-----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, WzbfRXvxlKhXHq0B6Wb90PkaOvQUASw0Qt16s3vHUL8MKOKblmUehQGxkAv2Tmyh WJufBtBFYIF84j5c3JHUXg== 0000278352-99-000005.txt : 19990310 0000278352-99-000005.hdr.sgml : 19990310 ACCESSION NUMBER: 0000278352-99-000005 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990309 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/A SEC ACT: SEC FILE NUMBER: 001-09802 FILM NUMBER: 99561026 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/A 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998 Commission file number 1-9802 SYMBOL TECHNOLOGIES, INC. (Exact name of Registrant as specified in its charter) Delaware 11-2308681 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) One Symbol Plaza Holtsville, NY 11742-1300 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (516) 738-2400 Securities registered pursuant to Section 12(b) of the Act: Common Stock, par value $.01 New York Stock Exchange (Title of each class) (Name of each Exchange on which registered) Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X The aggregate market value of the voting stock held by persons other than officers and directors (and their associates) of the registrant, as of February 1, 1999 was approximately $ 3,139,000,000. The number of shares outstanding of each of the registrant's classes of common stock, as of December 31, 1998, was as follows: Class Number of Shares Common Stock, par value $.01 58,756,247 Documents Incorporated by Reference: The registrant's Proxy Statement to be used in conjunction with the Annual Meeting of Shareholders to be held on May 10, 1999 (the "Proxy Statement") is incorporated into Part III. This Form 10-K/A is filed to amend the disclosure included in footnote 14 of the accompanying Notes to the Consolidated Financial Statements. There are no other changes (other than the dating of the signature pages and Independent Auditors' Consent) to the Company's annual report on Form 10-K which was previously filed on March 2, 1999. 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 8, 1999 -62- 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 8, 1999 Jerome Swartz Board and Director (Principal Executive Officer) /s/Tomo Razmilovic Director March 8, 1999 Tomo Razmilovic /s/Raymond R. Martino Director March 8, 1999 Raymond R. Martino /s/Harvey P. Mallement Director March 8, 1999 Harvey P. Mallement /s/Frederic P. Heiman Director March 8, 1999 Frederic P. Heiman /s/Saul P. Steinberg Director March 8, 1999 Saul P. Steinberg /s/Lowell C. Freiberg Director March 8, 1999 Lowell C. Freiberg /s/George Bugliarello Director March 8, 1999 George Bugliarello /s/Charles B. Wang Director March 8, 1999 Charles B. Wang /s/Kenneth V. Jaeggi Senior Vice President March 8, 1999 Kenneth V. Jaeggi Finance (Chief Financial Officer) /s/Brian T. Burke Senior Vice President March 8, 1999 Brian T. Burke and Controller (Chief Accounting Officer) -63- 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, 1998, 1997 AND 1996 SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 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 (1-15) F-6 through F-30 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, 1998 and 1997, and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1998. 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, 1998 and 1997 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998 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 New York, New York February 18, 1999 F-1
SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (All amounts in thousands, except stock par value) December 31, December 31, ASSETS 1998 1997 CURRENT ASSETS: Cash, including temporary investments of $3,018 and $31,909 respectively $ 16,284 $ 59,970 Accounts receivable, less allowance for doubtful accounts of $10,031 and $10,995, respectively 205,416 162,789 Inventories, net 196,986 128,155 Deferred income taxes 34,428 24,908 Other current assets 26,490 24,130 TOTAL CURRENT ASSETS 479,604 399,952 PROPERTY, PLANT AND EQUIPMENT, net 174,867 118,745 INTANGIBLE ASSETS, net 115,954 115,275 SOFTWARE DEVELOPMENT COSTS, net 43,571 26,649 OTHER ASSETS 24,403 18,569 $838,399 $679,190 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses $149,938 $121,714 Current portion of long-term debt 10,594 10,384 Income taxes payable 9,858 13,580 Deferred revenue 13,897 12,428 TOTAL CURRENT LIABILITIES 184,287 158,106 LONG-TERM DEBT, less current maturities 64,596 40,301 DEFERRED REVENUES 10,683 2,410 OTHER LIABILITIES 47,905 19,957 COMMON EQUITY PUT OPTIONS - 4,674 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 66,439 shares and 43,519 shares, respectively 664 435 Additional paid-in capital 315,884 289,434 Cumulative translation adjustments (5,797) (7,792) Retained earnings 365,950 274,976 676,701 557,053 Less: Treasury stock at cost, 7,683 shares and 4,359 shares, respectively (145,773) (103,311) 530,928 453,742 $838,399 $679,190
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, 1998 1997 1996 NET REVENUE $977,901 $774,345 $656,675 COST OF REVENUE 547,328 421,796 349,428 AMORTIZATION OF SOFTWARE DEVELOPMENT COSTS 14,592 12,068 10,686 GROSS PROFIT 415,981 340,481 296,561 OPERATING EXPENSES: Engineering 71,090 56,961 46,752 Selling, general and administrative 194,775 165,647 149,602 Amortization of excess of cost over fair value of net assets acquired 4,812 4,859 3,679 Purchased research and development and merger integration costs - - 12,341 Charges related to terminated acquisition 3,597 - - 274,274 227,467 212,374 EARNINGS FROM OPERATIONS 141,707 113,014 84,187 OTHER (EXPENSE)/INCOME: Gain on sale of business 494 - - Interest income 2,373 2,225 1,756 Interest expense (5,823) (5,501) (4,885) (2,956) (3,276) (3,129) EARNINGS BEFORE INCOME TAXES 138,751 109,738 81,058 PROVISION FOR INCOME TAXES 45,787 39,506 30,802 NET EARNINGS $ 92,964 $ 70,232 $ 50,256 EARNINGS PER SHARE: Basic $1.58 $1.19 $0.86 Diluted $1.49 $1.15 $0.82 WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: Basic 58,796 59,038 58,197 Diluted 62,436 61,236 60,928
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) Accumulated Other Common Stock Comprehensive $0.01 Par Value Income Additional Cumulative Total Shares Paid-in Translation Retained Treasury Stockholders' Issued Amount Capital Adjustments Earnings Stock Equity BALANCE, JANUARY 1, 1996 27,229 $272 $245,728 ($8,299) $156,075 ($40,922) $352,854 Net earnings - - - - 50,256 - 50,256 Translation adjustments - - - 2,649 - - 2,649 Total comprehensive income 52,905 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) BALANCE, DECEMBER 31, 1996 28,195 282 258,792 (5,650) 206,331 (60,079) 399,676 Net earnings - - - - 70,232 - 70,232 Translation adjustments - - - (2,142) - - (2,142) Total comprehensive income 68,090 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) Stock split 14,097 141 (141) - - - - Dividends paid - - - - (1,587) - (1,587) BALANCE, DECEMBER 31, 1997 43,519 435 289,434 (7,792) 274,976 (103,311) 453,742 Net earnings - - - - 92,964 - 92,964 Translation adjustments - - - 1,995 - - 1,995 Total comprehensive income 94,959 Exercise of stock options 1,118 11 21,533 - - - 21,544 Exercise of warrants 43 - 461 - - - 461 Reclassification of common equity put options obligation - - 4,674 - - - 4,674 Purchase of treasury shares - - - - - (42,462) (42,462) Stock split 21,759 218 (218) - - - - Dividends paid - - - - (1,990) - (1,990) BALANCE, DECEMBER 31, 1998 66,439 $664 $315,884 ($5,797) $365,950 ($145,773) $530,928
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, 1998 1997 1996 Cash flows from operating activities: Net earnings $ 92,964 $ 70,232 $ 50,256 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization of property, plant and equipment 32,797 25,738 23,247 Other amortization 22,359 19,539 16,276 Provision for losses on accounts receivable 2,921 2,253 2,270 Gain from sale of business (494) - - Charge for purchased research and development - - 10,741 Deferred income taxes 5,417 6,243 (2,835) Changes in assets and liabilities net of effect of acquisitions and divestitures: Accounts receivable (43,006) (12,455) (24,481) Sale of lease receivables - - 17,308 Inventories (64,948) 9,594 (33,880) Other current assets (2,446) (11,583) 605 Software development costs (31,514) (14,743) (13,606) Intangible assets (6,951) (3,387) (7,054) Other assets (5,990) 2,053 (14,150) Accounts payable and accrued expenses 22,021 15,113 10,981 Income taxes payable 7,217 4,380 (3,319) Other liabilities and deferred revenue 13,152 (4,805) 1,496 Net cash provided by operating activities 43,499 108,172 33,855 Cash flows from investing activities: Note receivable - 2,500 500 Expenditures for property, plant and equipment (89,334) (42,679) (34,680) Proceeds from sale of business, net 11,911 - - Acquisition of subsidiaries, net of cash acquired (13,686) (8,026) (26,962) Net cash used in investing activities (91,109) (48,205) (61,142) Cash flows from financing activities: Net proceeds from issuance and repayments of long-term debt 24,505 (10,240) (6,814) Exercise of stock options and warrants 22,005 24,143 23,169 Proceeds from common equity put options - 285 946 Dividends paid (1,990) (1,587) - Purchase of treasury shares (42,462) (43,232) (19,157) Net cash provided by/(used in) financing activities 2,058 (30,631) (1,856) Effects of exchange rate changes on cash 1,866 (3,656) (217) Net (decrease)/increase in cash and temporary investments (43,686) 25,680 (29,360) Cash and temporary investments, beginning of year 59,970 34,290 63,650 Cash and temporary investments, end of year $ 16,284 $ 59,970 $ 34,290 Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 3,496 $ 4,613 $ 4,987 Income taxes $ 21,281 $ 15,423 $ 19,685
See notes to consolidated financial statements F-5 SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 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, 1998 and 1997. 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 Computer hardware and software 3 to 7 years Leasehold improvements (limited to terms of the leases) 2 to 10 years The Company capitalized interest costs of $350,000, zero, and $258,000 for the years ended December 31, 1998, 1997 and 1996, respectively. F-6 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). g. Long-Lived Assets The Company reviews its long-lived assets, including property, plant and equipment, identifiable intangibles and software development costs for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be fully recoverable. To determine recoverability of its long-lived assets, the Company evaluates the probability that future undiscounted net cash flows, without interest charges, will be less than the carrying amount of the assets. Impairment is measured at fair value and had no effect on the Company's consolidated financial statements for the years ended December 31, 1998 and 1997. h. Research and Development Expenses The Company expenses all research and development costs as incurred. The Company incurred research and development expenses of approximately $31,030,000, $29,991,000 and $20,164,000, for the years ended December 31, 1998, 1997 and 1996, respectively, which are classified in engineering expenses. i. Revenue Recognition Revenue from sales of the Company's products is recognized upon shipment. In conjunction with these sales, field service F-7 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. j. Income Taxes Deferred income tax assets and liabilities were recognized 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, 1998, approximates $36,000,000. 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. k. Earnings Per Share 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 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 which was paid on April 3, 1998 to shareholders of record on March 17, 1998. In these financial statements, all earnings per share amounts and the weighted average number of common shares outstanding have been retroactively restated to reflect the stock split. In addition, the number of common shares issued have been adjusted to reflect the stock split and an amount equal to the par value of the additional shares issued has been transferred from additional F-8 paid in capital to common stock. 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 which was paid on April 1, 1997 to shareholders of record on March 10, 1997. l. 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, 1998, the Company had $39,246,000 forward exchange contracts outstanding. The Company had no foreign exchange contracts outstanding at December 31, 1997. 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. The fair value of these contracts was equal to their carrying value. These contracts are primarily denominated in European currencies, Canadian dollars, Japanese yen and Australian dollars and have been marked to spot as of December 31, 1998 with the resultant gains and losses included in net earnings. m. 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. F-9 n. Comprehensive Income In 1998 the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). This statement establishes rules for the reporting of comprehensive income and its components. Comprehensive income consists of net income and foreign currency translation adjustments and is presented in the Consolidated Statement of Shareholders' Equity. The adoption of SFAS 130 had no impact on shareholders' equity. Prior year financial statements have been reclassified to conform with these requirements. o. Reclassifications Certain reclassifications have been made to prior consolidated financial statements to conform with current presentations. 2. ACQUISITIONS AND DIVESTITURES During 1998 the Company incurred various pre-tax costs associated with a publicly announced attempt to acquire another company. In the fourth quarter of 1998 the Company formally terminated its efforts to complete this acquisition. These pre-tax costs of $3,597,000 primarily include legal, accounting, investment banking and public relations fees which have been separately classified in the Company's statement of earnings for the year ended December 31, 1998. During the past three years the Company has established wholly owned subsidiaries through the acquisition of various of its international distributors. These acquisitions have been accounted for as purchases and, accordingly, the related acquisition costs have been allocated to net assets acquired based upon fair values. The excess of cost over net assets acquired related to these acquisitions is being amortized over periods not exceeding twenty years. The following table summarizes the terms of these acquisitions:
Initial Excess of Acquisition Subsidiary Purchase Cost over net Date Location Price assets acquired October 1998 Finland $ 800,000 $ 550,000 July 1998 Sweden $5,300,000 $3,100,000 July 1997 Holland $3,000,000 $2,100,000 July 1997 Japan $4,700,000 $ 220,000 March 1996 Denmark $3,000,000 $2,700,000 January 1996 South Africa $4,080,000 $3,700,000 F-10 Additional acquisition payments are contingent upon the attainment of certain annual net revenue levels as defined in the respective agreements during periods not exceeding five years from the date of acquisition. The Company made additional acquisition payments of $2,646,000 and $1,960,000, respectively during the years ended December 31, 1998 and 1997 related to these acquisitions. 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 1998, 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 was 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. The original terms of the acquisition included an initial payment of $20,844,000 and subsequent additional payments over a three year period which were renegotiated and settled during 1998 in connection with the sale of Symbol LIS Limited, described below. This acquisition had been accounted for as a purchase. The purchase price(including acquisition 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 had 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 initial excess of cost over net assets acquired, relating to the acquisition, is being amortized over seven years. F-11 Effective May 31, 1998, the Company sold all of the stock and certain assets of Symbol LIS Limited, a wholly owned subsidiary, engaged in the business of providing systems and technology with respect to logistics and warehouse management systems operations to a third party. Proceeds from the sale of $15,000,000 were offset by the value of net assets sold, various disposition expenses and the write-off of the proportional share of excess of cost over net assets acquired, relating to the original acquisition of LIS Holdings Ltd., in 1996. This resulted in a gain from the sale of business of $494,000 which is classified as non-operating income in the consolidated statement of earnings. Additional payments to be made to the Company are contingent upon the attainment of certain annual net revenue levels during the next six years, subject to a minimum earnout amount as defined in the stock purchase agreement.
3. INVENTORIES
December 31, December 31, 1998 1997 (in thousands) Raw materials $ 77,435 $ 57,872 Work-in-process 30,306 14,039 Finished goods 89,245 56,244 $196,986 $128,155
4. PROPERTY, PLANT AND EQUIPMENT
December 31, December 31, 1998 1997 (in thousands) Land $ 8,788 $ 8,516 Buildings and improvements 33,392 33,857 Machinery and equipment 83,078 65,256 Furniture, fixtures and office equipment 34,749 29,910 Computer hardware and software 74,604 45,899 Leasehold improvements 11,071 8,030 Construction in progress 13,617 - 259,299 191,468 Less: Accumulated depreciation and amortization 84,432 72,723 $174,867 $118,745 In the fourth quarter of 1997 the Company began the expansion of its existing Worldwide Headquarters facility, located in F-12 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 In addition, the Company continues to make capital investments in major systems and networks conversions. The Company does not have any other material commitments for capital expenditures.
5. INTANGIBLE ASSETS
December 31, December 31, 1998 1997 (in thousands) Excess of cost over fair value of net assets acquired $126,375 $123,668 Patents, trademarks and purchased technologies 32,811 27,681 Executive retirement plan unrecognized prior service costs 722 835 159,908 152,184 Less: Accumulated amortization 43,954 36,909 $115,954 $115,275
6. SOFTWARE DEVELOPMENT COSTS
Year Ended December 31, 1998 1997 1996 (in thousands) Beginning of year $26,649 $23,974 $21,054 Amounts capitalized 31,514 14,743 13,606 58,163 38,717 34,660 Less: Amortization 14,592 12,068 10,686 End of year $43,571 $26,649 $23,974
7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
December 31, December 31, 1998 1997 (in thousands) Accounts payable $ 65,025 $ 60,185 Accrued payroll, bonuses, fringe benefits and payroll taxes 34,598 27,810 Other accrued expenses 50,315 33,719 $149,938 $121,714
F-13 8. LONG-TERM DEBT
December 31, December 31, 1998 1997 (in thousands) Revolving Credit Facility (a) $35,000 - Senior Notes (b) 31,746 38,095 Industrial Development Bonds (c) 2,369 4,738 Assumed Revenue Bond Financing (d) 2,824 4,578 State Loan (e) 3,000 3,000 Other 251 274 75,190 50,685 Less: Current maturities 10,594 10,384 $64,596 $40,301 (a) As of December 31, 1998, the Company had a $200,000,000 unsecured revolving credit facility with a syndicate of U.S. and International banks. As of December 31, 1998 the Company had outstanding borrowings of $35,000,000 under this facility. These borrowings bear interest at either LIBOR plus 75 basis points or the base rate of the syndication agent bank, which approximated 7.5 percent at December 31, 1998. Since the proceeds under the credit agreement are committed until 2003, the Company has classified these borrowings as long-term obligations. The credit agreement contains 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. As of December 31, 1997, the Company had loan agreements with three banks pursuant to which the banks had agreed to provide lines of credit totalling $75,000,000. There were no borrowings outstanding under these lines at December 31, 1997. (b) 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 three 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. F-14 (c) 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. (d) 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. (e) 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. 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, 1998, is approximately $2,577,000. Long-term debt maturities are: Year ending December 31, (in thousands) 1999 $10,594 2000 7,343 2001 9,377 2002 6,377 2003 41,377 Thereafter 122 $75,190
F-15 9. INCOME TAXES
The provision for income taxes consists of: Year Ended December 31, 1998 1997 1996 (in thousands) Current: Federal $28,757 $23,371 $19,460 State and local 5,434 4,300 4,036 Foreign 6,179 5,592 10,141 40,370 33,263 33,637 Deferred: Federal 5,483 5,531 16 State and local (396) 880 (697) Foreign 330 (168) (2,154) 5,417 6,243 (2,835) Total Provision for Income Taxes $45,787 $39,506 $30,802 A reconciliation between the statutory U.S. Federal income tax rate and the Company's effective tax rate is: Year Ended December 31, 1998 1997 1996 Statutory U.S. Federal rate 35.0% 35.0% 35.0% State taxes, net of Federal tax effect 2.4 3.1 2.7 Tax credits (3.0) (0.6) (2.6) Amortization of excess of cost over fair value of net assets acquired 0.7 1.0 1.2 Exempt income of foreign sales corporation (3.5) (3.0) (3.2) Income of foreign subsidiaries taxed at (lower)higher tax rates 0.5 (0.1) 2.0 Other, net 0.9 0.6 2.9 33.0% 36.0% 38.0% At December 31, 1998, 1997 and 1996, other liabilities include deferred income taxes of $28,088,000, $11,749,000 and $8,144,000 respectively. The deferred tax assets and liabilities at December 31, 1998, 1997 and 1996, respectively, are comprised of: F-16 Year Ended December 31, 1998 1997 1996 Deferred Tax Deferred Tax Deferred Tax Assets/ Assets/ Assets/ (Liabilities) (Liabilities) (Liabilities) (in thousands) Receivables ($6,192) ($5,470) $3,176 Inventory 13,777 10,988 6,751 Net investment in sales-type leases (4,240) (3,148) (3,360) Accrued compensation and associate benefits 5,692 4,944 4,051 Other accrued liabilities 14,196 6,403 4,509 Accrued restructuring and severance costs 397 1,006 10 Deferred revenue - current 2,139 2,855 2,778 Deferred revenue - long term 4,209 950 1,689 Deferred patent and product development costs (23,669) (15,708) (15,465) Purchased technology & other intangibles 3,938 5,175 4,814 Property, plant and equipment (13,184) (5,255) (440) Investments 158 158 557 Cumulative translation adjustments 3,750 5,104 3,732 Tax credit carryforwards 2,883 2,185 2,438 Other, net 3,182 3,561 3,342 7,036 13,748 18,582 Less: Valuation allowance 696 589 601 Net Deferred Tax Asset $ 6,340 $13,159 $17,981 The valuation allowance increased by $107,000 during 1998 and decreased $12,000 and $211,000, 1997 and 1996 respectively. The valuation allowance relates to state investment tax credit carryforwards which are likely to be recaptured.
F-17 10. COMMITMENTS AND CONTINGENCIES
a. Lease Agreements Future minimum annual rental payments required under non- cancelable operating leases are: Year ending December 31, (in thousands) 1999 $11,652 2000 9,793 2001 8,229 2002 5,859 2003 4,685 Thereafter 31,365 $71,583 Rent expense under substantially all operating leases was $9,938,000, $7,446,000 and $6,728,000, for the years ended December 31, 1998, 1997 and 1996, respectively.
b. Employment Contracts The Company has executed employment contracts with certain executives that range from one to ten years, for which the Company has a minimum commitment aggregating approximately $5,163,000 at December 31, 1998. c. 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, 1998 sold approximated $2,620,000. The sale was recorded as a reduction of other current assets and other assets. F-18 d. Legal Matters The Company is currently involved in matters of litigation arising from the normal course of business including matters described below. 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 validity of nine of the Company's patents, and a declaratory judgment that PSC has not breached its two agreements with the Company and that those agreements have been terminated. The Company has amended its suit against PSC to assert infringement of four Symbol patents, breach of contract and fraud. The Company had also sued Data General Corporation ("Data General"), a manufacturer of portable integrated scanning terminals which incorporate scan engines from PSC, for infringement of the same four patents and five additional patents. The nine patents asserted against Data General are the same nine 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.("Spectra- Physics") (which had been acquired by PSC) concerning whether purchasers of PSC's scan engines were free to incorporate such scan engines into their integrated scanning terminals without any royalty payment to the Company beyond that paid by PSC on the scan engine itself. The arbitration was heard on July 22-24, F-19 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 initially objected to the Company's request and asked the Court that it continue to hold the contract issues in abeyance and instead lift the stay with respect to the pending patent issues and that discovery in these claims be reopened. On April 3, 1998 the Court, with the consent of the parties, lifted the stay previously in effect with respect to the contractual issues in the litigation and ordered that a trial on these issues be held commencing on October 13, 1998. If the Company succeeds in the contract action, it believes it will be owed, on an ongoing basis, additional royalties of approximately $5,000,000 per annum. If the Company does not prevail in the action, it will continue to receive royalty payments from PSC at the same rate and on the same products as it currently is receiving them. On September 12, 1998, PSC filed a motion for partial summary judgement alleging that the Company was guilty of patent "misuse" since PSC is obligated under its 1991 Agreement with the Company to pay royalties to the Company on sales of scan engines to certain PSC customers who also pay royalties to the Company when they incorporate these scan engines into their integrated scanning terminals. On September 17, 1998, Judge Telesca, in response to the filing by PSC of the motion, cancelled the hearing which was scheduled to begin on October 13, 1998, and will be rescheduled by the Court at a later time. In this motion, PSC claimed that this practice should bar the Company from collecting past royalties which the Company alleges are owed by PSC under the 1991 Agreement. However, since July 1996, PSC has not paid the Company any royalties under the 1991 Agreement and has instead been paying royalties under agreements it obtained in connection with the acquisition of Spectra-Physics. The motion was argued on October 7, 1998 and on October 22, 1998 the Court issued a decision and order granting PSC's motion. The ruling only prevents the Company from collecting past royalties due and owing under the 1991 Agreement, none of which have been paid to the Company or taken into income by the Company. Moreover, the ruling does not affect PSC's future royalty obligations to the F-20 Company except with respect to royalties owed to the Company under the 1991 Agreement on scan engines sold to other licenses of the Company since the Company intends to prospectively cure the "misuse" without prejudice, subject to the outcome of its appeal. The Company estimates that royalties owed on PSC scan engines represent less than 10 percent of the additional royalties PSC would owe the Company if it were paying royalties under the 1991 Agreement. Furthermore, the decision has no other impact on any royalties paid or to be paid to the Company by any other licensee. Discovery by the Company and PSC has essentially been completed. On November 5, 1998, the Company made a Motion for Reconsideration of the Court's misuse decision, based on what the Company believes to be legal and factual matters that the Court overlooked in making its decision. On the same day, the Company made a separate motion to have the misuse decision entered as a final judgment, or in the alternative, to have the decision certified to the United States Court of Appeals for the Federal Circuit, which could enable the Company to obtain immediate appellate review of the misuse decision. Both motions are now pending before the Court. 11. STOCKHOLDERS' EQUITY a. Common Equity Put Options During April 1997 the Company issued common equity put options on 225,000 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 $20.775 per share. The balance of the common equity put option account as of December 31, 1997, 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. On April 9, 1998, the obligation associated with the common equity put options expired. As a result the balance in the common equity put option account of $4,674,000 was reclassified to additional paid in capital in April 1998. b. Stock Option Plans There are a total of 12,069,131 shares of Common Stock reserved for issuance under the Company's stock option plans at December 31, 1998. 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. F-21
A summary of changes in the stock option plans is: Shares Under Option Number of Weighted Avg. Option Price Shares (in Exercise per Share thousands) Price Shares under option at January 1, 1996 9,024 $ 8.58 Granted $16.67 to $21.11 1,897 $18.52 Exercised $ 2.88 to $13.28 (2,068) $ 5.85 Cancelled $ 4.00 to $20.88 (293) $11.54 Shares under option at December 31, 1996 $2.44 to $21.11 8,560 $11.33 Granted $21.46 to $27.58 3,368 $22.86 Exercised $ 2.44 to $17.50 (1,827) $ 6.26 Cancelled $ 4.00 to $23.33 (378) $15.77 Shares under option at December 31, 1997 $ 4.00 to $27.58 9,723 $16.11 Granted $24.87 to $53.75 2,287 $30.95 Exercised $ 4.88 to $21.11 (1,118) $ 9.75 Cancelled $ 5.33 to $49.50 (248) $22.18 Shares under option at December 31, 1998 $ 4.00 to $53.75 10,644 $19.82 Shares exercisable at December 31, 1998 $ 4.00 to $24.87 4,348 $14.94 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 $ 4.00 - $ 6.00 869 3.5 $ 5.37 869 $ 5.37 $ 6.01 - $ 9.00 482 4.0 $ 8.02 428 $ 8 00 $ 9.01 - $13.50 1,242 5.8 $11.85 800 $11.75 $13.51 - $20.25 2,515 7.2 $17.23 1,051 $16.91 $20.26 - $30.37 4,989 8.4 $23.99 1,200 $24.74 $30.38 - $45.56 83 9.3 $37.19 - - $45.57 - $53.75 464 9.7 $46.76 - - 10,644 4,348 F-22 At December 31, 1998, an aggregate of 1,425,208 shares remain available for grant under the stock option plans. The tax benefits arising from stock option exercises during the years ended December 31, 1998, 1997 and 1996, in the amount of $13,144,000, $13,057,000, and $10,761,000, respectively, were recorded in stockholders' equity as additional paid-in capital. 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, 1998 1997 1996 (in thousands) Net Income: As Reported $92,964 $70,232 $50,256 Pro Forma $85,529 $65,557 $48,401 Basic Earnings Per Share: As Reported $1.58 $1.19 $0.86 Pro Forma $1.45 $1.11 $0.83 Diluted Earnings Per Share: As Reported $1.49 $1.15 $0.82 Pro Forma $1.37 $1.07 $0.79 The weighted average fair value of options granted during 1998, 1997 and 1996 was $10.28, $7.69 and $6.23 per option, respectively. In determining the fair value of options and outside directors' options and stock purchase warrants granted in 1998, 1997 and 1996 for pro forma purposes the Company used the Black-Scholes option pricing model and assumed the following: a risk free interest rate of 5.0 percent, 5.5 percent and 5.5 percent; an expected option life of 4.0 years, 4.5 years and 4.5 years; an expected volatility of 33 percent, 29 percent and 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.
F-23 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, 1998: Number of Shares Exercise Shares Exercisable Issuable Price Vested at to Upon Exercise per Share December 31,1998 2000 6,000 $ 3.61 6,000 2004 45,000 $11.22 to $12.33 45,000 2005 22,000 $14.94 22,000 2006 28,000 $20.89 28,000 2007 19,000 $22.00 9,000 2008 88,000 $24.88 to $33.19 - 208,000 110,000 The weighted average exercise price for the number of shares issuable upon exercise were $20.08, $12.95 and $11.15, respectively, for the years ended December 31, 1998, 1997 and 1996. The weighted average exercise price of shares vested were $15.19, $10.78 and $8.49, respectively, for the years ended December 31, 1998, 1997 and 1996. The weighted average fair value of outside directors options and stock purchase warrants granted during 1998, 1997 and 1996 was $8.76, $7.39 and $7.02 per share, respectively.
d. Employee Stock Purchase Plan During 1997, the Company adopted an employee stock purchase plan which was approved by the Company's stockholders at the annual meeting of shareholders. Participants may purchase shares of stock for an amount equal to 85% of the lesser of the closing price of a share of stock on the first trading day of the period or the last trading day of the period, as defined by the plan. The Company's only expense for this plan is for its administration. The stock sold to plan participants shall be authorized but unissued common stock, treasury shares or shares purchased in the open market. The aggregate number of shares which may be issued pursuant to the plan is 562,500. As of December 31, 1998, 122,810 shares were issued to participants and subsequent to December 31, 1998, 58,215 shares were issued to participants by the Company all of which were purchased in the open market by the Company. The weighted average fair value of shares sold in 1998 was $9.39. F-24 e. Treasury Stock Treasury stock is comprised of 2,656,000 shares of Common Stock purchased for a total cost of $49,809,000 from certain officers in connection with the exercise of stock options and 5,027,000 shares purchased in open market transactions for a total cost of $95,965,000 pursuant to the various stock repurchase programs authorized by the Board of Directors. 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, 1998, 1997 and 1996 was $5,339,000, $4,591,000 and $3,469,000, 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 $12,935,000, $10,275,000, and $9,701,000, for the years ended December 31, 1998, 1997 and 1996, respectively. c. Executive Retirement Plan In February, 1998, The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 132 "Employers' Disclosures about Pensions and Other Post-Retirement Benefits - an amendment of FASB Statement No. 87, 88 and 106" ("SFAS 132"). SFAS 132 revises employers' disclosures about pension and other post-retirement benefit plans. It does not change the measurement of recognition of those plans. The Company has adopted the provisions of SFAS 132 in their disclosures below. 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, 1998, 12 officers were participants in the Plan. The Company's obligations under the Plan are not funded apart from the Company's general assets. F-25 Change in benefit obligation:
Year Ended December 31, 1998 1997 1996 (in thousands) Benefit obligation at beginning of year $8,234 $6,852 $5,548 Service cost 806 659 650 Interest cost 711 665 588 Amortization of unrecognized prior service costs 112 112 112 Amendments - - - Actuarial loss 8 - 8 Benefits paid (54) (54) (54) Benefit obligation at end of year $9,817 $8,234 $6,852 Funded status (13,199) (9,596) (8,342) Unrecognized actuarial loss 2,660 527 542 Unrecognized prior service cost 722 835 948 Net amount recognized ($9,817) ($8,234) ($6,852) Amounts recognized in the balance sheet consist of: Accrued benefit liability (9,817) (8,234) (6,852) Net amount recognized ($9,817) ($8,234) ($6,852) The Plan had $9,810,000, and $7,458,000 of vested benefit obligations at December 31, 1998, and 1997, respectively, which are included in other liabilities. The projected benefit obligation at December 31, 1998, 1997 and 1996 was determined using an assumed weighted average discount rate of 6.5 percent, 7.0 percent and 7.5 percent, respectively, and an assumed increase in the long-term rate of compensation of 5.0 percent. The Company has also purchased an annuity contract for former executives who have been terminated. The annuity contract was valued at approximately $2,500,000 at December 31, 1998 and is included in other assets.
F-26 13. RECONCILIATION OF BASIC AND DILUTED EARNINGS PER SHARE 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, 1998 December 31, 1997 December 31, 1996 (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 $92,964 58,796 $1.58 $70,232 59,038 $1.19 $50,256 58,197 $0.86 Effect of Dilutive Securities Options/Warrants - 3,640 ($0.09) - 2,198 ($0.04) - 2,731 ($0.04) Diluted EPS Income available to common stockholders plus assumed exercises $92,964 62,436 $1.49 $70,232 61,236 $1.15 $50,256 60,928 $0.82
14. INDUSTRY SEGMENT AND OPERATIONS BY GEOGRAPHIC AREAS The Company manages its business on a geographic basis. The Company's reportable segments have been aggregated into three geographic reportable business segments, North America, Western Europe and Other (which includes Asia Pacific). Sales of the Company's bar code scanner products have accounted for approximately 40 percent of the Company's total revenue for the years ended December 31, 1998, 1997 and 1996. Sales of scanner integrated application specific mobile computing systems accounted for approximately 50 percent of the Company's total revenue for the F-27 years ended December 31, 1998, 1997 and 1996. Maintenance and support revenue contributed approximately 10 percent of the Company's total revenue for the years ended December 31, 1998, 1997 and 1996. During 1998, sales to Lockheed Martin Corporation in connection with the United States Postal Service contract amounted to approximately 11 percent of total net revenue. Summarized financial information concerning the Company's reportable segments is shown in the following table. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Sales are allocated to each of the reportable segments based upon the location of the use of the products and services. The "Corporate" column includes corporate related items not allocated to reportable segments and the elimination of intercompany transactions. 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. This has the effect of reducing reportable 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. F-28
North Western America Europe Other Corporate Consolidated (in thousands) Year ended December 31, 1998: Sales to unaffiliated customers $609,498 $278,836 $89,567 $ - $977,901 Transfers between geographic areas 197,105 - - (197,105) - Total net revenue $806,603 $278,836 $89,567 ($197,105) $977,901 Interest income $ 1,112 $ 778 $ 483 - $ 2,373 Interest expense $ 5,262 $ 145 $ 416 - $ 5,823 Depreciation and amortization expense $ 49,154 $ 5,470 $ 532 - $ 55,156 Earnings before provision for income taxes $131,754 $ 8,919 $ 2,688 ($4,610) $138,751 Income tax expense $ 41,123 $ 3,741 $ 923 - $ 45,787 Identifiable assets $593,155 $120,657 $27,289 $ 97,298 $838,399 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 Interest income $ 1,269 $ 888 $ 68 - $ 2,225 Interest expense $ 5,292 $ 209 - - $ 5,501 Depreciation and amortization expense $ 39,898 $ 4,908 $ 471 - $ 45,277 Earnings before provision for income taxes $ 96,360 $ 8,885 $ 1,518 $ 2,975 $109,738 Income tax expense $ 34,951 $ 4,170 $ 385 - $ 39,506 Identifiable assets $413,477 $115,365 $23,513 $126,835 $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 Interest income $ 1,356 $ 320 $ 80 - $ 1,756 Interest expense $ 4,660 $ 39 $ 186 - $ 4,885 Depreciation and amortization expense $ 36,299 $ 2,889 $ 335 - $ 39,523 Earnings before provision for income taxes $ 84,447 $ 1,939(1) ($366) ($4,962) $ 81,058 Income tax expense $ 24,856 $ 5,355 $ 591 - $ 30,802 Identifiable assets $379,114 $108,871 $15,916 $110,337 $614,238 (1) Includes a pre-tax charge of $10,741,000 related to acquisition costs associated with purchased research and development. F-29 The Company has customers in the retail industry which accounted for approximately $55,586,000 and $40,317,000 in accounts receivable at December 31, 1998 and 1997, 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, 1998, and 1997:
Quarter Ended March 31 June 30 September 30 December 31 (in thousands, except per share amounts) Year Ended December 31, 1998: Net revenue $213,310 $238,981 $256,806 $268,804 Gross profit 92,956 100,118 108,629 114,278 Net earnings 19,630 23,506 25,096 24,732 Basic earnings per share: $0.33 $0.40 $0.43 $0.42 (1) Diluted earnings per share: $0.32 $0.38 $0.40 $0.39 (1) 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: $0.26 $0.27 $0.31 $0.34 Diluted earnings per share: $0.25 $0.26 $0.30 $0.33 (1) Includes a pre-tax charge of $3,597,000 ($0.04 per share after tax) related to terminated acquisition costs. 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.
F-30 SCHEDULE II SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (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, 1998 $10,995 $2,921 $ - (a) $3,885 (b) $10,031 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 (a) Primarily collection of accounts previously written off. (b) Uncollectible accounts written off.
S-1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statements No. 333-48159, 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 18, 1999, appearing in this Annual Report on Form 10-K/A of Symbol Technologies, Inc. for the year ended December 31, 1998. s/Deloitte & Touche LLP New York, New York March 5, 1999 -----END PRIVACY-ENHANCED MESSAGE-----