SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 2000
Commission file number 1-9802
SYMBOL TECHNOLOGIES, INC.__________________
(Exact name of registrant as specified in its charter)
Delaware 11-2308681______
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Symbol Plaza, Holtsville, NY 11742_________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 631-738-2400
Former name, former address and former fiscal year, if changed
since last report.
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the close of the period
covered by this report.
Class Outstanding at March 31, 2000 (1)
Common Stock, 136,657,095 shares
par value $0.01
(1) Reflects a three for two split of the Company's common stock
effected as a fifty percent stock dividend paid April 5, 2000
to shareholders of record as of March 13, 2000.
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets at
March 31, 2000 and December 31, 1999 2
Condensed Consolidated Statements of Earnings
Three Months Ended March 31, 2000 and 1999 3
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 2000 and 1999 4
Notes to Condensed Consolidated Financial
Statements 5 - 9
ITEM 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations 10 - 13
ITEM 3.
Quantitative and Qualitative Disclosure about
Market Risk 13
PART II. OTHER INFORMATION 14 - 17
SIGNATURES 18
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(All amounts in thousands, except stock par value)
March 31, December 31,
ASSETS 2000 1999____
(Unaudited)
CURRENT ASSETS:
Cash and temporary investments $ 20,644 $ 30,128
Accounts receivable, less allowance for doubtful
accounts of $11,794 and $11,924, respectively 272,285 252,140
Inventories 247,949 216,709
Deferred income taxes 43,828 44,794
Prepaid and refundable income taxes 17,115 -
Other current assets 53,706 40,430
TOTAL CURRENT ASSETS 655,527 584,201
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation and amortization of $128,035 and
$116,930 respectively 212,028 206,116
INTANGIBLE AND OTHER ASSETS, net of accumulated
amortization of $122,754 and $115,149
respectively 271,615 257,627
$1,139,170 $1,047,944
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $172,712 $188,178
Current portion of long-term debt 9,669 10,046
Income taxes payable - 15,559
Deferred revenue 19,120 18,805
TOTAL CURRENT LIABILITIES 201,501 232,588
LONG-TERM DEBT, less current maturities 63,321 99,623
OTHER LIABILITIES AND DEFERRED REVENUES 75,117 75,273
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 154,553 shares and
101,788 shares, respectively 1,546 1,018
Retained earnings 510,177 479,806
Other stockholders' equity 287,508 159,636
799,231 640,460
$1,139,170 $1,047,944
See notes to condensed consolidated financial statements
-2-
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(All amounts in thousands, except per share data)
(Unaudited)
Three Months Ended
March 31,_______
2000 1999__
NET REVENUE $320,011 $259,690
COST OF REVENUE 181,410 144,753
AMORTIZATION OF SOFTWARE DEVELOPMENT COSTS 5,529 4,283
GROSS PROFIT 133,072 110,654
OPERATING EXPENSES:
Engineering 22,265 19,110
Selling, general and administrative 61,307 52,809
Amortization of excess of cost over
fair value of net assets acquired 1,393 1,199
84,965 73,118
EARNINGS FROM OPERATIONS 48,107 37,536
INTEREST EXPENSE, net (1,437) (1,204)
EARNINGS BEFORE PROVISION FOR
INCOME TAXES 46,670 36,332
PROVISION FOR INCOME TAXES 14,934 11,990
NET EARNINGS $ 31,736 $ 24,342
EARNINGS PER SHARE:
Basic $0.24 $0.18
Diluted $0.22 $0.17
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING:
Basic 134,796 132,460
Diluted 146,276 141,935
See notes to condensed consolidated financial statements
-3-
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts in thousands)
(Unaudited)
Three Months Ended March 31,
2000 1999__
Cash flows from operating activities:
Net earnings $31,736 $24,342
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization of property,
plant and equipment 11,603 8,471
Other amortization 7,605 6,330
Provision for losses on accounts receivable 575 1,058
Changes in assets and liabilities net of
effects of acquisitions and divestitures:
Accounts receivable (21,701) 12,728
Inventories (31,442) 12,098
Other current assets (13,163) (2,873)
Accounts payable and accrued expenses (15,533) (35,747)
Other liabilities and deferred revenue (32,516) 8,625
Net cash (used in)/provided by operating
activities (62,836) 35,032
Cash flows from investing activities:
Purchases of property, plant and
equipment (17,681) (17,641)
Investments in intangible and other assets (16,355) (10,660)
Acquisition of subsidiaries (1,598) (6,224)
Net cash used in investing activities (35,634) (34,525)
Cash flows from financing activities:
Net proceeds from issuance and repayment
of notes payable and long-term debt (36,679) 20,644
Exercise of stock options and warrants 47,964 6,384
Dividends paid (1,365) (1,178)
Purchase of treasury shares (20,537) (13,338)
Reissuance of treasury shares 100,000 -
Net cash provided by financing
activities 89,383 12,512
Effects of exchange rate changes on cash (397) (1,766)
Net (decrease)/increase in cash and
temporary investments (9,484) 11,253
Cash and temporary investments, beginning
of period 30,128 16,284
Cash and temporary investments, end of
period $20,644 $27,537
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $1,912 $ 1,284
Income taxes $12,437 $ 1,512
See notes to condensed consolidated financial statements
-4-
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(All amounts in thousands, except per share data)
1. In the opinion of management, the accompanying unaudited condensed
consolidated financial statements include all necessary adjustments
(consisting of normal recurring accruals) and present fairly the
Company's financial position as of March 31, 2000, and the results
of its operations and its cash flows for the three months ended
March 31, 2000 and 1999, in conformity with generally accepted
accounting principles for interim financial information applied on
a consistent basis. The results of operations for the three months
ended March 31, 2000, 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, 1999. Certain reclassifications 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 February 14, 2000 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 April 5, 2000 to shareholders of
record on March 13, 2000. 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 has 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:
March 31, 2000 December 31, 1999
(Unaudited)
Raw materials $118,779 $102,637
Work-in-process 20,527 15,120
Finished goods 108,643 98,952
$247,949 $216,709
-5-
4. The Company's total comprehensive earnings were as follows:
Three Months Ended
March 31,______
(Unaudited)
2000 1999__
Net earnings $ 31,736 $ 24,342
Other comprehensive earnings(losses),
net of tax:
Change in equity due to foreign
currency translation adjustments (1,814) (3,794)
Change in equity due to unrealized
gains on marketable securities 2,786 -
Comprehensive earnings $ 32,708 $ 20,548
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 February 8, 2000, the United States District Court in Rochester,
New York issued a decision in the suit between PSC and the Company
commenced in 1996. PSC sought to have the Court declare that two
license agreements between PSC and the Company were terminated and
that PSC was only obligated to pay royalties to the Company on sales
of its hand-held laser scanners in accordance with the much lower
rates contained in an agreement which PSC had acquired from Spectra-
Physics in 1996.
The Court held that PSC's two agreements with the Company have not
been terminated and that PSC was obligated to pay the Company the
higher royalty rates under these agreements rather than the much lower
rates contained in the Spectra agreements.
This decision results in an immediate obligation by PSC to pay the
Company back royalties from October 23, 1998. Notwithstanding the
Court's decision, PSC has not made any payment to the Company under
the PSC agreements. PSC has, however, taken a charge of $6.4 million
for the period ending December 31, 1999 which was increased by an
additional $729,000 for the quarter ended March 31, 2000 for royalties
owed under the PSC agreements. In addition, pursuant to the ruling,
PSC is also obligated to pay additional estimated royalties of
approximately $5 million per year on a going forward basis. The Court
also held that the Company had purged the patent misuse, which the
Court had earlier found.
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.
-6-
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 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 for direct infringement 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.
The Lemelson Partnership filed a motion to dismiss the lawsuit, or in
the alternative, to stay proceedings or to transfer the case to the
U.S. District Court in Arizona where there are pending cases involving
the Lemelson Partnership and other companies in the semiconductor and
electronics industries. The Lemelson Partnership's motion was
primarily based on grounds that there was no legally justiciable case
or controversy between the Auto ID companies and the Lemelson
Partnership because (1) the Lemelson Partnership's asserted method
claims do not apply against the bar code equipment itself; and (2) the
Lemelson Partnership had never asserted its patent claims against the
Auto ID companies.
On March 21, 2000, the U.S. District Court in Nevada denied the
Lemelson Partnership's motion to dismiss transfer of stay the action.
It also struck one of the five counts
-7-
On April 12, 2000, the Lemelson Partnership filed its Answer to the
Complaint in the Symbol et al. v. Lemelson Partnership case. In the
Answer, the Lemelson Partnership included a counterclaim against the
Company and the other plaintiffs seeking a dismissal of the case.
Alternatively, the Lemelson Partnership's counterclaim seeks a
declaration that the Company and the other plaintiffs have contributed
to, or induced infringement of particular method claims of the
patents-in-suit by the plaintiffs' customers. The Company believes
there is no merit to the Lemelson Partnership's counterclaim.
6. During the quarter ended March 31, 2000 the Company entered into a
multi-year joint development agreement with Intel Corporation to
create advanced wireless networking capabilities and products.
In connection with this agreement the Company sold 2,119,434 (stock
split effected) treasury shares of Common Stock to Intel Corporation
for $100 million.
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.
-8-
<TABLE>
<CAPTION>
The Asia/
Americas EMEA Pacific Corporate Consolidated
(in thousands)
Three Months ended
March 31, 2000:
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated
customers $215,083 $ 88,106 $16,822 $ - $320,011
Transfers between
geographic areas 79,361 - - (79,361) -
Total net revenue $294,444 $ 88,106 $16,822 $(79,361) $320,011
Earnings before
provision for income
taxes $ 77,512 $ 21,013 $ 5,929 $(57,784) $ 46,670
Identifiable assets $892,139 $121,731 $21,167 $104,133 $1,139,170
Three Months ended
March 31, 1999:
Sales to unaffiliated
customers $161,196 $ 84,985 $13,509 $ - $259,690
Transfers between
geographic areas 57,366 - - (57,366) -
Total net revenue $218,562 $ 84,985 $13,509 $(57,366) $259,690
Earnings before
provision for income
taxes $ 57,025 $ 25,091 $ 4,845 $(50,629) $ 36,332
Identifiable assets $599,967 $129,536 $12,873 $102,350 $844,726
</TABLE>
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, 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.
-9-
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
Net revenue of $320,011,000 for the three months ended March 31,
2000 increased 23.2 percent over the comparable prior year period.
This increase in net revenue is primarily due to increased equipment
sales, partially offset by the decrease 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
1.7 percent for the three months ended March 31, 2000. Foreign
exchange rate fluctuations did not have a material impact on net
revenue for the three months ended March 31, 1999.
Geographically, The Americas revenue increased 33.4 percent,
EMEA revenue increased 3.7 percent and Asia Pacific revenue increased
24.5 percent, respectively, over the comparable prior year periods.
The Americas, EMEA and Asia Pacific revenue represent approximately
67 percent, 28 percent and 5 percent of net revenue, respectively.
Cost of revenue (as a percentage of net revenue) of 56.7 percent
for the three months ended March 31, 2000, increased from 55.7
percent for the comparable prior year period, due to a shift in
product mix in the fastest growing proportion of the Company's
business to lower margin products versus the historical mix of
products coupled with the continued unfavorable impact of foreign
exchange rate fluctuations on net revenue partially offset by
increased royalty income.
Amortization of software development costs of $5,529,000 for the
three months ended March 31, 2000 increased from $4,283,000 for the
three months ended March 31, 1999 due to new product releases.
Engineering costs for the three months ended March 31, 2000
increased to $22,265,000 from $19,110,000 for the three months ended
March 31, 1999. As a percentage of net revenue engineering expenses
decreased to 7.0 percent from 7.4 percent in the prior year period.
In absolute dollars, engineering expenses increased 16.5 percent from
the prior year period due to additional expenses incurred in
connection with the continuing research and development of new
products and the improvement of existing products as well as a
decrease in the amount of capitalized costs incurred for internally
developed product software where economic and technological
feasibility has been established.
Selling, general and administrative expenses of $61,307,000 for
the three months ended March 31, 2000 increased from $52,809,000 for
the three months ended March 31, 1999. While in absolute dollars,
-10-
selling, general and administrative expenses increased 16.1 percent
from the prior year period, as a percentage of revenue such expenses
were decreased to 19.2 percent for the three months ended March 31,
2000, from 20.3 percent for the comparable prior year period due to
on going cost containment programs. The increase in absolute dollars
reflects expenses incurred to support a higher revenue base.
Amortization of excess of cost over fair value of net assets
acquired of $1,393,000 for the three months ended March 31, 2000
increased from $1,199,000 for the three months ended March 31, 1999
due to an acquistion of a subsidiary subsequent to March 31, 1999 as
well as contingent additional acquisition related payments which
increased the value of excess of cost over net assets acquired.
Net interest expense increased to $1,437,000 for the three
months ended March 31, 2000 from $1,204,000 for the three months
ended March 31, 1999 primarily due to increased borrowings during the
quarter 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 32.0 percent for the three
months ended March 31, 2000 decreased from 33.0 percent in the
comparable 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:
March 31, December 31,
2000 1999_____
Working Capital (in thousands) $454,026 $351,613
Current Ratio (Current Assets
to Current Liabilities) 3.3:1 2.5:1
Long-Term Debt to Capital 7.3% 13.5%
(Long-term debt to long-term
debt plus equity)
Current assets increased by $71,326,000 from December 31, 1999
principally due to an increase in accounts receivable as a result of
the increase in net revenue, inventories due to increased operating
levels and prepaid and refundable income taxes resulting from the tax
benefits of stock option exercises.
-11-
Current liabilities decreased $31,087,000 from December 31, 1999
primarily due to decreases in accounts payable and accrued expenses
and income taxes payable.
The aforementioned activity resulted in a working capital increase
of $102,413,000 for the three months ended March 31, 2000. The Company's
current ratio at March 31, 2000 increased to 3.3:1 compared with 2.5:1
as of December 31, 1999.
Property, plant and equipment expenditures for the three months
ended March 31, 2000 totaled $17,681,000 compared to $17,641,000 for the
three months ended March 31, 1999. During the fourth quarter of 1999
the Company entered into a construction commitment to expand capacity by
constructing a 140,000 square foot manufacturing and distribution
facility in Reynosa, Mexico. The addition of this facility is part of
the Company's global logistics strategy of supply chain management
through vertical manufacturing integration. The project cost, including
land and building, is estimated at approximately $10,000,000 and is
anticipated to be completed in the third quarter of 2000. The Company
continues to make capital investments in major systems and networks
conversions but does not have any other material commitments for capital
expenditures.
The Company's long-term debt to capital ratio decreased to 7.3
percent at March 31, 2000 from 13.5 percent at December 31, 1999
primarily due to decreased borrowings under the Company's revolving
credit facility, payment of the annual installment of the Company's
Series A and B Senior Notes and New York Industrial Development bond,
repayment in full of a yen-denominated promissory note and the benefits
realized by stock option exercises. Additionally, in connection with a
multi-year joint development agreement entered into with Intel
Corporation, the Company sold 2,119,434 (stock split effected) treasury
shares of Common Stock to Intel for $100 million. These benefits were
partially offset by the change in equity due to foreign currency
translation adjustments and stock repurchases.
The Company maintains a revolving credit facility with a syndicate
of U.S. and International banks of $350 million for which the terms
extend to 2004. As of March 31, 2000 the Company had outstanding
borrowings of $50,000,000 under this facility which is a decrease of
$7,000,000 versus that outstanding as of December 31, 1999.
The Company used $62,836,000 in operating activities for the three
months ended March 31, 2000, and experienced an overall decrease in cash
of $9,484,000 for the period. The cash used in operations, investing
activities, repayment of notes payable and long-term debt and purchase
of 342,000 (stock split effected) shares of the Company's Common Stock
was offset by cash provided by the shares of Common Stock sold to Intel,
and 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.
-12-
January 2000 Update
Through the first quarter of the year 2000, the Company's
operations around the world are fully functioning and have not
experienced any significant issues associated with the Year 2000 problem
(as described below). The Company has not experienced any significant
Year 2000-related issues worldwide that would affect its ability to
manufacture, ship, sell or service its products. The Company will
continue to monitor its operations.
The Company's total cost of its Year 2000 activities through 1999
were approximately $2,800,000 which includes approximately $2,300,000 of
capitalized fixed assets.
Year 2000 Readiness Overview
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's Year 2000 initiatives focused on 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 established a steering committee including senior
executives to address Year 2000 issues which report periodically to the
Board of Directors. The Company's plan to address Year 2000 issues
resulted in the formation of three main teams: (a) internal systems
team, (b) external vendors/suppliers team, and (c) product readiness
team.
The Company assessed the extent to which the Company's interface
systems and sources of supply were vulnerable to third party hardware
and software suppliers' failure to remediate their Year 2000 issues.
The Company determined that it would not have to modify or replace
significant portions of its product offerings so that such products
would function properly with respect to dates in the Year 2000.
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, 1999 for required disclosure.
-13-
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 April 1, 1996, PSC, Inc. (PSC) commenced suit against the
company in Federal District court for the Western District of New
York, asserting 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 served a Third
Amended Complaint, which asserted essentially the same antitrust
and unfair competition claims against the Company, and also
sought a declaratory judgment of alleged non-infringement and
invalidity of nine of the Company's patents, and a declaratory
judgment that PSC had not breached its two agreements with the
Company and that those agreements had been terminated. The
Company 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 were the same nine of the Company's
patents as to which PSC was 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.
On April 3, 1998, the Court, with the consent of the
parties, lifted the stay previously in effect with the respect to
the contract issues in the litigation.
On September 12, 1998, PSC filed a motion for partial
summary judgment alleging that the Company was guilty of patent
"misuse" since PSC is obligated under a 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
-14-
scanning terminals. In this motion, PSC claimed that this
practice should have barred the Company from collecting past
royalties which the Company alleged were owed by PSC under the
1991 Agreement. Since July 1996, PSC has not paid the Company
royalties under the 1991 Agreement and has instead been paying
royalties under the agreement it obtained in connection with the
acquisition of Spectra-Physics Scanning Systems in 1996.
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.
On November 16, 1999, both parties filed motions for partial
summary judgment. The Company's motion contended that (a) its
two agreements with PSC had not been terminated; (b) PSC is
obligated to pay royalties to the Company pursuant to these
agreements in those circumstances in which the agreements overlap
with an agreement the Company had entered into with Spectra-
Physics, and; (c) the Company had purged the misuse found by the
Court. PSC's motion claimed that (a) its agreements with the
Company had been terminated; (b) if the agreements had not been
terminated, PSC was entitled to operate under the more favorable
terms of the Spectra Agreement, and; (c) Symbol had not purged
the misuse found by the Court.
On February 8,2000, the Court granted the Company's motion in
its entirety and issued a decision that PSC's two license
agreements with the Company have not been terminated and that PSC
was obligated to pay the Company the higher royalty rates under
those agreements rather than the much lower royalty rates
contained in the Spectra Agreements. This decision results in an
immediate obligation by PSC to pay back royalties from October
23, 1998. The Court also held that on October 23, 1998 the
Company had purged the patent misuse previously found by the
Court.
On February 23, 2000, PSC moved for reconsideration of that
portion of the Court's decision which held that PSC must pay
royalties to the Company under the higher rates contained in
PSC's Agreements with the Company. PSC moved in the alternative
for permission to appeal the decision immediately to the United
States Court of Appeals for the Federal Circuit.
Notwithstanding the Court's decision, PSC has made royalty
payments to the Company only in accordance with the lower royalty
rates contained in the Spectra Agreement, rather than at the
higher royalty rates set forth in the PSC Agreements as ordered
by the Court. PSC has since publicly reported that the past-due
royalties to the Company amounted to $6.4 million for the period
ending December 31, 1999, which amount has been increased by an
additional $729,000 for the quarter ended March 31, 2000.
-15-
The Company has filed a motion seeking to have PSC held in
contempt for violating the February 8 decision, as well as a
Consent Judgment entered into by the parties in 1991, and an
Order requiring PSC to pay royalties and prepare royalty reports
in accordance with the PSC Agreements. PSC has moved the Court
to stay the effect of its February 8 decision, and to dispense
with any requirement that PSC post security in lieu of paying the
higher royalties to the Company.
All of these motions have been fully briefed and the parties
are now awaiting a decision by the Court. The Company believes
that PSC's motions are without merit.
On July 21, 1999, the Company and six other leading members
of the Automatic Identification and Data Capture industry jointly
initiated 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 for direct infringement is now or has ever
been asserted by the Lemelson Partnership 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
-16-
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.
The Lemelson Partnership has filed a motion to dismiss the
lawsuit, or in the alternative, to stay proceedings or to
transfer the case to the U.S. District Court in Arizona where
there are pending cases involving the Lemelson Partnership and
other companies in the semiconductor and electronics industries.
The Lemelson Partnership's motion was primarily based on grounds
that there is no legally justiciable case or controversy between
the Auto ID companies and the Lemelson Partnership because (1)
the Lemelson Partnership's asserted method claims do not apply
against the bar code equipment itself; and (2) the Lemelson
Partnership has never asserted its patent claims against the Auto
ID companies.
On March 21, 2000, the U.S. District Court in Nevada denied
the Lemelson Partnership's motion to dismiss, transfer or stay
the Auto ID action. It also struck one of the five counts of the
complaint and ordered the action consolidated with an action
against the Lemelson Partnership brought by Cognex Corp. pending
in the same Court.
On March 31, 2000, the Lemelson Partnership's moved (1) to
have a new magistrate appointed and (2) to transfer the case from
Reno, Nevada to the unofficial southern division of Nevada in Las
Vegas. The motion was denied by the Court on April 10, 2000.
On April 12, 2000, the Lemelson Partnership filed its Answer
to the Complaint in the Symbol et al. v. Lemelson Partnership
case. In the Answer, the Lemelson Partnership included a
counterclaim against the Company and the other plaintiffs seeking
a dismissal of the case. Alternatively, the Lemelson
Partnership's counterclaim seeks a declaration that the Company
and the other plaintiffs have contributed to, or induced
infringement of particular method claims of the patents-in-suit
by the plaintiffs' customers. The Company believes there is no
merit to the Lemelson Partnership's counterclaim.
-17-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
SYMBOL TECHNOLOGIES, INC.
Dated: April 27, 2000 By: /s/ Jerome Swartz
Jerome Swartz, Chairman and
Chief Executive Officer
Dated: April 27, 2000 By: /s/ Kenneth V. Jaeggi
Kenneth V. Jaeggi
Senior Vice President -
Chief Financial Officer
-18-
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