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March 1, 1999
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, 1998
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, 1998. 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 (516) 738-4765.
Very truly yours,
s/Leonard H. Goldner
Leonard H. Goldner
Senior Vice President
and General Counsel
LHG:lac
March 1, 1999
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, 1998 and pursuant to Item
601(b)(4)(iii) of Regulation S-K, the undersigned has not filed as
exhibit 10.6 an Industrial Revenue Bond financing agreement in respect
of its executive offices since 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.
By: s/Kenneth V. Jaeggi
Kenneth V. Jaeggi
Senior Vice President-
Finance and Chief
Financial Officer
KVJ:lac
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, 1998 Commission file number 1-9802
SYMBOL TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 11-2308681
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Symbol Plaza
Holtsville, NY 11742-1300
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including
area code: (516) 738-2400
Securities registered pursuant to
Section 12(b) of the Act:
Common Stock, par value $.01 New York Stock Exchange
(Title of each class) (Name of each Exchange on
which registered)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
The aggregate market value of the voting stock held by persons other
than officers and directors (and their associates) of the registrant, as of
February 1, 1999 was approximately $ 3,139,000,000.
The number of shares outstanding of each of the registrant's classes of
common stock, as of December 31, 1998, was as follows:
Class Number of Shares
Common Stock, par value $.01 58,756,247
Documents Incorporated by Reference: The registrant's Proxy Statement to be
used in conjunction with the Annual Meeting of Shareholders to be held on
May 10, 1999 (the "Proxy Statement") is incorporated into Part III.
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 and a leading
global provider of mobile data management systems. The Company
is the largest manufacturer of bar code-driven data transaction
systems and the only corporation in its industry with in-house
technology for the design and manufacture of bar code scanner
products, application specific mobile computers and radio
frequency (RF) data communications systems. The Company is
engaged in one reportable segment - the design, manufacture,
marketing and servicing of bar code reading equipment and scanner
integrated application specific mobile computer systems, a
substantial portion of which include radio frequency data
communications systems. These products are used as strategic
building blocks in data transaction systems in retail,
transportation and logistics, parcel delivery and postal service,
warehousing and distribution, factory automation, health care and
many other applications.
Company Products and Services
General
The Company develops, manufactures, sells and services one-
dimensional and two-dimensional bar code scanner products that
principally employ laser technology to read data encoded in bar
code symbols and scanner integrated application specific mobile
computer systems, a substantial portion of which incorporate
wireless local area network (WLAN) RF systems to transmit data.
The Company distributes the most complete line of bar code
reading equipment in the world. The Company's bar code scanner
equipment is compatible with a wide variety of data collection
systems, including computers, electronic cash registers and
portable data collection devices. Bar code scanners are used to
enhance accurate data entry and productivity in retail,
transportation and logistics, parcel delivery and postal service,
warehousing and distribution, factory automation and many other
applications.
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The Company's scanner integrated application specific mobile
computer systems consist of hand-held computers, peripheral
devices, software and programming tools, and are designed to
provide solutions to specific customer needs in data
transactions. They are used to collect data at remote locations
and to transmit information between these locations and the
user's central data processing facility. Data can be entered by
a touch screen or a device which reads bar codes or may be keyed
into memory on a numeric or alpha-numeric keyboard. Data can be
transmitted and received through direct connection, regular
telephone lines with acoustic couplers and modems or by radio
waves. Approximately 90 percent of the Company's hand-held
computers include an integrated bar code reader.
Bar Code Scanner Products
Sales of the Company's bar code scanner products have
accounted for approximately 40 percent of the Company's total
revenues for the years ended December 31, 1998, 1997 and 1996.
The Company's bar code scanner products consist of devices
designed to scan and decode bar code symbols and transmit data.
The Company sells various models of its bar code reading systems,
each of which consists of a laser scanner and interface
controller. In most models, the interface controller is
integrated into the handle of the scanner. The laser scanner
reads the symbol and transmits a digitized signal to the
interface controller. The interface controller contains a
microprocessor which decodes the information received and
interfaces with the user's computer.
The Company sells several different hand-held laser
scanners, the most important of which is the LS 4000 which was
introduced in 1996. The LS 4000 is a trigger-operated, visible
laser diode-based scanner featuring 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. In 1998, the Company introduced the LS
4000I, a ruggedized high performance version of the LS 4000
capable of reading both one-dimensional and certain two-
dimensional bar codes.
The LS 3000 Series, introduced in 1993, consists of trigger-
operated, visible laser diode-based scanners used to read all
common linear bar code symbologies and densities up to a distance
of 20 feet. The LS 3000 is particularly well-suited for
industrial and military applications because of its rugged
housing. These devices consume less than one watt of power
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during scanning. Specialty versions of the LS 3000 include long
range scanners capable of reading bar codes of virtually all
sizes at distances ranging from near contact to more than 35 feet
(LS 3000 ER) and low contrast reading capability scanners (LS
3000 HV) both using "spot and scan" two position triggers for
ease of aiming and visibility.
Introduced in 1995, the LS 3600 Series of laser bar code
scanners incorporate fuzzy logic technology and beam management
optical technology. Fuzzy logic allows these scanners to
accurately digitize and decode poor quality or damaged bar codes.
Beam management optical technology allows operators to scan bar
codes at varying distances.
In 1993, the Company introduced the first cableless hand-
held scanner, the LS 3070. The LS 3070 transmits data via narrow
band RF with a range of up to 50 feet from its base station.
This scanner is particularly useful in environments where
tethered scanning is inadequate. In 1997, the Company introduced
a less expensive cableless, hand-held scanner, the LS 4071. The
LS 4071 is a cordless version of the LS 4000 which utilizes a
Company designed RF communication protocol to provide the user
with a maximum working range of up to ten feet from its base
station. This allows for scanning of heavy or bulky items, which
cannot be easily moved for scanning. Designed to provide greater
productivity, flexibility and convenience, the LS 4071 is
intended for use in retail and light industrial applications.
In 1995, the Company introduced the LT 1800 LaserTouchr
visible laser diode-based bar code scanner that combines the
performance and accuracy of laser-based bar code technology with
scanning for applications where near contact scanning and touch
ergonomics are sufficient.
The LS 1000 Series, introduced in 1996, is the Company's
smallest and lightest trigger operated, hand-held laser scanner.
The LS 1000 is a less expensive scanner ideal for light use
scanning environments where cost is a critical factor.
The LS 2100 Series, introduced in 1998, is a trigger
operated, medium-range scanner capable of reading UPC bar codes
at distances up to 11 inches. Incorporating an SE 1200 series
scan engine and featuring a lightweight, ergonomic design, the LS
2100 is primarily sold in the indirect channel as a point-of-sale
scanner to specialty retail stores.
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In 1995, the Company introduced the LS 4800, a hand-held
laser scanner designed to read both 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 which 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 data storage. PDF 417 may be read by
either a laser-based bar code reader or a one- or two-dimensional
charge coupled device (CCD) reader. Most other two-dimensional
codes can only be read by a CCD reader. The LS 4800 integrates a
miniature resonant 2D scan engine that rasters, reading PDF 417
symbols horizontally and vertically at 560 scans per second. Due
to its rapid scan rate and advanced optics, the LS 4800 is adept
at reading poor quality symbols. The LS 4900, introduced in 1996
is a battery-powered version of the LS 4800.
The PDF 620, introduced in 1995, is a fixed-station card
reading device designed for accurate reading of PDF 417 and
standard bar codes for a variety of identification card
applications. Using CCD technology, the PDF 620 accepts ISO
standard sized cards and has a typical first-time read rate of
100 percent.
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.
In 1996, the Company introduced the PCK 9100, a compact
price checker system that allows shoppers to pass bar-coded items
by its scan window and view the latest product information on its
high-visibility LCD display. The PCK 9100 incorporates an LS
9100 omni-directional scanner which assures accuracy over a wide
range of scanning angles, making it easy for customers to obtain
price information.
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. A unique ergonomic
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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.
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 1999, the Company introduced the LS 7870, a multiplane,
high throughput scanner, primarily designed for point-of-sale
applications in the food retail market. Versions of the LS 7870
also incorporate a scale for simultaneous weighing and scanning
of items. The LS 7870 produces a multi-directional scan pattern
from two dimensions creating a 360 degree read zone that blankets the
bar-coded item in scan lines, allowing users to scan items
significantly faster with less fatigue.
Since 1988, the Company has been selling a series of
scanners consisting of solid state laser diode-based scanners.
These compact, non-contact scanners can be integrated internally
with the user's own equipment or used independently as
fixed-mount scanners on conveyor lines or robotic arms. The LS
1220, introduced in 1994, incorporates a Mylar scan element for
scanning conventional linear bar codes. The LS 6800 Series,
introduced in 1996, incorporates a high speed raster scan engine
that operates at 560 scans per second making it ideal for rapid
reading of one-dimensional and two-dimensional symbols.
In 1990, the Company began marketing bar code laser scanner
modules or scan engines which are integrated by unaffiliated
third parties into their portable computing devices.
In 1996, the Company introduced the low-cost, high-
performance SE 1200 Series scan engine. The SE 1200, which
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, vending machines and robotics. 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
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high density version of the SE 1200 capable of reading
miniaturized bar codes.
The SE 900, introduced by the Company in 1998, is the
smallest lightest and brightest scan engine 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.
In 1995, the Company introduced the SE 2000 Series scan
engine. The SE 2000 is a small, lightweight, high performing
scan engine capable of reading both one-dimensional and two-
dimensional bar codes.
The SE 2200, introduced by the Company in 1999, is a high
performance, scan engine that incorporates the Company's
technologically advanced Taut Band scan element and a high
visibility 650nm laser diode. The SE 2200 can read two-
dimensional and one-dimensional bar codes. The SE 2200 is
intended to replace the SE 2000.
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.
In 1995, the Company introduced the WSS 1000, an innovative
hand-mounted bar code-based data transaction system that allows
mobile hands-free bar code scanning, data collection and RF data
communications. The WSS 1000 is a wearable computer system 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 RS1, 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 16-
bit computer with display which permits wireless communication to
the host computer.
In 1997, the Company introduced the WS 1200, the latest
addition to the Company's wearable computer family. Designed for
use in the WSS 1000 system, the WS 1200 is a back-of-the-hand
mounted scanner incorporating an SE 1200 scan engine. 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
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HF 1200 is capable of scanning at longer distances than the RS-1
ring scanner.
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 1 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, as well as in
batch mode under battery power for back-office or in-store
applications such as physical inventory, cycle counts and gift
registry.
Introduced in 1998, the CyberPen is the Company's first
consumer-oriented data collection system 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 scan a bar code, the user simply presses a button
on the side of the CyberPen and sweeps the wand tip across the
symbol. After scanning bar codes, the user returns the CyberPen
to its holder that uploads the data to a personal computer. 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 designed for use in the
consumer electronic retail market. The palm size CS 2000 allows
consumers to browse through retailers printed catalogues,
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.
The Company also produces a series of low cost, interface
controllers. These devices permit the Company's scanner products
to easily interface with a wide range of standardized terminals,
personal computers, point-of-sale terminals, portable terminals
and dedicated computing hardware.
Product list prices for the Company's bar code scanner
equipment range between $195 to $5,395 depending on product
configuration. The Company offers discounts off list price for
quantity orders and sales are frequently made at prices below
list price.
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Scanner Integrated Application Specific Mobile Computing Systems
The Company's scanner integrated application specific mobile
computing systems consist of application specific portable data
transaction devices, peripheral devices, software and programming
tools. These systems collect data at remote locations and
transmit information between these locations and the user's
central data processing facility and are designed to provide data
collection solutions for a variety of applications. Approximately
90 percent of the Company's portable data transaction devices are
hand-held computers that also include an integrated bar code
reader. Approximately 40 percent of these devices also have RF
capability. These systems accounted for approximately 50 percent
of the Company's total revenues for the years ended December 31,
1998, 1997 and 1996.
Application Specific Portable Data Transaction Devices
The Company's application specific portable data transaction
devices are microprocessor-based, lightweight and battery-
operated hand-held computers. Data may be captured by a device
which reads bar codes or may be manually entered via a keyboard,
a touch screen or a pen computer display/entry device. The data
collected by the hand-held computer can then be transmitted to a
host computer by connection through regular telephone lines with
acoustic couplers and modems (batch file transfer mode) or
transmitted instantly via radio waves (real-time transaction
processing) by a transceiver in the hand-held computer.
Information from the Company's hand-held computers may be
communicated to a stand-alone receiver or computer which formats
the data for input into a host computer, directly into a host
computer by communications controllers supplied by the Company or
directly onto industry-standard Ethernet local area networks
(LANs) via Company manufactured access points. Depending on the
model, the Company's hand-held computers may have up to 16
megabytes of Random Access Memory (RAM) for data storage and
multiple input and output capabilities for the connection of
printers, bar code readers and communications devices. In
addition, based upon customer specifications, the hand-held
computers may also have built-in bar code readers and various
built-in communications devices for transmission and receipt of
data.
The Company offers two spread spectrum-based, WLAN family of
products. In 1990, the Company introduced its Spectrum Oner
direct sequence cellular RF network for wireless data
transactions. Spectrum 24r, introduced in 1995, is a high-
performance, frequency hopping network which operates at 2.4 Ghz
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frequency and is designed to comply with the recently adopted
IEEE 802.11 standard. 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. Unlike traditional narrow band RF-based networks,
spread spectrum installation requires no individual site license
from the U.S. Federal Communications' Commission (FCC).
Installation of these networks at various customer sites began in
1991 and these networks are now installed in over 40,000 sites
worldwide. The Spectrum One and Spectrum 24 systems work in
tandem with a broad range of the Company's RF capable hand-held
computers. In 1998, the Company introduced a 2Mb version of the
Spectrum 24 network.
The Spectrum 24 pager, introduced by the Company in 1997, is
a full-featured pager that permits one and two way paging of
messages of up to 250 characters and communicates via the
Company's Spectrum 24 WLAN eliminating the payment of service
fees and charges.
In 1998, the Company introduced the NetVision WLAN telephone
system. Based upon voice-over IP technology, the telephone which
looks like a standard cellular telephone, allows users to place
or receive calls at no cost, 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 unique combination
of communication capabilities makes the NetVision Data Phone a
useful productivity tool for a wide range of industries including
retail, warehouse, healthcare and education.
Initial reaction to the NetVision telephone system has been
enthusiastic, however, potential markets for the system are to a
significant extent outside of the normal markets for the
Company's products. Due to the innovative nature of the system,
the Company is unable to predict whether the NetVision telephone
system will be widely accepted by its current customers or
whether the Company will be successful in developing new markets
for this system.
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Design engineering and support for both the Company and
third-party RF-based data communications 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 and Spectrum 24 WLANs and support for the
integration of those high-performance networks into customers'
data networks and enterprise-wide information systems.
The PDT family of general purpose hand-held computers
features advanced technology including 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 hand-
held computers which are available with different features and at
varying costs depending on customer requirements and preferences.
PDT hand-held computers feature up to sixteen lines of liquid
crystal display, slim, lightweight design, multiple input and
output ports and up to 7.6 megabytes of internal memory. PDT
hand-held computers have various keyboard configurations,
including a user configurable keyboard. The PDT family was
originally introduced in 1985.
In 1990, the Company introduced the PDT 3300, a 16-bit DOS-
compatible batch hand-held computer. The PDT 3300 provides
expanded program capacity and keyboard and display flexibility
coupled with an environmentally sealed unit for use in harsh
environments. The Company also offers versions of the PDT 3300
which operate with the Company's Spectrum One and Spectrum 24
networks.
The PDT 3100 hand-held computer, a 16-bit DOS-compatible
computer, was introduced in 1993. Most versions of the PDT 3100
incorporate the Company's SE 1200 scan engine and feature a
unique swivel-head scanner design which adjusts instantly for
right- or left-hand scanning operation. The PDT 3100 is the
Company's largest selling hand-held computer. In 1994, the
Company introduced versions of the PDT 3100 incorporating the
Company's Spectrum One data communications network and direct or
acoustic modems for telephone line communications and in 1996,
the Company introduced versions of the PDT 3100 which incorporate
the Company's Spectrum 24 WLAN communications capability.
In 1996, the Company introduced two other versions of the
PDT 3100, the PDT 3000 and the PDT 3500. The PDT 3000 is a
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compact, efficient, hand-held computer designed for use in the
food and drug retail and convenience store industries. Weighing
less than 13 ounces, the PDT 3000 is a limited performance, lower
cost version of the PDT 3100. The PDT 3500, features a larger
display screen, a choice of Spectrum One or Spectrum 24
networking options and an SE 2000 scan engine providing one- and
two- dimensional bar code scanning capability.
In 1997, the Company introduced the PDT 3200 hand-held
computer, a high-performance version of the PDT 3100 that
provides fast and accurate data management and improved
flexibility. The PDT 3200's PC compatible 32-bit 386
microprocessor facilitates accelerated data collection while a
user-accessible PC card slot provides for network connectivity,
memory expansion or fax/modem capability.
The PDT 3400, introduced in 1997, is a ruggedized wireless
hand-held computer designed for use in harsh mobile environments.
The PDT 3400 features a sealed housing that resists dust and
moisture, a PC card interface that allows for integration of
wireless wide area network radio modems and PC-based standard
architecture providing users with a simple application
development environment.
In 1998, the Company introduced the PDT 6100 Series of hand-
held computers, an extension of the PDT 3100 product line
incorporating a high-performance SE 900 scan engine and a sleek,
compact, ergonomically comfortable design. Depending upon
customer needs, the PDT 6100 is available with a 4-, 8- or 16-
line display and optional WLAN connectivity capability via the
Company's Spectrum One or Spectrum 24 networks.
In 1996, the Company introduced the PDT 1000, a pocket-sized
integrated laser scanning computer designed for batch processing.
The PDT 1000 is approximately one inch by two inches by 6.5
inches and weighs only seven ounces. The rugged construction,
simple three-button keyboard and 96 kilobyte memory make the PDT
1000 suitable for a wide variety of tracking and asset management
applications where bar code data capture and storage are
required.
Introduced in 1997, the PDT 2200 is a lightweight, hand-held
computer ergonomically designed for true one-handed operation.
The PDT 2200 features an easy to read eight row by 20 character
display and an integrated high visibility SE 1200 scan engine. A
386 PC/DOS compatible operating system makes the PDT 2200 easy to
program and to integrate into existing systems and a rugged,
environmentally sealed housing provides weather resistant
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protection for the mobile user. The PDT 2200 is the product the
Company is supplying in connection with the contract related to
the United States Postal Service.
The PDT 1100, introduced by the Company in 1999, is a
versatile, lightweight, pocket-sized hand-held computer. In
addition to a 26-button keypad, the PDT 1100 has eight dedicated,
programmable function keys that call up special applications or
functions at the touch of a button. An SE 1200 scan engine
allows users to scan bar codes as small as 40-mil at distances of
up to 22 inches. The PDT 1100 was designed for use in a variety
of applications including utility meter reading, sales
automation, route accounting, parcel delivery and inventory
maintenance.
The LRT 3800, introduced in 1990, incorporates in a single,
hand-held unit, high-performance laser bar code scanning, a 16-
bit DOS-based computer and a radio modem for communication via
the Company's Spectrum WLANs. Based on visible laser diode
scanning technology, the battery-operated LRT 3800 is compact and
ergonomically designed and provides up to 1.2 megabytes of memory
capacity.
The LDT 3805, also introduced in 1990, is identical to the
LRT 3800 in physical appearance. Its scanning and computing
functions are similar but it has no RF communication capability.
The LDT 3805 is optimized for collecting and storing data, later
to be downloaded to a host computer.
Both the LRT and LDT have the capability for data entry via
bar code scanning or by using the full-function keypad. The pair
are ideal for scan-intensive applications such as receiving,
shipping, inventory control, order and shelf-price verification
as well as other applications in both retail and warehousing.
The PDT 6800, introduced by the Company in 1998, is a
versatile hand-held computer 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 keypad for easy data input
and a 16 line backlit display for greater data content and
readability. Versions of the PDT 6800 incorporate the Company's
Spectrum One and Spectrum 24 WLAN connectivity. The Company
anticipates that the LRT 3800 and the LDT 3805 will be replaced
by the PDT 6800 in 1999.
The PPT family of portable pen computers integrates several
key technologies for improving information management. These PC
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compatible hand-held computers incorporate pen and touch input on
an active matrix screen, a graphical user interface, an SE 1200
scan engine, and standard PCMCIA slots for memory, modem,
wireless or wide area network capability and other peripherals.
The PPT 4600, introduced in 1995, incorporates a 486
microprocessor which supports both DOS and Windows based
applications and an SE 2000 scan engine, making it the first
hand-held computer that has the capability to scan and decode PDF
417. Engineered to withstand rugged treatment and endure outdoor
conditions such as windblown rain or dust and extreme
temperatures, the PPT 4600 is intended for use in industrial and
mobile environments.
In 1996, the Company introduced versions of the PPT 4600
incorporating Spectrum 24 WLAN communication capability and a
fully integrated radio modem optimized for wireless wide area
communication.
In 1997, the Company introduced the PPT 4500, a mobile pen
computer with an integrated 486 processor that supports Windows
95 applications and features optional WLAN communication and bar
code scanning. Weighing less than two pounds, the PPT 4500 is
the Company's lightest and most powerful pen computer.
The PPT 4300, introduced by the Company in 1997, is a high-
performance mobile computer sealed in a ruggedized, splash-proof
housing. Capable of being configured to meet a wide range of
client/server application requirements particularly in the
medical/healthcare field, the PPT 4300 was designed for use in
information intensive applications where the flexibility of
mobile computing is important. The PPT 4300 features easy
operation using a full QWERTY keyboard, pen or touch screen
input, optional bar code scanning and wireless communication
facilitated by an integrated PC card.
In 1998, the Company and Palm Computing, Inc., a subsidiary
of 3Com Corporation and developers of the Palm Pilotr and the
Palm IIIr hand-held computers, entered into an agreement under
the terms of which the Company is the exclusive manufacturer and
distributor of palm sized personal productivity tools utilizing
the Palmr operating system with an embedded bar code reading
device. The SPT 1500, a pocket sized hand-held computer based
upon the Palm III architecture, is the first of such products to
be introduced by the Company. With an embedded SE 900 scan
engine the SPT 1500 provides users with the latest bar code
scanning technology for collecting data and the Palm operating
system allows programmers to easily build applications using
-14-
scan-embedded graphical development tools. Designed for use in
office workflow automation, route accounting, healthcare and
retail, the SPT 1500 is suited for use in any application where
mobile workers need to collect and manage data at the point of
activity. The SPT 1500 has 2MB each of random access memory and
flash memory and is available in an optional 4MB configuration to
accommodate larger application demands. Introduced in 1998 and
available for sale in the spring of 1999, the SPT 1700 is a
ruggedized version of the SPT 1500 designed for use in industrial
and warehouse settings. Versions of the SPT 1700 will
incorporate the Company's Spectrum 24 WLAN connectivity.
The PPT 5100, introduced by the Company in 1999, is the
first in a new line of pen-input products based on the Microsoft
Windows CEr operating system. Designed to work specifically with
mobile computers, the CE operating system allows PPT 5100 users
to collect data via a familiar Windows interface and allows
developers to create applications with standard 32-bit desktop
tools. The PPT 5100 incorporates pen-input capabilities, a
graphical user interface and an integrated bar code laser
scanner. Versions of the PPT 5100 are available with an optional
magnetic stripe card reader and Spectrum 24 WLAN connectivity.
In 1997, the Company introduced the VRC 4000, a ruggedized
vehicle mounted or wall mounted touch screen computer. Designed
for industrial use in warehouse and yard management applications,
the VRC 4000 is a PC compatible computer with 16 megabytes of
memory and includes a full 10.3 inch VGA display with an infrared
touch screen interface. The VRC 4000 is capable of communicating
with a host computer or other hand-held devices via the Company's
Spectrum 24 wireless network.
Datawand hand-held computers were first introduced by the
Company in 1985. The Company's principal Datawand product, the
Datawand IIB, is a self-contained optical wand bar code reader
hand-held computer which is only 7-1/4 inches long and one inch
in diameter and weighs slightly more than two ounces. In 1989,
the Company introduced a new optical wand bar code reader, the
Datawand III, which contains 32 kilobytes of memory and a 16
character single line display.
In 1993, the Company announced the co-development with
Albert Heijn of The Netherlands, Europe's largest grocery market
chain, and TNO Product Centre, a leading Dutch engineering design
firm, of a shoppers portable self checkout 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
LST 3803 or CST 2000, hand-held computers with an integrated
-15-
laser scanner which allow shoppers to scan and tabulate their
purchases as they shop. In 1996, the Company introduced an RF
version of the portable self checkout system.
In 1998, installation of the Company's portable self
checkout systems has expanded both to new customers and more
sites. There are currently systems installed or ordered in over
435 stores in 37 chains in 19 countries on five continents.
Although current customers have been very pleased with the
portable self checkout system and other food and non-food
retailers have expressed an interest in the self checkout
concept, due to the innovative nature of the concept, there can
be no assurance that self checkout will be implemented on a wide
scale either internationally or domestically.
Product list prices for the Company's portable data
collection equipment range between $350 to $30,000 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 portable hand-held computers utilize software
which consists of a number of specialized applications and
communications software programs, that run under Microsoft MS-DOS
and Windows operating systems. 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 portable hand-held computers. The ADKs and SDKs
provide the software drivers and libraries required to maximize
product performance. Used in conjunction with industry standard
development tools including Visual Basic and C++, software
developers can easily create and support applications to meet
specific customer requirements.
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.
-16-
Customer Support
The Company has a customer support organization which
repairs and maintains the Company's products.
The Company's domestic customer support operations include
locations in Arkansas, California, Georgia, Illinois, Kentucky,
Massachusetts, Michigan, Minnesota, New Jersey, New York, North
Carolina and Texas. The Company also has foreign customer
support offices 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, 1998, 1997 and 1996.
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
Australia, Austria, Belgium, Canada, China, Denmark, Finland,
France, Germany, Italy, Japan, Mexico, the Netherlands,
-17-
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
network and participate in industries other than those serviced
by the Company's direct sales force and distributors.
In 1998, sales to Lockheed Martin Corporation in connection
with the United States Postal Service under a contract entered
into in 1997 amounted to approximately 11 percent of the
Company's total sales. This contract will be substantially
completed in the first quarter of 1999.
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 day payment terms to its
customers. Actual payment terms vary from time to time but
generally do not exceed 90 days.
Since a substantial portion of the Company's sales of
scanner products are to retail organizations which tend not to
purchase equipment such as the Company's scanner products during
the Christmas selling season, the Company's business has, from
time to time, been seasonal in the fourth quarter. The Company
believes there may again be reduced demand for its scanner
products in the fourth quarter of the current fiscal year. The
Company attempts to offset the reduced demand of the retail
industry by selling its products to other market segments. While
this effort was successful in 1998, there can be no assurance
that the effort will succeed in 1999 and subsequent years.
-18-
The following table sets forth certain information as to
international sales of the Company:
Year Ended
December 31,
(in thousands)
1998 1997 1996
Area
Western Europe $278,836 $257,325 $222,611
Other $ 89,567 $ 68,800 $ 44,545
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 which are manufactured by the Company are
manufactured at its Bohemia, New York 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 the past, delays in delivery of such products has not had a
material adverse impact on the Company's ability to deliver its
products. However, there is no assurance that in the future
shortages of supplies and delays in delivery of components,
subassemblies or products will not have an adverse effect on the
Company's ability to deliver its products or to deliver its
products on time. 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 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.
Several such products are currently being sold by the Company and
the Company expects the number of products developed in
collaboration with Olympus to increase in the future. The
-19-
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 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. 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
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);
improvements in and expansion of its series of interface
controllers; continued development of its solid state laser diode
scanners; improvements to packaging and miniaturization
technology for bar code data capture products, portable data
collection devices and integrated bar coded data capture
products; development of high-performance digital data radios,
high-speed radio frequency data communications networks and
telecommunications protocols and products; and 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 Executive Officer 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
-20-
in conjunction with a number of universities including the
State University of New York at Stony Brook, Polytechnic
University of New York and Tel Aviv University in Israel.
The Company expended (including overhead charges)
approximately $31,030,000, $29,991,000 and $20,164,000 for
research and development during the years ended December 31,
1998, 1997 and 1996, respectively.
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 portable data collection
systems and bar code reading equipment utilizing laser
technology. In addition, the Company's bar code reading
equipment also competes with devices which utilize technologies
other than laser scanners such as CCDs and optical wands.
Furthermore, numerous companies, including present manufacturers
of scanners, lasers, optical instruments, microprocessors,
notebook computers, PDAs and data radios 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 with
respect to bar code scanning products are Intermec Technologies
Corporation, Matsushita Electric Industrial Co., Ltd., Metrologic
Instruments, Inc., NipponDenso Co., Ltd., Opticon, Inc., PSC Inc.
and Welch Allyn, Inc. Its principal competitors with respect to
scanner integrated application specific mobile computing systems
are Fujitsu, Ltd., Hand Held Products, Inc., Intermec
Technologies Corporation, International Business Systems, Inc.,
LXE Inc., Motorola, Inc., NipponDenso Co., Telxon Corporation and
Teklogix Inc. Some of the Company's competitors with respect to
scanner integrated application specific mobile computing systems
products also participate in the field service market. Its
principal competitors with respect to radio frequency
communications products are BreezeCom, Inc., Lucent Technologies,
Inc., Netwave Technologies, Inc., Proxim, Inc., Raytheon Wireless
Solutions and Telxon Corporation. In addition, several large
companies, such as Motorola, Inc., Matsushita Electric Industrial
Co., Ltd. and Fujitsu, Ltd. while active in the RF area, are
-21-
currently not manufacturing a WLAN, but have the capability to be
able to readily compete with the Company.
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 350 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 U.S. and foreign, to cover its most recent research
developments in the scanning, data collection and RF data
communications fields. Key patents covering basic hand-held
laser scanning technology begin to expire in June 2000 and key
patents covering scanner integrated hand-held computers begin to
expire in July 2005.
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 which may have features which 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 an active
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, Hand Held Products, Inc., Intermec Technologies
Corporation, LXE Inc., Metrologic Instruments, Inc., PSC Inc. and
Telxon Corporation.
On April 1, 1996, PSC Inc. (PSC) commenced suit against the
Company in Federal District court for the Western District of New
York, purporting to assert claims against the Company for alleged
violations of the federal antitrust laws, unfair competition and
also seeking a declaratory judgment of non-infringement and
invalidity as to certain of the Company's patents. PSC has
served a Third Amended Complaint, which purports to assert
-22-
essentially the same antitrust and unfair competition claims
against the Company, and also seek a declaratory judgment of
alleged non-infringement and invalidity of nine of the Company's
patents, and a declaratory judgment that PSC has not breached its
two agreements with the Company and that those agreements have
been terminated. The Company has amended its suit against PSC to
assert infringement of four of the Company's patents, breach of
contract and fraud. The Company had also sued Data General
Corporation (Data General), a manufacturer of portable integrated
scanning terminals which incorporate scan engines from PSC, for
infringement of the same four patents and five additional
patents. The nine patents asserted against Data General are the
same nine of the Company's patents as to which PSC is seeking
declaratory relief.
On October 9, 1996, the Court granted the Company's motion,
to sever and stay PSC's antitrust, unfair competition and related
claims. On the same day, the Court denied Data General's motion
to stay the Company's claims against it. The Court also set a
one week trial (a "Markman" hearing) for July 14,1997, to
construe the claims in all nine patents asserted by the Company
against Data General and PSC. On May 8, 1997, the Court
postponed the "Markman" hearing and in the interest of judicial
economy, the Court also stayed discovery on the patent claims
until a non-judicial arbitration which PSC had initiated on March
10, 1997 was completed. The arbitration involved an
interpretation of certain provisions of 1985 and 1995 license
agreements between the Company and Spectra-Physics Scanning
Systems, Inc.(Spectra-Physics) (which had been acquired by PSC)
concerning whether purchasers of PSC's scan engines were free to
incorporate such scan engines into their integrated scanning
terminals without any royalty payment to the Company beyond that
paid by PSC on the scan engine itself. The arbitration was heard
on July 22-24, 1997. On December 29, 1997, the Arbitrator
rendered his decision in favor of the Company and against PSC.
The Arbitrator ruled that the sale of PSC's scan engines passed
no immunity to PSC's customers under the Company's patents
covering the integration of the scan engine into integrated
scanning terminals. The Arbitrator's decision has been confirmed
by the Court.
By letter dated January 22, 1998, the Company requested that
the Court lift the stay it entered in the litigation, to permit
the Company to seek a ruling that the Company's agreements with
PSC, which PSC argues have been terminated and under which it has
ceased paying royalties for more than two years, remain in full
force and effect and require royalty payments to be made to the
Company pursuant to those agreements. PSC initially objected to
-23-
the Company's request and asked the Court that it continue to
hold the contract issues in abeyance and instead lift the stay
with respect to the pending patent issues and that discovery in
these claims be reopened. On April 3, 1998 the Court, with the
consent of the parties, lifted the stay previously in effect with
respect to the contractual issues in the litigation and ordered
that a trial on these issues be held commencing on October 13,
1998. Discovery by the Company and PSC on the contract issues has
essentially been completed. If the Company succeeds in the
contract action, it believes it will be owed, on an ongoing
basis, additional royalties of approximately $5,000,000 per
annum. If the Company does not prevail in the action, it will
continue to receive royalty payments from PSC at the same rate
and on the same products as it currently is receiving them.
On September 12, 1998, PSC filed a motion for partial
summary judgement alleging that the Company was guilty of patent
"misuse" since PSC is obligated under its 1991 Agreement with the
Company to pay royalties to the Company on sales of scan engines
to certain PSC customers who also pay royalties to the Company
when they incorporate these scan engines into their integrated
scanning terminals. On September 17, 1998, Judge Telesca, in
response to the filing by PSC of the motion, cancelled the
hearing which was scheduled to begin on October 13, 1998, and
will be rescheduled by the Court at a later time. In this
motion, PSC claimed that this practice should bar the Company
from collecting past royalties which the Company alleges are owed
by PSC under the 1991 Agreement. However, since July 1996, PSC
has not paid the Company any royalties under the 1991 Agreement
and has instead been paying royalties under agreements it
obtained in connection with the acquisition of Spectra-Physics.
The motion was argued on October 7, 1998 and on October 22,
1998 the Court issued a decision and order granting PSC's motion.
The ruling only prevents the Company from collecting past
royalties due and owing under the 1991 Agreement, none of which
have been paid to the Company or taken into income by the
Company. Moreover, the ruling does not affect PSC's future
royalty obligations to the Company except with respect to
royalties owed to the Company under the 1991 Agreement on scan
engines sold to other licensees of the Company since the Company
intends to prospectively cure the "misuse" without prejudice,
subject to the outcome of its appeal. The Company estimates that
royalties owed on PSC scan engines represent less than 10 percent
of the additional royalties PSC would owe the Company if it were
paying royalties under the 1991 Agreement. Furthermore, the
decision has no other impact on any royalties paid or to be paid
to the Company by any other licensee.
-24-
On November 5, 1998, the Company made a Motion for
Reconsideration of the Court's misuse decision, based on what the
Company believes to be legal and factual matters that the Court
overlooked in making its decision. On the same day, the Company
made a separate motion to have the misuse decision entered as a
final judgment, or in the alternative, to have the decision
certified to the United States Court of Appeals for the Federal
Circuit, which could enable the Company to obtain immediate
appellate review of the misuse decision. Both motions are now
pending before the Court.
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. Such
litigation is currently pending 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 party's
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.
-25-
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
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 hand-held computers 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
frequency networks utilize spread spectrum radio technology. The
Company has obtained certification from the FCC for its products
-26-
which 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.
Associates
At December 31, 1998, the Company had approximately 3,700
full-time associates. Of these, approximately 2,900 were
employed domestically. 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.
-27-
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 (subject to
Holtsville, NY feet mortgage)
116 Wilbur Place Administration 92,000 square Owned (subject to
Bohemia, NY feet mortgage)
110 Wilbur Place Manufacturing 30,000 square Owned (subject to
Bohemia, NY feet mortgage)
12 & 13 Oaklands Pk. Customer Service 21,700 square Owned
Fishponds Road feet
Wokingham, Berkshire
England
110 Orville Drive Manufacturing 110,000 square Leased: expires
Bohemia, NY feet Aug. 31, 2001
Valley Oak Network Systems 100,000 square Leased: expires
Technology Campus* Engineering, feet April 30, 2009
San Jose, CA Marketing
1101 Lakeland Ave. Manufacturing, 90,400 square Leased: expires
Bohemia, NY administration and feet Aug. 31, 2001
distribution
Berkshire Place International head- 55,533 square Leased: expires
Winnersh Triangle quarters, Marketing feet Dec. 31, 2012
Winnersh, Wokingham and Administration
Berkshire, England and U.K. headquarters
2145 Hamilton Ave. Network Systems, 51,500 square Leased: expires
San Jose, CA Engineering, feet August 31, 1999
Marketing
340 Fischer Ave. Service and sales 31,200 square Leased: expires
Costa Mesa, CA feet May 31, 2001
-28-
180 Orville Drive Warehousing and 22,612 square Leased: expires
Bohemia, NY facilities feet Aug. 31, 2001
management
Knaves Beech Customer Service 6,185 square Leased: expires
Business Center feet Sept. 28, 2003
High Wycombe,
Buckinghamshire
England
*To be occupied in August, 1999.
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 31,000 square feet.
Item 3. Legal Proceedings
See Patent and Trademark Matters for a discussion of
certain other litigation involving the Company.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
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:
Jerome Swartz.......... 58 Chairman of the Board of Directors
Chief Executive Officer and Director
Tomo Razmilovic........ 56 President, Chief Operating Officer
and Director
Robert Blonk........... 52 Senior Vice President-Human
Resources
Richard Bravman........ 44 Senior Vice President,
Sales/Marketing-Wireless
Systems Division
Brian T. Burke......... 52 Senior Vice President, Controller
and Chief Accounting Officer
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Richard M. Feldt....... 47 Senior Vice President,
General Manager-Worldwide Operations
Leonard H. Goldner..... 51 Senior Vice President, General
Counsel and Secretary
Kenneth Jaeggi......... 53 Senior Vice President-Finance and
Chief Financial Officer
Joseph Katz............ 46 Senior Vice President, Research and
Development
Boris Metlitsky........ 51 Senior Vice President, General
Manager-Scanner Products Division
Satya Sharma........... 58 Senior Vice President-Quality
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 and Chief Executive Officer of the
Company for more than the past fifteen years. 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
150 technical papers and issued and pending 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.
Mr. Razmilovic has been the President and Chief Operating
Officer of the Company since October 1995. 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.
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. Bravman has been employed by the Company for more than
the past twenty years in various management positions.
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Mr. Burke joined the Company in November 1987. From October
1984 to October 1987, he was President, Chief Executive Officer
and Director of Super Web Press Service Corporation, a
manufacturer of printing presses.
Mr. Feldt joined the Company in September 1995. From 1991
to August 1995, he was Vice President of Manufacturing at A.T.
Cross, a leading manufacturer of writing instruments. From July
1988 to December 1990, Mr. Feldt served as a Director of the
Imaging and Publishing Systems Division of Eastman Kodak.
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 firm
was securities counsel to the Company.
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.
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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.
Year Ending: High Low
December 31, 1997 First Quarter 24 9/16 19 1/4
Second Quarter 22 13/16 19
Third Quarter 29 13/16 20 3/16
Fourth Quarter 27 5/16 24
December 31, 1998 First Quarter 34 5/8 24 7/8
Second Quarter 39 7/16 33 3/64
Third Quarter 51 7/16 36 1/8
Fourth Quarter 63 15/16 39 3/16
References to prices per share have been adjusted to reflect
a three-for-two stock split, effective April 1, 1997 and a three
for-two stock split effective April 3, 1998.
As of February 1, 1999 there were 1,196 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.
The Company's ability to pay cash dividends is limited by
certain of the Company's loan agreements, the most restrictive of
which would generally limit dividends payable in any year to an
amount not greater than 50 percent of the Company's net income.
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.
On February 10, 1997, the Board of Directors of the Company
declared a semi-annual cash dividend of $.03 per share (on a pre-
split basis) and a three-for-two stock split, payable as a 50
percent dividend, each payable on April 1, 1997 to all
shareholders of record on March 10, 1997. On August 14, 1997,
the Board of Directors of the Company declared a semi-annual cash
dividend of $.02 per share, payable on October 6, 1997 to all
shareholders of record on September 12, 1997.
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On February 9, 1998, the Board of Directors of the Company
declared a semi-annual cash dividend of $.02 per share (on a pre-
split basis) and a three-for-two stock split, payable as a 50
percent dividend, each payable on April 3, 1998 to all
shareholders of record on March 17, 1998. On August 17, 1998,
the Board of Directors of the Company declared a semi-annual cash
dividend of $.02 per share payable on October 5, 1998 to all
share holders of record on September 11, 1998.
On February 18, 1999, the Board of Directors of the Company
declared a semi-annual cash dividend of $.02 per share payable on
April 5, 1999 to all shareholders of record on March 15, 1999.
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Item 6. Selected Financial Data
(in thousands, except per share data)
Year Ended December 31,
Operating Results: 1998(1) 1997 1996(2) 1995(3) 1994
Net Revenue $977,901 $774,345 $656,675 $555,163 $465,306
Net Earnings $92,964 $70,232 $50,256 $46,486 $34,984
Earnings Per Share:
Basic $1.58 $1.19 $0.86 $0.80 $0.63
Diluted $1.49 $1.15 $0.82 $0.76 $0.59
Financial Position:
Total Assets $838,399 $679,190 $614,238 $544,268 $474,213
Working Capital $295,317 $241,846 $221,678 $209,852 $191,823
Long-Term Debt, less
Current Maturities $64,596 $40,301 $50,541 $60,829 $59,884
Stockholders' Equity $530,928 $453,742 $399,676 $352,854 $316,167
Weighted Average Number of Common
Shares Outstanding:
Basic 58,796 59,038 58,197 58,036 55,768
Diluted 62,436 61,236 60,928 60,867 58,865
(1) Includes a pre-tax charge for costs associated with a terminated acquisition of $3,597 or
$0.04 diluted earnings per share.
(2) Includes a pre-tax charge for costs associated with acquisition related matters of $12,341
or $0.13 diluted earnings per share.
(3) Includes a pre-tax charge for costs associated with a management change of $2,500 or $0.03
diluted earnings per share.
-34-
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS UNDER SECURITIES
LITIGATION REFORM ACT OF 1995; CERTAIN CAUTIONARY STATEMENTS
From time to time, the Company or its representatives have
made or may make forward-looking statements, orally or in
writing. Such forward-looking statements may be included in, but
not limited to, press releases, oral statements made with the
approval of an authorized executive officer or in various 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 are intended to identify
"forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 (the "Reform Act"). The
Company wishes to ensure that such statements are accompanied by
meaningful cautionary statements, so as to maximize to the
fullest extent possible the protections of the safe harbor
established in the Reform Act. Accordingly, such statements are
qualified in their entirety by reference to and are accompanied
by the following discussion of certain important factors that
could cause actual results to differ materially from such
forward-looking statements. The Company undertakes no obligation
to publicly update any forward-looking statements.
The risks included here are not exhaustive. These are the
factors that the Company believes could cause actual results to
differ materially from expected and historical results.
Furthermore, other sections of this report also include
additional factors which could adversely impact the Company's
business and financial performance. Moreover, the Company
operates in a very competitive and rapidly changing environment.
New risk factors emerge from time to time and it is not possible
for management to predict all of such risk factors, nor to assess
the extent to which any factor, or combination of factors, may
cause actual results to differ materially from those contained in
any forward-looking statements. Accordingly, forward-looking
statements should not be relied upon as a prediction of actual
results.
While the Company does communicate with securities analysts,
from time to time, it is against the Company's policy to disclose
to such analysts any material non-public information or other
confidential commercial information. Accordingly, shareholders
should not assume that the Company agrees with any statement or
report issued by any analyst irrespective of the content of such
statement or report. Furthermore, the Company has a policy
against issuing financial forecasts or projections or confirming
the accuracy of forecasts or projections issued by others.
Accordingly, to the extent that reports issued by securities
-35-
analysts contain any projections, forecasts or opinions, such
reports are not the responsibility of the Company.
Financial Performance. The Company's operating results may
fluctuate in the future as a result of a number of factors,
including:
- Changes in technology
- New competition
- Economic conditions as well as customer demand
- A shift in the mix of the Company's products and/or 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
The volume and timing of orders received during a quarter
are difficult to forecast. In addition, from time to time,
customers have either canceled orders or rescheduled shipments
previously ordered from the Company. Additionally, the Company
has historically operated with a relatively small backlog. While
the Company does monitor backlog, it does not consider it to be a
reliable predictor of financial performance for periods other
than the then current quarter because 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. Shipments for orders received in a
fiscal quarter are generally from products manufactured in that
quarter. The Company maintains significant levels of raw
materials to facilitate meeting delivery requirements of its
customers. However, there can be no assurance that during any
given quarter, the Company has or can procure the appropriate mix
of raw materials in order to accommodate any given order. In
light of the levels of current and anticipated backlog, the
Company's financial performance in any quarter is dependent to a
significant degree upon obtaining orders in that quarter which
can be manufactured and delivered to its customers in that
quarter. Thus, financial performance for any given quarter
cannot be known or fully assessed until near the end of that
quarter. Furthermore, the Company's expense levels are based, in
part, on expectations of future revenues, and the Company has
been increasing and expects to continue to increase its total
operating expenses as it expands its operations. As a result of
the difficulty of forecasting revenue and the Company's planned
growth in spending, operating expenses could be
-36-
disproportionately high for any given quarter and the Company's
operating revenue for any given quarter and potentially several
quarters thereafter could be adversely affected.
In 1998, the Company's revenues grew at a rate of
approximately 26 percent due in part to revenues derived from the
contract relating to the United States Postal Service. The
contract will be substantially completed in the first quarter of
1999 and the Company currently does not have any other contracts
of comparable magnitude.
In addition, in 1999, customers concerned about correcting
their computer networks in order to avoid Year 2000 problems are
likely to devote a significant portion of their capital budget to
this problem. Accordingly, they may defer or delay purchases of
the Company's products until after this issue has been resolved.
Accordingly, the Company expects that the rate of revenue
growth in 1999 will be substantially less than the rate in 1998
due to:
- The substantial completion of the United States Postal
Service contract
- Year 2000 concerns
- Economic uncertainty in certain international markets
described below
Foreign Sales. Foreign sales have represented a substantial
portion of the Company's net revenues. In 1998, foreign sales
accounted for approximately 45 percent of net revenue. Such
sales are subject to the normal risks of foreign operations, such
as:
- Protective tariffs
- Other potential trade barriers, export/import controls
and transportation delays and interruptions
- Reduced protection for intellectual property rights in
some countries
- The impact of recessionary foreign economies
- Long receivable collection periods
The majority of the Company's equipment sales in Western
Europe and Asia are generally billed in foreign currencies and
are subject to currency exchange fluctuations. Since the
Company's products are principally manufactured in the United
States, sales and results of operations could be affected by
fluctuations in the U.S. dollar. Changes in the relative value
of the U.S. dollar in terms of foreign currencies in the past
have had an impact on the Company's sales and margins. In 1998,
results of operations were adversely affected by the continued
appreciation of the value of the U.S. dollar in relation to
-37-
certain key foreign currencies. The Company believes that its
1998 financial performance was satisfactory despite the negative
currency impact. There can be no assurance that the Company will
continue to adequately perform in the face of continued
fluctuation of the value of the U.S. dollar in relation to key
foreign currencies. It is impossible to 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 to gauge the effect that
such actions would have on the financial position or results of
operations.
Europe. In 1998, for the first time in several years, sales
growth in the United States outpaced sales growth in Europe.
This is in part due to the large United States Postal Service
contract, most of which was shipped in 1998. Additionally, the
United Kingdom, Germany and several other European nations have
begun to show signs of an economic slowdown. To the extent that
such economic difficulties may worsen or spread to other
countries in Europe the Company's business and financial
condition may be adversely affected in 1999.
The Company has identified the issues it believes will be
involved in the transition to the new European currency and is
developing and implementing solutions. The Company does not
expect the conversion to the new European currency to have a
material effect on the Company's business or results of
operations, however, there can be no guarantee that all the
problems attendant to such conversion have been anticipated or
that no material disruption of the Company's business will occur.
Asia. A number of Asian economies have been experiencing
significant ongoing economic difficulties for more than a year.
Revenues derived from such countries have been and are likely to
continue to be materially adversely affected by both the foreign
exchange issues as well as reduced demand due to the downturn in
these economies. Revenues derived from sales to Asia have
historically amounted to less than 5 percent of the Company's
annual revenues, therefore, the Company does not believe that
continual economic difficulties in Asia on their own will have a
material adverse impact on its results of operations. However,
in 1998, countries outside of Asia have begun experiencing
economic difficulties. The Company is not in a position at this
time to assess the magnitude of the effect, if any, that this
trend will have on its results of operations.
Latin America. The recent devaluation of Brazil's currency has
led to an economic downturn in Brazil that has begun to spread to
other Latin America countries. Revenues from Latin American
countries are likely to be materially affected by the currency
and economic difficulties facing this region. Although revenues
-38-
derived from Latin America constitute less than 5 percent of the
Company's annual revenues, sales to Brazil alone represent a
larger percent of the Company's annual revenues than do sales to
all of Asia (excluding Japan).
Although to date the economic situation in Latin America has
not had a material impact on the Company's business, the
combination of continued economic problems in Asia and Latin
America and the slowing of European business may adversely impact
the Company's results of operations in 1999.
Dependence upon Retail Industry. A significant portion of the
Company's revenues are derived from sales of products and
services to customers in the retail industry. The product demand
in this industry segment has shifted to a significant extent from
front-end point-of-sale scanner products to back room scanner
integrated hand-held computer systems. The Company is attempting
to expand its customer base to other industries including,
transportation and logistics and medical/healthcare and has had
some degree of success. However, for the current and foreseeable
future, the Company's financial performance remains materially
dependent upon revenues derived from the retail industry. In the
past, this industry has experienced financial vitality in demand
levels and there can be no assurance that it will not face a
downturn in the future. Recurring instability in the retail
industry could have an adverse affect on the Company's business
and financial performance.
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,
marketing and distribution capabilities, and price competition.
Failure to keep pace with product and technological advances
could adversely affect the Company's competitive position and
prospects for growth. In addition, in 1998, several of the
Company's key competitors had poor financial performance. There
is likely to be increased pricing pressure in 1999 as these
competitors attempt to reverse losses in their market share,
which may adversely affect the Company's revenues and/or gross
margins.
New Competitors. The products being manufactured and marketed by
the Company and its competitors are becoming increasingly more
complex. As the technological and functional capabilities of
future products increase these products will begin to compete
with those being offered by larger, traditional computer network
and communications industry participants who have substantially
greater financial, technical, marketing and manufacturing
resources than the Company. There can be no assurance that the
Company will be able to compete successfully against these new
-39-
competitors or that competitive pressures faced by the Company
would not adversely affect its business or operating results.
Price. Traditionally, the selling price of the Company's
products decreases over the life of the product. The Company
endeavors to reduce manufacturing costs of existing products and
to introduce new products, functions and other price/performance-
enhancing features in order to mitigate the effect of such
decreases. To the extent that such cost reductions, product
enhancements and new product introductions do not occur in a
timely manner or do not achieve market acceptance, the Company's
operating results could be materially adversely affected.
Research and Development. While the Company is currently
actively engaged in the research and development of new products
and technologies there can be no assurance that the Company's
research and development efforts will lead to the successful
introduction of new or improved products or that the Company will
not encounter delays or problems in connection therewith. New
products frequently take longer to develop, often have fewer
features than originally considered desirable and achieve higher
cost targets than initially estimated. Moreover, there can be no
assurance that there will not be delays in commencing volume
production of such products or that such products will ultimately
be commercially successful. In addition, products under
development are frequently announced before introduction and such
announcements may cause customers to delay purchases of existing
products in anticipation of new or improved versions of those
products. Such delays and/or deficiencies in development
manufacturing, delivery of or demand for new products or
realization of higher cost targets could have an adverse affect
on the Company's business, operating results or financial
condition.
New Product Introduction. Historically, the Company has been
dependent upon the introduction of new or improved product
offerings. This is particularly true for 1999, since the Company
has introduced a larger number of new products in the past
eighteen months than it has historically. The Company's
financial performance in 1999 will be heavily dependent upon the
successful introduction of such products. This success will be
dependent upon, among other factors:
- The ability of the Company to timely complete development
and launch of certain of such products within the year
- Customer acceptance of and demand for these products
- The ability of the Company to efficiently manufacture
such products and to meet delivery schedules.
Failure in any of these areas could have a material adverse
effect on the Company's financial results for 1999.
-40-
System Sales. Historically, sales to customers have been of
individual scanner and scanner integrated hand-held computer
products. Increasingly, the focus of the Company's sales efforts
has been on sales of complete data transaction systems. System
sales tend to be more costly and, therefore, require a longer
selling cycle, longer payment terms and more complex integration
and installation services.
Intellectual Property. The Company seeks to protect its
proprietary information and technology through contractual
confidentiality provisions and the application for United States
and foreign patents, trademarks and copyrights. There can be no
assurance that such applications will result in the issuance of
patents, trademarks or copyrights or that third parties will not
seek to challenge, invalidate or circumvent such applications or
resulting patents, trademarks or copyrights. Additionally,
competitors may independently develop equivalent or superior,
non-infringing technologies. The Company's licensing revenue
could be adversely affected to the extent that such technologies
avoid infringement of the Company's licensed patents.
Furthermore, there can be no assurance that third parties
will not assert claims of infringement of intellectual property
rights against the Company and that such claims will not lead to
litigation and/or require the Company to significantly modify or
even discontinue sales of certain of its products.
Manufacturing. In the event use of the Company's manufacturing
facilities in Bohemia, New York were interrupted by natural
disaster or otherwise, the Company's operations would be
materially adversely affected until alternative production and
service operations could be established. Certain of the
Company's products are manufactured by third parties inside and
outside the United States. The Company anticipates that an
increased percentage of new products will be manufactured by
third parties, including but not limited to Olympus, many of
which are located in foreign countries. 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.
In the past, the Company has experienced manufacturing
problems that have caused delivery delays. There can be no
assurance that the Company will not experience production
-41-
difficulties and product delivery delays in the future as a
result of, among other matters, changing process technologies,
ramping production and installing new equipment at its
manufacturing facilities.
The Company has in the past, and may in the future,
encounter shortages of supplies and delays in deliveries of
necessary components or products. While past shortages and
delays have not had a material adverse effect on the Company,
shortages and delays could have such effect in the future.
Certain components, subassemblies and products are sourced from a
single supplier or a limited number of suppliers. The loss of
any such supplier may cause the Company to incur additional set-
up costs and delays in manufacturing and delivery of products.
Third Party Products. Historically, the Company has manufactured
almost all of it product offerings. Beginning in 1996, the
Company began offering for sale an increased number of third
party products. Although the Company hopes that sales of such
products will result in higher operating income, the sales of
third party products traditionally generate lower margins which
may not be fully offset by lower expenses. In the event that any
of these third party suppliers become unable or unwilling to
manufacture such products or fail to meet the Company's volume
and quality requirements and delivery schedules, the Company's
ability to market such products could be negatively affected. In
1999, the Company plans to market a large number of third party
products that were introduced in 1998, and will be introduced in
1999. In addition, many of these third party products are
manufactured outside of the United States and supply of such
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 and longer delivery times.
Government Regulations. The Company is also subject to the risks
associated with changes in United States and foreign regulatory
requirements. There can be no assurances that more stringent
regulatory requirements and/or safety and quality standards will
not be issued in the future with an adverse effect on the
business of the Company. In addition, sales of the Company's
products could be adversely affected if more stringent safety
standards are adopted by potential customers such as electronic
cash register manufacturers.
The Company's Spectrum One and Spectrum 24 spread spectrum
wireless communication products operate through the transmission
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 such products in
specified frequency bands does not require licensing by such
-42-
regulatory authorities. Regulatory changes restricting the use
of such bands or allocating available frequencies could have a
material adverse effect on the Company's business and its results
of operations.
Safety Risk. Recently, there has been some concern over the
potentially adverse effects of electromagnetic emissions
associated with 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. There can be no assurance
that the Company's RF products will not become the subject of
such concerns in the future. Such safety issues and the
associated publicity could have a material adverse effect on the
Company's business and its results of operations.
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. Failure of the
Company to identify future acquisition opportunities and/or to
integrate effectively businesses that it may acquire could have a
material adverse effect on the Company's growth.
Reliance on Resellers, Distributors and OEMs. The Company sells
an increasing portion of its products through resellers,
distributors and original equipment manufacturers (OEMs). Such
reliance upon third party distribution sources subjects the
Company to risks of business failure by such individual
resellers, distributors and OEMs, and credit, inventory and
business concentration risks.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operation
The following table sets forth for the years indicated (i)
certain revenue and expense items expressed as a percentage of
net revenue and (ii) the percentage increase or decrease of such
items as compared to the corresponding prior year.
-43-
Year to Year Changes
Year Ending December 31,
Percentage of Revenue 1998 1997
Year Ending December 31, vs. vs.
1998 1997 1996 1997 1996
Net Revenue 100.0% 100.0% 100.0% 26.3% 17.9%
Cost of Revenue 56.0 54.5 53.2 29.8 20.7
Amortization of Software
Development Costs 1.5 1.6 1.6 20.9 12.9
Gross Profit 42.5 44.0 45.2 22.2 14.8
Operating Expenses:
Engineering 7.3 7.4 7.1 24.8 21.8
Selling, General and
Administrative 19.9 21.4 22.8 17.6 10.7
Amortization of Excess of
Cost Over Fair Value of
Net Assets Acquired 0.5 0.6 0.6 (1.0) 32.1
Purchased Research and Development
and Merger Integration Costs - - 1.9 - -
Charges Related to Terminated
Acquisition 0.4 - - - -
28.0 29.4 32.3 20.6 7.1
Earnings from Operations 14.5 14.6 12.8 25.4 34.2
Gain on Sale of Business 0.1 - - - -
Net Interest Expense (0.4) (0.4) (0.5) 5.3 4.7
Earnings Before Income Taxes 14.2 14.2 12.3 26.4 35.4
Provision for Income Taxes 4.7 5.1 4.7 15.9 28.3
Net Earnings 9.5% 9.1% 7.7% 32.4% 39.7%
-44-
For the year ended December 31, 1998
Net revenue of $977,901,000 for the year ended December 31,
1998, increased 26.3 percent over 1997. The increase in net
revenue is due in part to the Company's contract related to the
United States Postal Service as well as increased worldwide sales
of scanner products and scanner integrated application specific
mobile computer systems. During 1998, sales to Lockheed Martin
Corporation, in connection with the United States Postal Service
contract amounted to approximately 11 percent of total net
revenue. Due to the substantial completion of this contract and
the fact that the Company does not currently have any contracts of
similar magnitude, the Company expects the rate of revenue growth
to be substantially less in 1999. Foreign exchange fluctuations
unfavorably impacted the growth in net revenue by approximately
1.5 percentage points for the year ended December 31, 1998 and
unfavorably impacted the growth in net revenue by 2.1 percentage
points for the year ended December 31, 1997.
Geographically, North America revenue increased 36.0 percent
over the prior year due in part to the Company's contract related
to the United States Postal Service and the overall strong economy
in the United States. International revenue increased 13.0
percent over the prior year, notwithstanding the unfavorable
impact of foreign exchange rate fluctuations relative to the U.S.
dollar on net revenue previously described. North America and
International revenue continue to represent approximately three-
fifths and two-fifths of net revenue, for the year 1998 and the
prior year, respectively. The Company anticipates a continuation
of lower proportional growth in International markets compared to
North America markets in 1999, due in part to economic uncertainty
in certain International markets.
Cost of revenue (as a percentage of net revenue) of 56.0
percent for the year ended December 31, 1998, increased from 54.5
percent in 1997. This increase is principally due to the
unfavorable impact of foreign exchange rate fluctuations on net
revenue and due to the Company's roll out of its contract related
to the United States Postal Service which represented a lower
margin order relative to historical orders.
Amortization of software development costs totaling
$14,592,000 for the year ended December 31, 1998, increased from
$12,068,000 in the prior year due to new product releases.
Engineering costs increased to $71,090,000, for the year
ended December 31, 1998, from $56,961,000 for 1997. In absolute
dollars engineering expenses increased 24.8 percent for the year
-45-
ended December 31, 1998, from the prior year. As a percentage of
revenue such expenses decreased to 7.3 percent for the year ended
December 31, 1998, from 7.4 percent for the prior year. The
increase in absolute dollars is due to additional expenses
incurred in connection with the continuing research and
development of new products and the improvement of existing
products partially offset by increased capitalized costs incurred
for internally developed product software where economic and
technological feasibility has been established.
Selling, general and administrative expenses increased to
$194,775,000 for the year ended December 31, 1998, from
$165,647,000 in 1997. While in absolute dollars selling, general
and administrative expenses increased 17.6 percent for the year
ended December 31, 1998, from the prior year, as a percentage of
revenue such expenses decreased to 19.9 percent for the year ended
December 31, 1998, from 21.4 percent in 1997. The increase in
absolute dollars reflects expenses incurred to support a higher
revenue base and expenses incurred by four subsidiaries acquired
in 1997 and 1998.
Amortization of excess of cost over fair value of net assets
acquired of $4,812,000 for the year ended December 31, 1998,
decreased from $4,859,000 in 1997 due to foreign exchange
fluctuations coupled with the sale of stock and certain assets of
Symbol LIS Limited described below, partially offset by the
acquisition of four subsidiaries in 1998 and 1997 which resulted
in an increase in the gross value of excess of cost over fair
value of net assets acquired.
During 1998 the Company incurred $3,597,000 of various pre-
tax expenses, principally professional fees, associated with a
publicly announced attempt to acquire another company. In the
fourth quarter of 1998, the Company formally terminated its
efforts to complete this acquisition.
The gain from the sale of business resulted from the sale of
the stock and certain assets of Symbol LIS Limited, a wholly owned
subsidiary, engaged in the business of providing systems and
technology with respect to logistics and warehouse management
systems operations to a third party.
Net interest expense increased to $3,450,000, for the year
ended December 31, 1998, from $3,276,000 in 1997 primarily due to
increased borrowings under lines of credit.
-46-
The Company's effective tax rate for 1998 of 33.0 percent
decreased from 36.0 percent in the prior year period primarily due
to an increase in federal tax credits and the exempt earnings of
the foreign sales corporations.
At December 31, 1998, the Company had net deferred tax assets
of approximately $6,340,000, consisting of current deferred tax
assets of $34,428,000 and long-term deferred tax liabilities of
$28,088,000. The current deferred tax assets reflect a valuation
allowance of approximately $696,000 relating to New York State
investment tax credit carryforwards which may be recaptured. No
other valuation allowance is necessary due to the Company's
history of profitability and anticipated future profitability.
For the year ended December 31, 1997
Net revenue of $774,345,000 for the year ended December 31,
1997, increased 17.9 percent over 1996. The increase in net
revenue is primarily due to increased wo