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, 2003
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 [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
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 the registrant's classes of common
stock, as of March 9, 2004, was as follows:
CLASS NUMBER OF SHARES
----- ----------------
Common Stock, par value $0.01 233,440,995
DOCUMENTS INCORPORATED BY REFERENCE: CERTAIN PORTIONS OF THE DEFINITIVE PROXY
STATEMENT TO BE FILED IN CONNECTION WITH THE REGISTRANT'S 2004 ANNUAL MEETING OF
SHAREHOLDERS ON APRIL 26, 2004 (INCORPORATED BY REFERENCE UNDER PART III)
SYMBOL TECHNOLOGIES, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2003
TABLE OF CONTENTS
PAGE NUMBER
-----------
PART I............................................................................................................1
Item 1. Business....................................................................................1
Item 2. Properties.................................................................................22
Item 3. Legal Proceedings..........................................................................22
Item 4. Submission of Matters to a Vote of Security Holders........................................31
Item 4A. Executive Officers of the Registrant.......................................................31
PART II..........................................................................................................33
Item 5. Market for the Registrant's Common Equity and Related Security Holder Matters..............33
Item 6. Selected Financial Data....................................................................33
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations......34
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.................................47
Item 8. Financial Statements and Supplementary Data................................................48
Item 9. Disagreements on Accounting and Financial Disclosure.......................................48
Item 9A. Controls and Procedures....................................................................48
PART III.........................................................................................................49
Item 10. Directors and Executive Officers of the Registrant.........................................49
Item 11. Executive Compensation.....................................................................49
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters........................................................................50
Item 13. Certain Relationships and Related Transactions.............................................50
Item 14. Principal Accountant Fees and Services.....................................................50
PART IV..........................................................................................................50
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K............................50
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.
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 four core technologies - bar code reading and image
recognition, mobile computing, networking systems and mobility software. 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 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 18 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.
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, 2003, Product Segment
net revenue was $1,224 million, which represented 80 percent of total revenues.
See Note 18 of the Notes 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 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
2
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.
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.
3
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 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
4
requirements. With an integrated laser scan engine, the M 2000 is capable of
scanning in a rotating omni-directional scan pattern for reading linear bar
codes in any orientation, a smart raster scan pattern for reading
two-dimensional bar codes and a high- density single-line scan pattern for
reading poorly printed and damaged bar codes. Designed for retail and light
industrial use, the M 2000's ergonomic built-in stand provides for both 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 and 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 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.
5
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 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.
6
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
@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 2 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, 2003, Services Segment net revenue was $306
million, which represented 20% of total revenues. See Note 18 to the
Consolidated Financial Statements included elsewhere herein.
7
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 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.
8
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.
The following table sets forth certain information as to international
revenues of Symbol(1):
YEAR ENDED DECEMBER 31,
-----------------------
(IN MILLIONS)
AREA 2003 2002 2001
- ------------------------------------------------------------------- ------ ------ ------
EMEA(2)............................................................ $438.6 $382.8 $390.9
Asia Pacific....................................................... 112.6 84.6 83.0
Other(3)........................................................... 92.9 75.5 69.2
------ ------ ------
Total.............................................................. $644.1 $542.9 $543.1
====== ====== ======
- --------------
(1) See Note 18 of the Notes 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 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.
9
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 $108,800,
$72,845 and $93,682 for research and development during the years ended December
31, 2003, 2002 and 2001, 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 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.
10
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 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
11
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, 2003, we had approximately 5,300 full-time employees.
Of these, approximately 2,700 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.
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 INVESTIGATIONS
WE ARE BEING INVESTIGATED BY THE SECURITIES AND EXCHANGE COMMISSION
(THE "SEC" OR THE "COMMISSION") AND THE EASTERN DISTRICT OF NEW YORK (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 financial statements, which we filed with the SEC on Form
10-K/A on February 25, 2004. 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. However, any criminal and/or civil action or
any negotiated resolution may involve, among other things, injunctive and
equitable relief, including
12
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.
PENDING LITIGATION MAY HAVE A MATERIAL ADVERSE EFFECT ON OUR RESULTS OF
OPERATIONS, FINANCIAL CONDITION AND CASH FLOW.
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. We currently have accrued $142.0
million related to the pending class action 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. On December
19, 2003, the settlement received preliminary approval from the Court. On
February 12, 2004, the Court granted its final approval of the settlement. As a
result of contributions by Telxon's insurers, Telxon paid $25 million to the
class on February 27, 2004.
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, pleaded guilty to two counts of
securities fraud in connection with the government investigations described
above. The Commission has 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, we 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. As of December 31, 2003 and
2002, we have not recorded any liability in our consolidated financial
statements with respect to this matter.
13
We are also subject to lawsuits in the normal course of business, which
can be expensive and 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 Part I, Item 3, "Legal
Proceedings" for additional information regarding material litigation.
IF WE ARE UNABLE TO EFFECTIVELY AND EFFICIENTLY IMPLEMENT OUR PLAN TO REMEDIATE
DEFICIENCIES WHICH HAVE BEEN IDENTIFIED IN OUR INTERNAL CONTROLS AND PROCEDURES,
THERE COULD BE A MATERIAL ADVERSE EFFECT ON OUR OPERATIONS OR FINANCIAL RESULTS.
Throughout 2003 and continuing in 2004, we have and are implementing
various initiatives to address the material weaknesses and other deficiencies in
our internal controls identified by our internal investigations, conducted with
the oversight by our Audit Committee, into our past practices.
These initiatives are intended to materially improve our internal
controls and procedures, address systems and personnel issues 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, documentation and information systems. See
Item 9A, "Controls and Procedures."
The implementation of these initiatives 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 deficiencies in our internal 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 OF 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 resulted in a restatement of our previous
years financial statements that were filed delinquently with the SEC. The
Commission may provide us with comments on this filing or any of our previous
filings, which would require us to amend or restate previously filed periodic
reports. The NYSE did not take any delisting or other action against Symbol in
connection with its previous delinquent filings, 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 our previous 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 that which 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.
14
MANY OF THE INDIVIDUALS WHO 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 of 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 be assured of the level of IT spending, the
deterioration of 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
15
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 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 or 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.
16
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
computer, network and communications industry participants who have
substantially greater financial, technical, marketing and manufacturing
resources than we do. 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 2003, foreign sales accounted for approximately 42.1% 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 increased security requirements;
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;
17
o lengthy 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 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 2003, approximately 54% 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 2004.
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 on which our facility in Reynosa is located. See
Part II, Item 1, "Legal Proceedings--Other Litigation--Lic. Olegario
18
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. 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, 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 properly anticipate customer
demand 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 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
19
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, 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 effect 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 are 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 their safety 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 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 RECRUIT AND RETAIN 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.
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. The
loss of, or the inability to recruit, key employees could have a material
adverse effect on our business.
20
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.
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
21
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. 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.
SIZE (SQ.
LOCATION PRINCIPAL USE 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. Fishponds Customer Service 18,923 Owned
RoadWokingham, Berkshire England
Valley Oak Technology Campus Network Systems Engineering, Marketing 100,000 Leased: expires
San Jose, California August 12, 2009
El Paso, Texas Customer Service Center and Warehouse 62,660 Leased: expires
December 14, 2007
Berkshire Place Winnersh EMEA Headquarters, Marketing and 55,500 Leased: expires
Triangle Winnersh, Wokingham Administration and U.K. Headquarters December 31, 2012
Berkshire, England
Juarez, Mexico Customer Service Center and Warehouse 50,000 Leased: expires
April 13, 2004
(month-to-month
thereafter)
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
We are a party to lawsuits in the normal course of business. Litigation
in the normal course of business, as well as the lawsuits and investigations
described below, can be expensive, lengthy and disruptive to normal business
operations. Moreover, the results of complex legal proceedings and government
investigations are difficult to predict. Unless otherwise specified, Symbol is
currently unable to estimate, with reasonable certainty, the possible loss, or
range of loss, if any, for the lawsuits and investigations described herein. An
unfavorable resolution to any of the lawsuits or investigations described below
could have a material adverse effect on Symbol's business, results of operations
or financial condition.
GOVERNMENT INVESTIGATIONS
The SEC 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 SEC, and have produced hundreds of thousands of documents and numerous
witnesses in response to the SEC's inquiries. Symbol and approximately ten or
more former employees have
22
received so-called "Wells Notices" stating that the SEC 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.
The United States Attorney's Office for the Eastern District of New
York (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. The Eastern District could file
criminal charges against Symbol and seek to impose a fine upon us and other
relief the Eastern District deems appropriate.
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.
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. 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 has also 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. 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 entitled Pinkowitz
v. Symbol Technologies, Inc., et al., was filed 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
former 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
23
amended complaint added Harvey P. Mallement, George Bugliarello and Leo A.
Guthart (the then 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 continues to vigorously assert its defenses in this litigation.
Hoyle v. Symbol Technologies, Inc., et al.
Salerno v. Symbol Technologies, Inc., et al.
On March 21, 2003, a separate purported class action lawsuit 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, was filed 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 Corporation ("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.
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 litigate the case
vigorously on the merits.
In connection with the above pending class actions and government
investigations, Symbol recorded additional loss provisions on legal settlements
of $72,000 in the first quarter of 2003 and $70,000 in the fourth quarter of
2002 bringing the estimated liability to $142,000 as of December 31, 2003,
compared to $70,000 as of December 31, 2002. This is reflected as a component of
accounts payable and accrued expenses in the accompanying Consolidated Financial
Statements.
Bildstein v. Symbol Technologies, Inc., et. al.
On April 29, 2003, a lawsuit entitled Bildstein v. Symbol Technologies,
Inc., et. al., was filed 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. On February 4, 2004, Symbol argued its motion to dismiss before
the Court and is awaiting the Court's decision. Symbol intends to defend the
case vigorously on the merits.
Gold v. Symbol Technologies, Inc., et al.
On December 18, 2003, a purported derivative action lawsuit entitled
Gold v. Symbol Technologies, Inc., et al., was filed in the Court of Chancery of
the State 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.
24
Mallement, Raymond R. Martino, George Bugliarello, Dr. Leo A. Guthart, Richard
Bravman, 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
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, which 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 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.
Symbol intends to litigate the case vigorously.
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 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. The amended complaint
seeks certification of the identified class, unspecified compensatory and
punitive damages, pre- and post-judgment interest, and attorneys' fees and
costs.
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 $37,000 to the class.
As a result of anticipated contributions by Telxon's insurers, Telxon expects
that its net payment will be no more than $25,000. Telxon has not settled its
lawsuit against its former auditors, PricewaterhouseCoopers LLP ("PwC"), and, as
part of the proposed settlement of the class action, Telxon has agreed to pay to
the class, under certain circumstances, up to $3,000 of the proceeds of that
lawsuit. On December 19, 2003, the settlement received preliminary approval from
the Court. On February 12, 2004, the Court granted its final approval of the
settlement.
Accordingly, we recorded a $25,000 pre-tax charge in the Consolidated
Statements of Operations in 2002 and have reflected as an accrued liability as
of December 31, 2003 the estimated settlement of $37,000 and have recorded an
asset for the insurance proceeds of $12,000 which we expect to receive in the
first quarter of 2004. On February 27, 2004, we paid $25,000 to the class in
accordance with the settlement.
On February 20, 2001, Telxon filed a motion for leave to file and serve
a summons and third-party complaint against third-party defendant PwC in the
shareholders' class action complaints. Telxon's third-party complaint against
PwC concerns PwC's role in the original issuance and restatements of Telxon's
financial statements for its fiscal years 1996, 1997 and 1998 and its interim
financial statements for its first and second quarters of fiscal year 1999,
which are the subject of the class action litigation against Telxon. Telxon
states causes of action against PwC for contribution under federal securities
law, as well as state law claims for accountant malpractice, fraud, constructive
fraud, fraudulent concealment, fraudulent misrepresentation, negligent
misrepresentation, breach of contract and breach of fiduciary duty. With respect
to its federal claim against PwC, Telxon seeks contribution from PwC for all
sums that Telxon may be required to pay in excess of Telxon's
25
proportionate liability, if any, and attorney fees and costs. With respect to
its state law claims against PwC, Telxon seeks compensatory damages, punitive
damages, attorney fees and costs, in amounts to be determined at trial.
Fact discovery has been substantially completed. Trial is scheduled to
commence sometime in 2004.
Wyser-Pratte Management Co. v. Telxon Corporation, et. al.
On June 11, 2002, Wyser-Pratte Management Co., Inc. ("WPMC") filed a
complaint against Telxon and its former top executives alleging violations of
Sections 10(b), 18, 14(a) and 20(a) of the Securities and Exchange Act of 1934
(the "Exchange Act"), and alleging additional common law claims. This action is
related to the same set of facts as the In re Telxon class action described
above. On November 15, 2003, the parties reached an agreement in principle to
resolve the litigation under which Telxon would pay WPMC $3,300. We recorded a
$3,300 pre-tax charge in the Consolidated Statements of Operations during 2002.
The settlement was finalized and paid by the Company in December 2003, and a
stipulation of dismissal was filed in January 2004.
PENDING PATENT AND TRADEMARK LITIGATION
Proxim v. Symbol Technologies, Inc., 3 Com Corporation, Wayport Incorporated and
SMC Networks Incorporated
In March 2001, Proxim Incorporated ("Proxim") sued Symbol, 3 Com
Corporation, Wayport Incorporated and SMC Networks Incorporated in the United
States District Court in the District of Delaware for allegedly infringing three
patents owned by Proxim (the "Proxim v. 3Com et al. Action"). Proxim also filed
a similar lawsuit in March 2001 in the United States District Court in the
District of Massachusetts against Cisco Systems, Incorporated and Intersil
Corporation. The complaint against Symbol sought, among other relief,
unspecified damages for patent infringement, treble damages for willful
infringement and a permanent injunction against Symbol from infringing these
three patents.
Symbol answered and filed counterclaims against Proxim, asserting that
Proxim's RF product offerings infringe on four Symbol patents relating to
wireless LAN technology.
On December 4, 2001, we filed a complaint against Proxim in the United
States District Court in the District of Delaware (the "Symbol v. Proxim
Action") asserting infringement of the same four patents that were asserted in
our counterclaim against Proxim in the Proxim v. 3Com et al. Action prior to the
severance of this counterclaim by the Court. On December 18, 2001, Proxim filed
an answer and counterclaims in the Symbol v. Proxim Action, seeking declaratory
judgments for non-infringement, invalidity and unenforceability of the four
patents asserted by Symbol, injunctive and monetary relief for our alleged
infringement of one additional Proxim patent (the "`634 Patent") involving
wireless LAN technology, monetary relief for our alleged false patent marking,
and injunctive and monetary relief for our alleged unfair competition under the
Lanham Act, common law unfair competition and tortious interference.
On March 17, 2003, Intersil and Proxim announced that a settlement
between the companies had been reached, whereby Proxim agreed, inter alia, to
dismiss with prejudice all of Proxim's claims in the Proxim v. 3Com et al.
Action (the "Proxim/Intersil Agreement