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March 29, 2001
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, NW
Washington, DC 20549
Attention: Filing Desk
Gentlemen:
Re: Symbol Technologies, Inc.
Annual Report on Form 10-K
For Fiscal Year Ended
December 31, 2000
File No. 1-9802
On behalf of Symbol Technologies, Inc. (the
"Company"), I transmit for filing under the Securities and
Exchange Act of 1934 (the "Act"), the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 2000. I have
been advised by the Company that the financial statements
contained in the report do not reflect any changes from the
preceding year's financial statements with respect to accounting
principles or practices or in the method of applying such
principles or practices.
If you have any questions regarding the enclosed
materials, please call the undersigned by collect telephone at
(631) 738-4765.
Very truly yours,
S/Leonard H. Goldner_
Leonard H. Goldner
Executive Vice President
and General Counsel
LHG:dac
March 29, 2001
Securities and Exchange Commission
Washington, DC 20549
Gentlemen:
In connection with the undersigned's Annual Report on
Form 10-K for the year ended December 31, 2000 and pursuant to
Item 601(b)(4)(iii) of Regulation S-K, the undersigned has not
filed as an exhibit any agreement in which the total amount of
securities authorized thereunder does not exceed 10 percent of
the Registrant's total consolidated assets. The Registrant,
however, agrees to furnish a copy of such document to the
Commission if so requested.
Very truly yours,
SYMBOL TECHNOLOGIES, INC.
s/Kenneth V. Jaeggi
Kenneth V. Jaeggi
Senior Vice President-Finance
and Chief Financial Officer
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 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 Identification No.)
incorporation or organization)
One Symbol Plaza
Holtsville, NY 11742-1300
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including
area code: (631) 738-2400
`
Securities registered pursuant to
Section 12(b) of the Act:
Common Stock, par value $.01 New York Stock Exchange___
(Title of each class) (Name of each Exchange on
which registered)
Securities registered pursuant to Section 12(g) of the Act: 7 1/2% Convertible
Subordinated Debentures of Telxon Corporation, a wholly owned subsidiary of
the Registrant, Due 2012.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.____
The aggregate market value of the registrant's voting stock held by
persons other than officers and directors and affiliates thereof, as of March
1, 2001,was approximately $6,794,000,000.
The number of shares outstanding of each of the registrant's classes of
common stock, as of December 31, 2000, was as follows:
Class Number of Shares
Common Stock, par value $.01 149,424,103
Documents Incorporated by Reference: The registrant's Proxy Statement to be
used in conjunction with the Annual Meeting of Shareholders to be held on
May 21, 2001 (the "Proxy Statement") is incorporated into Part III.
PART I
Item 1. Business
The Company
Symbol Technologies, Inc. ("Symbol" and, together with its
subsidiaries, the "Company"), a Delaware corporation, is the
successor by merger in 1987 to Symbol Technologies, Inc., a New
York corporation which commenced operations in 1975. The Company
has evolved from a supplier of bar code verification products
into a leading global provider of wireless networking and
information systems that allow users of its products to access,
capture and transmit information at the point of activity over
local area networks (LAN), wide area networks (WAN) and the
Internet. The Company is the only corporation in its industry
with in-house technology for the design and manufacture of
products in its three core technologies: bar code reading
devices, mobile computing devices and network systems. The
Company is engaged in one reportable business segment-the design,
manufacture, marketing and servicing of scanner integrated mobile
and wireless information management systems. These systems are
used worldwide in diverse markets such as retail, transportation
and logistics, parcel delivery and postal service, warehousing
and distribution, industrial, health care, hospitality, education
and government.
On March 14, 2000, the Company was awarded the National
Medal of Technology, the nation's highest honor for technological
innovation. The award was given to the Company "for creating the
global market for laser bar code scanning and for technical
innovation and practical application of mobile computing and
wireless local area network (WLAN) technologies". The medal,
which recognizes exceptional U.S. scientific and engineering
innovations, has been awarded to only 12 corporations in its
history. Other corporate recipients of the award are AT&T Bell
Laboratories, The DuPont Company, IBM, Merck & Co. Inc., Amgen
Inc., Corning, Inc., The Proctor & Gamble Company, 3M, Johnson &
Johnson, Biogen, Inc. and Bristol-Meyers Squibb Company.
On December 8, 2000, the Company's common stock was added to
the S&P 500 index.
Telxon Acquisition
On November 30, 2000, a wholly owned subsidiary of the
Company was merged with and into Telxon Corporation ("Telxon") in
a stock-for-stock merger. The acquisition enhanced Symbol's
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opportunities in hand-held computing systems across many
industries and vertical applications. Telxon will be operated as
a wholly owned subsidiary, although portions of its operations
will be consolidated with Symbol in order to obtain operating
efficiencies and synergies by eliminating duplicate functions,
rationalizing manufacturing facilities and sales offices and
realizing purchasing, sales, manufacturing and other
efficiencies. As a result of these activities, the Company
expects to achieve annual cost synergies of at least $125
million, beginning in the third quarter of 2001, which is
anticipated to result in the acquisition of Telxon being
accretive for the full year 2001, including charges for goodwill.
Under the terms of the merger agreement, Telxon shareholders
received 0.5 of a share of Symbol common stock for each share of
Telxon common stock. As a result of the merger, Symbol has
issued to date approximately 8.8 million shares of common stock
to former Telxon shareholders and reserved up to approximately
1.7 million shares to cover stock options with an average post-
merger exercise price of approximately $28 per share. Also,
Telxon has $24.4 million principal amount outstanding of
convertible debentures with a post-merger conversion price of
$53.50 per share, and $82.5 million principal amount outstanding
of convertible notes with a post-merger conversion price of
$55.00 per share.
Company Products and Services
General
The Company develops, manufactures, sells and services
scanner integrated mobile and wireless information management
systems that consist of mobile computing devices, WLAN, bar code
reading devices, network appliance devices, peripheral devices,
software and programming tools and are designed to provide
solutions to customer specific needs in information transactions.
They are used in a variety of applications from collecting
information at remote locations and transmitting information
between these locations and the user's central data processing
facility to facilitating e-commerce transactions by accessing and
collecting price and product information at the point of activity
for storing or placing orders via the Internet. Several Symbol
devices also connect wirelessly to WANs.
The Company's mobile computing devices are microprocessor-
based, lightweight and battery-operated hand-held computers.
Information may be captured by a device that reads bar codes or
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may be manually entered via a keyboard, a touch screen or a pen
computer display/entry device. The information collected by the
mobile computing device can then be transmitted instantly to a
host computer across a WLAN or in some instances by modems (batch
file transfer mode). Over 90 percent of the Company's mobile
computing devices include an integrated bar code reader and
approximately 90 percent offer optional integrated WLAN or WAN
communication capability. Depending on the model, the Company's
mobile computing devices may have up to 32 megabytes of RAM for
information storage and multiple input and output capabilities
for the connection of printers, bar code readers and
communications devices.
The Company distributes the most complete line of bar code
reading equipment in the world. The Company's bar code reading
products consist of devices designed to capture and decode one-
and two-dimensional bar code symbols and store, process and
transmit information. The Company designs and manufactures
miniature scan engines, hand-held bar code readers, portable
presentation scanners and fixed station point-of-sale scanners
most of which employ laser technology to read information encoded
in bar code symbols. The Company's bar code reading equipment
is compatible with a wide variety of information collection and
retrieval systems, including computers, electronic cash
registers, portable information collection devices and the
Internet. Bar code readers are used to improve inventory
management, productivity and cycle time in retail, transportation
and logistics, parcel delivery and postal service, warehousing
and distribution, factory automation, e-commerce and many other
applications.
The Company provides wireless communication solutions that
connect its mobile computing devices and bar code reading
equipment to wireless LANs and WANs. Based on spread spectrum RF
technology, the Company's WLAN products provide real-time
wireless data communication at data rates of up to 11 Mbps and in
combination with the Company's telephony devices, provide
wireless voice and data communication over TCP/IP data networks.
Unlike traditional narrow band RF-based networks, installation of
the Company's spread spectrum systems requires no individual site
license from the U.S. Federal Communications Commission (FCC).
Design engineering and support for both the Company and OEM
wireless network systems is conducted in the Company's San Jose,
California facility. The focus of the group is the design of
wireless network transaction systems, the Company's Spectrum One
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and Spectrum 24 WLANs and support for the integration of those
high-performance networks into customers' data networks and
enterprise-wide information systems.
Products
The PDT family of mobile computing devices features advanced
technology including Application Specific Integrated Circuits
(ASIC) and Very Large Scale Integrated (VLSI) circuits, which
incorporate many standardized integrated circuits into one
computer chip allowing for size and cost reductions. Also, the
PDT family employs surface mounted component technology for
reduced size and increased performance and dependability, as well
as industry standard 8-, 16- and 32-bit microprocessors. The PDT
family includes a series of mobile computing devices that are
available with different features and at varying costs depending
on customer requirements and preferences. PDT mobile computing
devices feature up to 20 lines of liquid crystal display, slim,
lightweight design, multiple input and output ports and up to 16
megabytes of internal memory. PDT mobile computing devices have
various keyboard configurations, including a user configurable
keyboard and WLAN communication capability. The PDT family was
originally introduced in 1985.
In 1993, the Company introduced the PDT 3100, a 16-bit DOS
compatible mobile computing device incorporating a laser scan
engine and featuring a swivel-head scanner design that adjusts
instantly for right- or left- handed scanning applications. In
1996, the Company introduced a limited performance, lower cost
version of the PDT 3100 and a version with one- and two-
dimensional scanning capability. In 1998, the Company introduced
the PDT 6100 Series of mobile computing devices, a sleek,
compact, ergonomically designed version of the PDT 3100 featuring
a choice of display options.
As a result of the Telxon acquisition in 2000, the Company
also offers the PTC-710. The PTC-710 is a low-cost, hand-held
portable data terminal designed for sales order entry, inventory
control and other applications requiring batch data
communications.
The PDT 6800, introduced by the Company in 1998, is a
versatile mobile computing device combining ruggedized housing
for use in industrial settings with a small, light-weight,
ergonomic form factor suitable for scan intensive retail
applications. The PDT 6800 has a 35- or 46-key alphanumeric
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keypad for easy information input and a 16-line back-lit display
for greater data content and readability. In 2000, the PDT 6800
was the Company's largest selling mobile computing device.
As a result of the acquisition of Telxon, the Company added
several additional mobile computing devices. The PTC-960SL was
Telxon's best selling product and is a multi-purpose data
management terminal well suited to both retail and industrial
environments. This device is similar in performance and design
to the PDT 6800. The PTC-960SL employs a non-shift full
alphanumeric keyboard, a 16-line by 21-character graphic LCD
display, and offers a choice of three integrated scanners for
standard, long range, or high visibility scanning. An integrated
direct sequence or frequency working radio provides wireless
networking capability.
Introduced by the Company in 1999, the PDT 7500 is a sealed,
industrial use mobile computing device designed to withstand
extreme conditions in transportation and logistics environments.
Weighing only 19oz., the PDT 7500 is light enough for extended
periods of use. Color-coded keys facilitate information entry and
a 1/8 VGA screen with a 20-line back-lit display provides easy
viewing of information even in dimly lit areas. The PDT 7500's
486-based AMD Elan microprocessor supports accelerated
information processing and an integrated laser scan engine
provides both one- and two-dimensional scanning capability. The
Company introduced a wireless wide area network(WWAN) version of
the PDT 7500 in 2000.
In 1995, the Company introduced its first wearable scanning
system, the WSS 1000, an innovative hand-mounted bar code-based
information transaction system that allows mobile hands-free bar
code scanning, information collection and LAN connectivity. The
WSS 1000 wearable computer system was designed for users who rely
on the efficiency and accuracy of bar code scanning but require
the use of both hands to perform job functions. The system,
which consists of two components, combines the RS-1, a miniature
scanner worn as a ring that allows the user to simply touch a
thumb and index finger contact switch to scan a bar code and a
compact, light-weight, wrist mounted computer with display which
permits wireless communication to the host computer. In 1997,
the Company introduced the WS 1200, a back-of-the-hand mounted
scanner. Similar to the RS-1 wearable scanner, the WS 1200 is
triggered by a thumb-actuated switch mounted on the user's index
finger, however the WS 1200 is capable of scanning at longer
distances than the RS-1 ring scanner.
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The PTC-2134, PTC-2234 and PTC-710 are pen based mobile
terminals which were added to the Company's product offerings in
2000 as a result of the Telxon acquisition. The PTC-2134
features a diagonal full-VGA touch-screen and supports Windows
95r and Windows CEr. The PTC-2134 supports WLAN. The PTC-2234
extends the PTC-2134 series for use in hazardous locations and is
approved for use with a non-incendive rating.
In 1998, the Company and Palm Computing, Inc., developer of
the Palm line of hand-held computers, entered into an agreement
under the terms of which the Company manufacturers and
distributes touch- and pen-input personal productivity tools
utilizing the Palm operating system with an embedded bar code
reading device. The Company is currently in the process of
finalizing a new agreement with Palm. Introduced in 1998, the
SPT 1500, a pocket sized mobile computing device based upon the
Palm III architecture was the first of such products introduced
by the Company. In 1999, the Company introduced the SPT 1700, a
ruggedized version of the SPT 1500 with wireless LAN
communication capability. With an embedded laser scan engine,
the SPT 1700 provides users with the latest bar code scanning
technology for collecting information and the Palm operating
system allows programmers to easily build applications using
scan-embedded graphical development tools. Designed for use in
office workflow automation, route accounting, healthcare,
education, retail, industrial and warehouse settings, the SPT
1700 is suited for use in any application where mobile workers
need to collect and manage information at the point of activity.
The SPT 1700 has 2MB each of random access memory and flash
memory and is available in an optional 4MB of flash memory and
8MB of random access memory configuration to accommodate larger
application demands. In 2000, the Company introduced the SPT
1700-2D, which reads two-dimensional bar codes as well as one-
dimensional barcodes.
The Company also introduced two WWAN versions of the SPT
1700 in 2000, the SPT 1733 and SPT 1734. The SPT 1733 works with
the CDPD network while the SPT 1734 is based on the GSM standard.
Both products offer Internet connectivity and enable access to
web-based applications or corporate intranet data from any phone
where wireless IP service is available.
Introduced by the Company in 1999, the PPT 2700 mobile
computing device is substantially similar to the SPT 1700;
however, it is based on the Microsoft Windows CEr operating
system. Designed to work specifically with mobile computers, the
Windows CE? operating system allows PPT 2700 users to collect
information via a familiar Windows interface and allows
developers to create applications with standard 32-bit desktop
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tools. In 2000, the Company introduced a version of the PPT 2700
that runs on Microsoft's Pocket PC? operating system. The PPT
2700's ruggedized design, integrated laser scan engine and
Spectrum 24 WLAN connectivity allow users in harsh environments,
such as warehouse management, and in diverse applications, from
medical service providers to school administrators and teachers,
to access remote information at the point of activity. The
Company also introduced in 2000 a version of the PPT 2700 that
reads two-dimensional bar codes as well as WWAN versions of the
2700 that operate on the CDPD and GSM networks, respectively.
In 1999, the Company introduced the VRC 6900, a ruggedized
vehicle mounted or wall mounted touch screen computer capable of
withstanding extreme temperatures and harsh industrial
environments.
Due to the Telxon acquisition in 2000, the Company began
offering a fixed mount terminal, the PTC-860IM, which is an
industrial strength mobile computer that can be used on a
forklift or as a fixed mount device. It is designed to capture,
process and communicate information from virtually anywhere in
the mobile workplace. The PTC-860IM features large ergonomically
designed keys and a full alphanumeric keypad, and is compatible
with the Company's line of bar code reading devices.
Introduced by the Company in 1996, the Symbol Mobile Gateway
(SMG) is an industrialized, PC-based host computer designed for
installation in truck cabs and cars. A wireless WAN radio modem
provides communication across major wide area network systems to
a user's enterprise-wide network and Spectrum 24 LAN capability
connects the SMG to the Company's mobile computing devices,
providing in-vehicle connectivity and communication capabilities
for motor freight, parcel delivery and private fleet operations.
The Company sells several different hand-held laser
scanners, the most important of which is the LS 4000I. The LS
4000I was introduced in 1998. The LS 4000I is a trigger
operated, visible laser diode-based scanner capable of reading
PDF 417, a high-density, high-capacity portable data file storing
approximately one kilobyte of data in a machine-readable code and
all conventional linear bar codes. PDF 417 is a two-dimensional
bar code symbology that incorporates error correction capability
and has one hundred times the information capacity of a
traditional linear bar code. Unlike linear bar codes, PDF 417
can contain an entire data record reducing or eliminating the
need for an external system of linked information storage. PDF
417 may be read by either a laser-based bar code reader or a CCD
imager. Most other two-dimensional codes can only be read by a
CCD imager. The LS 4000I combines high-performance scanning and
an advanced ergonomic form factor making it ideal for price
scanning and inventory management in a wide variety of retail and
commercial applications.
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The Company offers several less expensive, lower performing
hand-held scanners. The LS 2100 Series, introduced in 1998, is a
trigger operated, medium range scanner primarily sold in the
indirect channel as a point-of-sale scanner. The LS 1000 Series,
introduced in 1996, is a small, lightweight trigger operated
scanner for light use scanning applications and the LT 1800,
Laser Touchr visible laser diode-based scanner, introduced in
1995, is useful for applications where near contact scanning is
sufficient.
In 1998, the Company introduced a new category of "smart
scanners", the P 460. The P 460 is a hand-held memory scanner
with up to 4 MB of total memory and an integrated keypad and LCD
display that provide enhanced input and output capabilities.
Designed for multiple uses primarily in the retail market, the P
460 is capable of operating interactively with a host as a corded
scanner for point-of-sale applications, while a wireless version,
the P 470, operates in batch mode under battery power for back-
office or in-store applications such as physical inventory, cycle
counts and gift registry.
The P 300 Series, introduced in 1999, is an extension of the
P 460 family of smart scanners. Ruggedized and ergonomically
designed, the P 300 is a hand-held scanner that meets stringent
industrial standards and can withstand harsh environments. An
integrated interface module provides scanner-to-host computer
communication and advanced data formatting allows users to easily
program the P 300 to match their host system's data input
formats. Versions of the P 300 can also read two-dimensional bar
codes and other versions transmit information wirelessly over the
Company's Spectrum 24 WLAN. The P 360, is a version of the P 300
featuring a top-mounted keypad and display for entering and
viewing data. The P 370 is a cordless version of the P 360.
In 1999, the Company introduced the Vision System 4000 (VS
4000) Series, the first in a series of CCD imaging devices. The
VS 4000 is a hand-held image scanner capable of reading bar code
symbologies presented in any orientation and digital image
capture. An embedded CCD imaging engine provides VGA resolution
images and user-selectable imaging options, and allows users to
choose image characteristics such as compression, quality,
transfer time and file size.
In 2000, due to the Telxon acquisition, the Company
introduced the P300 IMG Industrial Bar Code Imager, a rugged
hand-held imager for reading all major bar code symbologies.
This product is designed to meet stringent industrial standards
and can also capture images and signatures.
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Introduced in 1998, the LS 6000 Series is a trigger
operated, high visibility laser diode-based scanner capable of
omni-directional and single line scanning. The LS 6000's
ergonomic design provides for comfortable use either as a hand-
held scanner or with an optional fixed mount stand as a
presentation scanner; this flexibility allows for increased
throughput in high-volume, point-of-sale retail applications.
Introduced by the Company in 2000, the M 2000 Series is a
versatile countertop projection and hand-held scanner that allows
users to select from three different scan patterns depending upon
their scanning requirements. With an integrated laser scan
engine, the M 2000 is capable of scanning in a rotating omni-
directional scan pattern for reading linear bar codes in any
orientation, a smart raster scan pattern for reading two-
dimensional bar codes and a high density single line scan pattern
for reading poorly printed and damaged bar codes. Designed for
retail and light industrial use, the M 2000's ergonomic built-in
stand provides for both hand-held scanning and hands-free counter
top or wall mount scanning. Several major retailers initiated
rollouts of M 2000 products in 2000.
In addition to its hand-held scanners, the Company also
offers several families of "hands-free" scanners. Unlike the
Company's hand-held scanners, these scanners are usually
triggered by an object sensor to enable use in situations where
use of both hands is required.
In 1994, the Company introduced the LS 9100, a laser diode-
based projection scanner. The LS 9100 generates a large omni-
directional pattern of twenty interlocking laser lines that can
read bar codes at various angles for high productivity scanning.
The LS 5700 and the LS 5800 miniaturized slot scanners were
introduced by the Company in 1996. The LS 5700 was designed to
accommodate all vertical or "on counter" applications and
incorporates a full sleep mode function which allows the motor
and laser to turn off after a prolonged period of scanner
inactivity, extending scanner longevity and reducing power
consumption. The LS 5800 operates in horizontal or "in counter"
applications and features rugged housing and a sealed exit window
that resists spills and dirt.
In 2000, the Company introduced the Magellanr SLT Slimline
family of 360-degree scanners for high volume point of sale
environments such as supermarkets, hyper markets and mass
merchandisers. The Magellanr family includes a scanner/scale
version that provides added functionality and increases
productivity at the check-out counter.
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In 1990, the Company began marketing bar code laser scan
engines that are integrated by unaffiliated third parties into
their portable computing devices.
The SE 1200, introduced by the Company in 1996, measures
less than one cubic inch and weighs less than one ounce, enables
third party manufacturers to integrate high-performance laser
scanning into a variety of devices including hand-held computers,
medical instruments, diagnostic equipment, lottery terminals and
vending machines. The SE 1200 has a working range and ability to
read poor quality bar codes equal to that of hand-held scanners.
In 1997, the Company introduced a high density version of the SE
1200 capable of reading miniaturized bar codes.
The SE 900, introduced by the Company in 1998, is one of the
smallest, lightest scan engines available today. Measuring only
0.2 cubic inch, the SE 900 is 20 percent the size and 15 percent
the weight of the SE 1200, allowing third party manufacturers to
integrate bar code scanning capabilities into smaller devices
without compromising the ergonomic design of the device.
The SE 9100 Series scan engine, introduced in 1995, is a
high speed, omni-directional scan engine providing dense scan
line coverage from the face of the scanner up to a distance of
eight inches allowing quick "swipe" scanning as well as standard
presentation scanning.
Introduced by the Company in 1999, the SE 3223 scan engine
extends the capability of the Taut Band scan element. Scanning
at speeds of up to 640 scans per second, the SE 3223 supports
three modes of operation; single scan line mode, smart raster
mode for reading two-dimensional symbols and a "cyclone" pattern
for omni-directional scanning of linear bar codes in any
orientation.
In 1999, the Company introduced the SE 4200 series imaging
engine, a high-performing CCD image processor that is capable of
reading all major one-dimensional and two-dimensional bar code
symbologies and digital image capture.
In 1993, the Company introduced a self shopping system for
food and non-food retailers. The system, which is integrated
with the retailer's point-of-sale system, utilizes the Company's
CST 2000 or the CST 3000 mobile computing device with an
integrated laser scanner that allows shoppers to scan and
tabulate their purchases as they shop. The system has been
installed worldwide at selected mass merchandise, retail, food
and other retail operations. The CST 3000 enables distribution
of marketing and promotional content to consumers while they
shop.
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In 1996, the Company introduced a version of the self
shopping system capable of communicating via the Company's WLAN
which has substantially replaced the batch version of the system.
There are currently systems installed or ordered in over 500
stores in 40 chains in 20 countries on 5 continents.
In addition to being utilized in the Company's self-shopping
system, the CST 3000 Series, introduced in 1999, is a multi-
purpose, trigger operated wireless bar code scanner with flexible
configurations that also serves as a network scanning appliance
allowing users to communicate with an enterprise intranet or the
Internet via the Company's WLAN. The CST 3000 provides enhanced
user interface with an eight-line, 21-character text and graphics
display and a Motorola Power PC microprocessor for a variety of
consumer and industrial application requirements, including self-
shopping.
Introduced in 1998, the CyberPen is the Company's first
consumer-oriented network appliance designed for use in the home
or office. CyberPen combines the functionality of a contact bar
code scanner with memory and an A.T. Crossr writing instrument.
To read a bar code, the user simply presses a button on the side
of the CyberPen and sweeps the wand tip across the symbol. After
reading the bar code, the user returns the CyberPen to its holder
that uploads the data to a personal computer for transmission via
the Internet. The small, lightweight, portable design makes
CyberPen particularly adaptable for home-office automation,
catalog/Internet shopping and home grocery applications.
The CS 2000, introduced by the Company in 1999, is a
miniature, laser-based memory scanner and Internet appliance
designed for use in the consumer electronic retail market. The
pocket size CS 2000 allows consumers to browse through retailers'
printed catalogs, advertisements and documentation, scan a bar
code for items of interest, and quickly and efficiently order or
obtain additional information on the item through the Internet.
In addition, the CS 2000 can be used by shoppers in retail
establishments and malls to scan bar codes on items of interest,
capturing the item's description and price, and then to download
the information to an Internet web site for later retrieval.
The Company added to its consumer scanning product line in
2000 by introducing the CS-1504, a pocket sized laser scanner
that allows consumers to read bar codes and link to the web, or
create a shopping list. Up to 150 bar codes can be stored in its
internal memory. Its functionality includes scan, delete and
clear, and it can be linked to a computer with a cable
connection.
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The Company also introduced in 2000 the innovative CSM 150
Bar Code Scanner for HandspringT VisorT Handhelds. The Visor is
a well known hand-held computing device that runs on the Palm
operating system. The CSM 150 scan module plugs directly into
the SpringboardT expansion slot at the back of any visor and
transforms any Handspring Visor into a consumer bar code scanner.
The scanning enabled Visor can be used for electronic shopping
and other e-commerce applications.
The Company offers two spread spectrum-based, WLAN families
of products. In 1990, the Company introduced its Spectrum Oner
direct sequence cellular RF network for wireless data
transactions. The Company plans to discontinue its Spectrum One
models in 2001. Spectrum 24r, introduced in 1995, is a high-
performance, frequency hopping network that operates at 2.4 GHz
frequency. Based on spread spectrum RF technology, Spectrum One
and Spectrum 24 networks both provide real-time wireless data
communications with a host computer for hundreds of portable and
fixed-station computers and radio-integrated scanners. In 1998,
the Company introduced a 2Mb version of the Spectrum 24 network
and in 1999, the Company introduced a direct sequence, WLAN that
supports high throughput applications up to 11 Mbps. This high
data rate WLAN, based on the recently ratified IEEE 802.11b open
airwaves standard for 11 Mbps data transmission, now provides
users with high-speed wireless capabilities for rapid data
transfer from server to terminal, image transfer, Internet
communications, customer self-scanning services and streaming
video. In 2000, the Company introduced additional 802.11
compliant 11 MB radio cards and access points. Installation of
the Company's wireless networks at various customer sites began
in 1991 and these networks are now installed in over 50,000 sites
worldwide. The Spectrum-based systems work in tandem with a broad
range of the Company's wireless mobile computing and telephony
devices. Telxon also sold products using the Air-I/O? spread
spectrum radio technology (both 900 MHz and 2.4 GHz), which will
also be discontinued in 2001.
In 1998, the Company introduced the NetVision wireless LAN
telephone system. Based upon voice-over IP technology, the
telephone which looks like a standard cellular telephone, allows
users to place or receive calls worldwide, without additional
charge, between other telephones or PC-based telephones located
at any site served by an internal TCP/IP network. To date sales
of the NetVision telephone have not been material. The NetVision
system connects to a user's TCP/IP system via the Company's
Spectrum 24 WLAN. In 1999, the Company introduced a new network
appliance in the NetVision line, the NetVision Data Phone. The
NetVision Data Phone integrates voice communication, a bar code
scanner, a data entry keypad, a Web browser, a serial port for
printing and a Spectrum 24 WLAN radio card into a single
lightweight device that allows users to bridge the gap between
voice and data networks and the Internet. The combination of
-12-
communication capabilities makes the NetVision Data Phone a
useful productivity tool for a wide range of industries including
retail, warehouse, healthcare and education.
Product list prices for the Company's products range between
$125 to $10,594, depending on product configuration. The Company
offers discounts off list price for quantity orders and sales are
frequently made at prices below list price.
Software and Programming Tools
The Company's products and systems utilize software which
consists of a number of specialized applications and
communications software programs, that run under a variety of
operating platforms including Microsoft MS-DOS, Caldera DR-DOS,
Palm OS, Microsoft Windows?, Microsoft Windows CE? and Microsoft
Pocket PC?. A series of application development kits (ADKs) and
software development kits (SDKs) are available to allow the
Company's programmers, value added resellers (VARs) and end-user
customers to develop applications that fully utilize the
integrated features of the Company's family of mobile computing
devices. The ADKs and SDKs provide the software drivers and
libraries required to maximize product performance. Used in
conjunction with industry standard development tools, software
developers can easily create and support applications to meet
specific customer requirements.
The Company also provides scalable network management
software that allows users at local and remote sites to
administer, configure and manage the Company's Spectrum One and
Spectrum 24 wireless network systems.
The Company has also developed several communication
applications designed to facilitate transmission and reception of
data between mobile computers and stand-alone receivers or host
computers. These applications include a suite of terminal
emulation products, host enablers and various protocols. The
Company has entered into alliances with independent suppliers of
software who assist the Company in development of software.
Customer Support
The Company has a customer support organization that repairs
and maintains the Company's products.
The Company's domestic customer support operations include
locations in Arkansas, California, Indiana, Idaho, Illinois,
-13-
Kentucky, Michigan, Minnesota, New York and Texas. The Company's
foreign customer support offices include locations in Australia,
Austria, Belgium, Canada, China, Denmark, Finland, France,
Germany, Italy, Japan, Mexico, the Netherlands, Norway,
Singapore, South Africa, Spain, Sweden and the United Kingdom.
These centers enhance the Company's ability to respond to its
customers' requirements for fast, efficient service.
The Company currently offers a variety of service
arrangements to meet customer needs. The Company's on-site
service provides for maintenance and repairs at the customer's
location. Depot service includes maintenance and repairs at the
Company's service centers or through authorized service
providers. The Company's service contracts generally have a term
of from one to five years. In addition, the Company offers time-
and-materials service on a non-contract, as-needed basis.
The Company undertakes to correct defects in materials and
workmanship for a period of time after delivery of its products.
The period of time covered by these warranties varies depending
on the product involved as well as contractual arrangements but
is generally twelve months.
Maintenance and support revenues contributed less than 10
percent of the Company's total revenues for the years ended
December 31, 2000, 1999 and 1998.
Sales and Marketing
The Company presently markets its products domestically and
internationally through a variety of distribution channels,
including a direct sales force, original equipment manufacturers,
VARs and sales representatives and distributors. VARs distribute
the Company's products to customers while also selling to those
customers other products or services not provided by the Company.
The Company's sales organization includes domestic sales offices
located throughout the United States and foreign sales offices in
Argentina, Australia, Austria, Belgium, Canada, China, Denmark,
Finland, France, Germany, Italy, Japan, Mexico, the Netherlands,
Norway, Peru, Singapore, South Africa, South Korea, Spain, Sweden
and the United Kingdom.
The Company currently has contractual relationships and
strategic alliances with unaffiliated partners. Through these
relationships, the Company is able to broaden its distribution
-14-
network and participate in industries other than those serviced
by the Company's direct sales force and distributors.
Customers generally order products for delivery within 45
days. Accordingly, shipments made during any particular quarter
generally represent orders received either during that quarter or
shortly before the beginning of that quarter and generally
consist of products manufactured in the quarter. The Company
maintains significant levels of inventory to facilitate meeting
delivery requirements of its customers. The Company, pursuant to
contract or invoice, normally extends 30 to 45 day payment terms
to its customers. Actual payment terms vary from time-to-time
but generally do not exceed 90 days.
The following table sets forth certain information as to
international sales of the Company:
Year Ended
December 31,__________
(in thousands)
2000 1999 1998
Area
EMEA
(Europe, Middle East, Africa) $355,736 $343,507 $284,084
Asia Pacific $ 82,051 $ 64,577 $ 47,901
Other $ 95,861 $ 75,272 $ 67,687
The Company undertakes hedging activities to the extent of
known cash flow in an attempt to minimize the impact of foreign
currency fluctuations.
Manufacturing
The products that are manufactured by the Company are
manufactured at its Bohemia, New York and Reynosa, Mexico
facilities.
While components and supplies are generally available from a
variety of sources, the Company presently depends on a single
source or a limited number of suppliers for several components of
its equipment, certain subassemblies and certain of its products.
In 2000, unexpected demand for communication products caused
worldwide shortages of certain electronic parts and allocation of
such parts by suppliers that had an adverse impact on the
Company's ability to deliver its products as well as the cost of
producing such products. Although component availability appears
-15-
to be improving, such shortages may continue in 2001 and may have
an adverse effect on the Company's ability to deliver its
products or to deliver its products on time or to manufacture its
products at anticipated cost levels. While the Company has
increased inventory levels and entered into contracts with
suppliers of parts that it anticipates will be in short supply,
there can be no assurance that additional parts will not become
the subject of such shortages or that such suppliers will be able
to deliver the parts in fulfillment of their contracts.
Due to the general availability of components and supplies,
the Company does not believe that the loss of any supplier or
subassembly manufacturer would have a long-term material adverse
effect on its business although set-up costs and delays could
occur in the short-term if the Company changes any single source
supplier.
Certain of the Company's products are manufactured by third
parties, a majority of which are outside the United States. In
particular, the Company has a long term strategic relationship
with Olympus Optical, Inc. of Japan ("Olympus") pursuant to which
Olympus and the Company jointly develop selected products which
are manufactured by Olympus exclusively for sale by the Company.
The Company is currently selling several such products and the
Company expects the number of products developed in collaboration
with Olympus to increase in the future. The Company has the
right to manufacture such products if Olympus is unable or
unwilling to do so, but the loss of Olympus as a manufacturer
could have, at least, a temporary material adverse impact on the
Company's ability to deliver such products to its customers. The
Company has no reason to believe that Olympus will not continue
to manufacture products under this arrangement.
The failure of any other third party to supply products to
the Company could have an adverse affect on the Company's ability
to deliver such products to its customers. In 2000, third party
suppliers of products to the Company were subject to the same
shortages of electronic parts and allocation of such parts.
Although the Company believes that such parts shortage is
improving it may continue to be a factor in 2001. However, the
Company has no reason to believe that these suppliers will be
unable to meet their supply or delivery obligations to the
Company over any extended period.
The Company employs certain advanced manufacturing processes
that require highly sophisticated and costly equipment and are
-16-
continuously being modified in an effort to improve efficiency,
reduce manufacturing costs and incorporate product improvements.
Research and Product Development
The Company believes that its future growth depends, in
large part, upon its ability to continue to apply its technology
to develop new products, improve existing products and expand
market applications for its products. The Company's research and
development projects include, among others: improvements to the
reliability, quality and readability of its laser scanners at
increased working distances, faster speeds and higher density
codes (including, but not limited to, two-dimensional codes);
continued development of its solid state laser diode-based
scanners; development of solid state imager-based engines for bar
code data capture and general purpose imaging applications;
development of RFID engines for data capture applications;
improvements to packaging and miniaturization technology for bar
code data capture products, portable data collection appliances
and integrated bar code and RFID data capture products;
development of high-performance digital data radios, high-speed
radio frequency data communications networks and
telecommunications protocols and products; the addition of
application software to provide a complete line of high-
performance interface hardware.
The Company uses both its own associates and from time-to-
time unaffiliated consultants in its product engineering and
research and development programs. Dr. Jerome Swartz, Chairman
of the Board of Directors and Chief Scientist of the Company,
leads the Company's research, patent and new product development
programs. From time-to-time the Company has participated with
and/or partially funded research projects in conjunction with a
number of universities including the State University of New York
at Stony Brook, Polytechnic University of New York, Massachusetts
Institute of Technology, University of California at San Diego
and Tel Aviv University in Israel.
The Company expended (including overhead charges)
approximately $51,125,000, $38,426,000, and $31,030,000 for
research and development during the years ended December 31,
2000, 1999, and 1998, respectively.
-17-
Competition
The business in which the Company is engaged is highly
competitive and acutely influenced by advances in technology,
product improvements and new product introduction, and price
competition. To the Company's knowledge, many firms are engaged
in the manufacture and marketing of products in its three core
technologies, bar code reading equipment, wireless networks and
mobile computing devices. While some companies are engaged in
the manufacture and marketing of products in more than one of
these technologies, the Company is unaware of any other company
that is engaged in all three. Numerous companies, including
present manufacturers of scanners, lasers, optical instruments,
microprocessors, wireless networks, notebook computers, PDAs and
telephonic and other communication devices have the technical
potential to compete with the Company. Many of these firms have
far greater financial, marketing and technical resources than the
Company. The Company competes principally on the basis of
performance and the quality of its products and services.
The Company believes that its principal competitors are
BreezeCom, Inc., Casio, Inc., Cisco Systems, Inc., Fujitsu, Ltd.,
Hewlett-Packard Company, Intermec Technologies Corporation,
Lucent Technologies, Inc., LXE Inc., Matsushita Electric
Industrial Co., Ltd., Metrologic Instruments, Inc., Motorola,
Inc., NipponDenso Co., Opticon, Inc., Proxim, Inc., PSC Inc.,
Psion Teklogix Inc., and Welch Allyn, Inc.
Patent and Trademark Matters
The Company files domestic and foreign patent applications
to support its technology position and new product development.
The Company owns over 550 U.S. Letters Patents covering various
aspects of the technology used in the Company's principal
products, and has entered into cross-license agreements with
other companies. In addition, the Company owns numerous foreign
companion patents. The Company has also filed additional patent
applications in the U.S. Patent and Trademark Office as well as
in foreign patent offices. The Company will continue to file
patents, both United States and foreign, to cover its most recent
research developments in the scanning, information collection and
network communications fields. One of the Company's basic
patents covering hand-held laser scanning technology expired on
-18-
June 6, 2000, and a key companion patent will expire in June
2003. A key scanner integrated computer patent will expire in
2005. While it is possible that products might be designed that
would have infringed the patent which expired in 2000 but do not
infringe the patent which expires in 2003, the Company believes
that such products would be sufficiently inferior as compared to
current hand-held products that they would not gain meaningful
customer acceptance in the market place. Accordingly, the
Company does not believe that the introduction of such products
would have a material adverse effect on the Company or its
competitive position. Furthermore, the expiration of the patent
in 2000 has not diminished the Company's royalty income from
licensees because all of the Company's license agreements that
grant rights under these patents include both patents and the
products that licensees are selling. The license agreements are
structured so that there is no reduction in royalty payments upon
the expiration of any one patent.
The Company believes that its patent portfolio does provide
some competitive advantage in that such patents tend to limit the
number of unlicensed competitors and permit the Company to
manufacture products that may have features that provide better
performance and/or lower cost. Although management believes that
its patents provide some competitive advantage, the Company
depends more for its success upon its proprietary know-how,
innovative skills, technical competence and marketing abilities.
In addition, because of rapidly changing technology, the
Company's present intention is not to rely primarily on patents
or other intellectual property rights to protect or establish its
market position. Instead, the Company has established a program
to protect its investment in technology by enforcing and
licensing certain of its intellectual property rights. The
Company has entered into royalty-bearing license agreements with,
among others, Intermec Technologies Corporation, LXE Inc.,
Metrologic Instruments, Inc. and PSC, Inc.
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
-19-
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 November 20, 2000, the Company and PSC entered into a
global settlement resolving all litigation and disputes between
the parties. The parties also entered into product-supply
agreements for products that will begin shipping in the second
half of 2001. Under the terms of the supply agreements, PSC has
agreed to purchase hand-held laser scanners and scan engines from
Symbol. Symbol has agreed to purchase fixed-position retail
point-of-sale scanners from PSC.
The agreements also settled all disputed royalty payments,
and upheld all of the patents asserted by Symbol. In addition,
the parties have also amended and clarified PSC's existing
license agreement and included certain new patents. This
settlement also resolved the Company's litigation against Data
General.
In March 2001, Proxim Incorporated ("Proxim") sued the
Company, 3Com Corporation, Wayport Incorporated and SMC Networks
Incorporated in the United States District Court in the District
of Delaware for allegedly infringing three patents owned by
Proxim. Proxim did not identify any specific products of the
Company that allegedly infringe these three patents. Proxim also
filed a similar lawsuit in March 2001 in the United States
District Court in the District of Massachusetts against Cisco
Systems, Incorporated and Intersil, Incorporated. The complaint
against the Company seeks , among other relief, unspecified damages for
patent infringement, treble damages for willful infringement, and a
permanent injunction against the Company from infringing these three
patents. In a press conference held after the filing of the complaints,
Proxim indicated that it was interested in licensing the patents that are
the subject of the lawsuit against the Company. The Company believes that
the allegations of the lawsuit are meritless and intends to defend this
action vigorously.
-20-
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.
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.
-21-
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.
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. The Company believes the Federal
Court will hear oral argument on the motion later in 2001.
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. On October 25, 2000, the Lemelson Partnership filed a
combined opposition to the motion of the Auto ID companies for
partial summary judgment and its own cross-motion for partial
summary judgment that many of the claims of the Lemelson
Partnership's patents satisfy the written description
requirement. On January 8, 2001, the Auto ID companies filed a
combined reply in support of their partial summary judgment
motion and opposition to the Lemelson Partnership's partial
summary judgment cross-motion. The Company believes that the
District Court will probably hear oral arguments on this motion
later in 2001.
-22-
Although the Company believes that its products and
technology do not infringe the proprietary rights of others,
there can be no assurance that third parties will not assert
infringement and other claims against the Company or that such
claims will not be successful. The Company has received and has
currently pending such claims and in the future may receive
additional such notices of claims of infringement of other
parties' rights. In such event, the Company has and will
continue to take reasonable steps to evaluate the merits of such
claims, take such action as it may deem appropriate, which action
may require that the Company enter into licensing discussions, if
available, and/or modify the affected products and technology, or
result in litigation against parties seeking to enforce a claim
which the Company reasonably believes is without merit. The
Company in the past has been involved in such litigation and
additional litigation may be filed in the future. Such parties
have and are likely to claim damages and/or seek to enjoin
commercial activities relating to the Company's products or
technology affected by such parties' rights. In addition to
subjecting the Company to potential liability for damages, such
litigation may require the Company to obtain a license in order
to manufacture or market the affected products and technology.
To date, such activities have not had a material adverse affect
on the Company's business and the Company has either prevailed in
all litigation, obtained a license on commercially acceptable
terms or otherwise been able to modify any affected products or
technology. However, there can be no assurance that the Company
will continue to prevail in any such actions or that any license
required under any such patent would be made available on
commercially acceptable terms, if at all. There are a
significant number of U.S. and foreign patents and patent
applications in the Company's areas of interest, and the Company
believes that there has been and is likely to continue to be
significant litigation in the industry regarding patent and other
intellectual property rights.
The Company has also obtained certain domestic and
international trademark registrations for its products and
maintains certain details about its processes, products and
strategies as trade secrets.
The Company regards its software as proprietary and
attempts to protect it with copyrights, trade secret law and
international nondisclosure safeguards, as well as restrictions
on disclosure and transferability that are incorporated into its
software license agreements. The Company licenses its software
products to customers rather than transferring title. Despite
these restrictions, it may be possible for competitors or users
to copy aspects of the Company's products or to obtain
information which the Company regards as trade secrets. Computer
software generally has not been patented and existing copyright
-23-
laws afford only limited practical protection. In addition, the
laws of foreign countries generally do not protect the Company's
proprietary rights in its products to the same extent as do the
laws of the United States.
Government Regulations
The use of lasers and radio emissions are subject to
regulation in the United States and in other countries in which
the Company does business. In the United States, various Federal
agencies, including the Center for Devices and Radiological
Health of the Food and Drug Administration, the FCC, the
Occupational Safety and Health Administration and various State
agencies, have promulgated regulations which concern the use of
lasers and/or radio/electromagnetic emissions standards. Member
countries of the European community have enacted or are in the
process of adopting standards concerning electrical and laser
safety and electromagnetic compatibility and emissions standards.
The Company believes that all of its products are in
material compliance with current standards and regulations;
however, regulatory changes in the United States and other
countries may require modifications to certain of the Company's
products in order for the Company to continue to be able to
manufacture and market these products.
The Company's RF mobile computing devices include various
models, all of which intentionally transmit radio signals as part
of their normal operation. Certain versions of the Company's
hand-held computers and its Spectrum One and Spectrum 24 cellular
networks utilize spread spectrum radio technology. The Company
has obtained certification from the FCC for its products that
utilize this radio technology. Such certification is valid for
the life of the product unless and until the circuitry of the
product is altered in material respects, in which case a new
certification may be required. Users of these products in the
United States do not require any license from the FCC to use or
operate the product. Certain of the Company's products transmit
narrow band radio signals as part of their normal operation. The
Company has obtained certification from the FCC for its narrow
band radio products. However, these models must not only be
accepted by the FCC prior to marketing but users of these devices
must themselves also obtain a site license from the FCC to
operate them.
-24-
Associates
At December 31, 2000, the Company had approximately 6,000
full-time associates. Of these, approximately 4,900 were
employed domestically. The Company expects the number of full-
time associates to decrease during 2001 as it completes its
restructuring of Telxon. The Company also employs temporary
production personnel. None of the Company's associates are
represented by a labor union. The Company considers its
relationship with its associates to be good.
Item 2. Properties
The following table states the location, primary use and
approximate size of all principal plants and facilities of the
Company and its subsidiaries and the duration of the Company's
tenancy with respect to each facility.
Location Principal Use Size Tenancy/Ownership
One Symbol Plaza World Headquarters 299,000 square Owned
Holtville, NY feet
McAllen, Texas* Distribution approximately Owned
Facility 320,000 square
feet
Houston, Texas** Manufacturing and 152,200 square Owned
Customer Service feet
Reynosa, Tamaulipas Manufacturing 140,000 square Owned
Mexico*** feet
116 Wilbur Place Manufacturing 92,000 square Owned
Bohemia, NY feet
110 Wilbur Place Manufacturing 30,000 square Owned
Bohemia, NY feet
12 & 13 Oaklands Pk. Customer Service 21,700 square Owned
Fishponds Road feet
Wokingham, Berkshire
England
-25-
110 Orville Drive Manufacturing 110,000 square Leased: expires
Bohemia, NY feet August 31, 2009
Valley Oak Network Systems 100,000 square Leased: expires
Technology Campus Engineering, feet August 12, 2009
San Jose, CA Marketing
1101 Lakeland Ave. Manufacturing, 90,400 square Leased: expires
Bohemia, NY Administration and feet August 31, 2009
Distribution
Woodlands, Texas** Technology Center 69,671 square Leased: expires
feet June 30, 2008
El Paso, Texas Customer Service 62,660 square Leased: expires
Center and Warehouse feet December 14,2007
Berkshire Place EMEA Headquarters, 55,500 square Leased: expires
Winnersh Triangle Marketing and feet December 31,2012
Winnersh, Wokingham Administration and
Berkshire, England U.K. Headquarters
Juarez, Mexico Customer Service 50,000 square Leased: expires
Center and Warehouse feet April 13, 2004
* This facility is under construction and is expected to become
operational in the fourth quarter of 2001.
** These are facilities of Telxon that will either be closed or sold
in 2001.
*** This facility is being expanded by approximately 150,000 square
feet. The expansion is expected to be completed by the fourth quarter
of 2001.
In addition to these principal locations, the Company and its
subsidiaries also lease other offices throughout the world, ranging in
size from approximately 150 to 40,000 square feet.
-26-
Item 3. Legal Proceedings
See Patent and Trademark Matters for a discussion of
certain other litigation involving the Company.
Telxon Litigation
From December through March 1999, a total of 27 class
actions were filed in the United States District Court, Northern
District of Ohio, by certain alleged stockholders of Telxon on
behalf of themselves and purported classes consisting of Telxon
stockholders, other than the defendants and their affiliates, who
purchased stock during the period from May 21, 1996 through
February 23, 1999 or various portions thereof, alleging claims
for "fraud on the market" arising from alleged misrepresentations
and omissions with respect to Telxon's financial performance and
prospects and an alleged violation of generally accepted
accounting principles by improperly recognizing revenues. The
named defendants are Telxon, its former President and Chief
Executive Officer, Frank E. Brick, and its former Senior Vice
President and Chief Financial Officer, Kenneth W. Haver. The
actions were referred to a single judge. On February 9, 1999,
the plaintiffs filed a Motion to consolidate all of the actions
and the Court heard motions on naming class representatives and
lead class counsel on April 26, 1999.
On August 25, 1999, the Court appointed lead plaintiffs and
their counsel, ordered the filing of an Amended Complaint, and
dismissed 26 of the 27 class action suits without prejudice and
consolidated those 26 cases into the first filed action. The
lead plaintiffs appointed by the Court filed an Amended Class
Action Complaint on September 30, 1999. The Amended Complaint
alleges that the defendants engaged in a scheme to defraud
investors through improper revenue recognition practices and
concealment of material adverse conditions in Telxon's business
and finances. The Amended Complaint seeks certification of the
identified class, unspecified compensatory and punitive damages,
pre- and post-judgment interest, and attorneys' fees and costs.
Various appeals and writs challenging the District Court's August
25, 1999 rulings were filed by two of the unsuccessful plaintiffs
but have all been denied by the Court of Appeals.
On November 8, 1999, the defendants jointly moved to dismiss
the Amended Complaint, which was denied on September 29, 2000.
Following the denial, the parties filed a proposed joint case
-27-
schedule, discovery commenced, and the parties each filed their
initial disclosures. On October 30, 2000, defendants filed their
answer to the plaintiffs' amended complaint as well as a Motion
for Reconsideration or to Certify the Order Denying the Motion to
Dismiss for Interlocutory Appeal and request for oral argument,
and a memorandum of points and authorities in support of that
motion. On November 14, 2000, Plaintiffs filed a Memorandum in
Opposition of Defendants Motion. This Motion was denied on
January 19, 2001. On November 1, 2000, defendants filed a Motion
for Application of the Amended Federal Rules of Civil Procedure
to the case, and on November 16, 2000, the Court granted this
Motion in part and held that the Court will apply the new rules
of evidence and new rules of civil procedure except to the extent
those rules effectuate changes to Rule 26 of the Federal Rules
for Civil Procedure. Discovery is in its preliminary stages.
By letter dated December 18, 1998, the Staff of the Division
of Enforcement of the Securities and Exchange Commission (the
"Commission") advised Telxon that it was conducting a
preliminary, informal inquiry into trading of the securities of
Telxon at or about the time of Telxon's December 11, 1998 press
release announcing that Telxon would be restating the revenues
for its second fiscal quarter ended September 30, 1998. On
January 20, 1999, the Commission issued a formal Order Directing
Private Investigation and Designating Officers To Take Testimony
with respect to the referenced trading and specified accounting
matters, pursuant to which subpoenas have been served requiring
the production of specified documents and testimony.
By letter dated March 9, 2001, the Division of Enforcement
of the Commission informed Telxon that it had made a preliminary
determination to recommend that the Commission initiate an action
against Telxon for violation of various sections of the federal
securities laws and regulations and to seek permanent injunctive
relief and appropriate monetary penalties against Telxon. The
Division of Enforcement has also indicated that it intends to
recommend similar action against one current and two former
employees of Telxon. The Commission has given Telxon until April
23, 2001 to indicate in a written submission why Telxon believes
no action should be instituted against it. Telxon has not
accrued for any fines or penalties under Statement of Financial
Accounting Standards No. 5, "Accounting for Contingencies,"
because the amount of any such fine or penalty is not estimable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
-28-
Item 4A. Executive Officers of the Registrant
The following table sets forth the names, ages and all
positions and offices held by the Company's executive officers:
Tomo Razmilovic........ 58 President, Chief Executive Officer
and Director
Jerome Swartz.......... 60 Chairman of the Board of Directors,
Chief Scientist and Director
Leonard H. Goldner..... 53 Executive Vice President, General
Counsel and Secretary
Robert Blonk........... 54 Senior Vice President-Human
Resources
Frank J. Borghese...... 46 Senior Vice President and General
Manager, Worldwide Sales & Services
Brian T. Burke......... 54 Senior Vice President, Worldwide
Operations
Ron Goldman............ 40 Senior Vice President, General
Manager-Mobile Computing/
Scanning Marketing
Kenneth Jaeggi......... 55 Senior Vice President-Finance and
Chief Financial Officer
Joseph Katz............ 48 Senior Vice President, Research and
Development
Boris Metlitsky........ 53 Senior Vice President, General
Manager-Mobile Computing/Scanning
Engineering
Satya Sharma........... 60 Senior Vice President-Corporate
Quality and Wireless Systems
Engineering
Robert W. Korkuc....... 38 Vice President, Chief Accounting
Officer
-29-
Mr. Razmilovic had been the President and Chief Operating
Officer of the Company from October 1995. Effective July 1,
2000, Mr. Razmilovic assumed the position of Chief Executive
Officer. He was previously Senior Vice President-Worldwide Sales
and Services. He first joined the Company in September 1989.
From January 1989 to August 1989, he was President and Chief
Executive Officer of Cominvest Group, a Swedish multinational
high technology company. From August 1985 to December 1988, he
was President of ICL International, a major European computer
manufacturer and he also led its industry marketing and software
development divisions.
Dr. Swartz co-founded and has been employed by the
Company since it commenced operations in 1975. He has been
the Chairman of the Board of Directors for more than the past
fifteen years, and served as Chief Executive Officer of the
Company for more than fifteen years until July 1, 2000. Dr.
Swartz was an industry consultant for 12 years in the areas of
optical and electronic systems and instrumentation and has a
total of some 160 technical papers and issued and allowed U.S.
patents to his credit, including the Company's basic patents
in hand-held laser scanning. He is also a trustee of the
Polytechnic University of New York and an adjunct full
professor of Electrical Engineering at the State University of
New York at Stony Brook. He is also a fellow of the Institute
of Electrical and Electronic Engineering and a member elect to
the National Academy of Engineering.
Mr. Goldner joined the Company in September 1990. From
September 1979 until August 1990, he was a partner of the New
York law firm of Shereff, Friedman, Hoffman & Goodman, which
was securities counsel to the Company.
Mr. Blonk joined the Company in August 1997. Prior to
joining the Company, he had been employed for thirty years by
Lucent Technologies, Inc. in a number of positions, the most
recent of which was as its Director of Technical Business
Operations.
Mr. Borghese has been employed by the Company for more than
the past ten years in various sales and sales management
positions.
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Mr. Burke has been employed by the Company for more than the
past ten years in various managerial and financial positions.
Mr. Goldman joined the Company in February 1992 and has
served in various legal, managerial and business development
positions.
Mr. Jaeggi joined the Company in May 1997. From May 1996 to
May 1997, he was a member of the Office of the Chairman and the
Operating Committee of Electromagnetic Sciences in Atlanta, GA.
From December 1992 until May 1996, Mr. Jaeggi served as Senior
Vice President, Chief Financial Officer and consultant of
Scientific-Atlanta, Inc., a leading producer of cable network and
satellite communications systems. From June 1988 to December
1992, he was President and Chief Executive Officer of Imagraph
Corporation, a developer and manufacturer of graphics and imaging
hardware and software for application specific workstations. Mr.
Jaeggi served as Vice President, Chief Financial Officer and
consultant to Data General Corporation from June 1980 until June
1988.
Dr. Katz joined the Company in January 1989 and has held
several positions in Research and Development. From May 1981
until January 1989, Dr. Katz held a number of positions at the
Jet Propulsion Laboratory of the California Institute of
Technology, the most recent of which was as Technical Group
Supervisor.
Dr. Metlitsky joined the Company in March 1983 and has
served in various technical and managerial positions.
Dr. Sharma joined the Company in March 1995. Prior to
joining the Company, Dr. Sharma held various management positions
at AT&T. From April 1990 to March 1995, Dr. Sharma served as
Director of Quality of AT&T's Power Systems Division and from
January 1986 to April 1990 he was a Department Head at AT&T Bell
Labs.
Mr. Korkuc joined the Company in October 1990 and has served
in various finance and accounting positions. He is a member of
the American Institute of Certified Public Accountants and the
New York State Society of Certified Public Accountants.
-31-
PART II
Item 5. Market for the Registrant's Common Equity and
Related Security Holder Matters
The Company's Common Stock is listed on the New York Stock
Exchange. The following table sets forth, for each quarter
period of the last two years, the high and low sales prices as
reported by the New York Stock Exchange and the dividend payments
declared by the Board of Directors and paid by the Company.
Year Ending: High* Low* Dividend
December 31, 1999 First Quarter 43.25 28.06
Second Quarter 38.13 26.00 $.02
Third Quarter 41.38 32.63
Fourth Quarter 65.00 29.63 $.015
December 31, 2000 First Quarter 69.00 34.29 $.015
Second Quarter 63.25 35.38
Third Quarter 55.75 31.19 $.01
Fourth Quarter 46.25 25.63
*Adjusted to reflect a three-for-two stock split, effective
June 14, 1999 and a three-for-two stock split, effective April 5,
2000.
As of March 1, 2001 there were 1,544 holders of record of
the Company's Common Stock.
Historically, changes in the Company's results of operations
or projected results of operations have resulted in significant
changes in the market price of the Company's Common Stock. As a
result, the market price of the Company's Common Stock has been
highly volatile. In addition, the stock prices of many well
known technology companies have recently experienced significant
volatility as a result of failing to meet revenue or earnings
forecasts. The Company's Common Stock may also experience
substantial volatility if its operational results do not meet
projections.
Payment of future dividends is subject to approval by the
Company's Board of Directors. Recurrent declaration of dividends
will be dependent on the Company's future earnings, capital
requirements and financial condition.
-32-
On May 12, 1999, February 14, 2000 and February 26, 2001,
the Board of Directors of the Company declared a three-for-two
stock split, payable as a 50 percent dividend, on June 14, 1999,
April 5, 2000 and April 16, 2001, respectively, to all
shareholders of record on June 1, 1999, March 13, 2000 and March
26, 2001, respectively.
-33-
Item 6. Selected Financial Data
(in thousands, except per share data)
Year Ended December 31,__________________
Operating Results: 2000(1) 1999 1998(2) 1997 1996(3)
Net Revenue $1,449,490 $1,139,290 $977,901 $774,345 $656,675
Net (Loss) Earnings ($68,966) $116,364 $92,964 $70,232 $50,256
(Loss) Earnings Per Share:
Basic ($0.50) $0.88 $0.70 $0.53 $0.38
Diluted ($0.50) $0.82 $0.66 $0.51 $0.37
Financial Position:
Total Assets $2,093,199 $1,047,944 $838,399 $679,190 $614,238
Working Capital $620,214 $351,613 $295,317 $241,846 $221,678
Long-Term Debt, less
Current Maturities $201,144 $99,623 $64,596 $40,301 $50,541
Stockholders' Equity $1,201,696 $640,460 $530,928 $453,742 $399,676
Weighted Average Number of Common
Shares Outstanding:
Basic 137,629 132,488 132,291 132,836 130,944
Diluted 137,629 141,572 140,481 137,781 137,088
(1) Includes pre-tax charges for costs associated with restructuring, impairment and
the acquisition of Telxon Corporation of $273,521 or ($1.46) diluted loss per share.
(2) Includes a pre-tax charge for costs associated with a terminated acquisition of $3,597 or
$0.02 diluted earnings per share.
(3) Includes a pre-tax charge for costs associated with acquisition related matters of
$12,341 or $0.06 diluted earnings per share.
-34-
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS UNDER SECURITIES
LITIGATION REFORM ACT OF 1995; CERTAIN CAUTIONARY STATEMENTS
Sometimes, the Company makes forward-looking statements,
orally or in writing. These statements may be in press releases,
oral statements or in filings made by the Company with the
Securities and Exchange Commission, including this one. The
words or phrases "will likely result", "are expected to", "will
continue", "is anticipated", "estimate", "project" or similar
expressions identify "forward-looking statements" that are
covered by the Private Securities Litigation Reform Act of 1995
(the "Reform Act"). The Company wants to be sure that any
forward-looking statements are accompanied by meaningful
cautionary statements, so that the Company is protected by the
safe harbor established in the Reform Act. Therefore, any
forward-looking statements made by the Company are qualified by
the following discussion of factors that could cause actual
results to be different from forward-looking statements. The
Company has no obligation to update forward-looking statements.
The risks presented here may not be all of the risks the
Company may face. These are the factors that the Company believes
could cause actual results to be different from expected and
historical results. Other sections of this report include
additional factors that could have a negative effect on the
Company's business and financial performance. The industry that
the Company competes in is very competitive and changes rapidly.
Sometimes new risks emerge and management may not be able to
predict all of them, or be able to predict how they may cause
actual results to be different from those contained in any
forward-looking statements. You should not rely upon forward-
looking statements as a prediction of future results.
While the Company, from time to time, communicates with
securities analysts, you should not assume that the Company
agrees with any statement or report issued by any analyst
regardless of the content of the statement or report. The
Company has a policy against issuing financial forecasts or
projections or confirming the accuracy of forecasts or
projections issued by others. If reports issued by securities
analysts contain projections, forecasts or opinions, those
reports are not the responsibility of the Company.
Financial Performance. The Company's operating results may vary
in the future as a result of a number of factors, including:
- changes in technology
- new competition
-35-
- economic conditions
- customer demand
- a shift in the mix of the Company's products
- a shift in sales channels
- the market acceptance of new or enhanced versions of the
Company's products
- the timing of introduction of other products and
technologies
- any associated charges to earnings
- any cancellation or postponement of orders, or bookings
failing to materialize into orders
- - component shortages
- - acquisitions made by the Company
Economic Conditions. There has been significant evidence that
the United States economy has been slowing in the last quarter of
2000 and the first quarter of 2001. There has also been concern
expressed that the United States economy may be heading into a
recession, and that a decline in the United States economy could
have worldwide effects. The European economy has also
experienced weakness. Numerous well known high technology
companies have missed projected earnings forecasts and performed
below expectations in the last quarter of 2000 and the first
quarter of 2001. Some of these companies have attributed their
shortfalls in revenues and earnings to the slowing United States
economy or weakness in Europe. The Company's business and
operating results may be negatively affected if the growth rate
of the United States economy continues to decline, if the United
States economy experiences a recession, or if the European
economy does not improve. The Company's business and operating
results may also be negatively affected if the retail industry,
which accounts for a significant portion of the Company's
business, does not improve.
Acquisitions. The Company has in the past and may in the future
acquire businesses or product lines as a way of expanding its
product offerings and acquiring new technology. If the Company
does not identify future acquisition opportunities and/or
integrate businesses that it may acquire effectively, the
Company's growth may be negatively affected. In 2000, the
Company acquired Telxon, the largest acquisition in the Company's
history. If the Company does not realize the expected synergies
and efficiencies from acquiring Telxon, or realizes them more
slowly than anticipated, the Company's business and operating
results may be affected negatively. The Company's business and
operating results may also be affected negatively if the Company
does not effectively rationalize the assets, physical plant,
-36-
products, schedule, personnel, sales and marketing, purchasing,
and manufacturing efforts and strategies, of Telxon and Symbol.
The Company expects to realize annual synergies of $125 million
beginning in the third quarter of 2001, which is anticipated to
result in the acquisition of Telxon being accretive for the full
year 2001, including the effects of goodwill. However, there can
be no assurance that the Company will realize these objectives.
Forecasts. The volume and timing of orders the Company receives
during a fiscal quarter are difficult to forecast. Sometimes
customers have canceled orders or rescheduled shipments ordered
from the Company. The Company has operated with a relatively
small backlog. The Company monitors backlog. Because most
customers order products for delivery within 45 days, the Company
does not believe that backlog provides a good indication of
financial performance except for the then current fiscal quarter.
Shipments made during a fiscal quarter are usually in response to
orders received either during that quarter or shortly before the
beginning of that quarter. Shipments for orders received in a
fiscal quarter are usually from products manufactured in that
quarter. The Company maintains significant levels of raw
materials so it can meet delivery requirements of its customers.
The Company may not be able to procure the appropriate mix of raw
materials to accommodate all orders in a quarter. Because of the
levels of current and anticipated backlog, the Company's
financial performance in any quarter is dependent upon obtaining
orders in that quarter which can be manufactured and delivered to
its customers in that quarter. Financial performance for any
quarter is not known until near the end of that quarter. The
Company's expense levels are partly based on the level of future
revenues the Company expects. The Company's total operating
expenses have increased as it has expanded its operations.
Because of the difficulty of forecasting revenue and the
Company's planned growth in spending, operating expenses could be
unusually high for any quarter causing the Company's operating
profit to be negatively affected for that quarter.
Product Mix. The Company anticipates that in 2001:
- - it will sell more products with lower margins than it did
in the past; and
- - lower margin products will make up a larger portion of
sales than they have in the past.
If the Company does not increase sales and/or lower
operating expenses to compensate for lower overall margins,
operating profit will be negatively affected.
-37-
Foreign Sales. A large portion of the Company's net revenues
have been from foreign sales. In 2000, foreign sales accounted
for approximately 36.8 percent of net revenue. These sales are
subject to the normal risks of foreign operations, such as:
- currency fluctuations
- protective tariffs
- - trade barriers and export/import controls
- transportation delays and interruptions
- reduced protection for intellectual property rights in
some countries
- the impact of recessionary foreign economies
- long receivable collection periods
Most of the Company's equipment sales in Western Europe and
Asia are billed in foreign currencies and are subject to currency
exchange fluctuations. Since a significant portion of the
Company's products is manufactured in the United States, sales
and results of operations could be affected by fluctuations in
the U.S. dollar. Changes in the value of the U.S. dollar compared
to foreign currencies have in the past had an impact on the
Company's sales and margins. In 2000, results of operations
continued to be negatively affected by the appreciation of the
value of the U.S. dollar in relation to key foreign currencies.
The Company believes that its 2000 financial performance was
satisfactory despite the negative currency impact. However, the
Company cannot predict the direction or magnitude of currency
fluctuations, and the Company may not continue to perform
adequately if the value of the U.S. dollar in relation to key
foreign currencies increases. The Company cannot predict whether
the United States or any other country will impose new quotas,
tariffs, taxes or other trade barriers upon the importation of
the Company's products or supplies or the effect that new
barriers would have on its financial position or results of
operations.
Manufacturing. If use of the Company's manufacturing facilities
in Bohemia, New York or Reynosa, Mexico were interrupted by
natural disaster or otherwise, the Company's operations would be
negatively affected until the Company could establish alternative
production and service operations. The Company's operations may
also be negatively affected if the Company does not complete and
make operational the McAllen distribution center according to
schedule.
-38-
Many of the Company's products and subassemblies are manufactured
by third parties inside and outside the United States. The
Company anticipates that an increased percentage of new products
and subassemblies will be manufactured by third parties,
including Olympus. Many of these third parties are located in
foreign countries, as is the Company's Reynosa, Mexico facility.
The manufacture of these items is subject to risks common to all
foreign manufacturing activities such as:
- governmental regulation
- currency fluctuations
- transportation delays and interruptions
- - political and economic disruptions
- the risk of imposition of tariffs or other trade
barriers
The Company has experienced manufacturing problems that have
caused delivery delays. The Company may experience production
difficulties and product delivery delays in the future as a
result of:
- changing process technologies
- ramping production
- installing new equipment at its manufacturing facilities
- shortage of key components
Manufacturing of products in two locations subjects the
Company to normal risks of managing two separate manufacturing
facilities in two separate countries, including:
- administration of customs requirements
- coordination of procurement
- cross-border distribution
Sometimes, the Company experiences significant price
increases and limited availability of components that are
available from multiple sources. At times, the Company has been
unable to meet product orders because parts were not available.
While past shortages and delays have not had a negative effect on
the Company's reported revenues, shortages and delays could have
a negative effect on the Company's future operating results.
Although recent trends indicate that the availability of
components may be increasing, the Company cannot predict if
component shortages will continue. On occasion, the Company
acquires component inventory in anticipation of supply shortages.
If component availability is restored and as a result component
prices decline, operating results could be negatively affected.
-39-
Some components, subassemblies and products are purchased
from a single supplier or a limited number of suppliers. The
loss of any of these suppliers may cause the Company to incur
additional set-up costs and delays in manufacturing and delivery
of products.
The Company purchases a large number of parts, components
and third party products from Japan. The value of the yen in
relation to the U.S. dollar has declined in the last half of
2000. If the value of the yen strengthens relative to the dollar
in 2001, the Company's financial performance could be negatively
affected.
Competition. The Company is in a highly competitive industry
that is influenced by:
- advances in technology
- product improvements
- new product introduction
- marketing and distribution capabilities
- price competition
If the Company does not keep pace with product and
technological advances, the Company's competitive position and
prospects for growth could be negatively affected. In 1999 and
continuing in 2000, several of the Company's key competitors had
poor financial performance. There is likely to be continued
pricing pressure in 2001 as these competitors attempt to reverse
losses in their market share, which may negatively affect the
Company's revenues and/or gross margins.
New Competitors. The products that the Company and its
competitors manufacture and market are becoming more complex. As
the technological and functional capabilities of future products
increase these products will begin to compete with products being
offered by larger, traditional computer, network and
communications industry participants who have substantially
greater financial, technical, marketing and manufacturing
resources than the Company. The Company may not be able to
compete successfully against these new competitors and
competitive pressures may negatively affect its business or
operating results.
Price. The selling price of the Company's products usually
decreases over the life of the product. To lessen the effect of
price decreases, the Company attempts to reduce manufacturing
costs of existing products and to introduce new products,
functions and other price/performance-enhancing features. If
-40-
cost reductions, product enhancements and new product
introductions do not occur in a timely manner or are not accepted
in the marketplace, the Company's operating results could be
negatively affected.
Research and Development. The Company is active in research and
development of new products and technologies. The Company's
research and development efforts may not lead to the successful
introduction of new or improved products. The Company may
encounter delays or problems in connection with its research and
development efforts. New products often take longer to develop,
have fewer features than originally considered desirable and
achieve higher cost targets than initially estimated. There may
be delays in starting volume production of new products and new
products may not be commercially successful. Products under
development are often announced before introduction and these
announcements may cause customers to delay purchases of existing
products until the new or improved versions of those products are
available. Delays or deficiencies in development, manufacturing,
delivery of or demand for new products or of higher cost targets
could have a negative effect on the Company's business, operating
results or financial condition. The Company has made significant
investments to develop consumer scanning products. Consumer
scanning is a new and developing market. The Company's business
and operating results may be negatively affected if the consumer
scanning market does not grow and mature, or if consumers adopt
scanning products at lower rates than anticipated by the Company.
The Company's efforts in consumer scanning are also dependent, in
part, on applications developed and infrastructure deployed by
third parties. The Company's business and operating results may
also be negatively affected if third parties do not develop
robust, new or innovative applications, or create appropriate
infrastructure, for consumer scanning products.
System Sales. Historically, the Company has sold individual bar
code scanning devices and scanner integrated mobile computing
devices to customers. Increasingly, the Company's sales efforts
have focused on sales of complete data transaction systems.
System sales are more costly and require a longer selling cycle,
longer payment terms and more complex integration and
installation services.
Intellectual Property. The Company protects its proprietary
information and technology through contractual confidentiality
provisions and by applying for United States and foreign patents,
trademarks and copyrights. These applications may not result in
the issuance of patents, trademarks or copyrights. Third parties
-41-
may seek to challenge, invalidate or circumvent these
applications or resulting patents, trademarks or copyrights.
Competitors may independently develop equivalent or superior,
non-infringing technologies. The Company's licensing revenue
could be negatively affected if competing technologies avoid
infringement of the Company's licensed patents.
Third parties have and may again assert claims of
infringement of intellectual property rights against the Company.
These claims have in the past and may in the future lead to
litigation or require the Company to significantly modify or
discontinue sales of some of its products.
Third Party Products. Historically, the Company has manufactured
almost all of it products. Beginning in 1996, the Company began
to offer an increased number of third party products. The
Company hopes that sales of third party products will result in
higher operating income. Sales of third party products usually
generate lower margins which may not be fully offset by lower
expenses. If third party product suppliers become unable or
unwilling to manufacture products for the Company or do not meet
the Company's volume and quality requirements and delivery
schedules, the Company's ability to market these products could
be negatively affected. Many of the components and parts for
these third party products are purchased outside the United
States. Many of these third party products are manufactured
outside of the United States. Supply of these products could be
negatively affected by factors normally attendant to the conduct
of foreign trade, including:
- - imposition of duties, taxes, fees or other trade
restrictions
- fluctuation in currency exchange rates
- longer delivery times
Government Regulations. The Company is subject to the risks
associated with changes in United States and foreign regulatory
requirements. More stringent regulatory requirements or safety
and quality standards may be issued in the future and may have a
negative effect on the business of the Company. Sales of the
Company's products could be negatively affected if more stringent
safety standards are adopted by its customers such as electronic
cash register manufacturers.
The Company's Spectrum One and Spectrum 24 spread spectrum
wireless communication products operate through the transmission
-42-
of radio signals. These products are subject to regulation by
the FCC in the United States and corresponding authorities in
other countries. Currently, operation of these products in
specified frequency bands does not require licensing by
regulatory authorities. Regulatory changes restricting the use
of frequency bands or allocating available frequencies could have
a negative effect on the Company's business and its results of
operations.
Safety Risk. Recently, there has been some concern over the
potentially negative effects of electromagnetic emissions from
cellular telephones. While the Company's RF products do emit
electromagnetic radiation, the Company believes that due to the
low power output of its products and the logistics of their use,
there is no health risk to end-users in the normal operation of
its products. The Company's RF products may become the subjects
of safety concerns in the future. Safety issues and the
associated publicity could have a negative effect on the
Company's business and its results of operations.
Reliance on Resellers, Distributors and OEMs. The Company sells
a majority of its products through resellers, distributors and
original equipment manufacturers (OEMs). Reliance upon third
party distribution sources subjects the Company to risks of
business failure by these individual resellers, distributors and
OEMs, and credit, inventory and business concentration risks. In
addition, if there is a shortfall in demand from third party
distribution sources, the Company's operating results may be
affected negatively.
-43-
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
The following table sets forth for the years indicated
certain revenue and expense items expressed as a percentage of net
revenue.
-44-
Percentage of Revenue
Year Ending December 31,
2000 1999 1998
Net Revenue 100.0% 100.0% 100.0%
Cost of Revenue 66.6 55.8 56.0
Amortization of Software
Development Costs 1.7 1.6 1.5
Gross Profit 31.8 42.5 42.5
Operating Expenses:
Engineering 6.7 7.2 7.3
Selling, General and Administrative 18.4 19.4 19.9
Restructuring and Impairment Charges 2.1 - -
In-Process Research and Development 6.0 - -
Merger Integration Charges 2.7 - -
Amortization of Excess of Cost Over Fair
Value of Net Assets Acquired 0.4 0.4 0.5
Charges Related to Terminated Acquisition - - 0.4
36.4 27.0 28.0
(Loss) Earnings from Operations (4.6) 15.5 14.5
Gain on Sale of Business - - 0.1
Net Interest Expense (0.8) (0.5) (0.4)
(Loss) Earnings Before Income Taxes (5.5) 15.0 14.2
(Benefit from)/Provision for Income Taxes (0.7) 4.8 4.7
Net (Loss) Earnings (4.8%) 10.2% 9.5%
-45-
For the year ended December 31, 2000 (Dollars in thousands)
Net revenue of $1,449,490 for the year ended December 31,
2000, increased 27.2 percent over 1999. The increase in net
revenue is primarily due to increased worldwide equipment sales.
Foreign exchange fluctuations unfavorably impacted the growth in
net revenue by approximately 2.8 percentage points and 0.6
percentage points for the years ended December 31, 2000 and 1999,
respectively.
Geographically, The Americas, EMEA and Asia Pacific revenue
increased 38.4 percent, 3.6 percent, and 27.1 percent,
respectively over the comparable prior year period. The Americas,
EMEA, and Asia Pacific revenue represent approximately 69.8
percent, 24.5 percent, and 5.7 percent, respectively, of net
revenue in 2000.
Cost of revenue (as a percentage of net revenue) of 66.6
percent for the year ended December 31, 2000, increased from 55.8
percent in 1999 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, the continued
unfavorable impact of foreign exchange rate fluctuations on net
revenue, increased costs resulting from shortages and delivery
delays for the limited quantities of components and subassemblies
procured from suppliers and the dilutive effect of the Telxon
acquisition partially offset by increased royalty income.
Included in cost of revenue are restructuring and impairment
charges of $116,901 recorded in the fourth quarter of 2000,
related to the acquisition of Telxon. These charges include
inventory, capitalized software and other product related
impairment charges, as well as the severance costs of direct labor
employees of the Company.
Amortization of software development costs of $24,067 for the
year ended December 31, 2000, increased from $18,472 in the prior
year due to new product releases.
Engineering costs increased to $97,274 for the year ended
December 31, 2000, from $81,944 for 1999. This represents an
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increase of 18.7 percent for the year ended December 31, 2000,
from the prior year. The increase 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. As a
percentage of revenue such expenses decreased to 6.7 percent for
the year ended December 31, 2000, from 7.2 percent for the prior
year.
Selling, general and administrative expenses increased to
$267,322 for the year ended December 31, 2000, from $220,753 in
1999. While in absolute dollars selling, general and
administrative expenses increased 21.1 percent for the year ended
December 31, 2000, from the prior year, as a percentage of revenue
such expenses decreased to 18.4 percent for the year ended
December 31, 2000, from 19.4 percent in 1999 due to ongoing cost
containment programs. The increase in absolute dollars reflects
expenses incurred to support a higher revenue base inclusive of
expenses associated with the Telxon acquisition.
Restructuring and impairment charges of $29,795, recorded in
the fourth quarter of 2000, related to the restructuring plan that
resulted from the Telxon acquisition. These charges, classified as
a component of operating expenses, include impaired fixed assets,
severance of engineering, selling, general and administrative
employees, and lease termination costs of redundant facilities.
The remaining employees to be terminated received notification
prior to year end and will be leaving the Company over the next
six months. Management expects to substantially complete the
Company's restructuring efforts by June 30, 2001.
In-process research and development charges of $87,600
related to the Telxon acquisition, which was accounted for using
the purchase method. A portion of the purchase price was
allocated to acquired in-process research and development and was
expensed immediately, since the technological feasibility of the
research and development projects had not been achieved and such
projects were believed to have no alternative future use.
Independent valuations were used in determining the fair value of
the identifiable intangible assets and in allocating the purchase
price among the acquired assets, including the portion of the
purchase price attributed to in-process research and development.
The Company recorded merger integration charges of $39,225 in
the fourth quarter of 2000. These charges relate to the Telxon
acquisition which was consummated on November 30, 2000. The
merger integration charges consist primarily of professional
services and consulting fees, marketing and advertising, travel
expenses and other related charges.
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Amortization of excess of cost over fair value of net assets
acquired of $6,475 for the year ended December 31, 2000 increased
from $5,092 in 1999 primarily due to the Telxon acquisition.
Net interest expense increased to $12,220 for the year ended
December 31, 2000, from $5,821 in 1999 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 benefit for 2000 is 13.3 percent.
This differs from the statutory rate primarily as a result of non-
recurring restructuring and integration charges associated with
the Telxon acquisition previously mentioned.
At December 31, 2000, the Company had net deferred tax assets
of approximately $108,994 consisting of current deferred tax
assets of $197,019 and long-term deferred tax liabilities of
$88,025. The current deferred tax assets reflect a valuation
allowance of $6,958 relating to net operating loss carryforwards
and foreign tax credit carryforwards.
For the year ended December 31, 1999 (Dollars in thousands)
Net revenue of $1,139,290 for the year ended December 31,
1999, increased 16.5 percent over 1998. The increase in net
revenue is 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 fluctuations unfavorably impacted the growth in net
revenue by approximately 0.6 percentage points and 1.5 percentage
points for the years ended December 31, 1999 and 1998,
respectively.
Geographically, The Americas, EMEA and Asia Pacific revenue
increased 13.2 percent, 20.9 percent, and 34.8 percent,
respectively, over the comparable prior year period. The
Americas, EMEA, and Asia Pacific revenue represent approximately
64.2 percent, 30.1 percent, and 5.7 percent, respectively, of net
revenue in 1999.
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Cost of revenue (as a percentage of net revenue) of 55.8<