Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to __________________.
COMMISSION FILE NUMBER 1-9802
SYMBOL TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 11-2308681
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
One Symbol Plaza
Holtsville, New York 11742-1300
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (631) 738-2400
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Common Stock, par value $.01 New York Stock Exchange
(Title of Each Class) (Name of Each Exchange on Which Registered)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: 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 [ ] NO [X]
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. [ ]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act).
YES [X] NO [ ]
The aggregate market value of the registrant's voting and non-voting
stock held by persons other than officers and directors and affiliates thereof,
as of the last business day of the second fiscal quarter ended June 30, 2003 was
$2,946,867,623.
The number of shares outstanding of each of the registrant's classes of
common stock, as of December 26, 2003, was as follows:
Class Number of Shares
----- ----------------
Common Stock, par value $0.01 231,205,860
DOCUMENTS INCORPORATED BY REFERENCE: NONE.
SYMBOL TECHNOLOGIES, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2002
TABLE OF CONTENTS
Page Number
PART I............................................................................................................1
Item 1. Business........................................................................................1
Item 2. Properties.....................................................................................27
Item 3. Legal Proceedings..............................................................................28
Item 4. Submission of Matters to a Vote of Security Holders............................................36
Item 4A. Executive Officers of the Registrant...........................................................37
PART II..........................................................................................................40
Item 5. Market for the Registrant's Common Equity and Related Security Holder Matters..................40
Item 6. Selected Financial Data........................................................................40
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..........41
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.....................................68
Item 8. Financial Statements and Supplementary Data....................................................69
Item 9. Disagreements on Accounting and Financial Disclosure...........................................69
Item 9A. Controls and Procedures........................................................................69
PART III.........................................................................................................74
Item 10. Directors and Executive Officers of the Registrant.............................................74
Item 11. Executive Compensation.........................................................................77
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters ...................................................................88
Item 13. Certain Relationships and Related Transactions.................................................92
PART IV..........................................................................................................93
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K................................93
Signatures
Exhibits
PART I
References herein to "Symbol," "we," "us" or "our" refer to Symbol Technologies,
Inc. and its subsidiaries unless the context specifically states or implies
otherwise.
INTRODUCTORY NOTE
Symbol Technologies, Inc. is today filing this Annual Report on Form
10-K for its fiscal year ended December 31, 2002. This annual report was delayed
as a result of Symbol's internal investigations and the resulting restatement of
our selected financial data for 1998, 1999, 2000 and 2001, financial statements
for the years ended December 31, 2000 and 2001, and unaudited selected quarterly
information for each of the four quarters of 2001 and the first three quarters
of 2002. See Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 2 to the Consolidated Financial
Statements included elsewhere herein. In this annual report, words such as
"today," "recently," "current" or "currently," or phrases such as "as of the
date hereof" or "as of the date of this report," refer to December 30, 2003, the
date we are filing this report with the Securities and Exchange Commission (the
"Commission" or the "SEC").
Our Quarterly Reports on Form 10-Q for the fiscal quarters ended March
31, 2003, June 30, 2003 and September 30, 2003 have also been delayed as a
result of our internal investigations and the restatement. We intend to file
these quarterly reports as soon as practicable.
The Consolidated Financial Statements for fiscal years 2000, 2001 and
2002 included in this report have been audited by Symbol's independent auditors,
Deloitte & Touche LLP. While the selected financial information for fiscal years
1998 and 1999 included in this report is unaudited, the financial information
presented for these periods are presented on a basis that is consistent with the
audited Consolidated Financial Statements for fiscal years ended 2000, 2001 and
2002. We have not amended, and do not intend to amend, any of our previously
filed annual or quarterly reports. Therefore, financial information that has
been previously filed or otherwise reported for these periods should no longer
be relied upon and is superseded by the information in this annual report.
ITEM 1. BUSINESS
OVERVIEW
We are a leader in secure mobile information systems that integrate
application-specific handheld computers with wireless networks for data, voice
and bar code data capture. Our goal is to be one of the world's preeminent
suppliers of mission-critical mobile computing solutions to both business and
industrial users.
Symbol manufactures products and provides services to capture, manage
and communicate data using three core technologies - bar code reading and image
recognition, mobile computing and networking systems. Our products and services
are sold to a broad and diverse base of customers on a worldwide basis and in
diverse markets such as retail, transportation, parcel and postal delivery
services, warehousing and distribution, manufacturing, healthcare, hospitality,
security, education and government. We do not depend upon a single customer, or
a few customers, the loss of which would have a material adverse effect on our
business.
We are engaged in two reportable business segments: (1) the design,
manufacture and marketing of mobile computing, automatic data capture, and
wireless network systems (the "Product Segment"); and (2) the servicing of,
customer support for and professional services related to these systems (the
"Services
1
Segment"). Each of our operating segments uses its core competencies to provide
building blocks for mobile computing solutions. Operating and geographic segment
financial information is found in Note 20 to the Consolidated Financial
Statements.
Symbol Technologies, Inc. is a Delaware corporation and is the
successor by merger in 1987 to Symbol Technologies, Inc., a New York corporation
that commenced operations in 1975.
RECENT DEVELOPMENTS
In May 2001, we initiated a review of certain financial matters in
response to an inquiry from the Commission. In connection with that review, and
a subsequent, substantially more detailed and extensive review, we identified
accounting errors and irregularities relating to our previously issued financial
statements. As a result, we are restating our selected financial data for 1998,
1999, 2000 and 2001, financial statements for the years ended December 31, 2000
and 2001, and unaudited selected quarterly information for each of the four
quarters of 2001 and first three quarters of 2002. These matters are discussed
in more detail in Item 3 and Item 7 of this Annual Report on Form 10-K.
The adjustments necessary to restate our financial statements in
accordance with accounting principles generally accepted in the United States of
America ("U.S. GAAP") relate to widespread errors and irregularities primarily
involving the timing and amount of product and service revenues recognized and
the timing and amounts recognized with respect to certain reserves,
restructurings, certain option programs and several categories of cost of
revenue and operating expenses. We reversed cumulative net revenue of
$234,220,000 and cumulative net earnings of $324,722,000 that had previously
been recognized through the period ended September 30, 2002. As of September 30,
2002, our restated Stockholders' Equity was $946,261,000 as compared with
$1,171,393,000 as originally reflected in our Form 10-Q for the quarter then
ended.
We have been informed that the Commission and the United States
Attorney's Office for the Eastern District of New York (the "Eastern District"),
with whom Symbol is cooperating, are conducting investigations relating to these
errors and irregularities.
The effects of these adjustments on the Consolidated Financial
Statements are presented in Note 2 to the Consolidated Financial Statements and
have been reflected in the information and disclosures in this annual report.
Financial information included in reports on Form 10-K, Form 10-Q and Form 8-K
that we have previously filed should not be relied upon and are superseded by
the information in this Annual Report on Form 10-K. Our Quarterly Reports on
Form 10-Q for the quarterly periods ended March 31, 2003, June 30, 2003 and
September 30, 2003 will be filed with the Commission as soon as practicable
after the filing of this Annual Report on Form 10-K and the information
contained therein will supersede any financial information included in any
report on Form 8-K that we previously filed for the quarters ended March 31,
2003, June 30, 2003 and September 30, 2003.
On December 30, 2003, Symbol announced that Richard Bravman, a director
of Symbol and our Chief Executive Officer and Vice Chairman of the Board of
Directors, has resigned from his executive and board positions, effective
immediately. The Board of Directors has named William Nuti, Symbol's President
and Chief Operating Officer, to succeed Mr. Bravman as Chief Executive Officer
and Mr. Nuti will also serve as a director. Symbol has also named Salvatore
Iannuzzi, a non-executive of Symbol and currently a director, as Chairman of
the Board of Directors. Mr. Bravman is expected to remain with Symbol for one
year as a senior advisor to Mr. Nuti and Symbol's Board of Directors.
2
PRODUCT SEGMENT
GENERAL
Symbol develops, manufactures, sells and services scanner-integrated
mobile and wireless information management systems that consist of mobile
(primarily handheld) computing devices, wireless local area networks (or
wireless LAN) and wireless wide area networks (or wireless WAN), radio
subsystems, bar code reading devices, network appliance devices (such as
voice-over-IP, cordless telephones, peripheral devices and software and
programming tools). These products are designed to provide solutions to
customer-specific needs in information transactions, and are used worldwide in
diverse markets such as retail, transportation, parcel and postal delivery
services, warehousing and distribution, manufacturing, healthcare, hospitality,
education and government. For the year ended December 31, 2002, Product Segment
net revenue was $1,103.1 million, which represented 78.7% of total revenues. See
Note 20 to the Consolidated Financial Statements included elsewhere herein.
Most of these systems are used for mission-critical business operations
such as merchandise ordering and price control, stock management, point-of-sale,
production control, delivery confirmation, route accounting and military
logistics and in various healthcare applications. Customers purchase our
products to enhance productivity, quality control and customer service.
Collectively, our products and services deliver to our customers end-to-end
mission-critical mobility solutions such as controlling the flow of merchandise
to a retail chain.
Mobile Computing. Our mobile computing devices are durable, lightweight
battery-operated hand-held computers. Symbol's newest designs are mostly based
on industry-standard Intel(R) CPUs and industry-standard Microsoft(R), Palm(R)
and Linux(R) handheld operating systems. Information may be captured by a device
that reads bar codes or it may be manually entered via a keyboard or touch
screen on a pen computer display/data entry device. The information collected by
the mobile computing device can then be transmitted quickly to a host computer
across a wireless LAN or wireless WAN, or via batch file transfer. More than 90
percent of our mobile computing devices include an integrated bar code reader
and approximately 90 percent offer optional integrated wireless LAN or wireless
WAN communication capability.
Automatic Data Capture. We design, manufacture and distribute the most
complete line of bar code reading equipment in the world. Our bar code reading
products consist of devices designed to capture and decode one- and
two-dimensional bar code symbols and store, process and transmit information.
Our bar code reading equipment includes hand-held bar code readers, portable
presentation scanners, fixed station point-of-sale scanners, and miniature "scan
engines" (for use within our own products and for integration by original
equipment manufacturers ("OEM")), most of which employ laser technology to read
information encoded in bar code symbols. Our bar code reading equipment is
compatible with a wide variety of information collection and retrieval systems,
including computers, electronic cash registers, portable information collection
devices and the Internet.
Wireless Networking Systems. Symbol provides wireless communication
solutions that connect its mobile computing devices and bar code reading
equipment to wireless LANs and wireless WANs. Based on industry-standard
unlicensed spread spectrum radio frequency, or RF, technology, our wireless LAN
products provide real-time wireless data communication and in combination with
our devices integrated with telephony capability, provide wireless voice and
data communication. Research, development, design, marketing and support for our
wireless network systems are conducted mainly at Symbol's San Jose, California
facility. The focus of the division is the design and development of wireless
network client and infrastructure solutions for the highly mobile transaction
processing systems market. In addition, our wireless infrastructure business
unit in San Jose, California provides support for
3
the integration of those high-performance networks into customers' data networks
and enterprise-wide information systems.
PRODUCTS AND TECHNOLOGY
In 2003, we reorganized Symbol's product families into four core
technology areas - Mobile Computing, Advanced Data Capture, Wireless
Infrastructure and Mobility Software. These areas, with recent key product and
product line developments, are described below.
MOBILE COMPUTING
Portable Data Terminals
The portable data terminal, or PDT, family of mobile computing devices
features advanced technology including application specific integrated circuits
("ASICs") and very large scale integrated ("VLSI") circuits. These circuits
incorporate many standard integrated circuits into one computer chip, allowing
for size and cost reductions. Also, the PDT family employs surface mounted
component technology for reduced size and increased performance and
dependability, as well as industry standard 8-, 16- and 32-bit microprocessors.
The PDT family includes a series of mobile computing devices that are available
with different features and at varying costs depending on customer requirements
and preferences. PDT mobile computing devices feature up to one-quarter VGA
liquid crystal display; slim, lightweight design; multiple input and output
ports; and up to 96 megabytes of internal memory. PDT mobile computing-devices
have various keyboard configurations, including a user-configurable keyboard.
The PDT family was originally introduced in 1985. Our PDT devices serve the
warehouse, hospitality and industrial markets and are useful in route accounting
and other logistical applications.
In 2002, we introduced the PDT 8000 series. The PDT 8000 features the
Intel(R) XScale(TM) PXA250 processor, the Microsoft(R) Pocket PC operating
system and currently has the largest VGA display in this product class. The PDT
8000 offers wireless LAN, wireless WAN or wireless personal area network
communication options.
In 2003, we introduced the MC-9000G handheld ruggedized mobile
computer. In addition to its bar code intensive data capture abilities, the
MC-9000G introduces a wireless and mobile computing platform that may be
upgraded and custom tailored to a customer's specific requirements. Key
applications for the MC9000-G include inventory management, price verification,
shipping/receiving, warehouse management, shop floor data capture and baggage
reconciliation. Built around the Intel(R) XScale(TM) embedded processor, the
MC-9000G is designed for longer battery life. The MC9000-G offers Symbol "fuzzy
logic" technology in its standard and extended-range laser scanning
configurations as well as two-dimensional imaging with Symbol "smart focus"
technology. Symbol's MC9000-G is available with either Microsoft(R) Windows(R)
CE.NET or Windows(R) Mobile 2003 operating system variants.
Enterprise PDA
In 1998, Symbol and Palm Computing, Inc., developer of the Palm(R) line
of handheld computers, entered into an agreement under the terms of which we
manufacture and distribute touch- and pen-input personal productivity tools
utilizing the Palm operating system with an embedded bar code reading device. A
new agreement between Symbol and Palm Computing, Inc. was executed in 2001 and
is set to expire in 2005.
Introduced in 1998, the SPT 1500, a pocket-sized mobile computing
device based upon the Palm III architecture, was the first of such products we
introduced.
4
In 1999, we introduced a ruggedized form factor version of the Palm
III, the SPT 1700. With an embedded laser scan engine, the SPT 1700 provided
users with bar code scanning technology for collecting information while the
Palm operating system allowed programmers to easily build applications using
scan-embedded graphical development tools. The SPT 1700 is suited for point of
activity information management and is used in office workflow automation, route
accounting, healthcare, education, retail, industrial and warehouse settings. In
2002, we introduced the SPT 1800, the next series of the SPT 1700, which
contains a 33MHZ processor and a high contrast LCD display.
Also in 1999, we introduced a Microsoft Windows CE operating system
version of the ruggedized Palm family, the PPT 2700.
In 2000, we introduced two wireless WAN versions of the pocket-sized
mobile computing device, the SPT 1733 and SPT 1734. The SPT 1733 works with the
CDPD network while the SPT 1734 is based on the GSM standard. Both products
offer Internet connectivity and enable access to web-based applications or
corporate intranet data from any phone where wireless IP service is available.
In 2001, we replaced the PPT 2700 with the PPT 2800, a Pocket PC-based
terminal that includes bar code scanning and real-time wireless communication
options. The PPT 2800 features Internet browsing capabilities; wireless LAN or
wireless WAN communication; the Intel(R) StrongARM SA 1110 processor, running at
206 MHz; 32 or 64 MB of RAM; and 32 MB of ROM. In 2001, we also introduced
versions of the PPT 2800 with a color screen.
In 2003, we introduced the PPT 8800, a slim handheld computer in the
PDA format based upon the Microsoft Windows CE 4.1 (also known as CE.NET)
operating system. The PPT 8800 features laser bar code scanning, ruggedization
and wireless LAN connectivity, but its smaller streamlined size enables it to
extend into new enterprise applications such as mobile shopping, mobile
point-of-sale and mobile SAP access. In the near future, the PPT 8800 will also
offer our first Bluetooth(TM) wireless connectivity option to customers.
Voice-Over IP Telephony
In 1998, we introduced the NetVision(R) wireless LAN voice-over IP
telephony system. The telephone looks like a standard cellular telephone and
allows users to place or receive calls worldwide, without additional charge,
between other telephones or PC-based telephones located at any site served by an
internal TCP/IP network. The NetVision VoIP system integrates wireless voice and
data over a TCP/IP network via Symbol's Spectrum 24 wireless LAN. In 1999, we
introduced the NetVision Data Phone, which integrates voice communication, a bar
code scanner, a data-entry keypad, a Web browser, a serial port for printing and
a Spectrum 24 wireless LAN radio card into a single lightweight device.
In 2001, we introduced a Spectrum 24 high rate 802.11b version of the
NetVision phone and several new NetVision software clients.
ADVANCED DATA CAPTURE
Wearable Scanners
In 1995, we introduced our first wearable scanning system, the WSS
1000, a hand-mounted information transaction system that allows mobile
hands-free bar code scanning, information collection and LAN connectivity. The
WSS 1000 wearable computer system was designed for users who rely on the
efficiency and accuracy of bar code scanning but require the use of both hands
to perform job functions. The system, which consists of two components, combines
the RS-1, a miniature scanner worn as a ring
5
that allows the user to simply touch a thumb and index finger contact switch to
scan a bar code, and a compact, light-weight, wrist-mounted computer with
display which permits wireless communication to the host computer.
In 1997, we introduced the WS 1200-LR, a back-of-the-hand mounted
scanner. Similar to the RS-1 wearable scanner, the WS 1200-LR is triggered by a
thumb-activated switch mounted on the user's index finger, however the WS
1200-LR is capable of scanning at longer distances than the RS-1 ring scanner.
In 2001, we introduced the SRS-1 ring scanner, a lightweight low
profile design that allows users to pick, scan and pack items in tight spaces.
Hand-Held Scanners
We currently offer several different handheld laser scanners, the most
significant of which is the LS 4000I. The LS 4000I was introduced in 1998. The
LS 4000I is a trigger-operated, visible laser diode-based scanner capable of
reading PDF 417, a high-density, high-capacity portable data file storing
approximately one kilobyte of data in a machine-readable code, and all
conventional linear bar codes. PDF 417 is a two-dimensional bar code symbology
that incorporates error correction capability and has one hundred times the
information capacity of a traditional linear bar code. Unlike linear bar codes,
PDF 417 can contain an entire data record, reducing or eliminating the need for
an external system of linked information storage. PDF 417 may be read by either
a laser-based bar code reader or a CCD imager. Most other two-dimensional codes
can only be read by a CCD imager.
In 2002, we introduced the LS 4008I as an update to the LS 4000I. The
LS 4008I gave the LS 4000I a new appearance, greater durability, a more powerful
microprocessor for even better scanning performance on poorly printed bar codes,
and the ability to have one unit capable of communicating to a large variety of
popular POS host terminals. This feature provides flexibility for retailers who
may migrate to different host terminals and also benefits distribution partners
who stock a single model and respond to a wide variety of demand.
In 2001, we introduced the Cobra(TM) LS 1900 series, a lower cost
lightweight scanner. The LS 1900 scanner, available in a trigger operated
version or with a hands-free stand to allow for presentation scanning, is
well-suited for use in convenience and specialty stores.
In 2002, we introduced the Cobra LS 1908 series, capable of
communicating to a large variety of popular POS host terminals. Similar to the
LS 4008I, the LS 1908 provides investment protection for retailers who may
migrate to different host terminals and benefits wide response distribution
partners.
In 2003, we introduced the LS 2200 series. The LS 2200 features a
liquid injection molded scan element that contains no bearings, moving parts or
need for lubrication and is made from highly flexible material in a one-step
economical manufacturing process. The scan element is guaranteed over the life
of the product. The LS 2200 also features multiple-interface capability that
allows it to migrate from one host terminal to another by a simple cable change.
Introduced by Symbol in 2000, the Cyclone(R) M 2000 Series is a
versatile countertop projection and handheld scanner that allows users to select
from three different scan patterns depending upon their scanning requirements.
With an integrated laser scan engine, the M 2000 is capable of scanning in a
rotating omni-directional scan pattern for reading linear bar codes in any
orientation, a smart raster scan pattern for reading two-dimensional bar codes
and a high- density single-line scan pattern for reading poorly printed and
damaged bar codes. Designed for retail and light industrial use, the M 2000's
6
ergonomic built-in stand provides for both handheld scanning and hands-free
counter top or wall mount scanning.
Hands-Free Scanners
In addition to our handheld scanners, we also offer several families of
"hands-free" scanners. Unlike our handheld scanners, these scanners are usually
triggered by an object sensor to enable use in situations where use of both
hands is required.
We introduced the LS 5700 and the LS 5800 miniaturized slot scanners in
1996. The LS 5700 was designed to accommodate all vertical or "on counter"
applications and incorporates a full sleep mode function that 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 2003, we introduced the LS 9208, the next generation of the laser
diode-based projection scanner. The LS 9208's rastering feature provides more
aggressive scanning capability by moving the scan pattern to eliminate scan
pattern "holes" and quickly capturing bar code data regardless of how the bar
code is presented to the scanner. It allows the scanner to read highly truncated
and poorly printed bar codes faster and more accurately. With a scan pattern
repetition rate of 1500 scans per second, the LS 9208 is 12 percent faster than
its predecessor, the LS 9100, and its processing speed is 7 1/2 times faster
than that of the LS 9100. The LS 9208 is capable of reading all ID bar code
types, including reduced space symbologies.
Scan and Imaging Engines
In 1990, we began marketing bar code laser scan engines that are
integrated by unaffiliated third parties into their portable computing devices.
In 2003, we introduced the SE 1400HS, a scan engine designed for the
Japanese retail market and contact reading at extreme pitch angles. The SE
1400HS engine departs from our traditional form factors, and contains unique
features that make it suitable for contact scanner replacement and some
specialty and portable applications.
Also introduced in 2003 was Symbol's new MiniScan(R) family, the next
generation of scan modules. The MiniScan family offers Symbol's high performance
scan engines, along with a housing, exit window, decoder and variety of
interfaces (including USB), in a compact durable housing. All of the MiniScan
products can be easily used as an industrial fixed-mount or embedded scanner.
The feature offers flexibility in applications such as kiosks, ATMs, warehousing
and manufacturing assembly lines, conveyer belts, clinical diagnostic equipment,
gas pumps, security identification and robotic arms.
Self Scanning & Self Checkout
In 2001, we introduced the MK 1000 microkiosk, an interactive,
automated customer self-service device. An integrated omni-directional scanner
allows customers to pass a bar code label in front of the MK 1000's scan window,
which provides price and product information and real-time information on
in-store and frequent shopper promotions.
In connection with our acquisition of @pos in 2002, we began offering
products in three new major product categories: signature-capture terminals,
payment transaction terminals and trusted services. The PenWare 1500 is a rugged
signature capture pad for the retail, government and banking
7
markets incorporating a backlit pressure-sensitive screen to capture electronic
signatures for retrieval, printing, faxing or emailing. The iPOS TC, iPOS TX and
3100 are transaction terminals used in the point-of-sale environment that
provide interactive functions including signature capture, promotional message
and line item display; and debit, credit and smart card payment processing. The
iPOS TC introduces a second wireless LAN or fixed ethernet channel allowing IP
addressability and simultaneous routing of messages, payment information and
digital signatures synchronized between a point of sale and remote server
connection.
We recently introduced our customer access technology, or CAT, suite of
enterprise mobility solutions, which incorporates a number of our self-scanning
and self-checkout products into complementary systems. We have selected products
such as the Personal Shopping System, the MK 2000, the PPT 8800 and the iPOS
Transaction System as the cornerstones for building systems addressing four core
categories of retail solutions-mobile point-of-sale, inventory management, shelf
price audit and interactive shopping solutions.
WIRELESS INFRASTRUCTURE
Spectrum 24(R)
Introduced in 1996, the Symbol Mobile Gateway ("SMG") is an
industrialized, PC-based host computer designed for installation in truck cabs
and cars. A wireless WAN radio modem provides communication across major wide
area network systems to a user's enterprisewide network, and Spectrum 24 LAN
capability connects the SMG to Symbol's mobile computing devices, providing
in-vehicle connectivity and communication capabilities for motor freight, parcel
delivery and private fleet operations.
We also offer spread spectrum-based, wireless LAN products. Spectrum
24, introduced in 1995, is a high-performance, frequency hopping network that
operates at 2.4 GHz frequency. Based on unlicensed spread spectrum RF
technology, Spectrum 24 networks provide real-time wireless data communications
with a host computer for hundreds of portable and fixed-station computers and
radio-integrated scanners. In 1998, we introduced a 2Mbps version of the
Spectrum 24 network, and, in 1999, we introduced a direct sequence, wireless LAN
that supports high throughput applications up to 11 Mbps. This high data rate
wireless LAN, based on the IEEE 802.11b Wi-Fi standards for 11 Mbps data
transmission, now provides users with high-speed wireless capabilities for rapid
data transfer from server to terminal, image transfer, Internet communications,
customer self-scanning services and streaming video. In 2000 and 2001, we
introduced additional Wi-Fi compliant high data rate radio cards and access
points. Installation of our wireless networks at various customer sites began in
1991 and these networks are now installed in more than 125,000 sites worldwide.
These spread spectrum-based systems work in tandem with a broad range of our
wireless mobile computing and telephony devices.
Symbol Wireless Switch
In 2003, we introduced our first generation Symbol Wireless Switch,
which was developed to integrate with existing enterprise backbones from network
vendors including 3Com, Cisco Systems, Extreme Networks and Nortel Networks. The
Symbol Wireless Switch connects via standard 100BaseT cabling and related
components (including standard Ethernet hubs and switches) to Symbol's IEEE
802.11a/b Access Port. The Symbol Wireless Switch system is open, extensible and
expandable. Its design allows for frequency hopping, 802.11b, 802.11a and other
emerging standards and even provides an upgrade path to allow legacy access
points to become members of the Symbol Wireless Switch system. The Symbol
Wireless Switch has a 1U rack-mount form factor that allows it to be physically
secured with
8
other network equipment. Finally, the security features of the Symbol Wireless
Switch complies with all current relevant industry standards and provides
support for those in development.
MOBILITY SOFTWARE
The Mobility Software group is focusing its efforts on developing
next-generation platform technologies and solution strategies. Currently in
development is a scalable and integrated software suite that ties together
Symbol's mobile clients, wireless switch/infrastructure and back-end middleware
components.
PRODUCT PRICING
Product list prices generally range between $100 to $11,000, depending
on product configuration. We offer discounts off list price for quantity orders,
and sales are frequently made at prices below list price.
SOFTWARE AND PROGRAMMING TOOLS
Our products and systems use software that consists of a number of
specialized applications and communications software programs that run under a
variety of operating platforms including Microsoft MS-DOS(R), Caldera DR-DOS,
Palm OS, Microsoft Windows(R), Microsoft Windows CE and Microsoft Pocket PC. A
series of application development kits ("ADKs") and software development kits
("SDKs") are available to allow our programmers, value added resellers and
end-user customers to develop applications that fully utilize the integrated
features of our family of mobile computing devices. The ADKs and SDKs provide
the software drivers and libraries required to maximize product performance.
Used in conjunction with industry standard development tools, software
developers can easily create and support applications to meet specific customer
requirements.
We also provide scalable network management software that allows users
at local and remote sites to administer, configure and manage our Spectrum One
and Spectrum 24 wireless network systems. We also offer AirBEAM(R) software that
allows users to upgrade operating systems on, and distribute application
software to, key-based and pen-based mobile computing devices over any wireless
local area network.
We have 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. We have
entered into alliances with independent suppliers of software who assist us in
the development of software.
ACQUISITIONS
Telxon
On November 30, 2000, a wholly-owned subsidiary of Symbol was merged
with Telxon Corporation ("Telxon") in a stock-for-stock merger. Telxon is
operating as a wholly-owned subsidiary, although portions of its operations were
consolidated with Symbol in order to obtain operating efficiencies and synergies
by eliminating duplicate functions, rationalizing manufacturing facilities and
sales offices and realizing purchasing, sales, manufacturing and other
efficiencies. See Note 3 to the Consolidated Financial Statements included
elsewhere herein.
9
@pos
In September 2002, a wholly-owned subsidiary of Symbol was merged with
@pos.com, Inc. ("@pos") in a cash-for-stock merger. @pos is operating as a
wholly-owned subsidiary of Symbol, although certain portions of its operations
were consolidated in order to achieve operating efficiencies and synergies with
Symbol's existing functions. @pos manufactures and markets a range of
interactive customer transaction terminals with advanced signature capture
technology and I/P-enabled features that allow traditional and advanced payment
capabilities at the retail point of sale and provide enhanced customer
interaction and order processing. See Note 3 to the Consolidated Financial
Statements included elsewhere herein.
Covigo
On July 28, 2003, a wholly-owned subsidiary of Symbol was merged with
Covigo, Inc. ("Covigo") in a cash-for-stock merger. Covigo mobile software
enables its customers to simplify the creation and deployment of wireless
applications, while reducing administrative costs associated with network
management and data synchronization.
SERVICES SEGMENT
GENERAL
Our global services organization, Global Systems & Services, or GSS,
was formed in 2001. Under the SymbolCareSM umbrella, it offers our customers an
array of services ranging from "high-touch" consulting and project management to
equipment repair and support. GSS's goal is to combine our extensive technical
expertise with vertical market knowledge in order to support solutions to
increase the value of a customer's information technology investment. These
services are sold and delivered, depending on requirements and infrastructure,
via Symbol's global direct sales and services organization or through our Symbol
PartnerSelect or SymbolCertifiedSM Professional Services certification program.
For the year ended December 31, 2002, Services Segment net revenue was $298.5
million, which represented 21.3% of total revenues. See Note 20 to the
Consolidated Financial Statements included elsewhere herein.
ENTERPRISE MOBILITY AND EMERGING TECHNOLOGY SERVICES
Our enterprise mobility services provide on-going assistance during the
planning, development and implementation of a customer's mobility installation.
It is our intent to insure that a Symbol project management consultant is part
of each major installation of a Symbol product, whether sold by us or our
partners. Once a market is established for these products, we will deliver these
solutions to end users via our partners through our SymbolCertified Professional
Services certification program.
CUSTOMER SERVICE AND SUPPORT
We provide a range of service and support offerings for both on-site
and service center support. Service offerings are usually either one or three
year contracts, with time and material options also available. The customer can
choose the extent of the service, the turnaround time and the duration of the
contract.
Our service centers provide maintenance and repair services and offer a
single repair point for both Symbol and selected third-party products. Symbol's
customer support operations for the Americas include a facility operated jointly
in El Paso, Texas, and the Mexican city of Juarez. Service may be
10
initiated either via phone call or the Internet. In addition, small facilities
are located throughout the United States dedicated to meeting the needs of
specific customers. Our non-U.S. customer service centers are located around the
globe in major customer areas. These centers are either direct Symbol repair
centers or facilities managed by Symbol partners authorized by Symbol.
We undertake to correct defects in materials and workmanship for a
period of time after delivery of our products. The period of time covered by
these warranties varies depending on the product involved as well as contractual
arrangements but is generally 12 months. Turnaround times, as well as other
conditions of warranty, are predetermined and published.
On-site system support programs provide for maintenance and repair at
the customer's location. Service is initiated via telephone call to a Symbol
support specialist, who will offer problem determination and resolution. If an
on-site response is required, a Symbol customer service representative will be
dispatched to the customer location within the response time commitments of the
service agreement.
The service repair operations are complemented by Customer Support
Centers, providing telephone, email and web support to our associates, business
partners and customers. The Symbol Support Center in Holtsville, New York,
offers 7 days per week, 24 hours per day support, 365 days a year. Calls are
answered directly by support technicians. Worldwide support is provided through
local company offices, backed by the support infrastructure of GSS. In addition
to our Holtsville facility, there are various Symbol Support Centers in global
locations. Our Symbol PartnerSelect channel partners may also offer value-added
services such as phone support to their customers.
SALES AND MARKETING
We market our products domestically and internationally through a
variety of distribution channels, including a direct sales force, original
equipment manufacturers, solution providers ("SPs"), authorized resellers
("ARs") and distributors. SPs and ARs integrate and sell our products to
customers while also selling to those customers other products or services not
provided by us. Our sales organization includes domestic sales offices located
throughout the United States and foreign sales offices in Argentina, Australia,
Austria, Belgium, Brazil, Canada, China, Denmark, Dubai, Finland, France,
Germany, Hong Kong, Italy, India, Japan, Mexico, the Netherlands, Norway,
Poland, Portugal, Russia, Singapore, South Africa, South Korea, Spain, Sweden,
Switzerland and the United Kingdom.
We currently have contractual relationships and strategic alliances
with unaffiliated partners. Through these relationships, we are able to broaden
our distribution network and participate in industries other than those serviced
by our direct sales force and distributors.
Customers generally order products for delivery within 45 days.
Accordingly, shipments made during any particular quarter generally represent
orders received either during that quarter or shortly before the beginning of
that quarter and, therefore, we do not have a significant amount of backlog
orders. We maintain significant levels of inventory to facilitate meeting
delivery requirements of our customers. We, pursuant to contract or invoice,
normally extend 30 to 45 day payment terms to our customers. Actual payment
terms vary from time to time but generally do not exceed 90 days.
11
The following table sets forth certain information as to international
revenues of Symbol(1):
YEAR ENDED DECEMBER 31,
---------------------------------------
(IN MILLIONS)
AREA 2002 2001 2000
----------------- ------- ------- -------
EMEA(2).......... $ 382.8 $ 390.9 $ 310.3
Asia Pacific..... 84.6 83.0 76.9
Other(3)......... 75.5 69.2 50.2
------- ------- -------
Total......... $ 542.9 $ 543.1 $ 437.4
======= ======= =======
-------------------------------------------------------------------
(1) See Note 20 to the Consolidated Financial Statements included
elsewhere herein.
(2) Europe, Middle East, and Africa
(3) Includes the non-U.S. countries in The Americas.
MANUFACTURING
The products that Symbol manufactures are principally manufactured at
our Reynosa, Mexico facility. We also have a facility in Bohemia, New York that
we utilize as a new product development center.
While components and supplies are generally available from a variety of
sources, we currently depend on a limited number of suppliers for several
components for our equipment, and certain subassemblies and products. In the
past, unexpected demand for communication products caused worldwide shortages of
certain electronic parts and allocation of such parts by suppliers that had an
adverse impact on our ability to deliver our products as well as the cost of
producing such products. While we have entered into contracts with suppliers of
parts that we anticipate may be in short supply, there can be no assurance that
additional parts will not become the subject of such shortages or that such
suppliers will be able to deliver the parts in fulfillment of their contracts.
Due to the general availability of components and supplies, we do not
believe that the loss of any supplier or subassembly manufacturer would have a
long-term material adverse effect on our business although set-up costs and
delays could occur in the short term if we change any single source supplier.
Certain of our products are manufactured by third parties, most of
which are outside the United States. In particular, we have a long-term
strategic relationship with Olympus Optical, Inc. of Japan ("Olympus") pursuant
to which Olympus and Symbol jointly develop selected products that are
manufactured by Olympus exclusively for sale by us. We are currently selling
several such products. We have the right to manufacture such products if Olympus
is unable or unwilling to do so, but the loss of Olympus as a manufacturer could
have, at least, a temporary material adverse impact on our ability to deliver
such products to our customers.
We employ 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.
We generally maintain sufficient inventory to meet customer demand for
products on short notice, as well as to meet anticipated sales levels. If our
product mix changes in unanticipated ways, or if
12
sales for particular products do not materialize as anticipated, we may have
excess inventory or inventory that becomes obsolete. In such cases, our
operating results could be negatively affected.
RESEARCH AND PRODUCT DEVELOPMENT
We believe that our future growth depends, in large part, upon our
ability to continue to apply our technology and intellectual property to develop
new products, improve existing products and expand market applications for our
products. Our research and development projects include, among other things,
improvements to the reliability, quality and readability of our laser scanners
at increased working distances, faster speeds and higher density codes
(including, but not limited to, two-dimensional codes); continued development of
our solid state laser diode-based scanners; development of solid state
imager-based engines for bar code data capture and general purpose imaging
applications; development of RFID engines for data capture applications;
improvements to packaging and miniaturization technology for bar code data
capture products, portable data collection appliances and integrated bar code
and RFID data capture products; development of high-performance digital data
radios, high-speed, secure, manageable mobile data communications systems and
telecommunications protocols and products; the development of "smart" mobile
devices that may be located by intelligent wireless LAN systems; and the
addition of application software to provide a complete line of high-performance
interface hardware.
We use both our own associates and from time to time unaffiliated
consultants in our product engineering and research and development programs.
From time to time we have participated with and/or partially funded research
projects in conjunction with a number of universities including the State
University of New York at Stony Brook, Polytechnic University of New York and
Massachusetts Institute of Technology.
We expended (including overhead charges) approximately $72,845,000,
$93,682,000 and $81,591,000 for research and development during the years ended
December 31, 2002, 2001, and 2000, respectively. These amounts are included as a
component of engineering in the Consolidated Statements of Operations.
COMPETITION
The business in which we are engaged is highly competitive and acutely
influenced by advances in technology, product improvements and new product
introduction and price competition. To our knowledge, many firms are engaged in
the manufacture and marketing of products in bar code reading equipment,
wireless networks and mobile computing devices and mobility software. Numerous
companies, including present manufacturers of scanners, lasers, optical
instruments, microprocessors, wireless networks, notebook computers, PDAs and
telephonic and other communication devices have the technical potential to
compete with us. Many of these firms have far greater financial, marketing and
technical resources than we do. We compete principally on the basis of
performance and the quality of our products and services.
We believe that our principal competitors are Casio, Inc., Cisco
Systems, Inc., Datalogic S.P.A., Fujitsu, Ltd., Hand Held Products, Inc.,
Hewlett-Packard Company, Intermec Technologies Corporation, LXE Inc., Matsushita
Electric Industrial Co., Ltd., Metrologic Instruments, Inc., Motorola, Inc., NCR
Corporation, NipponDenso Co., Opticon, Inc., Proxim, Inc., PSC, Inc. and Psion
Teklogix, Inc.
PATENT AND TRADEMARK MATTERS
We file domestic and foreign patent applications to support our
technology position and new product development. We own more than 725 U.S.
Letters Patents covering various aspects of the
13
technology used in our principal products and have entered into cross-license
agreements with other companies. In addition, we own numerous foreign companion
patents. We have also filed additional patent applications in the U.S. Patent
and Trademark Office as well as in foreign patent offices. We will continue to
file patents, both United States and foreign, to cover our most recent research
developments in the scanning, information collection and network communications
fields. One of our basic patents covering handheld laser scanning technology
expired on June 6, 2000, and a key companion patent expired June 3, 2003. Due to
the recent expiration of these patents, we may see increased competition in
handheld trigger combined bar code readers; however, we have not witnessed any
evidence of that to date. Notwithstanding the expiring patents, we believe that
our extensive patent portfolio will continue to provide us with some level of
competitive advantage. An important scanner-integrated computer patent will
expire in 2005, which could lead to increased competition in the marketplace.
Although we believe that our patents provide a competitive advantage,
we believe we are not dependent upon a single patent, or a few patents, the loss
of which would have a material adverse effect on our business. Our success
depends more upon our proprietary know-how, innovative skills, technical
competence and marketing abilities. In addition, because of rapidly changing
technology, our present intention is not to rely primarily on patents or other
intellectual property rights to protect or establish our market position.
However, Symbol has in the past instituted litigation against competitors to
enforce its intellectual property rights and is currently involved in several
such lawsuits. Symbol has licensed some of its intellectual property rights
through royalty-bearing license agreements; we may continue to enter into these
arrangements should the circumstances lead us to believe that such an
arrangement would be beneficial.
Despite our belief that Symbol's 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 us or that such
claims will not be successful. We have received and have currently pending such
claims and in the future may receive additional notices of such claims of
infringement of other parties' rights. In such event, we have and will continue
to take reasonable steps to evaluate the merits of such claims, take such action
as we may deem appropriate, which action may require that we 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 we reasonably believe is without merit. We have been involved in such
litigation in the past 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 our products or technology affected by such
parties' rights. In addition to subjecting us to potential liability for
damages, such litigation may require us 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 our business and we have
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 we 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 our
areas of interest, and we believe that there has been and is likely to continue
to be significant litigation in the industry regarding patent and other
intellectual property rights.
We have also obtained certain domestic and international trademark
registrations for our products and maintain certain details about our processes,
products and strategies as trade secrets.
We regard our software as proprietary and attempt to protect it with
copyrights, trade secret law and international nondisclosure safeguards, as well
as restrictions on disclosure and transferability that are incorporated into our
software license agreements. We license our software products to customers
rather than transferring title. Despite these restrictions, it may be possible
for competitors or users to copy aspects of our products or to obtain
information that we regard as trade secrets. Computer software
14
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 our proprietary rights in our 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 we do business. In the United
States, various Federal agencies including the Center for Devices and
Radiological Health of the Food and Drug Administration, the Federal
Communications Commission (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 standards concerning
electrical and laser safety and electromagnetic compatibility and emissions
standards.
We believe that all of our products are in material compliance with
current standards and regulations; however, regulatory changes in the United
States and other countries may require modifications to some of our products in
order for us to continue to be able to manufacture and market these products.
Our RF mobile computing devices include various models, all of which
intentionally transmit radio signals as part of their normal operation. Certain
versions of our handheld computers and our Spectrum One and Spectrum 24 networks
utilize spread spectrum radio technology. We have obtained certification from
the FCC and other countries' certification agencies for our products that
utilize this radio technology. Users of these products in the United States do
not require any license from the FCC to use or operate these products. Some of
our products transmit narrow band radio signals as part of their normal
operation.
We have obtained certification from the FCC and other countries'
certification agencies for our narrow band radio products. Users of these
products in the United States do not require any license from the FCC to use or
operate these products. We also market radio products that utilize cellular
radio technology. We have obtained certification from the FCC and other
countries' certification agencies for our products that utilize this radio
technology. Users of these products in the United States do not require any
license from the FCC to use or operate these products.
In all cases, such certification is valid for the life of the product
unless the circuitry of the product is altered in any material respect, in which
case a new certification may be required. Where a country certificate has a
limited duration, additional certification will be obtained during the life of
the product, when required.
EMPLOYEES
At December 31, 2002, we had approximately 5,600 full-time employees.
Of these, approximately 2,850 were employed in the United States. Symbol also
employs temporary production personnel. None of our U.S. employees are
represented by a labor union. Some employees outside of the United States are
represented by labor unions. We consider our relationship with our employees to
be good.
15
RISK FACTORS
Set forth below are important risks and uncertainties that could have a material
adverse effect on Symbol's business, results of operations and financial
condition and cause actual results to differ materially from those expressed in
forward-looking statements made by Symbol or our management.
RISKS RELATING TO THE RESTATEMENT
WE ARE BEING INVESTIGATED BY THE COMMISSION AND THE EASTERN DISTRICT FOR CERTAIN
OF OUR PRIOR ACCOUNTING PRACTICES AND WE CANNOT PREDICT THE OUTCOME OF THESE
INVESTIGATIONS. THE INVESTIGATIONS COULD RESULT IN CIVIL AND/OR CRIMINAL ACTIONS
SEEKING, AMONG OTHER THINGS, INJUNCTIVE AND MONETARY RELIEF FROM SYMBOL. IN
ADDITION, THE FILING OF ANY CHARGES COULD RESULT IN THE SUSPENSION OR DEBARMENT
FROM FUTURE GOVERNMENT CONTRACTS. ANY SUCH DEVELOPMENT COULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
The Commission and the Eastern District have commenced separate
investigations relating to certain of our prior accounting practices. In
response to an inquiry from the Commission, we conducted an initial internal
investigation, with the assistance of a law firm, in May 2001 relating to such
accounting practices, which we subsequently discovered was hindered by certain
of our former employees. The Commission expressed dissatisfaction with the
initial investigation. In March 2002, we undertook an approximately
eighteen-month internal investigation, with the assistance of a second law firm
and independent forensic accounting team, the results of which gave rise to the
restatement of our selected financial data for 1998, 1999, 2000 and 2001,
financial statements for the years ended December 31, 2000 and 2001, and
unaudited selected quarterly information for each of the four quarters of 2001
and the first three quarters of 2002. See Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations." Symbol has also been
given notice that the Commission is considering recommending civil actions
against Symbol and certain of our former employees for violations of federal
securities laws.
We are fully cooperating with the Commission and Eastern District in
their respective investigations, and are engaging in discussions with each
entity to resolve the issues raised by such investigations. However, we cannot
predict when these investigations will be completed, the outcome of such
investigations, or when a negotiated resolution, if any, may be reached and the
likely terms of such a resolution. At this time, we have not made any reserves
for the imposition of potential fines. However, any criminal and/or civil action
or any negotiated resolution may involve, among other things, injunctive and
equitable relief, including material fines, which could have a material adverse
effect on our business, results of operations and financial condition.
In addition, as a result of the investigations, various governmental
entities at the federal, state and municipal levels may conduct a review of our
supply arrangements with them to determine whether we should be considered for
debarment. If we are debarred, we would be prohibited for a specified period of
time from entering into new supply arrangements with such government entities.
In addition, after a government entity has debarred Symbol, other government
entities are likely to act similarly, subject to applicable law. Governmental
entities constitute an important customer group for Symbol, and debarment from
governmental supply arrangements at a significant level could have an adverse
effect on our business, results of operations and financial condition.
16
PENDING LITIGATION MAY HAVE A MATERIAL ADVERSE EFFECT ON OUR RESULTS OF
OPERATIONS AND FINANCIAL CONDITION.
Symbol, certain members of our former senior management team and
certain former and current members of our Board of Directors are named
defendants in a number of purported class actions alleging violations of federal
securities laws, including issuing materially false and misleading statements
that had the effect of artificially inflating the market price of our common
stock, as well as related derivative actions. In the fourth quarter of 2002, we
recorded a charge of $70 million related to the pending class actions filed
against Symbol. The plaintiffs have yet to specify the amount of damages being
sought in the related civil actions and, therefore, we are unable to estimate
what our ultimate liability in such lawsuits may be. Telxon, our wholly-owned
subsidiary, along with various former executive officers of Telxon, are named
defendants in a number of separate purported class actions alleging violations
of federal securities laws. On November 13, 2003, Telxon and the plaintiff class
reached a tentative settlement of all pending shareholder class actions against
Telxon. Under the settlement, Telxon anticipates that it will pay $37 million to
the class. As a result of anticipated contributions by Telxon's insurers, Telxon
expects that its net payment will be no more than $25 million. Our insurance
coverage is not sufficient to cover our total liabilities in any of these
purported class actions, and our ultimate liability in these actions may have a
material adverse effect on our results of operations and financial condition.
In addition, in March and June 2003, Robert Asti, former Vice
President--North America Sales and Service--Finance, and Robert Korkuc, former
Chief Accounting Officer, respectively, pled guilty to two counts of securities
fraud in connection with the government investigations described above. The
Commission has also filed civil complaints against the two individuals based
upon similar facts. The resolution of these civil complaints, any additional
civil complaints against members of our current and/or former management team or
Board of Directors or the indictment of any members of our current management
team or Board of Directors could result in additional negative publicity for
Symbol and may impact the securities litigations in which we are a party.
In addition, we may be obligated to indemnify (and advance legal
expenses to) such former or current directors, officers or employees in
accordance with the terms of our certificate of incorporation, bylaws, other
applicable agreements, and Delaware law. We currently hold insurance policies
for the benefit of our directors and officers, although our insurance coverage
may not be sufficient in some or all of these matters. Furthermore, the
underwriters of our directors and officers insurance policy may seek to rescind
or otherwise deny coverage in some or all of these matters, in which case we may
have to self-fund the indemnification amounts owed to such directors and
officers. Our ultimate liability in these civil actions may have a material
adverse effect on our results of operations and financial condition.
On September 17, 2003, a jury awarded approximately $218 million in
damages against Telxon, which we acquired in November 2000, for claims relating
to an alleged contract with Smart Media of Delaware, Inc. Telxon has made
certain post-verdict motions seeking, among other things, a new trial or a
reduction in the amount of the jury verdict. While we are still vigorously
defending against this lawsuit, Telxon may ultimately be liable for the full
amount of the jury verdict, which could have a material adverse effect on our
results of operations, financial condition and business.
We are also subject to lawsuits in the normal course of business, which
can be expensive, lengthy, disrupt normal business operations and divert
management's attention from ongoing business operations. An unfavorable
resolution to any lawsuit could have a material adverse effect on our business,
results of operations and financial condition. See "Legal Proceedings" for
additional information regarding material litigation.
17
IF WE ARE UNABLE TO EFFECTIVELY AND EFFICIENTLY IMPLEMENT OUR PLAN TO REMEDIATE
THE MATERIAL WEAKNESSES WHICH HAVE BEEN IDENTIFIED IN OUR INTERNAL CONTROLS AND
PROCEDURES, THERE COULD BE A MATERIAL ADVERSE EFFECT ON OUR OPERATIONS OR
FINANCIAL RESULTS.
Symbol's internal investigations, conducted with oversight by our Audit
Committee, identified material weaknesses in our internal controls and
procedures, as well as instances in which certain members of former management
engaged in, directed and/or created an environment that encouraged a variety of
inappropriate activities that necessitated the restatement. Through our
investigations, we discovered that a significant portion of the accounting
errors and irregularities related to the timing and amount of product and
service revenue recognized. Additionally, there were errors and irregularities
associated with the establishment and utilization of certain reserves and
restructurings, including certain end-of-quarter adjustments that were
apparently made in order to achieve previously forecasted financial results.
There were also errors and/or irregularities associated with the administration
of certain options programs, as well as several categories of revenue and
operating expenses, including efforts to artificially reduce reported inventory.
In the investigations, we also concluded that certain members of former
management who were primarily responsible for maintaining proper internal
controls and procedures failed to establish an appropriate control environment,
which, among other things, resulted from inadequate hiring of qualified and
experienced personnel, inadequate staffing, insufficient training and
supervision of personnel, a decentralized accounting structure for operations in
the United States and inadequate systems and systems interfaces.
We are implementing various initiatives intended to materially improve
our internal controls and procedures, address the systems and personnel issues
raised in the course of the restatement and help ensure a corporate culture that
emphasizes integrity, honesty and accurate financial reporting. These
initiatives address Symbol's control environment, organization and staffing,
policies, procedures and documentation, and information systems. See Item 9A,
"Controls and Procedures" for a discussion of these initiatives.
The implementation of the initiatives set forth in Item 9A is one of
Symbol's highest priorities. Our Board of Directors, in coordination with our
Audit Committee, will continually assess the progress and sufficiency of these
initiatives and make adjustments as necessary. However, no assurance can be
given that we will be able to successfully implement our revised internal
controls and procedures or that our revised controls and procedures will be
effective in remedying all of the identified material weaknesses in our prior
controls and procedures. In addition, we may be required to hire additional
employees, and may experience higher than anticipated capital expenditures and
operating expenses, during the implementation of these changes and thereafter.
If we are unable to implement these changes effectively or efficiently, there
could be a material adverse effect on our operations or financial results.
ONGOING REVIEW OF OUR PUBLIC FILINGS BY THE COMMISSION MAY RESULT IN THE FURTHER
AMENDMENT OR RESTATEMENT OUR PERIODIC REPORTS, AND THE NEW YORK STOCK EXCHANGE
MAY DELIST OUR COMMON STOCK OR TAKE OTHER ACTION IF WE ARE UNABLE TO COMPLY WITH
ITS LISTING REQUIREMENTS. IF ANY OF THE FOREGOING OCCURRED, THERE COULD BE A
MATERIAL ADVERSE EFFECT ON THE TRADING PRICE OF OUR COMMON STOCK AND OUR ABILITY
TO ACCESS THE CAPITAL MARKETS.
The investigations by Symbol and the resulting restatement of our
financial statements have led to a delay in the filing of this annual report,
and we have yet to file our quarterly reports for 2003. We cannot assure you
when we will be able to file our delayed quarterly reports. We have been, and
will continue to be, engaged in a dialogue with the Commission with respect to
the Consolidated Financial Statements and our delayed periodic reports. However,
the Commission may provide us with comments on this filing or any of the delayed
quarterly reports after such reports have been filed, which would require us to
amend or restate previously filed periodic reports. In addition, as a result of
the delay in
18
filing our periodic reports with the Commission, we are currently not in
compliance with the listing requirements of the New York Stock Exchange, or
NYSE, the exchange on which our common stock is listed. The NYSE has not taken
any delisting or other action against Symbol, but there can be no assurance that
the NYSE will not take any such action in the future. If we are required to
amend or restate our periodic filings, or if the NYSE delists, or attempts to
delist, our common stock, investor confidence may be reduced, our stock price
may substantially decrease and our ability to access the capital markets may be
limited.
TAXING AUTHORITIES MAY DETERMINE WE OWE ADDITIONAL TAXES FROM PREVIOUS YEARS DUE
TO THE RESTATEMENT.
As a result of the restatement, previously filed tax returns and
reports may be required to be amended to reflect tax related impacts of the
restatement. Where legal, regulatory or administrative rules would require or
allow us to amend our previous tax filings, we intend to comply with our
obligations under applicable law. To the extent that tax authorities do not
accept our conclusions regarding the tax effects of the restatement, liabilities
for taxes could differ from what has been recorded in our Consolidated Financial
Statements. If it is determined that we have additional tax liabilities, there
could be an adverse effect on our financial condition.
MANY OF THE INDIVIDUALS THAT COMPRISE OUR SENIOR MANAGEMENT TEAM ARE NEW TO
SYMBOL, AND THEY HAVE BEEN REQUIRED TO DEVOTE A SIGNIFICANT AMOUNT OF TIME ON
MATTERS RELATING TO THE RESTATEMENT.
In the past year, we have replaced a significant portion of our senior
management team. During this period, our senior management team has devoted a
significant amount of time conducting internal investigations, restating our
financial statements, reviewing and improving our internal controls and
procedures, developing effective corporate governance procedures and responding
to government inquiries. If senior management is unable to devote a significant
amount of time in the future towards developing and attaining our strategic
business initiatives and running ongoing business operations, there may be a
material adverse effect on our results of operations, financial condition and
business.
RISKS RELATING TO THE BUSINESS
OUR OPERATING RESULTS MAY BE ADVERSELY AFFECTED BY UNFAVORABLE ECONOMIC AND
MARKET CONDITIONS, AS WELL AS THE VOLATILE GEOPOLITICAL ENVIRONMENT.
Adverse worldwide economic and market conditions over the last few
years have contributed to slowdowns in the technology sector generally and the
mobile information systems industry specifically. While worldwide economic and
market conditions have begun recently to improve, if they do not continue to
improve or otherwise deteriorate, there may be:
o reduced demand for our products and services due to continued
restraints on technology-related capital spending by our
customers;
o increased price competition;
o increased risk of excess and obsolete inventories;
o higher overhead costs as a percentage of revenues; and
o limited investment by Symbol in new products and services.
Our current business and operating plan assumes that economic activity
in general, and IT spending in particular, will at least remain at current
levels; however, we cannot assure you that IT
19
spending will not deteriorate, which could have a material adverse effect on our
results of operations and growth rates. Our business is especially affected by
the economic success of the retail sector, which accounts for a significant
portion of our business, and our results of operations may be adversely affected
if the global economic and market conditions in the retail sector do not
improve. If historically low interest rates rise, consumer demand and IT
spending could be further dampened.
In addition, continuing turmoil in the geopolitical environment in many
parts of the world, including terrorist activities and military actions,
particularly in the aftermath of the September 11th attacks and the war in Iraq,
may continue to put pressure on global economic and market conditions and may
continue to have a material adverse effect on consumer and business confidence,
at least in the short term. As an international company with significant
operations located outside of the United States, we are vulnerable to
geopolitical instability. If worldwide economic and market conditions and
geopolitical stability do not improve or otherwise deteriorate, there could be a
materially adverse effect on our business, operating results, financial
condition and growth rates.
WE HAVE MADE STRATEGIC ACQUISITIONS AND ENTERED INTO ALLIANCES AND JOINT
VENTURES IN THE PAST AND INTEND TO DO SO IN THE FUTURE. IF WE ARE UNABLE TO FIND
SUITABLE ACQUISITIONS OR PARTNERS OR ACHIEVE EXPECTED BENEFITS FROM SUCH
ACQUISITIONS OR PARTNERSHIPS, THERE COULD BE A MATERIAL ADVERSE EFFECT ON OUR
BUSINESS, GROWTH RATES AND RESULTS OF OPERATIONS.
As part of our ongoing business strategy to expand product offerings
and acquire new technology, we frequently engage in discussions with third
parties regarding, and enter into agreements relating to, possible acquisitions,
strategic alliances and joint ventures. If we are unable to identify future
acquisition opportunities or reach agreement with such third parties, there
could be a material adverse effect on our business, growth rates and results of
operations.
Even if we are able to complete acquisitions or enter into alliances
and joint ventures that we believe will be successful, such transactions,
especially those involving technology companies, are inherently risky.
Significant risks include:
o integration and restructuring costs, both one-time and ongoing;
o maintaining sufficient controls, procedures and policies;
o diversion of management's attention from ongoing business
operations;
o establishing new informational, operational and financial systems
to meet the needs of our business;
o losing key employees;
o failing to achieve anticipated synergies, including with respect
to complementary products; and
o unanticipated and unknown liabilities.
WE DEPEND UPON THE DEVELOPMENT OF NEW PRODUCTS, SUCH AS ENTERPRISE MOBILITY
PRODUCTS, AND ENHANCEMENTS TO EXISTING PRODUCTS, AND IF WE FAIL TO PREDICT AND
RESPOND TO EMERGING TECHNOLOGICAL TRENDS AND OUR CUSTOMERS' CHANGING NEEDS,
THERE COULD BE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, OPERATING RESULTS AND
MARKET SHARE.
We are active in the research and development of new products and
technologies and enhancing our current products. However, research and
development in the mobile information systems industry is
20
complex and filled with uncertainty. If we expend a significant amount of
resources and our efforts do not lead to the successful introduction of new or
improved products, there could be a material adverse effect on our business,
operating results and market share. In addition, it is common for research and
development projects to encounter delays due to unforeseen problems, resulting
in low initial volume production, fewer features than originally considered
desirable and higher production costs than initially budgeted, which may result
in lost market opportunities. In addition, new products may not be commercially
well received. There could be a material adverse effect on our business,
operating results and market share due to such delays or deficiencies in
development, manufacturing and delivery of new products.
We have made significant investments to develop enterprise mobility
products because we believe enterprise mobility is a new and developing market.
If this market does not grow, retailers and consumers react unenthusiastically
to enterprise mobility or we are unable to sell our enterprise mobility products
and services at projected rates, there could be a material adverse effect on our
business and operating results. Our efforts in enterprise mobility are also
dependent, in part, on applications developed and infrastructure deployed by
third parties. If third parties do not develop robust, new or innovative
applications, or create the appropriate infrastructure, for enterprise mobility
products, there could be a material adverse effect on our business and operating
results.
Once a product is in the marketplace, its selling price usually
decreases over the life of the product, especially after a new competitive
product is publicly announced because customers often delay purchases of
existing products until the new or improved versions of those products are
available. To lessen the effect of price decreases, our research and development
teams attempt to reduce manufacturing costs of existing products in order to
improve our margins on such products. However, if cost reductions do not occur
in a timely manner, there could be a material adverse effect on our operating
results and market share.
THE MOBILE INFORMATION SYSTEMS INDUSTRY IS HIGHLY COMPETITIVE AND COMPETITIVE
PRESSURES FROM EXISTING AND NEW COMPANIES MAY HAVE A MATERIALLY ADVERSE EFFECT
ON OUR BUSINESS.
The mobile information systems industry is a highly competitive
industry that is influenced by the following:
o advances in technology;
o new product introduction;
o product improvements;
o rapidly changing customer needs;
o marketing and distribution capabilities; and
o price competition.
If we do not keep pace with product and technological advances, there
could be a material adverse effect on our competitive position and prospects for
growth. There is also likely to be continued pricing pressure as competitors
attempt to maintain or increase market share.
The products manufactured and marketed by us and our competitors in the
mobile information systems industry are becoming more complex. As the
technological and functional capabilities of future products increase, these
products may begin to compete with products being offered by traditional
21
computer, network and communications industry participants who have
substantially greater financial, technical, marketing and manufacturing
resources than us. We may not be able to compete successfully against these new
competitors, and competitive pressures may result in a material adverse effect
on our business or operating results.
WE ARE SUBJECT TO RISKS RELATED TO OUR OPERATIONS OUTSIDE THE UNITED STATES.
A substantial portion of our net revenues have been from foreign sales.
In 2002, foreign sales accounted for approximately 38.7% of our net revenue. We
also manufacture most of our products outside the United States and we
anticipate that an increasing percentage of new products and subassemblies will
be manufactured outside the United States. Overall margins for our products have
increased throughout 2003 partially as a result of increased efficiencies due to
the transfer of internal manufacturing to our Reynosa facility and external
manufacturing to lower cost producers in China, Taiwan and Singapore.
These sales and manufacturing activities are subject to the normal
risks of foreign operations, including:
o political uncertainties;
o currency fluctuations;
o protective tariffs and taxes;
o trade barriers and export/import controls;
o transportation delays and interruptions;
o reduced protection for intellectual property rights in some
countries;
o the impact of recessionary or inflationary foreign economies;
o long receivables collection periods;
o adapting to different regulatory requirements;
o difficulties associated with repatriating cash generated or held
abroad in a tax-efficient manner; and
o different technology standards or customer expectations.
Many of these risks have affected our business in the past and may have
a material adverse effect on our business, results of operations and financial
condition in the future. We cannot predict whether the United States or any
other country will impose new quotas, tariffs, taxes or other trade barriers
upon the importation of our products or supplies or if new barriers would have a
material adverse effect on our results of operations and financial condition.
FLUCTUATIONS IN EXCHANGE RATES MAY HAVE A MATERIAL ADVERSE EFFECT ON OUR
BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITIONS.
Most of our equipment sales in Western Europe and Asia are billed in
foreign currencies and are subject to currency exchange fluctuations. In
addition, much of Europe converted to mandatory use of the "Euro" currency in
2002, which has continued to appreciate throughout 2003. In prior years, changes
in
22
the value of the U.S. dollar compared to foreign currencies have had an impact
on our sales and margins. We cannot predict the direction or magnitude of
currency fluctuations. A weakening of the currencies in which we generate sales
relative to the currencies in which our costs are denominated may lower our
results of operations and financial condition. For example, we purchase a large
number of parts, components and third-party products from Japan. The value of
the yen in relation to the U.S. dollar strengthened during 2002 and has
continued to appreciate throughout 2003. If the value of the yen continues to
strengthen relative to the dollar, there could be a material adverse effect on
our results of operations.
In all jurisdictions in which we operate, we are also subject to the
laws and regulations that govern foreign investment, foreign trade and currency
exchange transactions. These laws and regulations may limit our ability to
repatriate cash as dividends or otherwise to the United States and may limit our
ability to convert foreign currency cash flows in to U.S. dollars.
WE RELY ON OUR MANUFACTURING FACILITY IN REYNOSA, MEXICO TO MANUFACTURE A
SIGNIFICANT PORTION OF OUR PRODUCTS. ANY PROBLEMS AT THE REYNOSA FACILITY COULD
HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.
In 2002, approximately 50% of our product cost of revenue can be
attributed to our facility in Reynosa, and we estimate that such percentage will
be similar or higher in 2003.
In the past, we have experienced manufacturing problems that have
caused delivery delays. We may experience production difficulties and product
delivery delays in the future as a result of the following:
o changing process technologies;
o ramping production;
o installing new equipment at our manufacturing facilities; and
o shortage of key components.
If manufacturing problems in our Reynosa facility arise, and we are unable to
develop alternative sources for our production needs, we may not be able to meet
consumer demand for our products, which could have a material adverse effect on
our business, results of operations and financial condition.
We have been sued in Mexico by a plaintiff who alleges she is the legal
owner of some of the property that our facility in Reynosa is located. See Item
3, "Legal Proceedings--Other Litigation--Lic. Olegario Cavazos Cantu, on behalf
of Maria Leonor Cepeda Zapata vs. Symbol de Mexico, Sociedad de R.L. de C.V." If
use of our manufacturing facility in Reynosa, Mexico were interrupted by natural
disaster, the aforementioned lawsuit or otherwise, there could be a material
adverse effect on our operations until we could establish alternative production
and service operations.
SOME COMPONENTS, SUBASSEMBLIES AND PRODUCTS ARE PURCHASED FROM A SINGLE SUPPLIER
OR A LIMITED NUMBER OF SUPPLIERS. THE LOSS OF ANY OF THESE SUPPLIERS MAY CAUSE
US TO INCUR ADDITIONAL SET-UP COSTS AND RESULT IN DELAYS IN MANUFACTURING AND
THE DELIVERY OF OUR PRODUCTS.
While components and supplies are generally available from a variety of
sources, we currently depend on a limited number of suppliers for several
components for our equipment, and certain subassemblies and products, including
Olympus as previously discussed. Some components, subassemblies and products are
purchased from a single supplier or a limited number of suppliers. In addition,
for certain components, subassemblies and products for which we may have
multiple sources,
23
we are still subject to significant price increases and limited availability due
to market demand for such components, subassemblies and products. In the past,
unexpected demand for communication products caused worldwide shortages of
certain electronic parts, which had an adverse impact on our business. While we
have entered into contracts with suppliers of parts that we anticipate may be in
short supply, there can be no assurance that additional parts will not become
the subject of such shortages or that such suppliers will be able to deliver the
parts in fulfillment of their contracts. In addition, on occasion, we build up
our component inventory in anticipation of supply shortages, which may result in
us carrying excess or obsolete components if we do not anticipate customer
demand properly and could have a material adverse effect on our business and
results of operations.
If shortages or delays exist, we may not be able to secure enough
components at reasonable prices and acceptable quality and therefore, may not be
able to meet consumer demand for our products, which could have a material
adverse effect on our business and results of operations. Although the
availability of components did not materially impact our business in 2002 or
2003, we cannot predict when and if component shortages will occur. If we are
unable to develop alternative sources for our raw materials if and as required,
we could incur additional set-up costs, which could result in delays in
manufacturing and the delivery of our products and thereby have a material
adverse effect on our business, results of operations and financial condition.
WE SELL A MAJORITY OF OUR PRODUCTS THROUGH RESELLERS, DISTRIBUTORS AND ORIGINAL
EQUIPMENT MANUFACTURERS (OEMS). IF WE FAIL TO MANAGE OUR SALES SYSTEM PROPERLY,
OR IF THIRD-PARTY DISTRIBUTION SOURCES DO NOT PERFORM EFFECTIVELY, OUR BUSINESS
MAY SUFFER.
We sell a majority of our products through resellers, distributors and
OEMs. Some of our third-party distribution sources may have insufficient
financial resources and may not be able to withstand changes in worldwide
business conditions, including the current economic downturn, or abide by our
inventory and credit requirements. If the third-party distribution sources we
rely on do not perform their services adequately or efficiently or exit the
industry, and we are not able to quickly find adequate replacements, there could
be a material adverse effect on our revenues. In addition, we do not have
third-party distribution sources in certain parts of the world. If we are unable
to effectively and efficiently service customers outside our current geographic
scope, there may be a material adverse effect on our growth rates and result of
operations.
In 2003, we launched a new distribution system called the Symbol
PartnerSelect Program that is designed to increase our business and the business
of our resellers, distributors and OEMs and improve the quality of services and
products offered to the end user community. If the new program does not continue
to be well received by our resellers, distributors and OEMs, or the end user
community, there could be a material adverse effect on our operating results.
IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS OR IF THIRD PARTIES
ASSERT WE ARE IN VIOLATION OF THEIR INTELLECTUAL PROPERTY RIGHTS, THERE COULD BE
A MATERIALLY ADVERSE EFFECT ON OUR RESULTS OF OPERATIONS AND OUR ABILITY TO
COMPETE.
We protect our proprietary information and technology through licensing
agreements, third-party nondisclosure agreements and other contractual
provisions, as well as through patent, trademark, copyright and trade secret
laws in the United States and similar laws in other countries. There can be no
assurance that these protections will be adequate to prevent our competitors
from copying or reverse engineering our products, or that our competitors will
not independently develop products that are substantially equivalent or superior
to our technology, which in each case could affect our ability to compete and to
receive licensing revenues. In addition, third parties may seek to challenge,
invalidate or circumvent our applications for our actual patents, trademarks,
copyrights and trade secrets. Furthermore,
24
the laws of certain countries in which our products are or may be licensed do
not protect our proprietary rights to the same extent as the laws of the United
States.
Third parties have, and may in the future, assert claims of
infringement of intellectual property rights against us. Due to the rapid pace
of technological change in the mobile information systems industry, much of our
business and many of our products rely on proprietary technologies of third
parties, and we may not be able to obtain, or continue to obtain, licenses from
such third parties on reasonable terms. We have received, and have currently
pending, third-party claims and may receive additional notices of such claims of
infringement in the future. To date, such activities have not had a material
adverse affect on our business and we have 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 we will continue to prevail in any such actions or that any license
required under any such patent or other intellectual property would be made
available on commercially acceptable terms, if at all. Since there is a
significant number of U.S. and foreign patents and patent applications
applicable to our business, we believe that there is likely to continue to be
significant litigation regarding patent and other intellectual property rights,
which could have a material adverse effect on our business and our ability to
compete.
CHANGES IN SAFETY REGULATIONS RELATED TO OUR PRODUCTS, INCLUDING WITH RESPECT TO
THE TRANSMISSION OF ELECTROMAGNETIC RADIATION, COULD HAVE A MATERIALLY ADVERSE
EFFECT ON OUR PROSPECTS AND FUTURE SALES.
The use of lasers and radio emissions are subject to regulation in the
United States and in other countries in which we do business. In the United
States, various Federal agencies including the Center for Devices and
Radiological Health of the Food and Drug Administration, the Federal
Communications Commission, 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 standards concerning electrical and laser safety
and electromagnetic compatibility and emissions standards.
While some of our products do emit electromagnetic radiation, we
believe that due to the low power output of our products and the logistics of
their use, there is no health risk to end-users in the normal operation of our
products. However, if any of our products becomes specifically regulated by
governments, or the safety of which is questioned by our customers, such as
electronic cash register manufacturers, or the public at large, there could be a
material adverse effect on our business and our results of operations.
In addition, our 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 these products in
specified frequency bands does not require licensing by regulatory authorities.
Regulatory changes restricting the use of frequency bands or allocating
available frequencies could have a material adverse effect on our business and
our results of operations.
OUR SUCCESS LARGELY DEPENDS ON OUR ABILITY TO RETAIN AND RECRUIT KEY EMPLOYEES.
In order to be successful, we must retain and motivate our executives
and other key employees, including those in managerial, technical, marketing and
information technology support positions. In particular, our product generation
efforts depend on hiring and retaining qualified engineers. Attracting and
retaining skilled solutions providers in the IT support business and qualified
sales representatives are also critical to our future.
25
Experienced management and technical, marketing and support personnel
in the information technology industry are in high demand, in spite of the
general economic slowdown, and competition for their talents is intense. Many
companies, including Symbol, grant stock options as one of their primary
incentives to retain and recruit key employees. However, as long as we are not
current with our periodic filings with the Commission, our key employees will be
unable to exercise their options, which may make it more difficult for us to
retain and recruit key employees. The loss of, or the inability to recruit, key
employees could have a material adverse effect on our business.
OUR OPERATING RESULTS FLUCTUATE EACH QUARTER. THIS FLUCTUATION HINDERS OUR
ABILITY TO FORECAST REVENUES AND TO VARY OUR OPERATING EXPENSES ACCORDINGLY.
Our operating results have been, and may continue to be, subject to
quarterly fluctuations as a result of a number of factors discussed in this
report, including: worldwide economic conditions; levels of IT spending; changes
in technology; new competition; customer demand; a shift in the mix of our
products; a shift in sales channels; the market acceptance of new or enhanced
versions of our products; the timing of introduction of other products and
technologies; component shortages; and acquisitions made by Symbol.
An additional reason for such quarterly fluctuations is that it is
difficult for us to forecast the volume and timing of sales orders we will
receive during a fiscal quarter, as most customers require delivery of our
products within 45 days of ordering and customers frequently cancel or
reschedule shipments. However, our operating expense levels are partly based on
our projections of future revenues at any given time. For example, in order to
meet the delivery requirements of our customers, we maintain significant levels
of raw materials. Therefore, in the event that actual revenues are significantly
less than projected revenues for any quarter, operating expenses are likely to
be unusually high and our operating profit may be adversely affected.
Our revenues may vary in the future to an even greater degree due to
our increasing focus on sales of mobile information systems instead of
individual products. Historically, we have sold individual bar code scanning
devices and scanner integrated mobile computing devices to customers.
Increasingly, our sales efforts have focused on sales of complete data
transaction systems. System sales are more costly, and require a longer selling
cycle and more complex integration and installation services. An increase in
system sales, therefore, may result in increased time between the manufacture of
product and the recognition of revenue, as well as the receipt of payment for
such transactions.
OUR STOCK PRICE MAY CONTINUE TO BE VOLATILE.
Our stock price, like that of other technology companies, can be
volatile. Some of the factors that can affect our stock price include:
o the announcement of new products, services or technological
innovations by us or our competitors;
o quarterly increases or decreases in revenue, gross margin or
earnings, and changes in our business, operations or prospects for
any of our segments;
o changes in quarterly revenue or earnings estimates by the
investment community; and
o speculation in the press or investment community about our
strategic position, financial condition, results of operations,
business, significant transactions, the restatement or the
previously discussed government investigations.
26
General market conditions or domestic or international macroeconomic
and geopolitical factors unrelated to our performance may also affect the price
of our stock. For these reasons, investors should not rely on recent trends to
predict future stock prices, financial condition, results of operations or cash
flows. In addition, following periods of volatility in a company's securities or
a restatement of previously reported financial statements, securities class
actions may be filed against a company. We are currently litigating a number of
securities class action lawsuits. See "--Pending litigation may have a material
adverse effect on our results of operations and financial condition."
ACCESS TO INFORMATION
Symbol's Internet address is www.symbol.com. Through the Investor
Relations section of our Internet website, we make available, free of charge,
our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports
on Form 8-K and any amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities and Exchange Act of 1934 (the "Exchange
Act"), as well as any filings made pursuant to Section 16 of the Exchange Act,
as soon as reasonably practicable after we electronically file such material
with, or furnish it to, the Commission. Copies are also available, without
charge, from Symbol Investor Relations, One Symbol Plaza, Holtsville, New York
11742. As discussed in the Introductory Note, the financial information that has
been previously filed or otherwise reported should no longer be relied upon and
are superseded by the information in this annual report and certain 2003 filings
with the Commission have been delayed. Our Internet website and the information
contained therein or incorporated therein are not incorporated into this Annual
Report on Form 10-K.
You may also read and copy materials that we have filed with the
Commission at the Commission's public reference room located at 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549. Please call the Commission at
1-800-SEC-0330 for further information on the public reference room. In
addition, our filings with the Commission are available to the public on the
Commission's web site at www.sec.gov.
ITEM 2. PROPERTIES
The following table states the location, primary use and approximate
size of all principal plants and facilities of Symbol and the duration of our
tenancy with respect to each facility.
Location Principal Use Size (sq. ft.) Tenancy/Ownership
- ----------------------------- --------------------------- -------------- -----------------
One Symbol Plaza
Holtsville, New York World Headquarters 299,000 Owned
McAllen, Texas Distribution Facility 334,000 Owned
Reynosa, Tamaulipas Mexico Manufacturing 290,000 Owned
116 Wilbur Place
Bohemia, New York Operations Offices, Labs 92,000 Owned
110 Wilbur Place
Bohemia, New York Manufacturing, Development Lab 30,000 Owned
12 & 13 Oaklands Pk. Customer Service 18,923 Owned
Fishponds Road
Wokingham, Berkshire
England
27
Location Principal Use Size (sq. ft.) Tenancy/Ownership
- ----------------------------- --------------------------- -------------- -----------------
Valley Oak Network Systems 100,000 Leased: expires
Technology Campus Engineering, Marketing August 12, 2009
San Jose, California
El Paso, Texas Customer Service Center 62,660 Leased: expires
and Warehouse December 14, 2007
Berkshire Place Winnersh EMEA Headquarters, 55,500 Leased: expires
Triangle Winnersh, Wokingham Marketing and December 31, 2012
Berkshire, England Administration and
U.K. Headquarters
Juarez, Mexico Customer Service Center 50,000 Leased: expires
and Warehouse April 13, 2004
In addition to these principal locations, we lease other offices
throughout the world, ranging in size from approximately 150 to 40,000 square
feet.
ITEM 3. LEGAL PROCEEDINGS
GOVERNMENT INVESTIGATIONS
As previously disclosed, the Commission has issued a Formal Order
Directing Private Investigation and Designating Officers to Take Testimony with
respect to certain accounting matters, principally concerning the timing and
amount of revenue recognized by Symbol during the period of January 1, 2000
through December 31, 2001 as well as the accounting for certain reserves,
restructurings, certain option programs and several categories of cost of
revenue and operating expenses. We are cooperating with the Commission, and have
produced hundreds of thousands of documents and numerous witnesses in response
to the Commission's inquiries. Symbol and approximately ten or more former
employees have received so-called "Wells Notices" stating that the Commission
Staff in the Northeast Regional Office is considering recommending to the
Commission that it authorize civil actions against Symbol and the individuals
involved alleging violations of various sections of the federal securities laws
and regulations. Pursuant to an action against Symbol, the Commission may seek
permanent injunctive relief and appropriate monetary relief, including a fine,
from us.
As previously disclosed, the Eastern District has commenced a related
investigation. We are cooperating with that investigation, and have produced
documents and witnesses in response to the Eastern District's inquiries. As
indicated above, the Eastern District could file criminal charges against Symbol
and seek to impose a fine and other appropriate relief upon us.
In March 2003, Robert Asti, Symbol's former Vice President--North
America Sales & Services--Finance, who left Symbol in March 2001, pleaded guilty
to two counts of securities fraud in connection with matters that are the
subject of the Commission and the Eastern District investigations, as well as
our own investigation. These counts included allegations that Mr. Asti acted
together with other unnamed high-ranking corporate executives at Symbol to,
among other things, manufacture revenue through sham "round-trip" transactions.
The Commission also has filed a civil complaint asserting similar allegations
against Mr. Asti.
In June 2003, Robert Korkuc, Symbol's former Chief Accounting Officer,
who left Symbol in March 2003, pleaded guilty to two counts of securities fraud
in connection with matters that are the subject of the Commission and the
Eastern District investigations, as well as our own internal
28
investigation. These counts included allegations that Mr. Korkuc acted with
others at Symbol in a fraudulent scheme to inflate various measures of Symbol's
financial performance. The Commission also has filed a civil complaint asserting
similar allegations against Mr. Korkuc.
Symbol is attempting to negotiate a resolution with each of the
Commission and the Eastern District to the mutual satisfaction of the parties
involved. In either case, an agreement has not yet been reached and there is no
guarantee that Symbol will be able to successfully negotiate a resolution.
SECURITIES LITIGATION MATTERS
PINKOWITZ V. SYMBOL TECHNOLOGIES, INC., ET AL.
On March 5, 2002, a purported class action lawsuit was filed, entitled
Pinkowitz v. Symbol Technologies, Inc., et al., in the United States District
Court for the Eastern District of New York on behalf of purchasers of the common
stock of Symbol between October 19, 2000 and February 13, 2002, inclusive,
against Symbol, Tomo Razmilovic, Jerome Swartz and Kenneth Jaeggi. The complaint
alleged that defendants violated the federal securities laws by issuing
materially false and misleading statements throughout the class period that had
the effect of artificially inflating the market price of Symbol's securities.
Subsequently, a number of additional purported class actions containing
substantially similar allegations were also filed against Symbol and certain
Symbol officers in the Eastern District of New York.
On September 27, 2002, a consolidated amended complaint was filed in
the United States District Court for the Eastern District of New York,
consolidating the previously filed purported class actions. The consolidated
amended complaint added Harvey P. Mallement, George Bugliarello and Leo A.
Guthart (the current members of the Audit Committee of Symbol's Board of
Directors) and Brian Burke and Frank Borghese (former employees of Symbol) as
additional individual defendants and broadened the scope of the allegations
concerning revenue recognition. In addition, the consolidated amended complaint
extended the alleged class period to the time between April 26, 2000 and April
18, 2002.
Discovery in the Pinkowitz action has recently commenced. In addition,
on October 15, 2003, plaintiffs moved for class certification of the Pinkowitz
action. Trial of the Pinkowitz action is scheduled to commence on June 8, 2004.
Symbol intends to defend the case vigorously on the merits.
HOYLE V. SYMBOL TECHNOLOGIES, INC., ET AL.
SALERNO V. SYMBOL TECHNOLOGIES, INC., ET AL.
On March 21, 2003, a separate purported class action lawsuit was filed,
entitled Edward Hoyle v. Symbol Technologies, Inc., Tomo Razmilovic, Kenneth V.
Jaeggi, Robert W. Korkuc, Jerome Swartz, Harvey P. Mallement, George
Bugliarello, Charles B. Wang, Leo A. Guthart and James H. Simons, in the United
States District Court for the Eastern District of New York. On May 7, 2003, a
virtually identical purported class action lawsuit was filed against the same
defendants by Joseph Salerno.
The Hoyle and Salerno complaints are brought on behalf of a purported
class of former shareholders of Telxon who obtained Symbol stock in exchange for
their Telxon stock pursuant to Symbol's acquisition of Telxon effective as of
November 30, 2000. The complaint alleges that the defendants violated the
federal securities laws by issuing a Registration Statement and Joint Proxy
Statement/Prospectus in connection with the Telxon acquisition that contained
materially false and misleading statements that had the effect of artificially
inflating the market price of Symbol's securities.
29
On October 3, 2003, Symbol and the individual defendants moved to
dismiss the Hoyle action as barred by the applicable statute of limitations. The
Court has not ruled on the motion. Symbol intends to defend the case vigorously
on the merits.
In connection with the above pending class actions, Symbol recorded a
charge of $70 million in the fourth quarter of 2002.
BILDSTEIN V. SYMBOL TECHNOLOGIES, INC., ET. AL.
On April 29, 2003, a lawsuit was filed, entitled Bildstein v. Symbol
Technologies, Inc., et. al., in the United States District Court for the Eastern
District of New York against Symbol and Jerome Swartz, Harvey P. Mallement,
Raymond R. Martino, George Bugliarello, Charles B. Wang, Tomo Razmilovic, Leo A.
Guthart, James Simons, Saul F. Steinberg and Lowell Freiberg. The plaintiff
alleges that the defendants violated Section 14(a) of the Securities Exchange
Act of 1934 and Rule 14a-9 promulgated thereunder, and common and state law, by
authorizing the distribution of proxy statements in 2000, 2001 and 2002.
Plaintiff seeks the cancellation of all affirmative votes at the annual meetings
for 2000, 2001 and 2002, canceling all awards under the option plans, enjoining
implementation of the option plans and any awards thereunder and an accounting
by the defendants for all damage to Symbol, plus all costs and expenses in
connection with the action. Symbol has filed a motion to dismiss that is now
fully briefed and pending before the Court. Symbol intends to defend the case
vigorously on the merits.
GOLD V. SYMBOL TECHNOLOGIES, INC., ET AL.
On December 18, 2003, a purported class action lawsuit was filed,
entitled Gold v. Symbol Technologies, Inc., et al., in the Court of Chancery of
the State of Delaware against Symbol and Tomo Razmilovic, Kenneth V. Jaeggi,
Dr. Jerome Swartz, Frank Borghese, Brian Burke, Richard M. Feldt, Satya Sharma,
Harvey P. Mallement, Raymond R. Martino, George Bugliarello, Dr. Leo A. Guthart,
Dr. James H. Simons, Leonard H. Goldner, Saul P. Steinberg, Lowell C. Freiberg
and Charles Wang. The complaint alleges that the defendants violated the federal
securities laws by issuing materially false and misleading statements from
January 1, 1998 through December 31, 2002 that had the effect of artificially
inflating the market price of Symbol's securities and that they to failed to
properly oversee or implement policies, procedures and rules to ensure
compliance with federal and state laws requiring the dissemination of accurate
financial statements, ultimately caused Symbol to be sued for, and exposed to
liability for, violations of the anti-fraud provisions of the federal securities
laws, engaged in insider trading in Symbol's common stock, wasted corporate
assets and improperly awarded a severance of approximately $13,000,000 to Mr.
Razmilovic.
Plaintiff seeks to recover incentive-based compensation paid to senior
members of Symbol's management in reliance on materially inflated financial
statements and to impose a trust to recover cash and other valuable assets
received by the management defendants and former Symbol board members in the
form of proceeds garnered from the sale of Symbol common stock (including option
related sales) from at least January 1, 1998 through December 31, 2002.
IN RE TELXON CORPORATION SECURITIES LITIGATION
From December 1998 through March 1999, a total of 27 class actions were
filed in the United States District Court, Northern District of Ohio, by certain
alleged stockholders of Telxon on behalf of themselves and purported classes
consisting of Telxon stockholders, other than the defendants and their
affiliates, who purchased stock during the period from May 21, 1996 through
February 23, 1999, or various portions thereof, alleging claims for "fraud on
the market" arising from alleged misrepresentations and omissions with respect
to Telxon's financial performance and prospects and an alleged violation of
generally accepted accounting principles by improperly recognizing revenues. The
named defendants are Telxon, its former president and chief executive officer,
Frank E. Brick, and its
30
former senior vice president and chief financial officer, Kenneth W. Haver. The
actions were referred to a single judge, consolidated and an amended complaint
was filed by lead counsel. The amended complaint alleges that the defendants
engaged in a scheme to defraud investors through improper revenue recognition
practices and concealment of material adverse conditions in Telxon's business
and finances