Item 1. Business
The Company
Symbol Technologies, Inc. ("Symbol" and, together with its subsidiaries, the "Company"), a Delaware corporation, is the successor by merger in 1987 to Symbol Technologies, Inc., a New York corporation which was organized in 1973 and is the largest manufacturer of bar code-driven data transaction systems. The Company is the only corporation in its industry with in-house technology for the design and manufacture of bar code scanning products, hand-held computers and radio frequency (RF) data communications systems. The Company is engaged in one industry segment - the design, manufacture and marketing of bar code reading equipment, hand-held computers and radio frequency data communications systems which are used as strategic building blocks in data transaction systems in retail, transportation and logistics, parcel delivery and postal service, warehousing and distribution, factory automation, health care and many other applications.
Company Products and Services
General
The Company develops, manufactures, sells and services (i) one-dimensional and two-dimensional bar code scanning products that principally employ laser technology to read data encoded in bar code symbols, (ii) data transaction systems incorporating application specific hand-held computers, and (iii) wireless local area network (WLAN) adapter cards and RF systems to transmit data. The Company distributes the most complete line of bar code reading equipment in the world. The Company's bar code scanning equipment is compatible with a wide variety of data collection systems, including computers, electronic cash registers and portable data collection devices. Bar code scanners are used to enhance accurate data entry and productivity in retail, transportation and logistics, parcel delivery and postal service, warehousing and distribution, factory automation and many other applications.
The Company's data transaction systems consist of hand- held computers, peripheral devices, software and programming tools, and are designed to provide solutions to specific customer needs in data transactions. They are used to collect data at remote locations and to transmit information between these locations and the user's central data processing facility. Data can be entered by a touch screen or a device which reads bar codes or may be keyed into memory on a numeric or alpha-numeric keyboard. Data can be transmitted and received through direct connection, regular telephone lines with acoustic couplers and modems or by radio waves. A majority of the Company's hand-held computers include an integrated bar code reader.
Bar Code Scanning Products
Sales of the Company's bar code scanning products have accounted for approximately 40 percent of the Company's total revenues for the years ended December 31, 1996, 1995 and 1994.
The Company's bar code scanning products consist of devices designed to scan and decode bar code symbols and transmit data. The Company sells various models of its bar code reading systems, each of which consists of a laser scanner and interface controller. In some models, the interface controller is integrated into the handle of the scanner. The laser scanner reads the symbol and transmits a digitized signal to the interface controller. The interface controller contains a microprocessor which decodes the information received and interfaces with the user's computer.
The Company sells several different hand-held laser scanners, the most important of which is the LS 4000 which was introduced in 1996. The LS 4000 is a trigger-operated, visible laser diode-based scanner featuring high-performance scanning and an advanced ergonomic form factor making it ideal for price scanning and inventory management in a wide variety of retail and commercial segments.
The LS 2000 is a prior generation, trigger-operated, visible laser diode-based scanner with the capability to handle contact as well as non-contact scanning applications out to the limit of visibility of the scanning beam. Introduced in 1989, the LS 2000 is primarily sold to point-of-sale customers and for use in conjunction with portable data collection devices. The Company is in the process of replacing the LS 2000 with the LS 4000.
The LS 3000 Series introduced in 1993, consists of trigger-operated, visible laser diode-based scanners used to read all common linear bar code symbologies and densities up to a distance of 20 feet. The LS 3000 is particularly well-suited for industrial and military applications because of its rugged housing. These devices consume less than one watt of power during scanning. Specialty versions of the LS 3000 include long range scanners capable of reading bar codes of virtually all sizes at distances ranging from near contact to more than 35 feet (LS 3000 ER) and low contrast reading capability scanners (LS 3000 HV) both using "spot and scan" two position triggers for ease of aiming and visibility.
Introduced by the Company in 1995, the LS 3600 Series of laser bar code scanners incorporate fuzzy logic technology and beam management optical technology. Fuzzy logic allows these scanners to accurately digitize and decode poor quality or damaged bar codes. Beam management optical technology allows operators to scan bar codes at varying distances.
The LS 1000 Series, introduced in 1996, is the Company's smallest and lightest trigger operated, hand-held laser scanner. The LS 1000 is a limited performance scanner ideal for light use scanning environments where low cost is a critical factor.
In 1995, the Company introduced the LT 1800 LaserTouch visible laser diode-based bar code scanner that combines the performance and accuracy of laser-based bar code technology with scanning for applications where near contact scanning and touch ergonomics are sufficient.
In 1993, the Company introduced the first cableless hand- held scanner, the LS 3070. The LS 3070 transmits data via narrow band RF with a range of up to 50 feet from its base station. The scanner is particularly useful in environments where tethered scanning is inadequate.
In the first quarter of 1997, the Company introduced a less expensive cableless, hand-held scanner, the LS 4071. The LS 4071 is a cordless version of the LS 4000 which utilizes a Company designed RF communication protocol to provide the user with a maximum working range of up to ten feet from its base station. This allows for scanning of heavy or bulky items, which cannot be easily moved for scanning. Designed to provide greater productivity, flexibility and convenience, the LS 4071 is intended for use in retail and light industrial applications.
In 1995, the Company introduced the LS 4800, a hand-held laser scanner designed to read both PDF 417, a high-density, high-capacity portable data file storing approximately one kilobyte of data in a machine-readable code and all conventional linear bar codes. PDF 417 is a two-dimensional bar code symbology which incorporates error correction capability and has one hundred times the information capacity of a traditional linear bar code. Unlike linear bar codes, PDF 417 can contain an entire data record reducing or eliminating the need for an external system of linked data storage. PDF 417 may be read by either a laser-based bar code reader or a one- or two-dimensional charge coupled device (CCD) bar code reader. Most other two- dimensional bar codes can only be read by a CCD bar code reader. The LS 4800 integrates a miniature resonant 2D scan engine that rasters, reading PDF 417 symbols horizontally and vertically at 560 scans per second. Due to its rapid scan rate and advanced optics, the LS 4800 is adept at reading poor quality symbols. The LS 4900, introduced in 1996 is a battery-powered version of the LS 4800.
Introduced in 1994, the PDF 120 is a one piece touch-only CCD based bar code reader with an integrated decoder. The PDF 120 is capable of reading PDF 417 as well as most one-dimensional bar codes. Suitable for applications that require scanning symbols of up to 1,000 characters, the PDF 120 connects to a range of PCs and terminals via an RS-232 serial interface port.
The PDF 620, introduced in 1995, is a fixed-station card reading device designed for accurate reading of PDF 417 and standard bar codes for a variety of identification card applications. Using CCD technology, the PDF 620 accepts ISO standard sized cards and has a typical first-time read rate of 100%.
In addition to its hand-held scanners, the Company also offers several families of "hands-free" scanners. Unlike the Company's hand-held scanners, these scanners are usually triggered by an object sensor to enable use in situations where use of both hands is required.
The LS 5700 and the LS 5800 miniaturized slot scanners were introduced by the Company in 1996. The LS 5700 was designed to accommodate all vertical or "on counter" applications and incorporates a full sleep mode function which allows the motor and laser to turn off after an extended period of scanner inactivity extending scanner longevity and reducing power consumption. The LS 5800 operates in horizontal or "in counter" applications and features rugged housing and a sealed exit window that resists spills and dirt.
Introduced in 1996 and available in the first quarter of 1997, the MP 8000 is the Company's first multiplane, high- throughput scanner, primarily designed for point-of-sale applications in the food retail market. Versions of the MP 8000 also incorporate a scale for simultaneous weighing and scanning of items. The MP 8000 produces a 56 line scan pattern from two directions creating a 360o read zone that blankets the bar-coded item in scan lines, allowing users to scan items significantly faster with less fatigue.
In 1994, the Company introduced the LS 9100, a laser-diode based projection scanner. The LS 9100 generates a large omni- directional pattern of twenty interlocking laser lines that can read bar codes at various angles for high productivity scanning.
In 1996, the Company introduced the PCK 9100, a compact price checker system that allows shoppers to pass bar-coded items by its scan window and view the latest product information on its high-visibility LCD display. The PCK 9100 incorporates an LS 9100 omni-directional scanner which assures accuracy over a wide range of scanning angles, making it easy for customers to obtain price information.
Since 1988, the Company has been selling a series of scan engines consisting of solid state laser diode-based laser scanners. These compact, non-contact scanners can be integrated internally with the user's own equipment or used independently as fixed-mount scanners on conveyor lines or robotic arms.
The LS 1220, introduced in 1994, incorporates a Mylar scan element for scanning conventional linear bar codes. The latest
version, the LS 6800 Series, was introduced in 1996 and incorporates a high speed raster scan engine that operates at 560 scans per second making it ideal for rapid reading of one- dimensional and two-dimensional symbols.
In 1990, the Company began marketing bar code laser scanner modules or scan engines which are integrated by unaffiliated third parties into their portable computing devices. In 1992, the Company introduced the SE 1000 Series scan engine. The SE 1000 is a small, lightweight, high performing scan engine designed for integration into portable and battery-powered devices. Versions of the SE 1000 are available with an integrated decoder and RS 232 interface.
The SE 1100 Series scan engine, introduced in 1994, offers improved performance over the SE 1000 in a slightly larger size.
In 1996, the Company introduced the low-cost, high- performance SE 1200 Series scan engine. The SE 1200, which measures less than one cubic inch and weighs less than one ounce, enables third-party manufacturers to integrate high-performance laser scanning into a variety of devices including hand-held computers, medical instruments, diagnostic equipment, lottery terminals, vending machines and robotics. The SE 1200 has a working range and ability to read poor quality bar codes equal to that of hand-held scanners. In the first quarter of 1997, the Company introduced a high density version of the SE 1200 capable of reading miniaturized bar codes. The Company anticipates that the SE 1200 will replace the SE 1000 and the SE 1100 in 1997.
The SE 2000 Series scan engine, introduced by the Company in 1995, is a high-performance laser scan engine capable of reading both one-dimensional and two-dimensional bar codes.
The SE 9100 Series scan engine, introduced in 1995, is a high speed, omni-directional scan engine providing dense scan line coverage from the face of the scanner up to a distance of eight inches allowing quick "swipe" scanning as well as standard presentation scanning.
In 1995, the Company introduced the WSS 1000, an innovative hand-mounted bar code-based data transaction system that allows mobile hands-free bar code scanning, data collection and RF data communications. The WSS 1000 is a wearable computer system for users who rely on the efficiency and accuracy of bar code scanning but require the use of both hands to perform job functions. The system, which consists of two components, combines the RS1, a miniature scanner worn as a ring that allows the user to simply touch a thumb and index finger contact switch to scan a bar code and a compact, light weight, wrist mounted 16- bit computer with display which permits wireless communication to the host computer.
The Company also produces a series of low cost, interface controllers. These devices permit the Company's scanner products
to easily interface with a wide range of standardized terminals, personal computers, point-of-sale terminals, portable terminals and dedicated computing hardware.
Product list prices for the Company's bar code scanning equipment range between $645 to $4,995 depending on product configuration. The Company offers discounts off list price for quantity orders and sales are frequently made at prices below list price.
Portable Data Collection Systems
The Company's portable data collection systems consist of hand-held computers, peripheral devices, software and programming tools. These systems collect data at remote locations and transmit information between these locations and the user's central data processing facility and are designed to provide data collection solutions for a variety of applications. A majority of the Company's hand-held computers also include an integrated bar code reader. These systems accounted for approximately 50 percent of the Company's total revenues for the years ended December 31, 1996, 1995 and 1994.
Portable Data Transaction Devices
The Company's portable data transaction devices are microprocessor-based, lightweight and battery-operated hand-held computers. Data may be captured by a device which reads bar codes or may be keyed into memory via an integrated keyboard or a touch screen. The data collected by the hand-held computer can then be transmitted to a host computer by direct connection through regular telephone lines with acoustic couplers and modems (batch file transfer mode). Data may also be transmitted instantly as it is collected by radio waves (real-time transaction processing). Information from the Company's hand- held computers may be communicated to a stand-alone receiver or computer which formats the data for input into a host computer, directly into a host computer by communications controllers supplied by the Company or directly onto industry-standard Ethernet local area networks (LANs) via Company manufactured access points. Depending on the model, the Company's hand-held computers may have up to 16 megabytes of Random Access Memory (RAM) for data storage and multiple input and output capabilities for the connection of printers, bar code readers and communications devices. In addition, based upon customer specifications, the hand-held computers may also have built-in bar code readers and various built-in communications devices for transmission and receipt of data.
The Company offers two spread spectrum-based, WLAN products. In 1990, the Company introduced its Spectrum One cellular radio frequency network for wireless data transactions. Installation of the network at various customer sites began in 1991 and the network is now installed in over 13,000 sites in 12 countries. Spectrum 24, introduced in 1995, is a high-
performance, spread spectrum, frequency hopping network which operates on a 2.4 Ghz frequency range and is designed for worldwide operation. Based on spread spectrum RF technology, Spectrum One and Spectrum 24 networks provide real-time wireless data communications with a host computer for hundreds of portable and fixed-station computers and radio-integrated scanners. Unlike traditional narrow band RF-based networks, spread spectrum installation requires no individual site license from the FCC. The Spectrum One and Spectrum 24 systems work in tandem with a broad range of the Company's RF capable hand-held computers.
Design engineering and support for both the Company and third-party RF-based data communications systems is conducted in the Company's San Jose, California facility. The focus of the group is the design of wireless bar code data transaction systems based on the Company's Spectrum One and Spectrum 24 WLANs and support for the integration of those high-performance networks into customers' data networks and enterprise-wide information systems.
The LRT 3800, introduced in 1990, incorporates in a single, hand-held unit, high-performance laser bar code scanning, a 16-bit DOS-based computer and a radio modem for communication via the Company's Spectrum WLANs. Based on visible laser diode scanning technology, the battery-operated LRT 3800 is compact and ergonomically designed and provides up to 1.2 megabytes of memory capacity.
The LDT 3805, also introduced in 1990, is identical to the LRT 3800 in physical appearance. Its scanning and computing functions are similar but it has no RF communication capability. It is optimized for collecting and storing data, later to be downloaded to a host computer.
Both the LRT and LDT have the capability for data entry via bar code scanning or by using the full-function keypad. The pair are ideal for scan-intensive applications such as receiving, shipping, inventory control, order and shelf-price verification as well as other applications in both retail and warehousing.
Datawand hand-held computers were first introduced by the Company in 1985. The Company's principal Datawand product, the Datawand IIB, is a self-contained optical wand bar code reader hand-held computer which is only 7-1/4 inches long and one inch in diameter and weighs slightly more than two ounces. In 1989, the Company introduced a new optical wand bar code reader, the Datawand III, which contains 32 kilobytes of memory and a 16 character single line display.
In 1993, the Company announced the co-development with Albert Heijn of The Netherlands, Europe's largest grocery market chain, and TNO Product Centre, a leading Dutch engineering design firm, of a shoppers portable self checkout system. The system, which is integrated with the retailer's point of sale system, utilizes the Company's LST 3803, a hand-held computer with an integrated laser scanner which allows shoppers to scan and tabulate their purchases as they shop. In 1996, the Company introduced an RF capable version of the portable self checkout system.
In 1996, installation of Symbol's portable self checkout systems has expanded both to new customers and more sites. There are currently over 150 systems installed in nine countries on four continents. Although retailers and customers have been very pleased with the portable self checkout system and other food and non-food retailers have expressed an interest in the self checkout concept, due to the innovative nature of the concept, there can be no assurance that self checkout will be implemented on a wide scale either internationally or domestically.
The PDT family of general purpose hand-held computers features advanced technology including Very Large Scale Integrated (VLSI) circuits, which incorporate many standardized integrated circuits into one computer chip allowing for size and cost reductions. Also, the PDT family employs surface mounted component technology for reduced size and increased performance and dependability, as well as industry standard 8-, 16- and 32- bit microprocessors. The PDT family includes a series of hand- held computers which are available with different features and at varying costs depending on customer requirements and preferences. The PDT hand-held computers feature up to sixteen lines of liquid crystal display, slim, lightweight design, multiple input and output ports and up to 7.6 megabytes of internal memory. PDT hand-held computers have various keyboard configurations, including a user configurable keyboard. The PDT family was originally introduced in 1985.
The PDT 3100 hand-held computer, a 16-bit DOS-compatible computer, was introduced in 1993. Versions of the PDT 3100 also incorporate the Company's SE 1200 scan engine and feature a unique swivel-head scanner design which adjusts instantly for right- or left-hand scanning operation. The PDT 3100 is the Company's largest selling hand-held computer. In 1994, the Company introduced versions of the PDT 3100 incorporating the Company's Spectrum One data communications network and direct or acoustic modems for telephone line communications and in 1996, the Company introduced versions of the PDT 3100 which incorporate the Company's Spectrum 24 WLAN communications capability.
In 1996, the Company introduced two other versions of the 3100, the PDT 3000 and the PDT 3500. The PDT 3000 is a compact, efficient, hand-held computer designed for use in the food and drug retail and convenience store industries. Weighing less than 13 ounces, the PDT 3000 is a limited performance, lower cost version of the PDT 3100. The PDT 3500, features a larger display screen, a choice of Spectrum One or Spectrum 24 networking options and an SE 2000 scan engine providing one- and two- dimensional bar code scanning capability.
Introduced in 1996, the PDT 2100 hand-held integrated computer is the Company's smallest and lightest high-performance
hand-held computer with laser scanning capability. Versions of the PDT 2100 incorporate the Company's Spectrum LAN communication capability. The PDT 2100 design, which resembles a TV remote controller, facilitates easy intuitive use while the PC-standard 16-bit architecture and Microsoft MS-DOS operating system provide superior data management capabilities.
In 1990, the Company introduced the PDT 3300, a 16-bit DOS-compatible batch hand-held computer. The PDT 3300 provides expanded program capacity and keyboard and display flexibility coupled with an environmentally sealed unit for use in harsh environments. The Company also offers versions of the PDT 3300 which operate with the Company's Spectrum One and Spectrum 24 networks.
In 1996, the Company introduced the PDT 1000, a pocket- sized integrated laser scanning computer designed for batch processing. The PDT 1000 is approximately one inch by two inches by 6.5 inches and weighs only seven ounces. The rugged construction, simple three-button keyboard and 96 kilobyte memory make the PDT 1000 suitable for a wide variety of tracking and asset management applications where bar code data capture and storage are required.
The PPT family of portable pen computers integrates several key technologies for improving information management. These PC compatible hand-held computers incorporate pen and touch input on an active matrix screen, a graphical user interface, an SE 1100 or SE 1200 scan engine, and standard PCMCIA slots for memory, modem, wireless or wide area network capability and other peripherals.
The PPT 4100, introduced in 1994, is intended for use in information-intensive applications in retail and other environments where managers will benefit by accessing remote databases to make real-time inventory and purchasing decisions to significantly enhance customer service and improve productivity.
The PPT 4600, introduced in 1995, incorporates a 486 microprocessor which supports both DOS and Windows based applications and an SE 2000 scan engine, making it the first hand-held computer that has the capability to scan and decode PDF 417. Engineered to withstand rugged treatment and endure outdoor conditions such as windblown rain or dust and extreme temperatures, the PPT 4600 is intended for use in industrial and mobile environments.
In 1996, the Company introduced versions of the PPT 4100 and PPT 4600 incorporating Spectrum 24 WLAN communication capability and a fully integrated radio modem optimized for wireless wide area communication.
Introduced in 1996, the PPT 4200 is a high-performance, hand-held touch/pen computer. With options such as a magnetic stripe reader, laser bar code scanner, hard drive, wireless radio
and voice capabilities, the PPT 4200 provides all the functions and power of a standard notebook computer packed into a 5 inch by 9 inch hand-held computer, weighing less than three pounds. The PPT 4200 supports industry-standard PC cards, operating systems and popular pen development tools such as Pen Pal, and Visual Basic providing operating and programming flexibility for retail and industrial management applications.
In 1997, the Company introduced the VRC 4000, a ruggedized vehicle mounted or wall mounted touch screen computer. Designed for rugged, industrial use in warehouse and yard management applications, the VRC 4000 is a PC compatible computer with 16 megabytes of memory and includes a full 10.3 inch VGA display with an infrared touch screen interface. The VRC 4000 is capable of communicating with a host computer or other hand-held devices via the Company's Spectrum 24 wireless network.
Product list prices for the Company's portable data collection equipment range between $395 to $8,250 depending on product configuration. The Company offers discounts off list price for quantity orders and sales are frequently made at prices below list price.
Software and Programming Tools
The Company's portable hand-held computers utilize software which consists of a number of specialized applications and communications software programs, that run under Microsoft MS-DOS and Windows operating systems. A series of application development kits (ADKs) and software development kits (SDKs) are available to allow the Company's programmers, VARs ("Value Added Resellers") and end-user customers to develop applications that fully utilize the integrated features of the Company's family of portable hand-held computers. The ADKs and SDKs provide the software drivers and libraries required to maximize product performance. Used in conjunction with industry standard development tools including Visual Basic and C++, software developers can easily create and support applications to meet specific customer requirements.
The Company has also developed several communication applications designed to facilitate transmission and reception of data between mobile computers and stand-alone receivers or host computers. These applications include a suite of terminal emulation products, host enablers and various protocols. The Company has entered into alliances with independent suppliers of software who assist the Company in development of software.
Customer Support
The Company has a customer support organization which repairs and maintains the Company's products.
The Company's domestic customer support operations include locations in Arkansas, California, Georgia, Illinois, Kentucky,
Michigan, Minnesota, New Jersey, New York, North Carolina, Texas and Virginia. The Company also has foreign customer support offices in Australia, Austria, Belgium, Canada, China, Denmark, France, Germany, Italy, Norway, Singapore, South Africa, Spain and the United Kingdom. In Japan, customer support is provided by Olympus Optical Co., Ltd. These centers enhance the Company's ability to respond to its customers' requirements for fast, efficient service.
The Company currently offers a variety of service arrangements to meet customer needs. The Company's On-Site service provides for maintenance and repairs at any customer location. Depot Service includes maintenance and repairs at the Company's field service offices. The Self-Service contracts generally have a term of from one to five years. In addition, the Company offers Time-And-Materials service on a non-contract, as-needed basis.
The Company undertakes to correct defects in materials and workmanship for a period of time after delivery of its products. The period of time covered by these warranties varies depending on the product involved as well as contractual arrangements but is generally twelve months.
Maintenance and support revenues contributed less than 10 percent of the Company's total revenues for the years ended December 31, 1996, 1995 and 1994.
Sales and Marketing
The Company presently markets its products domestically and internationally through a variety of distribution channels, including a direct sales force, original equipment manufacturers, VARs and sales representatives and distributors. VARs distribute the Company's products to customers while also selling to those customers other products or services not provided by the Company. The Company's sales organization includes domestic sales offices located throughout the United States and foreign sales offices in Australia, Austria, Belgium, Canada, China, Denmark, France, Germany, Italy, Mexico, Norway, Singapore, South Africa, Spain and the United Kingdom.
The Company currently has contractual relationships and strategic alliances with unaffiliated partners. Through these relationships, the Company is able to broaden its distribution network and participate in industries other than those serviced by the Company's direct sales force and distributors.
Customers generally order products for delivery within 45 days. Accordingly, shipments made during any particular quarter generally represent orders received either during that quarter or shortly before the beginning of that quarter and generally consist of products manufactured in the quarter. The Company maintains significant levels of inventory to facilitate meeting delivery requirements of its customers. The Company, pursuant to
contract or invoice, normally extends 30 day payment terms to its customers. Actual payment terms vary from time to time but generally do not exceed 90 days.
Since a substantial portion of the Company's sales of scanner products are to retail organizations which tend not to purchase equipment such as the Company's scanner products during the Christmas selling season, the Company's business has, from time to time, been seasonal in the fourth quarter. The Company believes there may again be reduced demand for its scanner products in the fourth quarter of the current fiscal year. The Company attempts to offset the reduced demand of the retail industry by selling its products to other market segments. While this effort was successful in 1996, there can be no assurance that the effort will succeed in 1997 and subsequent years.
The following table sets forth certain information as to international sales of the Company: Year Ended December 31, (in thousands)
1996 1995 1994 Area
Western Europe $222,611 $178,027 $141,090 Other $ 44,545 $ 40,402 $ 25,999
The Company undertakes hedging activities to the extent of known cash flow in an attempt to minimize the impact of foreign currency fluctuations.
Manufacturing
The products which are manufactured by the Company are manufactured at its Bohemia, New York facilities.
While components and supplies are generally available from a variety of sources, the Company presently depends on a single source or a limited number of suppliers for several components of its equipment, certain subassemblies and certain of its products. Certain of the Company's products are manufactured in Japan and Taiwan. Due to the general availability of components and supplies, the Company does not believe that the loss of any supplier or subassembly manufacturer would have a long-term material adverse effect on its business although set-up costs and delays could occur if the Company changes any single source supplier. In the past, delays in delivery of components have not had a material adverse effect on shipments of the Company's products. Certain of the Company's products are manufactured by third parties. Failure of such third parties to supply products to the Company could have an adverse affect on the Company's ability to deliver such products to its customers. However, the Company has no reason to believe that these suppliers will be unable to meet their supply or delivery obligations to the Company over any extended period.
The Company employs certain advanced manufacturing processes that require highly sophisticated and costly equipment and are continuously being modified in an effort to improve efficiency, reduce manufacturing costs and incorporate product improvements.
Research and Product Development
The Company believes that its future growth depends, in large part, upon its ability to continue to apply its technology to develop new products, improve existing products and expand market applications for its products. The Company's research and development projects include, among others: improvements to the reliability, quality and readability of its laser scanners at increased working distances and higher density codes (including, but not limited to, two-dimensional codes); improvements in and expansion of its series of interface controllers; continued development of its solid state laser diode scanners; improvements to packaging and miniaturization technology for bar code data capture products, portable data collection devices and integrated bar coded data capture products; development of high-performance digital data radios, high-speed radio frequency data communications networks and telecommunications protocols and products; and the addition of application software to provide a complete line of high-performance interface hardware.
The Company uses both its own associates and from time to time unaffiliated consultants in its product engineering and research and development programs. Dr. Jerome Swartz, Chairman of the Board of Directors and Chief Executive Officer of the Company, leads the Company's research, patent and new product development programs. From time-to-time the Company has participated with and/or partially funded research projects in conjunction with a number of universities including the State University of New York at Stony Brook, Polytechnic University of New York and Tel Aviv University in Israel.
The Company expended (including overhead charges) approximately $ 20,164,000, $19,879,000 and $16,678,000 for research and development during the years ended December 31, 1996, 1995 and 1994, respectively.
Competition
The business in which the Company is engaged is highly competitive and acutely influenced by advances in technology, product improvements and new product introduction, and price competition. To the Company's knowledge, many firms are engaged in the manufacture and marketing of portable data collection systems and bar code reading equipment utilizing laser technology. In addition, the Company's bar code reading equipment also competes with devices which utilize technologies other than laser scanners such as CCDs and optical wands. Furthermore, numerous companies, including present manufacturers of scanners, lasers, optical instruments, microprocessors, notebook computers, PDAs and data radios have the technical
potential to compete with the Company. Many of these firms have far greater financial, marketing and technical resources than the Company. The Company competes principally on the basis of performance and the quality of its products and services.
The Company believes that its principal competitors in the bar code scanning equipment industry are INTERMEC Corporation, Matsushita Electric Corporation, Metrologic Instruments, Inc., NipponDenso Co., Ltd., Opticon, Inc., PSC Inc. and Welch Allyn, Inc. and that its principal competitors in the portable data transaction systems industry are Fujitsu, Ltd., Hand Held Products, Inc., INTERMEC Corporation, LXE Inc., NipponDenso Co., Norand Corporation, Mars Electronics and Telxon Corporation. Some of the Company's competitors in the portable data transaction systems industry also participate in the field service market.
Patent and Trademark Matters
The Company files domestic and foreign patent applications to support its technology position and new product development. The Company owns over 250 U.S. Letters Patents covering various aspects of the technology used in the Company's principal products and has entered into cross-license agreements with other companies. In addition, the Company owns numerous foreign companion patents. The Company has also filed additional patent applications in the U.S. Patent and Trademark Office as well as in foreign patent offices. The Company will continue to file patents, both U.S. and foreign, to cover its most recent research developments in the scanning, data collection and RF data communications fields. Key patents covering basic hand-held laser scanning technology begin to expire in 2000 and key patents covering scanner integrated hand-held computers begin to expire in 2005.
The Company believes that its patent portfolio does provide some competitive advantage in that such patents tend to limit the number of unlicensed competitors and permit the Company to manufacture products which may have features which provide better performance and/or lower cost. Although management believes that its patents provide some competitive advantage, the Company depends more for its success upon its proprietary know-how, innovative skills, technical competence and marketing abilities. In addition, because of rapidly changing technology, the Company's present intention is not to rely primarily on patents or other intellectual property rights to protect or establish its market position. Instead, the Company has established an active program to protect its investment in technology by enforcing and licensing certain of its intellectual property rights. The Company has entered into royalty-bearing license agreements with, among others, Hand Held Products, Inc., INTERMEC Corporation, LXE Inc., Metrologic Instruments, Inc., Norand Corporation, Olympus Optical Co., Ltd, Opticon Sensors Europe, B.V., PSC Inc., Spectra Physics, Inc. and Telxon Corporation.
On April 1, 1996, PSC Inc. ("PSC") commenced suit against the Company purporting to assert claims against the Company for alleged violations of the federal antitrust laws, unfair competition and also seeking a declaratory judgment of non- infringement and invalidity as to certain of the Company's patents. The Company has consented to PSC's serving a Third Amended Complaint, which purports to assert essentially the same antitrust and unfair competition claims against the Company, and also seeks a declaratory judgment of alleged non-infringement and validity of nine of the Company's patents, and a declaratory judgment that PSC has not breached its two license agreements with the Company and that those agreements have been terminated. The Company intends to amend its suit against PSC to assert infringement of four Symbol patents, breach of contract, and fraud. The Company is also seeking damages of over $1 million plus interest in unpaid royalties for each quarter since the second quarter of 1996. The Company had also sued Data General Corporation ("Data General"), a manufacturer of portable integrated scanning terminals incorporating a component manufactured by PSC, for infringement of the same four patents and five additional patents. The nine patents asserted against Data General are the same nine Symbol patents as to which PSC is seeking declaratory relief.
On October 9, 1996, the Court granted the Company's motion to sever and stay PSC's antitrust, unfair competition and related claims. On the same day, the Court denied Data General's motion to stay the Company's claims against it.
The Company moved that an expedited hearing to be held at the end of March, 1997 on three of the patents asserted against PSC, and to stay all non-patent discovery. PSC opposed the Company's motion and made a cross-motion that no hearing be held until October, 1997 at the earliest and that all issues be tried in the Spring of 1998 or thereafter. On October 9, 1996, the Court set a one week trial for July 14, 1997 to construe the claims in all nine patents asserted by Symbol against Data General and PSC, and stayed discovery on all non-patent claims.
The Company believes that all claims purportedly asserted against it by PSC are factually and legally baseless, and wholly without merit. The Company intends to vigorously defend the litigation.
Although the Company believes that its products and technology do not infringe the proprietary rights of others, there can be no assurance that third parties will not assert infringement and other claims against the Company or that such claims will not be successful. From time to time, the Company has received and may receive in the future notices of claims of infringement of other parties' rights. In such event, the Company has and will continue to take reasonable steps to evaluate the merits of such claims, take such action as it may deem appropriate, which action may require that the Company enter into licensing discussions, if available, and/or modify the
affected products and technology, or result in litigation against parties seeking to enforce a claim which the Company reasonably believes is without merit. In the event litigation is commenced, such parties are likely to claim damages and/or seek to enjoin commercial activities relating to the Company's products or technology affected by such party's rights. In addition to subjecting the Company to potential liability for damages, such litigation may require the Company to obtain a license in order to manufacture or market the affected products and technology. To date, such activities have not had a material adverse affect on the Company's business and the Company has either prevailed in all litigation, obtained a license on commercially acceptable terms or otherwise been able to modify any affected products or technology. However, there can be no assurance that the Company will continue to prevail in any such actions or that any license required under any such patent would be made available on commercially acceptable terms, if at all. There are a significant number of U.S. and foreign patents and patent applications in the Company's areas of interest, and the Company believes that there has been and is likely to continue to be significant litigation in the industry regarding patent and other intellectual property rights.
The Company has also obtained certain domestic and international trademark registrations for its products and maintains certain details about its processes, products and strategies as trade secrets.
The Company regards its software as proprietary and attempts to protect it with copyrights, trade secret law and international nondisclosure safeguards, as well as restrictions on disclosure and transferability that are incorporated into its software license agreements. The Company licenses its software products to customers rather than transferring title. Despite these restrictions, it may be possible for competitors or users to copy aspects of the Company's products or to obtain information which the Company regards as trade secrets. Computer software generally has not been patented and existing copyright laws afford only limited practical protection. In addition, the laws of foreign countries generally do not protect the Company's proprietary rights in its products to the same extent as do the laws of the United States.
Government Regulations
The use of lasers and radio emissions are subject to regulation in the United States and in other countries in which the Company does business. In the United States, various Federal agencies, including the Center for Devices and Radiological Health of the Food and Drug Administration, the Federal Communications Commission, the Occupational Safety and Health Administration and various State agencies, have promulgated regulations which concern the use of lasers and/or radio/electromagnetic emissions standards. Member countries of the European community have enacted or are in the process of
adopting standards concerning electrical and laser safety and electromagnetic compatibility and emissions standards.
The Company believes that all of its products are in material compliance with current standards and regulations; however, regulatory changes in the United States and other countries may require modifications to certain of the Company's products in order for the Company to continue to be able to manufacture and market these products.
The Company's RF hand-held computers include various models all of which intentionally transmit radio signals as part of their normal operation. The Company's LRT 3800 laser radio hand- held computer and certain versions of its hand-held computers and its Spectrum One and Spectrum 24 cellular frequency networks utilize spread spectrum radio technology. The Company has obtained certification from the FCC for its products which utilize this radio technology. Such certification is valid for the life of the product unless and until the circuitry of the product is altered in material respects, in which case a new certification may be required. Users of these products in the United States do not require any license from the FCC to use or operate the product. Certain of the Company's products transmit narrow band radio signals as part of their normal operation. The Company has obtained certification from the FCC for its narrow band radio products. However, these models must not only be accepted by the FCC prior to marketing but users of these devices must themselves also obtain a site license from the FCC to operate them.
Associates
At December 31, 1996, the Company had approximately 2,900 full-time associates. Of these, approximately 2,300 were employed domestically. The Company also employs temporary production personnel. None of the Company's associates are represented by a labor union. The Company considers its relationship with its associates to be good.
Item 2.

Item 2. Properties
The following table states the location, primary use and approximate size of all principal plants and facilities of the Company and its subsidiaries and the duration of the Company's tenancy with respect to each facility.
Location Principal Use Size Tenancy/Ownership
One Symbol Plaza World headquarters 174,000 square Owned (subject to Holtsville, NY feet mortgage)
116 Wilbur Place Customer support 92,000 square Owned (subject to Bohemia, NY and warehousing feet mortgage)
110 Wilbur Place Manufacturing 30,000 square Owned (subject to Bohemia, NY feet mortgage)
12 & 13 Oaklands Pk. International head- 21,700 square Owned Fishponds Road quarters, marketing feet Wokingham, Berkshire and administration England and U.K. headquarters
110 Orville Drive Manufacturing 110,000 square Leased: expires Bohemia, NY feet Aug. 31, 2001
1101 Lakeland Ave. Manufacturing 90,400 square Leased: expires Bohemia, NY and distribution feet Aug. 31, 2001
2145 Hamilton Ave. Network systems, 51,500 square Leased: expires San Jose, CA engineering, feet March 3, 1999 marketing
340 Fischer Ave. Service and sales 31,200 square Leased: expires Costa Mesa, CA feet May 31, 2001
180 Orville Drive Warehousing and 22,612 square Leased: expires Bohemia, NY facilities feet Aug. 31, 2001 management
Knaves House Administration 10,900 square Leased: expires High Wycombe, feet June 24, 2003 Buckinghamshire England
Knaves Beech Customer Service 6,185 square Leased: expires Business Center feet Sept. 28, 2003 High Wycombe, Buckinghamshire England
Ilex House Customer service 5,400 square Leased: expires Mulberry Business Pk. feet April 5, 2002 Fishponds Road Wokingham, Berkshire England
In addition to these principal locations, the Company and its subsidiaries also lease other offices throughout the world, ranging in size from approximately 150 to 24,000 square feet.
Item 3.

Item 3. Legal Proceedings
On January 13, 1997, the Court, in the action entitled In re. Symbol Technologies, Inc. Class Action Litigation issued an order granting the Company's motion for summary judgment and dismissing all claims against the Company. Final Judgment of dismissal was entered on January 24, 1997.
See, also, Patent and Trademark Matters for a discussion of certain other litigation involving the Company.
Item 4.

Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 4A. Executive Officers of the Registrant
The following table sets forth the names, ages and all positions and offices held by the Company's executive officers:
Jerome Swartz.......... 56 Chairman of the Board of Directors Chief Executive Officer and Director
Tomo Razmilovic........ 54 President, Chief Operating Officer and Director
Fred Heiman............ 57 Executive Vice President and Director
Thomas G. Amato........ 51 Senior Vice President-Finance and Chief Financial Officer
Richard Bravman........ 42 Senior Vice President, Sales/Marketing-Wireless Systems Division
Brian T. Burke......... 50 Vice President, Controller and Chief Accounting Officer
Allen C. Creveling..... 55 Senior Vice President-Human Resources
Richard M. Feldt....... 45 Senior Vice President, General Manager-Worldwide Operations
Leonard H. Goldner..... 49 Senior Vice President, General Counsel and Secretary
Joseph Katz............ 44 Senior Vice President, Research and Development
Boris Metlitsky........ 49 Senior Vice President, General Manager-Scanner Products Division
Satya Sharma........... 56 Senior Vice President-Quality
Dr. Swartz co-founded and has been employed by the Company from its inception in 1973. He has been the Chairman of the Board of Directors and Chief Executive Officer of the Company for more than the past ten years. Dr. Swartz was an industry consultant for 12 years in the areas of optical and electronic systems and instrumentation and has a total of some 140 technical papers and issued and pending U.S. patents to his credit, including the Company's basic patents in hand-held laser scanning. He is also a trustee of the Polytechnic University of New York and an adjunct full professor of Electrical Engineering at the State University of New York at Stony Brook. He is also a fellow of the Institute of Electrical and Electronic Engineering.
Mr. Razmilovic has been the President and Chief Operating Officer of the Company since October 1995. He was previously Senior Vice President-Worldwide Sales and Services. He first joined the Company in September 1989. From January 1989 to August 1989, he was President and Chief Executive Officer of Cominvest Group, a Swedish multinational high technology company. From August 1985 to December 1988, he was President of ICL International, a major European computer manufacturer and he also led its industry marketing and software development divisions.
Dr. Heiman joined the Company in July 1986. He had previously been employed by Intel Corporation, a manufacturer of semiconductor components, from May 1983 until July 1986, in a number of positions, the most recent of which was as its Director of Corporate Planning. Dr. Heiman is the inventor or co-inventor of 20 issued U.S. patents, including the first MOS integrated circuit chip, which became the basis of much of the modern revolution in computer and electronics communications and the first silicon storage tube used in display and scanning applications.
Mr. Amato joined the Company in October 1990. Prior to joining the Company he was Senior Vice President of Finance and Administration and Chief Financial Officer for Amcast Industrial Corp., a manufacturer of metal components, from 1985 to 1990.
Mr. Bravman has been employed by the Company for more than the past fifteen years in various management positions.
Mr. Burke joined the Company in November 1987. From October 1984 to October 1987, he was President, Chief Executive Officer and Director of Super Web Press Service Corporation, a manufacturer of printing presses.
Mr. Creveling joined the Company in February 1989. From January 1988 to January 1989, he was Chief Financial Officer at Keystone Camera Corp. From 1971 to 1987, he was employed by Mars Electronics, a division of M&M/Mars, where he held the position of Vice President Finance.
Mr. Feldt joined the Company in September 1995. From 1991 to August 1995, he was Vice President of Manufacturing at A.T.
Cross, a leading manufacturer of writing instruments. From July, 1988 to December, 1990, Mr. Feldt served as a Director of the Imaging and Publishing Systems Division of Eastman Kodak.
Mr. Goldner joined the Company in September 1990. From September 1979 until August 1990, he was a partner of the New York law firm of Shereff, Friedman, Hoffman & Goodman, which firm was securities counsel to the Company.
Dr. Metlitsky joined the Company in March 1983 and has served in various technical and managerial positions.
Dr. Katz joined the Company in January 1989 and has held several positions in Research and Development. From May 1981 until January 1989, Dr. Katz held a number of positions at the Jet Propulsion Laboratory of the California Institute of Technology, the most recent of which was as Technical Group Supervisor.
Dr. Sharma joined the Company in March 1995. Prior to joining the Company, Dr. Sharma held various management positions at AT&T. From April 1990 to March 1995 Dr. Sharma served as Director of Quality of AT&T's Power Systems Division and from January 1986 to April 1990 he was a Department Head at AT&T Bell Labs.
PART II
Item 5.

Item 5. Market for the Registrant's Common Equity and Related Security Holder Matters
The Company's Common Stock is listed on the New York Stock Exchange. The following table sets forth, for each quarter period of the last two years, the high and low sales prices as reported by the New York Stock Exchange.
Year Ending: High Low
December 31, 1995 First Quarter 31 1/4 24 3/8 Second Quarter 40 1/2 28 5/8 Third Quarter 40 5/8 32 7/8 Fourth Quarter 40 29 3/8
December 31, 1996 First Quarter 40 1/4 31 7/8 Second Quarter 48 35 1/8 Third Quarter 46 7/8 38 Fourth Quarter 49 1/2 41 1/2
As of February 1, 1997 there were 1,153 holders of record of the Company's Common Stock.
Historically, changes in the Company's results of operations or projected results of operations have resulted in significant changes in the market price of the Company's Common Stock. As a result, the market price of the Company's Common Stock has been highly volatile.
To date, the Company has not paid any cash dividends to its shareholders. The Company's ability to pay cash dividends is limited by certain of the Company's loan agreements, the most restrictive of which would generally limit dividends payable in any year to an amount not greater than 50 percent of the Company's net income. On February 10, 1997, the Board of Directors declared a semi-annual dividend of $.03 per share, payable on April 1, 1997 to all shareholders of record on March 10, 1997. On the same date, the Board declared a 3 for 2 stock split, to be effected as a 50% stock dividend payable on April 1, 1997 to all shareholders of record on March 10, 1997. References to shares of the Company's Common Stock have not been adjusted to reflect this stock split.
Item 6.

Item 6. Selected Financial Data (in thousands, except per share data)


ITEM 1. BUSINESS
(A) GENERAL DEVELOPMENT OF THE COMPANY
The Company was incorporated under the name of Soss Manufacturing Company in 1909 as a manufacturer of a line of concealed hinges sold to the hardware, furniture and home building trades and subsequently developed hinges and other stampings for the infant automotive industry. The Company went public in 1937 and had its shares traded on the American Stock Exchange.
In 1958, the Company began to diversify its interests through the acquisition of a number of businesses. It presently groups its businesses into three industry segments: Fluid Controls and Construction Products; Test, Measurement and Control; and Farm Equipment. From sales of $5,000,000 in 1958, 90% of which were derived from the production of automobile parts, the Company has grown to its present size and diversified structure with less than five percent automotive business.
The Company changed its name in January 1969 to SOS Consolidated Inc. to help alleviate confusion between the parent company and its automotive division. In April 1969, the Company's shares were listed for trading on the New York Stock Exchange. In January 1978, the Company adopted the name Core Industries Inc, as being more representative of its operations.
Various acquisitions, primarily in the electronics industry, contributed to the Company's sales growth in the 1980s. However, in 1992, after several years of declining earnings, the Company divested three unprofitable electronics subsidiaries and instituted a plan to become a more focused business. Since then, the Company has made six acquisitions related to existing businesses and has sold three unrelated operations. During 1996, the Company sold its wholly-owned electronics-related subsidiary, Cherokee International, Inc. and its subsidiaries (collectively "Cherokee") for cash and a long-term note receivable. Cherokee had been classified as a discontinued operation as of August 31, 1995. The Company plans to grow in its focus businesses through new products and additional geographic and end-user markets, as well as making selected, strategic acquisitions in its focus areas.
Under the Company's method of operation and control, each division operates as a separate and autonomous entity with its own manufacturing, engineering, accounting, sales staff and distribution network. Personnel at Corporate office direct overall policies and perform services for all divisions in the areas of financial and treasury control, manufacturing consultation, information systems and marketing. Corporate maintains involvement in the divisions through direct contact, reviews of budgets and reports, internal auditing and involvement in formal planning. In addition, the Corporate office develops and implements strategic options to increase shareholder value and responds to division results and opportunities.
(B) INDUSTRY SEGMENTS
The Company is engaged principally in the manufacture of specialty products for commercial and industrial use. Required industry segment financial information is set forth in the notes to consolidated financial statements incorporated herein by reference. The Company operates in three segments: Fluid Controls and Construction Products; Test, Measurement and Control; and Farm Equipment.
FLUID CONTROLS AND CONSTRUCTION PRODUCTS
Fluid Controls and Construction Products and services cover a broad range from specialty valves and pipeline strainers for various fluid control applications to molded plastic parts, metal stampings and hinges, and mechanical contracting. This group serves the Heating, Ventilation and Air Conditioning ("HVAC") market as well as the chemical and petrochemical processing industry, oil and gas industry, the irrigation industry, the paper and food processing industry, the commercial construction market, and general industry.
The CORE FLUID CONTROLS GROUP (CFCG) is a major part of this segment and consists of the following units:
MUELLER STEAM SPECIALTY is the largest division of CFCG and manufactures four primary product lines: strainers and specialty valves, check valves, butterfly valves and non-lubricated plug valves. Mueller believes that it is the largest manufacturer of pipeline strainers and check valves in the world. Pipeline strainers catch objects larger than 40 microns and prevent them from damaging machinery. Strainers and valves are used in various kinds of industrial processes and plants, essentially wherever piping systems exist. Mueller believes that it carries a product line that is more extensive than most of its competitors, and Mueller's ability to design, build, and ship products in a short time frame is well known in the industry. Business is derived largely from quoting jobs as well as from stocking distributors and retrofit orders. Valves designed by Mueller are outsourced from approximately 65 foundries throughout the world. Once castings are received at Mueller's North Carolina plant, Mueller machines, assembles, tests, and packages the valves to meet a wide variety of specifications. Orders are typically processed within a week of their receipt.
CMB INDUSTRIES (CMB), located in Fresno, California, was acquired in fiscal 1996 and is the second largest division of CFCG. CMB designs and manufactures a broad line of bronze and ductile iron products for the backflow prevention industry under the FEBCO name. FEBCO has a network of highly trained agents that sell worldwide to the end user. FEBCO is an industry leader in backflow prevention sales and is also the valve of choice in many municipal and fire protection markets. CMB's Bailey Polyjet product is a custom-designed, multi-jet, sleeve-type control valve engineered for optimum performance for high pressure drops and precise flow control over a wide range, solving cavitation problems in waterworks, power generation and industrial applications.
MUELLER FLOW TECHNOLOGY, located in Houston, Texas, includes two companies acquired in 1994 and 1995. HENDRIX STEEL & FABRICATING is a full-service fabricating company specializing in pressure vessels and specialty and custom flow control products. OIL AND GAS SPECIALTY COMPANY (OGASCO) specializes in fluid measurement systems and related products widely used in the oil and gas industry, petrochemical industry and other markets where precise flow measurement is required.
Other United States operations of CFCG include MUELLER WEST, a Phoenix, Arizona, distribution center; ASSOCIATED PIPING EQUIPMENT, INC., a supplier of commodity type valves and strainers; and MUELLER VALVE SPECIALTIES, formed in 1996 to manufacture a full line of manual and automated teflon sleeved and lined plug valves for the chemical and petrochemical industries.
CFCG's overseas locations include MUELLER ASIA, located in Singapore, and MUELLER/DAVIS FILTERS LTD., located in the United Kingdom. MUELLER ASIA is a sales, warehouse and distribution center for the entire Pacific Rim which will also begin manufacturing operations in FY 1997. MUELLER/DAVIS FILTERS LTD., which was acquired in 1996, is a manufacturer of "Y" type strainers for the pipeline industry, and also will market other CFCG products in Europe.
Other companies in the Fluid Controls and Construction Products segment are POLY CRAFT (injection molded plastic products), UNIVERSAL INDUSTRIAL PRODUCTS (UIP)commercial lawnmower blades and Soss hinges, and THE ROBERT CARTER CORPORATION (mechanical contractor). Poly Craft and UIP each represent less than five percent of Core's total sales and all three account for less than five percent of Core's total earnings.
There is substantial competition in the markets served by this segment, and in certain instances, the Company competes with companies whose financial resources are greater.
This segment's backlog aggregated $21,500,000 at August 31, 1996, as compared to $21,400,000 at August 31, 1995. It is anticipated that substantially all of the backlog will be filled during the year ending August 31, 1997. In general, this segment business is not seasonal in nature.
The primary raw materials used by this product segment are steel coil and sheet, castings made of various metals, resins and plastics. The Company generally obtains these materials from several sources, including foreign suppliers, and materials are readily available.
The Company holds important patents related to its CMB product line. Other patents relative to this product segment, although of value, do not play a significant part in the Company's operations. The Company also has registered certain product trademarks which are considered to be of value.
TEST, MEASUREMENT AND CONTROL
The Test, Measurement and Control group is Core's second largest segment. The Company believes it is the leading producer of selected electrical test, measurement and control products. Sales are primarily made through dealers and manufacturers' representatives in the United States and abroad. This group serves the electrical, construction, and maintenance markets; the HVAC industry; factory automation companies; computer and telecommunications manufacturers, and general industry.
AMPROBE INSTRUMENT has been recognized as a leader in quality test equipment for professionals in the electrical, HVAC, construction, and maintenance markets. Amprobe primarily manufactures hand-held devices, which are used by professionals for testing and measuring electrical properties in various field applications. Amprobe's name is well recognized in the industry and represents a significant asset in marketing its products. Amprobe believes that its products have a reputation for being reliable and competitively priced. Primary products include clamp-on units, multi-meters (volt/amp/ohmmeters), circuit tracers, harmonic analyzers, ultrasonic leak detectors, and refrigerant recovery products. The 1995 acquisition of Promax, a manufacturer of refrigerant recycling and recovery products, has strengthened Amprobe's presence in the HVAC market. All sales are made through distributors and catalogs. Amprobe's advertising is targeted directly to consumers to create demand at the distributor level. Amprobe performs primarily light assembly and calibration in its ISO 9000 certified plant in Lynbrook, New York, and conducts research and development activities in Denver, Colorado.
Amprobe's new product development efforts include enhancing the features of existing products, and introducing new products such as circuit tracers, digital clamp-on units, ultrasonic leak detectors, and refrigerant recovery products. Known in the industry for its clamp-on products, Amprobe is continually improving and expanding its products offerings. Amprobe has developed a strong presence in the refrigerant recycling and recovery product market. The Company believes that oil-less recovery products of Promax offer a number of performance advantages over competitive systems. This product line is sold through its HVAC distribution channels.
GSE, INC. operates in three areas: "tech-motive" tools, measurement and control products (including torque sensors), and scales and weighing systems. "tech-motive" tools are a line of direct current electric nutrunners and electronic controllers for accurate fastening in manufacturing or repair applications. GSE's measurement and control products are used in a wide variety of applications and industries. GSE provides process controllers and monitors for process operations and sensors and systems testing equipment for measuring forces such as torque. Scales and weighing systems consist of programmable scales and controllers used for accurate measurement, parts counting, or weight-based processes.
GSE manufactures numerous torque measuring devices and has the exclusive license to a non-contact torque sensing technology. Non-contact torque measurement has two important applications in vehicles and predictive maintenance in industrial applications such as oil drilling. Management believes that significant additional revenues from this application may be developed over the next several years, but there can be no assurance that technological obstacles can be overcome or that sufficient market acceptance can be achieved to permit this application to make a significant contribution to this segment's revenues or earnings.
"tech-motive" products represent another major growth area for GSE. Their nutrunner products provide accurate, reliable fastening and offer significant performance advantages over other fastener systems products such as pneumatic tools. Its new CS 4000 tech-motive tool nutrunner system is the first tool of its kind with 100% digital communications. Although the overall nutrunner market is fairly mature, DC electric systems are growing and taking market share from other systems. Additionally, GSE is benefitting from the worldwide macro trend toward superior manufacturing quality and the increased emphasis on the importance of quality in safety-related applications.
GSE's programmable scales and weighing systems is its other growth area. GSE continues to grow in this area by expanding its research and development effort to remain a technology leader and introducing new products that provide greater value than competing systems. New product offerings include both products for general applications and specialized systems for unique applications.
GSE's primary strategy is to become the technology leader in applying controlled strain gage technology to high performance tooling, torque sensing, and programmable weighing systems. Through new product development, GSE seeks to grow in its existing markets and penetrate related markets. GSE also seeks to expand its presence in Europe, largely by increasing the distribution of its scale systems.
GREAT LAKES/EGLINTON (GLE) is a well-recognized manufacturer of high precision carbide tooling. It accounts for less than five percent of Core's total sales and earnings.
There is substantial competition in the markets served by this segment, and in certain instances, the Company competes with companies whose financial resources are greater.
The backlog of this segment aggregated $5,500,000 at August 31, 1996, as compared to $5,000,000 at August 31, 1995. It is anticipated that all of the backlog will be shipped during the year ending August 31, 1997. In general, the business of this segment is not highly seasonal in nature.
This segment's products are made principally from purchased electronic components and materials which are readily available from numerous sources.
The Company holds important patents related to its "tech-motive" tool product line. Other patents relative to this segment, although of value, do not play a significant part in the Company's operations, although the exclusive right to distribute the non-contact torque sensing technology in the Americas and Europe has strong potential. The Company also has licenses and has registered certain product trademarks which are considered to be of value.
FARM EQUIPMENT
The Farm Equipment segment is made up of short line products for the farm industry. Core believes it is the leading producer of tillage equipment in the High Plains region and a leading manufacturer of grain augers. Although farm equipment is a traditionally seasonal business, certain sales strategies significantly reduce seasonal fluctuations. Sales are made through dealers and distributors primarily in the High Plains and Midwest United States, as well as in Canada. In 1996, while continuing to be profitable, results were reduced by unfavorable weather conditions in the farm belt.
SUNFLOWER MANUFACTURING COMPANY, INC. is among the world's leading producers of high-quality disc harrows. Its grain drills and other tillage equipment are also known for their quality, reliability and value. This equipment is used to prepare land for seeding and for seeding operations. The primary market for Sunflower equipment is the High Plains states of Texas, Colorado, Nebraska, Kansas, and the Dakotas. Secondary market areas include the Midwest, and Sunflower is working to expand into the delta region of the South.
Sunflower equipment is sold through a direct sales force and an independent dealership network of more than 400 dealers. Within this 400 dealership network, Sunflower believes it has approximately a 20% share of all tillage equipment sold. Tillage equipment usually represents 10 to 15% of a dealer's sales. Sunflower enhances its dealer relationships by training and educating its dealers and by providing outstanding customer service.
Sunflower has benefitted from the 1990 Farm Bill, which required farmers on erosion-prone soil to maintain a certain percentage of residue. Sunflower manufactures several conservation tillage tools which protect topsoil from erosion. Sunflower is continually implementing product design changes to comply with conservation tillage regulations.
FETERL MANUFACTURING COMPANY (grain augers, cleaners and service bodies) and RICHARDTON MANUFACTURING COMPANY (foraging wagons) form the remainder of Core's Farm Equipment segment. Neither business accounts for more than five percent of Core's total sales, although Feterl accounts for slightly more than five percent of total earnings.
There is substantial competition in the markets served by this segment, and in certain instances, the Company competes with companies whose financial resources are greater.
This segment's backlog aggregated $7,200,000 at August 31, 1996, as compared to $3,800,000 at August 31, 1995. It is anticipated that substantially all of the backlog will be shipped during the first quarter of fiscal 1997. Sales of many products are seasonal in nature. The Company partially mitigates this seasonality by balancing production throughout the year. The farm economy has been, historically, very cyclical and can be significantly affected by the general economy and the weather. As is customary in the farm equipment industry, the Company makes many sales with seasonal dating payment terms to its farm equipment customers.
The primary raw material used by the businesses within this segment is standard sheet steel which is readily available from numerous sources.
The Company holds various patents relating to the products of this segment which, although of value, do not play a significant part in the Company's operations. The Company also has registered certain product trademarks which are considered to be of value.
(C) EMPLOYMENT
At August 31, 1996, there were approximately 1,565 people employed by the Company in its operations, of whom 1,500 were employed in the United States.
(D) OTHER
While the Company places a high emphasis on the development of new and improved products, research and development activities did not represent significant expenditures during the past three years.
Compliance with federal, state and local provisions which have been enacted or adopted regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, is not expected to have a material effect upon the capital expenditures, earnings and competitive position of the Company.
ITEM 2.

ITEM 2.PROPERTIES - --------------------------
Listed below are the major properties of the Company:
All of the above properties are substantially utilized, are suitable for the Company's needs and have sufficient productive capacity.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
On August 8, 1996, a lawsuit was served on Core Industries Inc (the "Company"). The lawsuit is entitled "Electro Lock, Inc., vs. Dynamic Acquisition Corporation, Inc., Cherokee International, Inc., Core Industries Inc, CI Tustin, Inc., CII Tustin, Inc., and Motec Industries, Inc.," Case No. BC 155007, and was filed in the Superior Court of California, County of Los Angeles, Central District. The Complaint seeks significant unsubstantiated damages in connection with allegedly defective components supplied by Dynamic Acquisition Corporation, Inc. ("Dynamic," which is a subsidiary of a subsidiary of the Registrant) to Electro Lock, Inc. ("Electro Lock"). Electro Lock also seeks damages against CII Tustin, Inc. (the parent of Dynamic) and against the Registrant (the parent of CII Tustin, Inc.), as alter egos of Dynamic.
The case is in its early stages. The operations of CII Tustin, Inc. and of Dynamic have been reported by the Company as discontinued operations since August 31, 1995. Dynamic had total assets of approximately $700,000 as of August 31, 1996. The Company intends to defend vigorously any claims against it, and management of the Company believes that the ultimate disposition of this matter will not have a material effect on the Company's financial condition.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of 1996 to a vote of security holders through a solicitation of proxies or otherwise.
PART II
ITEM 5.

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
At August 31, 1996, there were 1,898 shareholders of record of the common stock of Core Industries Inc.
The Company's common stock is traded on the New York Stock Exchange. The following table indicates the high and low sales prices of the common stock of the Company, and the dividends paid per share for the periods indicated:
NOTE A: Under the Company's debt agreements with insurance companies, retained earnings of approximately $27 million were available for dividends at August 31, 1996 subject to future earnings levels.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA
A summary of selected financial data follows:
NOTE A: Effective September 23, 1993, the Company sold its Du-Al Manufacturing Division, a manufacturer of front end loaders, back hoes and other equipment sold to the construction and farm industries. Effective May 31, 1994, the Company sold its Pioneer Industries Division, a manufacturer of metal doors and frames for the construction industry. The businesses sold had approximately $9,000,000 of sales in FY 1994 prior to disposition and approximately $20,000,000 of sales in FY 1993.
Other income for the year ended August 31, 1994 includes pretax gain of $1,475,000 (total of $.09 per share) related to the sale of the Du-Al Division.
NOTE B: Effective February 29, 1992, the Company adopted a formal plan to divest three major electronics-related subsidiaries. The three operations, Anilam Electronics, FlexStar and Hilton Industries, produced machine tool controls, disk-drive test equipment and tantalum capacitors, respectively, were accounted for as discontinued operations. Appropriate provisions were recorded for (a) the estimated losses of the discontinued operations through their expected disposal dates, (b) reduction of assets to their net realizable values and (c) the anticipated liabilities relating to the disposals. The total provision amounted to $20,859,000, net of income tax benefit of $7,315,000. Selected information related to these discontinued operations follows:
On October 6, 1995, the Company adopted a formal plan to divest its wholly-owned electronics-related subsidiary, Cherokee International, Inc. and its subsidiaries ("Cherokee") effective August 31, 1995. Cherokee represented a separate line of business producing electronic power supplies to distinct customers and was accounted for as a discontinued operation. Appropriate provisions were recorded in the fourth quarter of fiscal 1995 for (a) the estimated losses for the discontinued operation through its expected disposal date, (b) reduction of assets to their net realizable values, and (c) the anticipated liabilities related to the disposal. The total provision amounted to $6,500,000, net of income tax benefit of $3,500,000.
Selected information related to Cherokee's operations prior to discontinuance follows:
The net assets of the discontinued Cherokee operation held for sale were included in the Balance Sheet at August 31, 1995 under the caption "Net Assets Held for Sale." In 1996, the net assets of the discontinued operations were sold for cash and a long-term note receivable. It is anticipated that the provision established in 1995 should be adequate.
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
During the fiscal year ended August 31, 1996, the Company continued its strong improvement trend which began in 1992 after Core took dramatic action to restructure operations and refocus its resources. Management continues to focus on operating and financial strategies to improve operating performance and shareholder value. These strategies include new product development and market penetration initiatives, improved levels of manufacturing efficiencies and customer service, and the acquisition of selected companies which can increase future growth and profitability.
Fiscal 1996 Compared with Fiscal 1995
Sales increased 22% in 1996 over 1995 to $230,157,000 which included approximately $25 million from the acquisition of CMB Industries. Net earnings were $12,940,000 or 21% higher than 1995 earnings from continuing operations of $10,693,000. Net earnings per share increased 14% to $1.24 from earnings from continuing operations of $1.09, while the average number of shares outstanding was 7% higher. The strong earnings growth was fueled by new product offerings and operations improvements in the Company's Fluid Controls and Construction Products, and Test, Measurement and Control segments which more than offset the decline in operating earnings in the Farm Equipment segment principally caused by difficult weather conditions.
Overall gross profit margins decreased from 35.6% to 34.9% as a result of unfavorable product mix changes and competitive pressures in the Farm Equipment segment. Margins improved in both of the Company's other two segments. The decrease in selling, general and administrative expenses to 22.5% of sales from 23% reflects the Company's efforts to reduce the growth in administrative expenses, which more than offsets increases in research and development expenditures related to new products, resulting in engineering expenses increasing 39% over 1995 to $5,500,000. Interest expense increased 13.7% over 1995 due to increased borrowings to finance acquisitions.
The average number of shares outstanding during 1996 was 10.5 million compared to 9.8 million, primarily due to stock issued in connection with the acquisition of CMB Industries in December 1995.
Fiscal 1995 Compared with Fiscal 1994
Consolidated sales from continuing operations were up 13% to $187,897,000 over 1994 sales of $166,260,000. Earnings from continuing operations were $10,693,000, or 16% higher than 1994. Included in 1994 earnings was an after-tax gain of $915,000 ($.09 per share) related to the sale of a division. Excluding this item, earnings from continuing operations increased 29% in 1995 compared to 1994.
Approximately 67% of the sales increase and 60% of the earnings before income tax increase was attributable to the Test, Measurement and Control segment which had a 30% sales and earnings increase over 1994. Fluid Controls and Construction sales increased 3% with earnings before taxes growing almost 25%. Excluding 1994's gain on the sale of the division, Farm Equipment earnings before taxes increased 11% on a 15% sales increase.
Overall gross profit margins improved strongly from 33.1% to 35.6% as a result of favorable product mix changes and new product introductions. The increase in selling, general and administrative expenses from 21.2% of sales to 22.9% relates primarily to key units where there were increased investments in research and development, and promotional and selling costs related to new products and entering new markets.
Other income in 1994 included the $1.475 million pretax gain related to the sale of the Company's Du-Al division. Interest expense declined 12.2% in 1995 from 1994 as borrowings were reduced by $9 million throughout the year.
Segment Operating Review
Fluid Controls and Construction Products Segment
Sales and earnings before taxes in 1996 increased 43% and 41%, respectively, over the prior year. This increase was primarily due to the improved performance of the Core Fluid Control Group which benefitted from recent acquisitions and expanded distribution efforts. While all of the recent acquisitions (OGASCO, acquired effective January 1, 1995; CMB Industries, acquired effective December 1, 1995; and Davis Filters, acquired effective January 1, 1996) contributed to the growth in sales and earnings, the base businesses of the Core Fluid Control Group had increases in sales and earnings.
Test, Measurement and Control Segment
Sales and earnings before taxes increased 8% and 16%, respectively, over 1995. This strong improvement was fueled by new product offerings and operating efficiencies.
Farm Equipment Segment
Sales increased 5% over 1995 with earnings before taxes down 16%. Difficult weather conditions early in fiscal 1996 resulted in lower demand for certain higher margin products. This change in product mix also resulted in higher sales incentives. Operations improved during the latter part of fiscal 1996 with fourth quarter sales and earnings ahead of 1995's fourth quarter.
LIQUIDITY AND CAPITAL RESOURCES
One of the Company's financial strengths has been its ability to generate cash from its operating activities. In 1996, the Company again experienced positive operating cash flow as operating activities provided $14.2 million. Cash flow generation has been enhanced by the Company's ongoing efforts to improve operating efficiencies, make cost reductions, and manage working capital requirements to support increased sales volumes.
During 1996 the Company exercised its maximum allowable prepayment options and reduced its 10% rate long-term debt by $8 million. Accordingly, debt as a percentage of capital employed was reduced to 22.1% at August 31, 1996 from 31.5% at the end of the previous fiscal year.
The Company continued to invest in its future during 1996 by making two strategic acquisitions and making capital expenditures of $5.4 million. The total cost of the acquisitions included a combination of cash, debt assumptions and notes payable issued totaling $15.6 million and the issuance of 857,283 shares of the Company's common stock, valued at $13.50 per share. The $13 million net cash received during 1996 from the sale of the Company's Cherokee subsidiary helped finance these acquisitions. The majority of capital expenditures were focused at those units where the Company believes it has the greatest growth potential. The Company plans to invest $10 to $12 million in capital expenditures in fiscal 1997, excluding business acquisitions, with major emphasis on expanding facilities at several locations to support growth and improve efficiencies.
The Company continues its active program to complement internal growth with acquisition of product lines and businesses that meet the Company's selective criteria. It is expected that this effort may require the significant expenditure of funds over the next few years.
At August 31, 1996, the Company had working capital of $72.6 million with a current ratio of 2.8 to 1. Management believes its current cash position, cash flows from operations, unused lines of credit ($15,300,000 at August 31, 1996), along with its borrowing capacity, are adequate to fund its strategies for future growth, including working capital, expenditures for manufacturing expansion and efficiencies, new product development and acquisition activities.
At the Company's current quarterly dividend rate of $.06 per share, future annual dividend payments would approximate $2.6 million. Under the Company's debt agreements with insurance companies, retained earnings of approximately $27.3 million are available for dividends, subject to future earnings levels.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements of the Company and the report of independent accountants thereon of Coopers & Lybrand L.L.P., independent auditors for the Company, are included in Exhibit 13 and are identified in Item 14(a)(1) of this report. Other financial statement schedules are filed pursuant to Item 14(a)(2) and exhibits are filed pursuant to Item 14(a)(3) of this report.
Selected quarterly financial data for the years 1996 and 1995 appear in Note 13 to the financial statements on (see Exhibit 13).
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
ITEM 10.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
The information required by this item is incorporated by reference to a definitive proxy statement involving the election of directors which is filed by the Company pursuant to Regulation 14A within 120 days after the close of its fiscal year.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following information is provided as to the Executive Officers of the Company:
* Elected by the Board of Directors on January 9, 1996 ** Elected by the Board of Directors on October 2, 1996 *** Less than 1%
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to a definitive proxy statement involving the election of directors which is filed by the Company pursuant to Regulation 14A within 120 days after the close of its fiscal year.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to a definitive proxy statement involving the election of directors which is filed by the Company pursuant to Regulation 14A within 120 days after the close of its fiscal year.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to a definitive proxy statement involving the election of directors which is filed by the Company pursuant to Regulation 14A within 120 days after the close of its fiscal year.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) 1. FINANCIAL STATEMENTS. (Included in Exhibit 13)
PAGES IN EX-13 --------
Report of Management..................................................F-1 Report of Independent Accountants.....................................F-2 Consolidated Statements of Earnings for the Years Ended August 31, 1996, 1995 and 1994.................................F-3 Consolidated Balance Sheets as of August 31, 1996 and 1995............F-4 Consolidated Statements of Stockholders' Equity for the Years Ended August 31, 1996, 1995 and 1994.................................F-5 Consolidated Statements of Cash Flows for the Years Ended August 31, 1996, 1995 and 1994.................................F-6 Notes to Consolidated Financial Statements for the Years Ended August 31, 1996, 1995 and 1994 ................................F-7 -
2. FINANCIAL STATEMENT SCHEDULES
(A) Consent of Independent Accountants..........................EX-23
(B) Schedule Index: PAGE IN 10-K --------
Schedule II - Valuation and Qualifying Accounts ..........16
Schedules other than those listed are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
(A) 3. EXHIBITS
The exhibits are listed on the accompanying Index to Exhibits.
(B) 4. REPORTS ON FORM 8-K
No reports on Form 8-K have been filed during the last quarter of the period covered by this report.
CORE INDUSTRIES INC AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS for the years ended August 31, 1996, 1995 and 1994
Note A: Accounts written off
Note B: Discontinued operations
Note C: Acquisition
SIGNATURES ----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: October 29, 1996 CORE INDUSTRIES INC ---------------- ----------------------------------------- By: /s/ THOMAS G. HOOPER ----------------------------------------- Thomas G. Hooper, Treasurer and Controller
Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
CHIEF EXECUTIVE OFFICER:
/s/ DAVID R. ZIMMER October 29, 1996 - ------------------- ---------------- David R. Zimmer, President and Director Date
CHIEF FINANCIAL OFFICER:
/s/ MARK J. MACGUIDWIN October 29, 1996 - ---------------------- ---------------- Mark J. MacGuidwin, Vice President - Finance Date
OTHER DIRECTORS:
/s/ JAY A. ALIX October 29, 1996 - --------------- ---------------- Jay A. Alix Date
/s/ RICHARD P. KUGHN October 29, 1996 - -------------------- ---------------- Richard P. Kughn Date
/s/ HAROLD M. MARKO October 29, 1996 - ------------------- ---------------- Harold M. Marko Date
/s/ LAWRENCE J. MURPHY October 29, 1996 - ---------------------- ---------------- Lawrence J. Murphy, Executive Vice President Date
/s/ ALAN E. SCHWARTZ October 29, 1996 - -------------------- ---------------- Alan E. Schwartz Date
/s/ ROBERT G. STONE, JR. October 29, 1996 - ------------------------ ---------------- Robert G. Stone, Jr. Date
INDEX TO EXHIBITS
* Filed herewith ** Incorporated by reference to exhibits to the 1992 Form 10-K ***Incorporated by reference to exhibit 2.1, Form 8-K/A filed February 22, 1996
NOTE: The Exhibits attached to this report will be furnished to requesting security holders upon payment of a reasonable fee to reimburse the Company for expenses incurred by the Company in furnishing such Exhibits.