-----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, VC1Ijvv39U968ERkibBHN/ql8G4gp4kwJV0iDogcc6AiRpdZwIxRH0Nq+VHsEfQ+ IqxgKuQbzN7yj3fa/Ae/pQ== 0000950136-04-001487.txt : 20040510 0000950136-04-001487.hdr.sgml : 20040510 20040510161046 ACCESSION NUMBER: 0000950136-04-001487 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20040331 FILED AS OF DATE: 20040510 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09802 FILM NUMBER: 04793279 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-Q 1 file001.txt QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark one) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2004 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . ---------------- ---------------- COMMISSION FILE NUMBER 1-9802 SYMBOL TECHNOLOGIES, INC. (Exact Name of Registrant as Specified in Its Charter) Delaware 11-2308681 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) One Symbol Plaza Holtsville, New York 11742-1300 (Address of Principal Executive Offices) (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (631) 738-2400 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [ ] NO [X] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). YES [X] NO [ ] The number of shares outstanding of the registrant's classes of common stock, as of May 6, 2004, was as follows: Class Number of Shares ----- ---------------- Common Stock, par value $0.01 234,500,056 DOCUMENTS INCORPORATED BY REFERENCE: NONE. SYMBOL TECHNOLOGIES, INC. QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2004 TABLE OF CONTENTS PAGE ---- PART I - FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements...................1 Condensed Consolidated Balance Sheets at March 31, 2004 and December 31, 2003..........................................1 Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2004 and 2003 ......................2 Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2004 and 2003 ......................3 Notes to Condensed Consolidated Financial Statements..........4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................................23 Item 3. Quantitative and Qualitative Disclosures About Market Risk...46 Item 4. Controls and Procedures......................................46 PART II - OTHER INFORMATION Item 1. Legal Proceedings............................................47 Item 4. Submission of Matters to a Vote of Security Holders..........47 Item 6. Exhibits and Reports on Form 8-K.............................48 Signatures....................................................................50 Certifications................................................................51 i PART I - FINANCIAL INFORMATION ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Amounts in thousands, except per share data) (Unaudited)
MARCH 31, DECEMBER 31, 2004 2003 --------- ------------ ASSETS Cash and cash equivalents ................................................ $ 179,033 $ 150,017 Accounts receivable, less allowance for doubtful accounts of $12,661 and $13,946, respectively ................................................. 119,624 152,377 Inventories .............................................................. 211,692 212,862 Deferred income taxes .................................................... 141,014 182,571 Other current assets ..................................................... 25,846 36,204 ----------- ----------- Total current assets .................................................. 677,209 734,031 Property, plant and equipment, net ....................................... 207,522 210,888 Deferred income taxes .................................................... 236,506 228,470 Investment in marketable securities ...................................... 99,808 102,136 Goodwill ................................................................. 304,028 302,467 Intangible assets, net ................................................... 31,535 33,729 Other assets ............................................................. 33,352 34,797 ----------- ----------- Total assets .......................................................... $ 1,589,960 $ 1,646,518 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable and accrued expenses .................................... $ 442,667 $ 496,134 Current portion of long-term debt ........................................ 3,633 234 Deferred revenue ......................................................... 39,159 34,615 Accrued restructuring expenses ........................................... 3,496 5,240 ----------- ----------- Total current liabilities ............................................. 488,955 536,223 Long-term debt, less current maturities .................................. 104,436 99,012 Deferred revenue ......................................................... 18,163 19,729 Other liabilities ........................................................ 44,021 70,956 Contingencies (Note 9) STOCKHOLDERS' EQUITY: Preferred stock, par value $1.00; authorized 10,000 shares, none issued or outstanding ........................................................... -- -- Series A Junior Participating preferred stock, par value $1.00; authorized 500 shares, none issued or outstanding ................................ -- -- Common stock, par value $0.01; authorized 600,000 shares; issued 261,930 shares and 256,897 shares, respectively ............................... 2,619 2,569 Additional paid-in capital ............................................... 1,381,511 1,342,229 Accumulated other comprehensive earnings, net ............................ 3,848 4,498 Accumulated deficit ...................................................... (185,179) (189,669) ----------- ----------- 1,202,799 1,159,627 LESS: Treasury stock, at cost, 27,681 shares and 26,130 shares, respectively ... (268,414) (239,029) ----------- ----------- Total stockholders' equity ............................................ 934,385 920,598 ----------- ----------- Total liabilities and stockholders' equity ..................... $ 1,589,960 $ 1,646,518 =========== ===========
See notes to Condensed Consolidated Financial Statements. SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in thousands, except per share data) (Unaudited) FOR THE THREE MONTHS ENDED MARCH 31, ------------------ 2004 2003 ---- ---- REVENUE: Product ............................................. $ 348,239 $ 310,703 Services ............................................ 71,412 75,644 --------- --------- 419,651 386,347 COST OF REVENUE: Product cost of revenue ............................. 166,195 156,339 Services cost of revenue ............................ 58,528 58,136 --------- --------- 224,723 214,475 --------- --------- Gross profit ........................................ 194,928 171,872 --------- --------- OPERATING EXPENSES: Engineering ......................................... 41,559 37,055 Selling, general and administrative ................. 121,680 99,031 Provision for legal settlements ..................... -- 72,000 Stock based compensation expense .................... 2,234 776 Restructuring and impairment charges ................ -- 87 --------- --------- 165,473 208,949 --------- --------- Earnings/(loss) from operations ..................... 29,455 (37,077) Other income/(expense), net ......................... 1,006 (4,034) --------- --------- Earnings/(loss) before income taxes ................. 30,461 (41,111) Provision for/(benefit from) income taxes ........... 23,633 (10,098) --------- --------- NET EARNINGS/(LOSS) ................................. $ 6,828 $ (31,013) ========= ========= EARNINGS/(LOSS) PER SHARE: Basic and diluted ................................... $ 0.03 $ (0.13) ========= ========= CASH DIVIDENDS DECLARED PER COMMON SHARE ............ $ 0.01 $ 0.01 ========= ========= WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: Basic ............................................... 231,685 230,527 Diluted ............................................. 239,401 230,527 See notes to Condensed Consolidated Financial Statements. 2 SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) (Unaudited)
FOR THE THREE MONTHS ENDED MARCH 31, ---------------------------- 2004 2003 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings/(loss) ............................................. $ 6,828 $ (31,013) ADJUSTMENTS TO RECONCILE NET EARNINGS/(LOSS) TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Depreciation and amortization of property, plant and equipment .. 14,428 13,232 Other amortization .............................................. 3,598 3,413 Provision for losses on accounts receivable ..................... 542 4,788 Provision for inventory writedown ............................... 1,183 11,700 Deferred income tax provision/(benefit) ......................... 23,633 (10,098) Non-cash stock based compensation expense ....................... 2,234 776 Loss on disposal of property, plant and equipment ............... 109 -- Gain on sale of property, plant and equipment and other assets .. -- (12) CHANGES IN OPERATING ASSETS AND LIABILITIES: Accounts receivable ............................................. 27,645 18,866 Inventories ..................................................... 199 9,327 Other assets .................................................... 7,933 (4,515) Accounts payable and accrued expenses ........................... (47,876) 52,381 Accrued restructuring expenses .................................. (1,744) 692 Other liabilities and deferred revenue .......................... 2,077 1,751 --------- --------- Net cash provided by operating activities .................... 40,789 71,288 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Investment in other companies ................................... (4,050) (1,777) Proceeds from sale of property, plant and equipment and other assets ....................................................... -- 467 Purchases of property, plant and equipment ...................... (11,171) (10,649) Investments in intangible and other assets ...................... -- (1,191) --------- --------- Net cash used in investing activities ........................ (15,221) (13,150) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of notes payable and long-term debt ................... (80) (36,575) Proceeds from long-term debt .................................... 13,825 -- Proceeds from exercise of stock options and warrants ............ 10,293 4,623 Purchase of treasury shares ..................................... (19,956) (5,110) --------- --------- Net cash provided by (used in) financing activities .......... 4,082 (37,062) --------- --------- Effects of exchange rate changes on cash ........................ (634) 1,390 --------- --------- Net increase in cash and cash equivalents ....................... 29,016 22,466 Cash and cash equivalents, beginning of period .................. 150,017 76,121 --------- --------- Cash and cash equivalents, end of period .................. $ 179,033 $ 98,587 ========= ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: CASH PAID DURING THE PERIOD FOR: Interest ........................................................ $ 3,551 $ 1,667 Income taxes .................................................... $ 3,578 $ 808
See notes to Condensed Consolidated Financial Statements. 3 SYMBOL TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 2004 AND FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003 (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION Overview Symbol Technologies, Inc. and subsidiaries is a provider of secure mobile information systems that integrate application-specific hand held computers with wireless networks for data, voice and bar code and other forms of data capture. The Condensed Consolidated Financial Statements include the accounts of Symbol Technologies, Inc. and its majority-owned and controlled subsidiaries. References herein to "we" or "our" or "us" or "the Company" refer to Symbol Technologies, Inc. and subsidiaries unless the context specifically requires otherwise. The Condensed Consolidated Financial Statements have been prepared by us, without audit, pursuant to the rules and regulations of the United States Securities and Exchange Commission (the "Commission" or "SEC"). In our opinion, the Condensed Consolidated Financial Statements include all necessary adjustments (consisting of normal recurring accruals) and present fairly our financial position as of March 31, 2004, and the results of our operations and cash flows for the three months ended March 31, 2004 and 2003, in accordance with the instructions to Form 10-Q of the Commission and in accordance with accounting principles generally accepted in the United States of America applicable to interim financial information. The results of operations for the three months ended March 31, 2004 are not necessarily indicative of the results to be expected for the full year. For further information, refer to the consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2003. Stock-Based Compensation We account for our employee stock option plans under the intrinsic value method in accordance with the provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations. Under APB Opinion No. 25, generally no compensation expense is recorded when the terms of the award are fixed and the exercise price of the employee stock option equals or exceeds the fair value of the underlying stock on the date of the grant. No stock based compensation expense has been recognized for the fixed portion of our plans; however, during the first quarter 2004 and in 2003, certain stock-based compensation expenses have been recognized through our operating results related to options of certain current and former associates. We have adopted the disclosure-only requirements of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," which allows entities to continue to apply the provisions of APB Opinion No. 25 for transactions with employees and provide pro forma net earnings and pro forma earnings per share disclosures for employee stock grants made as if the fair value based method of accounting in SFAS No. 123 had been applied to these transactions. 4 The following table illustrates the effect on net earnings/(loss) and earnings/(loss) per share if we had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation:
THREE MONTHS ENDED MARCH 31, ------------------ 2004 2003 ---- ---- Net earnings/(loss) - as reported ............................................ $ 6,828 $(31,013) Stock based employee compensation expense included in reported net earnings/(loss), net of related tax effects ............................... 1,374 477 Less total stock based employee compensation expense determined under the fair value based method for all awards, net of related tax effects ............. (4,900) (4,563) -------- -------- Pro forma net earnings/(loss) ................................................ $ 3,302 $(35,099) ======== ======== Basic and diluted net earnings/(loss) per share: As reported ............................................................... $ 0.03 $ (0.13) Pro forma ................................................................. $ 0.01 $ (0.15)
The weighted average fair value of options granted during the three months ended March 31, 2004 and 2003 was $8.70 and $5.34 per option, respectively. In determining the fair value of options and stock purchase warrants granted for purposes of calculating the pro forma results disclosed above for the three months ended March 31, we used the Black-Scholes option pricing model and assumed the following: a risk free interest rate of 2.8 percent for 2004 and 4.0 percent for 2003; an expected option life of 4.7 years for 2004 and 2003; an expected volatility of 61 percent for 2004 and 59 percent for 2003; and a dividend yield of 0.16 percent for 2004 and 0.14 percent for 2003. 2. INVENTORIES MARCH 31, DECEMBER 31, 2004 2003 --------- ------------ Raw materials........................ $ 73,514 $ 66,500 Work-in-process...................... 23,895 24,422 Finished goods....................... 114,283 121,940 ----------- ----------- $ 211,692 $ 212,862 =========== =========== The amounts shown above are net of inventory reserves of $86,522 and $109,331 as of March 31, 2004 and December 31, 2003, respectively, and include inventory on consignment of $47,320 and $34,564 as of March 31, 2004 and December 31, 2003, respectively. 3. GOODWILL AND INTANGIBLE ASSETS The changes in the carrying amount of goodwill for the three months ended March 31, 2004 are as follows: 5 PRODUCT SERVICES TOTAL ------- -------- ----- Balance as of December 31, 2003.... $ 246,253 $ 56,214 $ 302,467 Brazil acquisition(a) ............. 1,552 253 1,805 Translation adjustments ........... (203) (41) (244) --------- --------- --------- Balance as of March 31, 2004 ...... $ 247,602 $ 56,426 $ 304,028 ========= ========= ========= (a) See Note 8. Other than goodwill, the Company's intangible assets, all of which are subject to amortization, consist of the following:
MARCH 31, 2004 DECEMBER 31, 2003 -------------- ----------------- GROSS ACCUMULATED GROSS ACCUMULATED AMOUNT AMORTIZATION AMOUNT AMORTIZATION ------ ------------ ------ ------------ Patents, trademarks and tradenames $ 31,140 $(21,166) $ 35,080 $(24,670) Purchased technology ............. 27,800 (10,647) 27,800 (9,652) Other ............................ 7,250 (2,842) 7,250 (2,079) -------- -------- -------- -------- $ 66,190 $(34,655) $ 70,130 $(36,401) ======== ======== ======== ========
The amortization expense for the three months ended March 31, 2004 and 2003 amounted to $2,970 and $2,173, respectively. Estimated amortization expense for the above intangible assets, assuming no additions or writeoffs, for the nine months ended December 31, 2004 and for each of the subsequent years ending December 31 is as follows: 2004 (nine months).............................................. $ 7,053 2005................................................................ 8,726 2006................................................................ 6,404 2007................................................................ 4,651 2008................................................................ 4,043 Thereafter.......................................................... 658 ---------- $ 31,535 ========== 4. EARNINGS/(LOSS) PER SHARE AND DIVIDENDS Basic earnings/(loss) per share are based on the weighted average number of shares of common stock outstanding during the period. Diluted earnings/(loss) per share are based on the weighted average number of common and potentially dilutive common shares (options and warrants) outstanding during the period, computed in accordance with the treasury stock method. 6 The following table sets forth the computation of basic and diluted earnings/(loss) per share: THREE MONTHS ENDED ------------------ MARCH 31, MARCH 31, 2004 2003 ---- ---- Numerator: Earnings/(loss) applicable to common shares for basic and diluted calculation $ 6,828 $ (31,013) ========= ========= Denominator: Weighted-average common shares ............ 231,685 230,527 Effect of dilutive securities: Stock options and warrants ............. 7,716 -- --------- --------- Denominator for diluted calculation ....... 239,401 230,527 ========= ========= Stock options and warrants outstanding at March 31, 2004 and 2003 aggregating 13,026 and 38,067, respectively, of potentially dilutive shares have not been included in the diluted per share calculations since their effect would be antidilutive. On February 10, 2004, Symbol's Board of Directors approved a $0.01 per share semi-annual cash dividend, which amounted to $2,338 and was paid on April 9, 2004 to shareholders of record on March 19, 2004. 5. COMPREHENSIVE EARNINGS/(LOSS) Comprehensive earnings/(loss) is the change in equity of a business enterprise from transactions, other events, and circumstances from nonowner sources during a period. The Company generated total comprehensive earnings/(loss) of $6,178 and $(28,261) for the three months ended March 31, 2004 and 2003, respectively. The Company's comprehensive earnings/(loss) is comprised of net earnings/(loss), foreign currency translation adjustments, unrealized gains/losses on available for sale marketable securities and unrealized derivative gains/(losses) on our cash flow hedging activities. 6. RESTRUCTURING AND IMPAIRMENT CHARGES a. Telxon Acquisition We recorded certain restructuring, impairment and merger integration related charges related to our Telxon acquisition during 2001 and 2002. Approximately $61 relating to lease obligation costs charges was included in accrued restructuring expenses as of December 31, 2003. During the quarter ended March 31, 2004, $19 was paid and as of March 31, 2004, $42 remained in accrued restructuring expenses. b. Manufacturing Transition In 2001, we began to transition volume manufacturing away from our Bohemia, New York facility to lower cost locations, primarily our Reynosa, Mexico facility and Far East contract manufacturing partners. As a result of these activities, we incurred restructuring charges during 2002 and 2001. During the first quarter of 2004, the Company entered into a sub-lease arrangement at its Bohemia, New York facility and recorded the anticipated sub-lease income of approximately $2,860 as a reduction of the lease obligation cost, which had been previously recorded in 2001. This amount has been recorded 7 as a reduction to product cost of revenue as of March 31, 2004. Included in accrued restructuring expenses as of March 31, 2004 is $1,192 of net lease obligations relating to these manufacturing restructuring charges. LEASE OBLIGATION COSTS ----- Balance at December 31, 2003....... $ 4,356 Utilization/payments .............. (304) Provision reduction ............... (2,860) ------- Balance at March 31, 2004 ......... $ 1,192 ======= c. Global Services Transition During the first quarter of 2003, our global services organization initiated restructuring activities which included transitioning a portion of our repair operations to Mexico and the Czech Republic, reorganizing our professional services group to utilize third party service providers for lower margin activities, and reorganizing our European management structure from a country based structure to a regional structure. The costs incurred in the first quarter of 2003 in connection with this restructuring which related almost entirely to workforce reductions, was approximately $1,066, of which $979 and $87 was recorded as a component of cost of revenue and operating expenses, respectively. These restructuring activities are expected to be completed by the end of 2004. During the first of quarter of 2003, we initiated additional restructuring activities in connection with our decision to relocate additional product lines from New York to Mexico. The costs associated with this restructuring relate to workforce reductions and transportation costs. The total amount incurred in connection with this restructuring activity was $961 all of which was recorded as a component of cost of revenue in 2003. These restructuring activities were completed by June 30, 2003. In connection with the global services transition, during the first quarter of 2004 the Company recorded an additional provision of $1,629, which relates to lease obligation costs net of sub-lease income and further work force reductions. This amount has been recorded as a component of service cost of revenue in the first quarter of 2004. Further global services transition restructuring activities are being considered and future benefits are not yet defined, therefore, we cannot reasonably estimate the remaining cost expected to be incurred. These restructuring activities are expected to be completed by the end of 2004. Details of the global services transition restructuring charges and remaining balances as of March 31, 2004 are as follows:
LEASE ASSET WORKFORCE OBLIGATION IMPAIRMENTS REDUCTIONS COSTS AND OTHER TOTAL ---------- ----- --------- ----- Balance at December 31, 2003......... $ 79 $ 572 $ 172 $ 823 Provision - cost of revenues......... 367 1,262 -- 1,629 Utilization/payments ................ (41) (126) (23) (190) ------- ------- ------- ------- Balance at March 31, 2004 ........... $ 405 $ 1,708 $ 149 $ 2,262 ======= ======= ======= =======
8 7. LONG-TERM DEBT On March 16, 2004, our $45,000 secured credit line was increased to $60,000. Borrowings, which are secured by U.S. trade receivables, bear interest at either LIBOR plus 200 basis points, which approximated 3.09% at March 31, 2004, or the base rate of the syndication agent bank, which approximated 4.0% at March 31, 2004. This secured credit line expires in May 2006. As of March 31, 2004 and December 31, 2003, there were no borrowings outstanding under the secured credit line. On March 31, 2004, we entered into a secured installment loan with a bank for $13,825. The loan is secured by U.S. trade receivables and is payable in four semiannual installments of $3,655 commencing October 1, 2004. The proceeds under the loan were used to finance certain software license arrangements. In January 2001, we entered into a private Mandatorily Exchangeable Securities Contract for Shared Appreciation Income Linked Securities ("SAILS") with a highly rated financial institution. The securities that underlie the SAILS contract represent our investment in Cisco common stock. This debt has a seven-year maturity and bears interest at a cash coupon rate of 3.625 percent of the original notional amount of debt of $174,200. At maturity, the SAILS are exchangeable for shares of Cisco common stock or, at our option, cash in lieu of shares. The SAILS contain an embedded equity collar, which effectively manages a large portion of our exposure to fluctuations in the fair value of our holdings in Cisco common stock. We account for the embedded equity collar as a derivative financial instrument in accordance with the requirements of SFAS No. 133. The change in fair value of this derivative between reporting dates is recognized as other income. The derivative has been combined with the debt instrument in long-term debt as there is a legal right of offset and is in accordance with Financial Accounting Standards Board Interpretation No. 39, "Offsetting of Amounts Related to Certain Contracts." The SAILS liability, net of the derivative asset, represents $94,005 and $98,927 of the total long-term debt balance outstanding at March 31, 2004 and December 31, 2003, respectively. We have the option to terminate the SAILS arrangement prior to its scheduled maturity. If we terminate the SAILS arrangement prior to its scheduled maturity by delivering our Cisco common stock our cash payment would not exceed the present value of our future coupon payments at the time of termination. At the present time, we do not anticipate terminating the SAILS arrangement prior to its scheduled maturity date. 8. ACQUISITIONS Brazil Acquisition During 2002, we entered into an agreement with the owners of Seal Sistemas e Technologia Da Informacao Ltda. ("Seal"), a Brazilian corporation that had operated as a distributor and integrator of our products since 1987. The agreement resulted in the termination of distribution rights for Seal and the creation of a majority-owned subsidiary of the Company that would serve as the Brazilian distributor and customer service entity ("Symbol Brazil"). In accordance with the terms of the agreement, the owners of Seal acquired a 49 percent ownership interest in Symbol Brazil. The initial terms of the agreement included payments to the minority shareholders that range from a minimum of $9,550 to a maximum of $14,800 contingent upon the attainment of certain annual net revenue levels of Symbol Brazil. In the event that none of the specified revenue levels were attained, the minimum earnout payment was payable no later than March 31, 2009. Under the initial terms, with each earnout payment, we would obtain a portion of Symbol Brazil's shares owned by the minority shareholders such that we ultimately would have owned 100 percent of Symbol Brazil no later than March 31, 2009. We loaned an entity affiliated with the minority shareholders $5,000 at the time of the initial agreement, which was due on the date of the first earnout payment. The present value of net future 9 minimum earnout payments of $4,550 amounted to $1,992 and was recorded as part of the purchase price resulting in a total purchase price of $6,992. On January 10, 2004, the parties amended this transaction, whereby Symbol Technologies Holdings do Brasil Ltda., a wholly owned subsidiary of the Company, purchased an additional 34% ownership interest of Symbol Brazil owned by two principals of Seal. The Company paid $4,050 and also forgave the pre-existing $5,000 loan and related accrued interest of $92 that had been made to an entity affiliated with the principals of Seal. Accordingly, the Company and Symbol Technologies Holdings do Brasil Ltda. now own 85% of the capital of Symbol Brazil. As a result of the transaction, the Company satisfied the obligation related to the minimum earnout requirement of approximately $2,337 at January 10, 2004 and recorded the excess purchase price of approximately $1,805 as goodwill. Under the terms of the relevant agreements, Symbol Brazil had its corporate form changed into a corporation and it will eventually become a wholly owned subsidiary of the Company, directly or indirectly. If Symbol Brazil meets certain revenue targets over relevant time periods, the Company will be required to purchase additional ownership interests from the minority shareholders. As we control Symbol Brazil, we have consolidated this subsidiary. The minority interest in earnings of operations of Symbol Brazil was immaterial at March 31, 2004 and 2003, respectively. 9. CONTINGENCIES a. Legal Matters We are a party to lawsuits in the normal course of business. Litigation in the normal course of business, as well as the lawsuits and investigations described below, can be expensive, lengthy and disruptive to normal business operations. Moreover, the results of complex legal proceedings and government investigations are difficult to predict. Unless otherwise specified, Symbol is currently unable to estimate, with reasonable certainty, the possible loss, or range of loss, if any, for the lawsuits and investigations described herein. An unfavorable resolution to any of the lawsuits or investigations described below could have a material adverse effect on Symbol's business, results of operations or financial condition. GOVERNMENT INVESTIGATIONS The Securities and Exchange Commission ("SEC" or the "Commission") has issued a Formal Order Directing Private Investigation and Designating Officers to Take Testimony with respect to certain accounting matters, principally concerning the timing and amount of revenue recognized by Symbol during the period of January 1, 2000 through December 31, 2001 as well as the accounting for certain reserves, restructurings, certain option programs and several categories of cost of revenue and operating expenses. We are cooperating with the SEC, and have produced hundreds of thousands of documents and numerous witnesses in response to the SEC's inquiries. Symbol and approximately ten or more former employees have received so-called "Wells Notices" stating that the SEC Staff in the Northeast Regional Office is considering recommending to the Commission that it authorize civil actions against Symbol and the individuals involved alleging violations of various sections of the federal securities laws and regulations. Pursuant to an action against Symbol, the Commission may seek permanent injunctive relief and appropriate monetary relief, including a fine, from us. The United States Attorney's Office for the Eastern District of New York (the "Eastern District") has commenced a related investigation. We are cooperating with that investigation, and have produced documents and witnesses in response to the Eastern District's inquiries. The Eastern District could file 10 criminal charges against Symbol and seek to impose a fine upon us and other relief the Eastern District deems appropriate. Any criminal and/or civil action or any negotiated resolution may involve, among other things, injunctive and equitable relief, including material fines, which could have a material adverse effect on our business, results of operations and financial condition. In addition, as a result of the investigations, various governmental entities at the federal, state and municipal levels may conduct a review of our supply arrangements with them to determine whether we should be considered for debarment. If we are debarred, we would be prohibited for a specified period of time from entering into new supply arrangements with such government entities. In addition, after a government entity has debarred Symbol, other government entities are likely to act similarly, subject to applicable law. Governmental entities constitute an important customer group for Symbol, and debarment from governmental supply arrangements at a significant level could have an adverse effect on our business, results of operations and financial condition. In March 2003, Robert Asti, Symbol's former Vice President--North America Sales & Services--Finance, who left Symbol in March 2001, pleaded guilty to two counts of securities fraud in connection with matters that are the subject of the Commission and the Eastern District investigations. These counts included allegations that Mr. Asti acted together with other unnamed high-ranking corporate executives at Symbol to, among other things, inflate revenue through sham "round-trip" transactions. The Commission has also filed a civil complaint asserting similar allegations against Mr. Asti. In June 2003, Robert Korkuc, Symbol's former Chief Accounting Officer, who left Symbol in March 2003, pleaded guilty to two counts of securities fraud in connection with matters that are the subject of the Commission and the Eastern District investigations. These counts included allegations that Mr. Korkuc acted with others at Symbol in a fraudulent scheme to inflate various measures of Symbol's financial performance. The Commission also has filed a civil complaint asserting similar allegations against Mr. Korkuc. Symbol is attempting to negotiate a resolution with each of the Commission and the Eastern District to the mutual satisfaction of the parties involved. In either case, an agreement has not yet been reached and there is no guarantee that Symbol will be able to successfully negotiate a resolution. SECURITIES LITIGATION MATTERS Pinkowitz v. Symbol Technologies, Inc., et al. On March 5, 2002, a purported class action lawsuit was filed, entitled Pinkowitz v. Symbol Technologies, Inc., et al., in the United States District Court for the Eastern District of New York on behalf of purchasers of the common stock of Symbol between October 19, 2000 and February 13, 2002, inclusive, against Symbol, Tomo Razmilovic, Jerome Swartz and Kenneth Jaeggi. The complaint alleged that defendants violated the federal securities laws by issuing materially false and misleading statements throughout the class period that had the effect of artificially inflating the market price of Symbol's securities. Subsequently, a number of additional purported class actions containing substantially similar allegations were also filed against Symbol and certain Symbol officers in the Eastern District of New York. On September 27, 2002, a consolidated amended complaint was filed in the United States District Court for the Eastern District of New York, consolidating the previously filed purported class actions. The consolidated amended complaint added Harvey P. Mallement, George Bugliarello and Leo A. 11 Guthart (the then current members of the Audit Committee of Symbol's Board of Directors) and Brian Burke and Frank Borghese (former employees of Symbol) as additional individual defendants and broadened the scope of the allegations concerning revenue recognition. In addition, the consolidated amended complaint extended the alleged class period to the time between April 26, 2000 and April 18, 2002. Discovery in the Pinkowitz action is ongoing. In addition, on October 15, 2003, plaintiffs moved for class certification of the Pinkowitz action. Trial of the Pinkowitz action is scheduled to commence in or about September 2004. Symbol has engaged in settlement negotiations with counsel for the plaintiffs. Hoyle v. Symbol Technologies, Inc., et al. Salerno v. Symbol Technologies, Inc., et al. On March 21, 2003, a separate purported class action lawsuit was filed, entitled Edward Hoyle v. Symbol Technologies, Inc., Tomo Razmilovic, Kenneth V. Jaeggi, Robert W. Korkuc, Jerome Swartz, Harvey P. Mallement, George Bugliarello, Charles B. Wang, Leo A. Guthart and James H. Simons, in the United States District Court for the Eastern District of New York. On May 7, 2003, a virtually identical purported class action lawsuit was filed against the same defendants by Joseph Salerno. The Hoyle and Salerno complaints are brought on behalf of a purported class of former shareholders of Telxon Corporation ("Telxon") who obtained Symbol stock in exchange for their Telxon stock pursuant to Symbol's acquisition of Telxon effective as of November 30, 2000. The complaint alleges that the defendants violated the federal securities laws by issuing a Registration Statement and Joint Proxy Statement/Prospectus in connection with the Telxon acquisition that contained materially false and misleading statements that had the effect of artificially inflating the market price of Symbol's securities. On October 3, 2003, Symbol and the individual defendants moved to dismiss the Hoyle action as barred by the applicable statute of limitations. The Court has not ruled on the motion. Symbol intends to litigate the case vigorously on the merits. In connection with the above pending class actions and government investigations, Symbol has recorded an accrued liability for legal settlements of $142,000 as of March 31, 2004 and December 31, 2003 which is reflected as a component of accounts payable and accrued expenses in the accompanying condensed consolidated financial statements. Based upon recent discussions, we currently estimate that approximately $40,000 of the estimated $142,000 may not be deductible for income tax purposes. Bildstein v. Symbol Technologies, Inc., et al. On April 29, 2003, a lawsuit was filed, entitled Bildstein v. Symbol Technologies, Inc., et. al., in the United States District Court for the Eastern District of New York against Symbol and Jerome Swartz, Harvey P. Mallement, Raymond R. Martino, George Bugliarello, Charles B. Wang, Tomo Razmilovic, Leo A. Guthart, James Simons, Saul F. Steinberg and Lowell Freiberg. The plaintiff alleges that the defendants violated Section 14(a) of the Securities Exchange Act of 1934 and Rule 14a-9 promulgated thereunder, and common and state law, by authorizing the distribution of proxy statements in 2000, 2001 and 2002. Plaintiff seeks the cancellation of all affirmative votes at the annual meetings for 2000, 2001 and 2002, canceling all awards under the option plans, enjoining implementation of the option plans and any awards thereunder and an accounting by the defendants for all damage to Symbol, plus all costs and expenses in connection with the action. Symbol has filed a motion to dismiss that is now fully briefed. On February 4, 2004, Symbol argued its motion to dismiss before the Court and is awaiting the Court's decision. Symbol intends to defend the case vigorously on the merits. 12 Gold v. Symbol Technologies, Inc., et al. On December 18, 2003, a purported derivative action lawsuit was filed, entitled Gold v. Symbol Technologies, Inc., et al., in the Court of Chancery of the State of Delaware against Symbol and Tomo Razmilovic, Kenneth V. Jaeggi, Dr. Jerome Swartz, Frank Borghese, Brian Burke, Richard M. Feldt, Satya Sharma, Harvey P. Mallement, Raymond R. Martino, George Bugliarello, Dr. Leo A. Guthart, Richard Bravman, Dr. James H. Simons, Leonard H. Goldner, Saul P. Steinberg, Lowell C. Freiberg and Charles Wang. The complaint alleges that the defendants violated the federal securities laws by issuing materially false and misleading statements from January 1, 1998 through December 31, 2002 that had the effect of artificially inflating the market price of Symbol's securities and that they failed to properly oversee or implement policies, procedures and rules to ensure compliance with federal and state laws requiring the dissemination of accurate financial statements, which ultimately caused Symbol to be sued for, and exposed to liability for, violations of the anti-fraud provisions of the federal securities laws, engaged in insider trading in Symbol's common stock, wasted corporate assets and improperly awarded a severance of approximately $13,000 to Mr. Razmilovic. Plaintiff seeks to recover incentive-based compensation paid to former senior members of Symbol's management in reliance on materially inflated financial statements and to impose a trust to recover cash and other valuable assets received by the former management defendants and former Symbol board members in the form of proceeds garnered from the sale of Symbol common stock (including option related sales) from at least January 1, 1998 through December 31, 2002. Symbol filed a motion to dismiss on March 29, 2004. Plaintiff has indicated its intention to file an amended complaint, which is due on or before May 20, 2004. Symbol intends to litigate the case vigorously. In re Telxon Corporation Securities Litigation From December 1998 through March 1999, a total of 27 class actions were filed in the United States District Court, Northern District of Ohio, by certain alleged stockholders of Telxon on behalf of themselves and purported classes consisting of Telxon stockholders, other than the defendants and their affiliates, who purchased stock during the period from May 21, 1996 through February 23, 1999, or various portions thereof, alleging claims for "fraud on the market" arising from alleged misrepresentations and omissions with respect to Telxon's financial performance and prospects and an alleged violation of generally accepted accounting principles by improperly recognizing revenues. The named defendants are Telxon, its former president and chief executive officer, Frank E. Brick, and its former senior vice president and chief financial officer, Kenneth W. Haver. The actions were referred to a single judge, consolidated and an amended complaint was filed by lead counsel. The amended complaint alleges that the defendants engaged in a scheme to defraud investors through improper revenue recognition practices and concealment of material adverse conditions in Telxon's business and finances. The amended complaint seeks certification of the identified class, unspecified compensatory and punitive damages, pre- and post-judgment interest, and attorneys' fees and costs. On November 13, 2003, Telxon and the plaintiff class reached a tentative settlement of all pending shareholder class actions against Telxon. Under the settlement, Telxon anticipated that it would pay $37,000 to the class. As a result of anticipated contributions by Telxon's insurers, Telxon expected that its net payment would be no more than $25,000. On December 19, 2003, the settlement received preliminary approval from the Court. On February 12, 2004, the Court granted its final approval of the settlement. On February 27, 2004, we paid $25,000 to the class in accordance with the settlement. Telxon has not settled its lawsuit against its former auditors, PricewaterhouseCoopers LLP ("PwC"), and, as part of the proposed settlement of the class action, Telxon has agreed to pay to the class, under certain circumstances, up to $3,000 of the proceeds of that lawsuit. 13 On February 20, 2001, Telxon filed a motion for leave to file and serve a summons and third-party complaint against third-party defendant PwC in the shareholders' class action complaints. Telxon's third-party complaint against PwC concerns PwC's role in the original issuance and restatements of Telxon's financial statements for its fiscal years 1996, 1997 and 1998 and its interim financial statements for its first and second quarters of fiscal year 1999, which are the subject of the class action litigation against Telxon. Telxon states causes of action against PwC for contribution under federal securities law, as well as state law claims for accountant malpractice, fraud, constructive fraud, fraudulent concealment, fraudulent misrepresentation, negligent misrepresentation, breach of contract and breach of fiduciary duty. With respect to its federal claim against PwC, Telxon seeks contribution from PwC for all sums that Telxon may be required to pay in excess of Telxon's proportionate liability, if any, and attorney fees and costs. With respect to its state law claims against PwC, Telxon seeks compensatory damages, punitive damages, attorney fees and costs, in amounts to be determined at trial. Fact discovery has been substantially completed. Trial is scheduled to commence sometime in 2004. Wyser-Pratte Management Co. v. Telxon Corporation, et al. On June 11, 2002, Wyser-Pratte Management Co., Inc. ("WPMC") filed a complaint against Telxon and its former top executives alleging violations of Sections 10(b), 18, 14(a) and 20(a) of the Securities and Exchange Act of 1934 (the "Exchange Act"), and alleging additional common law claims. This action is related to the same set of facts as the In re Telxon class action described above. On November 15, 2003, the parties reached an agreement in principle to resolve the litigation under which Telxon would pay WPMC $3,300. The settlement was finalized and paid by the Company in December 2003, and a stipulation of dismissal was filed in January 2004. PENDING PATENT AND TRADEMARK LITIGATION Proxim v. Symbol Technologies, Inc., 3 Com Corporation, Wayport Incorporated and SMC Networks Incorporated In March 2001, Proxim Incorporated ("Proxim") sued Symbol, 3 Com Corporation, Wayport Incorporated and SMC Networks Incorporated in the United States District Court in the District of Delaware for allegedly infringing three patents owned by Proxim (the "Proxim v. 3Com et al. Action"). Proxim also filed a similar lawsuit in March 2001 in the United States District Court in the District of Massachusetts against Cisco Systems, Incorporated and Intersil Corporation. The complaint against Symbol sought, among other relief, unspecified damages for patent infringement, treble damages for willful infringement and a permanent injunction against Symbol from infringing these three patents. Symbol answered and filed counterclaims against Proxim, asserting that Proxim's RF product offerings infringe on four of our patents relating to wireless LAN technology. On December 4, 2001, we filed a complaint against Proxim in the United States District Court in the District of Delaware (the "Symbol v. Proxim Action") asserting infringement of the same four patents that were asserted in our counterclaim against Proxim in the Proxim v. 3Com et al. Action prior to the severance of this counterclaim by the Court. On December 18, 2001, Proxim filed an answer and counterclaims in the Symbol v. Proxim Action, seeking declaratory judgments for non-infringement, invalidity and unenforceability of the four patents asserted by Symbol, injunctive and monetary relief for our alleged infringement of one additional Proxim patent (the "`634 Patent") involving wireless LAN technology, monetary relief for our alleged false patent marking, and injunctive and monetary relief for 14 our alleged unfair competition under the Lanham Act, common law unfair competition and tortious interference. On March 17, 2003, Intersil and Proxim announced that a settlement between the companies had been reached, whereby Proxim agreed, inter alia, to dismiss with prejudice all of Proxim's claims in the Proxim v. 3Com et al. Action (the "Proxim/Intersil Agreement"). Proxim also agreed in the Proxim/Intersil Agreement to release us from past and future liability for alleged infringement of the `634 Patent in the Symbol v. Proxim Action, with respect to any of our products that incorporate Intersil's wireless radio chipsets. On April 5, 2003, the Court signed that Stipulation and Order of Dismissal, dismissing all of Proxim's claims in that action with prejudice. On July 30, 2003, among other rulings, the Court dismissed Proxim's unfair competition claim. Trial on the Symbol patents began on September 8, 2003. On September 12, 2003, the jury returned a verdict finding that two of the three asserted patents (the `183 and `441 Patents) had been infringed by Proxim. Proxim dropped its claims of invalidity as to all three Symbol patents, and consented to judgment against Proxim on those invalidity claims. The jury awarded us 6% royalties on Proxim's past sales of infringing products, which include Proxim's OpenAir, 802.11 and 802.11b products. Based on Proxim's sales of infringing products from 1995 to the present, we estimate that damages for past infringement by Proxim amount to approximately $23,000 before interest. In addition, Proxim continues to sell the infringing products, and we expect that future sales would be subject to a 6% royalty as well. A one day bench trial on Proxim's remaining equitable defenses took place on November 24, 2003. The Court has not ruled on these defenses. Trial on the Proxim patent began on September 15, 2003. On September 29, 2003, the jury returned a verdict, finding the patent valid but not infringed by Symbol. Symbol Technologies, Inc. v. Hand Held Products, Inc. and HHP-NC, Inc. On January 21, 2003, we filed a complaint against Hand Held Products, Inc. and HHP-NC, Inc. (collectively, "HHP") for patent infringement and declaratory judgment. We alleged that HHP infringes 12 of our patents, that 36 of HHP's patents are not infringed by us, that the HHP patents are otherwise invalid or unenforceable, and that the court has jurisdiction to hear the declaratory judgment action. We requested that the court enjoin HHP from further infringement, declare that our products do not infringe HHP's patents, and award us costs and damages. On March 12, 2003, HHP filed a Motion to Dismiss, which was denied on November 14, 2003. With respect to our claim for a declaratory judgment that 36 of HHP's patents are not infringed by us, or that they are otherwise invalid or unenforceable, the Court denied HHP's motion to dismiss with respect to 10 of the patents, granted HHP's motion to dismiss with respect to 25 of the patents based on lack of subject matter jurisdiction, and granted HHP's motion to dismiss as to one HHP patent based on HHP's representation to the Court that the patent had been dedicated to the public and that HHP would not assert it against us. Pursuant to a stipulation between the parties, we have dismissed without prejudice our claim that HHP infringes 5 of the 12 Symbol patents and our action seeking a declaratory judgment with respect to the 10 HHP patents that remained in the case. On December 12, 2003, HHP asserted counterclaims against Symbol and Telxon (which had previously owned some of the patents asserted by Symbol) seeking a declaratory judgment that the Symbol patents were not infringed, were invalid and/or unenforceable. On the same day, HHP filed a third party complaint against 12 of its suppliers which, HHP claims, are liable to defend and/or indemnify HHP with respect to Symbol's infringement claims. We expect discovery to commence later in 2004. Hand Held Products, Inc. and HHP-NC, Inc. v. Symbol Technologies, Inc. and Telxon Corporation 15 On January 7, 2004, Symbol was served with a summons and complaint alleging that certain of its products infringe 4 patents owned by HHP. Three of the patents concern the design of a finger groove on the surface of a hand held computer, and the fourth concerns a decoding algorithm for 2 dimensional bar codes. These patents had been the subject of Symbol's declaratory judgment complaint, described above, but had been dismissed by the Court based on HHP's representation to the Court that Symbol had no reasonable apprehension of being sued by HHP for infringement of these patents. Discovery is underway. A final pretrial conference is scheduled for June 17, 2004. It is expected that a trial date will be set at the conference. Symbol intends to defend this case vigorously on the merits. Symbol Technologies, Inc. v. Metrologic Instruments, Inc. Symbol and Metrologic Instruments, Inc. ("Metrologic") entered into a cross-licensing agreement executed on December 16, 1996 and effective as of January 1, 1996 (the "Metrologic Agreement"). On April 12, 2002, we filed a complaint in the United States District Court in the Eastern District of New York against Metrologic, alleging a material breach of the Metrologic Agreement. We moved for summary judgment seeking a ruling on the issues, inter alia, that Metrologic had breached the Metrologic Agreement and that we had the right to terminate Metrologic's rights under the Metrologic Agreement. The Court denied the summary judgment motion on March 31, 2003, and held that the issues were subject to resolution by arbitration. We have appealed the Court's decision. On December 23, 2003, the Court of Appeals dismissed the appeal for lack of appellate jurisdiction because the District Court judgment was not final. In the interim, we are proceeding with the arbitration. Metrologic had filed a Demand for Arbitration in 2002 that was stayed pending the decisions by the Court. On June 26, 2003, we filed an Amended Answer and Counterclaims to Metrologic's Demand for Arbitration, asserting that (a) Metrologic's accused products are royalty bearing products, as defined under the Metrologic Agreement, and (b) in the alternative, those products infringe upon one or more of our patents. Metrologic replied to our counterclaims on July 31, 2003, denying infringement and asserting that the arbitrator was without jurisdiction to hear our counterclaims. Pursuant to the decision made by the arbitration panel, an arbitrator is now in place to hear the arbitration. On December 22, 2003, Metrologic withdrew its Demand for Arbitration, however, our counterclaims are still being heard. In a separate matter relating to the Metrologic Agreement, we filed a demand for an arbitration against Metrologic seeking a determination that certain of our new bar code scanning products are not covered by Metrologic patents licensed to us under the Metrologic Agreement. We do not believe that the products infringe any Metrologic patents, but in the event there was a ruling to the contrary, our liability would be limited to the previously negotiated royalty rate. On June 6, 2003, the arbitrator ruled that whether we must pay royalties depends on whether our products are covered by one or more claims of Metrologic's patents, and that this issue must be litigated in court, not by arbitration. The arbitrator further ruled that we could not have materially breached the Metrologic Agreement, since the threshold infringement issue has not yet been determined. On June 19, 2003, after the arbitrator ruled that Metrologic's infringement allegations must be adjudicated in court, Metrologic filed a complaint against us in the District Court for the District of New Jersey, alleging patent infringement and breach of contract, and seeking monetary damages and termination of the Metrologic Agreement. On July 30, 2003, Symbol answered the complaint and asserted counterclaims for declaratory judgments of invalidity and noninfringement of Metrologic's patents and for non-breach of the Agreement. Discovery is proceeding. 16 Symbol has moved for partial summary judgment on Metrologics breach of contract claim, which has been fully briefed by the parties. Symbol intends to defend the case vigorously on the merits. Symbol Technologies, Inc. et al. v. Lemelson Medical, Educational & Research Foundation, Limited Partnership On July 21, 1999, we and six other members of the Automatic Identification and Data Capture industry ("Auto ID Companies") jointly initiated a lawsuit against the Lemelson Medical, Educational, & Research Foundation, Limited Partnership (the "Lemelson Partnership"). The suit, which is entitled Symbol Technologies, Inc. et. al. v. Lemelson Medical, Educational & Research Foundation, Limited Partnership, was commenced in the U.S. District Court, District of Nevada in Reno, Nevada but was subsequently transferred to the Court in Las Vegas, Nevada. In the litigation, the Auto ID Companies seek, among other remedies, a declaration that certain patents, which have been asserted by the Lemelson Partnership against end users of bar code equipment, are invalid, unenforceable and not infringed. The Lemelson Partnership has contacted many of the Auto ID Companies' customers demanding a one-time license fee for certain so-called "bar code" patents transferred to the Lemelson Partnership by the late Jerome H. Lemelson. Symbol and the other Auto ID Companies have received many requests from their customers asking that they undertake the defense of these claims using their knowledge of the technology at issue. Certain of these customers have requested indemnification against the Lemelson Partnership's claims from Symbol and the other Auto ID Companies, individually and/or collectively with other equipment suppliers. Symbol believes, and its understanding is that the other Auto ID Companies believe, that generally they have no obligation to indemnify their customers against these claims and that the patents being asserted by the Lemelson Partnership against their customers with respect to bar code equipment are invalid, unenforceable and not infringed. A 27-day non-jury trial was held before the Court beginning on November 18, 2002, and concluding on January 17, 2003. Post-trial briefing was completed in late June 2003. On January 23, 2004, the Court concluded that Lemelson's patent claims are unenforceable under the equitable doctrine of prosecution laches; that the asserted patent claims as construed by the Court are not infringed by Symbol because use of the accused products does not satisfy one or more of the limitations of each and every asserted claim; and that the claims are invalid for lack of written description and enablement even if construed in the manner urged by Lemelson. In so concluding, the Court found that judgment should be entered in favor of plaintiffs Symbol and the other members of the Auto ID Companies and against defendant Lemelson Partnership on Symbol's and the Auto ID Companies' complaint for declaratory judgment. The Court entered its judgment on January 23, 2004. OTHER LITIGATION Telxon v. Smart Media of Delaware, Inc. ("SMI") On December 1, 1998, Telxon filed suit against SMI in the Court of Common Pleas for Summit County, Ohio in a case seeking declaratory judgment that, contrary to SMI's position, Telxon did not contract to develop SMI's products or to fund SMI, and that it did not fraudulently induce SMI to refrain from engaging in business with others or interfere with SMI's business relations. On March 12, 1999, SMI filed its Answer and Counterclaim denying Telxon's allegations and alleging claims against Telxon for negligent misrepresentation, estoppel, tortious interference with business relationship and intentional misrepresentation and seeking approximately $10,000 in compensatory damages, punitive damages, fees and costs. 17 On September 17, 2003, a jury awarded approximately $218,000 in damages against Telxon. This sum included an award of approximately $6,000 to an individual. On September 24, 2003, the individual and SMI moved to add Symbol as a substitute or counterclaim defendant. That motion was subsequently withdrawn by SMI. On October 7, 2003, Telxon made a motion to impound and secure the trial record of certain exhibits, and on October 8, 2003, Telxon made motions for judgment in its favor notwithstanding the jury's verdicts, and for a new trial. In the event this relief is not granted, Telxon requested that the amount of the jury's verdicts be reduced. Also, Telxon requested that the execution of any judgment against Telxon entered by the Court be stayed without the posting of a bond, or in the alternative, that a bond be set at a maximum of $3,700. In support of its motions, Telxon argued that the jury's verdicts were based upon inadmissible evidence being improperly provided to the jury during its deliberations; that the absence of liability on the part of Telxon was conclusively established by the documents in evidence; and that the amounts awarded to SMI were based on legally irrelevant projections, and are wildly speculative, particularly given that SMI never had any revenue or profits. In addition, Telxon argued that the jury verdicts incorrectly awarded damages more than once for the same alleged injury by adding together two separate awards for lost profits, and by improperly combining different measures of damages. On May 6, 2004 the Court entered judgment against Telxon for approximately $218,000 in damages plus statutory interest from the date of the verdict. This amount includes an award to an individual for approximately $6,000. The Court also granted the individual's motion to add Symbol as a counterclaim defendant. The Court denied Telxon's motions for judgment in its favor, for a new trial, and for a reduction in the verdict. The Court also rejected Telxon's motion for a stay of the execution of the judgment. The Court rejected SMI's and the individual's motions for prejudgment interest, and did not set a bond amount for appeal. Symbol and Telxon have appealed these rulings in the Court of Common Pleas for Summit County, Ohio and have filed a motion to stay execution of the judgment. In the alternative, Symbol and or Telxon will post a bond to appeal the judgment. We believe the maximum bond allowed under Ohio law is $50,000 and that Symbol and Telxon have the ability to post a bond of that amount. We believe that Symbol and Telxon have strong grounds on which to appeal and do not currently believe that an unfavorable outcome with respect to the SMI judgment is probable at this time. Moreover, there can be no certainty at this time as to the likely amount of loss, if any. Accordingly, as of March 31, 2004 we have not recorded a liability in our consolidated financial statements with respect to the SMI judgment. However, there can be no assurance that Symbol and or Telxon will not be found to be ultimately liable for the damage awards. Barcode Systems, Inc. ("BSI") v. Symbol Technologies Canada, Inc., et al. On March 19, 2003, BSI filed an amended statement of claim in the Court of Queen's Bench in Winnipeg, Canada, naming Symbol Technologies Canada, Inc. and Symbol as defendants. BSI alleges that Symbol deliberately, maliciously and willfully breached its agreement with BSI under which BSI purported to have the right to sell Symbol product in western Canada and to supply Symbol's support operations for western Canada. BSI has claimed damages in an unspecified amount, punitive damages and special damages. Symbol denies BSI's allegations and claims that it properly terminated any agreements between BSI and Symbol. Additionally, Symbol filed a counterclaim against BSI alleging trademark infringement, depreciation of the value of the goodwill attached to Symbol's trademark and damages in the sum of Canadian $1,281, representing the unpaid balance of product sold by Symbol to BSI. Discovery in the matter is ongoing. On October 30, 2003, BSI filed an Application For Leave with the Canadian Competition Tribunal ("Tribunal"). BSI is seeking an Order from the Tribunal that would require Symbol to accept 18 BSI as a customer on the "usual trade terms" as they existed prior to the termination of their agreement in April 2003. The Tribunal granted leave for BSI to proceed with its claim against Symbol on January 15, 2004. Symbol filed an appeal of the Tribunal's decision before the Federal Court of Appeals on April 22, 2004. On November 17, 2003, BSI filed an additional lawsuit in British Columbia, Canada against Symbol and a number of its distributors alleging that Symbol refused to sell products to BSI, conspired with the other defendants to do the same and used confidential information to interfere with BSI's business. Symbol considers these claims to be meritless and intends to defend against these claims vigorously. Lic. Olegario Cavazos Cantu, on behalf of Maria Leonor Cepeda Zapata vs. Symbol de Mexico, Sociedad de R.L. de C.V. Lic. Olegario Cavazos Cantu, on behalf of Maria Leonor Cepeda Zapata ("Plaintiff"), filed a lawsuit against Symbol de Mexico, Sociedad de R.L. de C.V. ("Symbol Mexico") on or about October 21, 2003 for purposes of exercising an action to reclaim property on which Symbol's Reynosa facility is located. Such lawsuit was filed before the First Civil Judge of First Instance, 5th Judicial District, in Reynosa, Tamaulipas, Mexico. Additionally, the First Civil Judge ordered the recording of a lis pendens with respect to this litigation before the Public Register of Property in Cd. Victoria, Tamaulipas. As of November 13, 2003, such lis pendens was still pending recordation. Plaintiff alleges that she is the legal owner of a tract of land of one hundred (100) hectares in area, located within the area comprising the Rancho La Alameda, Municipality of Reynosa, Tamaulipas, within the Bajo Rio San Juan, Tamaulipas, irrigation district. Allegedly, such land was caused to be part of the Parque Industrial Del Norte in Reynosa, Tamaulipas. Plaintiff further alleges that Symbol Mexico, without any claim of right and without Plaintiff's consent entered upon the tract of land, occupied such, and refused to return to Plaintiff the portion of land and all improvements and accessions thereto occupied by Symbol Mexico. Plaintiff is asking the court to order Symbol Mexico to physically and legally deliver to the Plaintiff the portion of land occupied by Symbol Mexico. Symbol Mexico acquired title to the lots in the Parque Industrial Reynosa from Edificadora Jarachina, S.A. de C.V. pursuant to a deed instrument. An Owner's Policy of Title Insurance was issued by Stewart Title Guaranty Company in connection with the above-mentioned transaction in the amount of $13,400. A Notice of Claim and Request for Defense of Litigation was duly delivered on behalf of Symbol to Stewart Title Guaranty Company on November 4, 2003. Symbol intends to defend against this claim vigorously. Bruck Technologies Handels GmbH European Commission ("EC") Complaint In February 2004, Symbol became aware of a notice from the European Competition Commission (the "EC") of a complaint lodged with it by Bruck Technologies Handels GmbH ("Bruck") that certain provisions of the Symbol PartnerSelect program violate Article 81 of the EC Treaty. Symbol considers these claims to be without merit and intends to vigorously defend against them. b. Guarantees and Product Warranties We provide standard warranty coverage for most of our products for a period of one year from the date of shipment. We record a liability for estimated warranty claims based on historical claims, product failure rates and other factors. This warranty liability, recorded as a component of accounts 19 payable and accrued expenses, primarily includes the anticipated cost of materials, labor and shipping necessary to repair and service the equipment. The following table illustrates the changes in our warranty reserves: Amount Balance at December 31, 2003 .................... $ 20,828 Charges to expense--cost of revenue.............. 7,668 Utilization/payment ............................. (7,901) -------- Balance at March 31, 2004 ....................... $ 20,595 ======== c. Derivative Instruments and Hedging Activities We utilize derivative financial instruments to hedge the risk exposures associated with foreign currency fluctuations for payments denominated in foreign currencies from our international subsidiaries. These derivative instruments are designated as either fair value or cash flow hedges, depending on the exposure being hedged, and have maturities of less than one year. Changes in fair value of derivative instruments are recognized immediately in earnings unless the derivative qualifies as a cash flow hedge. For derivatives qualifying as cash flow hedges, the effective portion of changes in fair value of the derivative instrument is recorded as a component of other comprehensive income / (loss) and is reclassified to earnings in the same period during which the hedged transaction affects earnings. Any ineffective portion (representing the remaining gain or loss on the derivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged transaction) is recognized in earnings as it occurs. For fair value hedges, changes in fair value of the derivative, as well as the offsetting changes in fair value of the hedged item, are recognized in earnings each period. We do not use these derivative financial instruments for trading purposes. As of March 31, 2004 and December 31, 2003, respectively, we had $27,195 and $40,673 in notional amounts of forward exchange contracts outstanding. The forward exchange contracts generally have maturities that do not exceed 12 months and require us to exchange foreign currencies for U.S. dollars at maturity at rates agreed to at inception of the contracts. These contracts are primarily denominated in British pounds, Euros, Australian dollars, Canadian dollars and Japanese yen and have been marked to market each period with the resulting gains and losses included as a component of cost of revenue in the Condensed Consolidated Statement of Operations. The fair value of these forward exchange contracts was $(133) as of March 31, 2004, which is recorded in current liabilities and $107 as of December 31, 2003, which was recorded in current assets. 10. INCOME TAXES As discussed in Note 9a in the notes to the condensed consolidated financial statements, in April 2004 we changed our estimate of the amount for certain pending class action lawsuits and government fines, which may not be deductible for tax purposes. At December 31, 2003, our estimate of the non-deductible amount was $5,000, currently we estimate such non-deductible amount to approximate $40,000. Accordingly, we reversed a previously recorded deferred tax asset of $13,475, as we believe this deferred tax asset is unlikely to be realizable. Below are the components of our provision for income taxes for the three months ended March 31, 2004. Amount Percent ------ ------- Earnings before income taxes $ 30,461 Deferred tax asset impairment $13,475 44.3 20 Income tax expense 10,158 33.3 ------- ---- Total provision for income taxes 23,633 77.6 ------ ==== Net earnings $ 6,828 ======== 11. EXECUTIVE RETIREMENT PLAN We maintain an Executive Retirement Plan (the "Plan") in which certain highly compensated associates are eligible to participate. Our obligations under the Plan are not funded. The components of net periodic benefit cost at March 31, 2004 and 2003 are as follows: THREE MONTHS ENDED MARCH 31, --------- 2004 2003 ---- ---- COMPONENTS OF NET PERIODIC BENEFIT COST: Service cost ................................. $370 $372 Interest cost ................................ 322 338 Amortization of prior service cost............ 66 66 Recognized actuarial loss .................... 0 53 ---- ---- Net periodic benefit cost .................... $758 $829 ==== ==== EMPLOYER CONTRIBUTIONS TO THE PLAN We previously disclosed in our financial statements for the year ended December 31, 2003, that we expected to contribute approximately $372 to the Plan to cover expected benefit payments during 2004. As of March 31, 2004, $35 has been paid and we anticipate contributing an additional $337 to cover the expected benefit payments for the Plan in 2004. 12. BUSINESS SEGMENTS AND OPERATIONS BY GEOGRAPHIC AREAS Our business consists of the design, manufacture and marketing of scanner integrated mobile and wireless information management systems, and the servicing of, customer support for and professional services related to these systems. These service activities are coordinated under one global services organization. As a result, our activities are conducted in two reportable segments, Products and Services. The Products segment sells bar code and other forms of data capture equipment, mobile computing devices, wireless communication equipment and other peripheral products and receives royalties. The Services segment provides wireless communication solutions that connect our bar code reading equipment and mobile computing devices to wireless networks. This segment also provides worldwide comprehensive repair and maintenance integration and support in the form of service contracts or repairs on an as-needed basis. We use many factors to measure performance and allocate resources to these two reportable segments. The primary measurements are sales and standard costs. The accounting policies of the two reportable segments are essentially the same as those used to prepare our consolidated financial statements. We rely on our internal management system to provide us with necessary sales and standard cost data by reportable segment and we make financial decisions and allocate resources based on the information we receive from this management system. In the measurement of segment performance, we do not allocate manufacturing variances, research and development, sales and marketing, or general and administrative expenses. We do not use that information to make key operating decisions and do not believe that allocating these expenses is significant in evaluating performance. Beginning January 1, 2004, we revised our internal reporting of certain manufacturing costs, including but not limited to costs of re-working product, warranty costs, obsolescence costs and costs to 21 scrap and no longer include these in our standard costing structure. As reflected in the table below, there is an increase in our standard gross profit and our manufacturing variances and other related costs for the three months ended March 31, 2004 as compared to the comparable period in 2003. Our internal structure is in the form of a matrix organization whereby certain managers are held responsible for products and services worldwide while other managers are responsible for specific geographic areas. The operating results of both components are reviewed on a regular basis. We operate in three main geographic regions: The Americas (which includes North and South America), EMEA (which includes Europe, Middle East and Africa) and Asia Pacific (which includes Japan, the Far East and Australia). Sales are allocated to each region based upon the location of the use of the products and services. Non-U.S. sales for the three months ended March 31, 2004 and 2003 were $166,485 and $170,970, respectively. Identifiable assets are those tangible and intangible assets used in operations in each geographic region. Corporate assets are principally temporary investments and goodwill. Summarized financial information concerning our reportable segments and geographic regions is shown in the following table.
FOR THE THREE MONTHS ENDED -------------------------- MARCH 31, 2004 MARCH 31, 2003 -------------- -------------- PRODUCTS SERVICES TOTAL PRODUCTS SERVICES TOTAL -------- -------- ----- -------- -------- ----- REVENUES: The Americas...................... $ 229,094 $ 45,277 $ 274,371 $ 185,080 $ 50,248 $ 235,328 EMEA.............................. 89,241 22,960 112,201 104,836 22,829 127,665 Asia Pacific...................... 29,904 3,175 33,079 20,787 2,567 23,354 ----------- ----------- ----------- ----------- ----------- ----------- Total net sales................... $ 348,239 $ 71,412 $ 419,651 $ 310,703 $ 75,644 $ 386,347 =========== =========== =========== =========== =========== =========== STANDARD GROSS PROFIT: The Americas...................... $ 130,534 $ 8,532 $ 139,066 $ 94,881 $ 11,603 $ 106,484 EMEA.............................. 52,249 7,523 59,772 53,510 7,163 60,673 Asia Pacific...................... 17,909 1,373 19,282 10,439 830 11,269 ----------- ----------- ----------- ----------- ----------- ----------- Total gross profit at standard.... $ 200,692 $ 17,428 218,120 $ 158,830 $ 19,596 178,426 =========== =========== =========== =========== Manufacturing variances & other related costs.................. 23,192 6,554 ----------- ----------- Total gross profit................ $ 194,928 $ 171,872 =========== =========== AS OF AS OF MARCH 31, DECEMBER 31, 2004 2003 ---- ---- IDENTIFIABLE ASSETS: The Americas...................... $ 818,037 $ 867,133 EMEA.............................. 305,090 316,406 Asia Pacific...................... 68,230 64,228 Corporate (principally goodwill, intangible assets and investments) 398,603 398,751 ----------- ----------- Total........................ $ 1,589,960 $ 1,646,518 =========== ===========
22 13. RECENT ACCOUNTING PRONOUNCEMENTS In January 2003, the FASB issued FASB Interpretation ("FIN") No. 46, "Consolidation of Variable Interest Entities." In December 2003, the FASB issued FIN No. 46 (Revised) ("FIN 46-R") to address certain FIN 46 implementation issues. This interpretation requires that the assets, liabilities, and results of activities of a Variable Interest Entity ("VIE") be consolidated into the financial statements of the enterprise that has a controlling interest in the VIE. FIN 46-R also requires additional disclosures by primary beneficiaries and other significant variable interest holders. For entities acquired or created before February 1, 2003, this interpretation is effective no later than the end of the first interim or annual reporting period ending after March 15, 2004, except for those VIE's that are considered to be special purpose entities, for which the effective date is no later than the end of the first interim or annual reporting period ending after December 15, 2003. The Company does not currently hold any interests in VIE's that would require consolidation or additional disclosures. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) FORWARD-LOOKING STATEMENTS; CERTAIN CAUTIONARY STATEMENTS This report contains forward-looking statements made in reliance upon the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements may be identified by their use of words, such as "anticipate," "estimates," "should," "expect," "guidance," "project," "intend," "plan," "believe" and other words and terms of similar meaning, in connection with any discussion of Symbol's future business, results of operations, liquidity and operating or financial performance or results. Such forward looking statements involve significant material known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. These and other important risk factors are included in the "Risk Factors" section of this report. In light of the uncertainty inherent in such forward-looking statements, you should not consider the inclusion to be a representation that such forward-looking events or outcomes will occur. Because the information herein is based solely on data currently available, it is subject to change and should not be viewed as providing any assurance regarding Symbol's future performance. Actual results and performance may differ from Symbol's current projections, estimates and expectations, and the differences may be material, individually or in the aggregate, to Symbol's business, financial condition, results of operations, liquidity or prospects. Additionally, Symbol is not obligated to make public indication of changes in its forward looking statements unless required under applicable disclosure rules and regulations. The following discussion and analysis should be read in conjunction with Symbol's Condensed Consolidated Financial Statements and the notes thereto that appear elsewhere in this report. OVERVIEW We are a leader in secure mobile information systems that integrate application-specific handheld computers with wireless networks for data, voice and bar code and other forms of data capture. Our goal is to be one of the world's preeminent suppliers of mission-critical mobile computing solutions to both 23 business and industrial users. For the three months ended March 31, 2004, we generated $419,651 of revenue. Symbol manufactures products and provides services to capture, manage and communicate data using four core technologies - bar code reading and image recognition, mobile computing, networking systems and mobility software applications. Our products and services are sold to a broad and diverse base of customers on a worldwide basis and in diverse markets such as retail, transportation, parcel and postal delivery services, warehousing and distribution, manufacturing, healthcare, hospitality, security, education and government. We do not depend upon a single customer, or a few customers, the loss of which would have a material adverse effect on our business. We are engaged in two reportable business segments: (1) the design, manufacture and marketing of mobile computing, automatic data capture, and wireless network systems (the "Product Segment"); and (2) the servicing of, customer support for and professional services related to these systems (the "Services Segment"). Each of our operating segments uses its core competencies to provide building blocks for mobile computing solutions. EXECUTIVE OVERVIEW OF PERFORMANCE Our total revenue for the three months ended March 31, 2004 was $419,651, an increase of 8.6 percent from total revenue of $386,347 for the three months ended March 31, 2003. The increase in revenue is primarily attributable to gradual strengthening in the global economy and increased spending in the information technology sector which resulted in growth in our product segment, particularly in mobile computing. Our gross profit was 46.5 percent for the three months ended March 31, 2004, an increase from 44.5 percent for the three months ended March 31, 2003. The increase is primarily due to our increased sales of higher margin product and efficiencies we have achieved in our manufacturing and distribution operations. We are committed and continue to invest in our people, processes and systems to improve our control environments, our effectiveness with our customers and our operational efficiencies. Accordingly, our selling, general and administrative expenses were $121,680 for the three months ended March 31, 2004, a 22.9 percent increase from the comparable period in 2003. With continued focus on our balance sheet, we have increased our cash to $179,033 at March 31, 2004, an increase of $29,016 from $150,017 at December 31, 2003, with no current borrowings under our secured credit line. We have also invested $15,221 in our business during the three months ended March 31, 2004 through purchases of property and computer equipment and related software of $11,171 and investments in other companies of $4,050. We expect to continue to make investments in property plant and equipment over the next 12 to 18 months in the range of $100,000 related primarily to our information technology business transformation initiatives. RESULTS OF OPERATIONS The following table summarizes our revenue by geographic region and then by reportable segment and geographic region for which we use to manage our business: 24 FOR THE THREE MONTHS ENDED MARCH 31 ----------------------------------- VARIANCE IN VARIANCE IN 2004 2003 $'S PERCENT ---- ---- --- ------- Total Revenue The Americas........... $ 274,371 $ 235,328 $ 39,043 16.6 EMEA................... 112,201 127,665 (15,464) (12.1) Asia Pacific........... 33,079 23,354 9,725 41.6 ------------ ------------ ------------ ---- Total Revenue......... 419,651 386,347 33,304 8.6 ============ ============ ============ ==== Product Revenue The Americas........... 229,094 185,080 44,014 23.8 EMEA................... 89,241 104,836 (15,595) (14.9) Asia Pacific........... 29,904 20,787 9,117 43.9 ------------ ------------ ------------ ---- Total Product Revenue. 348,239 310,703 37,536 12.1 ============ ============ ============ ==== Service Revenue The Americas........... 45,277 50,248 (4,971) (9.9) EMEA................... 22,960 22,829 131 0.6 Asia Pacific........... 3,175 2,567 608 23.7 ------------ ------------ ------------ ---- Total Service Revenue. $ 71,412 $ 75,644 $ (4,232) (5.6) ============ ============ ============ ==== FOR THE THREE MONTHS ENDED MARCH 31, 2004 Net product revenue for the three months ended March 31, 2004 was $348,239, an increase of 12.1 percent from $310,703 reported for the three months ended March 31, 2003. The increase in net product revenue of $37,536 is primarily due to continued growth in our mobile computing product offerings, which is our largest product line and represented approximately 42.5 percent of the total product revenue growth. Contributing to this increase is the growth from both our next generation mobile gun and portable data mobile computing devices, which collectively represented an increase of approximately 9 percent over the comparable prior year quarter. Also contributing to the product revenue growth was growth in automatic data capture of approximately 29 percent over the comparable prior year quarter which was primarily driven by a large rollout of wireless point-of-sale scanners to a nationwide retailer. Offsetting these increases were increases in our vendor and distributor rebates of approximately $3,246 over the comparable prior year quarter, which is recorded as a reduction to product revenue. Net services revenue of $71,412 for the three months ended March 31, 2004 decreased 5.6 percent from $75,644 reported in the three months ended March 31, 2003 due to our continued drive to utilize third party service providers for the lower margin service activities. Also contributing to the decrease was a lower level of cash collections compared to the comparable prior year period, as our U.S. service revenue is recognized on a billed and collected basis. Geographically, the Americas revenue for the three months ended March 31, 2004 was $274,371, an increase of 16.6 percent from the $235,328 reported in the three months ended March 31, 2003 mainly due to the reasons described above. EMEA revenue of $112,201 decreased 12.1 percent for the three months ended March 31, 2004, from $127,665 reported in the comparable period in 2003. Approximately $10,000 of the decrease is related to the timing of revenue recognition from our thinly capitalized value added resellers and approximately $3,200 of the decrease is related to a deferral of revenue from our EMEA distributors. Asia Pacific revenue increased 41.6 percent to $33,079 for the three months ended March 31, 2004 from $23,354 reported in the three months ended March 31, 2003 primarily the result of continued penetration of all of our product offerings into this marketplace. The Americas, EMEA and Asia Pacific represent approximately 65.4, 26.7 and 7.9 percent of revenue, respectively, for the three months ended March 31, 2004. Product cost of revenue as a percentage of net product revenue was 47.7 percent for the three months ended March 31, 2004 as compared to 50.3 percent in the three months ended March 31, 2003. This decrease is primarily due to increased efficiencies gained in our manufacturing and distribution 25 operations. Additionally, during the period ended March 31, 2004, the Company recorded a $2,860 reduction in its accrued restructuring expenses related to manufacturing transition activities. This amount represents the estimated sub-lease income expected on our vacated facility space in Bohemia, New York. The initial charge was recorded as a charge to product cost of revenue. Services cost of revenue as a percentage of net services revenue was 82.0 percent for the three months ended March 31, 2004 as compared to 76.9 percent in the three months ended March 31, 2003, primarily due to the decreased level of revenues recognized on a billed and collected basis while costs remained relatively constant. Also included in service cost of revenue at March 31, 2004 and 2003 are global services transition restructuring costs of approximately $1,629 and $979, respectively which relate to workforce reductions and lease obligation costs. OPERATING EXPENSES Operating expenses consist of the following for the three months ended March 31: VARIANCE IN VARIANCE IN 2004 2003 $'S PERCENT ---- ---- --- ------- Engineering.............. $ 41,559 $ 37,055 $ 4,504 12.2 Selling, general and administrative......... 121,680 99,031 22,649 22.9 Provision for legal settlements............ -- 72,000 (72,000) (100.0) Stock based compensation expense... 2,234 776 1,458 187.9 Restructuring and impairment charges..... -- 87 (87) (100.0) ------------ ------------ ------------ ----- $ 165,473 $ 208,949 $ (43,476) (20.8) ============ ============ ============ ===== Total operating expenses of $165,473 decreased 20.8 percent for the three months ended March 31, 2004 from $208,949 in three months ended March 31, 2003. This decrease is largely driven by the fact that the prior year three month period ended March 31, 2003 included a provision on legal settlements of $72,000. There was no provision on legal settlements required during the current three months ended March 31, 2004. Offsetting this decrease are increases in our engineering expenses and selling, general and administrative expenses of $4,504 and $22,649 which represent a 12.2 percent and 22.9 percent increase respectively, for the three months ended March 31, 2004 as compared to the comparable prior period of 2003. Also included in total operating expenses are amounts associated with non-cash compensation expenses associated with our stock option plans. As of March 31, 2003, due to the inability of Symbol to make timely filings with the Commission, our stock option plans were held in abeyance, meaning that our employees could not exercise their options until we became current with our filings. As an accommodation to both current and former Symbol associates whose options were impacted by this suspension, the Compensation Committee of the Board approved an abeyance program that allowed associates whose options were affected during the suspension period the right to exercise such options up to 90 days after the end of the suspension period. This resulted in a new measurement date for those options, which led to a non-cash accounting compensation charge for the intrinsic value of those vested options when the employee either terminated employment during the suspension period or within the 90 day period after the end of the suspension period. Such expense amounted to $2,234 and $776 for the three months ended March 31, 2004 and 2003, respectively. On February 25, 2004, the date on which we became current with our regulatory filings with the SEC, this suspension period ended. Engineering and selling, general and administrative expenses are summarized in the following table: 26 FOR THE YEARS THREE MONTHS ENDED MARCH 31 ----------------------------------------- VARIANCE IN VARIANCE IN 2004 2003 DOLLARS PERCENT ---- ---- ------- ------- Engineering.............. $ 41,559 $ 37,055 $ 4,504 12.2% Percent of Net Sales... 9.9% 9.6% Selling, general and administrative......... $ 121,680 $ 99,031 $ 22,649 22.9% Percent of Net Sales... 29.0% 25.6% Engineering costs for the three months ended March 31, 2004 increased 12.2 percent to $41,559 from $37,055 for the three months ended March 31, 2003. The increase was due to additional investments in mobile computing and RFID (Radio Frequency Identification). The increase was consistent with our projected expenditures and actual revenue growth as engineering spending as a percentage of revenue remained relatively consistent. Selling, general and administrative expenses for the three months ended March 31, 2004 increased 22.9 percent to $121,680 from $99,031 for the three months ended March 31, 2003. The increase is primarily due to our increased revenues and our increased investment in worldwide sales, marketing and financial personnel throughout 2003 and through the first quarter of 2004. Also included in selling, general and administrative expenses at March 31, 2004 is a pretax compensation and related benefits charge of $2,800 recorded in connection with the resignation of our former Chief Executive Officer, representing 2.3 percent of selling, general and administrative expenses during the period. OTHER (INCOME)/EXPENSE, NET In accordance with the provisions of SFAS No. 133, the gain or loss on the change in fair value of the portion of our investment in Cisco common stock classified as trading, coupled with the gain or loss on the change in fair value of the embedded derivative has been recorded as a component of other income or loss in each reporting period. The net impact of these fair value adjustments included in other (income) is $(1,713) for the three months ended March 31, 2004. Other (income) was partially offset by interest expense for the three months ended March 31, 2004. Included in other expense for the three months ended March 31, 2003 is a write-down of $3,025 for a cost method investment which was considered to be other than temporary. PROVISION FOR INCOME TAXES Our effective rate for the three months ended March 31, 2004 and 2003 was 77.6% and 24.6%, respectively. As discussed in Note 9a in the notes to the condensed consolidated financial statements, in April 2004 we changed our estimate of the amount for certain pending class action lawsuits and government fines, which may not be deductible for tax purposes. At December 31, 2003, our estimate of the non-deductible amount was $5,000, currently we estimate such non-deductible amount to approximate $40,000. Accordingly, we reversed a previously recorded deferred tax asset of $13,475, as we believe this deferred tax asset is unlikely to be realizable. Below are the components of our provision for income taxes for the three months ended March 31, 2004. Amount Percent ------ ------- Earnings before income taxes $ 30,461 Deferred tax asset impairment $13,475 44.3 Income tax expense 10,158 33.3 ------- ---- Total provision for income taxes 23,633 77.6 ------ ==== Net earnings $ 6,828 ======== 27 LIQUIDITY AND CAPITAL RESOURCES LIQUIDITY The following table summarizes Symbol's cash and cash equivalent balances as of March 31, 2004 and December 31, 2003 and the results of our statement of cash flows for the three months ended March 31,
2004 2003 $ CHANGE ---- ---- -------- Cash and cash equivalents ...................................... $ 179,033 $ 150,017 $ 29,016 ========= ========= ========= Net cash provided by /(used in): Operating activities ....................................... 40,789 71,288 (30,499) Investing activities ....................................... (15,221) (13,150) (2,071) Financing activities ....................................... 4,082 (37,062) 41,144 Effect of exchange rate changes on cash and cash equivalents (634) 1,390 (2,024) --------- --------- --------- Net increase in cash and cash equivalents ...................... $ 29,016 $ 22,466 $ 6,550 ========= ========= =========
Net cash provided by operating activities during the three months ended March 31, 2004 was $40,789, as compared to $71,288 for the same period last year. Net cash provided by operating activities decreased during the three months ended March 31, 2004 as compared to the comparable prior year period primarily due to our use of cash to reduce and pay down our outstanding accounts payable and accrued expenses. Included in the use of cash was the $25,000 settlement related to the Telxon class action lawsuit, that was paid in February 2004. Net cash used in investing activities for the three months ended March 31, 2004 was $15,221, as compared to $13,150 for the same period last year. Net cash used in investing activities principally consists of net investments in other companies and capital expenditures for property, plant and equipment. The increase during the three months ended March 31, 2004, when compared to the same period last year, was primarily due to increased investments in other companies as we invested $4,050 and $1,777 of cash during the three months ended March 31, 2004 and 2003, respectively. Net cash provided by financing activities during the three months ended March 31, 2004 was $4,082, as compared to net cash used in financing activities of $(37,062) during the same period last year. Net cash provided by financing activities during the three months ended March 31, 2004 consists of proceeds from stock option exercises and long-term debt of $10,293 and $13,745, respectively offset by purchases of treasury stock of $(19,956) as compared to cash used in financing activities for repayments on long-term debt of $(36,575) in the same period last year. The following table presents selected key performance measurements we use to monitor our business for the three months ended March 31, 2004 2003 ---- ---- Days sales outstanding (DSO)............................ 26.0 32.5 Inventory turnover - product only....................... 4.2 3.6 We continue to effectively manage our net accounts receivables, ending the three months ended March 31, 2004 with receivables of $119,624, a decrease of $32,753 from $152,377 at December 31, 2003. Through aggressive collection strategies we have been able to reduce our average days sales outstanding to 26.0 days during the three months ended March 31, 2004 from an average of 32.5 days in the three months ended March 31, 2003. 28 We have also continued to improve our efficiencies in our manufacturing and distribution operations and have decreased our inventory levels by $1,170 to $211,692 at March 31, 2004 from $212,862 at December 31, 2003. As a result of increased revenues and the efficiencies we have instituted in our manufacturing and distribution operations we have been able to increase the average number of times that our inventory turns to 4.2 from 3.6 for the three months ended March 31, 2004 as compared to the comparable period in 2003. OTHER LIQUIDITY MEASURES Other measures of our liquidity including the following: MARCH 31, DECEMBER 31, 2004 2003 ---- ---- Working capital.......................................... $188,254 $197,808 (current assets minus current liabilities) Current ratio (current assets to current liabilities).... 1.4:1 1.4:1 Current assets as of March 31, 2004 decreased by $56,822 from December 31, 2003, due to short-term deferred tax assets being converted into net operating losses which are deemed to be long-term deferred tax assets. Additionally and as discussed in Note 10 of the notes to the condensed consolidated financial statements, we reversed a previously recorded deferred tax asset of $13,475 as we believe this asset may not be realized. Accounts receivable also decreased due to improved cash collections, however a portion of the cash generated was used to pay down and reduce our outstanding accounts payable and accrued expenses. Current liabilities as of March 31, 2004 decreased $47,268 from December 31, 2003 primarily due to a decrease in accounts payable and accrued expenses which was largely driven by a $25,000 payment made in February 2004 related to the settlement of the Telxon class action lawsuit which was included in accounts payable and accrued expenses at December 31, 2003. As a result, working capital decreased $9,554 between March 31, 2004 and December 31, 2003. Our current ratio was 1.4:1 at March 31, 2004 and December 31, 2003. FINANCING ACTIVITIES As of March 31, 2004 and December 31, 2003, there were no borrowings outstanding under our $60,000 secured credit line. In addition to our secured credit line, we have additional uncommitted loan agreements with various overseas banks pursuant to which the banks have agreed to provide lines of credit totaling $25,132 with a range of borrowing rates and varying terms. As of March 31, 2004, we had no loans outstanding under these lines. These agreements continue until such time as either party terminates the agreements. During 2000, we entered into a $50,000 lease receivable securitization agreement. This agreement matured on December 31, 2003, but was renewed for an additional three months without the payment of amounts outstanding at such time. Subsequent to December 31, 2003, we have been unable to securitize additional lease receivables until we provide certain financial information to the financial institution. During the three months ended March 31, 2004 and 2003, we did not securitize any additional lease receivables. Factors that are reasonably likely to affect our ability to continue using these financing arrangements include the ability to generate lease receivables that qualify for securitization and the ability of the financial institution to obtain an investment grade rating from either of the two major credit rating agencies. We do not consider the securitization of lease receivables to be a significant contributing factor to our continued liquidity. 29 EXISTING INDEBTEDNESS At March 31, 2004 and December 31, 2003 long-term debt outstanding, excluding current maturities, was as follows: MARCH 31, 2004 DECEMBER 31, 2003 -------------- ----------------- Secured credit line ......................... $ -- $ -- Secured installment loan..................... 13,825 -- SAILS exchangeable debt ..................... 94,005 98,927 Other ....................................... 239 319 -------- -------- 108,069 99,246 Less: current maturities..................... 3,633 234 -------- -------- Long-term debt .............................. $104,436 $ 99,012 ======== ======== In March 2004, we entered into a secured installment loan agreement with a bank for $13,825. The loan is payable in four semiannual installments of $3,655 commencing October 1, 2004. The proceeds received under the loan were used to finance certain Company software license arrangements. In January 2001, we entered into a private Mandatorily Exchangeable Securities Contract for Shared Appreciation Income Linked Securities ("SAILS") with a highly rated financial institution. The securities that underlie the SAILS contract represent our investment in Cisco common stock, which was acquired in connection with the Telxon acquisition. The 4,160 shares of Cisco common stock had a market value of $98,051 at March 31, 2004 and $100,797 at December 31, 2003. Such shares are held as collateral to secure the debt instrument associated with the SAILS and are included in Investment in Marketable Securities in the Consolidated Balance Sheets. This debt has a seven-year maturity and we pay interest at a cash coupon rate of 3.625 percent. At maturity, the SAILS will be exchangeable for shares of Cisco common stock or, at our option, cash in lieu of shares. Net proceeds from the issuance of the SAILS and termination of an existing freestanding collar arrangement were approximately $262,246 which were used for general corporate purposes, including the repayment of debt outstanding under our revolving credit facility. The SAILS contain an embedded equity collar, which effectively hedges a large portion of exposure to fluctuations in the fair value of our holdings in Cisco common stock. We account for the embedded equity collar as a derivative financial instrument in accordance with the requirements of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended. The gain or loss on changes in the fair value of the derivative is recognized through earnings in the period of change together with the offsetting gain or loss on the Cisco shares classified as trading securities. The derivative has been combined with the debt instrument in long-term debt in the Condensed Consolidated Balance Sheets and presented on a net basis as permitted under FIN No. 39, "Offsetting of Amounts Related to Certain Contracts," as there exists a legal right of offset. The SAILS liability, net of the derivative asset, represents $94,005 at March 31, 2004. The remaining portion of long-term debt outstanding relates primarily to capital lease obligations. CONTRACTUAL CASH OBLIGATIONS The following is a summary of the contractual commitments associated with our debt and lease obligations as of March 31, 2004. 30
YEARS ENDED DECEMBER 31, ------------------------ NINE MONTHS TOTAL ENDED 2004 2005 2006 2007 2008 THEREAFTER ----- ---------- ---- ---- ---- ---- ---------- Long-term debt................. $107,848 $3,455 $6,920 $3,463 $ 5 $94,005 $ -- Capital lease commitments...... 221 177 44 -- -- -- -- Operating lease commitments.... 96,406 15,683 17,835 14,960 12,791 10,788 24,349 -------- ------- ------- ------- ------- -------- ------- Total.......................... $204,475 $19,315 $24,799 $18,423 $12,796 $104,793 $24,349 ======== ======= ======= ======= ======= ======== =======
Currently, our primary source of liquidity is cash flow from operations and the secured credit line. Our primary liquidity requirements continue to be working capital, engineering costs, and financing and investing activities. Our ability to fund planned capital expenditures and to make payments on and to refinance our indebtedness will depend on our ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Based on our current level of operations, we believe our cash flow from operations, available cash and available borrowings under our secured credit line will be adequate to meet our future liquidity needs for the next twelve months. We cannot assure you, however, that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under our secured credit line in an amount sufficient to enable us to fund our other liquidity needs or pay our indebtedness. If we consummate an acquisition, our liquidity and/or debt service requirements could increase. CRITICAL ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires us to make judgments, assumptions and estimates that affect the reported amounts of assets, liabilities, revenue and expenses, as well as the disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates and judgments, including those related to product return reserves, allowance for doubtful accounts, legal contingencies, inventory valuation, warranty reserves, useful lives of long-lived assets, derivative instrument valuations and income taxes. We base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Note 1 of the Notes to the Consolidated Financial Statements "Summary of Significant Accounting Policies" summarizes each of our significant accounting policies in our Annual Report on Form 10-K. We believe the following critical accounting policies affect the more significant judgments and estimates used in the preparation of our Consolidated Financial Statements. REVENUE RECOGNITION, PRODUCT RETURN RESERVES AND ALLOWANCE FOR DOUBTFUL ACCOUNTS We sell our products and systems to end users for their own consumption, as well as to value-added resellers, distributors and original equipment manufacturers (OEMs or channel partners). Channel partners may provide a service or add componentry in order to resell our product to end users. Revenue from the direct sale of our products and systems to end users and OEMs is generally recognized when 31 products are shipped or services are rendered, the title and risk of loss has passed to the customer, the sales price is fixed or determinable and collectibility is reasonably assured. The recognition of revenues related to sales of our products or systems to our value-added resellers is contingent upon the reseller's ability to pay for the product without reselling it to the end user. Sales to resellers that are financially sound are generally recognized when products are shipped, the title and risk of loss has passed, the sales prices is fixed and determinable and collectibility is reasonably assured. Sales to resellers that lack economic substance or cannot pay for our products without reselling them to their customers are recognized when the revenue is billed and collected. Revenue on sales to distributors is recognized when our products and systems are sold by them to the end user. Service and maintenance sales are recognized when there is persuasive evidence of an arrangement, the services are rendered, the price is fixed and determinable and collectibility is reasonably assured, which is primarily upon receipt of payment. When a sale involves multiple elements, the entire revenue from the arrangement is allocated to each respective element based on its relative fair value and is recognized when the revenue recognition criteria for each element is met. We accrue estimated product return reserves against our recorded revenue. The estimated amount is based on historical experience of similar products to our customers. If our product mix or customer base changes significantly, this could result in a change to our future estimated product return reserve. We record accounts receivable, net of an allowance for doubtful accounts. Throughout the year, we estimate our ability to collect outstanding receivables and establish an allowance for doubtful accounts. In doing so, we evaluate the age of our receivables, past collection history, current financial conditions for key customers, and economic conditions. Based on this evaluation, we establish a reserve for specific accounts receivable that we believe are uncollectible. A deterioration in the financial condition of any key customer or a significant slow down in the economy could have a material negative impact on our ability to collect a portion or all of the accounts receivable. We believe that analysis of historical trends and current knowledge of potential collection problems provides us significant information to establish a reasonable estimate for an allowance for doubtful accounts. However, since we cannot predict with certainty future changes in the financial stability of our customers, our actual future losses from uncollectible accounts may differ from our estimates, which could have an adverse effect on our financial condition and results of operations. LEGAL CONTINGENCIES We are currently involved in certain legal proceedings and accruals are established when we are able to estimate the probable outcome of these matters. Such estimates of outcome are derived from consultation with outside legal counsel, as well as an assessment of litigation and settlement strategies. Legal contingencies are often resolved over long time periods. The required accruals may change in the future due to new developments in each matter or changes in approach such as a change in settlement strategy in dealing with these matters. Depending on how these matters are resolved, these costs could be material. INVENTORY VALUATION We record our inventories at the lower of historical cost or market value. In assessing the ultimate realization of recorded amounts, we are required to make judgments as to future demand requirements and compare these with the current or committed inventory levels. Projected demand levels, economic conditions, business restructurings, technological innovation and product life cycles are 32 variables we assess when determining our reserve for excess and obsolete inventories. We have experienced significant changes in required reserves in recent periods due to these variables. It is possible that significant changes in required inventory reserves may continue to occur in the future if there is further deterioration in market conditions or acceleration in technological change. WARRANTY RESERVES We provide standard warranty coverage for most of our products for a period of one year from the date of shipment. We record a liability for estimated warranty claims based on historical claims, product failure rates and other factors. This liability primarily includes the anticipated cost of materials, labor and shipping necessary to repair and service the equipment. Our warranty obligation is affected by product failure rates, material usage rates, and the efficiency by which the product failure is corrected. Should our warranty policy change or should actual failure rates, material usage and labor efficiencies differ from our estimates, revisions to the estimated warranty liability would be required. USEFUL LIVES OF LONG-LIVED ASSETS We estimate the useful lives of our long-lived assets, including property, plant and equipment, identifiable finite life intangible assets and software development costs for internal use in order to determine the amount of depreciation and amortization expense to be recorded during any reporting period. The estimated lives are based on historical experience with similar assets as well as taking into consideration anticipated technological or other changes. If technological changes were to occur more rapidly or slowly than anticipated, or in a different form, useful lives may need to be changed accordingly, resulting in either an increase or decrease in depreciation and amortization expense. We review these assets annually or whenever events or changes in circumstances indicate the carrying value may not be recoverable. Factors we consider important and that could trigger an impairment review include significant changes in the manner of our use of the acquired asset, changes in historical or projected operating performance and cash flows and significant negative economic trends. GOODWILL IMPAIRMENTS Our methodology for allocating the purchase price relating to purchase acquisitions is determined through established valuation techniques in the high-technology mobile computing industry. Goodwill is measured as the excess of the cost of acquisition over the sum of the amounts assigned to tangible and identifiable intangible assets acquired less liabilities assumed. We perform our goodwill impairment test on an annual basis. In response to changes in industry and market conditions, we could be required to strategically realign our resources and consider restructuring, disposing of, or otherwise exiting businesses, which could result in an impairment of goodwill. DERIVATIVE INSTRUMENTS, HEDGING ACTIVITIES AND FOREIGN CURRENCY We utilize derivative financial instruments to hedge foreign exchange rate risk exposures related to foreign currency denominated payments from our international subsidiaries. We also utilize a derivative financial instrument to hedge fluctuations in the fair value of our investment in Cisco common shares. Our foreign exchange derivatives qualify for hedge accounting in accordance with the provisions of SFAS No. 133. We do not participate in speculative derivatives trading. While we intend to continue to meet the conditions for hedge accounting, if hedges did not qualify as highly effective, or if we did not believe the forecasted transactions would occur, the changes in fair value of the derivatives used as hedges would be reflected in earnings and could be material. We do not believe we are exposed to more than a nominal amount of credit risk in our hedging activities as the counterparties are established, well capitalized financial institutions. 33 INCOME TAXES Deferred income taxes are provided for the effect of temporary differences between the amounts of assets and liabilities recognized for financial reporting purposes and the amounts recognized for income tax purposes. We measure deferred tax assets and liabilities using enacted tax rates, that if changed, would result in either an increase or decrease in the reported income taxes in the period of change. A valuation allowance is recorded when it is more likely than not that a deferred tax asset will not be realized. In assessing the likelihood of realization, management considers estimates of future taxable income, the character of income needed to realize future tax benefits, and other available evidence. Our critical accounting policies have been reviewed with the Audit Committee of the Board of Directors. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In January 2003, the FASB issued FASB Interpretation ("FIN") No. 46, "Consolidation of Variable Interest Entities." In December 2003, the FASB issued FIN No. 46 (Revised) ("FIN 46-R") to address certain FIN 46 implementation issues. This interpretation requires that the assets, liabilities, and results of activities of a Variable Interest Entity ("VIE") be consolidated into the financial statements of the enterprise that has a controlling interest in the VIE. FIN 46-R also requires additional disclosures by primary beneficiaries and other significant variable interest holders. For entities acquired or created before February 1, 2003, this interpretation is effective no later than the end of the first interim or annual reporting period ending after March 15, 2004, except for those VIE's that are considered to be special purpose entities, for which the effective date is no later than the end of the first interim or annual reporting period ending after December 15, 2003. The Company currently does not hold any interests in VIE's that would require consolidation or additional disclosures. RISK FACTORS Set forth below are important risks and uncertainties that could have a material adverse effect on Symbol's business, results of operations and financial condition and cause actual results to differ materially from those expressed in forward-looking statements made by Symbol or our management. RISKS RELATING TO THE INVESTIGATIONS WE ARE BEING INVESTIGATED BY THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC" OR THE "COMMISSION") AND THE EASTERN DISTRICT OF NEW YORK (THE "EASTERN DISTRICT") FOR CERTAIN OF OUR PRIOR ACCOUNTING PRACTICES AND WE CANNOT PREDICT THE OUTCOME OF THESE INVESTIGATIONS. THE INVESTIGATIONS COULD RESULT IN CIVIL AND/OR CRIMINAL ACTIONS SEEKING, AMONG OTHER THINGS, INJUNCTIVE AND MONETARY RELIEF FROM SYMBOL. IN ADDITION, THE FILING OF ANY CHARGES COULD RESULT IN THE SUSPENSION OR DEBARMENT FROM FUTURE GOVERNMENT CONTRACTS. ANY SUCH DEVELOPMENT COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION. The Commission and the Eastern District have commenced separate investigations relating to certain of our prior accounting practices. In response to an inquiry from the Commission, we conducted an initial internal investigation, with the assistance of a law firm, in May 2001 relating to such accounting practices, which we subsequently discovered was hindered by certain of our former employees. The Commission expressed dissatisfaction with the initial investigation. In March 2002, we undertook an approximately eighteen-month internal investigation, with the assistance of a second law firm and independent forensic accounting team, the results of which gave rise to the restatement of our financial 34 statements, which we filed with the SEC in our Annual Report on Form 10-K/A on February 25, 2004. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" of the Form 10-K/A. Symbol has also been given notice that the Commission is considering recommending civil actions against Symbol and certain of our former employees for violations of federal securities laws. We are fully cooperating with the Commission and Eastern District in their respective investigations, and are engaging in discussions with each entity to resolve the issues raised by such investigations. However, we cannot predict when these investigations will be completed, the outcome of such investigations, or when a negotiated resolution, if any, may be reached and the likely terms of such a resolution. However, any criminal and/or civil action or any negotiated resolution may involve, among other things, injunctive and equitable relief, including material fines, which could have a material adverse effect on our business, results of operations and financial condition. In addition, as a result of the investigations, various governmental entities at the federal, state and municipal levels may conduct a review of our supply arrangements with them to determine whether we should be considered for debarment. If we are debarred, we would be prohibited for a specified period of time from entering into new supply arrangements with such government entities. In addition, after a government entity has debarred Symbol, other government entities are likely to act similarly, subject to applicable law. Governmental entities constitute an important customer group for Symbol, and debarment from governmental supply arrangements at a significant level could have an adverse effect on our business, results of operations and financial condition. PENDING LITIGATION MAY HAVE A MATERIAL ADVERSE EFFECT ON OUR RESULTS OF OPERATIONS, FINANCIAL CONDITION AND CASH FLOW. Symbol, certain members of our former senior management team and certain former members of our Board of Directors are named defendants in a number of purported class actions alleging violations of federal securities laws, including issuing materially false and misleading statements that had the effect of artificially inflating the market price of our common stock, as well as related derivative actions. We currently have accrued $142.0 million related to the pending class action lawsuits and estimated government fines filed against Symbol. The plaintiffs have yet to specify the amount of damages being sought in certain of the related civil actions and, therefore, we are unable to estimate what our ultimate liability in such lawsuits may be. Our insurance coverage is not sufficient to cover our total liabilities in any of these purported class actions, and our ultimate liability in these actions may have a material adverse effect on our results of operations and financial condition. In addition, in March and June 2003, Robert Asti, former Vice President--North America Sales and Service--Finance, and Robert Korkuc, former Chief Accounting Officer, respectively, pleaded guilty to two counts of securities fraud in connection with the government investigations described above. The Commission has filed civil complaints against the two individuals based upon similar facts. The resolution of these civil complaints, any additional civil complaints against members of our current and/or former management team or Board of Directors or the indictment of any members of our current management team or Board of Directors could result in additional negative publicity for Symbol and may impact the securities litigations in which we are a party. In addition, we may be obligated to indemnify and advance legal expenses to such former directors, officers or employees in accordance with the terms of our certificate of incorporation, bylaws, other applicable agreements and Delaware law. We currently hold insurance policies for the benefit of 35 our directors and officers, although our insurance coverage may not be sufficient in some or all of these matters. Furthermore, the underwriters of our directors and officers insurance policy may seek to rescind or otherwise deny coverage in some or all of these matters, in which case we may have to self-fund the indemnification amounts owed to such directors and officers. Our ultimate liability in these civil actions may have a material adverse effect on our results of operations and financial condition. Telxon, our wholly-owned subsidiary, along with various former executive officers of Telxon, are named defendants in a number of separate purported class actions alleging violations of federal securities laws. On November 13, 2003, Telxon and the plaintiff class reached a tentative settlement of all pending shareholder class actions against Telxon. On December 19, 2003, the settlement received preliminary approval from the Court. On February 12, 2004, the Court granted its final approval of the settlement. As a result of contributions by Telxon's insurers, Telxon paid $25 million to the class on February 27, 2004. On September 17, 2003, a jury awarded approximately $218 million in damages against Telxon, which we acquired in November 2000, for claims relating to an alleged contract with Smart Media of Delaware, Inc. Telxon made certain post-verdict motions seeking, among other things, a new trial or a reduction in the amount of the jury verdict. On May 6, 2004 the Court entered judgment against Telxon for approximately $218,000 in damages plus statutory interest from the date of the verdict. The Court denied Telxon's motions for judgment in its favor, for a new trial, and for a reduction in the verdict. The Court also rejected Telxon's motion for a stay of the execution of the judgment. Symbol and Telxon have appealed these rulings and have filed a motion to stay execution of the judgment. In the alternative, Symbol and or Telxon will post a bond to appeal the judgment. While we are still vigorously defending against this lawsuit, we may ultimately be liable for the full amount of the jury verdict, which could have a material adverse effect on our results of operations, financial condition and business. As of March 31, 2004, we have not recorded any liability in our consolidated financial statements with respect to this matter. We are also subject to lawsuits in the normal course of business, which can be expensive and lengthy, disrupt normal business operations and divert management's attention from ongoing business operations. An unfavorable resolution to any lawsuit could have a material adverse effect on our business, results of operations and financial condition. See Note 9a, "Legal Matters" for additional information regarding material litigation. IF WE ARE UNABLE TO EFFECTIVELY AND EFFICIENTLY IMPLEMENT OUR PLAN TO REMEDIATE DEFICIENCIES WHICH HAVE BEEN IDENTIFIED IN OUR INTERNAL CONTROLS AND PROCEDURES, THERE COULD BE A MATERIAL ADVERSE EFFECT ON OUR OPERATIONS OR FINANCIAL RESULTS. Throughout 2003 and continuing in 2004, we have and are implementing various initiatives to address the material weaknesses and other deficiencies in our internal controls identified by our internal investigations, conducted with the oversight by our Audit Committee, into our past practices. These initiatives, along with the initiatives we have underway related to our compliance with the Sarbanes Oxley Act of 2002, are intended to materially improve our internal controls and procedures, address systems and personnel issues and help ensure a corporate culture that emphasizes integrity, honesty and accurate financial reporting. These initiatives address Symbol's control environment, organization and staffing, policies, procedures, documentation and information systems. See Item 4, "Controls and Procedures." 36 The implementation of these initiatives is one of Symbol's highest priorities. Our Board of Directors, in coordination with our Audit Committee, will continually assess the progress and sufficiency of these initiatives and make adjustments as necessary. However, no assurance can be given that we will be able to successfully implement our revised internal controls and procedures or that our revised controls and procedures will be effective in remedying all of the identified deficiencies in our internal controls and procedures. In addition, we may be required to hire additional employees, and may experience higher than anticipated capital expenditures and operating expenses, during the implementation of these changes and thereafter. If we are unable to implement these changes effectively or efficiently, there could be a material adverse effect on our operations or financial results. ONGOING REVIEW OF OUR PUBLIC FILINGS BY THE COMMISSION MAY RESULT IN THE FURTHER AMENDMENT OR RESTATEMENT OF OUR PERIODIC REPORTS. IF THE FOREGOING OCCURRED, THERE COULD BE A MATERIAL ADVERSE EFFECT ON THE TRADING PRICE OF OUR COMMON STOCK AND OUR ABILITY TO ACCESS THE CAPITAL MARKETS. The investigations by Symbol resulted in a restatement of our previous years financial statements that were filed delinquently with the SEC. The Commission may provide us with comments on this filing or any of our previous filings, which would require us to amend or restate previously filed periodic reports. If we are required to amend or restate our periodic filings, investor confidence may be reduced, our stock price may substantially decrease and our ability to access the capital markets may be limited. TAXING AUTHORITIES MAY DETERMINE WE OWE ADDITIONAL TAXES FROM PREVIOUS YEARS DUE TO THE RESTATEMENT. As a result of our previous restatement, previously filed tax returns and reports may be required to be amended to reflect tax related impacts of the restatement. Where legal, regulatory or administrative rules would require or allow us to amend our previous tax filings, we intend to comply with our obligations under applicable law. To the extent that tax authorities do not accept our conclusions regarding the tax effects of the restatement, liabilities for taxes could differ from that which has been recorded in our Consolidated Financial Statements. If it is determined that we have additional tax liabilities, there could be an adverse effect on our financial condition. MANY OF THE INDIVIDUALS WHO COMPRISE OUR SENIOR MANAGEMENT TEAM ARE NEW TO SYMBOL, AND THEY HAVE BEEN REQUIRED TO DEVOTE A SIGNIFICANT AMOUNT OF TIME ON MATTERS RELATING TO THE RESTATEMENT. In the past year, we have replaced a significant portion of our senior management team. During this period, our senior management team has devoted a significant amount of time conducting internal investigations, restating our financial statements, reviewing and improving our internal controls and procedures, developing effective corporate governance procedures and responding to government inquiries. If senior management is unable to devote a significant amount of time in the future towards developing and attaining our strategic business initiatives and running ongoing business operations, there may be a material adverse effect on our results of operations, financial condition and business. 37 RISKS RELATING TO THE BUSINESS OUR OPERATING RESULTS MAY BE ADVERSELY AFFECTED BY UNFAVORABLE ECONOMIC AND MARKET CONDITIONS, AS WELL AS THE VOLATILE GEOPOLITICAL ENVIRONMENT. Adverse worldwide economic and market conditions of the last few years have contributed to slowdowns in the technology sector generally and the mobile information systems industry specifically. While worldwide economic and market conditions have begun recently to improve, if they do not continue to improve or otherwise deteriorate, there may be: o reduced demand for our products and services due to continued restraints on technology-related capital spending by our customers; o increased price competition; o increased risk of excess and obsolete inventories; o higher overhead costs as a percentage of revenues; and o limited investment by Symbol in new products and services. Our current business and operating plan assumes that economic activity in general, and IT spending in particular, will at least remain at current levels; however, we cannot be assured of the level of IT spending, the deterioration of which could have a material adverse effect on our results of operations and growth rates. Our business is especially affected by the economic success of the retail sector, which accounts for a significant portion of our business, and our results of operations may be adversely affected if the global economic and market conditions in the retail sector do not improve. If historically low interest rates rise, consumer demand and IT spending could be further dampened. In addition, continuing turmoil in the geopolitical environment in many parts of the world, including terrorist activities and military actions, particularly in the aftermath of the September 11th attacks and the war in Iraq, may continue to put pressure on global economic and market conditions and may continue to have a material adverse effect on consumer and business confidence, at least in the short term. As an international company with significant operations located outside of the United States, we are vulnerable to geopolitical instability. If worldwide economic and market conditions and geopolitical stability do not improve or otherwise deteriorate, there could be a materially adverse effect on our business, operating results, financial condition and growth rates. WE HAVE MADE STRATEGIC ACQUISITIONS AND ENTERED INTO ALLIANCES AND JOINT VENTURES IN THE PAST AND INTEND TO DO SO IN THE FUTURE. IF WE ARE UNABLE TO FIND SUITABLE ACQUISITIONS OR PARTNERS OR ACHIEVE EXPECTED BENEFITS FROM SUCH ACQUISITIONS OR PARTNERSHIPS, THERE COULD BE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, GROWTH RATES AND RESULTS OF OPERATIONS. As part of our ongoing business strategy to expand product offerings and acquire new technology, we frequently engage in discussions with third parties regarding, and enter into agreements relating to, possible acquisitions, strategic alliances and joint ventures. If we are unable to identify future acquisition opportunities or reach agreement with such third parties, there could be a material adverse effect on our business, growth rates and results of operations. Even if we are able to complete acquisitions or enter into alliances and joint ventures that we believe will be successful, such transactions, especially those involving technology companies, are inherently risky. Significant risks include: 38 o integration and restructuring costs, both one-time and ongoing; o maintaining sufficient controls, procedures and policies; o diversion of management's attention from ongoing business operations; o establishing new informational, operational and financial systems to meet the needs of our business; o losing key employees; o failing to achieve anticipated synergies, including with respect to complementary products; and o unanticipated and unknown liabilities. WE DEPEND UPON THE DEVELOPMENT OF NEW PRODUCTS, SUCH AS ENTERPRISE MOBILITY PRODUCTS, AND ENHANCEMENTS TO EXISTING PRODUCTS, AND IF WE FAIL TO PREDICT AND RESPOND TO EMERGING TECHNOLOGICAL TRENDS AND OUR CUSTOMERS' CHANGING NEEDS, THERE COULD BE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, OPERATING RESULTS AND MARKET SHARE. We are active in the research and development of new products and technologies and enhancing our current products. However, research and development in the mobile information systems industry is complex and filled with uncertainty. If we expend a significant amount of resources and our efforts do not lead to the successful introduction of new or improved products, there could be a material adverse effect on our business, operating results and market share. In addition, it is common for research and development projects to encounter delays due to unforeseen problems, resulting in low initial volume production, fewer features than originally considered desirable and higher production costs than initially budgeted, which may result in lost market opportunities. In addition, new products may not be commercially well received. There could be a material adverse effect on our business, operating results and market share due to such delays or deficiencies in development, manufacturing and delivery of new products. We have made significant investments to develop enterprise mobility products because we believe enterprise mobility is a new and developing market. If this market does not grow or retailers and consumers react unenthusiastically to enterprise mobility or we are unable to sell our enterprise mobility products and services at projected rates, there could be a material adverse effect on our business and operating results. Our efforts in enterprise mobility are also dependent, in part, on applications developed and infrastructure deployed by third parties. If third parties do not develop robust, new or innovative applications, or create the appropriate infrastructure for enterprise mobility products, there could be a material adverse effect on our business and operating results. Once a product is in the marketplace, its selling price usually decreases over the life of the product, especially after a new competitive product is publicly announced because customers often delay purchases of existing products until the new or improved versions of those products are available. To lessen the effect of price decreases, our research and development teams attempt to reduce manufacturing costs of existing products in order to improve our margins on such products. However, if cost reductions do not occur in a timely manner, there could be a material adverse effect on our operating results and market share. 39 THE MOBILE INFORMATION SYSTEMS INDUSTRY IS HIGHLY COMPETITIVE AND COMPETITIVE PRESSURES FROM EXISTING AND NEW COMPANIES MAY HAVE A MATERIALLY ADVERSE EFFECT ON OUR BUSINESS. The mobile information systems industry is a highly competitive industry that is influenced by the following: o advances in technology; o new product introduction; o product improvements; o rapidly changing customer needs; o marketing and distribution capabilities; and o price competition. If we do not keep pace with product and technological advances, there could be a material adverse effect on our competitive position and prospects for growth. There is also likely to be continued pricing pressure as competitors attempt to maintain or increase market share. The products manufactured and marketed by us and our competitors in the mobile information systems industry are becoming more complex. As the technological and functional capabilities of future products increase, these products may begin to compete with products being offered by traditional computer, network and communications industry participants who have substantially greater financial, technical, marketing and manufacturing resources than we do. We may not be able to compete successfully against these new competitors, and competitive pressures may result in a material adverse effect on our business or operating results. WE ARE SUBJECT TO RISKS RELATED TO OUR OPERATIONS OUTSIDE THE UNITED STATES. A substantial portion of our net revenues have been from foreign sales. For the quarter ended March 31, 2004, foreign sales accounted for approximately 39.7% of our net revenue. We also manufacture most of our products outside the United States, and we anticipate that an increasing percentage of new products and subassemblies will be manufactured outside the United States. Overall margins for our products have increased throughout 2003 and the first three months of 2004 partially as a result of increased efficiencies due to the transfer of internal manufacturing to our Reynosa facility and external manufacturing to lower cost producers in China, Taiwan and Singapore. These sales and manufacturing activities are subject to the normal risks of foreign operations, including: o increased security requirements; o political uncertainties; o currency fluctuations; o protective tariffs and taxes; o trade barriers and export/import controls; 40 o transportation delays and interruptions; o reduced protection for intellectual property rights in some countries; o the impact of recessionary or inflationary foreign economies; o lengthy receivables collection periods; o adapting to different regulatory requirements; o difficulties associated with repatriating cash generated or held abroad in a tax-efficient manner; and o different technology standards or customer expectations. Many of these risks have affected our business in the past and may have a material adverse effect on our business, results of operations and financial condition in the future. We cannot predict whether the United States or any other country will impose new quotas, tariffs, taxes or other trade barriers upon the importation of our products or supplies or if new barriers would have a material adverse effect on our results of operations and financial condition. FLUCTUATIONS IN EXCHANGE RATES MAY HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITIONS. Most of our equipment sales in Western Europe and Asia are billed in foreign currencies and are subject to currency exchange fluctuations. In prior years, changes in the value of the U.S. dollar compared to foreign currencies have had an impact on our sales and margins. We cannot predict the direction or magnitude of currency fluctuations. A weakening of the currencies in which we generate sales relative to the currencies in which our costs are denominated may lower our results of operations and financial condition. For example, we purchase a large number of parts, components and third-party products from Japan. The value of the yen in relation to the U.S. dollar strengthened during 2002 and has continued to appreciate throughout 2003 and the first three months of 2004. If the value of the yen continues to strengthen relative to the dollar, there could be a material adverse effect on our results of operations. In all jurisdictions in which we operate, we are also subject to the laws and regulations that govern foreign investment, foreign trade and currency exchange transactions. These laws and regulations may limit our ability to repatriate cash as dividends or otherwise to the United States and may limit our ability to convert foreign currency cash flows in to U.S. dollars. WE RELY ON OUR MANUFACTURING FACILITY IN REYNOSA, MEXICO, TO MANUFACTURE A SIGNIFICANT PORTION OF OUR PRODUCTS. ANY PROBLEMS AT THE REYNOSA FACILITY COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS. For the quarter ended March 31, 2004, approximately 55% of our product cost of revenue can be attributed to our facility in Reynosa, and we estimate that such percentage will be similar or higher for the remainder of 2004. In the past, we have experienced manufacturing problems that have caused delivery delays. We may experience production difficulties and product delivery delays in the future as a result of the following: o changing process technologies; 41 o ramping production; o installing new equipment at our manufacturing facilities; and o shortage of key components. If manufacturing problems in our Reynosa facility arise, and we are unable to develop alternative sources for our production needs, we may not be able to meet consumer demand for our products, which could have a material adverse effect on our business, results of operations and financial condition. We have been sued in Mexico by a plaintiff who alleges she is the legal owner of some of the property on which our facility in Reynosa is located. See Note 9a, "Legal Matters--Other Litigation--Lic. Olegario Cavazos Cantu, on behalf of Maria Leonor Cepeda Zapata vs. Symbol de Mexico, Sociedad de R.L. de C.V." If use of our manufacturing facility in Reynosa, Mexico were interrupted by natural disaster, the aforementioned lawsuit or otherwise, there could be a material adverse effect on our operations until we could establish alternative production and service operations. SOME COMPONENTS, SUBASSEMBLIES AND PRODUCTS ARE PURCHASED FROM A SINGLE SUPPLIER OR A LIMITED NUMBER OF SUPPLIERS. THE LOSS OF ANY OF THESE SUPPLIERS MAY CAUSE US TO INCUR ADDITIONAL SET-UP COSTS AND RESULT IN DELAYS IN MANUFACTURING AND THE DELIVERY OF OUR PRODUCTS. While components and supplies are generally available from a variety of sources, we currently depend on a limited number of suppliers for several components for our equipment, and certain subassemblies and products. Some components, subassemblies and products are purchased from a single supplier or a limited number of suppliers. In addition, for certain components, subassemblies and products for which we may have multiple sources, we are still subject to significant price increases and limited availability due to market demand for such components, subassemblies and products. In the past, unexpected demand for communication products caused worldwide shortages of certain electronic parts, which had an adverse impact on our business. While we have entered into contracts with suppliers of parts that we anticipate may be in short supply, there can be no assurance that additional parts will not become the subject of such shortages or that such suppliers will be able to deliver the parts in fulfillment of their contracts. In addition, on occasion, we build up our component inventory in anticipation of supply shortages, which may result in us carrying excess or obsolete components if we do not properly anticipate customer demand and could have a material adverse effect on our business and results of operations. If shortages or delays exist, we may not be able to secure enough components at reasonable prices and acceptable quality and, therefore, may not be able to meet consumer demand for our products, which could have a material adverse effect on our business and results of operations. Although the availability of components did not materially impact our business in 2003 or thus far in 2004, we cannot predict when and if component shortages will occur. If we are unable to develop alternative sources for our raw materials if and as required, we could incur additional set-up costs, which could result in delays in manufacturing and the delivery of our products and thereby have a material adverse effect on our business, results of operations and financial condition. WE SELL A MAJORITY OF OUR PRODUCTS THROUGH RESELLERS, DISTRIBUTORS AND ORIGINAL EQUIPMENT MANUFACTURERS (OEMS). IF WE FAIL TO MANAGE OUR SALES SYSTEM PROPERLY, OR IF THIRD-PARTY DISTRIBUTION SOURCES DO NOT PERFORM EFFECTIVELY, OUR BUSINESS MAY SUFFER. We sell a majority of our products through resellers, distributors and OEMs. Some of our third-party distribution sources may have insufficient financial resources and may not be able to withstand changes in worldwide business conditions, including economic downturn, or abide by our inventory and 42 credit requirements. If the third-party distribution sources we rely on do not perform their services adequately or efficiently or exit the industry, and we are not able to quickly find adequate replacements, there could be a material adverse effect on our revenues. In addition, we do not have third-party distribution sources in certain parts of the world. If we are unable to effectively and efficiently service customers outside our current geographic scope, there may be a material adverse effect on our growth rates and result of operations. In 2003, we launched a new distribution system called the Symbol PartnerSelect Program that is designed to increase our business and the business of our resellers, distributors and OEMs and improve the quality of services and products offered to the end user community. If the new program does not continue to be well received by our resellers, distributors and OEMs, or the end user community, there could be a material adverse effect on our operating results. IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS OR IF THIRD PARTIES ASSERT WE ARE IN VIOLATION OF THEIR INTELLECTUAL PROPERTY RIGHTS, THERE COULD BE A MATERIALLY ADVERSE EFFECT ON OUR RESULTS OF OPERATIONS AND OUR ABILITY TO COMPETE. We protect our proprietary information and technology through licensing agreements, third-party nondisclosure agreements and other contractual provisions, as well as through patent, trademark, copyright and trade secret laws in the United States and similar laws in other countries. There can be no assurance that these protections will be adequate to prevent our competitors from copying or reverse engineering our products, or that our competitors will not independently develop products that are substantially equivalent or superior to our technology, which in each case could affect our ability to compete and to receive licensing revenues. In addition, third parties may seek to challenge, invalidate or circumvent our applications for our actual patents, trademarks, copyrights and trade secrets. Furthermore, the laws of certain countries in which our products are or may be licensed do not protect our proprietary rights to the same extent as the laws of the United States. Third parties have, and may in the future, assert claims of infringement of intellectual property rights against us. Due to the rapid pace of technological change in the mobile information systems industry, much of our business and many of our products rely on proprietary technologies of third parties, and we may not be able to obtain, or continue to obtain, licenses from such third parties on reasonable terms. We have received, and have currently pending, third-party claims and may receive additional notices of such claims of infringement in the future. To date, such activities have not had a material adverse effect on our business and we have either prevailed in all litigation, obtained a license on commercially acceptable terms or otherwise been able to modify any affected products or technology. However, there can be no assurance that we will continue to prevail in any such actions or that any license required under any such patent or other intellectual property would be made available on commercially acceptable terms, if at all. Since there are a significant number of U.S. and foreign patents and patent applications applicable to our business, we believe that there is likely to continue to be significant litigation regarding patent and other intellectual property rights, which could have a material adverse effect on our business and our ability to compete. CHANGES IN SAFETY REGULATIONS RELATED TO OUR PRODUCTS, INCLUDING WITH RESPECT TO THE TRANSMISSION OF ELECTROMAGNETIC RADIATION, COULD HAVE A MATERIALLY ADVERSE EFFECT ON OUR PROSPECTS AND FUTURE SALES. The use of lasers and radio emissions are subject to regulation in the United States and in other countries in which we do business. In the United States, various Federal agencies including the Center for Devices and Radiological Health of the Food and Drug Administration, the Federal Communications Commission, the Occupational Safety and Health Administration and various state agencies have promulgated regulations which concern the use of lasers and/or radio/electromagnetic emissions 43 standards. Member countries of the European community have enacted standards concerning electrical and laser safety and electromagnetic compatibility and emissions standards. While some of our products do emit electromagnetic radiation, we believe that due to the low power output of our products and the logistics of their use, there is no health risk to end-users in the normal operation of our products. However, if any of our products becomes specifically regulated by governments, or their safety is questioned by our customers, such as electronic cash register manufacturers, or the public at large, there could be a material adverse effect on our business and our results of operations. In addition, our wireless communication products operate through the transmission of radio signals. These products are subject to regulation by the FCC in the United States and corresponding authorities in other countries. Currently, operation of these products in specified frequency bands does not require licensing by regulatory authorities. Regulatory changes restricting the use of frequency bands or allocating available frequencies could have a material adverse effect on our business and our results of operations. OUR SUCCESS LARGELY DEPENDS ON OUR ABILITY TO RECRUIT AND RETAIN KEY EMPLOYEES. In order to be successful, we must retain and motivate our executives and other key employees, including those in managerial, technical, marketing and information technology support positions. In particular, our product generation efforts depend on hiring and retaining qualified engineers. Attracting and retaining skilled solutions providers in the IT support business and qualified sales representatives are also critical to our future. Experienced management and technical, marketing and support personnel in the information technology industry are in high demand, in spite of the general economic slowdown, and competition for their talents is intense. The loss of, or the inability to recruit, key employees could have a material adverse effect on our business. OUR OPERATING RESULTS FLUCTUATE EACH QUARTER. THIS FLUCTUATION HINDERS OUR ABILITY TO FORECAST REVENUES AND TO VARY OUR OPERATING EXPENSES ACCORDINGLY. Our operating results have been, and may continue to be, subject to quarterly fluctuations as a result of a number of factors discussed in this report, including worldwide economic conditions; levels of IT spending; changes in technology; new competition; customer demand; a shift in the mix of our products; a shift in sales channels; the market acceptance of new or enhanced versions of our products; the timing of introduction of other products and technologies; component shortages; and acquisitions made by Symbol. An additional reason for such quarterly fluctuations is that it is difficult for us to forecast the volume and timing of sales orders we will receive during a fiscal quarter, as most customers require delivery of our products within 45 days of ordering and customers frequently cancel or reschedule shipments. However, our operating expense levels are partly based on our projections of future revenues at any given time. For example, in order to meet the delivery requirements of our customers, we maintain significant levels of raw materials. Therefore, in the event that actual revenues are significantly less than projected revenues for any quarter, operating expenses are likely to be unusually high and our operating profit may be adversely affected. Our revenues may vary in the future to an even greater degree due to our increasing focus on sales of mobile information systems instead of individual products. Historically, we have sold individual 44 bar code scanning devices and scanner integrated mobile computing devices to customers. Increasingly, our sales efforts have focused on sales of complete data transaction systems. System sales are more costly and require a longer selling cycle and more complex integration and installation services. An increase in system sales, therefore, may result in increased time between the manufacture of product and the recognition of revenue, as well as the receipt of payment for such transactions. OUR STOCK PRICE MAY CONTINUE TO BE VOLATILE. Our stock price, like that of other technology companies, can be volatile. Some of the factors that can affect our stock price include: o the announcement of new products, services or technological innovations by us or our competitors; o quarterly increases or decreases in revenue, gross margin or earnings, and changes in our business, operations or prospects for any of our segments; o changes in quarterly revenue or earnings estimates by the investment community; and o speculation in the media or investment community about our strategic position, financial condition, results of operations, business, significant transactions, the restatement or the previously discussed government investigations. General market conditions or domestic or international macroeconomic and geopolitical factors unrelated to our performance may also affect the price of our stock. For these reasons, investors should not rely on recent trends to predict future stock prices, financial condition, results of operations or cash flows. In addition, following periods of volatility in a company's securities or a restatement of previously reported financial statements, securities class actions may be filed against a company. We are currently litigating a number of securities class action lawsuits. See "-- Pending litigation may have a material adverse effect on our results of operations and financial condition." ACCESS TO INFORMATION Symbol's Internet address is www.symbol.com. Through the Investor Relations section of our Internet website, we make available, free of charge, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934 (the "Exchange Act"), as well as any filings made pursuant to Section 16 of the Exchange Act, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Commission. Copies are also available, without charge, from Symbol Investor Relations, One Symbol Plaza, Holtsville, New York 11742. Our Internet website and the information contained therein or incorporated therein are not incorporated into this Quarterly Report on Form 10-Q. You may also read and copy materials that we have filed with the Commission at the Commission's public reference room located at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. Please call the Commission at 1-800-SEC-0330 for further information on the public reference room. In addition, our filings with the Commission are available to the public on the Commission's web site at www.sec.gov. 45 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK See Item 7A of Symbol's Annual Report on Form 10-K for the year ended December 31, 2003 for a discussion of various market risks that Symbol is exposed to. The market risks we are exposed to have not materially changed from such disclosure. ITEM 4. CONTROLS AND PROCEDURES Symbol is committed to maintaining disclosure controls and procedures that are designed to ensure that information required to be disclosed in its Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms, and that such information is accumulated and communicated to its management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and are subject to certain limitations, including the exercise of judgment by individuals, the inability to identify unlikely future events, and the inability to eliminate misconduct completely. As a result, there can be no assurance that our disclosure controls and procedures will prevent all errors or fraud or ensure that all material information will be made known to management in a timely manner. During 2003 and 2002, we learned of certain deficiencies in our internal control that existed in 2002 and prior years. Additionally, as of December 31, 2003, we identified a material weakness related to the manner in which we process transactions to record our revenue as our current processes and procedures to record revenue transactions requires substantive manual intervention and are reliant on several departments in our sales and finance organization. These deficiencies are summarized as follows: o inadequate systems and systems interfaces; o inadequate and untimely account reconciliations; o numerous manual journal entries; and o informal worldwide policies and procedures. We have taken measures to improve the effectiveness of our internal controls and we believe these efforts address the matters described above. Certain measures we have taken since the discovery of such deficiencies include, but are not limited to, the following: o centralized the responsibility of revenue under a revenue controller's department, reporting directly to the Chief Accounting Officer; o undertaken a project to establish formalized worldwide policies and procedures to be approved by the Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer; o undertaken a project to identify responsible associates for account reconciliations, including approvals; o implemented formal review processes of transactions where there still exists manual intervention; and 46 o investing in software and hardware systems upgrades that will improve the integration of our sales, finance and accounting departments and improve the accuracy of our revenue reporting. As required by Rule 13a-15(b) of the Exchange Act, Symbol has carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and its Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures. The evaluation examined those disclosure controls and procedures as of March 31, 2004, the end of the period covered by this report. Based upon the evaluation, Symbol's management, including its Chief Executive Officer and its Chief Financial Officer, concluded that, as of March 31, 2004, Symbol's disclosure controls and procedures were effective, except as described above, at the reasonable assurance level to ensure that information required to be disclosed in Symbol's reports filed or submitted under the Exchange Act was accumulated and communicated to Symbol's management, including its Chief Executive Officer and its Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. It will take some time before we have in place the rigorous disclosure controls and procedures, including internal controls and procedures, that our Board of Directors and senior management are striving for. As a result of our efforts, however, we believe that our Condensed Consolidated Financial Statements fairly present, in all material respects, our financial condition, results of operations and cash flows as of, and for, the periods presented and that this Quarterly Report on Form 10-Q contains the information required to be included in accordance with the Exchange Act. During the first quarter 2004, we continued to make improvements in our financial reporting by continuing to hire qualified personnel and refine our formal review processes of manual transactions. We will continue to assess our disclosure controls and procedures and will take any further actions that we deem necessary. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The information set forth in Note 9 in the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q is hereby incorporated by reference. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Symbol held its Annual Meeting of Stockholders on April 26, 2004. At that meeting, stockholders elected six individuals as directors of the Company for terms that will expire at the Annual Meeting to be held in 2005. In addition, stockholders approved three additional Company proposals as follows: the amendment and restatement of the Symbol Technologies, Inc. Executive Bonus Plan, the adoption of the Symbol Technologies, Inc. 2004 Equity Incentive Award Plan and the ratification of the appointment of Ernst & Young LLP as the Company's independent auditors for fiscal year 2004. The individuals elected and the results of the voting are as follows: Proposal 1--Election of Directors VOTES FOR VOTES WITHHELD --------- -------------- Robert J. Chrenc 193,155,693 7,965,623 Salvatore Iannuzzi 192,934,767 8,186,549 47 Edward Kozel 195,948,847 5,172,469 William R. Nuti 195,971,068 5,150,248 George Samenuk 194,279,061 6,842,255 Melvin A. Yellin 194,594,291 6,527,025 Proposal 2--Amendment and Restatement of the Symbol Technologies, Inc. Executive Bonus Plan - -------------------------------------------------------------------------------- VOTES FOR VOTES AGAINST VOTES WITHHELD BROKER NON-VOTE - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 143,638,947 7,297,115 5,597,495 44,587,759 - -------------------------------------------------------------------------------- Proposal 3--Adoption of the Symbol Technologies, Inc. 2004 Equity Incentive Award Plan - -------------------------------------------------------------------------------- VOTES FOR VOTES AGAINST VOTES WITHHELD BROKER NON-VOTE - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 120,663,420 30,252,927 5,617,210 44,587,759 - -------------------------------------------------------------------------------- Proposal 4--Ratification of the appointment of Ernst & Young LLP as independent auditors for fiscal year 2004 --------------------------------------------------------------- VOTES FOR VOTES AGAINST VOTES WITHHELD --------------------------------------------------------------- --------------------------------------------------------------- 195,735,622 2,174,324 3,211,370 --------------------------------------------------------------- The following individuals retired as directors of Symbol as of April 26, 2004: George Bugliarello, Leo A. Guthart, Harvey P. Mallement, Raymond R. Martino Sr. and James A. Simons. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The following exhibits are included herein: 10.1 2000 Directors' Stock Option Plan (as amended and restated). 10.2 Symbol Technologies, Inc. Executive Bonus Plan (as amended and restated). 10.3 Symbol Technologies, Inc. 2004 Equity Incentive Award Plan. 31.1 Certification of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) The following Reports on Form 8-K were filed during the quarter ended March 31, 2004: 48 - -------------------------------------------------------------------------------- Date Filed Item No.(s) Description - -------------------------------------------------------------------------------- February 23, 2004 5, 7 and 12 Issuing of press release announcing preliminary 2003 fourth quarter results. - -------------------------------------------------------------------------------- February 26, 2004 5, 7 and 12 Filing of quarterly reports on Form 10-Q for the first three quarters of 2003. - -------------------------------------------------------------------------------- March 10, 2004 5, 7 and 12 Issuing of press release announcing unaudited results for the fourth quarter and year ended December 31, 2003. - -------------------------------------------------------------------------------- 49 SIGNATURES Pursuant to the requirements 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. Dated: May 10, 2004 By: /s/ William R. Nuti -------------------------------- William R. Nuti Chief Executive Officer, President, Chief Operating Officer and Director (principal executive officer) Dated: May 10, 2004 By: /s/ Mark T. Greenquist --------------------------------- Mark T. Greenquist Senior Vice President and Chief Financial Officer (principal financial officer) Dated: May 10, 2004 By: /s/ James M. Conboy ------------------------------- James M. Conboy Vice President - Controller and Chief Accounting Officer (principal accounting officer) 50 EX-10.1 2 file002.txt STOCK OPTION PLAN THE 2000 DIRECTORS' STOCK OPTION PLAN SYMBOL TECHNOLOGIES, INC. (as amended and restated on April 26, 2004) 1. Purpose. The 2000 Directors' Stock Option Plan (the "Plan") of Symbol Technologies, Inc. (the "Company"), a Delaware corporation, is designated to aid the Company in retaining and attracting the services of members of the Board of Directors of the Company (the "Board") who are not employees of the Company or any of its subsidiaries ("Non-Employee Directors") of exceptional ability by enabling such directors to purchase a proprietary interest in the Company, thereby stimulating in such individuals an increased awareness of the interests of the Company's shareholders encouraging them to contribute to the continued growth and success of the Company. 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 500,000 of the Company's Shares subject to adjustment as provided in Paragraph 7. 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. The Plan shall be administered by the Board. The Board shall have all the powers vested in it by the terms of the Plan, such powers to include authority (within the limitations described herein) to prescribe the form of the agreement embodying awards of nonqualified stock options made under the Plan ("Options"). The Board shall, subject to the provisions of the Plan, grant Options under the Plan and shall have the power to construe the Plan, to determine all questions arising thereunder and to adopt and amend such rules and regulations for the administration of the Plan as it may deem desirable. Any decisions of the Board in the administration of the Plan, as described herein, shall be final and conclusive. The board may act only by a majority of its members in office, except that the members thereof may authorize the Secretary or any other executive officer of the Company to execute and deliver documents on behalf of the Board. No member of the board shall be liable for anything done or omitted to be done by him or by any other member of the Board in connection with the Plan, except for his own willful misconduct or as expressly provided by statute. 4. Participation. Each Non-Employee Director shall be eligible to receive an option in accordance with Paragraph 5 below. 5. Awards under the Plan. (a) Awards under the Plan shall include only Options, which are rights to purchase Shares of the company. Such Options are subject to the terms, conditions and restrictions specified in Paragraph 6 below. (b) A Non-Employee Director to whom an Option is granted (and any person succeeding to such a Non-Employee Director's rights pursuant to the Plan) shall have no rights as a shareholder with respect to any Shares issuable pursuant to any such Option until the Acquisition Date set forth in Subparagraph 6(f) below. Except as provided in Paragraph 7 below, 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 payments. 6. Nonqualified Stock Options. Each Option granted under the Plan shall be evidenced by an agreement in such form as the Board shall prescribe from time to time in accordance with the Plan and shall comply with the following terms and conditions: (a) The Option exercise price shall be the fair market value of the Shares subject to such Option on the date the Option is granted, which shall be the closing price on the date of grant as reported on the New York Stock Exchange Composite Transactions Tape, or if no Shares were traded on that date, on the last preceding date on which the Shares were traded. Notwithstanding the foregoing, the Option exercise price for Options granted prior to the date on which approval of the Plan shall have been obtained from the shareholders of the Company shall be the greater of the closing price as reported on the New York Stock Exchange Composite Transactions Tape on the date of grant or on the date such shareholder approval shall have been obtained. (b) Subject to Paragraph 11 hereof, each Non-Employee Director who is first elected to the Board on or after the date hereof shall receive a grant of an Option to purchase 50,000 Shares on the date he first becomes a member of the Board. In addition to the foregoing, each Non-Employee Director who is a Director of the Company on the date hereof shall automatically be granted an Option to purchase 50,000 Shares on such date. (c) Subject to the provisions of Subparagraph 6(d) hereof, Options shall not be transferable except by will or the laws of descent and distribution. Options shall be exercisable during the optionee's lifetime only the optionee (or his duly appointed guardian or conservator). (d) The board may, in its discretion, authorize the transfer of all or a portion of any Options 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 Board prior to such transfer, and such transfer must be limited to the persons or entities listed in this Subparagraph 6(d) and subsequent transfers of such transferred Options shall be prohibited except in accordance with this Paragraph 6. Following any such transfer, such Options shall continue to be subject to the same terms and conditions as were applicable immediately prior to such transfer, provided that for purposes of this plan, the term "optionee" shall be deemed to refer to the transferee. In the event the transferor ceases to be a Non-Employee Director, the provisions 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. (e) Options shall not be exercisable before the expiration of one year from the date of grant and after the expiration of ten years from the date of grant, and my be exercised during such period as follows: twenty-five percent (25%) of the total number of Shares covered by an Option shall become exercisable each year beginning with the first anniversary of the date such Option is granted. Notwithstanding the foregoing, as of January 1, 2005, the balance of any Shares covered by Options that are not exercisable as of such date shall immediately become exercisable. (f) Options 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 10(b), and (ii) payment of the aggregate Option exercise price. Such payment shall be in the form of (i) cash or a certified check (unless such certification is waived b the Company) payable to the order of the Company in the amount of the aggregate Option exercise price, (ii) certificates duly endorsed for transfer (with all transfer taxes paid or provided for) evidencing a number of Shares (provided, however, that such Shares have been owned by the Optionee for at least six months) of which the aggregate fair market value on the date exercised 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 deliver 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 10 hereof, be the date as of which the Shares so purchased shall be deemed to have been acquired (the "Acquisition Date"). (g) Options shall not be exercisable unless the person to whom the Option was granted has been at all times during the period beginning with the date of grant of the Option and ending on the date of such exercise a Non- Employee Director of the Company, except that A. If such person shall cease to be such a Non-Employee Director for reasons other than death, while holding an Option that has not expired and has not been fully exercised, such person, at any time within one hundred and eighty (180) days of the date he ceased to be such a Non-Employee Director (but in no event after the Option has expired under the provisions of Subparagraph 6(e) above), may exercise the Option with respect to any Shares as to which he could have exercised the Option on the date he ceased to be a Non-Employee Director; or B. If any person to whom an Option has been granted shall die holding an Option that has not expired and has not been fully exercised, his executors, administrators, heirs or distributes, as the case may be, may, at any time within one year after the date of such death (but in o event after the Option has expired under the provisions of Subparagraph 6(c) above), exercise the Option with respect to any Shares as to which the decedent could have exercised the option at the time of his death. 7. Dilution and Other Adjustments. In the event of any change after the date hereof in the outstanding Shares of the Company by reason of any stock split, stock dividend, split-up, split-off, recapitalization, merger, consolidation, rights offering, reorganization, combination or exchange of shares, a sale by the Company of all or virtually all of its assets, any distribution to shareholders other than a normal cash dividend, or other extraordinary or unusual events, the number or kind of shares that may be issued under the Plan pursuant to Paragraph 2 above, and the number or kind of common stock subject to, and the Option exercise price per share under all outstanding Options shall be automatically adjusted so that the proportionate interest of the participant shall be maintained as before the occurrence of such event. Any fractional share resulting from adjustments pursuant to this paragraph shall be eliminated from any then outstanding Option. Adjustments under this paragraph shall be made by the Board, whose determination thereof shall be conclusive and binding. 8. Miscellaneous Provisions. a. Except as expressly provided for in the Plan, no person shall have any claim or right to be granted an Option under the Plan. Neither the Plan nor any action taken hereunder shall be construed as giving any Non-Employee Director any right to be retained in the service of the Company or to continue to serve as a Director of the Company. b. Except as expressly set forth herein, a participant's rights and interest under the Plan may not be assigned or transferred, hypothecated or encumbered in whole or in part either directly or by operation of law or otherwise (except in the event of a participant's death, by will or the laws of descent and distribution), including, but not by way of limitation, execution, levy, garnishment, attachment, pledge, bankruptcy or in any other manner, and no such right or interest of any participant in the Plan shall be subject to any obligation or liability of such participant. c. It shall be a condition to the obligation of the Company to issue Shares upon exercise of an Option, that the participant (or any beneficiary or person entitled to act under Subparagraph 6(d) above) 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. If the amount requested is not paid, the Company may refuse to issue any Shares and all rights under the Option shall become null and void. d. The expenses of the Plan shall be borne by the Company. e. The Plan shall be unfounded. The Company shall not be required to establish any special or separate fund or to make any other segregation of assets to assure the issuance of Shares upon exercise of any Option under the Plan, and rights to the issuance of Shares upon exercise of Options shall be subordinate to the claims of the Company's general creditors. f. By accepting any Option or other benefit under the Plan, each participant and each person claiming under or through him shall be conclusively deemed to have indicated his acceptance and ratification of, and consent to, any action taken under the Plan by the Company or the Board. g. The masculine pronoun means the feminine and the singular means the plural in the Plan, wherever appropriate. 9. Amendment or Discontinuance. The Plan may be amended at any time and from time to time by the Board as the Board shall deem advisable; provided, however, that no amendment shall become effective without shareholder approval if such shareholder approval is required by law, rule or regulation, and provided further, to the extent required by Rule 16b-3 under Section 16 of the Securities Exchange Act of 19334, in effect from time to time, Plan provisions relating to the amount, price and timing of Options shall not be amended more than once every six months, except that the foregoing shall not preclude any amendment to comport with changes in the Internal Revenue code of 1986 or the rules thereunder in effect from time to time. No amendment of the Plan shall materially and adversely affect any right of the optionee with respect to any Option theretofore granted without such optionee's written consent. 10. 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 be not 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 an Option during the period when exercisability has been suspended. (b) The Board 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 its 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 the appropriate legends summarizing such restrictions on the disposition thereof. 11. Shareholder Approval and Adoption. 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 September 30, 2000. 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 September 30, 2000, the Plan and any Options granted hereunder shall be terminated. 12. Termination. Unless the Plan shall theretofore have been terminated in accordance with Paragraph 11 above, the Plan shall terminate on February 13, 2010 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 any existing Option, materially and adversely affect his rights under such Option. EX-10.2 3 file003.txt EXECUTIVE BONUS PLAN SYMBOL TECHNOLOGIES, INC. EXECUTIVE BONUS PLAN (AMENDED AND RESTATED AS OF MARCH 10, 2004) SECTION 1. PURPOSE. The purpose of the Symbol Technologies, Inc. Executive Incentive Plan (the "Plan") is to provide Officers of Symbol Technologies, Inc. (the "Company") and its affiliates with incentive compensation based upon the level of achievement of financial and other performance criteria. The Plan is intended to enhance the ability of the Company and its affiliates to attract individuals of exceptional managerial talent upon whom, in large measure, the sustained progress, growth and profitability of the Company depends. SECTION 2. DEFINITIONS. As used in the Plan, the following terms shall have the meanings set forth below: (a) "AWARD" means a cash bonus payment that may be made pursuant to the Plan. (b) "BOARD" means the Board of Directors of the Company. (c) "CODE" means the Internal Revenue Code of 1986, as amended from time to time and any successor thereto. (d) "COMMITTEE" means the Stock Option / Compensation Committee of the Board (or any successor committee); provided that, with respect to Awards made to Covered Employees as described in Section 5, "COMMITTEE" means a committee of the Board (or subcommittee thereof) consisting solely of two or more members of the Board, each of whom is an Outside Director. (e) "COVERED EMPLOYEE" means a "covered employee" within the meaning of Section 162(m) of the Code. (f) "MEASUREMENT PERIOD" means a period of time selected by the Committee for which the Performance Goal will be measured for purposes of Section 5. (g) "NET INCOME" means the net income before taxes of the Company as determined under generally accepted accounting principles, excluding (a) extraordinary items; (b) cumulative effects of changes in accounting principles; (c) securities gains and losses; (d) amortization or write-off of goodwill, acquired intangibles and purchased in-process research and development; and (e) nonrecurring items including, but not limited to, gains or losses on asset dispositions and sales of divisions, business units or subsidiaries, restructuring and separation charges, and gains and losses from qualified benefit plan curtailments and settlements. (h) "OFFICER" means any employee of the Company or any affiliate holding a position at or above Senior Vice President or any zone level that the Committee determines, in its sole discretion, is the equivalent thereof. (i) "OUTSIDE DIRECTORS" means those members of the Board who are "outside directors" within the meaning of Section 162(m) of the Code. (j) "PARTICIPANT" means any person selected by the Committee to participate in the Plan. (k) "PERFORMANCE GOAL" has the meaning set forth in Section 5(b). (l) "PERFORMANCE PERIOD" means a period of time selected by the Committee to which an Award relates. (m) "TARGET AWARD" means an Award amount that may be paid if certain performance criteria are achieved. SECTION 3. ELIGIBILITY. Persons employed by the Company or any of its affiliates on the last day of a Performance Period in active service at an Officer level for all or any part of the Performance 1 Period are eligible to be Participants under the Plan for such Performance Period (whether or not so employed or living at the date an Award is made) and may be considered by the Committee for an Award. An Officer is not rendered ineligible to be a Participant by reason of being a member of the Board. SECTION 4. AWARDS-GENERAL. The Committee will establish Target Awards for Participants at the beginning of each Performance Period and the performance criteria to be applicable to Awards for such Performance Period. Except as otherwise provided by Section 5, the performance criteria utilized by the Committee may be based on individual performance, net income, other Company and business unit financial objectives, customer satisfaction indicators, operational efficiency measures, and other measurable objectives tied to the Company's success or such other criteria as the Committee shall determine. Awards will be made by the Committee following the end of each Performance Period. Awards shall be paid after the end of the Performance Period, except to the extent that a Participant has made an election to defer the receipt of such Award pursuant to an approved deferred compensation plan (and in accordance with the terms of such deferred compensation plan). Subject to Sections 5 and 6(d), the Award amount with respect to a Participant shall be determined in the sole discretion of the Committee or such person or committee empowered by the Committee or Board. The determination of the Award amount for each Participant shall be made at the end of each Performance Period and may be less than (including no Award) or, except as otherwise provided by Section 5(c), greater than the Target Award. SECTION 5. AWARDS TO COVERED EMPLOYEES. (a) If the Committee determines at the time a Target Award is established for a Participant that such Participant is, or may be as of the end of the tax year for which the Company would claim a tax deduction in connection with such Award, a Covered Employee, then the Committee shall provide that this Section 5 is applicable to such Award under such terms as the Committee shall determine. (b) Subject to Section 6(d), the Award amount with respect to a Participant covered by this Section 5 shall be determined in the sole discretion of the Committee; provided that, if an Award is subject to this Section 5, then the payment of cash pursuant thereto shall be subject to the Company having attained a performance goal relating to Net Income, Cash Flow, Earnings per Share, Return on Equity, Total Return to Stockholders in the form of stock price appreciation and dividends, if paid, or other measures (a "Performance Goal") as determined in the sole discretion of the Committee for the applicable Measurement Period. Such Performance Goals shall be established by the Committee within the time prescribed by Section 162(m) of the Code and the regulations thereunder in order for the Performance Goal to be considered "pre-established" for purposes of Section 162(m) of the Code. The Committee may, in its discretion, reduce the amount of such an Award at any time prior to payment based on such criteria as it shall determine, including but not limited to individual merit and the attainment of specified levels of one or any combination of the following: net cash provided by operating activities or other cash flow-based measures, earnings per share from continuing operations, operating income, revenues, gross margin, return on operating assets, return on equity, economic value added, stock price appreciation, total shareowner return (measured in terms of stock price appreciation and dividend growth), or cost control, of the Company or the affiliate or division of the Company for or within which the Participant is primarily employed. (c) Notwithstanding any contrary provision of this Plan, the Committee may not adjust upwards the amount payable pursuant to any Award subject to this Section 5, nor may it waive the attainment of the Performance Goal requirement contained in Section 5(b), except in the case of the death or disability of the Participant. (d) Prior to the payment of any Award subject to this Section 5, the Committee shall certify in writing that the Performance Goal applicable to such Award was met. 2 (e) The Committee shall have the power to impose such other restrictions on Awards subject to this Section 5 as it may deem necessary or appropriate to ensure that such Awards satisfy all requirements for "performance-based compensation" within the meaning of Section 162(m)(4)(C) of the Code, the regulations promulgated thereunder, and any successors thereto. (f) No amounts shall be paid with respect to any Award subject to this Section 5 unless and until the Company's stockholders shall have approved the Plan and the Performance Goals as required by Section 162(m) of the Code. So long as the Plan shall not have been previously terminated by the Company, it shall be resubmitted for approval by the Company's stockholders in the fifth year after it shall have first been approved by the Company's stockholders, and every fifth year thereafter. SECTION 6. OTHER CONDITIONS. (a) No person shall have any claim to an Award under the Plan and there is no obligation for uniformity of treatment of Participants under the Plan. Awards under the Plan may not be assigned or alienated. (b) Neither the Plan nor any action taken hereunder shall be construed as giving to any Participant the right to be retained in the employ of the Company or any affiliate. (c) The Company or any affiliate shall have the right to deduct from any Award to be paid under the Plan any federal, state or local taxes required by law to be withheld with respect to such payment. (d) Notwithstanding any contrary provision of the Plan, the maximum amount which may be paid to a Participant in any fiscal year is $6 million. SECTION 7. DESIGNATION OF BENEFICIARIES. A Participant may, if the Committee permits, designate a beneficiary or beneficiaries to receive all or part of the Award which may be made to the Participant, or may be payable, after such Participant's death. A designation of beneficiary shall be made in accordance with procedures specified by the Company and may be replaced by a new designation or may be revoked by the Participant at any time. In case of the Participant's death, an Award with respect to which a designation of beneficiary has been made (to the extent it is valid and enforceable under applicable law) shall be paid to the designated beneficiary or beneficiaries. Any Award granted or payable to a Participant who is deceased and not subject to such a designation shall be distributed to the Participant's estate. If there shall be any question as to the legal right of any beneficiary to receive an Award under the Plan, the amount in question may be paid to the estate of the Participant, in which event the Company or its affiliates shall have no further liability to anyone with respect to such amount. SECTION 8. PLAN ADMINISTRATION. (a) The Committee shall have full discretionary power to administer and interpret the Plan and to establish rules for its administration (including the power to delegate authority to others to act for and on behalf of the Committee) subject to such resolutions, not inconsistent with the Plan, as may be adopted by the Board, except that the Committee (or any subcommittee thereof) shall have the exclusive authority to exercise any such power with respect to Awards to which Section 5 is applicable. In making any determinations under or referred to in the Plan, the Committee (and its delegates, if any) shall be entitled to rely on opinions, reports or statements of employees of the Company and its affiliates and of counsel, public accountants and other professional or expert persons. (b) The Plan shall be governed by the laws of the State of Delaware and applicable Federal law. SECTION 9. MODIFICATION OR TERMINATION OF PLAN. The Board may modify or terminate the Plan at any time, effective at such date as the Board may determine. Any amendment to the Plan shall require stockholder approval only to the extent required by Section 162(m) of the Code or any other applicable law, rule or regulation. 3 EX-10.3 4 file004.txt 2004 EQUITY INCENTIVE AWARD PLAN SYMBOL TECHNOLOGIES, INC. 2004 EQUITY INCENTIVE AWARD PLAN ARTICLE 1 PURPOSE The purpose of the Symbol Technologies, Inc. 2004 Equity Incentive Award Plan (the "Plan") is to promote the success and enhance the value of Symbol Technologies, Inc. (the "Company") by linking the personal interests of the members of the Board, Employees, and Consultants to those of Company stockholders and by providing such individuals with an incentive for outstanding performance to generate superior returns to Company stockholders. The Plan is further intended to provide flexibility to the Company in its ability to motivate, attract, and retain the services of members of the Board, Employees, and Consultants upon whose judgment, interest, and special effort the successful conduct of the Company's operation is largely dependent. ARTICLE 2 DEFINITIONS AND CONSTRUCTION Wherever the following terms are used in the Plan they shall have the meanings specified below, unless the context clearly indicates otherwise. The singular pronoun shall include the plural where the context so indicates. 2.1 "Award" means an Option, a Restricted Stock award, a Stock Appreciation Right award, a Performance Share award, a Performance Stock Unit award, a Dividend Equivalents award, a Stock Payment award, a Deferred Stock award, a Restricted Stock Unit award, an Other Stock-Based Award, or a Performance-Based Award granted to a Participant pursuant to the Plan. 2.2 "Award Agreement" means any written agreement, contract, or other instrument or document evidencing an Award. 2.3 "Board" means the Board of Directors of the Company. 2.4 "Change of Control" means and includes each of the following: (a) The acquisition, directly or indirectly, by any "person" or "group" (as those terms are defined in Sections 3(a)(9), 13(d) and 14(d) of the Exchange Act and the rules thereunder) of "beneficial ownership" (as determined pursuant to Rule 13d-3 under the Exchange Act) of securities entitled to vote generally in the election of directors ("voting securities") of the Company that represent 25% or more of the combined voting power of the Company's then outstanding voting securities, other than (i) An acquisition by a trustee or other fiduciary holding securities under any employee benefit plan (or related trust) sponsored or maintained by the Company or any person controlled by the Company or by any employee benefit plan (or related trust) sponsored or maintained by the Company or any person controlled by the Company, or (ii) An acquisition of voting securities by the Company or a corporation owned, directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of the stock of the Company, or (iii) An acquisition of voting securities pursuant to a transaction described in Section 2.4(c) below that would not be a Change of Control under Section 2.4(c); Notwithstanding the foregoing, the following event shall not constitute an "acquisition" by any person or group for purposes of this Section 2.4: an acquisition of the Company's securities by the Company which causes the Company's voting securities beneficially owned by a person or group to represent 50% or more of the combined voting power of the Company's then outstanding voting securities; provided, however, that if a person or group shall become the beneficial owner of 50% or more of the combined voting power of the Company's then outstanding voting securities by reason of share acquisitions by the Company as described above and shall, after such share acquisitions by the Company, become the beneficial owner of any additional voting securities of the Company, then such acquisition shall constitute a Change of Control; or (b) During any period of two consecutive years, individuals who, at the beginning of such period, constitute the Board together with any new director(s) (other than a director designated by a person who shall have entered into an agreement with the Company to effect a transaction described in Section 2.4(a) or Section 2.4(c)) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the two year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or (c) The consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business combination or (y) a sale or other disposition of all or substantially all of the Company's assets or (z) the acquisition of assets or stock of another entity, in each case other than a transaction: (i) Which results in the Company's voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Company's assets or otherwise succeeds to the business of the Company (the Company or such person, the "Successor Entity")) directly or indirectly, at least a majority of the combined voting power of the Successor Entity's outstanding voting securities immediately after the transaction, and (ii) After which no person or group beneficially owns voting securities representing 50% or more of the combined voting power of the Successor Entity; provided, 2 however, that no person or group shall be treated for purposes of this Section 2.4(c)(ii) as beneficially owning 50% or more of combined voting power of the Successor Entity solely as a result of the voting power held in the Company prior to the consummation of the transaction; or (d) The Company's stockholders approve a liquidation or dissolution of the Company. The Committee shall have full and final authority, which shall be exercised in its discretion, to determine conclusively whether a Change of Control of the Company has occurred pursuant to the above definition, and the date of the occurrence of such Change of Control and any incidental matters relating thereto. 2.5 "Code" means the Internal Revenue Code of 1986, as amended. 2.6 "Committee" means the committee of the Board described in Article 12. 2.7 "Consultant" means any consultant or adviser if: (a) The consultant or adviser renders bona fide services to the Company; (b) The services rendered by the consultant or adviser are not in connection with the offer or sale of securities in a capital-raising transaction and do not directly or indirectly promote or maintain a market for the Company's securities; and (c) The consultant or adviser is a natural person who has contracted directly with the Company to render such services. 2.8 "Covered Employee" means an Employee who is, or could be, a "covered employee" within the meaning of Section 162(m) of the Code. 2.9 "Deferred Stock" means a right to receive a specified number of shares of Stock during specified time periods pursuant to Article 8. 2.10 "Disability" means that the Participant qualifies to receive long-term disability payments under the Company's long-term disability insurance program, as it may be amended from time to time. 2.11 "Dividend Equivalents" means a right granted to a Participant pursuant to Article 8 to receive the equivalent value (in cash or Stock) of dividends paid on Stock. 2.12 "Effective Date" shall have the meaning set forth in Section 13.1. 2.13 "Employee" means any officer or other employee (as defined in accordance with Section 3401(c) of the Code) of the Company or any Subsidiary. 2.14 "Exchange Act" means the Securities Exchange Act of 1934, as amended. 2.15 "Fair Market Value" means, as of any given date, the fair market value of a share of Stock on the immediately preceding date determined by such methods or procedures as may 3 be established from time to time by the Committee. Unless otherwise determined by the Committee, the Fair Market Value of a share of Stock as of any date shall be the average of the high and low trading prices for a share of Stock as reported on the New York Stock Exchange (or on any national securities exchange on which the Stock is then listed) for the immediately preceding date or, if no such prices are reported for that date, the average of the high and low trading prices on the next preceding date for which such prices were reported. 2.16 "Full Value Award" means any Award other than an Option, SAR or other Award for which the Participant pays the intrinsic value (whether directly or by forgoing a right to receive a cash payment from the Company). 2.17 "Incentive Stock Option" means an Option that is intended to meet the requirements of Section 422 of the Code or any successor provision thereto. 2.18 "Independent Director" means a member of the Board who is not an Employee of the Company. 2.19 "Non-Employee Director" means a member of the Board who qualifies as a "Non-Employee Director" as defined in Rule 16b-3(b)(3) of the Exchange Act, or any successor definition adopted by the Board. 2.20 "Non-Qualified Stock Option" means an Option that is not intended to be an Incentive Stock Option. 2.21 "Option" means a right granted to a Participant pursuant to Article 5 of the Plan to purchase a specified number of shares of Stock at a specified price during specified time periods. An Option may be either an Incentive Stock Option or a Non-Qualified Stock Option. 2.22 "Other Stock-Based Award" means an Award granted or denominated in Stock or units of Stock pursuant to Section 8.7 of the Plan. 2.23 "Participant" means a person who, as a member of the Board, Consultant or Employee, has been granted an Award pursuant to the Plan. 2.24 "Performance-Based Award" means an Award granted to selected Covered Employees pursuant to Articles 6 and 8, but which is subject to the terms and conditions set forth in Article 9. All Performance-Based Awards are intended to qualify as Qualified Performance-Based Compensation. 2.25 "Performance Criteria" means the criteria that the Committee selects for purposes of establishing the Performance Goal or Performance Goals for a Participant for a Performance Period. The Performance Criteria that will be used to establish Performance Goals are limited to the following: net earnings (either before or after interest, taxes, depreciation and amortization), economic value-added (as determined by the Committee), sales or revenue, net income (either before or after taxes), operating earnings, cash flow (including, but not limited to, operating cash flow and free cash flow), cash flow return on capital, return on net assets, return on stockholders' equity, return on assets, return on capital, stockholder returns, return on sales, gross or net profit margin, productivity, expense, margins, operating efficiency, customer satisfaction, working 4 capital, earnings per share, price per share of Stock, and market share, any of which may be measured either in absolute terms or as compared to any incremental increase or as compared to results of a peer group. The Committee shall, within the time prescribed by Section 162(m) of the Code, define in an objective fashion the manner of calculating the Performance Criteria it selects to use for such Performance Period for such Participant. 2.26 "Performance Goals" means, for a Performance Period, the goals established in writing by the Committee for the Performance Period based upon the Performance Criteria. Depending on the Performance Criteria used to establish such Performance Goals, the Performance Goals may be expressed in terms of overall Company performance or the performance of a division, business unit, or an individual. The Committee, in its discretion, may, within the time prescribed by Section 162(m) of the Code, adjust or modify the calculation of Performance Goals for such Performance Period in order to prevent the dilution or enlargement of the rights of Participants (i) in the event of, or in anticipation of, any unusual or extraordinary corporate item, transaction, event, or development, or (ii) in recognition of, or in anticipation of, any other unusual or nonrecurring events affecting the Company, or the financial statements of the Company, or in response to, or in anticipation of, changes in applicable laws, regulations, accounting principles, or business conditions. 2.27 "Performance Period" means the one or more periods of time, which may be of varying and overlapping durations, as the Committee may select, over which the attainment of one or more Performance Goals will be measured for the purpose of determining a Participant's right to, and the payment of, a Performance-Based Award. 2.28 "Performance Share" means a right granted to a Participant pursuant to Article 8, to receive Stock, the payment of which is contingent upon achieving certain performance goals established by the Committee. 2.29 "Performance Stock Unit" means a right granted to a Participant pursuant to Article 8, to receive Stock, the payment of which is contingent upon achieving certain performance goals established by the Committee. 2.30 "Plan" means this Symbol Technologies, Inc. 2004 Equity Incentive Award Plan, as it may be amended from time to time. 2.31 "Prior Plans" means, collectively, the following plans of the Company: (a) 2001 Non-Executive Stock Incentive Plan, (b) 1997 Employee Stock Option Plan, (c) 1991 Employee Stock Option Plan, (d) 1990 Non-Executive Stock Option Plan, (e) 2002 Directors' Stock Option Plan, (f) 2000 Directors' Stock Option Plan, (g) 1999 Directors' Stock Option Plan, (h) 1998 Directors' Stock Option Plan, (i) the Texlon Corporation 1990 Employee Stock Option Plan and (j) 1994 Directors' Stock Option Plan, in each case as such plan may be amended from time to time. 2.32 "Qualified Performance-Based Compensation" means any compensation that is intended to qualify as "qualified performance-based compensation" as described in Section 162(m)(4)(C) of the Code. 5 2.33 "Restricted Stock" means Stock awarded to a Participant pursuant to Article 6 that is subject to certain restrictions and may be subject to risk of forfeiture. 2.34 "Restricted Stock Unit" means an Award granted pursuant to Section 8.6. 2.35 "Stock" means the common stock of the Company, par value $0.01 per share, and such other securities of the Company that may be substituted for Stock pursuant to Article 11. 2.36 "Stock Appreciation Right" or "SAR" means a right granted pursuant to Article 7 to receive a payment equal to the excess of the Fair Market Value of a specified number of shares of Stock on the date the SAR is exercised over the Fair Market Value on the date the SAR was granted as set forth in the applicable Award Agreement. 2.37 "Stock Payment" means (a) a payment in the form of shares of Stock, or (b) an option or other right to purchase shares of Stock, as part of any bonus, deferred compensation or other arrangement, made in lieu of all or any portion of the compensation, granted pursuant to Article 8. 2.38 "Subsidiary" means any corporation or other entity of which a majority of the outstanding voting stock or voting power is beneficially owned directly or indirectly by the Company. ARTICLE 3 SHARES SUBJECT TO THE PLAN 3.1 Number of Shares. (a) Subject to Article 11 and Section 3.1(b), the aggregate number of shares of Stock which may be issued or transferred pursuant to Awards under the Plan shall be the sum of: (i) 4,936,189 shares; and (ii) any shares of Stock which as of the Effective Date are available for issuance under any of the Prior Plans and which following the Effective Date are not issued under such plans; provided, however, that such aggregate number of shares of Stock available for issuance under the Plan shall be reduced by 1.65 shares for each share of Stock delivered in settlement of any Full Value Award. In order that the applicable regulations under the Code relating to Incentive Stock Options be satisfied, the maximum number of shares of Stock that may be delivered upon exercise of Incentive Stock Options shall be the number specified in Section 3.1(a)(i), and, if necessary to satisfy such regulations, such maximum limit shall apply to the number of shares of Stock that may be delivered in connection with each other type of Award under the Plan (applicable separately to each type of Award). (b) Notwithstanding Section 3.1(a): (i) the Committee may adopt reasonable counting procedures to ensure appropriate counting, avoid double counting (as, for example, in the case of tandem or substitute awards), and make adjustments if the number of shares of Stock actually delivered differs from the number of shares previously counted in connection with an Award; (ii) shares of Stock that are potentially deliverable under any Award (or any stock option or other award granted pursuant to any Prior Plan) that expires or is canceled, forfeited, settled in cash or otherwise terminated without a delivery of such shares to the Participant will not be 6 counted as delivered under the Plan or such Prior Plan; (iii) shares of Stock that have been issued in connection with any Award (e.g., Restricted Stock) or Prior Plan award that is canceled, forfeited, or settled in cash such that those shares are returned to the Company will again be available for Awards; and (iv) shares of Stock withheld in payment of the exercise price or taxes relating to any Award or Prior Plan award and shares equal to the number surrendered in payment of any exercise price or taxes relating to any Award or Prior Plan award shall be deemed to constitute shares not delivered to the Participant and shall be deemed to be available for Awards under the Plan; provided, however, that, no shares shall become available pursuant to this Section 3.1(b) to the extent that (x) the transaction resulting in the return of shares occurs more than ten years after the date of the most recent shareholder approval of the Plan, or (y) such return of shares would constitute a "material revision" of the Plan subject to stockholder approval under then applicable rules of the New York Stock Exchange (or any other applicable exchange or quotation system). In addition, in the case of any Award granted in substitution for an award of a company or business acquired by the Company or a subsidiary or affiliate, shares of Stock issued or issuable in connection with such substitute Award shall not be counted against the number of shares reserved under the Plan, but shall be available under the Plan by virtue of the Company's assumption of the plan or arrangement of the acquired company or business. This Section 3.1 shall apply to the share limit imposed to conform to the regulations promulgated under the Code with respect to Incentive Stock Options only to the extent consistent with applicable regulations relating to Incentive Stock Options under the Code. Because shares will count against the number reserved in Section 3.1 upon delivery, the Committee may, subject to the share counting rules under this Section 3.1, determine that Awards may be outstanding that relate to a greater number of shares than the aggregate remaining available under the Plan, so long as Awards will not result in delivery and vesting of shares in excess of the number then available under the Plan. The payment of Dividend Equivalents in conjunction with any outstanding Awards shall not be counted against the shares available for issuance under the Plan. 3.2 Stock Distributed. Any Stock distributed pursuant to an Award may consist, in whole or in part, of authorized and unissued Stock, treasury Stock or Stock purchased on the open market. 3.3 Limitation on Number of Shares Subject to Awards. Notwithstanding any provision in the Plan to the contrary, and subject to Article 11, the maximum number of shares of Stock with respect to one or more Awards that may be granted to any one Participant during a rolling three-year period (measured from the date of any grant) shall be 3,000,000. ARTICLE 4 ELIGIBILITY AND PARTICIPATION 4.1 Eligibility. (a) General. Persons eligible to participate in this Plan include Employees, Consultants, and all members of the Board, as determined by the Committee. (b) Foreign Participants. Notwithstanding any provision of the Plan to the contrary, in order to comply with the laws in other countries in which the Company and its 7 Subsidiaries operate or have Employees, Consultants or members of the Board, the Committee, in its sole discretion, shall have the power and authority to: (i) Determine which Subsidiaries shall be covered by the Plan; (ii) Determine which Employees, Consultants or members of the Board outside the Unites States are eligible to participate in the Plan; (iii) Modify the terms and conditions of any Award granted to Employees, Consultants or members of the Board outside the United States to comply with applicable foreign laws; (iv) Establish subplans and modify exercise procedures and other terms and procedures, to the extent such actions may be necessary or advisable (any such subplans and/or modifications shall be attached to this Plan as appendices); provided, however, that no such subplans and/or modifications shall increase the share limitations contained in Sections 3.1 and 3.3 of the Plan; and (v) Take any action, before or after an Award is made, that it deems advisable to obtain approval or comply with any necessary local governmental regulatory exemptions or approvals. Notwithstanding the foregoing, the Committee may not take any actions hereunder, and no Awards shall be granted, that would violate the Exchange Act, the Code, any securities law or governing statute or any other applicable law. 4.2 Participation. Subject to the provisions of the Plan, the Committee may, from time to time, select from among all eligible individuals, those to whom Awards shall be granted and shall determine the nature and amount of each Award. No individual shall have any right to be granted an Award pursuant to this Plan. ARTICLE 5 STOCK OPTIONS 5.1 General. The Committee is authorized to grant Options to Participants on the following terms and conditions: (a) Exercise Price. The exercise price per share of Stock subject to an Option shall be determined by the Committee and set forth in the Award Agreement; provided that the exercise price for any Option shall not be less than 100% of the Fair Market Value on the date of grant. (b) Time and Conditions of Exercise. The Committee shall determine the time or times at which an Option may be exercised in whole or in part; provided that the term of any Option granted under the Plan shall not exceed ten years; and, provided, further, that in the case of a Non-Qualified Stock Option, such Option shall be exercisable for one year after the date of the Participant's death. The Committee shall also determine the performance or other 8 conditions, if any, that must be satisfied before all or part of an Option may be exercised. (c) Payment. The Committee shall determine the methods by which the exercise price of an Option may be paid, the form of payment, including, without limitation, cash, promissory note bearing interest at no less than such rate as shall then preclude the imputation of interest under the Code, shares of Stock held for longer than 6 months having a Fair Market Value on the date of delivery equal to the aggregate exercise price of the Option or exercised portion thereof, or other property acceptable to the Committee (including through the delivery of a notice that the Participant has placed a market sell order with a broker with respect to shares of Stock then issuable upon exercise of the Option, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the Option exercise price; provided that payment of such proceeds is then made to the Company upon settlement of such sale), and the methods by which shares of Stock shall be delivered or deemed to be delivered to Participants. Notwithstanding any other provision of the Plan to the contrary, no Participant who is a member of the Board or an "executive officer" of the Company within the meaning of Section 13(k) of the Exchange Act shall be permitted to pay the exercise price of an Option in any method which would violate Section 13(k) of the Exchange Act. (d) Evidence of Grant. All Options shall be evidenced by a written Award Agreement between the Company and the Participant. The Award Agreement shall include such additional provisions as may be specified by the Committee. 5.2 Incentive Stock Options. Incentive Stock Options shall be granted only to Employees and the terms of any Incentive Stock Options granted pursuant to the Plan must comply with the following additional provisions of this Section 5.2: (a) Exercise Price. The exercise price per share of Stock shall be set by the Committee; provided that the exercise price for any Incentive Stock Option shall not be less than 100% of the Fair Market Value on the date of grant. (b) Expiration of Option. An Incentive Stock Option may not be exercised to any extent by anyone after the first to occur of the following events: (i) Ten years from the date it is granted, unless an earlier time is set in the Award Agreement. (ii) One year after the date of the Participant's termination of employment or service on account of Disability or death. Upon the Participant's Disability or death, any Incentive Stock Options exercisable at the Participant's Disability or death may be exercised by the Participant's legal representative or representatives, by the person or persons entitled to do so pursuant to the Participant's last will and testament, or, if the Participant fails to make testamentary disposition of such Incentive Stock Option or dies intestate, by the person or persons entitled to receive the Incentive Stock Option pursuant to the applicable laws of descent and distribution. (c) Individual Dollar Limitation. The aggregate Fair Market Value (determined as of the time the Option is granted) of all shares of Stock with respect to which 9 Incentive Stock Options are first exercisable by a Participant in any calendar year may not exceed $100,000.00 or such other limitation as imposed by Section 422(d) of the Code, or any successor provision. To the extent that Incentive Stock Options are first exercisable by a Participant in excess of such limitation, the excess shall be considered Non-Qualified Stock Options. (d) Ten Percent Owners. An Incentive Stock Option shall be granted to any individual who, at the date of grant, owns stock possessing more than ten percent of the total combined voting power of all classes of Stock of the Company only if such Option is granted at a price that is not less than 110% of Fair Market Value on the date of grant and the Option is exercisable for no more than five years from the date of grant. (e) Transfer Restriction. The Participant shall give the Company prompt notice of any disposition of shares of Stock acquired by exercise of an Incentive Stock Option within (i) two years from the date of grant of such Incentive Stock Option or (ii) one year after the transfer of such shares of Stock to the Participant. (f) Expiration of Incentive Stock Options. No Award of an Incentive Stock Option may be made pursuant to this Plan after the tenth anniversary of the Effective Date. (g) Right to Exercise. During a Participant's lifetime, an Incentive Stock Option may be exercised only by the Participant. 5.3 Substitution of Stock Appreciation Rights. The Committee may provide in the Award Agreement evidencing the grant of an Option that the Committee, in its sole discretion, shall have to right to substitute a Stock Appreciation Right for such Option at any time prior to or upon exercise of such Option, subject to the provisions of Section 7.2 hereof; provided that such Stock Appreciation Right shall be exercisable for the same number of shares of Stock as such substituted Option would have been exercisable for. 5.4 Granting of Options to Independent Directors. The Board may from time to time, in its sole discretion, and subject to the limitations of the Plan: (a) Select from among the Independent Directors (including Independent Directors who have previously been granted Options under the Plan) such of them as in its opinion should be granted Options; (b) Subject to Section 3.3, determine the number of shares of Stock to be subject to Options granted to such selected Independent Directors; and (c) Subject to the provisions of this Article 5, determine the terms and conditions of such Options, consistent with the Plan. Options granted to Independent Directors shall be Non-Qualified Stock Options. 10 ARTICLE 6 RESTRICTED STOCK AWARDS 6.1 Grant of Restricted Stock. The Committee is authorized to make Awards of Restricted Stock to any Participant selected by the Committee in such amounts and subject to such terms and conditions as determined by the Committee. All Awards of Restricted Stock shall be evidenced by a written Restricted Stock Award Agreement. 6.2 Issuance and Restrictions. Subject to Section 10.6, Restricted Stock shall be subject to such restrictions on transferability and other restrictions as the Committee may impose (including, without limitation, limitations on the right to vote Restricted Stock or the right to receive dividends on the Restricted Stock). These restrictions may lapse separately or in combination at such times, pursuant to such circumstances, in such installments, or otherwise, as the Committee determines at the time of the grant of the Award or thereafter. 6.3 Forfeiture. Except as otherwise determined by the Committee at the time of the grant of the Award or thereafter, upon termination of employment or service during the applicable restriction period, Restricted Stock that is at that time subject to restrictions shall be forfeited; provided, however, that, except as otherwise provided by Section 10.6, the Committee may (a) provide in any Restricted Stock Award Agreement that restrictions or forfeiture conditions relating to Restricted Stock will be waived in whole or in part in the event of terminations resulting from specified causes, and (b) in other cases waive in whole or in part restrictions or forfeiture conditions relating to Restricted Stock. 6.4 Certificates for Restricted Stock. Restricted Stock granted pursuant to the Plan may be evidenced in such manner as the Committee shall determine. If certificates representing shares of Restricted Stock are registered in the name of the Participant, certificates must bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Restricted Stock, and the Company may, at its discretion, retain physical possession of the certificate until such time as all applicable restrictions lapse. ARTICLE 7 STOCK APPRECIATION RIGHTS 7.1 Grant of Stock Appreciation Rights. A Stock Appreciation Right may be granted to any Participant selected by the Committee. A Stock Appreciation Right may be granted (a) in connection and simultaneously with the grant of an Option, (b) with respect to a previously granted Option, or (c) independent of an Option. A Stock Appreciation Right shall be subject to such terms and conditions not inconsistent with the Plan as the Committee shall impose and shall be evidenced by an Award Agreement. 7.2 Coupled Stock Appreciation Rights. (a) A Coupled Stock Appreciation Right ("CSAR") shall be related to a particular Option and shall be exercisable only when and to the extent the related Option is exercisable. 11 (b) A CSAR may be granted to a Participant for no more than the number of shares subject to the simultaneously or previously granted Option to which it is coupled. (c) A CSAR shall entitle the Participant (or other person entitled to exercise the Option pursuant to the Plan) to surrender to the Company the unexercised portion of the Option to which the CSAR relates (to the extent then exercisable pursuant to its terms) and to receive from the Company in exchange therefor an amount determined by multiplying the difference obtained by subtracting the Option exercise price from the Fair Market Value of a share of Stock on the date of exercise of the CSAR by the number of shares of Stock with respect to which the CSAR shall have been exercised, subject to any limitations the Committee may impose. 7.3 Independent Stock Appreciation Rights. (a) An Independent Stock Appreciation Right ("ISAR") shall be unrelated to any Option and shall have a term set by the Committee. An ISAR shall be exercisable in such installments as the Committee may determine. An ISAR shall cover such number of shares of Stock as the Committee may determine. The exercise price per share of Stock subject to each ISAR shall be set by the Committee; ; provided that the exercise price for any ISAR shall not be less than 100% of the Fair Market Value on the date of grant; and provided, further, that, the Committee in its sole and absolute discretion may provide that the ISAR may be exercised subsequent to a termination of employment or service, as applicable, or following a Change in Control of the Company, or because of the Participant's retirement, death or disability, or otherwise. (b) An ISAR shall entitle the Participant (or other person entitled to exercise the ISAR pursuant to the Plan) to exercise all or a specified portion of the ISAR (to the extent then exercisable pursuant to its terms) and to receive from the Company an amount determined by multiplying the difference obtained by subtracting the exercise price per share of the ISAR from the Fair Market Value of a share of Stock on the date of exercise of the ISAR by the number of shares of Stock with respect to which the ISAR shall have been exercised, subject to any limitations the Committee may impose. 7.4 Payment and Limitations on Exercise. (a) Payment of the amounts determined under Sections 7.2(c) and 7.3(b) above shall be in cash, in Stock (based on its Fair Market Value as of the date the Stock Appreciation Right is exercised) or a combination of both, as determined by the Committee. (b) To the extent any payment under Section 7.2(c) or 7.3(b) is effected in Stock it shall be made subject to satisfaction of all provisions of Article 5 above pertaining to Options. 12 ARTICLE 8 OTHER TYPES OF AWARDS 8.1 Performance Share Awards. Any Participant selected by the Committee may be granted one or more Performance Share awards which shall be denominated in a number of shares of Stock and which may be linked to any one or more of the Performance Criteria or other specific performance criteria determined appropriate by the Committee, in each case on a specified date or dates or over any period or periods determined by the Committee (subject to Section 10.6). In making such determinations, the Committee shall consider (among such other factors as it deems relevant in light of the specific type of award) the contributions, responsibilities and other compensation of the particular Participant. 8.2 Performance Stock Units. Any Participant selected by the Committee may be granted one or more Performance Stock Unit awards which shall be denominated in units of value including dollar value of shares of Stock and which may be linked to any one or more of the Performance Criteria or other specific performance criteria determined appropriate by the Committee, in each case on a specified date or dates or over any period or periods determined by the Committee (subject to Section 10.6). In making such determinations, the Committee shall consider (among such other factors as it deems relevant in light of the specific type of award) the contributions, responsibilities and other compensation of the particular Participant. 8.3 Dividend Equivalents. (a) Any Participant selected by the Committee may be granted Dividend Equivalents based on the dividends declared on the shares of Stock that are subject to any Award, to be credited as of dividend payment dates, during the period between the date the Award is granted and the date the Award is exercised, vests or expires, as determined by the Committee. Such Dividend Equivalents shall be converted to cash or additional shares of Stock by such formula and at such time and subject to such limitations as may be determined by the Committee. (b) Dividend Equivalents granted with respect to Options or SARs that are intended to be Qualified Performance-Based Compensation shall be payable, with respect to pre-exercise periods, regardless of whether such Option or SAR is subsequently exercised. 8.4 Stock Payments. Any Participant selected by the Committee may receive Stock Payments in the manner determined from time to time by the Committee; provided, that unless otherwise determined by the Committee such Stock Payments shall be made in lieu of base salary, bonus, or other cash compensation otherwise payable to such Participant. The number of shares shall be determined by the Committee and may be based upon the Performance Criteria or other specific performance criteria determined appropriate by the Committee, determined on the date such Stock Payment is made or on any date thereafter. 8.5 Deferred Stock. Any Participant selected by the Committee may be granted an award of Deferred Stock in the manner determined from time to time by the Committee. The number of shares of Deferred Stock shall be determined by the Committee and may be linked to 13 the Performance Criteria or other specific performance criteria determined to be appropriate by the Committee, in each case on a specified date or dates or over any period or periods determined by the Committee (subject to Section 10.6). Stock underlying a Deferred Stock award will not be issued until the Deferred Stock award has vested, pursuant to a vesting schedule or performance criteria set by the Committee. Unless otherwise provided by the Committee, a Participant awarded Deferred Stock shall have no rights as a Company stockholder with respect to such Deferred Stock until such time as the Deferred Stock Award has vested and the Stock underlying the Deferred Stock Award has been issued. 8.6 Restricted Stock Units. The Committee is authorized to make Awards of Restricted Stock Units to any Participant selected by the Committee in such amounts and subject to such terms and conditions as determined by the Committee. At the time of grant, the Committee shall specify the date or dates on which the Restricted Stock Units shall become fully vested and nonforfeitable, and may specify such conditions to vesting as it deems appropriate (subject to Section 10.6). At the time of grant, the Committee shall specify the maturity date applicable to each grant of Restricted Stock Units which shall be no earlier than the vesting date or dates of the Award and may be determined at the election of the grantee. On the maturity date, the Company shall transfer to the Participant one unrestricted, fully transferable share of Stock for each Restricted Stock Unit scheduled to be paid out on such date and not previously forfeited. The Committee shall specify the purchase price, if any, to be paid by the grantee to the Company for such shares of Stock. 8.7 Other Stock-Based Awards. Any Participant selected by the Committee may be granted one or more Awards that provide Participants with shares of Stock or the right to purchase shares of Stock or that have a value derived from the value of, or an exercise or conversion privilege at a price related to, or that are otherwise payable in shares of Stock and which may be linked to any one or more of the Performance Criteria or other specific performance criteria determined appropriate by the Committee, in each case on a specified date or dates or over any period or periods determined by the Committee (subject to Section 10.6). In making such determinations, the Committee shall consider (among such other factors as it deems relevant in light of the specific type of Award) the contributions, responsibilities and other compensation of the particular Participant. 8.8 Term. Except as otherwise provided herein, the term of any Award of Performance Shares, Performance Stock Units, Dividend Equivalents, Stock Payments, Deferred Stock, Restricted Stock Units or Other Stock-Based Award shall be set by the Committee in its discretion. 8.9 Exercise or Purchase Price. The Committee may establish the exercise or purchase price, if any, of any Award of Performance Shares, Performance Stock Units, Deferred Stock, Stock Payments, Restricted Stock Units or Other Stock-Based Award; provided, however, that such price shall not be less than the par value of a share of Stock, unless otherwise permitted by applicable state law. 8.10 Exercise Upon Termination of Employment or Service. An Award of Performance Shares, Performance Stock Units, Dividend Equivalents, Deferred Stock, Stock Payments, Restricted Stock Units and Other Stock-Based Award shall only be exercisable or 14 payable while the Participant is an Employee, Consultant or a member of the Board, as applicable; provided, however, that the Committee in its sole and absolute discretion may provide that an Award of Performance Shares, Performance Stock Units, Dividend Equivalents, Stock Payments, Deferred Stock, Restricted Stock Units or Other Stock-Based Award may be exercised or paid subsequent to a termination of employment or service, as applicable, or following a Change in Control of the Company, or because of the Participant's retirement, death or disability, or otherwise; provided, however, that any such provision with respect to Performance Shares or Performance Stock Units shall be subject to the requirements of Section 162(m) of the Code that apply to Qualified Performance-Based Compensation. 8.11 Form of Payment. Payments with respect to any Awards granted under this Article 8 shall be made in cash, in Stock or a combination of both, as determined by the Committee. 8.12 Award Agreement. All Awards under this Article 8 shall be subject to such additional terms and conditions as determined by the Committee and shall be evidenced by a written Award Agreement. ARTICLE 9 PERFORMANCE-BASED AWARDS 9.1 Purpose. The purpose of this Article 9 is to provide the Committee the ability to qualify Awards other than Options and SARs and that are granted pursuant to Articles 6 and 8 as Qualified Performance-Based Compensation. If the Committee, in its discretion, decides to grant a Performance-Based Award to a Covered Employee, the provisions of this Article 9 shall control over any contrary provision contained in Articles 6 or 8; provided, however, that the Committee may in its discretion grant Awards to Covered Employees that are based on Performance Criteria or Performance Goals but that do not satisfy the requirements of this Article 9. 9.2 Applicability. This Article 9 shall apply only to those Covered Employees selected by the Committee to receive Performance-Based Awards. The designation of a Covered Employee as a Participant for a Performance Period shall not in any manner entitle the Participant to receive an Award for the period. Moreover, designation of a Covered Employee as a Participant for a particular Performance Period shall not require designation of such Covered Employee as a Participant in any subsequent Performance Period and designation of one Covered Employee as a Participant shall not require designation of any other Covered Employees as a Participant in such period or in any other period. 9.3 Procedures with Respect to Performance-Based Awards. To the extent necessary to comply with the Qualified Performance-Based Compensation requirements of Section 162(m)(4)(C) of the Code, with respect to any Award granted under Articles 6 and 8 which may be granted to one or more Covered Employees, no later than ninety (90) days following the commencement of any fiscal year in question or any other designated fiscal period or period of service (or such other time as may be required or permitted by Section 162(m) of the Code), the Committee shall, in writing, (a) designate one or more Covered Employees, (b) select the 15 Performance Criteria applicable to the Performance Period, (c) establish the Performance Goals, and amounts of such Awards, as applicable, which may be earned for such Performance Period, and (d) specify the relationship between Performance Criteria and the Performance Goals and the amounts of such Awards, as applicable, to be earned by each Covered Employee for such Performance Period. Following the completion of each Performance Period, the Committee shall certify in writing whether the applicable Performance Goals have been achieved for such Performance Period. In determining the amount earned by a Covered Employee, the Committee shall have the right to reduce or eliminate (but not to increase) the amount payable at a given level of performance to take into account additional factors that the Committee may deem relevant to the assessment of individual or corporate performance for the Performance Period. 9.4 Payment of Performance-Based Awards. Unless otherwise provided in the applicable Award Agreement, a Participant must be employed by the Company or a Subsidiary on the day a Performance-Based Award for such Performance Period is paid to the Participant. Furthermore, a Participant shall be eligible to receive payment pursuant to a Performance-Based Award for a Performance Period only if the Performance Goals for such period are achieved. In determining the amount earned under a Performance-Based Award, the Committee may reduce or eliminate the amount of the Performance-Based Award earned for the Performance Period, if in its sole and absolute discretion, such reduction or elimination is appropriate. 9.5 Additional Limitations. Notwithstanding any other provision of the Plan, any Award which is granted to a Covered Employee and is intended to constitute Qualified Performance-Based Compensation shall be subject to any additional limitations set forth in Section 162(m) of the Code (including any amendment to Section 162(m) of the Code) or any regulations or rulings issued thereunder that are requirements for qualification as qualified performance-based compensation as described in Section 162(m)(4)(C) of the Code, and the Plan shall be deemed amended to the extent necessary to conform to such requirements. ARTICLE 10 PROVISIONS APPLICABLE TO AWARDS 10.1 Stand-Alone and Tandem Awards. Awards granted pursuant to the Plan may, in the discretion of the Committee, be granted either alone, in addition to, or in tandem with, any other Award granted pursuant to the Plan. Awards granted in addition to or in tandem with other Awards may be granted either at the same time as or at a different time from the grant of such other Awards. 10.2 Award Agreement. Awards under the Plan shall be evidenced by Award Agreements that set forth the terms, conditions and limitations for each Award which may include the term of an Award, the provisions applicable in the event the Participant's employment or service terminates, and the Company's authority to unilaterally or bilaterally amend, modify, suspend, cancel or rescind an Award. 10.3 Limits on Transfer. No right or interest of a Participant in any Award may be pledged, encumbered, or hypothecated to or in favor of any party other than the Company or a 16 Subsidiary, or shall be subject to any lien, obligation, or liability of such Participant to any other party other than the Company or a Subsidiary. Except as otherwise provided by the Committee, no Award shall be assigned, transferred, or otherwise disposed of by a Participant other than by will or the laws of descent and distribution. The Committee by express provision in the Award or an amendment thereto may permit an Award (other than an Incentive Stock Option) to be transferred to, exercised by and paid to certain persons or entities related to the Participant, including but not limited to members of the Participant's family, charitable institutions, or trusts or other entities whose beneficiaries or beneficial owners are members of the Participant's family and/or charitable institutions, or to such other persons or entities as may be expressly approved by the Committee, pursuant to such conditions and procedures as the Committee may establish. Any permitted transfer shall be subject to the condition that the Committee receive evidence satisfactory to it that the transfer is being made for estate and/or tax planning purposes (or to a "blind trust" in connection with the Participant's termination of employment or service with the Company or a Subsidiary to assume a position with a governmental, charitable, educational or similar non-profit institution) and on a basis consistent with the Company's lawful issue of securities. 10.4 Beneficiaries. Notwithstanding Section 10.3, a Participant may, in the manner determined by the Committee, designate a beneficiary to exercise the rights of the Participant and to receive any distribution with respect to any Award upon the Participant's death. A beneficiary, legal guardian, legal representative, or other person claiming any rights pursuant to the Plan is subject to all terms and conditions of the Plan and any Award Agreement applicable to the Participant, except to the extent the Plan and Award Agreement otherwise provide, and to any additional restrictions deemed necessary or appropriate by the Committee. If the Participant is married and resides in a community property state, a designation of a person other than the Participant's spouse as his or her beneficiary with respect to more than 50% of the Participant's interest in the Award shall not be effective without the prior written consent of the Participant's spouse. If no beneficiary has been designated or survives the Participant, payment shall be made to the person entitled thereto pursuant to the Participant's will or the laws of descent and distribution. Subject to the foregoing, a beneficiary designation may be changed or revoked by a Participant at any time provided the change or revocation is filed with the Committee. 10.5 Stock Certificates. Notwithstanding anything herein to the contrary, the Company shall not be required to issue or deliver any certificates evidencing shares of Stock pursuant to the exercise of any Award, unless and until the Board has determined, with advice of counsel, that the issuance and delivery of such certificates is in compliance with all applicable laws, regulations of governmental authorities and, if applicable, the requirements of any exchange on which the shares of Stock are listed or traded. All Stock certificates delivered pursuant to the Plan are subject to any stop-transfer orders and other restrictions as the Committee deems necessary or advisable to comply with federal, state, or foreign jurisdiction, securities or other laws, rules and regulations and the rules of any national securities exchange or automated quotation system on which the Stock is listed, quoted, or traded. The Committee may place legends on any Stock certificate to reference restrictions applicable to the Stock. In addition to the terms and conditions provided herein, the Board may require that a Participant make such reasonable covenants, agreements, and representations as the Board, in its discretion, deems advisable in order to comply with any such laws, regulations, or requirements. The Committee shall have the right to require any Participant to comply with any timing or other restrictions with 17 respect to the settlement or exercise of any Award, including a window-period limitation, as may be imposed in the discretion of the Committee. 10.6 Full Value Award Vesting Limitations. Notwithstanding any other provision of this Plan to the contrary, Full Value Awards made to Employees or Consultants shall become vested over a period of not less than three years (or, in the case of vesting based upon the attainment of Performance Goals or other performance-based objectives, over a period of not less than one year) following the date the Award is made; provided, however, that, notwithstanding the foregoing, Full Value Awards that result in the issuance of an aggregate of up to 5% of the shares of Stock available pursuant to Section 3.1(a) may be granted to any one or more Participants without respect to such minimum vesting provisions. ARTICLE 11 CHANGES IN CAPITAL STRUCTURE 11.1 Adjustments. In the event of any stock dividend, stock split, combination or exchange of shares, merger, consolidation, spin-off, recapitalization or other distribution (other than normal cash dividends) of Company assets to stockholders, or any other change affecting the shares of Stock or the share price of the Stock, the Committee shall make such proportionate adjustments, if any, as the Committee in its discretion may deem appropriate to reflect such change with respect to (a) the aggregate number and type of shares that may be issued under the Plan (including, but not limited to, adjustments of the limitations in Sections 3.1 and 3.3 and the numbers of Shares in Section 5.4); (b) the terms and conditions of any outstanding Awards (including, without limitation, any applicable performance targets or criteria with respect thereto); and (c) the grant or exercise price per share for any outstanding Awards under the Plan. Any adjustment affecting an Award intended as Qualified Performance-Based Compensation shall be made consistent with the requirements of Section 162(m) of the Code. 11.2 Acceleration upon a Change of Control. Except as may otherwise be provided in any Award Agreement or any other written agreement entered into by and between the Company and a Participant, if a Change of Control occurs and a Participant's Awards are not converted, assumed, or replaced by a successor, such Awards shall become fully exercisable and all forfeiture restrictions on such Awards shall lapse. Upon, or in anticipation of, a Change in Control, the Committee may cause any and all Awards outstanding hereunder to terminate at a specific time in the future and shall give each Participant the right to exercise such Awards during a period of time as the Committee, in its sole and absolute discretion, shall determine. 11.3 Outstanding Awards - Certain Mergers. Subject to any required action by the stockholders of the Company, in the event that the Company shall be the surviving corporation in any merger or consolidation (except a merger or consolidation as a result of which the holders of shares of Stock receive securities of another corporation), each Award outstanding on the date of such merger or consolidation shall pertain to and apply to the securities that a holder of the number of shares of Stock subject to such Award would have received in such merger or consolidation. 18 11.4 Outstanding Awards - Other Changes. In the event of any other change in the capitalization of the Company or corporate change other than those specifically referred to in this Article 11, the Committee may, in its absolute discretion, make such adjustments in the number and class of shares subject to Awards outstanding on the date on which such change occurs and in the per share grant or exercise price of each Award as the Committee may consider appropriate to prevent dilution or enlargement of rights. 11.5 No Other Rights. Except as expressly provided in the Plan, no Participant shall have any rights by reason of any subdivision or consolidation of shares of stock of any class, the payment of any dividend, any increase or decrease in the number of shares of stock of any class or any dissolution, liquidation, merger, or consolidation of the Company or any other corporation. Except as expressly provided in the Plan or pursuant to action of the Committee under the Plan, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number of shares of Stock subject to an Award or the grant or exercise price of any Award. ARTICLE 12 ADMINISTRATION 12.1 Committee. The Plan shall be administered by the Compensation Committee of the Board; provided, however that the Compensation Committee may delegate to a committee of one or more members of the Board the authority to grant or amend Awards to Participants other than (a) senior executives of the Company who are subject to Section 16 of the Exchange Act or (b) Covered Employees. The Committee shall consist of at least two individuals, each of whom qualifies as (x) a Non-Employee Director, and (y) an "outside director" pursuant to Code Section 162(m) and the regulations issued thereunder. Reference to the Committee shall refer to the Board if the Compensation Committee ceases to exist and the Board does not appoint a successor Committee. 12.2 Action by the Committee. A majority of the Committee shall constitute a quorum. The acts of a majority of the members present at any meeting at which a quorum is present, and acts approved in writing by a majority of the Committee in lieu of a meeting, shall be deemed the acts of the Committee. Each member of the Committee is entitled to, in good faith, rely or act upon any report or other information furnished to that member by any officer or other employee of the Company or any Subsidiary, the Company's independent certified public accountants, or any executive compensation consultant or other professional retained by the Company to assist in the administration of the Plan. 12.3 Authority of Committee. Subject to any specific designation in the Plan, the Committee has the exclusive power, authority and discretion to: (a) Designate Participants to receive Awards; (b) Determine the type or types of Awards to be granted to each Participant; (c) Determine the number of Awards to be granted and the number of shares 19 of Stock to which an Award will relate; (d) Determine the terms and conditions of any Award granted pursuant to the Plan, including, but not limited to, the exercise price, grant price, or purchase price, any reload provision, any restrictions or limitations on the Award, any schedule for lapse of forfeiture restrictions or restrictions on the exercisability of an Award, and accelerations or waivers thereof, any provisions related to non-competition and recapture of gain on an Award, based in each case on such considerations as the Committee in its sole discretion determines; provided, however, that the Committee shall not have the authority to accelerate the vesting or waive the forfeiture of any Performance-Based Awards; (e) Determine whether, to what extent, and pursuant to what circumstances an Award may be settled in, or the exercise price of an Award may be paid in, cash, Stock, other Awards, or other property, or an Award may be canceled, forfeited, or surrendered; (f) Prescribe the form of each Award Agreement, which need not be identical for each Participant; (g) Decide all other matters that must be determined in connection with an Award; (h) Establish, adopt, or revise any rules and regulations as it may deem necessary or advisable to administer the Plan; (i) Interpret the terms of, and any matter arising pursuant to, the Plan or any Award Agreement; and (j) Make all other decisions and determinations that may be required pursuant to the Plan or as the Committee deems necessary or advisable to administer the Plan. 12.4 Decisions Binding. The Committee's interpretation of the Plan, any Awards granted pursuant to the Plan, any Award Agreement and all decisions and determinations by the Committee with respect to the Plan are final, binding, and conclusive on all parties. ARTICLE 13 EFFECTIVE AND EXPIRATION DATE 13.1 Effective Date. The Plan is effective as of the date the Plan is approved by the Company's stockholders (the "Effective Date"). The Plan will be deemed to be approved by the stockholders if it receives the affirmative vote of the holders of a majority of the shares of stock of the Company present or represented and entitled to vote at a meeting duly held in accordance with the applicable provisions of the Company's Bylaws. 13.2 Expiration Date. The Plan will expire on, and no Award may be granted pursuant to the Plan after, the tenth anniversary of the Effective Date. Any Awards that are outstanding on the tenth anniversary of the Effective Date shall remain in force according to the terms of the Plan and the applicable Award Agreement. 20 ARTICLE 14 AMENDMENT, MODIFICATION, AND TERMINATION 14.1 Amendment, Modification, And Termination. With the approval of the Board, at any time and from time to time, the Committee may terminate, amend or modify the Plan; provided, however, that (a) to the extent necessary and desirable to comply with any applicable law, regulation, or stock exchange rule, the Company shall obtain stockholder approval of any Plan amendment in such a manner and to such a degree as required, and (b) stockholder approval is required for any amendment to the Plan that (i) increases the number of shares available under the Plan (other than any adjustment as provided by Article 11), (ii) permits the Committee to grant Options with an exercise price that is below Fair Market Value on the date of grant, (iii) permits the Committee to extend the exercise period for an Option beyond ten years from the date of grant, or (iv) results in a material increase in benefits or a change in eligibility requirements. Notwithstanding any provision in this Plan to the contrary, absent approval of the stockholders of the Company, no Option may be amended to reduce the per share exercise price of the shares subject to such Option below the per share exercise price as of the date the Option is granted and, except as permitted by Article 11, no Option may be granted in exchange for, or in connection with, the cancellation or surrender of an Option having a higher per share exercise price. 14.2 Awards Previously Granted. No termination, amendment, or modification of the Plan shall adversely affect in any material way any Award previously granted pursuant to the Plan without the prior written consent of the Participant. ARTICLE 15 GENERAL PROVISIONS 15.1 No Rights to Awards. No Participant, employee, or other person shall have any claim to be granted any Award pursuant to the Plan, and neither the Company nor the Committee is obligated to treat Participants, employees, and other persons uniformly. 15.2 No Stockholders Rights. No Award gives the Participant any of the rights of a stockholder of the Company unless and until shares of Stock are in fact issued to such person in connection with such Award. 15.3 Withholding. The Company or any Subsidiary shall have the authority and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy federal, state, local and foreign taxes (including the Participant's FICA obligation) required by law to be withheld with respect to any taxable event concerning a Participant arising as a result of this Plan. The Committee may in its discretion and in satisfaction of the foregoing requirement allow a Participant to elect to have the Company withhold shares of Stock otherwise issuable under an Award (or allow the return of shares of Stock) having a Fair Market Value equal to the sums required to be withheld. Notwithstanding any other provision of the Plan, the number of shares of Stock which may be withheld with respect to the issuance, vesting, exercise or payment of any Award (or which may be 21 repurchased from the Participant of such Award within six months after such shares of Stock were acquired by the Participant from the Company) in order to satisfy the Participant's federal, state, local and foreign income and payroll tax liabilities with respect to the issuance, vesting, exercise or payment of the Award shall be limited to the number of shares which have a Fair Market Value on the date of withholding or repurchase equal to the aggregate amount of such liabilities based on the minimum statutory withholding rates for federal, state, local and foreign income tax and payroll tax purposes that are applicable to such supplemental taxable income. 15.4 No Right to Employment or Services. Nothing in the Plan or any Award Agreement shall interfere with or limit in any way the right of the Company or any Subsidiary to terminate any Participant's employment or services at any time, nor confer upon any Participant any right to continue in the employ or service of the Company or any Subsidiary. 15.5 Unfunded Status of Awards. The Plan is intended to be an "unfunded" plan for incentive compensation. With respect to any payments not yet made to a Participant pursuant to an Award, nothing contained in the Plan or any Award Agreement shall give the Participant any rights that are greater than those of a general creditor of the Company or any Subsidiary. 15.6 Indemnification. To the extent allowable pursuant to applicable law, each member of the Committee or of the Board shall be indemnified and held harmless by the Company from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by such member in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action or failure to act pursuant to the Plan and against and from any and all amounts paid by him or her in satisfaction of judgment in such action, suit, or proceeding against him or her; provided he or she gives the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled pursuant to the Company's Certificate of Incorporation or Bylaws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless. 15.7 Relationship to other Benefits. No payment pursuant to the Plan shall be taken into account in determining any benefits pursuant to any pension, retirement, savings, profit sharing, group insurance, welfare or other benefit plan of the Company or any Subsidiary except to the extent otherwise expressly provided in writing in such other plan or an agreement thereunder. 15.8 Expenses. The expenses of administering the Plan shall be borne by the Company and its Subsidiaries. 15.9 Titles and Headings. The titles and headings of the Sections in the Plan are for convenience of reference only and, in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control. 15.10 Fractional Shares. No fractional shares of Stock shall be issued and the Committee shall determine, in its discretion, whether cash shall be given in lieu of fractional 22 shares or whether such fractional shares shall be eliminated by rounding up or down as appropriate. 15.11 Limitations Applicable to Section 16 Persons. Notwithstanding any other provision of the Plan, the Plan, and any Award granted or awarded to any Participant who is then subject to Section 16 of the Exchange Act, shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of the Exchange Act) that are requirements for the application of such exemptive rule. To the extent permitted by applicable law, the Plan and Awards granted or awarded hereunder shall be deemed amended to the extent necessary to conform to such applicable exemptive rule. 15.12 Government and Other Regulations. The obligation of the Company to make payment of awards in Stock or otherwise shall be subject to all applicable laws, rules, and regulations, and to such approvals by government agencies as may be required. The Company shall be under no obligation to register pursuant to the Securities Act of 1933, as amended, any of the shares of Stock paid pursuant to the Plan. If the shares paid pursuant to the Plan may in certain circumstances be exempt from registration pursuant to the Securities Act of 1933, as amended, the Company may restrict the transfer of such shares in such manner as it deems advisable to ensure the availability of any such exemption. 15.13 Governing Law. The Plan and all Award Agreements shall be construed in accordance with and governed by the laws of the State of Delaware. * * * * * I hereby certify that the foregoing Plan was duly adopted by the Board of Directors of Symbol Technologies, Inc. on March 10, 2004. * * * * * I hereby certify that the foregoing Plan was approved by the stockholders of Symbol Technologies, Inc. on April 26, 2004. Executed on this 26th day of April, 2004. /s/ Peter Lieb --------------------------------------- Corporate Secretary 23 EX-31.1 5 file005.txt CERTIFICATION OF WILLIAM R. NUTI EXHIBIT 31.1 CERTIFICATIONS I, William R. Nuti, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Symbol Technologies, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 10, 2004 /s/ William R. Nuti ----------------------------------- William R. Nuti Chief Executive Officer, President, Chief Operating Officer and Director EX-31.2 6 file006.txt CERTIFICATION OF MARK T. GREENQUIST EXHIBIT 31.2 CERTIFICATIONS I, Mark T. Greenquist, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Symbol Technologies, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 10, 2004 /s/ Mark T. Greenquist --------------------------------- Mark T. Greenquist Senior Vice President and Chief Financial Officer EX-32.1 7 file007.txt CERTIFICATION PURSUANT TO SECTION 906 EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Symbol Technologies, Inc., (the "Company") on Form 10-Q for the period ended March 31, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, William R. Nuti, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. A signed original of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. Date: May 10, 2004 /s/ William R. Nuti ----------------------------------- William R. Nuti Chief Executive Officer, President, Chief Operating Officer and Director EX-32.2 8 file008.txt CERTIFICATION PURSUANT TO SECTION 906 EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Symbol Technologies, Inc., (the "Company") on Form 10-Q for the period ended March 31, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Mark Greenquist, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. A signed original of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. Date: May 10, 2004 /s/ Mark T. Greenquist --------------------------------- Mark T. Greenquist Senior Vice President and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----