399
See notes to condensed consolidated financial statements
(1) The consolidated balance sheet as of December 31, 1998 has been taken
from the audited financial statements at that date and condensed.
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SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(All amounts in thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
NET REVENUE $274,103 $238,981 $533,793 $452,291
COST OF REVENUE 152,844 135,652 297,597 252,489
AMORTIZATION OF SOFTWARE
DEVELOPMENT COSTS 4,352 3,211 8,635 6,728
GROSS PROFIT 116,907 100,118 227,561 193,074
OPERATING EXPENSES:
Engineering 19,951 17,102 39,061 33,237
Selling, general and
administrative 52,754 46,949 105,563 91,388
Amortization of excess
of cost over fair value
of net assets acquired 1,271 1,162 2,470 2,423
73,976 65,213 147,094 127,048
EARNINGS FROM OPERATIONS 42,931 34,905 80,467 66,026
GAIN ON SALE OF BUSINESS - 494 - 494
INTEREST EXPENSE, net (1,464) (713) (2,668) (1,162)
EARNINGS BEFORE PROVISION
FOR INCOME TAXES 41,467 34,686 77,799 65,358
PROVISION FOR INCOME TAXES 13,684 11,180 25,674 22,222
NET EARNINGS $ 27,783 $23,506 $ 52,125 $ 43,136
EARNINGS PER SHARE:
Basic $0.32 $0.27 $0.59 $0.49
Diluted $0.30 $0.25 $0.55 $0.46
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING:
Basic 88,161 88,287 88,233 88,259
Diluted 93,803 93,267 94,120 92,936
See notes to condensed consolidated financial statements
-3-
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts in thousands)
(Unaudited)
Three Months Ended June 30,
1999 1998
Cash flows from operating activities:
Net earnings $27,783 $23,506
Adjustments to reconcile net earnings
to net cash from operating activities:
Depreciation and amortization of property,
plant and equipment 8,881 7,960
Other amortization 6,463 5,136
Provision for losses on accounts receivable 912 769
Gain from sale of business - (494)
Changes in assets and liabilities
net of effects of acquisitions & divestitures:
Accounts receivable (25,012) (21,825)
Inventories 4,041 (25,471)
Other current assets (3,214) (183)
Intangible and other assets (19,445) (10,512)
Accounts payable and accrued expenses 9,283 18,496
Other liabilities and deferred revenue 10,640 3,111
Net cash provided by operating activities 20,332 493
Cash flows from investing activities:
Expenditures for property, plant and
equipment (19,719) (23,619)
Proceeds from sale of business, net - 11,911
Acquisition of subsidiaries - (5,000)
Net cash used in investing activities (19,719) (16,708)
Cash flows from financing activities:
Net proceeds from issuance and repayment
of long term debt (2,920) (871)
Exercise of stock options and warrants 5,096 1,321
Purchase of treasury shares (5,348) (7,671)
Net cash used in financing activities (3,172) (7,221)
Effects of exchange rate changes on cash (738) 913
Net decrease in cash and temporary investments (3,297) (22,523)
Cash and temporary investments, beginning
of period 27,537 37,907
Cash and temporary investments, end of
period $24,240 $15,384
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 931 $ 871
Income taxes $ 1,141 $ 6,531
See notes to condensed consolidated financial statements
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SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts in thousands)
(Unaudited)
Six Months Ended June 30,
1999 1998
Cash flows from operating activities:
Net earnings $52,125 $43,136
Adjustments to reconcile net earnings to
net cash from operating activities:
Depreciation and amortization of property,
plant and equipment 17,352 15,861
Other amortization 12,793 10,403
Provision for losses on accounts receivable 1,970 1,260
Gain from sale of business - (494)
Changes in assets and liabilities
net of effects of acquisitions & divestitures:
Accounts receivable (12,284) (39,003)
Inventories 16,139 (37,937)
Other current assets (6,087) (1,881)
Intangible and other assets (30,105) (15,770)
Accounts payable and accrued expenses (26,464) 14,768
Other liabilities and deferred revenue 19,265 12,056
Net cash provided by operating
activities 44,704 2,399
Cash flows from investing activities:
Expenditures for property, plant and
equipment (37,360) (39,286)
Proceeds from sale of business, net - 11,911
Acquisition of subsidiaries (6,224) (6,168)
Net cash used in investing activities (43,584) (33,543)
Cash flows from financing activities:
Net proceeds from issuance and repayments
of long term debt 17,724 (7,226)
Exercise of stock options and warrants 11,480 10,491
Dividends paid (1,178) (813)
Purchase of treasury shares (18,686) (16,016)
Net cash provided by/(used in)
financing activities 9,340 (13,564)
Effects of exchange rate changes on cash (2,504) 122
Net increase (decrease) in cash and
temporary investments 7,956 (44,586)
Cash and temporary investments, beginning
of period 16,284 59,970
Cash and temporary investments, end of
period $24,240 $15,384
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 2,215 $ 1,719
Income taxes $ 2,653 $ 7,191
See notes to condensed consolidated financial statements
-5-
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, 1999, and the results of
its operations and its cash flows for the three and six months ended
June 30, 1999 and 1998, 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, 1999, 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, 1998. Certain reclassification have been made to prior
consolidated financial statements to conform with current
presentations.
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 May 10, 1999 the Board of Directors approved a three for two
split of the Company's common stock to be effected as a 50 percent
stock dividend payable on June 14, 1999 to shareholders of record on
June 1, 1999. 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 paid
in capital to common stock.
3. Classification of inventories is:
June 30, 1999 December 31, 1998
(Unaudited)
Raw materials $ 83,364 $ 77,435
Work-in-process 13,083 30,306
Finished goods 84,083 89,245
$180,530 $196,986
-6-
4. The Company's total comprehensive earnings were as follows:
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
Net earnings $ 27,783 $ 23,506 $ 52,125 $ 43,136
Other comprehensive
earnings(losses), net
of tax:
Change in equity due to
foreign currency
translation adjustments (1,327) (352) (5,121) (1,325)
Comprehensive earnings $ 26,456 $ 23,154 $ 47,004 $ 41,811
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 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 agreements with the
Company and that those agreements have been terminated. The Company
has amended its suit against PSC to assert infringement of four of
the Company's 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 of the Company's 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.
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 since 1996, 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
-7-
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. Discovery by the Company and PSC on
the contract issues has essentially been completed. 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.
On October 22, 1998 the Court issued a decision and order granting
PSC's motion, which decision was subsequently reconfirmed by the
Court on April 30, 1999. 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 Company except with respect to royalties
owed to the Company under the 1991 Agreement on scan engines sold to
other licensees of the Company since the Company has prospectively
cured 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.
The Company anticipates that the judge will set a trial date on the
contract issues in the near future.
-8-
6. In February 1999, the Company acquired Airwire Mobile Technologies,
Inc., a developer of the Company's products. This acquisition has
been accounted for as a purchase and, accordingly, the related
acquisition cost has been allocated to net assets acquired based
upon fair values. The initial purchase price for the assets
acquired related to this acquisition amounted to approximately
$4,400,000. The excess of cost over net assets acquired of
approximately $4,000,000 is being amortized over twenty years.
Additional acquisition payments will be contingent upon the
attainment of certain financial targets, as defined in the purchase
agreement, during the next two years.
Results of operations of this subsidiary has been 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 1999 and 1998, would not differ
materially from the reported results.
7. The Company manages its business on a geographic basis. The
Company's reportable segments have been aggregated into three
geographic reportable business segments, The Americas (which
includes North and South America), EMEA (which includes Europe,
Middle East and Africa) and Asia Pacific (which includes Japan, the
Far East and Australia).
Summarized financial information concerning the Company's reportable
segments is shown in the following table. 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 expenses (primarily various indirect manufacturing operations
costs, engineering and general and administrative expenses) not
allocated to reportable segments. This has the effect of increasing
reportable operating profit for The Americas, EMEA and Asia Pacific.
Identifiable assets are those tangible and intangible assets used in
operations in each geographic area. Corporate assets are principally
temporary investments and the excess of cost over fair value of net
assets acquired.
-9-
<TABLE>
<CAPTION>
The Asia/
Americas EMEA Pacific Corporate Consolidated
(in thousands)
Three Months ended
June 30, 1999:
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated
customers $174,561 $ 84,617 $14,925 $ - $274,103
Transfers between
geographic areas 54,679 - - (54,679) -
Total net revenue $229,240 $ 84,617 $14,925 $(54,679) $274,103
Earnings before
provision for income
taxes $ 65,801 $ 23,311 $ 5,504 $(53,149) $ 41,467
Identifiable assets $633,865 $124,970 $18,568 $110,637 $888,040
Three Months ended
June 30, 1998:
Sales to unaffiliated
customers $160,771 $ 67,933 $10,277 $ - $238,981
Transfers between
geographic areas 53,602 - - (53,602) -
Total net revenue $214,373 $ 67,933 $10,277 $(53,602) $238,981
Earnings before
provision for income
taxes $ 50,762 $ 18,818 $ 3,470 $(38,364) $ 34,686
Identifiable assets $498,562 $127,842 $18,053 $ 90,072 $734,529
Six Months ended
June 30, 1999:
Sales to unaffiliated
customers $335,757 $169,602 $28,434 $ - $533,793
Transfers between
geographic areas 112,045 - - (112,045) -
Total net revenue $447,802 $169,602 $28,434 $(112,045) $533,793
Earnings before
provision for income
taxes $122,826 $ 48,402 $10,349 $(103,778) $ 77,799
Six Months ended
June 30, 1998:
Sales to unaffiliated
customers $295,704 $135,974 $20,613 $ - $452,291
Transfers between
geographic areas 105,362 - - (105,362) -
Total net revenue $401,066 $135,974 $20,613 $(105,362) $452,291
Earnings before
provision for income
taxes $ 93,352 $ 37,426 $ 7,240 $( 72,660) $ 65,358
</TABLE>
-10-
Safe harbor for forward looking statements under securities litigation act
of 1995; certain cautionary statements
This report contains forward-looking statements based on current
expectations, forecasts and assumptions that involve risks and
uncertainties that could cause actual outcomes and results to differ
materially. These risks and uncertainties include price and product
competition, dependence on new product development, reliance on major
customers, customer demand for the Company's products and services,
readiness for Year 2000, control of costs and expenses, international
growth, general industry and market conditions and growth rates and general
domestic and international economic conditions including interest rate and
currency exchange rate fluctuations. For a further list and description of
such risks and uncertainties, see the reports filed by the Company with the
Securities and Exchange Commission. The Company disclaims any intention or
obligation to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Net revenue of $274,103,000 and $533,793,000 for the three and six
months ended June 30, 1999 increased 14.7 percent and 18.0 percent,
respectively, over the comparable prior year periods. The increase for
the three and six months ended June 30, 1999 is due to increased sales of
scanner products and scanner integrated application specific mobile
computer systems, partially offset by the decrease in the three months
ended June 30, 1999 in revenue associated with the Company's contract
with the United States Postal Service which was substantially completed
during the quarter ended March 31, 1999. Foreign exchange rate
fluctuations unfavorably impacted net revenue by approximately 1.0
percent for the three months ended June 30, 1999 but did not have a
material impact on net revenue for the six months ended June 30, 1999.
Foreign exchange rate fluctuations unfavorably impacted net revenue by
approximately 1.5 percent and 2.0 percent, respectively, for the three
and six months ended June 30, 1998.
Geographically, The Americas revenue increased 8.6 percent and 13.5
percent, respectively, for the three and six months ended June 30, 1999
over the comparable prior year periods. EMEA revenue increased 24.6
percent and 24.7 percent, respectively and Asia Pacific revenue increased
45.2 percent and 37.9 percent, respectively, over the comparable prior
year periods. The Americas, EMEA and Asia Pacific revenue represent
approximately 64 percent, 31 percent and 5 percent of net revenue,
respectively for the three months ended June 30, 1999 and 63 percent, 32
percent and 5 percent of net revenue, respectively for the six months
ended June 30, 1999.
Cost of revenue (as a percentage of revenue) of 55.8 percent for the
three months ended June 30, 1999 decreased from 56.8 percent for the
-11-
comparable prior year period due to the completion of the Company's
contract with the United States Postal Service which represented a lower
margin order relative to historical orders, partially offset by new
product start up costs. Cost of revenue (as a percentage of revenue) of
55.8 percent for the six months ended June 30, 1999 is consistent with
the comparable prior year period.
Amortization of software development costs of $4,352,000 and
$8,635,000 for the three and six months ended June 30, 1999 increased
from $3,211,000 and $6,728,000 in the comparable prior year periods due
to new product releases.
Engineering expenses for the three and six months ended June 30,
1999 increased to $19,951,000 and $39,061,000 from $17,102,000 and
$33,237,000, respectively, for the comparable prior year periods. In
absolute dollars engineering expenses increased 16.7 percent and 17.5
percent, respectively, from the prior year periods. As a percentage of
net revenue such expenses remained comparable at 7.3 percent for the
three and six months ended June 30, 1999 compared to the 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 $52,754,000 and
$105,563,000 for the three and six months ended June 30, 1999 increased
from $46,949,000 and $91,388,000, respectively, for the comparable prior
year periods. While in absolute dollars, selling, general and
administrative expenses increased 12.4 percent and 15.5 percent,
respectively, from the prior year periods, as a percentage of net revenue
such expenses decreased to 19.2 percent and 19.8 percent for the three
and six months ended June 30, 1999 from 19.6 percent and 20.2 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 three subsidiaries acquired subsequent to
June 30, 1998.
Amortization of excess of cost over fair value of net assets
acquired of $1,271,000 and $2,470,000 for the three and six months ended
June 30, 1999, increased from $1,162,000 and $2,423,000, respectively for
the comparable prior year periods due to the acquisition of three
subsidiaries after June 30, 1998.
The gain from the sale of business in 1998 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.
-12-
Net interest expense increased to $1,464,000 and $2,668,000 for the
three and six months ended June 30, 1999 from $713,000 and $1,162,000 for
the comparable prior year periods due to increased borrowings under the
Company's revolving credit facility, partially offset by a reduction in
interest expense due to annual mandatory repayments of indebtedness.
The Company's effective tax rate of 33.0 percent for the three
months ended June 30, 1999 is comparable to the prior year period. The
Company's effective tax rate of 33.0 percent for the six months ended
June 30, 1999 decreased from 34.0 percent in the prior year period
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:
June 30, December 31,
1999 1998
Working Capital (in thousands) $312,432 $295,317
Current Ratio (Current Assets
to Current Liabilities) 2.8:1 2.6:1
Long-Term Debt to Capital 12.6% 10.8%
(Long-term debt to long-term
debt plus equity)
Current assets increased by $6,359,000 from December 31, 1998
principally due to an increase in accounts receivable and cash to support
higher operating levels partially offset by a decrease in inventories
resulting from an improvement in inventory management worldwide.
Current liabilities decreased $10,756,000 from December 31, 1998
primarily due to decreases in accounts payable and accrued expenses,
partially offset by increases in income taxes payable.
The aforementioned activity resulted in a working capital increase of
$17,115,000 for the six months ended June 30, 1999. The Company's current
ratio at June 30, 1999 increased to 2.8:1 compared with 2.6:1 at December
31, 1998.
Property, plant and equipment expenditures for the six months ended
June 30, 1999 totalled $37,360,000 compared to $39,286,000 for the six
months ended June 30, 1998. In the first quarter of 1999 the Company
substantially completed construction related to expansion of its existing
Worldwide Headquarters facility, located in Holtsville, New York. The
Company continues to make capital investments in major systems and
networks conversions but does not have any other material commitments for
capital expenditures.
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The Company's long-term debt to capital ratio increased to 12.6
percent at June 30, 1999 from 10.8 percent at December 31, 1998 primarily
due to increased borrowings under the Company's revolving credit facility,
described below, which exceeded the payment of the annual installments of
the Company's long-term indebtedness, treasury stock repurchases in excess
of the benefits realized by stock option exercises and the change in
equity due to foreign currency translation adjustments partially offset by
increased equity from results of profitable operations.
The Company has a $200,000,000 unsecured revolving credit facility
with a syndicate of U.S. and international banks for which the proceeds
are committed until 2003. The Company also has $35,000,000 in uncommitted
lines of credit with two global banks that continue until such time as
either party wishes to terminate the arrangement. As of June 30, 1999 the
Company had outstanding borrowings of $60,000,000 under these facilities.
The Company generated positive cash flow from operations of
$20,332,000 for the three months ended June 30, 1999, but experienced an
overall decrease in cash of $3,297,000 for the period. The positive cash
flow provided by operations was offset by cash used in investing and
financing activities during the period. Cash was used for expenditures
for property, plant and equipment and the purchase of 195,000 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.
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.
Year 2000
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Computer
systems may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in product and/or system failures or other
computer errors causing disruption of the Company's operations.
The Company has identified the following areas of risk: a) the failure
or disruption of systems used by the Company to run its business operations
and facilities, b) the failure or disruption of systems used by the
Company's suppliers and vendors, c) warranty or other claims by customers
due to failure or malfunctioning of the Company's products.
The Company has established a steering committee including senior
executives to address Year 2000 issues which will report periodically to
the Board of Directors. The Company's plan to address Year 2000 issues has
resulted in the formation of three main teams: (a) internal systems team,
(b) product readiness team, and (c) external vendors/suppliers team.
-14-
The Company recently implemented new computer systems that
substantially insure that the Company's operating systems are not subject
to Year 2000 transition problems. To the extent that portions of its
computer systems that have not been replaced have been determined to be
non-compliant, the Company is working with the suppliers of such systems to
obtain upgrades and/or enhancements to insure Year 2000 compliance. To the
extent such system implementation, replacement or modification is delayed
or if significant new non-compliance issues are identified or go
undetected, the Company's results of operations could be adversely
impacted.
The Company has initiated formal communications with all of its
significant hardware and software suppliers to determine the extent to
which the Company's interface systems and sources of supply are vulnerable
to those third parties' failure to remediate their own Year 2000 issues.
Based on a recent assessment, the Company believes that it will not be
required to modify or replace significant portions of its product offerings
so that such products will function properly with respect to dates in the
Year 2000. However, several Year 2000 related issues, mostly stemming from
third party operating systems, have been identified. The Company has
undertaken measures to inform customers of Year 2000 related issues via its
Year 2000 web site. However, it is not possible to anticipate all end user
situations and/or Year 2000 related issues, particularly those involving
third party products. The Company may experience an increase in warranty
and other claims related to Year 2000 issues. Additionally, there may be
substantial Year 2000 litigation caused by failure of systems which contain
Company products or third party products sold by the Company. The impact
of such warranty and/or other claims would have a material adverse impact
on the Company's financial condition.
In 1998, the Company expended less than $200,000 for external
resources in connection with its Year 2000 related activities. Capitalized
spending for upgrading and replacing non-compliant computer systems was
approximately $900,000 for the year. The Company anticipates the total
cost of its Year 2000 activities in 1999 to be approximately $3,000,000
which includes approximately $2,000,000 of capitalized fixed assets.
Based upon the Company's current estimates, total incremental out-of-
pocket costs of its Year 2000 program are expected to be immaterial. These
costs are expected to be incurred primarily in fiscal 1999 and include
third party consultants, remediation of existing computer software and
hardware, and upgrading product offerings. Such costs do not include
internal management time and the deferral of other projects, the effects of
which are not expected to be material to the Company's results of
operations or financial condition. The Company's total Year 2000 project
costs include the estimated costs and time associated with the impact of
third party Year 2000 issues based on presently available information.
However, there can be no guarantee that other companies upon which the
Company relies will be able to timely address their Year 2000 compliance
issues, the effects of which may have an adverse impact on the Company's
results of operations.
-15-
At this stage of the process, the Company believes that it is
difficult to specifically identify the cause of the most reasonable worst
case Year 2000 scenario. As is true for most manufacturers and
distributors of products such as those sold by the Company, a reasonable
worst case scenario would be the failure of the Company's products to
operate properly through the millennium rollover causing customers' systems
and/or operations that are dependent upon such products to fail or be
disrupted. In the event of such failures, customers may commence legal
action against the Company or otherwise seek compensation for their losses
associated with such failures. An additional worst case Year 2000 scenario
would be the failure of key vendors and/or suppliers to have corrected
their own Year 2000 issues which could cause disruption of the Company's
operations and have a material adverse effect on the Company's financial
condition. The impact of such disruption cannot be estimated at this time.
The Company's contingency plans to address worst case Year 2000 scenarios
include developing or obtaining upgrades for its products that have been
tested and found to be non-compliant and in the event the Company believes
that any of its key suppliers are unlikely to be able to resolve their Year
2000 issues, it will seek a second source of supply.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Refer to Item 7, in the Company's annual report on Form 10-K for the
year ended December 31, 1998 for required disclosure.
-16-
Part II - Other Information
Item 1. Legal Proceedings
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 July 21, 1999 the Company and six other leading members of the
Automatic Identification and Data Capture industry jointly initiated a
litigation against the Lemelson Medical, Educational, & Research
Foundation, Limited Partnership (the "Lemelson Partnership"). The suit,
which is entitled Symbol Technologies, Inc. et. al. v. Lemelson Medical,
Educational & Research Foundation, Limited Partnerships, was commenced in
the U.S. District Court, District of Nevada in Reno, Nevada. In the
litigation, the Auto ID companies seek, among other remedies, a declaration
that certain patents, which have been asserted by the Lemelson Partnership
against end users of bar code equipment, are invalid, unenforceable and not
infringed. The other six Auto ID companies who are plaintiffs in the
lawsuit are Accu-Sort Systems, Inc., Intermec Technologies Corporation, a
wholly-owned subsidiary of UNOVA, Inc., Metrologic Instruments, Inc., PSC
Inc., Teklogix Corporation, a wholly-owned U.S. subsidiary of Teklogix
International, Inc. and Zebra Technologies Corporation. The Company has
agreed to bear approximately half of the legal and related expenses
associated with the litigation, with the remaining portion being borne by
the other Auto ID companies.
Although no claim is now or has ever been asserted by the Lemelson
Partnership directly against the Company or, to our knowledge any other
Auto ID company, the Lemelson Partnership has contacted many of the Auto ID
companies' customers demanding a one-time license fee for certain so-called
"bar code" patents transferred to the Lemelson Partnership by the late
Jerome H. Lemelson. The Company and the other Auto ID companies have
received many requests from their customers asking that they undertake the
defense of these claims using their knowledge of the technology at issue.
Certain of these customers have requested indemnification against the
Lemelson Partnership's claims from the Company and the other Auto ID
companies, individually and/or collectively with other equipment suppliers.
The Company, and we understand, the other Auto ID companies believe that
generally they have no obligation to indemnify their customers against
these claims and that the patents being asserted by the Lemelson
Partnership against their customers with respect to bar code equipment are
invalid, unenforceable and not infringed. However, the Company and the
other Auto ID companies believe that the Lemelson claims do concern the
Auto ID industry at large and that it is appropriate for them to act
jointly to protect their customers against what they believe to be baseless
claims being asserted by the Lemelson Partnership.
-17-
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Shareholders was held on May 10,
1999. At the meeting all nine directors nominated by the Company were re-
elected. The votes cast for each nominee were as follows:
For Against
Jerome Swartz 52,211,362 505,080
Harvey P. Mallement 52,212,130 504,312
Frederic P. Heiman 52,215,738 500,704
Raymond R. Martino 52,215,562 500,880
Saul P. Steinberg 52,206,774 509,668
Lowell C. Freiberg 52,210,759 505,683
George Bugliarello 52,204,200 512,242
Charles B. Wang 43,222,730 9,493,712
Tomo Razmilovic 52,216,138 500,304
The shareholders also approved proposals to (i) amend the Corporation's
Certificate of Incorporation (ii) amend the 1997 Employee Stock Option Plan
(iii)adopt a new Executive Bonus Plan and (iv) ratify the appointment of
Deloitte & Touche LLP auditors for fiscal 1999. The number of shares voted
for, voted against or abstained from voting upon, each proposal was as
follows:
For Against Abstain
Proposal to amend the Corporation's
Certificate of Incorporation 43,114,283 9,525,192 76,967
Proposal to amend the 1997
Employee Stock Option Plan 36,469,517 16,101,991 144,934
Proposal to approve the adoption
of a new Executive Bonus Plan 48,879,928 3,653,051 183,463
Proposal to ratify the appointment
of Deloitte & Touche LLP auditors
for Fiscal 1999 52,610,907 59,678 45,857
-18-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SYMBOL TECHNOLOGIES, INC.
Dated: July 23, 1999 By: /s/ Jerome Swartz
Jerome Swartz, Chairman and
Chief Executive Officer
Dated: July 23, 1999 By: /s/ Kenneth V. Jaeggi
Kenneth V. Jaeggi
Senior Vice President -
Chief Financial Officer
-19-
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