-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LbHfpeM3Syu0R3HLoxfJlxVvA/Hc2WI4h1jyn+LTzd6RzmZlILEE/8KsNkwTtIkW NTMVDq4b5Z8BmF+vfS6CbQ== 0000278352-98-000002.txt : 19980311 0000278352-98-000002.hdr.sgml : 19980311 ACCESSION NUMBER: 0000278352-98-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980310 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYMBOL TECHNOLOGIES INC CENTRAL INDEX KEY: 0000278352 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 112308681 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-09802 FILM NUMBER: 98561670 BUSINESS ADDRESS: STREET 1: ONE SYMBOL PLAZA CITY: HOLTSVILLE STATE: NY ZIP: 11742-1300 BUSINESS PHONE: 5165632400 MAIL ADDRESS: STREET 1: ONE SYMBOL PLAZA CITY: HOLTSVILLE STATE: NY ZIP: 11742-1300 10-K 1 March 9, 1998 Securities and Exchange Commission Judiciary Plaza 450 Fifth Street, NW Washington, DC 20549 Attention: Filing Desk Gentlemen: Re: Symbol Technologies, Inc. Annual Report on Form 10-K For Fiscal Year Ended December 31, 1997 File No. 1-9802 On behalf of Symbol Technologies, Inc. (the "Company"), I transmit for filing under the Securities and Exchange Act of 1934 (the "Act"), the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997. I have been advised by the Company that the financial statements contained in the report do not reflect any changes from the preceding year's financial statements with respect to . accounting principles or practices or in the method of applying such principles or practices. If you have any questions regarding the enclosed materials, please call the undersigned by collect telephone at (516) 738-4765. Very truly yours, s/Leonard H. Goldner Leonard H. Goldner Senior Vice President and General Counsel LHG:mk March 9, 1998 Securities and Exchange Commission Washington, DC 20549 Gentlemen: In connection with the undersigned's Annual Report on Form 10-K for the year ended December 31, 1997 and pursuant to Item 601(b)(4)(iii) of Regulation S-K, the undersigned has not filed as exhibit 10.6 an Industrial Revenue Bond financing agreement in respect of its executive offices since the total amount of securities authorized thereunder does not exceed 10% of the Registrant's total consolidated assets. The Registrant, however, agrees to furnish a copy of such document to the Commission if so requested. Very truly yours, SYMBOL TECHNOLOGIES, INC. By: s/Kenneth V. Jaeggi Kenneth V. Jaeggi Senior Vice President- Finance and Chief Financial Officer KVJ:mk SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997 Commission file number 1-9802 SYMBOL TECHNOLOGIES, INC. (Exact name of Registrant as specified in its charter) Delaware 11-2308681 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) One Symbol Plaza Holtsville, NY 11742-1300 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (516) 738-2400 Securities registered pursuant to Section 12(b) of the Act: Common Stock, par value $.01 New York Stock Exchange (Title of each class) (Name of each Exchange on which registered) Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X The aggregate market value of the voting stock held by persons other than officers and directors (and their associates) of the registrant, as of March 1, 1998 was approximately $1,688,415,000. The number of shares outstanding of each of the registrant's classes of common stock, as of December 31, 1997, was as follows: Class Number of Shares Common Stock, par value $.01 39,160,249 Documents Incorporated by Reference: The registrant's Proxy Statement to be used in conjunction with the Annual Meeting of Shareholders to be held on May 11, 1998 (the "Proxy Statement") is incorporated into Part III. PART I Item 1. Business The Company Symbol Technologies, Inc. ("Symbol" and, together with its subsidiaries, the "Company"), a Delaware corporation, is the successor by merger in 1987 to Symbol Technologies, Inc., a New York corporation which commenced operations in 1975 and is the largest manufacturer of bar code-driven data transaction systems. The Company is the only corporation in its industry with in-house technology for the design and manufacture of bar code scanning products, hand- held computers and radio frequency (RF) data communications systems. The Company is engaged in one industry segment - the design, manufacture and marketing of bar code reading equipment, hand-held computers and radio frequency data communications systems which are used as strategic building blocks in data transaction systems in retail, transportation and logistics, parcel delivery and postal service, warehousing and distribution, factory automation, health care and many other applications. Company Products and Services General The Company develops, manufactures, sells and services (i) one- dimensional and two-dimensional bar code scanning products that principally employ laser technology to read data encoded in bar code symbols, (ii) data transaction systems incorporating application specific hand-held computers, and (iii) wireless local area network (WLAN) adapter cards and RF systems to transmit data. The Company distributes the most complete line of bar code reading equipment in the world. The Company's bar code scanning equipment is compatible with a wide variety of data collection systems, including computers, electronic cash registers and portable data collection devices. Bar code scanners are used to enhance accurate data entry and productivity in retail, transportation and logistics, parcel delivery and postal service, warehousing and distribution, factory automation and many other applications. The Company's data transaction systems consist of hand-held computers, peripheral devices, software and programming tools, and are designed to provide solutions to specific customer needs in data transactions. They are used to collect data at remote locations and to transmit information between these locations and the user's central data processing facility. Data can be entered by a touch screen or a device which reads bar codes or may be keyed into memory on a numeric or alpha-numeric keyboard. Data can be transmitted and received through direct connection, regular telephone lines with acoustic couplers and modems or by radio waves. A majority of the Company's hand-held computers include an integrated bar code reader. - -2- Bar Code Scanning Products Sales of the Company's bar code scanning products have accounted for approximately 40 percent of the Company's total revenues for the years ended December 31, 1997, 1996 and 1995. The Company's bar code scanning products consist of devices designed to scan and decode bar code symbols and transmit data. The Company sells various models of its bar code reading systems, each of which consists of a laser scanner and interface controller. In most models, the interface controller is integrated into the handle of the scanner. The laser scanner reads the symbol and transmits a digitized signal to the interface controller. The interface controller contains a microprocessor which decodes the information received and interfaces with the user's computer. The Company sells several different hand-held laser scanners, the most important of which is the LS 4000 which was introduced in 1996. The LS 4000 is a trigger-operated, visible laser diode-based scanner featuring high- performance scanning and an advanced ergonomic form factor making it ideal for price scanning and inventory management in a wide variety of retail and commercial segments. In 1998, the Company introduced the LS 4000I, a ruggedized high performance version of the LS 4000 capable of reading both one-dimensional and certain two-dimensional bar codes. The LS 3000 Series introduced in 1993, consists of trigger-operated, visible laser diode-based scanners used to read all common linear bar code symbologies and densities up to a distance of 20 feet. The LS 3000 is particularly well-suited for industrial and military applications because of its rugged housing. These devices consume less than one watt of power during scanning. Specialty versions of the LS 3000 include long range scanners capable of reading bar codes of virtually all sizes at distances ranging from near contact to more than 35 feet (LS 3000 ER) and low contrast reading capability scanners (LS 3000 HV) both using "spot and scan" two position triggers for ease of aiming and visibility. Introduced in 1995, the LS 3600 Series of laser bar code scanners incorporate fuzzy logic technology and beam management optical technology. Fuzzy logic allows these scanners to accurately digitize and decode poor quality or damaged bar codes. Beam management optical technology allows operators to scan bar codes at varying distances. In 1993, the Company introduced the first cableless hand-held scanner, the LS 3070. The LS 3070 transmits data via narrow band RF with a range of up to 50 feet from its base station. This scanner is particularly useful in environments where tethered scanning is inadequate. In 1997, the Company introduced a less expensive cableless, hand-held scanner, the LS 4071. The LS 4071 is a cordless version of the LS 4000 which utilizes a Company designed RF communication protocol to provide the user with a maximum working range of up - -3- to ten feet from its base station. This allows for scanning of heavy or bulky items, which cannot be easily moved for scanning. Designed to provide greater productivity, flexibility and convenience, the LS 4071 is intended for use in retail and light industrial applications. The LS 2100 Series, introduced in 1998, is a trigger operated, medium- range scanner capable of reading UPC bar codes at distances up to 11 inches. Incorporating an SE 1200 series scan engine and featuring a lightweight, ergonomic design, the LS 2100 is primarily sold in the indirect channel as a point-of-sale scanner to specialty retail stores. The LS 1000 Series, introduced in 1996, is the Company's smallest and lightest trigger operated, hand-held laser scanner. The LS 1000 is a less expensive scanner ideal for light use scanning environments where cost is a critical factor. In 1995, the Company introduced the LT 1800 LaserTouchr visible laser diode-based bar code scanner that combines the performance and accuracy of laser-based bar code technology with scanning for applications where near contact scanning and touch ergonomics are sufficient. In 1995, the Company introduced the LS 4800, a hand-held laser scanner designed to read both PDF 417, a high-density, high-capacity portable data file storing approximately one kilobyte of data in a machine-readable code and all conventional linear bar codes. PDF 417 is a two-dimensional bar code symbology which incorporates error correction capability and has one hundred times the information capacity of a traditional linear bar code. Unlike linear bar codes, PDF 417 can contain an entire data record reducing or eliminating the need for an external system of linked data storage. PDF 417 may be read by either a laser-based bar code reader or a one- or two- dimensional charge coupled device (CCD) reader. Most other two-dimensional codes can only be read by a CCD reader. The LS 4800 integrates a miniature resonant 2D scan engine that rasters, reading PDF 417 symbols horizontally and vertically at 560 scans per second. Due to its rapid scan rate and advanced optics, the LS 4800 is adept at reading poor quality symbols. The LS 4900, introduced in 1996 is a battery-powered version of the LS 4800. The PDF 620, introduced in 1995, is a fixed-station card reading device designed for accurate reading of PDF 417 and standard bar codes for a variety of identification card applications. Using CCD technology, the PDF 620 accepts ISO standard sized cards and has a typical first-time read rate of 100%. Introduced in 1994, the PDF 120 is a one piece touch-only CCD based bar code reader with an integrated decoder. The PDF 120 is capable of reading PDF 417 as well as most one-dimensional bar codes. Suitable for applications that require scanning symbols of up to 1,000 characters, the PDF 120 connects to a wide range of PCs and terminals via an RS-232 serial interface port. - -4- In addition to its hand-held scanners, the Company also offers several families of "hands-free" scanners. Unlike the Company's hand-held scanners, these scanners are usually triggered by an object sensor to enable use in situations where use of both hands is required. In 1994, the Company introduced the LS 9100, a laser-diode based projection scanner. The LS 9100 generates a large omni-directional pattern of twenty interlocking laser lines that can read bar codes at various angles for high productivity scanning. In 1996, the Company introduced the PCK 9100, a compact price checker system that allows shoppers to pass bar-coded items by its scan window and view the latest product information on its high-visibility LCD display. The PCK 9100 incorporates an LS 9100 omni-directional scanner which assures accuracy over a wide range of scanning angles, making it easy for customers to obtain price information. Introduced in 1998, the LS 6000 Series is a trigger operated, high visibility laser diode-based scanner capable of omni-directional and single- line scanning. A unique ergonomic design provides for comfortable use either as a hand-held scanner or with an optional fixed-mount stand as a presentation scanner, this flexibility allows for increased throughput in high-volume, point of sale retail applications. The LS 5700 and the LS 5800 miniaturized slot scanners were introduced by the Company in 1996. The LS 5700 was designed to accommodate all vertical or "on counter" applications and incorporates a full sleep mode function which allows the motor and laser to turn off after a prolonged period of scanner inactivity, extending scanner longevity and reducing power consumption. The LS 5800 operates in horizontal or "in counter" applications and features rugged housing and a sealed exit window that resists spills and dirt. Introduced in 1996, the MP 8000 is the Company's first multiplane, high- throughput scanner, primarily designed for point-of-sale applications in the food retail market. Versions of the MP 8000 also incorporate a scale for simultaneous weighing and scanning of items. The MP 8000 produces a 56 line scan pattern from two directions creating a 360o read zone that blankets the bar-coded item in scan lines, allowing users to scan items significantly faster with less fatigue. Since 1988, the Company has been selling a series of scan engines consisting of solid state laser diode-based scanners. These compact, non-contact scanners can be integrated internally with the user's own equipment or used independently as fixed-mount scanners on conveyor lines or robotic arms. - -5- The LS 1220, introduced in 1994, incorporates a Mylar scan element for scanning conventional linear bar codes. The LS 6800 Series, introduced in 1996, incorporates a high speed raster scan engine that operates at 560 scans per second making it ideal for rapid reading of one-dimensional and two- dimensional symbols. In 1990, the Company began marketing bar code laser scanner modules or scan engines which are integrated by unaffiliated third parties into their portable computing devices. In 1992, the Company introduced the SE 1000 scan engine designed for integration into portable and battery powered devices. The SE 1100 Series scan engine, introduced in 1994, offers improved performance over the SE 1000 in a slightly larger size. In 1996, the Company introduced the low-cost, high-performance SE 1200 Series scan engine. The SE 1200, which measures less than one cubic inch and weighs less than one ounce, enables third-party manufacturers to integrate high-performance laser scanning into a variety of devices including hand-held computers, medical instruments, diagnostic equipment, lottery terminals, vending machines and robotics. The SE 1200 has a working range and ability to read poor quality bar codes equal to that of hand-held scanners. In 1997, the Company introduced a high density version of the SE 1200 capable of reading miniaturized bar codes. In 1997, most of the Company's SE 1000 and SE 1100 customers migrated to the SE 1200. The Company anticipates that the SE 1200 will replace the SE 1000 and the SE 1100 in 1998. In 1995, the Company introduced the SE 2000 Series scan engine. The SE 2000 is a small, lightweight, high performing scan engine capable of reading both one-dimensional and two-dimensional bar codes. The SE 9100 Series scan engine, introduced in 1995, is a high speed, omni-directional scan engine providing dense scan line coverage from the face of the scanner up to a distance of eight inches allowing quick "swipe" scanning as well as standard presentation scanning. In 1995, the Company introduced the WSS 1000, an innovative hand-mounted bar code-based data transaction system that allows mobile hands-free bar code scanning, data collection and RF data communications. The WSS 1000 is a wearable computer system for users who rely on the efficiency and accuracy of bar code scanning but require the use of both hands to perform job functions. The system, which consists of two components, combines the RS1, a miniature scanner worn as a ring that allows the user to simply touch a thumb and index finger contact switch to scan a bar code and a compact, light weight, wrist mounted 16-bit computer with display which permits wireless communication to the host computer. - -6- In 1997, the Company introduced the HF 1200, the latest addition to the Company's wearable computer family. Designed for use in the WSS 1000 system, the HF 1200 is a back-of-the-hand mounted scanner incorporating an SE 1200 scan engine. Similar to the RS-1 wearable scanner, the HF 1200 is triggered by a thumb-actuated switch mounted on the user's index finger, however the HF 1200 is capable of scanning at longer distances than the RS-1 ring scanner. In 1998, the Company introduced a new category of "smart scanners" the P460. The P 460 is a hand-held memory scanner with up to 1 MB of total memory and an integrated keypad and LCD display that provide enhanced input and output capabilities. Designed for multiple uses primarily in the retail market, the P 460 is capable of operating interactively with a host as a corded scanner for point-of-sale applications, as well as in batch mode under battery power for back-office or in-store applications such as physical inventory, cycle counts and gift registry. The Company also produces a series of low cost, interface controllers. These devices permit the Company's scanner products to easily interface with a wide range of standardized terminals, personal computers, point-of-sale terminals, portable terminals and dedicated computing hardware. Product list prices for the Company's bar code scanning equipment range between $645 to $5,195 depending on product configuration. The Company offers discounts off list price for quantity orders and sales are frequently made at prices below list price. Mobile Computing Systems The Company's mobile computing systems consist of hand-held computers, peripheral devices, software and programming tools. These systems collect data at remote locations and transmit information between these locations and the user's central data processing facility and are designed to provide data collection solutions for a variety of applications. A majority of the Company's hand-held computers also include an integrated bar code reader. These systems accounted for approximately 50 percent of the Company's total revenues for the years ended December 31, 1997, 1996 and 1995. Portable Data Transaction Devices The Company's portable data transaction devices are microprocessor- based, lightweight and battery-operated hand-held computers. Data may be captured by a device which reads bar codes or may be manually entered via a keyboard, a touch screen or a pen computer display/entry device. The data collected by the hand-held computer can then be transmitted to a host computer by connection through regular telephone lines with acoustic couplers and modems (batch file transfer mode). Data may also be transmitted instantly by radio waves (real-time transaction processing) by a transciever in the hand- held computer. Information from the Company's hand- - -7- held computers may be communicated to a stand-alone receiver or computer which formats the data for input into a host computer, directly into a host computer by communications controllers supplied by the Company or directly onto industry-standard Ethernet local area networks (LANs) via Company manufactured access points. Depending on the model, the Company's hand-held computers may have up to 16 megabytes of Random Access Memory (RAM) for data storage and multiple input and output capabilities for the connection of printers, bar code readers and communications devices. In addition, based upon customer specifications, the hand-held computers may also have built-in bar code readers and various built-in communications devices for transmission and receipt of data. The Company offers two spread spectrum-based, WLAN family of products. In 1990, the Company introduced its Spectrum Oner direct sequence cellular RF network for wireless data transactions. Spectrum 24r, introduced in 1995, is a high-performance, frequency hopping network which operates at 2.4 Ghz frequency and is designed to comply with the recently adopted IEEE 802.11 standard. Based on spread spectrum RF technology, Spectrum One and Spectrum 24 networks both provide real-time wireless data communications with a host computer for hundreds of portable and fixed-station computers and radio- integrated scanners. Unlike traditional narrow band RF-based networks, spread spectrum installation requires no individual site license from the FCC. Installation of these networks at various customer sites began in 1991 and these networks are now installed in over 20,000 sites worldwide. The Spectrum One and Spectrum 24 systems work in tandem with a broad range of the Company's RF capable hand-held computers. The Spectrum 24 pager, introduced by the Company in 1997, is a full- featured pager that permits one and two way paging of messages of up to 250 characters and communicates via the Company's Spectrum 24 WLAN eliminating the payment of service fees and charges. In 1998, the Company introduced the NetVision WLAN telephone system. Based upon voice-over IP technology, the telephone which looks like a standard cellular telephone, allows users to place or receive calls at no cost, worldwide, without additional charge, between other telephones or PC-based telephones located at any site served by an internal TCP/IP network. The NetVision system connects to a user's TCP/IP system via the Company's Spectrum 24 WLAN. Initial reaction to the NetVision telephone system has been enthusiastic, however, potential markets for the system are to a significant extent outside of the normal markets for the Company's products. Due to the innovative nature of the system, the Company is unable to predict whether the NetVision telephone system will be widely accepted by its current customers or the Company will be successful in developing new markets for the system. Design engineering and support for both the Company and third-party RF- based data communications systems is conducted in the Company's San Jose, California facility. The focus of the group is the design of wireless network transaction systems, the Company's Spectrum One and Spectrum 24 WLANs and - -8- support for the integration of those high-performance networks into customers' data networks and enterprise-wide information systems. The PDT family of general purpose hand-held computers features advanced technology including Very Large Scale Integrated (VLSI) circuits, which incorporate many standardized integrated circuits into one computer chip allowing for size and cost reductions. Also, the PDT family employs surface mounted component technology for reduced size and increased performance and dependability, as well as industry standard 8-, 16- and 32-bit microprocessors. The PDT family includes a series of hand-held computers which are available with different features and at varying costs depending on customer requirements and preferences. PDT hand-held computers feature up to sixteen lines of liquid crystal display, slim, lightweight design, multiple input and output ports and up to 7.6 megabytes of internal memory. PDT hand- held computers have various keyboard configurations, including a user configurable keyboard. The PDT family was originally introduced in 1985. In 1990, the Company introduced the PDT 3300, a 16-bit DOS-compatible batch hand-held computer. The PDT 3300 provides expanded program capacity and keyboard and display flexibility coupled with an environmentally sealed unit for use in harsh environments. The Company also offers versions of the PDT 3300 which operate with the Company's Spectrum One and Spectrum 24 networks. The PDT 3100 hand-held computer, a 16-bit DOS-compatible computer, was introduced in 1993. Versions of the PDT 3100 also incorporate the Company's SE 1200 scan engine and feature a unique swivel-head scanner design which adjusts instantly for right- or left-hand scanning operation. The PDT 3100 is the Company's largest selling hand-held computer. In 1994, the Company introduced versions of the PDT 3100 incorporating the Company's Spectrum One data communications network and direct or acoustic modems for telephone line communications and in 1996, the Company introduced versions of the PDT 3100 which incorporate the Company's Spectrum 24 WLAN communications capability. In 1996, the Company introduced two other versions of the 3100, the PDT 3000 and the PDT 3500. The PDT 3000 is a compact, efficient, hand-held computer designed for use in the food and drug retail and convenience store industries. Weighing less than 13 ounces, the PDT 3000 is a limited performance, lower cost version of the PDT 3100. The PDT 3500, features a larger display screen, a choice of Spectrum One or Spectrum 24 networking options and an SE 2000 scan engine providing one- and two- dimensional bar code scanning capability. In 1996, the Company introduced the PDT 1000, a pocket-sized integrated laser scanning computer designed for batch processing. The PDT 1000 is approximately one inch by two inches by 6.5 inches and weighs only seven ounces. The rugged construction, simple three-button keyboard and 96 kilobyte - -9- memory make the PDT 1000 suitable for a wide variety of tracking and asset management applications where bar code data capture and storage are required. Introduced in 1997, the PDT 2200 is a lightweight, hand-held computer ergonomically designed for true one-handed operation. The PDT 2200 features an easy to read eight row by 20 character display and an integrated high visibility SE 1200 scan engine. A 386 PC/DOS compatible operating system makes the PDT 2200 easy to program and to integrate into existing systems and a rugged, environmentally sealed housing provides weather resistant protection for the mobile user. The PDT 2200 is the the product the Company is supplying in connection with the contract related to the United States Postal Service. In 1997, the Company introduced the PDT 3200 hand-held computer, a high- performance version of the PDT 3100 that provides fast and accurate data management and improved flexibility. The PDT 3200's PC compatible 32-bit 386 microprocessor facilitates accelerated data collection while a user-accessible PC card slot provides for network connectivity, memory expansion or fax/modem capability. The PDT 3400, introduced in 1997, is a ruggedized wireless hand-held computer designed for use in harsh mobile environments. The PDT 3400 features a sealed housing that resists dust and moisture, a PC Card interface that allows for integration of wireless wide area network radio modems and PC-based standard architecture providing users with a simple application development environment. The PPT family of portable pen computers integrates several key technologies for improving information management. These PC compatible hand- held computers incorporate pen and touch input on an active matrix screen, a graphical user interface, an SE 1100 or SE 1200 scan engine, and standard PCMCIA slots for memory, modem, wireless or wide area network capability and other peripherals. The PPT 4100, introduced in 1994, is intended for use in information- intensive applications in retail and other environments where managers will benefit by accessing remote databases to make real-time inventory and purchasing decisions to significantly enhance customer service and improve productivity. The PPT 4600, introduced in 1995, incorporates a 486 microprocessor which supports both DOS and Windows based applications and an SE 2000 scan engine, making it the first hand-held computer that has the capability to scan and decode PDF 417. Engineered to withstand rugged treatment and endure outdoor conditions such as windblown rain or dust and extreme temperatures, the PPT 4600 is intended for use in industrial and mobile environments. - -10- In 1996, the Company introduced versions of the PPT 4100 and PPT 4600 incorporating Spectrum 24 WLAN communication capability and a fully integrated radio modem optimized for wireless wide area communication. The PPT 4300, introduced by the Company in 1997, is a high-performance mobile computer sealed in a ruggedized, splash-proof housing. Capable of being configured to meet a wide range of client/server application requirements particularly in the medical/healthcare field, the PPT 4300 was designed for use in information intensive applications where the flexibility of mobile computing is important. The PPT 4300 features easy operation using a full QWERTY keyboard, pen or touch screen input, optional bar code scanning and wireless communication facilitated by an integrated PC card. In 1997, the Company introduced the PPT 4500, a mobile pen computer with an integrated 486 processor that supports Windows 95 applications and features optional WLAN communication and bar code scanning. Weighing less than two pounds, the PPT 4500 is the Company's lightest and most powerful pen computer. The LRT 3800, introduced in 1990, incorporates in a single, hand-held unit, high-performance laser bar code scanning, a 16-bit DOS-based computer and a radio modem for communication via the Company's Spectrum WLANs. Based on visible laser diode scanning technology, the battery-operated LRT 3800 is compact and ergonomically designed and provides up to 1.2 megabytes of memory capacity. The LDT 3805, also introduced in 1990, is identical to the LRT 3800 in physical appearance. Its scanning and computing functions are similar but it has no RF communication capability. The LDT 3805 is optimized for collecting and storing data, later to be downloaded to a host computer. Both the LRT and LDT have the capability for data entry via bar code scanning or by using the full-function keypad. The pair are ideal for scan- intensive applications such as receiving, shipping, inventory control, order and shelf-price verification as well as other applications in both retail and warehousing. Datawand hand-held computers were first introduced by the Company in 1985. The Company's principal Datawand product, the Datawand IIB, is a self- contained optical wand bar code reader hand-held computer which is only 7-1/4 inches long and one inch in diameter and weighs slightly more than two ounces. In 1989, the Company introduced a new optical wand bar code reader, the Datawand III, which contains 32 kilobytes of memory and a 16 character single line display. In 1997, the Company introduced the VRC 4000, a ruggedized vehicle mounted or wall mounted touch screen computer. Designed for industrial use in warehouse and yard management applications, the VRC 4000 is a PC compatible - -11- computer with 16 megabytes of memory and includes a full 10.3 inch VGA display with an infrared touch screen interface. The VRC 4000 is capable of communicating with a host computer or other hand-held devices via the Company's Spectrum 24 wireless network. In 1993, the Company announced the co-development with Albert Heijn of The Netherlands, Europe's largest grocery market chain, and TNO Product Centre, a leading Dutch engineering design firm, of a shoppers portable self checkout shopping system for food and non-food retailers. The system, which is integrated with the retailer's point of sale system, utilizes the Company's LST 3803 or CST 2000, hand-held computers with an integrated laser scanner which allow shoppers to scan and tabulate their purchases as they shop. In 1996, the Company introduced an RF version of the portable self checkout system. In 1997, installation of Symbol's portable self checkout systems has expanded both to new customers and more sites. There are currently over 300 stores in 27 chains installed or ordered in 17 countries on 5 continents. Although current customers have been very pleased with the portable self checkout system and other food and non-food retailers have expressed an interest in the self checkout concept, due to the innovative nature of the concept, there can be no assurance that self checkout will be implemented on a wide scale either internationally or domestically. Product list prices for the Company's portable data collection equipment range between $350 to $11,695 depending on product configuration. The Company offers discounts off list price for quantity orders and sales are frequently made at prices below list price. Software and Programming Tools The Company's portable hand-held computers utilize software which consists of a number of specialized applications and communications software programs, that run under Microsoft MS-DOS and Windows operating systems. A series of application development kits (ADKs) and software development kits (SDKs) are available to allow the Company's programmers, VARs ("Value Added Resellers") and end-user customers to develop applications that fully utilize the integrated features of the Company's family of portable hand-held computers. The ADKs and SDKs provide the software drivers and libraries required to maximize product performance. Used in conjunction with industry standard development tools including Visual Basic and C++, software developers can easily create and support applications to meet specific customer requirements. The Company has also developed several communication applications designed to facilitate transmission and reception of data between mobile computers and stand-alone receivers or host computers. These applications include a suite of terminal emulation products, host enablers and various - -12- protocols. The Company has entered into alliances with independent suppliers of software who assist the Company in development of software. Customer Support The Company has a customer support organization which repairs and maintains the Company's products. The Company's domestic customer support operations include locations in Arkansas, California, Georgia, Illinois, Kentucky, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Carolina and Texas. The Company also has foreign customer support offices in Australia, Austria, Belgium, Canada, China, Denmark, France, Germany, Italy, Japan, Mexico, the Netherlands, Norway, Singapore, South Africa, Spain and the United Kingdom. These centers enhance the Company's ability to respond to its customers' requirements for fast, efficient service. The Company currently offers a variety of service arrangements to meet customer needs. The Company's on-site service provides for maintenance and repairs at any customer location. Depot service includes maintenance and repairs at the Company's field service offices. The Company's service contracts generally have a term of from one to five years. In addition, the Company offers time-and-materials service on a non-contract, as-needed basis. The Company undertakes to correct defects in materials and workmanship for a period of time after delivery of its products. The period of time covered by these warranties varies depending on the product involved as well as contractual arrangements but is generally twelve months. Maintenance and support revenues contributed less than 10 percent of the Company's total revenues for the years ended December 31, 1997, 1996 and 1995. Sales and Marketing The Company presently markets its products domestically and internationally through a variety of distribution channels, including a direct sales force, original equipment manufacturers, VARs and sales representatives and distributors. VARs distribute the Company's products to customers while also selling to those customers other products or services not provided by the Company. The Company's sales organization includes domestic sales offices located throughout the United States and foreign sales offices in Australia, Austria, Belgium, Canada, China, Denmark, France, Germany, Italy, Japan, Mexico, the Netherlands, Singapore, South Africa, South Korea, Spain and the United Kingdom. The Company currently has contractual relationships and strategic alliances with unaffiliated partners. Through these relationships, the Company is able to broaden its distribution network and participate in - -13- industries other than those serviced by the Company's direct sales force and distributors. Customers generally order products for delivery within 45 days. Accordingly, shipments made during any particular quarter generally represent orders received either during that quarter or shortly before the beginning of that quarter and generally consist of products manufactured in the quarter. The Company maintains significant levels of inventory to facilitate meeting delivery requirements of its customers. The Company, pursuant to contract or invoice, normally extends 30 day payment terms to its customers. Actual payment terms vary from time to time but generally do not exceed 90 days. Since a substantial portion of the Company's sales of scanner products are to retail organizations which tend not to purchase equipment such as the Company's scanner products during the Christmas selling season, the Company's business has, from time to time, been seasonal in the fourth quarter. The Company believes there may again be reduced demand for its scanner products in the fourth quarter of the current fiscal year. The Company attempts to offset the reduced demand of the retail industry by selling its products to other market segments. While this effort was successful in 1997, there can be no assurance that the effort will succeed in 1998 and subsequent years. The following table sets forth certain information as to international sales of the Company: Year Ended December 31, (in thousands) 1997 1996 1995 Area Western Europe $257,325 $222,611 $178,027 Other $ 68,800 $ 44,545 $ 40,402 The Company undertakes hedging activities to the extent of known cash flow in an attempt to minimize the impact of foreign currency fluctuations. Manufacturing The products which are manufactured by the Company are manufactured at its Bohemia, New York facilities. While components and supplies are generally available from a variety of sources, the Company presently depends on a single source or a limited number of suppliers for several components of its equipment, certain subassemblies and certain of its products. In the past, delays in delivery of such products has not had a material adverse impact on the Company's ability to deliver its - -14- products. However, there is no assurance that in the future shortages of supplies and delays in delivery of components, subassemblies or products will not have an adverse effect on the Company's ability to deliver its products or to deliver its products on time. Due to the general availability of components and supplies, the Company does not believe that the loss of any supplier or subassembly manufacturer would have a long-term material adverse effect on its business although set-up costs and delays could occur if the Company changes any single source supplier. Certain of the Company's products are manufactured by third parties, a majority of which are outside the United States. In particular, the Company has a long term strategic relationship with Olympus Optical, Inc. of Japan ("Olympus") pursuant to which Olympus and the Company jointly develop selected products which are manufactured by Olympus exclusively for sale by the Company. Several such products are currently being sold by the Company and the Company expects the number of products developed in collaboration with Olympus to increase in the future. The Company has the right to manufacture such products if Olympus is unable or unwilling to do so, but the loss of Olympus as a manufacturer could have, at least, a temporary adverse impact on the Company's ability to deliver such products to its customers. The Company has no reason to believe that Olympus will not continue to manufacture products under this arrangement. The failure of any other third party to supply products to the Company could have an adverse affect on the Company's ability to deliver such products to its customers. However, the Company has no reason to believe that these suppliers will be unable to meet their supply or delivery obligations to the Company over any extended period. The Company employs certain advanced manufacturing processes that require highly sophisticated and costly equipment and are continuously being modified in an effort to improve efficiency, reduce manufacturing costs and incorporate product improvements. Research and Product Development The Company believes that its future growth depends, in large part, upon its ability to continue to apply its technology to develop new products, improve existing products and expand market applications for its products. The Company's research and development projects include, among others: improvements to the reliability, quality and readability of its laser scanners at increased working distances, faster speeds and higher density codes (including, but not limited to, two-dimensional codes); improvements in and expansion of its series of interface controllers; continued development of its solid state laser diode scanners; improvements to packaging and miniaturization technology for bar code data capture products, portable data collection devices and integrated bar coded data capture products; development of high-performance digital data radios, high-speed radio frequency data - -15- communications networks and telecommunications protocols and products; and the addition of application software to provide a complete line of high- performance interface hardware. The Company uses both its own associates and from time to time unaffiliated consultants in its product engineering and research and development programs. Dr. Jerome Swartz, Chairman of the Board of Directors and Chief Executive Officer of the Company, leads the Company's research, patent and new product development programs. From time-to-time the Company has participated with and/or partially funded research projects in conjunction with a number of universities including the State University of New York at Stony Brook, Polytechnic University of New York and Tel Aviv University in Israel. The Company expended (including overhead charges) approximately $29,991,000, $20,164,000 and $19,879,000 for research and development during the years ended December 31, 1997, 1996 and 1995, respectively. Competition The business in which the Company is engaged is highly competitive and acutely influenced by advances in technology, product improvements and new product introduction, and price competition. To the Company's knowledge, many firms are engaged in the manufacture and marketing of portable data collection systems and bar code reading equipment utilizing laser technology. In addition, the Company's bar code reading equipment also competes with devices which utilize technologies other than laser scanners such as CCDs and optical wands. Furthermore, numerous companies, including present manufacturers of scanners, lasers, optical instruments, microprocessors, notebook computers, PDAs and data radios have the technical potential to compete with the Company. Many of these firms have far greater financial, marketing and technical resources than the Company. The Company competes principally on the basis of performance and the quality of its products and services. The Company believes that its principal competitors in the bar code scanning equipment industry are Intermec Technologies Corporation, Matsushita Electric Industrial Co., Ltd., Metrologic Instruments, Inc., NipponDenso Co., Ltd., Opticon, Inc., PSC Inc. and Welch Allyn, Inc. Its principal competitors in the portable data transaction systems industry are Fujitsu, Ltd., Hand Held Products, Inc., Intermec Technologies Corporation, International Business Systems, Inc., LXE Inc., Motorola, Inc., NipponDenso Co., Telxon Corporation and Teklogix Inc. Some of the Company's competitors in the portable data transaction systems industry also participate in the field service market. Its principal competitors in the radio frequency communications industry are BreezeCom, Inc., Lucent Technologies, Inc., Netwave Technologies, Inc., Proxim, Inc., Raytheon Wireless Solutions and Telxon Corporation. In addition, several large companies, such as Motorola, Inc., Matsushita Electric Industrial Co., Ltd. and Fujitsu, Ltd. while active in the RF area, are - -16- currently not manufacturing a WLAN, but have the capability to be able to readily compete with the Company. Patent and Trademark Matters The Company files domestic and foreign patent applications to support its technology position and new product development. The Company owns 300 U.S. Letters Patents covering various aspects of the technology used in the Company's principal products and has entered into cross-license agreements with other companies. In addition, the Company owns numerous foreign companion patents. The Company has also filed additional patent applications in the U.S. Patent and Trademark Office as well as in foreign patent offices. The Company will continue to file patents, both U.S. and foreign, to cover its most recent research developments in the scanning, data collection and RF data communications fields. Key patents covering basic hand-held laser scanning technology begin to expire in June 2000 and key patents covering scanner integrated hand-held computers begin to expire in July 2005. The Company believes that its patent portfolio does provide some competitive advantage in that such patents tend to limit the number of unlicensed competitors and permit the Company to manufacture products which may have features which provide better performance and/or lower cost. Although management believes that its patents provide some competitive advantage, the Company depends more for its success upon its proprietary know- how, innovative skills, technical competence and marketing abilities. In addition, because of rapidly changing technology, the Company's present intention is not to rely primarily on patents or other intellectual property rights to protect or establish its market position. Instead, the Company has established an active program to protect its investment in technology by enforcing and licensing certain of its intellectual property rights. The Company has entered into royalty-bearing license agreements with, among others, Hand Held Products, Inc., Intermec Technologies Corporation, LXE Inc., Metrologic Instruments, Inc., PSC Inc. and Telxon Corporation. On April 1, 1996, PSC Inc. ("PSC") commenced suit against the Company in Federal District Court for the Western District of New York, purporting to assert claims against the Company for alleged violations of the federal antitrust laws, unfair competition and also seeking a declaratory judgment of non-infringement and invalidity as to certain of the Company's patents. PSC has served a Third Amended Complaint, which purports to assert essentially the same antitrust and unfair competition claims against the Company, and also seeks a declaratory judgment of alleged non-infringement and invalidity of nine of the Company's patents, and a declaratory judgment that PSC has not breached its two license agreements with the Company and that those agreements have been terminated. The Company has amended its suit against PSC to assert infringement of four Symbol patents, breach of contract and fraud. The Company is also seeking damages which now exceed $10,000,000 plus interest on unpaid royalties since the second quarter of 1996. The Company had also sued Data General Corporation ("Data General"), a manufacturer of portable - -17- integrated scanning terminals which incorporate scan engines from PSC, for infringement of the same four patents and five additional patents. The nine patents asserted against Data General are the same nine Symbol patents as to which PSC is seeking declaratory relief. On October 9, 1996, the Court granted the Company's motion, to sever and stay PSC's antitrust, unfair competition and related claims. On the same day, the Court denied Data General's motion to stay the Company's claims against it. The Court also set a one week trial (a "Markman" hearing) for July 14, 1997, to construe the claims in all nine patents asserted by Symbol against Data General and PSC. On May 8, 1997, the Court postponed the "Markman" hearing and in the interest of judicial economy, the Court also stayed discovery on the patent claims until a non-judicial arbitration which PSC had initiated on March 10, 1997 was completed. The arbitration involved an interpretation of certain provisions of 1985 and 1995 license agreements between the Company and Spectra-Physics Scanning Systems, Inc.(which had been acquired by PSC) concerning whether purchasers of PSC's scan engines were free to incorporate such scan engines into their integrated scanning terminals without any royalty payment to the Company beyond that paid by PSC on the scan engine itself. The arbitration was heard on July 22-24, 1997. On December 29, 1997, the Arbitrator rendered his decision in favor of the Company and against PSC. The Arbitrator ruled that the sale of PSC's scan engines passed no immunity to PSC's customers under Symbol patents covering the integration of the scan engine into integrated scanning terminals. The Arbitrator's decision has been confirmed by the Court. By letter dated January 22, 1998, the Company requested that the Court lift the stay it entered in the litigation, to permit the Company to seek a ruling that the Company's agreements with PSC, which PSC argues have been terminated and under which it has ceased paying royalties for more than two years, remain in full force and effect and require royalty payments to be made to the Company pursuant to those agreements. PSC has objected to the Company's request and has asked the Court that it continue to hold the contract issues in abeyance and instead lift the stay with respect to the pending patent issues and that discovery in these claims be reopened. The parties are awaiting a decision by the Court on this issue. Although the Company believes that its products and technology do not infringe the proprietary rights of others, there can be no assurance that third parties will not assert infringement and other claims against the Company or that such claims will not be successful. The Company has received and has currently pending such claims and in the future may receive additional such notices of claims of infringement of other parties' rights. In such event, the Company has and will continue to take reasonable steps to evaluate the merits of such claims, take such action as it may deem appropriate, which action may require that the Company enter into licensing discussions, if available, and/or modify the affected products and technology, or result in litigation against parties seeking to enforce a claim which the Company reasonably believes is without merit. Such litigation is currently pending - -18- and additional litigation may be filed in the future. Such parties have and are likely to claim damages and/or seek to enjoin commercial activities relating to the Company's products or technology affected by such party's rights. In addition to subjecting the Company to potential liability for damages, such litigation may require the Company to obtain a license in order to manufacture or market the affected products and technology. To date, such activities have not had a material adverse affect on the Company's business and the Company has either prevailed in all litigation, obtained a license on commercially acceptable terms or otherwise been able to modify any affected products or technology. However, there can be no assurance that the Company will continue to prevail in any such actions or that any license required under any such patent would be made available on commercially acceptable terms, if at all. There are a significant number of U.S. and foreign patents and patent applications in the Company's areas of interest, and the Company believes that there has been and is likely to continue to be significant litigation in the industry regarding patent and other intellectual property rights. The Company has also obtained certain domestic and international trademark registrations for its products and maintains certain details about its processes, products and strategies as trade secrets. The Company regards its software as proprietary and attempts to protect it with copyrights, trade secret law and international nondisclosure safeguards, as well as restrictions on disclosure and transferability that are incorporated into its software license agreements. The Company licenses its software products to customers rather than transferring title. Despite these restrictions, it may be possible for competitors or users to copy aspects of the Company's products or to obtain information which the Company regards as trade secrets. Computer software generally has not been patented and existing copyright laws afford only limited practical protection. In addition, the laws of foreign countries generally do not protect the Company's proprietary rights in its products to the same extent as do the laws of the United States. Government Regulations The use of lasers and radio emissions are subject to regulation in the United States and in other countries in which the Company does business. In the United States, various Federal agencies, including the Center for Devices and Radiological Health of the Food and Drug Administration, the 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 or are in the process of adopting standards concerning electrical and laser safety and electromagnetic compatibility and emissions standards. - -19- The Company believes that all of its products are in material compliance with current standards and regulations; however, regulatory changes in the United States and other countries may require modifications to certain of the Company's products in order for the Company to continue to be able to manufacture and market these products. The Company's RF hand-held computers include various models all of which intentionally transmit radio signals as part of their normal operation. Certain versions of the Company's hand-held computers and its Spectrum One and Spectrum 24 cellular frequency networks utilize spread spectrum radio technology. The Company has obtained certification from the FCC for its products which utilize this radio technology. Such certification is valid for the life of the product unless and until the circuitry of the product is altered in material respects, in which case a new certification may be required. Users of these products in the United States do not require any license from the FCC to use or operate the product. Certain of the Company's products transmit narrow band radio signals as part of their normal operation. The Company has obtained certification from the FCC for its narrow band radio products. However, these models must not only be accepted by the FCC prior to marketing but users of these devices must themselves also obtain a site license from the FCC to operate them. Associates At December 31, 1997, the Company had approximately 3,200 full-time associates. Of these, approximately 2,500 were employed domestically. The Company also employs temporary production personnel. None of the Company's associates are represented by a labor union. The Company considers its relationship with its associates to be good. Item 2. Properties The following table states the location, primary use and approximate size of all principal plants and facilities of the Company and its subsidiaries and the duration of the Company's tenancy with respect to each facility. - -20- Location Principal Use Size Tenancy/Ownership One Symbol Plaza World headquarters 174,000 square Owned (subject to Holtsville, NY feet mortgage) 116 Wilbur Place Administration 92,000 square Owned (subject to Bohemia, NY feet mortgage) 110 Wilbur Place Manufacturing 30,000 square Owned (subject to Bohemia, NY feet mortgage) 12 & 13 Oaklands Pk. Customer Service 21,700 square Owned Fishponds Road feet Wokingham, Berkshire England 110 Orville Drive Manufacturing 110,000 square Leased: expires Bohemia, NY feet Aug. 31, 2001 1101 Lakeland Ave. Manufacturing, 90,400 square Leased: expires Bohemia, NY administration and feet Aug. 31, 2001 distribution Berkshire Place International head- 55,533 square Leased: expires Winnersh Triangle quarters, marketing feet Dec. 31, 2012 Winnersh, Wokingham and administration Berkshire, England and U.K. headquarters 2145 Hamilton Ave. Network systems, 51,500 square Leased: expires San Jose, CA engineering, feet March 3, 1999 marketing 340 Fischer Ave. Service and sales 31,200 square Leased: expires Costa Mesa, CA feet May 31, 2001 180 Orville Drive Warehousing and 22,612 square Leased: expires Bohemia, NY facilities feet Aug. 31, 2001 management Knaves Beech Customer Service 6,185 square Leased: expires Business Center feet Sept. 28, 2003 High Wycombe, Buckinghamshire England - -21- In addition to these principal locations, the Company and its subsidiaries also lease other offices throughout the world, ranging in size from approximately 150 to 24,000 square feet. Item 3. Legal Proceedings See Patent and Trademark Matters for a discussion of certain other litigation involving the Company. Item 4. Submission of Matters to a Vote of Security Holders Not applicable Item 4A. Executive Officers of the Registrant The following table sets forth the names, ages and all positions and offices held by the Company's executive officers: Jerome Swartz.......... 57 Chairman of the Board of Directors Chief Executive Officer and Director Tomo Razmilovic........ 55 President, Chief Operating Officer and Director Fred Heiman............ 58 Executive Vice President and Director Robert Blonk........... 51 Senior Vice President-Human Resources Richard Bravman........ 43 Senior Vice President, Sales/Marketing-Wireless Systems Division Brian T. Burke......... 51 Senior Vice President, Controller and Chief Accounting Officer Richard M. Feldt....... 46 Senior Vice President, General Manager-Worldwide Operations Leonard H. Goldner..... 50 Senior Vice President, General Counsel and Secretary Kenneth Jaeggi......... 52 Senior Vice President-Finance and Chief Financial Officer Joseph Katz............ 45 Senior Vice President, Research and Development Boris Metlitsky........ 50 Senior Vice President, General Manager-Scanner Products Division Satya Sharma........... 57 Senior Vice President-Quality - -22- Dr. Swartz co-founded and has been employed by the Company since it commenced operations in 1975. He has been the Chairman of the Board of Directors and Chief Executive Officer of the Company for more than the past fifteen years. Dr. Swartz was an industry consultant for 12 years in the areas of optical and electronic systems and instrumentation and has a total of some 150 technical papers and issued and pending U.S. patents to his credit, including the Company's basic patents in hand-held laser scanning. He is also a trustee of the Polytechnic University of New York and an adjunct full professor of Electrical Engineering at the State University of New York at Stony Brook. He is also a fellow of the Institute of Electrical and Electronic Engineering. Mr. Razmilovic has been the President and Chief Operating Officer of the Company since October 1995. He was previously Senior Vice President- Worldwide Sales and Services. He first joined the Company in September 1989. From January 1989 to August 1989, he was President and Chief Executive Officer of Cominvest Group, a Swedish multinational high technology company. From August 1985 to December 1988, he was President of ICL International, a major European computer manufacturer and he also led its industry marketing and software development divisions. Dr. Heiman joined the Company in July 1986. He is currently employed by the Company on a part-time (approximately 50%) basis. He had previously been employed by Intel Corporation, a manufacturer of semiconductor components, from May 1983 until July 1986, in a number of positions, the most recent of which was as its Director of Corporate Planning. Dr. Heiman is the inventor or co-inventor of more than 20 issued U.S. patents, including the first MOS integrated circuit chip, which became the basis of much of the modern revolution in computer and electronics communications and the first silicon storage tube used in display and scanning applications. Mr. Blonk joined the Company in August 1997. Prior to joining the Company, he had been employed for thirty years by Lucent Technologies, Inc. in a number of positions, the most recent of which was as its Director of Technical Business Operations. Mr. Bravman has been employed by the Company for more than the past twenty years in various management positions. Mr. Burke joined the Company in November 1987. From October 1984 to October 1987, he was President, Chief Executive Officer and Director of Super Web Press Service Corporation, a manufacturer of printing presses. Mr. Feldt joined the Company in September 1995. From 1991 to August 1995, he was Vice President of Manufacturing at A.T. Cross, a leading manufacturer of writing instruments. From July, 1988 to December, 1990, Mr. Feldt served as a Director of the Imaging and Publishing Systems Division of Eastman Kodak. Mr. Goldner joined the Company in September 1990. From September 1979 until August 1990, he was a partner of the New York law firm of Shereff, Friedman, Hoffman & Goodman, which firm was securities counsel to the Company. - -23- Mr. Jaeggi joined the Company in May 1997. From May 1996 to May 1997, he was a member of the Office of the Chairman and the Operating Committee of Electromagnetic Sciences in Atlanta, GA. From December 1992 until May 1996, Mr. Jaeggi served as Senior Vice President, Chief Financial Officer and consultant of Scientific-Atlanta, Inc., a leading producer of cable network and satellite communications systems. From June 1988 to December 1992, he was President and Chief Executive Officer of Imagraph Corporation, a developer and manufacturer of graphics and imaging hardware and software for application specific workstations. Mr. Jaeggi served as Vice President, Chief Financial Officer and consultant to Data General Corporation from June 1980 until June 1988. Dr. Katz joined the Company in January 1989 and has held several positions in Research and Development. From May 1981 until January 1989, Dr. Katz held a number of positions at the Jet Propulsion Laboratory of the California Institute of Technology, the most recent of which was as Technical Group Supervisor. Dr. Metlitsky joined the Company in March 1983 and has served in various technical and managerial positions. Dr. Sharma joined the Company in March 1995. Prior to joining the Company, Dr. Sharma held various management positions at AT&T. From April 1990 to March 1995 Dr. Sharma served as Director of Quality of AT&T's Power Systems Division and from January 1986 to April 1990 he was a Department Head at AT&T Bell Labs. - -24- PART II Item 5. Market for the Registrant's Common Equity and Related Security Holder Matters The Company's Common Stock is listed on the New York Stock Exchange. The following table sets forth, for each quarter period of the last two years, the high and low sales prices as reported by the New York Stock Exchange. Year Ending: High Low December 31, 1996 First Quarter 26 13/16 21 1/4 Second Quarter 32 23 6/16 Third Quarter 31 1/4 25 5/16 Fourth Quarter 33 27 10/16 December 31, 1997 First Quarter 36 14/16 28 13/16 Second Quarter 34 1/4 28 1/2 Third Quarter 44 3/4 30 1/4 Fourth Quarter 40 15/16 36 References to prices per share have been adjusted to reflect a three-for-two stock split, effective April 1, 1997. As of February 2, 1998 there were 1,174 holders of record of the Company's Common Stock. Historically, changes in the Company's results of operations or projected results of operations have resulted in significant changes in the market price of the Company's Common Stock. As a result, the market price of the Company's Common Stock has been highly volatile. The Company's ability to pay cash dividends is limited by certain of the Company's loan agreements, the most restrictive of which would generally limit dividends payable in any year to an amount not greater than 50 percent of the Company's net income. Payment of future dividends is subject to approval by the Company's Board of Directors. Recurrent declaration of dividends will be dependent on the Company's future earnings, capital requirements and financial condition. On February 10, 1997, the Board of Directors of the Company declared a semi-annual cash dividend of $.03 per share (on a pre-split basis)and a three-for-two stock split, payable as a 50% dividend, each payable on April 1, 1997 to all shareholders of record on March 10, 1997. On August 14, 1997, the Board declared a semi-annual cash dividend of $.02 per share, payable on October 6, 1997 to all shareholders of record on September 12, 1997. On February 9, 1998, the Board of Directors of the Company declared a semi-annual cash dividend of $.02 per share and a three-for-two stock split, payable as a 50% dividend, each payable on April 3, 1998 to all shareholders of record on March 17, 1998. - -25- Item 6. Selected Financial Data (in thousands, except per share data) Year Ended December 31, Operating Results: 1997 1996(1) 1995(2) 1994 1993 Net Revenue $774,345 $656,675 $555,163 $465,306 $359,980 Net Earnings $70,232 $50,256 $46,486 $34,984 $12,445 Earnings Per Share: Basic $1.78 $1.30 $1.20 $0.94 $0.35 Diluted $1.72 $1.24 $1.15 $0.89 $0.34 Financial Position: Total Assets $679,190 $614,238 $544,268 $474,213 $419,615 Working Capital $241,846 $221,678 $209,852 $191,823 $141,739 Long-Term Debt, less Current Maturities $40,301 $50,541 $60,829 $59,884 $62,077 Stockholders' Equity $453,742 $399,676 $352,854 $316,167 $258,746 Weighted Average Number of Common Shares Outstanding: Basic 39,359 38,798 38,691 37,179 35,700 Diluted 40,824 40,619 40,578 39,243 36,992 (1) Includes a pre-tax charge for costs associated with acquisition related matters of $12,341 or $0.19 diluted earnings per share. (2) Includes a pre-tax charge for costs associated with a management change of $2,500 or $0.04 diluted earnings per share. - -26- SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS UNDER SECURITIES LITIGATION REFORM ACT OF 1995; CERTAIN CAUTIONARY STATEMENTS From time to time, the Company or its representatives have made or may make forward-looking statements, orally or in writing. Such forward-looking statements may be included in, but not limited to, press releases, oral statements made with the approval of an authorized executive officer or in various filings made by the Company with the Securities and Exchange Commission, including this one. The words or phrases "will likely result", "are expected to", "will continue", "is anticipated", "estimate", "project" or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). The Company wishes to ensure that such statements are accompanied by meaningful cautionary statements, so as to maximize to the fullest extent possible the protections of the safe harbor established in the Reform Act. Accordingly, such statements are qualified in their entirety by reference to and are accompanied by the following discussion of certain important factors that could cause actual results to differ materially from such forward-looking statements. The risks included here are not exhaustive. Furthermore, reference is also made to other sections of this report which include additional factors which could adversely impact the Company's business and financial performance. Moreover, the Company operates in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for management to predict all of such risk factors, nor can it assess the impact of all of such risk factors on the Company's business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Accordingly, forward-looking statements should not be relied upon as a prediction of actual results. Shareholders should be aware that while the Company does, from time to time, communicate with securities analysts, it is against the Company's policy to disclose to such analysts any material non-public information or other confidential commercial information. Accordingly, shareholders should not assume that the Company agrees with any statement or report issued by any analyst irrespective of the content of such statement or report. Furthermore, the Company has a policy against issuing financial forecasts or projections or confirming the accuracy of forecasts or projections issued by others. Accordingly, to the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not the responsibility of the Company. Financial Performance. The Company's operating results may fluctuate in the future as a result of a number of factors, including but not limited, to customer demand, a shift in the mix of the Company's products and/or sales channels, the market acceptance of new and enhanced versions of the Company's products, the timing of introduction of other products and technologies - -27- any associated charges to earnings as well as any cancellation or postponement of orders. The volume and timing of orders received during a quarter are difficult to forecast. In addition, from time to time, customers have either canceled orders or rescheduled shipments previously ordered from the Company. Additionally, the Company has historically operated with a relatively small backlog. While the Company does monitor backlog, it does not consider it to be a reliable predictor of financial performance for periods other than the then current quarter because customers generally order products for delivery within 45 days. Accordingly, shipments made during any particular quarter generally represent orders received either during that quarter or shortly before the beginning of that quarter. Shipments for orders received in a fiscal quarter are generally from products manufactured in that quarter. The Company maintains significant levels of raw materials to facilitate meeting delivery requirements of its customers. However, there can be no assurance that during any given quarter, the Company has or can procure the appropriate mix of raw materials in order to accommodate any given order. In light of the levels of current and anticipated backlog, the Company's financial performance in any quarter is dependent to a significant degree upon obtaining orders in that quarter which can be manufactured and delivered to its customers in that quarter. Thus, financial performance for any given quarter cannot be known or fully assessed until near the end of that quarter. Furthermore, the Company's expense levels are based, in part, on expectations of future revenues, and the Company has been increasing and expects to continue to increase its total operating expenses as it expands its operations. As a result of the difficulty of forecasting revenue and the Company's planned growth in spending, operating expenses could be disproportionately high for any given quarter and the Company's operating revenue for any given quarter and potentially several quarters thereafter could be adversely affected. Foreign Sales. Foreign sales have represented a substantial and increasing portion of the Company's net revenues. In 1997, foreign sales accounted for approximately 45 percent of net revenue. Such sales are subject to the normal risks of foreign operations, such as protective tariffs and other potential trade barriers, export/import controls and transportation delays and interruptions, reduced protection for intellectual property rights in some countries, the impact of recessionary foreign economies and long receivable collection periods. The majority of the Company's equipment sales in Western Europe and Asia are generally billed in foreign currencies and are subject to currency exchange fluctuations. Since the Company's products are principally manufactured in the United States, sales and results of operations could be affected by fluctuations in the U.S. dollar. Changes in the relative value of the U.S. dollar in terms of foreign currencies in the past have had an impact on the Company's sales and margins. In 1997, results of operations were materially adversely affected by the significant appreciation of the value of the U.S. dollar in relation to certain key foreign currencies. Since the beginning of 1998, the dollar has continued to appreciate from 1997 year end levels. Such appreciation will exacerbate the adverse effect of foreign currency exchange rates on the Company's results of operations. The Company believes that its 1997 financial performance was satisfactory despite the negative currency impact. However, there can be no assurance that the Company will continue to adequately perform in the face of further appreciation of the - -28- U.S. dollar in relation to key foreign currencies. It is impossible to predict whether the United States or any other country will impose new quotas, tariffs, taxes or other trade barriers upon the importation of the Company's products or supplies or to gauge the effect that such actions would have on the financial position or results of operations. Asian Problems. As has been widely reported in the financial press, a number of Asian economies have been experiencing significant economic difficulties. The Company anticipates that revenues derived from such countries are likely to be materially adversely affected by both the foreign exchange issues as well as reduced demand due to the downturn in these economies. However, revenues derived from sales to Asia have historically amounted to less than 5% of the Company's annual revenues, therefore, the Company does not believe that economic difficulties in Asia will have a material adverse impact on its results of operations; provided, the economic difficulties in such countries do not spread or have an adverse impact on business activities in North America, Europe and throughout the rest of the world. The Company's results of operations could be adversely impacted in the event of the spread of such difficulties to other countries outside of Asia. The Company is not in a position at this time to assess the magnitude of the effect, if any, that this would have on its results of operations. Dependence upon Retail Industry. A significant portion of the Company's revenues are derived from sales of products and services to customers in the non-food retail industry. Although the product demand in this industry segment has shifted to a significant extent from front-end point-of-sale scanner products to back room hand-held computer products. The Company is attempting to expand its customer base to other industries including, but not limited to, transportation and logistics and medical/healthcare and has had some degree of success. However, for the current and foreseeable future, the Company's financial performance remains dependent to a material extent upon revenues derived from the non-food retail industry. In the past, this industry has experienced financial instability and there can be no assurance that it will not face a downturn in the future. Recurring instability in the non-food retail industry could have an adverse affect on the Company's business and financial performance. Competition. The business in which the Company is engaged is highly competitive and acutely influenced by advances in technology, product improvements and new product introduction, marketing and distribution capabilities, and price competition. Failure to keep pace with product and technological advances could adversely affect the Company's competitive position and prospects for growth. New Competitors. The products being manufactured and marketed by the Company and its competitors are becoming increasingly more complex. As the technological and functional capabilities of future products increase these products will begin to compete with those being offered by larger, traditional computer industry participants who have substantially greater financial, technical, marketing and manufacturing resources than the Company. There can be no assurance that the Company will be able to compete successfully against - -29- these new competitors or that competitive pressures faced by the Company would not adversely affect its business or operating results. Price. Traditionally, the selling price of the Company's products decreases over the life of the product. The Company endeavors to reduce manufacturing costs of existing products and to introduce new products, functions and other price/performance-enhancing features in order to mitigate the effect of such decreases. To the extent that such cost reductions, product enhancements and new product introductions do not occur in a timely manner or do not achieve market acceptance, the Company's operating results could be materially, adversely affected. Research and Development. There can be no assurance that the Company's research and development activities will lead to the successful introduction of new or improved products or that the Company will not encounter delays or problems in connection therewith. New products frequently take longer to develop, often have fewer features than originally considered desirable and achieve higher cost targets than initially estimated. Moreover, there can be no assurance that there will not be delays in commencing volume production of such products or that such products will ultimately be commercially successful. In addition, products under development are frequently announced before introduction and such announcements may cause customers to delay purchases of existing products in anticipation of new or improved versions of those products. New Product Introduction. Historically, the Company has been dependent upon the introduction of new and improved product offerings. This is particularly true for 1998, since the Company plans to introduce a larger number of new products during 1998 than it did in 1997. The Company's financial performance in 1998 will be heavily dependent upon the successful introduction of such products. This success will be dependent upon, among other factors, the ability of the Company to timely complete development and launch of certain of such products within the year, customer acceptance of and demand for these products and the ability of the Company to efficiently manufacture such products and to meet delivery schedules. Failure in any of these areas could have a material adverse effect on the Company's financial results for 1998. System Sales. Historically, sales to customers have been of individual scanning and hand held computer products. Increasingly, the focus of the Company's sales efforts has been on sales of complete data transaction systems. System sales, tend to be more costly and, therefore, require a longer selling cycle, longer payment terms and more complex integration and installation services. Intellectual Property. The Company seeks to protect its proprietary information and technology through contractual confidentiality provisions and the application for United States and foreign patents, trademarks and copyrights. There can be no assurance that such applications will result in the issuance of patents, trademarks or copyrights or that third parties will not seek to challenge, invalidate or circumvent such applications or resulting - -30- patents, trademarks or copyrights. Additionally, competitors may independently develop equivalent or superior, non-infringing technologies. The Company's licensing revenue could be adversely affected to the extent that such technologies avoid infringement of the Company's licensed patents. Furthermore, there can be no assurance that third parties will not assert claims of infringement of intellectual property rights against the Company and that such claims will not lead to litigation and/or require the Company to significantly modify or even discontinue sales of certain of its products. Manufacturing. In the event use of the Company's manufacturing facilities in Bohemia, New York were interrupted by natural disaster or otherwise, the Company's operations would be materially, adversely affected until alternative production and service operations could be established. Certain of the Company's products are manufactured outside the United States. The Company anticipates that an increased percentage of new products will be manufactured by third parties, including but not limited to Olympus, many of which are located in foreign countries. The manufacture of these items is subject to risks common to all foreign manufacturing activities such as governmental regulation, currency fluctuations, transportation delays and interruptions, political and economic disruptions and the risk of imposition of tariffs or other trade barriers. In the past, the Company has experienced manufacturing problems that have caused delivery delays. There can be no assurance that the Company will not experience production difficulties and product delivery delays in the future as a result of, among other matters, changing process technologies, ramping production and installing new equipment at its manufacturing facilities. The Company has in the past, and may in the future, encounter shortages of supplies and delays in deliveries of necessary components or products. While past shortages and delays have not had a material adverse effect on the Company, shortages and delays could have such effect in the future. Certain components, subassemblies and products are sourced from a single supplier or a limited number of suppliers. The loss of any such supplier may cause the Company to incur additional set-up costs and delays in manufacturing and delivery of products. Third Party Products. Historically, the Company has manufactured almost all of it product offerings. Beginning in 1996, the Company began offering for sale an increased number of third party products. Although the Company hopes that sales of such products will result in higher operating income, the sales of third party products traditionally generate lower margins which may not be fully offset by lower expenses. In the event that any of these third party suppliers become unable or unwilling to manufacture such products or fail to meet the Company's volume and quality requirements and delivery schedules, the Company's ability to market such products could be negatively affected. In addition, many of these third party products are manufactured outside of the - -31- United States and supply of such products could be negatively affected by factors normally attendant to the conduct of foreign trade, including imposition of duties, taxes, fees or other trade restrictions fluctuation in currency exchange rates and longer delivery times. Government Regulations. The Company is also subject to the risks associated with changes in United States and foreign regulatory requirements. There can be no assurances that more stringent regulatory requirements and/or safety and quality standards will not be issued in the future with an adverse effect on the business of the Company. In addition, sales of the Company's products could be adversely affected if more stringent safety standards are adopted by potential customers such as electronic cash register manufacturers. The Company's Spectrum One and Spectrum 24 spread spectrum wireless communication products operate through the transmission of radio signals. These products are subject to regulation by the Federal Communications Commission in the United States and corresponding authorities in other countries. Currently, operation of such products in specified frequency bands does not require licensing by such regulatory authorities. Regulatory changes restricting the use of such bands or allocating available frequencies could have a material adverse effect on the Company's business and its results of operations. Safety Risk. Recently, there has been some concern over the potentially adverse effects of electromagnetic emissions associated with cellular telephones. While the Company's RF products do emit electromagnetic radiation, the Company believes that due to the low power output of its products and the logistics of their use, there is no health risk to end-users in the normal operation of its products. There can be no assurance that the Company's RF products will not become the subject of such concerns in the future. Such safety issues and the associated publicity could have a material adverse effect on the Company's business and its results of operations. Acquisitions. The Company has in the past and may in the future acquire businesses or product lines as a way of expanding its product offerings and acquiring new technology. Failure of the Company to identify future acquisition opportunities and/or to integrate effectively businesses that it may acquire could have a material adverse effect on the Company's growth. Year 2000 Compliance. The Company is taking steps to ensure that all software used in the Company's products and in the Company's internal systems will manage data involving the transition of dates from 1999 to 2000 without functional or data abnormality and without inaccurate results. New computer systems are being implemented that will substantially insure that the Company's operating systems are not subject to Year 2000 transition problems. However, there can be no assurance that problems will not surface that the Company is currently unaware of or that other systems or third party systems that are not Year 2000 compliant will not effect the Company's operating systems or cause loss of or damage to data. - -32- A majority of the Company's hardware and operating system software products have been tested for Year 2000 compliance. Application software and third party hardware sold by the Company have largely not been tested and it is not practical or feasible to do so. The Company has agreed to correct problems caused by failure of its tested products to properly operate after the turn of the century and is offering diagnostic services and/or correction measures to customers that want further assurance that their systems are Year 2000 compliant. - -33- Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations The following table sets forth for the years indicated (i) certain revenue and expense items expressed as a percentage of net revenue and (ii) the percentage increase or decrease of such items as compared to the corresponding prior year. - -34- Year to Year Changes Year Ending December 31, Percentage of Revenue 1997 1996 Year Ending December 31, vs. vs. 1997 1996 1995 1996 1995 Net Revenue 100.0% 100.0% 100.0% 17.9% 18.3% Cost of Revenue 54.5 53.2 51.3 20.7 22.7 Amortization of Software Development Costs 1.6 1.6 1.6 12.9 21.0 Gross Profit 44.0 45.2 47.1 14.8 13.4 Operating Expenses: Engineering 7.4 7.1 7.6 21.8 10.8 Selling, General and Administrative 21.4 22.8 24.8 10.7 8.7 Purchased Research and Development and Merger Integration Costs - 1.9 - - - Severance - - 0.5 - - Amortization of Excess of Cost Over Fair Value of Net Assets Acquired 0.6 0.6 0.5 32.1 33.5 29.4 32.3 33.3 7.1 14.7 Earnings from Operations 14.6 12.8 13.8 34.2 10.2 Net Interest Expense (0.4) (0.5) (0.3) 4.7 120.2 Earnings Before Income Taxes 14.2 12.3 13.5 35.4 8.1 Provision for Income Taxes 5.1 4.7 5.1 28.3 8.1 Net Earnings 9.1% 7.7% 8.4% 39.7% 8.1% - -35- For the year ended December 31, 1997 Net revenue of $774,345,000 for the year ended December 31, 1997, increased 17.9 percent over 1996. The increase in net revenue is primarily due to increased worldwide sales of both scanner products and hand held computer systems. Foreign exchange fluctuations unfavorably impacted the growth in net revenue by approximately 2.1 percentage points for the year ended December 31, 1997 and unfavorably impacted the growth in net revenue by 0.8 percentage points for the year ended December 31, 1996. Geographically, North America revenue increased 15.1 percent over the prior year and International revenue increased 22.1 percent over the prior year, notwithstanding the unfavorable impact of foreign exchange rate fluctuations relative to the U.S. dollar on net revenue previously described. North America and International revenue continue to represent approximately three-fifths and two-fifths of net revenue, for the year 1997 and the prior year, respectively. Cost of revenue (as a percentage of net revenue) of 54.5 percent for the year ended December 31, 1997, increased from 53.2 percent in 1996. This increase is principally due to the unfavorable impact of foreign exchange rate fluctuations on net revenue previously described, coupled with a change in the mix of the Company's products sold to a higher percentage of lower margin products and an increase in revenue derived from the indirect sales channel. The Company anticipates an increase in the cost of revenue (as a percent of net revenue), particularly in the second half of 1998, due to the pending roll out of its contract related to the United States Postal Service which represents a lower margin order relative to historical orders. This is the largest contract in the Company's history and represents over $100,000,000 of revenue. In the beginning of 1998, the U.S. dollar continued to appreciate from year end 1997 levels. Even if there is no further change in foreign exchange rates, the comparison of 1998 to 1997 cost of revenue (as a percentage of net revenue) will be adversely effected, particularly in the first half of the year. The Company anticipates that this combination of factors will have an adverse impact on the 1998 to 1997 comparison of cost of revenue (as a percentage of net revenue). Amortization of software development costs totaling $12,068,000 for the year ended December 31, 1997, increased from $10,686,000 in the prior year due to new product releases. Engineering costs increased to $56,961,000, for the year ended December 31, 1997, from $46,752,000 for 1996. In absolute dollars engineering expenses increased 21.8 percent for the year ended December 31, 1997, from the prior year. As a percentage of revenue such expenses increased to 7.4 percent for the year ended December 31, 1997, from 7.1 percent for the prior year. These increases are due to additional expenses incurred in connection with the continuing research and development of new products and the improvement of existing products partially offset by increased capitalized costs incurred for internally developed product software where economic and technological feasibility has been established. - -36- Selling, general and administrative expenses increased to $165,647,000 for the year ended December 31, 1997, from $149,602,000 in 1996. While in absolute dollars selling, general and administrative expenses increased 10.7 percent for the year ended December 31, 1997, from the prior year, as a percentage of revenue such expenses were reduced to 21.4 percent for the year ended December 31, 1997, from 22.8 percent in 1996 due to the increase in revenue and ongoing cost-containment programs. The increase in absolute dollars reflects expenses incurred to support a higher revenue base and additional expenses incurred due to newly acquired subsidiaries. Amortization of excess of cost over fair value of net assets acquired of $4,859,000 for year ended December 31, 1997, increased from $3,679,000 in 1996 due to the acquisitions of the new subsidiaries referred to above. Net interest expense increased to $3,276,000, for the year ended December 31, 1997, from $3,129,000 in 1996 primarily due to increased interest expense resulting from an increase in interim short term borrowings under existing credit lines and decreased capitalized interest partially offset by a reduction in interest expense due to annual mandatory repayments of indebtedness and an increase in interest income. The Company's effective tax rate for 1997 of 36.0 percent decreased from 38.0 percent in the prior year period primarily due to a decrease in the incremental foreign income tax expense. At December 31, 1997, the Company had net deferred tax assets of approximately $13,159,000, consisting of current deferred tax assets of $24,908,000 and long-term deferred tax liabilities of $11,749,000. The current deferred tax assets reflect a valuation allowance of approximately $589,000 relating to New York State investment tax credit carryforwards which may be recaptured. No other valuation allowance is necessary due to the Company's history of profitability and anticipated future profitability. For the year ended December 31, 1996 Net revenue of $656,675,000 for the year ended December 31, 1996, increased 18.3 percent over 1995. The increase in net revenue is primarily due to increased worldwide sales of both scanner products and hand-held computer systems. Foreign exchange fluctuations unfavorably impacted the growth in net revenue by 0.8 percentage points for the year ended December 31, 1996. Geographically, North America revenue increased 15.7 percent over the prior year and International revenue increased 22.3 percent over the prior year. North America and International revenue represent approximately three- fifths and two-fifths of net revenue, respectively, for the year ended December 31, 1996, and approximately three-fifths and two-fifths of net revenue, respectively, for the comparable prior year period. Cost of revenue (as a percentage of net revenue) of 53.2 percent for the year ended December 31, 1996, increased from 51.3 percent in 1995. This increase resulted primarily from a change in the mix of the Company's products sold to a higher percentage of lower margin products, an increase in revenue derived from the indirect sales channel, and the impact of new product start-up costs. - -37- Amortization of software development costs totaling $10,686,000 for the year ended December 31, 1996, increased from $8,828,000 in the prior year due to new product releases. Engineering costs increased to $46,752,000, for the year ended December 31, 1996, from $42,205,000 for 1995. While in absolute dollars engineering expenses increased 10.8 percent for the year ended December 31, 1996, from the prior year, as a percentage of revenue such expenses were reduced to 7.1 percent for the year ended December 31, 1996, from 7.6 percent for the prior year due to proportionately higher increase in revenue. The increase in absolute dollars reflects expenses incurred in connection with the continuing research and development of new products and the improvement of existing products partially offset by increased capitalized costs incurred for internally developed product software where economic and technological feasibility has been established. Selling, general and administrative expenses increased to $149,602,000 for the year ended December 31, 1996, from $137,640,000 in 1995. While in absolute dollars selling, general and administrative expenses increased 8.7 percent for the year ended December 31, 1996, from the prior year, as a percentage of revenue such expenses were reduced to 22.8 percent for the year ended December 31, 1996, from 24.8 percent in 1995 due to the increase in revenue and ongoing cost-containment programs. The increase in absolute dollars reflects expenses incurred to support a higher revenue base and expenses incurred by three acquired subsidiaries. During the year ended December 31, 1996, the Company recognized a one- time pretax charge of $12,341,000 ($0.19 diluted earnings per share) related to write-off of purchased research and development and accrued merger integration costs as a result of the acquisition of LIS Holdings Ltd., headquartered in the United Kingdom. Net interest expense increased to $3,129,000, for the year ended December 31, 1996, from $1,421,000 in 1995 primarily due to decreased interest income resulting from the decrease in cash and temporary investments, an increase in interest expense related to interim short term borrowings under existing credit lines and decreased capitalized interest partially offset by a reduction in interest expense due to annual repayments of outstanding debt. The effective tax rate for 1996 remained constant at 38.0 percent. At December 31, 1996, the Company had net deferred tax assets of approximately $17,981,000, consisting of current deferred tax assets of $26,125,000 and long-term deferred tax liabilities of $8,144,000. The current deferred tax assets reflect a valuation allowance of approximately $601,000 relating to New York State investment tax credit carryforwards which may be recaptured. No other valuation allowance is necessary due to the Company's history of profitability and anticipated future profitability. - -38- Liquidity and Capital Resources The Company utilizes a number of measures of liquidity including the following: Year Ended December 31, 1997 1996 1995 Working Capital (in thousands) $241,846 $221,678 $209,852 Current Ratio (Current Assets to Current Liabilities) 2.5:1 2.7:1 3.0:1 Long-Term Debt to Capital 8.1% 11.2% 14.7% (Long-term debt to long- term debt plus equity) Current assets increased by $47,598,000 from December 31, 1996, principally due to the increase in cash, an increase in accounts receivable and an increase in other current assets due to higher operating levels partially offset by reduced inventories. Current liabilities increased $27,430,000 from December 31, 1996, primarily due to increases in accounts payable and accrued expenses, due to increased operating levels, and income taxes payable. The aforementioned activity resulted in a working capital increase of $20,168,000 for the fiscal year ended December 31, 1997. The Company's current ratio at December 31, 1997, decreased to 2.5:1 from 2.7:1 at December 31, 1996. The Company generated $108,172,000 cash flow from operations and experienced an overall increase in cash and temporary investments of $25,680,000 for the year ended December 31, 1997. The positive cash flow provided by operations was offset, in part, by cash used in investing activities and various financing activities, principally the purchase of 1,221,000 shares of the Company's common stock, acquisition of subsidiaries and other acquisition related payments and expenditures for property, plant and equipment. The purchase of common stock represents both shares purchased in the open market and shares purchased from officers related to the exercise of stock options. For the year ended December 31, 1996 the Company generated $33,855,000 cash flow from operations but experienced an overall decrease in cash and temporary investments of $29,360,000. The decrease resulted from the acquisition of three subsidiaries, capital expenditures and the purchase of 726,000 shares (stock split effected) of the Company's common stock, partially offset by profitable operations and equity proceeds of stock option exercises and the corresponding tax benefits. - -39- Property, plant and equipment expenditures for the year ended December 31, 1997, totaled $42,679,000 compared to $34,680,000 for the year ended December 31, 1996. Such property, plant and equipment expenditures for the period were financed by existing cash and temporary investments. The Company has entered into a construction commitment to expand its existing Worldwide Headquarters facility, located in Holtsville, New York, by approximately 125,000 square feet. The project cost, including furniture, fixtures and equipment, is estimated at approximately $20,000,000 and is anticipated to be completed in March 1999. The Company does not have any other material commitments for capital expenditures. At December 31, 1997, the Company had $40,301,000 in long-term debt outstanding, excluding current maturities. In March 1993 the Company issued $25,000,000 of its 7.76 percent Series A Notes due February 15, 2003, and $25,000,000 of its 7.76 percent Series B Senior Notes due February 15, 2003, to four insurance companies for working capital and general corporate purposes. The Series A Senior Notes are being repaid in equal annual installments of $2,778,000 which began in February 1995. The Series B Senior Notes are being repaid in equal annual installments of $3,571,000 which began February 1997. The Senior Notes represent $31,746,000 of the total long-term debt balance outstanding at December 31, 1997. The remaining $8,555,000 is primarily related to the Industrial Development Bond financing completed in October 1989 and a low-interest loan from an agency of the State of New York and debt assumed in connection with the purchase of the Company's Worldwide Headquarters facility in 1995. The Company's long-term debt to capital ratio decreased to 8.1 percent at December 31, 1997, from 11.2 percent at December 31, 1996, primarily due to increased equity from the results of profitable operations and payment of the annual installment of the Company's long-term obligations previously described. The Company has loan agreements with three banks pursuant to which the banks have agreed to provide lines of credit totalling $75,000,000. As of December 31, 1997, the Company had no outstanding borrowings under these lines. These agreements expire between June 30, 1998 and December 31, 1998. The Company believes that it has adequate liquidity to meet its current and anticipated needs from the results of its operations, working capital and existing credit facilities. In the opinion of management, inflation has not had a material effect on the operations of the Company. - -40- Item 8. Financial Statements and Supplementary Data The following documents are filed on the pages listed below, as part of Part II, Item 8 of this report. Document Page 1. Financial Statements and Accountants' Report: Independent Auditors' Report F-1 Consolidated Financial Statements: Balance Sheets as of December 31, 1997 and 1996 F-2 Statements of Earnings for the Years Ended December 31, 1997, 1996 and 1995 F-3 Statement of Stockholders' Equity for the F-4 Years Ended December 31, 1997, 1996 and 1995 Statements of Cash Flows for the Years Ended F-5 December 31, 1997, 1996 and 1995 Notes to Consolidated Financial Statements F-6 through F-21 2. Financial Statement Schedules: Schedule II S-1 Item 9. Disagreements on Accounting and Financial Disclosure Not applicable - -41- PART III Item 10. Directors and Executive Officers of the Registrant (a) Identification of Directors: The section entitled "Nominees for Election" contained in the Proxy Statement is hereby incorporated by reference. (b) Identification of Executive Officers: See PART I of this Form 10-K. Item 11. Executive Compensation The section entitled "Management Remuneration and Transactions" contained in the Proxy Statement is hereby incorporated by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management The sections entitled "Principal Shareholders" and "Security Ownership of Management" contained in the Proxy Statement are hereby incorporated by reference. Item 13. Certain Relationships and Related Transactions The section entitled "Management Remuneration and Transactions" contained in the Proxy Statement is hereby incorporated by reference. - -42- PART IV Item 14.Exhibits, Financial Statement Schedules and Reports on Form 8-K. (a) 1. FINANCIAL STATEMENTS: Independent Auditors' Report Consolidated Balance Sheets as of December 31, 1997 and 1996 Consolidated Statements of Earnings for the Years Ended December 31, 1997, 1996 and 1995 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1997, 1996 and 1995 Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995 Notes to Consolidated Financial Statements 2. FINANCIAL STATEMENT SCHEDULES Included in Part IV of this report: Schedules: II. Valuation and Qualifying Accounts Other schedules are omitted because of the absence of conditions under which they are required or because the required information is given in the consolidated financial statements or notes thereto. Individual financial statements of the Company are omitted as the Company is primarily an operating company and the subsidiaries included in the consolidated financial statements filed are substantially wholly-owned and are not indebted to any person other than the parent in amounts which exceed 5% of total consolidated assets at the date of the latest balance sheet filed, excepting indebtedness incurred in the ordinary course of business which is not overdue and which matures within one year from the date of its creation, whether evidenced by securities or not, and indebtedness which is collateralized by the parent by guarantee, pledge, assignment or otherwise. - -43- 3. Exhibits Exhibit 3.1 Certificate of Incorporation of Symbol Technologies, Inc. and amendments thereto. (Incorporated by reference to Exhibit 3.1 of the Company's Annual Report on Form 10-K for the year ended December 31, 1996 (the "1996 Form 10-K).) 3.3 By-laws of the Company as currently in effect. (Incorporated by reference to Exhibit 3.1 of the 1996 Form 10-K.) 4.1 Form of Certificate for Shares of the Common Stock of the Company. (Incorporated by reference to Exhibit 4.1 of the Form 8-B Registration No. 0-9028, filed with the Commission on November 23, 1987). 10.1 Form of 2008 Stock Purchase Warrant issued to certain directors. 10.2 Form of 2000 Stock Purchase Warrant issued to certain directors. (Incorporated by reference to Exhibit 10.11 to the Company's Annual Report on Form 10-K for the year ended December 31, 1991 (the "1991 Form 10-K").) 10.3 1994 Directors Stock Option Plan. (Incorporated by reference to Exhibit 4.1 to Registration Statement No. 33-78678 on Form S-8.) 10.4 1997 Employee Stock Purchase Plan. (Incorporated by reference to Exhibit 4.2 to Registration Statement No. 333-26593 on Form S-8.) 10.5 1997 Employee Stock Option Plan. 10.6 1991 Employee Stock Option Plan (Incorporated by reference to Exhibit 10.1 of the 1991 Form 10-K.) 10.7 1990 Non-Executive Stock Option Plan, as amended. (Incorporated by reference to Exhibit 10.1 of the Company's Annual Report on Form 10-K for the year ended December 31, 1995 (the "1995 Form 10-K").) 10.8 Employment Agreement by and between the Company and Raymond Martino, dated as of June 12, 1994. (Incorporated by reference - -44- to Exhibit 10.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 1994.) 10.9 Employment Agreement by and between the Company and Jerome Swartz, dated as of June 30, 1995. (Incorporated by reference to Exhibit 10.4 to the 1995 Form 10-K.) 10.10 Employment Agreement by and between the Company and Tomo Razmilovic, dated as of October 16, 1995. (Incorporated by reference to Exhibit 10.5 of the 1995 Form 10-K.) 10.11 Employment Agreement by and between the Company and Frederic P. Heiman, dated as of June 30, 1995. (Incorporated by reference to Exhibit 10.6 of the 1995 Form 10-K.) 10.12 Employment Agreement by and between the Company and Leonard H. Goldner, dated as of November 1, 1995. (Incorporated by reference to Exhibit 10.7 of the 1995 Form 10-K.) 10.13 Executive Retirement Plan, as amended. (Incorporated by reference to Exhibit 10.14 to the Company's Annual Report on Form 10-K for the year ended December 31, 1989 (the "1989 Form 10-K").) 10.14 Symbol Technologies, Inc. Stock Ownership and Option Retention Program. (Incorporated by reference to Exhibit 10.13 of the 1995 Form 10-K.) 10.15 Summary of Symbol Technologies, Inc. Executive Bonus Plan. (Incorporated by reference to Exhibit 10.14 of the 1995 Form 10-K.) 10.16 Lease Agreement and Amended and Restated Lease Agreement dated as of October 1, 1989 between Suffolk County Industrial Development Agency and Symbol Technologies, Inc. (Incorporated by reference to Exhibit 10.15 to the 1989 Form 10-K.) 10.17 Sublease dated June 28, 1995 between Grumman Data Systems Corporation and Symbol Technologies, Inc. (Incorporated by reference to Exhibit 10.16 to the 1995 Form 10-K.) - -45- 10.18 Form of Note Agreements dated as of February 15, 1993 relating to the Company's 7.76% Series A and Series B Senior Notes due February 15, 2003 (Incorporated by reference to Exhibit 10.14 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992.) 22. Subsidiaries. 23. Consent of Deloitte & Touche LLP (b) Reports on Form 8-K Not Applicable - -46- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SYMBOL TECHNOLOGIES, INC. (Registrant) By: /s/Jerome Swartz Jerome Swartz Chairman of the Board Dated: March 5, 1998 - -47- Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/Jerome Swartz Chairman of the March 5, 1998 Jerome Swartz Board and Director (Principal Executive Officer) /s/Tomo Razmilovic Director March 5, 1998 Tomo Razmilovic /s/Raymond R. Martino Director March 5, 1998 Raymond R. Martino /s/Harvey P. Mallement Director March 5, 1998 Harvey P. Mallement /s/Frederic P. Heiman Director March 5, 1998 Frederic P. Heiman /s/Saul P. Steinberg Director March 5, 1998 Saul P. Steinberg /s/Lowell C. Freiberg Director March 5, 1998 Lowell C. Freiberg /s/George Bugliarello Director March 5, 1998 George Bugliarello /s/Charles Wang Director March 5, 1998 Charles Wang /s/Kenneth V. Jaeggi Senior Vice President March 5, 1998 Kenneth V. Jaeggi Finance (Chief Financial Officer) /s/Brian T. Burke Senior Vice President March 5, 1998 Brian T. Burke and Controller (Chief Accounting Officer) - -48- SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES ------ CONSOLIDATED FINANCIAL STATEMENTS COMPRISING ITEM 8 AND SCHEDULE II LISTED IN THE INDEX AT ITEM 14(a)2 OF ANNUAL REPORT ON FORM 10-K TO SECURITIES AND EXCHANGE COMMISSION FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 I N D E X PAGE Independent auditors' report F-1 Consolidated financial statements: Balance sheets F-2 Statements of earnings F-3 Statements of stockholders' equity F-4 Statements of cash flows F-5 Notes to consolidated financial statements (1-16) F-6 through F-21 Additional financial information pursuant to the requirements of Form 10-K: Schedule: II - Valuation and qualifying accounts S-1 Schedules not listed above have been omitted because they are either not applicable or the required information has been provided elsewhere in the consolidated financial statements or notes thereto. INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Symbol Technologies, Inc. Holtsville, New York We have audited the accompanying consolidated balance sheets of Symbol Technologies, Inc. and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1997. Our audits also included the financial statement schedule listed in the index at Item 14(a)2. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Symbol Technologies, Inc. and subsidiaries as of December 31, 1997 and 1996 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ DELOITTE & TOUCHE LLP Jericho, New York February 9, 1998 F-1 SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (All amounts in thousands, except stock par value) December 31, December 31, ASSETS 1997 1996 CURRENT ASSETS: Cash, including temporary investments of $31,909 and $16,715, respectively $ 59,970 $ 34,290 Accounts receivable, less allowance for doubtful accounts of $10,995 and $10,123, respectively 162,789 146,273 Inventories, net 128,155 133,637 Deferred income taxes 24,908 26,125 Other current assets 24,130 12,029 TOTAL CURRENT ASSETS 399,952 352,354 PROPERTY, PLANT AND EQUIPMENT, net 118,745 101,331 INTANGIBLE ASSETS, net 115,275 113,187 SOFTWARE DEVELOPMENT COSTS, net 26,649 23,974 OTHER ASSETS 18,569 23,392 $679,190 $614,238 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses $121,714 $ 99,241 Current portion of long-term debt 10,384 10,384 Income taxes payable 13,580 9,141 Deferred revenue 12,428 11,910 TOTAL CURRENT LIABILITIES 158,106 130,676 LONG-TERM DEBT, less current maturities 40,301 50,541 DEFERRED REVENUE 2,410 3,146 OTHER LIABILITIES 19,957 19,158 COMMON EQUITY PUT OPTIONS 4,674 11,041 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Preferred stock, par value $1.00; authorized 10,000 shares; none issued or outstanding - - Common stock, par value $0.01; authorized 100,000 shares; issued 43,519 shares and 28,195 shares, respectively 435 282 Additional paid-in capital 289,434 258,792 Cumulative translation adjustments (7,792) (5,650) Retained earnings 274,976 206,331 557,053 459,755 Less: Treasury stock at cost, 4,359 shares and 2,092 shares, respectively (103,311) (60,079) 453,742 399,676 $679,190 $614,238 See notes to consolidated financial statements F-2 SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (All amounts in thousands, except per share data) Year ended December 31, 1997 1996 1995 NET REVENUE $774,345 $656,675 $555,163 COST OF REVENUE 421,796 349,428 284,836 AMORTIZATION OF SOFTWARE DEVELOPMENT COSTS 12,068 10,686 8,828 GROSS PROFIT 340,481 296,561 261,499 OPERATING EXPENSES: Engineering 56,961 46,752 42,205 Selling, general and administrative 165,647 149,602 137,640 Purchased research and development and merger integration costs - 12,341 - Severance - - 2,500 Amortization of excess of cost over fair value of net assets acquired 4,859 3,679 2,755 227,467 212,374 185,100 EARNINGS FROM OPERATIONS 113,014 84,187 76,399 OTHER (EXPENSE)/INCOME: Interest income 2,225 1,756 3,143 Interest expense (5,501) (4,885) (4,564) (3,276) (3,129) (1,421) EARNINGS BEFORE INCOME TAXES 109,738 81,058 74,978 PROVISION FOR INCOME TAXES 39,506 30,802 28,492 NET EARNINGS $ 70,232 $ 50,256 $ 46,486 EARNINGS PER SHARE: Basic $1.78 $1.30 $1.20 Diluted $1.72 $1.24 $1.15 WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: Basic 39,359 38,798 38,691 Diluted 40,824 40,619 40,578 PRO FORMA EARNINGS PER SHARE: (1) Basic $1.19 $0.86 $0.80 Diluted $1.15 $0.82 $0.76 PRO FORMA WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: (1) Basic 59,039 58,197 58,037 Diluted 61,236 60,929 60,867 (1) Represents the pro forma impact of a three for two split of the Company's common stock approved by the Board of Directors on February 9, 1998 to be effected as a 50 percent stock dividend on April 3, 1998. See notes to consolidated financial statements F-3 SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (All amounts in thousands, except stock par value) Common Stock $0.01 Par Value Additional Cumulative Total Shares Paid-in Translation Retained Treasury Stockholders' Issued Amount Capital Adjustments Earnings Stock Equity BALANCE, JANUARY 1, 1995 26,719 $ 267 $234,798 ($8,187) $109,589 ($20,300) $316,167 Exercise of stock options 510 5 10,930 - - - 10,935 Purchase of treasury shares - - - - - (20,622) (20,622) Translation adjustments - - - (112) - - (112) Net earnings - - - - 46,486 - 46,486 BALANCE, DECEMBER 31, 1995 27,229 272 245,728 (8,299) 156,075 (40,922) 352,854 Exercise of stock options 919 10 22,701 - - - 22,711 Exercise of warrants 47 - 458 - - - 458 Proceeds from sale of common equity put options - - 946 - - - 946 Reclassification of common equity put options obligation - - (11,041) - - - (11,041) Purchase of treasury shares - - - - - (19,157) (19,157) Translation adjustments - - - 2,649 - - 2,649 Net earnings - - - - 50,256 - 50,256 BALANCE, DECEMBER 31, 1996 28,195 282 258,792 (5,650) 206,331 (60,079) 399,676 Exercise of stock options 1,218 12 24,062 - - - 24,074 Exercise of warrants 9 - 69 - - - 69 Proceeds from sale of common equity put options - - 285 - - - 285 Reclassification of common equity put options obligation - - 6,367 - - - 6,367 Purchase of treasury shares - - - - - (43,232) (43,232) Translation adjustments - - - (2,142) - - (2,142) Stock split 14,097 141 (141) - - - Dividends paid - - - (1,587) - (1,587) Net earnings - - - - 70,232 - 70,232 BALANCE, DECEMBER 31, 1997 43,519 $435 $289,434 ($7,792) $274,976 ($103,311) $453,742 See notes to consolidated financial statements F-4 SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (All amounts in thousands) Year ended December 31, 1997 1996 1995 Cash flows from operating activities: Net earnings $ 70,232 $ 50,256 $ 46,486 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization of property, plant and equipment 25,738 23,247 18,911 Other amortization 19,539 16,276 15,347 Provision for losses on accounts receivable 2,253 2,270 3,458 Charge for purchased research and development - 10,741 - Deferred income taxes 6,243 (2,835) 1,958 Changes in assets and liabilities: Accounts receivable (12,455) (24,481) (25,131) Sale of lease receivables - 17,308 - Inventories 9,594 (33,880) 5,672 Other current assets (11,583) 605 (4,553) Software development costs (14,743) (13,606) (11,324) Intangible assets (3,387) (7,054) (3,654) Other assets 2,053 (14,150) (3,432) Accounts payable and accrued expenses 15,113 10,981 21,033 Income taxes payable 4,380 (3,319) 10,527 Other liabilities and deferred revenue (4,805) 1,496 (885) Net cash provided by operating activities 108,172 33,855 74,413 Cash flows from investing activities: Note receivable 2,500 500 (3,500) Proceeds from sale of property, plant and equipment - - 4,615 Expenditures for property, plant and equipment (42,679) (34,680) (36,636) Acquisition of subsidiaries, net of cash acquired (8,026) (26,962) - Net cash used in investing activities (48,205) (61,142) (35,521) Cash flows from financing activities: Proceeds from issuance of notes payable and long-term debt 167,543 48,400 8,558 Principal repayments of notes payable and long-term debt (177,783) (55,214) (5,988) Exercise of stock options and warrants 24,143 23,169 10,935 Proceeds from common equity put options 285 946 - Dividends paid (1,587) - - Purchase of treasury shares (43,232) (19,157) (20,622) Net cash used in financing activities (30,631) (1,856) (7,117) Effects of exchange rate changes on cash (3,656) (217) 486 Net increase/(decrease) in cash and temporary investments 25,680 (29,360) 32,261 Cash and temporary investments, beginning of year 34,290 63,650 31,389 Cash and temporary investments, end of year $ 59,970 $ 34,290 $ 63,650 Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 4,613 $ 4,987 $ 4,914 Income taxes $ 15,423 $ 19,685 $ 12,614 See notes to consolidated financial statements F-5 SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Principles of Consolidation The consolidated financial statements include the accounts of Symbol Technologies, Inc. and its subsidiaries (the "Company" or "Symbol"), substantially all of which are wholly-owned. Significant intercompany transactions and balances have been eliminated in consolidation. b. Temporary Investments Temporary investments include highly liquid investments with original maturities of three months or less and consist primarily of money market funds and time deposits at December 31, 1997 and 1996. Temporary investments are stated at cost, which approximates market value. These investments are not subject to significant market risk. c. Inventories Inventories are stated at the lower of cost (determined on a first-in, first- out basis) or market. d. Property, Plant and Equipment Property, plant and equipment is recorded at cost. Depreciation and amortization is provided on a straight-line basis over the following estimated useful lives: Buildings and improvements 15 to 40 years Machinery and equipment 3 to 7 years Furniture, fixtures and office equipment 5 to 10 years Leasehold improvements (limited to terms of the leases) 2 to 10 years The Company capitalized interest costs of zero, $258,000 and $646,000 for the years ended December 31, 1997, 1996 and 1995, respectively. e. Intangible Assets The excess of cost over fair value of net assets acquired is being amortized on a straight-line basis over periods ranging from 7 to 40 years. Patents and trademarks, including costs incurred in connection with the protection of patents, are amortized over their estimated useful lives, not exceeding 20 years, using the straight-line method. f. Software Development Costs The Company capitalizes costs incurred for internally developed product software where economic and technological feasibility has been established and for qualifying purchased product software. Capitalized software costs are amortized on a straight-line basis over the estimated useful product lives (normally three years). Software development costs which have been fully amortized for two years or more are written off. F-6 g. Research and Development Expenses The Company expenses all research and development costs as incurred. The Company incurred research and development expenses of approximately $29,991,000, $20,164,000 and $19,879,000, for the years ended December 31, 1997, 1996 and 1995, respectively, which are classified in engineering expenses. h. Revenue Recognition Revenue from sales of the Company's products is recognized upon shipment. In conjunction with these sales, field service maintenance agreements are sold for certain products. When such revenue is recorded prior to providing repair and maintenance service, it is deferred and recognized over the term of the related agreements. i. Income Taxes The Company accounts for income taxes under the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," ("SFAS 109") which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the Company's financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial accounting and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Investment, research and development and other tax credits are accounted for by the flow-through method. The cumulative amount of undistributed earnings of foreign subsidiaries at December 31, 1997, approximates $41,172,000. The Company does not provide deferred taxes on undistributed earnings of foreign subsidiaries since the Company anticipates no significant incremental U.S. income taxes on the repatriation of these earnings as tax rates in foreign jurisdictions generally approximate or exceed the U.S. Federal rate. j. Earnings Per Share The Company has adopted Financial Accounting Standards No. 128 "Earnings per share" ("SFAS No. 128") which requires dual presentation of basic and diluted earnings per share on the face of the income statement. Basic earnings per share are based on the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share are based on the weighted average number of shares of common stock and common stock equivalents (options and warrants) outstanding during the period, computed in accordance with the treasury stock method. On February 10, 1997 the Board of Directors approved a three for two split of the Company's common stock to be effected as a 50 percent stock dividend ("the 1997 stock split") which was payable on April 1, 1997 to shareholders of record on March 10, 1997. In this report, all earnings per share amounts and the weighted average number of common shares outstanding have been retroactively restated to reflect the 1997 stock split(also see note 16 regarding the 1998 stock split). In addition, the number of common shares issued have been adjusted to reflect the 1997 stock split and an amount equal to the par value of the additional shares issued has been transferred from additional paid in capital to common stock. F-7 k. Foreign Currency Translation and Transactions Assets and liabilities of foreign subsidiaries are translated at year-end exchange rates. Results of operations are translated using the average exchange rates prevailing throughout the year. Gains and losses from foreign currency transactions are included in net earnings for the year and are not material. Exchange rate changes arising from translation are included in the cumulative translation adjustments component of stockholders' equity. The Company has only limited involvement with derivative financial instruments and does not use them for trading purposes. The Company enters into foreign currency forward exchange contracts to hedge a portion of its intercompany accounts receivable transactions. The effect of this practice is to minimize the impact of foreign exchange rate movements on the Company's operating results. The Company's hedging activities do not subject the Company to exchange rate risk because gains and losses on these contracts offset losses and gains on the related intercompany receivables being hedged. As of December 31, 1997, the Company had no forward exchange contracts outstanding. The forward exchange contracts generally have maturities that do not exceed 12 months and require the Company to exchange foreign currencies for U.S. dollars at maturity, at rates agreed to at inception of the contracts. l. Pervasiveness of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. ACQUISITIONS In July 1997, the Company established wholly owned subsidiaries in Holland and Japan through the acquisition of Score Datacom Nederland B.V. and Olympus Symbol Inc., respectively. The initial cost related to these acquisitions amounted to approximately $3,000,000 and $4,700,000, respectively. These acquisitions have been accounted for as purchases and, accordingly, the related acquisition cost has been allocated to net assets acquired based upon fair values. The excess cost over net assets acquired of approximately $2,100,000 and $220,000, respectively, is being amortized over twenty years. Additional acquisition payments will be contingent upon the attainment of certain annual net revenue levels as defined in the respective agreements during the next three years. Result of operations of these subsidiaries have been included in consolidated operations as of their respective effective acquisition dates. Pro forma results of operations, assuming these acquisitions had been completed at the beginning of 1997 and 1996, would not differ materially from the reported results. In August, 1996, the Company acquired LIS Holdings Ltd., ("LIS") headquartered in the United Kingdom. LIS is one of Europe's largest providers of technology- based logistics management systems providing technology solutions based on its own software products in concert with bar code, wireless networking and ruggedized terminals. Terms of the acquisition included an initial payment of $20,844,000 and subsequent additional payments, that range from zero to a total of $7,800,000 and are contingent upon the attainment of certain annual net revenue levels, as defined, over a three year period. This acquisition has been accounted for as a purchase. The purchase price(including acquisition F-8 costs)has been allocated to net assets acquired based upon fair values. After allocating the purchase price to net tangible assets, purchased software, which had reached technological feasibility, was valued using a cash flow model, under which future cash flows were discounted utilizing an assessment of the life expectancy of the purchased software. This purchased software of $1,000,000 has been capitalized and is being amortized over three years. Purchased research and development, which had not reached technological feasibility and has no alternative future use was valued using the same methodology. This purchased research and development amounted to $10,741,000 and has been charged to operations at the acquisition date. In addition, the Company has charged 1996 operations with accrued merger integration costs of $1,600,000, representing costs to be incurred associated primarily with combining the Company's existing operations in the United Kingdom with newly acquired facilities of LIS. The excess of cost over net assets acquired of approximately $8,800,000, relating to the acquisition, is being amortized over seven years. The following unaudited pro forma combined results of operations of the Company and LIS are presented on the basis that the acquisition had taken place at the beginning of each of 1996 and 1995, and exclude the effect of the one-time pre- tax charges totaling $12,341,000 previously discussed: Year Ended December 31, 1996 1995 Revenue $667,509 $572,204 Net Earnings $ 57,342 $ 45,529 Diluted Earnings per share $ 1.41 $ 1.12 Diluted weighted average shares outstanding 40,619 40,578 In the opinion of management, the unaudited pro forma combined results of operations are not necessarily indicative of the actual results that would have occurred had LIS been under the ownership and operation of the Company during the periods presented. In January and March 1996 the Company established wholly owned subsidiaries in Africa and Denmark through the acquisition of Barcodes (Pty) Ltd., and the Bar Code Data Capture Division of BCP Hardware A/S, respectively. The initial costs of the acquisitions amounted to $4,080,000 and $3,000,000, respectively. These acquisitions have been accounted for as purchases and, accordingly the cost of each acquisition has been allocated to net assets acquired based upon fair values. The excess of cost over net assets acquired of approximately $3,700,000 and $2,700,000, respectively, relating to these acquisitions is being amortized over twenty and ten years, respectively. Additional acquisition payments are contingent upon the attainment of certain annual net revenue levels, as defined in the respective agreements, by each of these acquired subsidiaries over a three year and four year period, respectively. Results of operations of these subsidiaries have been included in consolidated operations as of their respective effective acquisition dates. Pro forma results of operations, assuming these acquisitions had been completed at the beginning of 1996 and 1995, would not differ materially from the reported results. The Company made $3,760,000 of additional acquisition payments during the year ended December 31, 1997 related to acquisitions previously described which were contingent upon the attainment of certain annual net revenue levels, as defined in the respective acquisition agreements. F-9 3. INVENTORIES December 31, December 31, 1997 1996 (in thousands) Raw materials $ 57,872 $ 54,534 Work-in-process 14,039 18,425 Finished goods 56,244 60,678 $128,155 $133,637 4. PROPERTY, PLANT AND EQUIPMENT December 31, December 31, 1997 1996 (in thousands) Land $ 8,516 $ 8,636 Buildings and improvements 33,857 32,172 Machinery and equipment 87,052 67,243 Furniture, fixtures and office equipment 54,013 47,084 Leasehold improvements 8,030 6,640 191,468 161,775 Less: Accumulated depreciation and amortization 72,723 60,444 $118,745 $101,331 The Company has entered into a construction commitment to expand its existing Worldwide Headquarters facility, located in Holtsville, New York, by approximately 125,000 square feet. The project cost, including furniture, fixtures and equipment, is estimated at approximately $20,000,000 and is anticipated to be completed in March 1999. 5. INTANGIBLE ASSETS December 31, December 31, 1997 1996 (in thousands) Excess of cost over fair value of net assets acquired $123,668 $118,147 Patents, trademarks and purchased technologies 27,681 25,479 Executive retirement plan unrecognized prior service costs 835 948 152,184 144,574 Less: Accumulated amortization 36,909 31,387 $115,275 $113,187 6. SOFTWARE DEVELOPMENT COSTS Year Ended December 31, 1997 1996 1995 (in thousands) Beginning of year $23,974 $21,054 $18,558 Amounts capitalized 14,743 13,606 11,324 38,717 34,660 29,882 Less: Amortization 12,068 10,686 8,828 End of year $26,649 $23,974 $21,054 F-10 7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES December 31, December 31, 1997 1996 (in thousands) Accounts payable $ 60,185 $45,251 Accrued payroll, bonuses, fringe benefits, severance and payroll taxes 27,810 29,174 Other accrued expenses 33,719 24,816 $121,714 $99,241 8. LONG-TERM DEBT December 31, December 31, 1997 1996 (in thousands) Senior Notes (a) $38,095 $44,446 Industrial Development Bonds (b) 4,738 7,106 Assumed Revenue Bond Financing (c) 4,578 6,335 State Loan (d) 3,000 3,000 Other 274 38 50,685 60,925 Less: Current maturities 10,384 10,384 $40,301 $50,541 (a) In March 1993 the Company issued $25,000,000 of its 7.76 percent Series A Senior Notes due February 15, 2003, and $25,000,000 of its 7.76 percent Series B Senior Notes due February 15, 2003, to four insurance companies. The Series A Senior Notes are being repaid in equal annual installments of $2,778,000 which began in February 1995. The Series B Senior Notes are being repaid in equal annual installments of $3,571,000 which began February 1997. Interest is payable quarterly for these Notes. The financing agreements contain certain covenants regarding the maintenance of a minimum level of tangible net worth, as well as certain financial ratios, as defined, and certain restrictions including limitations on indebtedness. (b) Borrowings under the Industrial Development Bond financing accrue interest at the rate of 8.95 percent, payable quarterly, and the loan is being repaid in equal annual installments of $2,368,000 which began in October 1992. The Company's owned facilities located in Bohemia, New York, are pledged as collateral for this debt. The financing agreements contain certain covenants regarding the maintenance of a minimum level of tangible net worth and working capital, as well as certain financial ratios, as defined, and limitations on investments, dividends and indebtedness. (c) In June 1995 the Company assumed a $7,282,000 New York Industrial Development bond which is collateralized by its facilities located in Holtsville, New York. The bond bears interest at 12.3 percent and principal and interest are being repaid in ten equal semi-annual installments of $997,000 which began in October 1995. Based upon borrowing rates of 6.7 percent available to the Company at the time the transaction occurred, a bond premium of $1,274,000 has been recorded in long-term debt and is being amortized over the life of the bond. (d) In 1994, the Company received a $3,000,000 loan from an agency of New York State. The loan bears interest at 1.0 percent, payable monthly, and the principal is to be repaid in one installment in 2001. The interest rate is subject to a covenant requiring a minimum level of full-time permanent employees. F-11 Based on the borrowing rates currently available to the Company for bank loans with similar terms, the fair values of Senior Notes and Industrial Development Bonds approximates their carrying values. The fair value of the State Loan as of December 31, 1997, is approximately $2,456,000. Long-term debt maturities are: Year ending December 31, (in thousands) 1998 $10,384 1999 10,708 2000 7,343 2001 9,375 2002 6,376 Thereafter 6,499 $50,685 9. INCOME TAXES The provision for income taxes consists of: Year Ended December 31, 1997 1996 1995 (in thousands) Current: Federal $23,371 $19,460 $15,254 State and local 4,300 4,036 3,136 Foreign 5,592 10,141 8,144 33,263 33,637 26,534 Deferred: Federal 5,531 16 1,788 State and local 880 (697) 237 Foreign (168) (2,154) (67) 6,243 (2,835) 1,958 Total Provision for Income Taxes $39,506 $30,802 $28,492 A reconciliation between the statutory U.S. Federal income tax rate and the Company's effective tax rate is: Year Ended December 31, 1997 1996 1995 Statutory U.S. Federal rate 35.0% 35.0% 35.0% State taxes, net of Federal tax effect 3.1 2.7 2.9 Tax credits (0.6) (2.6) (1.6) Amortization of excess of cost over fair value of net assets acquired 1.0 1.2 1.3 Exempt income of foreign sales corporation (3.0) (3.2) (1.9) Income of foreign subsidiaries taxed at (lower)higher tax rates (0.1) 2.0 1.8 Other, net 0.6 2.9 0.5 36.0% 38.0% 38.0% F-12 At December 31, 1997, 1996 and 1995, other liabilities include deferred income taxes of $11,749,000, $8,144,000 and $8,276,000 respectively. The deferred tax assets and liabilities at December 31, 1997, 1996 and 1995, respectively, are comprised of: Year Ended December 31, 1997 1996 1995 Deferred Tax Deferred Tax Deferred Tax Assets/(Liabilities) Assets/(Liabilities) Assets/(Liabilities) (in thousands) Receivables ($5,470) $ 3,176 $ 4,441 Inventory 10,988 6,751 6,113 Net investment in sales-type leases (3,148) (3,360) (3,053) Accrued compensation and associate benefits 4,944 4,051 3,876 Other accrued liabilities 6,403 4,509 5,128 Accrued restructuring and severance costs 1,006 10 957 Deferred revenue - current 2,855 2,778 1,890 Deferred revenue - long term 950 1,689 2,348 Deferred patent and product development costs (15,708) (15,465) (13,809) Purchased technology & other intangibles 5,175 4,814 - Property, plant and equipment (5,255) (440) (1,127) Investments 158 557 878 Cumulative translation adjustments 5,104 3,732 5,505 Tax credit carryforwards 2,185 2,438 2,895 Other, net 3,561 3,342 982 13,748 18,582 17,024 Less: Valuation allowance 589 601 812 Net Deferred Tax Asset $13,159 $17,981 $16,212 The valuation allowance decreased by $12,000 and $211,000 and $2,000 during 1997, 1996 and 1995 respectively. The valuation allowance relates to state investment tax credit carryforwards which are likely to be recaptured. No other valuation allowances for deferred tax assets are necessary due to the Company's history of profitability and anticipated future profitability. 10. COMMITMENTS AND CONTINGENCIES a. Lease Agreements Future minimum annual rental payments required under noncancellable operating leases are: Year ending December 31, (in thousands) 1998 $10,535 1999 8,982 2000 7,408 2001 5,652 2002 3,717 Thereafter 25,322 $61,616 Rent expense under substantially all operating leases was $7,446,000, $6,728,000 and $6,173,000, for the years ended December 31, 1997, 1996 and 1995, respectively. F-13 b. Credit Facilities The Company has loan agreements with three banks pursuant to which the banks have agreed to provide lines of credit totalling $75,000,000. As of December 31, 1997, and 1996, the Company had no borrowings outstanding under these lines. Such borrowings would bear interest at the respective bank's cost of funds rate, which approximated 6.5 percent at December 31, 1997. These agreements expire between June 30, 1998 and December 31, 1998. c. Employment Contracts The Company has executed employment contracts with certain senior executives that vary in length, for which the Company has a minimum commitment aggregating approximately $4,412,000 at December 31, 1997. d. Sale of Lease Receivables The Company offers lease financing of its products to its customers. During 1996, the Company sold certain lease receivables relating to sales-type leases for approximately $17,308,000, which represents the present value of uncollected receivable balances sold as of the date of sale. Due to the fact that the sale of these lease receivables was with recourse, the Company retains the same credit risk as if the receivables had not been sold. An allowance for doubtful accounts is maintained at a level which the Company believes is sufficient to cover potential losses on receivables sold. The balance of uncollected receivables as of December 31, 1997 sold approximated $7,069,000. The sale was recorded as a reduction of prepaid and other current assets, and other assets. e. Legal Matters The Company is currently involved in matters of litigation arising from the normal course of business. Management is of the opinion that such litigation will not have a material adverse effect on the Company's consolidated financial position or results of operations. On April 1, 1996, PSC Inc. ("PSC") commenced suit against the Company in Federal District Court for the Western District of New York, purporting to assert claims against the Company for alleged violations of the federal antitrust laws, unfair competition and also seeking a declaratory judgment of non-infringement and invalidity as to certain of the Company's patents. PSC has served a Third Amended Complaint, which purports to assert essentially the same antitrust and unfair competition claims against the Company, and also seeks a declaratory judgment of alleged non-infringement and in validity of nine of the Company's patents, and a declaratory judgment that PSC has not breached its two license agreements with the Company and that those agreements have been terminated. The Company has amended its suit against PSC to assert infringement of four Symbol patents, breach of contract and fraud. The Company is also seeking damages which now exceed $10,000,000 plus interest on unpaid royalties since the second quarter of 1996. The Company had also sued Data General Corporation ("Data General"), a manufacturer of portable integrated scanning terminals which incorporate scan engines from PSC, for infringement of the same four patents and five additional patents. The nine patents asserted against Data General are the same nine Symbol patents as to which PSC is seeking declaratory relief. F-14 On October 9, 1996, the Court granted the Company's motion, to sever and stay PSC's antitrust, unfair competition and related claims. On the same day, the Court denied Data General's motion to stay the Company's claims against it. The Court also set a one week trial (a "Markman" hearing) for July 14, 1997, to construe the claims in all nine patents asserted by Symbol against Data General and PSC. On May 8, 1997, the Court postponed the "Markman" hearing and in the interest of judicial economy, the Court also stayed discovery on the patent claims until a non-judicial arbitration which PSC had initiated on March 10, 1997 was completed. The arbitration involved an interpretation of certain provisions of 1985 and 1995 license agreements between the Company and Spectra-Physics Scanning Systems, Inc. (which had been acquired by PSC) concerning whether purchaser's of PSC's scan engines were free to incorporate these scan engines into their integrated scanning terminals without any royalty payment to Symbol beyond that paid by PSC on th scan engine itself. The arbitration was heard on July 22-24, 1997. On December 29, 1997, the Arbitrator rendered his decision in favor of the Company and against PSC. The Arbitrator ruled that the sale of PSC's scan engines passed no immunity to PSC's customers under Symbol patents covering the integration of the scan engine into integrated scanning terminals. The Company's motion to confirm the Arbitrator's decision was approved by the Court. The Company requested that the Court lift the stay it entered in the litigation, to permit the Company to seek a ruling that the Company's agreements with PSC, which PSC argues have been terminated and under which it has ceased paying royalties for more than two years, remain in full force and effect and require royalty payments to be made to the Company pursuant to those agreements. PSC has objected to the Company's request and has asked the Court that it continue to hold the contract issues in abeyance and instead lift the stay with respect to the pending patent issues and that discovery in these claims be reopened. The parties are currently awaiting a ruling by the Court on the issue. 11. STOCKHOLDERS' EQUITY a. Common Equity Put Options During April 1997 the Company issued common equity put options on 150,000 shares of its common stock which are exercisable for a period of one year from the date of issuance and give independent parties the right to sell such shares to the Company at a strike price of $31.163 per share. Proceeds of $285,000 from the issuance of the April 1997, put options were credited to additional paid in capital. The balance of the common equity put option account as of December 31, 1997 and December 31, 1996, represents the amount the Company would be obligated to pay if all unexpired put options were exercised relating to unexpired transactions outstanding as of the respective balance sheet dates. The decrease in the balance as of December 31, 1997 from December 31, 1996 is due to the expiration of obligations associated with 70,500 shares and 375,000 shares, respectively of the Company's common stock at strike prices of $26.703 and $24.421, respectively, and corresponding reclassification to additional paid in capital, partially offset by the April 1997 issuance previously described. F-15 b. Stock Option Plans There are a total of 8,798,000 shares of Common Stock reserved for issuance under the Company's stock option plans at December 31, 1997. Stock options granted to date generally vest over a four to five year period, expire after ten years and have exercise prices equal to the market value of the Company's common stock at the date of grant. A summary of changes in the stock option plans is: Shares Under Option Number of Weighted Option Price Shares Avg. Exercise per Share (in thousands) Price Shares under option at January 1, 1995 5,370 $ 9.80 Granted $17.50 to $26.25 1,863 $20.45 Exercised $ 5.33 to $16.17 (765) $ 8.80 Cancelled $ 6.00 to $25.33 (452) $13.77 Shares under option at December 31, 1995 6,016 $12.87 Granted $25.00 to $31.67 1,265 $27.79 Exercised $ 4.33 to $19.92 (1,379) $ 8.77 Cancelled $ 6.00 to $31.33 (195) $17.31 Shares under option at December 31, 1996 5,707 $17.00 Granted $32.19 to $41.38 2,245 $34.29 Exercised $ 3.67 to $26.25 (1,218) $ 9.39 Cancelled $ 6.00 to $35.00 (252) $23.66 Shares under option at December 31, 1997 6,482 $24.17 Shares exercisable at December 31, 1997 $ 6.00 to $26.25 1,871 $13.20 The following table summarizes information concerning currently outstanding and exercisable options: Weighted Weighted Range of Number Remaining Average Number Average Exercise Outstanding Life Exercise Exercisable Exercise Prices (In thousands) (years) Price (In thousands) Price $ 6.00 - $ 9.00 811 4.5 $ 8.09 765 $ 8.08 $ 9.08 - $13.62 545 5.0 $11.99 444 $12.00 $13.90 - $20.00 971 7.0 $17.83 394 $17.58 $22.00 - $33.00 2,854 8.5 $28.16 268 $23.38 $35.00 - $41.50 1,301 9.0 $35.24 - - 6,482 1,871 At December 31, 1997, an aggregate of 2,316,000 shares remain available for grant under the stock option plans. The tax benefits arising from stock option exercises during the years ended December 31, 1997, 1996 and 1995, in the amount of $13,057,000, $10,761,000, and $4,184,000, respectively, were recorded in stockholders' equity as additional paid-in capital. F-16 The Company applies APB opinion No. 25 and related interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized for the fixed portion of its plans. If compensation cost for the Company's fixed stock options (including outside directors' options and stock purchase warrants discussed below) had been determined consistent with Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation to Employees" ("SFAS No. 123"), the Company's net income and earnings per share would have been the pro forma amounts indicated below: Year Ended December 31, 1997 1996 1995 (in thousands) Net Income: As Reported $70,232 $50,256 $46,486 Pro Forma $65,557 $48,401 $45,804 Basic Earnings Per Share: As Reported $1.78 $1.30 $1.20 Pro Forma $1.67 $1.25 $1.18 Diluted Earnings Per Share: As Reported $1.72 $1.24 $1.15 Pro Forma $1.61 $1.19 $1.13 The weighted average fair value of options granted during 1997, 1996 and 1995 was $11.54, $9.35 and $6.88 per option, respectively. In determining the fair value of options and outside directors' options and stock purchase warrants granted in 1997, 1996 and 1995 for pro forma purposes the Company used the Black-Scholes option pricing model and assumed the following: a risk free interest rate of 5.5 percent; an expected option life of 4.5 years; an expected volatility of 29 percent; and dividend yield of 0.14 percent per year. As required by SFAS No. 123, the impact of outstanding non-vested stock options granted prior to 1995 has been excluded from the pro-forma calculation; accordingly, the pro-forma adjustments reflected above are not indicative of future period pro-forma adjustments when the calculation will apply to all applicable stock options. c. Outside Directors' Options and Stock Purchase Warrants All options and stock purchase warrants issued to outside directors vest over a two to four year period, expire after ten years and have exercise prices equal to the market value of the Company's common stock at the date of grant. The following table indicates the number of common shares issuable upon exercise and the exercise price per share of all outstanding outside Directors' options and stock purchase warrants as of December 31, 1997: Exercisable Number of Shares Exercise Price Shares Vested to Issuable Upon Exercise per Share at December 31,1997 2000 32,000 $ 5.42 to $10.33 32,000 2004 30,000 $16.83 to $18.50 30,000 2005 15,000 $22.42 15,000 2006 19,000 $31.33 9,000 2007 13,000 $33.00 - 109,000 86,000 The weighted average exercise price was $19.42 and $16.17 for the number of shares issuable upon exercise and shares vested at December 31, 1997, respectively. The weighted average fair value of outside directors options and stock purchase warrants granted during 1997, 1996 and 1995 was $11.09, $10.53 and $7.53 per share, respectively. F-17 d. Treasury Stock Treasury stock is comprised of 1,584,000 shares of Common Stock purchased for a total cost of $38,990,000 from certain officers related to the exercise of stock options and 2,775,000 shares purchased in open market transactions for a total cost of $64,321,000 pursuant to the stock repurchase programs authorized by the Board of Directors on May 8, 1995, and May 4, 1992. e. Dividends On April 1, 1997 the Company paid a $0.03 per share cash dividend ($0.02 per share post 1997 stock split) that was approved by the Board of Directors on February 10, 1997 to shareholders of record on March 10, 1997. In addition, on October 6, 1997 the Company paid a $0.02 per share cash dividend that was approved by the Board of Directors on August 14, 1997 which was payable to shareholders of record on September 12, 1997. The cash dividends described above have been recorded as an adjustment to retained earnings as of December 31, 1997. Also see note 16 regarding the 1998 cash dividend. 12. ASSOCIATE BENEFIT PLANS a. Profit Sharing Retirement Plan The Company maintains a 401(k) profit sharing retirement plan for all U.S. associates meeting certain service requirements. The Company contributes monthly, 50.0 percent of associates' contributions up to a maximum of 6.0 percent of annual compensation. Plan expense for the years ended December 31, 1997, 1996 and 1995 was $4,591,000, $3,469,000 and $2,959,000, respectively. b. Health Benefits The Company pays substantially all costs incurred in connection with providing associate health benefits through programs administered by various insurance companies. Such costs amounted to $10,275,000, $9,701,000, and $10,700,000, for the years ended December 31, 1997, 1996 and 1995, respectively. c. Executive Retirement Plan The Company maintains an Executive Retirement Plan (the "Plan") in which certain highly compensated associates are eligible to participate. Participants are selected by a committee of the Board of Directors. Benefits vest after five years of service and are based on a percentage of average compensation for the three years immediately preceding termination of the participant's full-time employment. As of December 31, 1997, 13 officers were participants in the Plan. The Company's obligations under the Plan are not funded apart from the Company's general assets. Plan costs are: Year Ended December 31, 1997 1996 1995 (in thousands) Service cost - benefits earned during the period $ 745 $ 656 $ 650 Interest cost on projected benefit obligation 718 665 588 Amortization of unfunded prior service costs and unrecognized loss 113 113 121 Net periodic pension expense $1,576 $1,434 $1,359 F-18 The Plan's funded status is as follows: December 31, December 31, 1997 1996 (in thousands) Accumulated benefit obligation $7,458 $5,972 Projected benefit obligation ($9,596) ($8,342) Unrecognized net loss 527 542 Unrecognized prior service costs 835 948 Accrued pension costs ($8,234) ($6,852) The Plan had $7,458,000, and $5,972,000 of vested benefit obligations at December 31, 1997, and 1996, respectively which are included in other liabilities. The projected benefit obligation at December 31, 1997, 1996 and 1995 was determined using an assumed weighted average discount rate of 7.0 percent, 7.5 percent and 8.0 percent, respectively, and an assumed increase in the long-term rate of compensation of 5.0 percent. The Company also maintains a retirement pension plan related to the acquisition of LIS. Net periodic pension expense related to the LIS plan was approximately $400,000 and $200,000 for the years ended December 31, 1997 and 1996, respectively. 13. RECONCILIATION OF BASIC AND DILUTED EARNINGS PER SHARE In accordance with SFAS No.128, basic earnings per common share are computed based on the weighted-average number of common shares outstanding during each period. Diluted earnings per common share are computed based on the weighted- average number of common shares, after giving effect to diluted common stock equivalents outstanding during each period. The following table provides a reconciliation between basic and diluted earnings per share: For The Year Ended December 31, 1997 December 31, 1996 December 31, 1995 (in thousands, except per share amounts) Per Per Per Income Shares Share Income Shares Share Income Shares Share Basic EPS Income available to common stockholders $70,232 39,359 $1.78 $50,256 38,798 $1.30 $46,486 38, 691 $1.20 Effect of Dilutive Securities Options/Warrants - 1,465 ($0.06) - 1,821 ($0.06) - 1,887 ($0.05) Diluted EPS Income available to common stockholders plus assumed exercises $70,232 40,824 $1.72 $50,256 40,619 $1.24 $46,486 40,578 $1.15 14. OPERATIONS BY GEOGRAPHIC AREA The Company is engaged in one industry, specifically, the design, manufacture and marketing of bar code reading equipment, portable data collection systems and radio frequency data communications products. Operations in this business segment are summarized below by geographic area. The Company's operations in Western Europe generally consist of selling and performing field service maintenance on products designed and manufactured primarily in the United States. F-19 North Western America Europe Other Eliminations Consolidated (in thousands) Year ended December 31, 1997: Sales to unaffiliated customers $448,220 $257,325 $68,800 $ $774,345 Transfers between geographic areas 167,996 (167,996) - Total net revenue $616,216 $257,325 $68,800 ($167,996) $774,345 Earnings before provision for income taxes $ 96,360 $ 8,885 $ 1,518 $ 2,975 $109,738 Identifiable assets $413,477 $115,365 $23,513 $ - $552,355 Corporate assets 126,835 Total assets $679,190 Year ended December 31, 1996: Sales to unaffiliated customers $389,519 $222,611 $44,545 $ - $656,675 Transfers between geographic areas 140,126 - - (140,126) - Total net revenue $529,645 $222,611 $44,545 ($140,126) $656,675 Earnings before provision for income taxes $ 84,447 $ 1,939(1) ($366) ($4,962) $ 81,058 Identifiable assets $379,114 $108,871 $15,916 $ - $503,901 Corporate assets 110,337 Total assets $614,238 (1) Includes a pre-tax charge of $10,741,000 related to acquisition costs associated with purchased research and development. Year ended December 31, 1995: Sales to unaffiliated customers $336,734 $178,027 $40,402 $ - $555,163 Transfers between geographic areas 93,028 - - (93,028) - Total net revenue $429,762 $178,027 $40,402 ($93,028) $555,163 Earnings before provision for income taxes $ 55,505 $ 15,049 $ 592 $ 3,832 $ 74,978 Identifiable assets $327,018 $ 73,953 $ 5,593 $ - $406,564 Corporate assets 137,704 Total assets $544,268 F-20 In determining earnings before provision for income taxes for each geographic area, sales and purchases between areas have been accounted for on the basis of internal transfer prices set by the Company. Certain U.S. operating expenses are allocated between geographic areas based upon the percentage of geographic area revenue to total revenue. This allocation has the effect of reducing reported European and other operating profit. Identifiable assets are those tangible and intangible assets used in operations in each geographic area. Corporate assets are principally temporary investments and the excess of cost over fair value of net assets acquired. The Company's export sales, primarily to Europe, approximated $326,125,000, $267,156,000 and $218,429,000 for the years ended December 31, 1997, 1996 and 1995, respectively. The Company has customers in the retail industry which accounted for approximately $40,317,000 and $26,275,000 in accounts receivable at December 31, 1997 and 1996, respectively. The carrying amounts of accounts receivable approximate fair value because of the short maturity of these instruments. 15. SELECTED QUARTERLY FINANCIAL DATA (unaudited) The following tables set forth unaudited quarterly financial information for the years ended December 31, 1997, and 1996: Quarter Ended March 31 June 30 September 30 December 31 (in thousands, except per share amounts) Year Ended December 31, 1997: Net revenue $178,271 $187,663 $201,876 $206,535 Gross profit 79,055 82,482 88,472 90,472 Net earnings 15,445 16,174 18,496 20,117 Basic earnings per share: $0.39 $0.41 $0.47 $0.51 Diluted earnings per share: $0.38 $0.40 $0.45 $0.49 Year Ended December 31, 1996: Net revenue $149,082 $159,328 $170,963 $177,302 Gross profit 68,263 72,218 76,762 79,318 Net earnings 13,089 14,290 7,503 15,374 Basic earnings per share: $0.34 $0.37 $0.19 (1) $0.39 Diluted earnings per share: $0.33 $0.35 $0.18 (1) $0.38 (1) Includes a pre-tax charge of $12,341,000 ($0.20 per share after tax on a basic earnings per share basis and $0.19 per share after tax on a diluted earnings per share basis) related to acquisition costs associated with purchased research and development ($10,741,000) and merger integration costs ($1,600,000). The quarterly earnings per share information is computed separately for each period. Therefore, the sum of such quarterly per share amounts may differ from the total for the year. 16. SUBSEQUENT EVENT On February 9, 1998 the Board of Directors approved a three for two split of the Company's common stock to be effected as a 50 percent stock dividend and a $0.02 semi-annual cash dividend both of which are payable on April 3, 1998 to shareholders of record on March 17, 1998. Per share amounts contained herein have not been adjusted to reflect this split. F-21 SCHEDULE II SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (All amounts in thousands) COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E Additions (1) (2) Balance at Charged to Charged Balance beginning cost and to other at end Description of year expenses accounts Deductions of year Allowance for doubtful accounts: December 31, 1997 $10,123 $2,253 $ 90 (a) $1,471 (b) $10,995 December 31, 1996 $7,816 $2,270 $890 (a) $ 853 (b) $10,123 December 31, 1995 $7,269 $3,458 $569 (a) $3,480 (b) $ 7,816 (a) Primarily collection of accounts previously written off. (b) Uncollectible accounts written off. S-1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 __________________________________ ANNUAL REPORT ON FORM 10-K FOR FISCAL YEAR ENDED DECEMBER 31, 1997 _________________________________ SYMBOL TECHNOLOGIES, INC. EXHIBITS 10._ Exhibits Exhibit Page No. 3.1 Certificate of Incorporation of Symbol Technologies, Inc. and amendments thereto. (Incorporated by reference to Exhibit 3.1 of the Company's Annual Report on Form 10-K for the year ended December 31, 1996 (the "1996 Form 10-K).) 3.3 By-laws of the Company as currently in effect. (Incorporated by reference to Exhibit 3.1 of the 1996 Form 10-K.) 4.1 Form of Certificate for Shares of the Common Stock of the Company. (Incorporated by reference to Exhibit 4.1 of the Form 8-B Registration No. 0-9028, filed with the Commission on November 23, 1987). 10.1 Form of 2008 Stock Purchase Warrant issued to 6 certain directors. 10.2 Form of 2000 Stock Purchase Warrant issued to certain directors. (Incorporated by reference to Exhibit 10.11 to the Company's Annual Report on Form 10-K for the year ended December 31, 1991 (the "1991 Form 10-K").) 10.3 1994 Directors Stock Option Plan. (Incorporated by reference to Exhibit 4.1 to Registration Statement No. 33-78678 on Form S-8.) 10.4 1997 Employee Stock Purchase Plan. (Incorporated by reference to Exhibit 4.2 to Registration Statement No. 333-26593 on Form S-8.) 10.5 1997 Employee Stock Option Plan. 10 10.6 1991 Employee Stock Option Plan (Incorporated by reference to Exhibit 10.1 of the 1991 Form 10-K.) 10.7 1990 Non-Executive Stock Option Plan, as amended. (Incorporated by reference to Exhibit 10.1 of the Company's Annual Report on Form 10-K for the year ended December 31, 1995 (the "1995 Form 10-K").) 10.8 Employment Agreement by and between the Company and Raymond Martino, dated as of - -2- June 12, 1994. (Incorporated by reference to Exhibit 10.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 1994.) 10.9 Employment Agreement by and between the Company and Jerome Swartz, dated as of June 30, 1995. (Incorporated by reference to Exhibit 10.4 to the 1995 Form 10-K.) 10.10 Employment Agreement by and between the Company and Tomo Razmilovic, dated as of October 16, 1995. (Incorporated by reference to Exhibit 10.5 of the 1995 Form 10-K.) 10.11 Employment Agreement by and between the Company and Frederic P. Heiman, dated as of June 30, 1995. (Incorporated by reference to Exhibit 10.6 of the 1995 Form 10-K.) 10.12 Employment Agreement by and between the Company and Leonard H. Goldner, dated as of November 1, 1995. (Incorporated by reference to Exhibit 10.7 of the 1995 Form 10-K.) 10.13 Executive Retirement Plan, as amended. (Incorporated by reference to Exhibit 10.14 to the Company's Annual Report on Form 10-K for the year ended December 31, 1989 (the "1989 Form 10-K").) 10.14 Symbol Technologies, Inc. Stock Ownership and Option Retention Program. (Incorporated by reference to Exhibit 10.13 of the 1995 Form 10-K.) 10.15 Summary of Symbol Technologies, Inc. Executive Bonus Plan. (Incorporated by reference to Exhibit 10.14 of the 1995 Form 10-K.) 10.16 Lease Agreement and Amended and Restated Lease Agreement dated as of October 1, 1989 between Suffolk County Industrial Development Agency and Symbol Technologies, Inc. (Incorporated by reference to Exhibit 10.15 to the 1989 Form 10-K.) 10.17 Sublease dated June 28, 1995 between Grumman Data Systems Corporation and Symbol Technologies, Inc. (Incorporated by reference to Exhibit 10.16 to the 1995 Form 10-K.) - -3- 10.18 Form of Note Agreements dated as of February 15, 1993 relating to the Company's 7.76% Series A and Series B Senior Notes due February 15, 2003 (Incorporated by reference to Exhibit 10.14 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992.) 22. Subsidiaries. 18 23. Consent of Deloitte & Touche LLP 22 (b) Reports on Form 8-K Not Applicable - -4- EXHIBIT 10.1 - -5- SYMBOL TECHNOLOGIES, INC. 1998 DIRECTORS' WARRANT AGREEMENT 10,000 $37.3125 Number of Shares of Common Exercise Price Stock Subject to Warrant Per Share January 5, 1998 Date of Grant 1. Symbol Technologies, Inc. (hereinafter called the "Company") hereby grants you, as of the date of grant specified above (hereinafter the "Date of Grant"), a warrant to purchase the number of shares of common stock (par value $.01 per share) of the Company specified above (which number of shares may be adjusted pursuant to Paragraph 5 below) at the price per share specified above, which is the closing price of the common stock of the Company on the New York Stock Exchange on the Date of Grant. Such shares shall be made available solely from shares of common stock reacquired and held in the Company's treasury. 2. Subject to the provisions of Paragraph 3 below, you may exercise this Warrant as follows: No part of this Warrant may be exercised prior to December 31, 1998. Subject to Paragragh 3, this Warrant may be exercisable with respect to 25% of the total number of shares originally covered thereby on and after January 1, 1999 and such percentage shall increase by 25% on each of the next three consecutive anniversary dates of that date. Accordingly, on January 1, 2002, the Warrant may be exercised in its entirety. This Warrant may not be exercised for a fraction of a share of common stock of the Company. Delivery of any written noticed of exercise of this Warrant shall constitute an irrevocable election to exercise the Warrant to the extent indicated in said notice. 3. This Warrant may not be exercised by you unless all of the following conditions are met: (a) Counsel for the Company must be satisfied at the time of exercise that the issuance of shares upon exercise will be in compliance with applicable federal, state, local and foreign securities laws, securities exchange and other applicable laws and requirements. (b) At the time of exercise the full purchase price for the shares being acquired hereunder must be paid to the Company and such amount as required by Paragraph 6 below, by (i) paying in United States dollars by cash or check, (ii) tendering shares of common stock of the Company owned by you for at least six months which have an aggregate fair market value equal to the full purchase price for the shares being acquired (the closing price of a share -6- (c) of common stock of the Company on the New York Stock Exchange) on the date of exercise, (iii) by delivery to the Company (a) irrevocable instructions to deliver the stock certificate representing the shares being acquired directly to a broker, and (b) instructions to the broker to sell such shares and promptly deliver to the Company the portion of the sales price equal to the exercise price, or (iv) a combination of these methods of payment; and (c) You must, at all times during the period beginning with the Date of Grant and ending on the date of such exercise, have been a Director of the Company, except that if you cease to be such a Director for reasons other than death while holding this Warrant, and this Warrant has not expired and has not been fully exercised, you may, at any time within ninety (90) days of the date of such cessation (but in no event after the expiration of ten years from the Date of Grant), with due regard to the provisions of Paragraph 2 above, exercise this Warrant with respect to any of the total number of shares covered hereby as to which you could have exercised this Warrant on the date you ceased to be a Director. 4. (a) This Warrant is not transferable by you otherwise than by will or the laws of descent and distribution and is exercisable during your lifetime only by you. If, at the time of your death, this Warrant has not been fully exercised, your executors, administrators, heirs or distributees, as the case may be, may, at any time within one year after the date of your death (but in no event after the expiration of ten years from the Date of Grant), with due regard to the provisions of Paragraph 2 above, exercise this Warrant with respect to the number of shares as to which you could have exercised this Warrant at the time of your death. (b) A warrant holder shall have no rights as a shareholder with respect to any shares of common stock issuable pursuant to the Warrant until receipt by the Company of payment referred to in Paragraph 3 hereof. Except as provided in Paragraph 5, no adjustment shall be made for dividends, distributions or other rights (whether ordinary or extraordinary, and whether in cash, securities or other property) for which the record date is prior to the date of receipt of such payment. Nothing contained herein shall be construed as giving any warrant holder any right to be retained in the services of the Company or to continue to serve as a Director of the Company. 5. In the event that the outstanding common stock of the Company shall be changed by reason of any stock split, stock dividend, recapitalization, merger, consolidation, reorganization, combination or exchange of shares or other similar event occurring after the Date of Grant and prior to its exercise in full, the number and kind of shares for which this Warrant may then be exercised and the exercise price per share shall be - -7- proportionately and appropriately adjusted automatically so as to reflect such change. In computing any adjustment provided herein, any fractional shares shall be eliminated. 6. It shall be a condition to the obligation of the Company to issue shares of common stock of the Company upon exercise of this Warrant that you (or any beneficiary or person entitled to act under Paragraph 4 above): (a) Pay to the Company, upon its demand, such amount as may be requested by the Company for the purpose of satisfying any liability to withhold federal, state, local or foreign income or other taxes incurred by reason of the exercise of the Warrant or the transfer of shares thereupon; (b) Execute such forms as the Board of Directors of the Company shall prescribe for the purpose of evidencing the exercise of the Warrant in whole or in part, as the case may be; and (c) Provide the Company with any forms, documents or other information reasonably required by the Company in connection with the grant and/or exercise. If the foregoing requirements of this Paragraph 6 are not satisfied, the Company may refuse to issue shares of common stock upon exercise of the Warrant and all rights hereunder shall become null and void. 7. This Agreement shall be governed and construed in accordance with the substantive law, but not the choice of law rules, of the State of New York. The Board of Directors shall have the power to construe this Agreement and to determine all questions arising hereunder. Any decision of the Board shall be final and conclusive. Please confirm your acceptance of this grant by executing the attached copy of this Agreement and returning it to Leonard H. Goldner, Senior Vice President, General Counsel and Secretary of the Company, One Symbol Plaza, Holtsville, NY 11742-1300. Such action will constitute your agreement to abide by all of the provisions of the grant and the Warrant specified herein. SYMBOL TECHNOLOGIES, INC. By: _________________________ _________________________ Director - -8- EXHIBIT 10.5 - -9- SYMBOL TECHNOLOGIES, INC. 1997 EMPLOYEE STOCK OPTION PLAN (as of February 10, 1997) 1. Purpose. The 1997 Employee Stock Option Plan (the "Plan") of Symbol Technologies, Inc. (the "Company"), a Delaware corporation, is designed to aid the Company and its subsidiaries in retaining and attracting personnel of exceptional ability by enabling key employees to purchase a proprietary interest in the Company, thereby stimulating in such individuals an increased desire to render greater services which will contribute to the continued growth and success of the Company and its subsidiaries. Certain of the options to be granted under the Plan are intended to satisfy the requirement for classification as "Incentive Stock Options" as defined in Section 422A of the Internal Revenue Code 1986, as amended (the "Code"). (An option granted under the Plan which is intended to satisfy the requirements for classification as an Incentive Stock Option shall be referred to herein as a "Plan Incentive Stock Option"). 2. Amount and Source of Stock. The total number of shares of Common Stock, par value $.01 per share (the "Shares"), of the Company which may be the subject of options granted pursuant to the Plan shall not exceed 1,250,000 of the Company's Shares subject to adjustment as provided in paragraph 10. Such Shares may be reserved or made available from the Company's authorized and unissued Shares or from Shares reacquired and held in the Company's treasury. In the event that any option granted hereunder shall terminate prior to its exercise in full for any reason, then the Shares subject to such option shall be added to the Shares otherwise available for issuance pursuant to the exercise of options under the Plan. 3. Administration of Plan. If all of the members of the Board of Directors of the Company (the "Board") are "disinterested persons" as that term is defined in Rule 16b-3(c)(2) (or any successor provision) promulgated under the Securities and Exchange Act of 1934, as amended (the "Exchange Act") ("Disinterested Persons"), then the Plan shall be administered by the Board or, if so designated by resolution of the Board by a committee of the Board comprised of two or more members of the Board, selected by the Board, all of which members shall be "Disinterested Persons" (the "Committee"). If all of the members of the Board are not "Disinterested Persons", then the Board shall designate such a Committee to administer the Plan. (The body which is administering the Plan pursuant to this paragraph shall at times be referred to herein as the "Administrative Body.") The Administrative Body shall have full authority to interpret the Plan, to establish and amend rules and regulations relating to it, to determine the key employees to whom options may be granted under the Plan, to select from among the eligible individuals those to whom options are to be granted, to determine the terms and provisions of the respective option - -10- agreements (which need not be identical) and to make all other determinations necessary or advisable for the administration of the Plan. The date on which the Administrative Body adopts resolutions granting an option to a specified individual shall constitute the date of grant of such option (the "Date of Grant"); provided, however, that if the grant of an option is made subject to the occurrence of a subsequent event (such as, for example, the commencement of employment), the date on which such subsequent event occurs shall be the Date of Grant. Such resolutions shall also specify whether the option is or is not intended to qualify as a Plan Incentive Stock Option; provided, however, that in the event no such specification is made in such resolutions, the Administrative Body will be deemed to have specified that such option is not intended to qualify as a Plan Incentive Stock Option; provided further, however, that in the event such specification, whether explicit or implicit, is inconsistent with terms set forth in such resolutions for such option, then such specification shall be deemed of no force and effect, and the Administrative Body will be deemed to have made a specification which is consistent with such terms. The adoption of any such resolution by the majority of the members of the Administrative Body shall complete the necessary corporate action constituting the grant of said option and an offer of Shares for sale to said individual under the Plan. 4. Eligibility. All officers and key employees of the Company or subsidiaries of the Company, as determined by the Administrative Body, shall be eligible to receive options hereunder; provided, however, that no Plan Incentive Stock Option shall be granted hereunder to any person who, together with his spouse, children and trusts and custodial accounts for their benefit, at the time of the grant of such option, owns, within the meaning of Section 425(d) of the Code, Shares constituting more than ten percent (10%) of the total combined voting power of all of the outstanding stock of the Company (a "Ten Percent Shareholder"), unless the Plan Incentive Stock Option granted to the Ten Percent Shareholder satisfies the additional conditions for the options granted to Ten Percent Shareholders set forth in subparagraphs 5(a) and 6(a). For purposes of the Plan, a subsidiary shall mean any corporation of which the Company owns or controls, directly or indirectly, fifty percent (50%) or more of the outstanding shares of stock normally entitled to vote for the election of directors including voting securities issuable upon conversion of another security which is, or may be issuable upon the exercise of any warrant, option or other similar right, and any partnership of which the Company or a corporate subsidiary is a general partner. From time to time the Administrative Body shall, in its sole discretion, within the applicable limits of the Plan, select from among the eligible individuals those persons to whom options shall be granted under the Plan, the number of Shares subject to each option, and the exercise price, terms and conditions of any options to be granted hereunder. 5. Option Price; Maximum Grant. (a) The exercise price for the Shares purchasable under any option granted pursuant to the Plan shall not be less than 100% or, in the case of a Plan Incentive Stock Option granted to a Ten Percent Shareholder, - -11- 110% of the fair market value per share of the Shares subject to option under the Plan at the Date of Grant, solely as determined by the Administrative Body in good faith. The exercise price for options granted pursuant to the Plan shall be subject to adjustment as provided in paragraph 10. For purposes of the Plan, the "fair market value per share" of the Shares on a given date shall be: (i) if the Shares are listed on a registered securities exchange or traded on the NASDAQ National Market System, the closing price per share of the Shares on such date (or, if there was no trading in the Shares on such date, on the next preceding day on which there was trading); (ii) if the Shares are not listed on a registered securities exchange or traded on the NASDAQ National Market System but the bid and asked prices per share for the Shares are provided by NASDAQ, the National Quotation Bureau Incorporated or any similar organization, the average of the closing bid and asked price per share of the Shares on such date (or, if there was no trading in the Shares on such date, on the next preceding day on which there was trading) as provided by such organization; and (iii) if the Shares are not listed on a registered securities exchange or traded on the NASDAQ National Market System and the bid and asked prices per share of the Shares are not provided by NASDAQ, the National Quotation Bureau Incorporated or any similar organization, as determined by the Administrative Body in good faith. (b) To the extent necessary for Plan Incentive Stock Options to qualify as Incentive Stock Options, the aggregate fair market value, determined as the Date of Grant, of the Shares subject to options which may first become exercisable by an individual in any calendar year, under this Plan and all other stock option plans of the Company and of any parent or subsidiary of the Company pursuant to which Incentive Stock Options may be granted, shall not exceed $100,000. (c) The maximum number of Shares purchasable under any option or options granted pursuant to the Plan to any one individual in any calendar year shall in no event exceed one percent of the then issued and outstanding shares of Common Stock of the Company. 6. Term of Option. (a) Subject to the provisions of the Plan, the Administrative Body shall have absolute discretion in determining the period during which, the rate at which and the terms and conditions upon which any option granted hereunder may be exercised, and whether any option exercisable in installments is to be exercisable on a cumulative or non-cumulative basis; provided, however, that no option granted hereunder shall be exercisable for a period exceeding ten (10) years or, in the case of a Plan Incentive Stock Option granted to a Ten Percent Shareholder, five (5) years from the Date of Grant. The Administrative Body may, at any time before complete termination of any option granted hereunder, accelerate the time or times at which such option may be exercised in whole or in part. - -12- (b) The grant of options by the Administrative Body shall be effective as of the date on which the Administrative Body shall authorize the option; provided, however, that no option granted hereunder shall be exercisable unless and until the holder shall enter into an individual option agreement with the Company that shall set forth the terms and conditions of such option. Each such agreement shall expressly incorporate by reference the provisions of this Plan (a copy of which shall be made available for inspection by the optionee during normal business hours at the principal office of the Company), and shall state that in the event of any inconsistency between the provisions hereof and the provisions of such agreement, the provisions of this Plan shall govern. 7. Exercise of Options. An option shall be exercised when written notice of such exercise, signed by the person entitled to exercise the option, has been delivered or transmitted by registered or certified mail to the Secretary of the Company at its then principal office. Said notice shall specify the number of Shares for which the option is being exercised and shall be accompanied by (i) such documentation, if any, as may be required by the Company as provided in subparagraph 11(b), and (ii) payment of the aggregate option price. Such payment shall be in the form of (i) cash or a certified check (unless such certification is waived by the Company) payable to the order of the Company in the amount of the aggregate option price, (ii) certificates duly endorsed for transfer (with all transfer taxes paid or provided for) evidencing a number of Shares (provided, however, that with such Shares have been owned by the Optionee for at least six months) of which the aggregate fair market value on the date of exercise is equal to the aggregate option exercise price of the Shares being purchased, (iii) by delivering to the Company (a) irrevocable instructions to deliver the stock certificates representing the Shares for which the option is being exercised, directly to a broker, and (b) instructions to the broker to sell such Shares and promptly delivered to the Company the portion of the sale proceeds equal to the aggregate option exercise price, or (iv) a combination of these methods of payment. Delivery of said notice shall constitute an irrevocable election to purchase the Shares specified in said notice, and the date on which the Company receives the last of said notice, documentation and the aggregate option exercise price for all of the Shares covered by the notice shall, subject to the provisions of paragraph 11 hereof, be the date as of which the Shares so purchased shall be deemed to have been acquired. The optionee shall not have the right or status as a holder of the Shares to which such exercise relates prior to receipt by the Company of the payment, notice and documentation expressly referred to in this paragraph 7. 6. Exercise and Cancellation of Options Upon Termination of Employment or Death. Except as set forth below, if an optionee shall voluntarily or involuntarily terminate his service as an employee of the Company or any subsidiary of the Company, any option awarded hereunder shall terminate upon the date of such termination of employment regardless of the expiration date specified in such option. Notwithstanding the foregoing, an option agreement may, at the Administrative Body's discretion, provide that the optionee shall - -13- have the right to exercise an option after his employment has terminated for any reason whatsoever, including death, disability or retirement provided, however that the exercise must be accomplished within the term of such option. Furthermore, all option agreements shall provide that if the termination of employment is due to retirement or disability (as defined by the Administrative Body in its sole discretion), the optionee (or his duly appointed guardian or conservator) shall have the privilege of exercising any option that the optionee could have exercised on the day upon which he ceased to be an employee of the Company or any subsidiary of the Company, provided, however, that such exercise must be accomplished within the term of such option and within one (1) year of the date of the termination of the optionee's employment with the Company or any subsidiary of the Company. If the termination of employment is due to the death of the optionee, the duly appointed executor or administrator of his estate shall have the privilege at any time of exercising any option that the optionee could have exercised on the date of his death; provided, however that such exercise must be accomplished within the term of such option and within one (1) year of the optionee's death. For all purposes of the Plan, an approved leave of absence shall not constitute interruption or termination of employment. Nothing contained herein or in any option agreement shall be construed to confer on any optionee any right to be continued in the employ of the Company or any subsidiary of the Company or derogate from any right of the Company or any subsidiary of the Company to retire, request the resignation or discharge of such optionee, or to lay off or require a leave of absence of such optionee (with or without pay), at any time, with or without cause. 9. Transferability of Options. (a) Subject to the provisions of subparagraph 9(b) hereof, options granted under this Plan shall not be transferable except by will or the laws of descent and distribution. Such options shall be exercisable during the optionee's lifetime only by the optionee (or his duly appointed guardian or conservator). (b) The Administrative Body may, in its discretion, authorize the transfer of all or a portion of any options granted hereunder on terms which permit the transfer by the optionee to (i) the spouse, children or grandchildren of the optionee ("Immediate Family Members"), (ii) a trust or trusts for the exclusive benefit of such Immediate Family Members, or (iii) a partnership in which such Immediate Family Members and/or the optionee are the only partners, provided that (a) the optionee shall receive the approval of the Administrative Body prior to such transfer, and such transfer must be limited to the persons or entities listed in this subparagraph 9(b), and (b) subsequent transfers of such transferred options shall be prohibited except in accordance with this paragraph 9. Following any such transfer, such options shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer, provided that for purposes of this plan, the term "optionee" shall be deemed to refer to the transferor. In the event of the termination of the employment of the transferor, the provisions - -14- provided herein shall continue to be applicable to the option and shall limit the ability of the transferee to exercise any such transferred options to the same extent they would have limited the optionee. 10. Adjustments Upon Changes in Capitalization. (a) If the outstanding Shares are subdivided, consolidated, increased, decreased, changed into, or exchanged for a different number or kind of shares or other securities of the Company through reorganization, merger, recapitalization, reclassification, capital adjustment or otherwise, or if the Company shall issue additional Shares as a dividend or pursuant to a stock split, then the number and kind of shares available for issuance pursuant to the exercise of options to be granted under this Plan and all Shares subject to the unexercised portion of any option theretofore granted and the option price of such options shall be adjusted to prevent the inequitable enlargement or dilution of any rights hereunder; provided, however, that any such adjustment in outstanding options under the Plan shall be made without change in the aggregate exercise price applicable to the unexercised portion of any such outstanding option. Distributions to the Company's shareholders consisting of property other than shares of Common Stock of the Company or its successor and distributions to shareholders of rights to subscribe for Common Stock shall not result in the adjustment of the Shares purchasable under outstanding options or the exercise price of outstanding options. Adjustments under this paragraph shall be made by the Administrative Body, whose determination thereof shall be conclusive and binding. Any fractional Share resulting from adjustments pursuant to this paragraph shall be eliminated from any then outstanding option. Nothing contained herein or in any option agreement shall be construed to effect in any way the right or power of the Company to make or become a party to any adjustments, reclassification, reorganizations or changes in its capital or business structure or to merge, consolidate, dissolve, liquidate or otherwise transfer all or any part of its business or assets. (b) If, in the event of a merger or consolidation, the Company is not the surviving corporation, and in the event that the agreements governing such merger or consolidation do not provide for substitution of new options or other rights in lieu of the options granted hereunder or for the express assumption of such outstanding options by the surviving corporation, or in the event of the dissolution or liquidation of the Company, the holder of any option theretofore granted under this Plan shall have the right no less than five (5) days prior to the record date for the determination of shareholders entitled to participate in such merger, consolidation, dissolution or liquidation, to exercise his option, in whole or in part, without regard to any installment provision that may have been made part of the terms and conditions of such option; provided that any conditions precedent to such exercise set forth in any option agreement granted under this Plan, other than the passage of time, shall have been satisfied. In any such event, the Company will mail or cause to be mailed to each holder of an option hereunder a notice specifying the date that is to be fixed as of which all holders of record of Shares shall be entitled to exchange their Shares for securities, - -15- cash or other property issuable or deliverable pursuant to such merger, consolidation, dissolution or liquidation. Such notice shall be mailed at least ten (10) days prior to the date therein specified. In the event any then outstanding option is not exercised in its entirety on or prior to the date specified therein, all remaining outstanding options granted hereunder and any and all rights thereunder shall terminate as of said date. 11. General Restrictions. (a) No option granted hereunder shall be exercisable if the Company shall, at any time and in its sole discretion, determine that (i) the listing upon any securities exchange, registration or qualification under any state or federal law of any Shares otherwise deliverable upon such exercise, or (ii) the consent or approval of any regulatory body or the satisfaction of withholding tax or other withholding liabilities, is necessary or appropriate in connection with such exercise. In any of such events, the exercisability of such options shall be suspended and shall not be effective unless and until such withholding, listing, registration, qualification or approval shall have been effected or obtained free of any conditions not acceptable to the Company in its sole discretion, notwithstanding any termination of any option or any portion of any option during the period when exercisability has been suspended. (b) The Administrative Body may require, as a condition to the right to exercise an option, that the Company receive from the optionee, at the time of any such exercise, representations, warranties and agreements to the effect that the Shares are being purchased by the optionee without any present intention to sell or otherwise distribute such Shares in violation of the Securities Act of 1933 (the "1933 Act") and that the optionee will not dispose of such Shares in transactions which, in the opinion of counsel to the Company, would violate the registration provisions of the 1933 Act and the rules and regulations thereunder and any applicable "blue sky" laws or regulations. The certificates issued to evidence such Shares shall bear appropriate legends summarizing such restrictions on the disposition thereof. 12. Withholding Tax Liability. (a) An optionee may elect to tender shares to the Company in order to satisfy federal and state withholding tax liability (a "share withholding election"), provided, (i) the Administrative Body shall not have revoked its advance approval of the optionee's share withholding election and (ii) the share withholding election is made on or prior to the date on which the amount of withholding tax liability is determined. Notwithstanding the foregoing, an optionee whose transactions in Common Stock are subject to Section 16(b) of the 1934 Act may make a share withholding election only if said election is also in compliance with the provisions of said Section and the rules and regulations promulgated thereunder. - -16- (b) A share withholding election shall be deemed made when written notice of such election, signed by the optionee, has been received by the Secretary of the Company. Delivery of said notice shall constitute an irrevocable election to have Shares so withheld. (c) Upon exercise of an option, the Company shall transfer the total number of Shares so exercised less the number of Shares deliverable, if any, in connection with the share withholding election (which shall be the number of Shares having an aggregate fair market value as provided herein equal to the amount of tax required to be withheld plus cash for any fractional amount.) 13. Amendment. The Board shall have full authority to amend the Plan; provided, however, that any amendment that (i) increases the number of Shares that may be the subject to stock options granted under the Plan, (ii) expands the class of individuals eligible to receive options under the Plan, (iii) increases the period during which options may be granted or the permissible term of options under the Plan, or (iv) decreases the minimum exercise price of such options, shall only be adopted by the Board subject to shareholder approval. No amendment to the Plan shall, without the consent of the holder of an existing option, materially and adversely affect his rights under any option. 14. Termination. Unless the Plan shall theretofore have been terminated as hereinafter provided, the Plan shall terminate on February 9, 2007 and no options under the Plan shall thereafter be granted, provided, however, the Board at any time may, in its sole discretion, terminate the Plan prior to the foregoing date. No termination of the Plan shall without the consent of the holder of an existing option, materially and adversely affect his rights under such option. The Plan shall be submitted to the shareholders of the Company for approval in accordance with the applicable provisions of the General Corporate Law of the State of Delaware as promptly as practicable and in any event by February 9, 1998. Any options granted hereunder prior to such shareholder approval shall not be exercisable unless and until such approval is obtained. If such approval is not obtained by February 9, 1998, the Plan and any options granted hereunder shall be terminated. - -17- EXHIBIT 22 - -18- SYMBOL TECHNOLOGIES, INC. 100% Owned by Symbol Technologies, Inc. Symbol Technologies International, Inc. One Symbol Plaza Holtsville, NY 11742-1300 State of Incorporation: New York Symbol Technologies International, Inc. One Symbol Plaza Holtville, NY 11742-1300 State of Incorporation: Delaware Symbol Technologies Finance, Inc. 2145 Hamilton Avenue San Jose, CA 95125 State Of Incorporation: Delaware SymboLease, Inc. One Symbol Plaza Holtsville, NY 11742-1300 State of Incorporation: Delaware SymboLease Canada, Inc. 2540 Matheson Blvd. East Mississauga, Ontario Canada L4W 4Z2 State of Incorporation: Delaware Symbol Technologies Delaware, Inc. 2145 Hamilton Avenue San Jose, CA 95125 State Of Incorporation: Delaware Symbol Technologies Asia, Inc. 230 Victoria Street 04-05 Bugis Junction Office Tower Singapore 0718 State of Incorporation: Delaware Olympus Symbol, Inc. San-Ei Building 4F, 1-22-2, Nishi-Shinjuku Shinjuku-Ku, Tokyo-160, Japan Country of Incorporation: Japan Symbol Technologies Mexico, Limited Blvd. Manuel Avila Camacho #88 Piso 3, Col. Lomas de Chapultapec C.P. 11000 Mexico, D.F. Mexico Country of Incorporation: Mexico - -19- Symbol Technologies Nederlands B.V. Kerkplein 2, 7051 CX Postbus 24 7050 AA Varsseveld, Netherlands Country of Incorporation: The Netherlands Symbol Technologies (UK) Limited Genesis Center, Birchwood Science Park Warrington, Cheshire WA3 7BH, United Kingdom Country of Incorporation: United Kingdom Subsidiaries of Symbol Technologies International, Inc. (Delaware) Symbol Technologies Africa, Inc. Block BZ Rutherford Estate 1Scott Street Waverly 209, Republic of South Africa State of Incorporation: Delaware Symbol Technologies Pty. Ltd. 432 St. Kilda Road Melbourne, Victoria 3004 Australia Country of Incorporation: Australia Symbol Technologies GmbH 2 Haus - 5 Stock Prinz-Eugenstrasse 70 1040 Wein Austria Country of Incorporation: Austria Symbol Technologies Canada, Inc. 2540 Matheson Blvd. East Mississauga, Ontario, Canada L4W 4Z2 Country of Incorporation: Canada Symbol Technologies A/S Gydevang 2 DK-3450 Allerod, Denmark Country of Incorporation: Denmark Symbol Technologies S.A. Centre d'Affaire d'Anthony 3 Rue du la Renaissance 92184 Antony Cedex, France Country of Incorporation: France - -20- Symbol Technologies GmbH Waldstrasse 68 6057 Dietzenbach Germany Country of Incorporation: Germany Symbol Technologies, S.R.L. Via Cristoforo Colombo, 49 20090 Trezzano S/L Naviglio, Milan, Italia Country of Incorporation: Italy Symbol Technologies, S.A. Calle Princesa 32 Edificion Piovera Azul 28042 Madrid Spain Country of Incorporation: Spain Subsidiaries of Symbol Technologies Finance, Inc. (Delaware) Symbol Product Development Corporation 2145 Hamilton Avenue San Jose, CA 95125 State of Incorporation: California Symbol Technologies Florida, Inc. 2145 Hamilton Avenue San Jose, CA 95125 State of Incorporation: Florida - -21- EXHIBIT 23 - -22- INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statements No. 333-26593, No. 333-01769, No. 2-81405, No. 2-94868, No. 2-94876, No. 33-3771, No. 33-13009, No. 33-18748, No. 33-25509, No. 33-25484, No. 33-25567, No. 33-35821, No. 33-43580, No. 33-48025, No. 35-48026, No. 33-78622, No. 33-78678, No.33-59333 and No. 333-01769 on Form S-8 and No. 33-18745, No. 33-25432, No. 33-43581, No. 33-43584 and No. 33-45016 on Form S-3 of Symbol Technologies, Inc. of our report dated February 9, 1998, appearing in this Annual Report on Form 10-K of Symbol Technologies, Inc. for the year ended December 31, 1997. s/Delloitte & Touche LLP Jericho, New York March 3, 1998 - -23- EX-27 2
5 12-MOS DEC-31-1997 DEC-31-1997 59,970,000 0 173,784,000 (10,995,000) 128,155,000 399,952,000 191,468,000 (72,723,000) 679,190,000 158,106,000 40,301,000 0 0 435,000 453,307,000 679,190,000 774,345,000 774,345,000 421,796,000 433,864,000 227,467,000 0 (3,276,000) 109,738,000 39,506,000 70,232,000 0 0 0 70,232,000 1.78 1.72
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