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 September 30,2000
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 September 30,2000
Common Stock, 137,606,481 shares
par value $0.01
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets at
September 30, 2000 and December 31, 1999 2
Condensed Consolidated Statements of Earnings
Three and Nine Months Ended September 30, 2000 and 1999 3
Condensed Consolidated Statements of Cash Flows
Three and Nine Months Ended September 30, 2000 and 1999 4 - 5
Notes to Condensed Consolidated Financial
Statements 6 - 13
ITEM 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations 13 - 17
ITEM 3.
Quantitative and Qualitative Disclosures about
Market Risk 17
PART II. OTHER INFORMATION 18 - 23
SIGNATURES 24
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)
September 30, December 31,
ASSETS 2000 1999____
(Unaudited)
CURRENT ASSETS:
Cash and temporary investments $ 50,268 $ 30,128
Accounts receivable, less allowance for doubtful
accounts of $12,894 and $11,924, respectively 364,575 252,140
Inventories 305,924 216,709
Deferred income taxes 54,199 44,794
Prepaid and refundable income taxes 14,462 -
Other current assets 71,336 40,430
TOTAL CURRENT ASSETS 860,764 584,201
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation and amortization of $149,966 and
$116,930, respectively 234,658 206,116
INTANGIBLE AND OTHER ASSETS, net of accumulated
amortization of $139,325 and $115,149,
respectively 262,490 257,627
$1,357,912 $1,047,944
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $186,743 $188,178
Current portion of long-term debt 14,881 10,046
Income taxes payable - 15,559
Deferred revenue 17,371 18,805
TOTAL CURRENT LIABILITIES 218,995 232,588
LONG-TERM DEBT, less current maturities 204,807 99,623
OTHER LIABILITIES AND DEFERRED REVENUES 68,574 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 155,945 shares and
101,788 shares, respectively 1,559 1,018
Retained earnings 585,427 479,806
Treasury stock, at cost, 18,339 shares and
13,116 shares, respectively (220,443) (200,861)
Other stockholders' equity 498,993 360,497
865,536 640,460
$1,357,912 $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 Nine Months Ended
September 30, September 30,__
2000 1999 2000 1999_
NET REVENUE $373,249 $293,030 $1,034,658 $826,823
COST OF REVENUE 212,600 163,322 588,528 460,919
AMORTIZATION OF SOFTWARE
DEVELOPMENT COSTS 6,602 4,601 17,930 13,236
GROSS PROFIT 154,047 125,107 428,200 352,668
OPERATING EXPENSES:
Engineering 24,832 21,112 69,902 60,173
Selling, general and
administrative 64,770 55,485 187,589 161,048
Amortization of excess
of cost over fair value
of net assets acquired 1,397 1,254 4,196 3,724
90,999 77,851 261,687 224,945
EARNINGS FROM OPERATIONS 63,048 47,256 166,513 127,723
INTEREST EXPENSE, net (3,562) (1,316) (7,155) (3,984)
EARNINGS BEFORE PROVISION
FOR INCOME TAXES 59,486 45,940 159,358 123,739
PROVISION FOR INCOME TAXES 19,036 15,160 50,995 40,834
NET EARNINGS $ 40,450 $ 30,780 $108,363 $ 82,905
EARNINGS PER SHARE:
Basic $0.29 $0.23 $0.79 $0.63
Diluted $0.28 $0.22 $0.74 $0.59
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING:
Basic 137,541 132,653 136,423 132,452
Diluted 146,907 141,378 146,881 141,182
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 September 30,
2000 1999____
Cash flows from operating activities:
Net earnings $40,450 $30,780
Adjustments to reconcile net earnings
to net cash from operating activities:
Depreciation and amortization of property,
plant and equipment 11,993 11,581
Other amortization 8,673 7,058
Provision for losses on accounts receivable 854 621
Changes in assets and liabilities
net of effects of acquisitions & divestitures:
Accounts receivable (70,433) (17,985)
Inventories (21,597) (3,201)
Other current assets (991) (2,398)
Accounts payable and accrued expenses 19,165 31,153
Other liabilities and deferred revenues (4,839) (1,645)
Tax benefits from exercise of stock options 5,960 6,553
Net cash (used in)/provided by operating
activities (10,765) 62,517
Cash flows from investing activities:
Purchases of property, plant and
equipment (21,818) (18,474)
Investments in intangible and other assets (221) (18,977)
Acquisition of subsidiaries (2,154) (1,844)
Purchase of available for sale securities - (1,000)
Net cash used in investing activities (24,193) (40,295)
Cash flows from financing activities:
Net proceeds from issuance and repayment
of notes payable and long term debt 50,644 (13,007)
Exercise of stock options and warrants 5,786 6,120
Dividends paid (1,377) (1,330)
Purchase of treasury shares (8,063) (13,319)
Net cash provided by/(used in) financing
activities 46,990 (21,536)
Effects of exchange rate changes on cash (1,317) 591
Net increase in cash and temporary
investments 10,715 1,277
Cash and temporary investments, beginning
of period 39,553 24,240
Cash and temporary investments, end of
period $50,268 $25,517
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 3,325 $ 1,233
Income taxes $ 8,503 $ 3,446
See notes to condensed consolidated financial statements
-4-
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts in thousands)
(Unaudited)
Nine Months Ended September 30,
2000 1999__
Cash flows from operating activities:
Net earnings $108,363 $82,905
Adjustments to reconcile net earnings to
net cash from operating activities:
Depreciation and amortization of property,
plant and equipment 35,461 28,933
Other amortization 24,176 19,851
Provision for losses on accounts receivable 2,022 2,591
Changes in assets and liabilities
net of effects of acquisitions & divestitures:
Accounts receivable (120,111) (30,269)
Inventories (90,118) 12,938
Other current assets (36,530) (8,485)
Accounts payable and accrued expenses (1,992) 4,689
Other liabilities and deferred revenues (38,154) 17,620
Tax benefits from exercise of stock options 52,758 13,011
Net cash (used in)/provided by operating
activities (64,125) 143,784
Cash flows from investing activities:
Purchases of property, plant and
equipment (64,707) (55,834)
Investments in intangible and other assets (37,103) (49,082)
Acquisition of subsidiaries (3,752) (8,068)
Purchase of available for sale securities - (1,000)
Net cash used in investing activities (105,562) (113,984)
Cash flows from financing activities:
Net proceeds from issuance and repayment
of notes payable and long term debt 110,019 4,717
Exercise of stock options and warrants 27,393 11,142
Dividends paid (2,742) (2,508)
Purchase of treasury shares (42,500) (32,005)
Reissuance of treasury shares 100,000 -
Net cash provided by/(used in)
financing activities 192,170 (18,654)
Effects of exchange rate changes on cash (2,343) (1,913)
Net increase in cash and
temporary investments 20,140 9,233
Cash and temporary investments, beginning
of period 30,128 16,284
Cash and temporary investments, end of
period $50,268 $25,517
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 6,854 $ 3,448
Income taxes $23,429 $ 6,099
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
September 30, 2000, and the results of its operations and its
cash flows for the three and nine months ended September 30,
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 and
nine months ended September 30, 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
Stock 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:
September 30, 2000 December 31, 1999
(Unaudited)
Raw materials $173,038 $102,637
Work-in-process 15,314 15,120
Finished goods 117,572 98,952
$305,924 $216,709
-6-
4. The Company's total comprehensive earnings were as follows:
Three Months Ended Nine Months Ended
September 30, September 30,__
(Unaudited) (Unaudited)
2000 1999 2000 1999
Net earnings $ 40,450 $ 30,780 $108,363 $ 82,905
Other comprehensive
earnings(losses), net
of tax:
Change in equity due to
foreign currency
translation adjustments (5,503) 2,511 (10,162) (2,610)
Change in equity due to
unrealized gains (losses)
on marketable securities (1,965) 101 (8,035) 101
Comprehensive earnings $ 32,982 $ 33,392 $ 90,166 $ 80,396
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 means that PSC has an obligation to the Company for
back royalties from October 23, 1998. PSC has not, however, made
any payment to the Company under the PSC agreements but has 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 and by an additional $705,000 for the quarter ended
June 30,2000 for royalties owed under the PSC agreements. The
Court also held that the Company had purged the patent misuse,
which the Court had earlier found.
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.
-7-
The Company filed a motion seeking to have PSC held in contempt for
not complying with the February 8 decision, as well as a Consent
Judgment entered into by the parties in 1991, and an Order
requiring PSC to begin to pay royalties in accordance with the PSC
agreements. PSC 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.
On September 29, 2000, the Court ruled on all pending motions and
denied them all. Specifically, the Court denied PSC's motion for
reconsideration and affirmed its February 8, 2000 Decision and
Order. The Court also denied PSC's request to be permitted to
immediately appeal the February 8 decision to the Court of Appeals.
At the same time, the Court denied the Company's motion that PSC be
held in contempt for failure to pay royalties in accordance with
the February 8, 2000 Decision and Order because that Decision was
not a final judgment in the case. The Court did not consider
Company's motion that PSC be held in contempt for violating the
1991 Consent Judgment on procedural grounds. The Company can renew
this motion at a later time.
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
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.
-8-
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, or stay the
action. It also struck one of the four counts.
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.
On May 15, 2000, the Auto ID companies filed a motion seeking
permission to file an interlocutory appeal of the Court's decision
to strike the fourth count of the complaint (which alleged that the
Lemelson Partnership's delays in obtaining its patents rendered
them unenforceable for laches). The motion was granted by the
Court on July 14, 2000. The Court entered a clarifying,
superseding order on July 25, 2000. On September 1, 2000, the U.S.
Court of Appeals for the Federal Circuit granted the petition of
the Auto ID companies for permission to pursue this interlocutory
appeal.
-9-
On July 24, 2000, the Auto ID companies filed a motion for partial
summary judgment arguing that almost all of the claims of the
Lemelson Partnership's patents are invalid for lack of written
description. On August 8, 2000, the Lemelson Partnership filed a
motion seeking an extension of approximately ten weeks in which to
file an answer to this motion. On August 31, 2000, the Court
granted the Lemelson Partnership's motion for such an extension.
6. During the quarter ended June 30, 2000, the Company announced its
intention to form a new company with Motorola Inc., Airclic, Inc.,
Connect Things, Inc. (an affiliate of Telefon AB L.M. Ericsson) and
others to support the use of scanners with cellular phones, T.V.
remote controls, and other consumer devices to enhance electronic
commerce. The definitive agreements are currently being negotiated
but have not yet been finalized. The Company currently anticipates
that the agreements will be finalized before the end of 2000. The
Company's percentage interest in the new company and its
corresponding financial commitment to it have not yet been
finalized although it may approximate as much as $200 million over
time and with conditions still to be negotiated.
7. 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.
8. On July 26, 2000, the Company announced the signing of a definitive
merger agreement with Telxon Corporation ("Telxon"). The merger
agreement provides for the exchange of 0.5 shares of the Company's
common stock for each common share of Telxon. Telxon currently has
approximately 17.5 million common shares outstanding and 2.5
million options which the Company will assume. In addition, Telxon
has $107 million in convertible debt which the Company will also
assume if it is not converted. Telxon is a designer and
manufacturer of wireless networks for mobile computing solutions
and information systems. Following completion of the merger,
Telxon's business will be substantively integrated into the
Company. This transaction will be accounted for as a purchase.
The proposed transaction is subject to Telxon shareholder approval
and regulatory approvals and customary closing conditions. The
closing date for this transaction is expected to take place on or
about November 30, 2000.
9. 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).
-10-
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.
-11-
<TABLE>
<CAPTION>
The Asia/
Americas EMEA Pacific Corporate Consolidated
(in thousands)
Three Months ended
September 30, 2000:
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated
customers $263,259 $ 89,749 $20,241 $ - $373,249
Transfers between
geographic areas 228,107 - - (228,107) -
Total net revenue $491,366 $ 89,749 $20,241 $(228,107) $373,249
Earnings before
provision for income
taxes $ 96,094 $ 23,661 $ 7,521 $(67,790) $ 59,486
Identifiable assets $1,085,705 $143,965 $24,459 $103,783 $1,357,912
Three Months ended
September 30, 1999:
Sales to unaffiliated
customers $186,078 $ 87,774 $19,178 $ - $293,030
Transfers between
geographic areas 66,820 - - (66,820) -
Total net revenue $252,898 $ 87,774 $19,178 $(66,820) $293,030
Earnings before
provision for income
taxes $ 71,856 $ 23,143 $ 7,397 $(56,456) $ 45,940
Identifiable assets $664,317 $133,100 $20,508 $117,676 $935,601
Nine Months ended
September 30, 2000:
Sales to unaffiliated
customers $713,632 $262,782 $58,244 $ - $1,034,658
Transfers between
geographic areas 461,234 - - (461,234) -
Total net revenue $1,174,866 $262,782 $58,244 $(461,234) $1,034,658
Earnings before
provision for income
taxes $254,575 $ 66,852 $20,834 $(182,903) $159,358
Nine Months ended
September 30, 1999:
Sales to unaffiliated
customers $521,835 $257,376 $47,612 $ - $826,823
Transfers between
geographic areas 178,865 - - (178,865) -
Total net revenue $700,700 $257,376 $47,612 $(178,865) $826,823
Earnings before
provision for income
taxes $194,682 $ 71,545 $17,746 $(160,234) $123,739
</TABLE>
-12-
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.
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
Net revenue of $373,249,000 and $1,034,658,000 for the three and
nine months ended September 30, 2000 increased 27.4 percent and 25.1
percent, respectively, over the comparable prior year periods. The
increase in net revenue for the three and nine months ended September
30, 2000 is primarily due to increased equipment sales partially
offset by the decrease in the nine months ended September 30, 2000 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 2.4 percent and 2.2 percent for
the three and nine months ended September 30, 2000, respectively.
Foreign exchange rate fluctuations unfavorably impacted net revenue by
approximately 0.4 percent for the three months ended September 30,
1999, but did not have a material impact on net revenue for the nine
months ended September 30, 1999.
Geographically, The Americas revenue increased 41.5 percent and
36.8 percent, respectively, for the three and nine months ended
September 30, 2000 over the comparable prior year periods. EMEA
revenue increased 2.3 percent and 2.1 percent, respectively and Asia
Pacific revenue increased 5.5 percent and 22.3 percent, respectively,
over the comparable prior year periods. The Americas, EMEA and Asia
Pacific revenue represent approximately 71 percent, 24 percent and 5
percent of net revenue, respectively for the three months ended
September 30, 2000 and 69 percent, 25 percent and 6 percent of net
revenue, respectively for the nine months ended September 30, 2000.
-13-
Cost of revenue (as a percentage of net revenue) of 57.0 percent
and 56.9 percent for the three and nine months ended September 30,
2000 increased from 55.7 percent for the comparable prior year periods
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 as well as increased costs
resulting from shortages and delivery delays for the limited
quantities of components and subassemblies procured from suppliers
partially offset by increased royalty income.
Amortization of software development costs of $6,602,000 and
$17,930,000 for the three and nine months ended September 30, 2000
increased from $4,601,000 and $13,236,000 in the comparable prior year
periods due to new product releases.
Engineering expenses for the three and nine months ended
September 30, 2000 increased to $24,832,000 and $69,902,000 from
$21,112,000 and $60,173,000, respectively, for the comparable prior
year periods. In absolute dollars engineering expenses increased 17.6
percent and 16.2 percent, respectively, from the prior year periods.
As a percentage of net revenue such expenses decreased to 6.7 percent
and 6.8 percent for the three and nine months ended September 30, 2000
compared to 7.2 percent and 7.3 percent, respectively, for the
comparable prior year periods. The increase in absolute dollars is due
to additional expenses incurred in connection with the continuing
research and development of new products and the improvement of
existing products 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 $64,770,000 and
$187,589,000 for the three and nine months ended September 30, 2000
increased from $55,485,000 and $161,048,000, respectively, for the
comparable prior year periods. While in absolute dollars, selling,
general and administrative expenses increased 16.7 percent and 16.5
percent, respectively, from the prior year periods, as a percentage
of net revenue such expenses decreased to 17.4 percent and 18.1
percent for the three and nine months ended September 30, 2000 from
18.9 percent and 19.5 percent, respectively, in the comparable prior
year periods due to ongoing 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 $1,397,000 and $4,196,000 for the three and nine months
ended September 30, 2000, increased from $1,254,000 and $3,724,000,
respectively for the comparable prior year periods due to the
acquisition of a subsidiary subsequent to March 31, 1999, as well as
additional contingent acquisition related payments which increased
the value of excess cost over net assets acquired.
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Net interest expense increased to $3,562,000 and $7,155,000 for
the three and nine months ended September 30, 2000 from $1,316,000 and
$3,984,000 for the comparable prior year periods primarily 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 32.0 percent for the three
and nine months ended September 30, 2000 decreased from 33.0 percent
in the comparable prior year periods primarily due to an increase in
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:
September 30, December 31,
2000 1999_____
Working Capital (in thousands) $641,769 $351,613
Current Ratio (Current Assets
to Current Liabilities) 3.9:1 2.5:1
Long-Term Debt to Capital 19.1% 13.5%
(Long-term debt to long-term
debt plus equity)
Current assets increased by $276,563,000 from December 31, 1999
principally due to an increase in accounts receivable as a result of
the increase in net revenue, inventories and other current assets due
to increased operating levels and prepaid and refundable income taxes
resulting from the tax benefits of stock option exercises.
Current liabilities decreased $13,593,000 from December 31, 1999
primarily due to decreases in income taxes payable.
The aforementioned activity resulted in a working capital increase
of $290,156,000 for the nine months ended September 30, 2000. The
Company's current ratio at September 30, 2000 increased to 3.9:1
compared with 2.5:1 as of December 31, 1999.
Property, plant and equipment expenditures for the nine months
ended September 30, 2000 totaled $64,707,000 compared to $55,834,000 for
the nine months ended September 30, 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
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cost, including land and building, is estimated at approximately
$10,000,000 and is anticipated to be completed in the fourth quarter of
2000. Total construction in process to date related to this project is
$8,700,000 as of September 30, 2000. The Company also 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 increased to 19.1
percent at September 30, 2000 from 13.5 percent at December 31, 1999
primarily due to increased borrowings under the Company's revolving
credit facility and issuance of foreign-denominated promissory notes,
which exceeded the payment of the annual installments of the Company's
long-term indebtedness, treasury stock repurchases, and the change in
equity due to foreign currency translation adjustments and unrealized
losses on marketable securities. Partially offsetting this are the
benefits realized by stock option exercises and the Company's sale in
the first quarter of 2000 of 2,119,434 (stock split effected) treasury
shares of Common Stock to Intel Corporation for $100 million in
connection with a multi-year joint development agreement and increased
equity from results of profitable operations.
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 September 30, 2000 the Company had outstanding
borrowings of $175,000,000 under this facility as compared to
$57,000,000 outstanding as of December 31, 1999.
The Company used $10,765,000 in operating activities for the three
months ended September 30, 2000, but experienced an overall increase in
cash of $10,715,000 for the period. The positive cash flow provided by
the issuance and repayments of notes payable and long term debt and
cash flow generated from the exercise of stock options was offset by
cash used in operations, investing activities, dividends paid and
treasury stock repurchases of 214,261 shares of the Company's Common
Stock.
During the quarter ended June 30, 2000, the Company announced its
intention to form a new company with Motorola Inc., Airclic, Inc.,
Connect Things, Inc. (an affiliate of Telefon AB L.M. Ericsson) and
others to support the use of scanners with cellular phones, T.V. remote
controls, and other consumer devices to enhance electronic commerce. The
definitive agreements are currently being negotiated but have not yet
been finalized. The Company currently anticipates that the agreements
will be finalized before the end of the year. The Company's percentage
interest in the new company and its corresponding financial commitment
to it have not yet been finalized although the Company believes it may
approximate $200 million over time and with conditions still to be
negotiated.
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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.
In December 1999, the Securities and Exchange Commission (SEC)
issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue
Recognition in Financial Statements". SAB 101 summarizes certain of
the SEC's views in applying generally accepted accounting principles to
revenue recognition in financial statements. The Company is evaluating
the impact of SAB 101 currently and expects to adopt the provisions
during the quarter ended December 31, 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.
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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 13, 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
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
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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 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 obligation
by PSC for 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.
PSC has continued to make 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
however, publicly reported that the past-due royalties to the
Company amounted to $7.8 million for the period ending June 30,
2000.
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. The Company
filed a motion seeking to have PSC held in contempt for not
complying with the February 8 decision, as well as a Consent
Judgment entered into by the parties in 1991, and an Order
requiring PSC to begin to pay royalties in accordance with the
PSC Agreements. PSC 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.
-19-
On September 29, 2000, the Court ruled on all pending
motions and denied them all. Specifically, the Court denied
PSC's motion for reconsideration and affirmed its February 8,
2000 Decision and Order. The Court also denied PSC's request to
be permitted to immediately appeal the February 8, 2000 decision
to the Court of Appeals. At the same time, the Court denied the
Company's motion that PSC be held in contempt for failure to pay
royalties in accordance with the February 8, 2000 Decision and
Order, because that Decision was not a final judgment in the
case. The Court did not consider Company's motion that PSC be
held in contempt for violating the 1991 Consent Judgment on
procedural. The Company can renew this motion at a later time.
As a result of these rulings, the parties will have to adjudicate
all the other pending issues in the case prior to the issuance of
a final judgment with respect to the February 8, 2000 Decision
and Order.
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., Psion Teklogix Corporation, a wholly-owned U.S. subsidiary
of Psion 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
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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 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 four 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 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
-21-
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.
On May 10, 2000, the Lemelson Partnership filed a second
motion with the Court to stay the Auto ID action pending the
resolution of United States Metals Refining Co. ("US Metals") v.
Lemelson Medical, Education & Research Foundation, LP et al., an
action in Nevada state court where in the plaintiff is
challenging the Lemelson Partnership's ownership of the patents
at issue in the Auto ID action. The Auto ID companies opposed
the motion. The Court has not yet ruled on this motion, but the
Nevada state court dismissed the complaint of US Metals on July
5, 2000.
On May 15, 2000, the Auto ID companies filed a motion
seeking permission to file an interlocutory appeal of the Court's
decision to strike the fourth count of the complaint (which
alleged that the Lemelson Partnership's delays in obtaining its
patents rendered them unenforceable for laches). The motion was
granted by the Court on July 14, 2000. The Court entered a
clarifying, superseding order on July 25, 2000. On September 1,
2000, the U.S. Court of Appeals for the Federal Circuit granted
the petition of the Auto ID companies for permission to pursue
this interlocutory appeal.
On July 24, 2000, the Auto ID companies filed a motion for
partial summary judgment arguing that almost all of the claims of
the Lemelson Partnership's patents are invalid for lack of
written description. On August 8, 2000, the Lemelson Partnership
filed a motion seeking an approximate ten week extension of time
in which to file an answer to this motion. On August 31, 2000,
the Court granted the Lemelson Partnership's motion for such an
extension.
ITEM 5. Other Events
On July 26, 2000, the Company announced the signing of a
definitive merger agreement with Telxon Corporation ("Telxon").
The merger agreement provides for the exchange of 0.5 shares of
the Company's common stock for each common share of Telxon.
Telxon currently has approximately 17.5 million common shares
outstanding and 2.5 million options which the Company will
assume. In addition, Telxon has $107 million in convertible debt
which the Company will also assume if it is not converted.
Telxon is a designer and manufacturer of wireless networks for
mobile computing solutions and information systems. Following
completion of the merger, Telxon's business will be substantively
integrated into the Company.
-22-
This transaction will be accounted for as a purchase. The
proposed transaction is subject to Telxon shareholder approval
and regulatory approvals and customary closing conditions. The
closing date for this transaction is expected to take place on or
about November 30, 2000.
-23-
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: October 26, 2000 By: /s/ Tomo Razmilovic________
Tomo Razmilovic, President and
Chief Executive Officer
Dated: October 26,2000 By: /s/ Kenneth V. Jaeggi
Kenneth V. Jaeggi
Senior Vice President -
Chief Financial Officer
-24-
