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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K/A
/ X / ANNUAL REPORT PURSUANT SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the transition period from __________to __________
Commission file number 0-11402
TELXON CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 74-1666060
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
3330 West Market Street, Akron, Ohio 44333
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (216) 867-3700
Securities registered pursuant Name of each exchange
to Section 12(b) of the Act: on which registered:
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
(Title of class)
7-1/2% Convertible Subordinated Debentures Due 2012
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes / X /. No / /.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /.
The aggregate market value of registrant's Common Stock held by non-affiliates
as of May 31, 1994, based on the last reported sales price of the Common Stock
as reported on NASDAQ/NMS for such date, was $183,309,268.
At May 31, 1994, there were 15,412,566 outstanding shares of the registrant's
Common Stock.
Documents Incorporated by Reference
The registrant's definitive proxy statement for its 1994 Annual Meeting of
Stockholders to be held on August 19, 1994, which the registrant intends to file
with the Securities and Exchange Commission within 120 days of the close of its
fiscal year ended March 31, 1994, is incorporated by reference in Part III of
this Annual Report on Form 10-K from the date of filing such document.
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PART I
ITEM 1. BUSINESS
GENERAL
Description of Company's Business
Telxon Corporation ("Telxon" or the "Company") designs, develops, manufactures,
integrates, markets, and sells portable, batch and wireless, tele-transaction
computers and systems. Telxon integrates its portable tele-transaction computers
("PTCs") with wired and wireless Local Area Networks ("LAN") and links these
networks to customers' specific enterprise networks.
Products, systems and services are marketed through a global sales and technical
services operation to the retail, industrial, transportation, logistics,
insurance, financial, healthcare and other vertical markets.
Historical Overview
The Company was incorporated in 1969 in Delaware as "Electronic Laboratories,
Inc.", as the successor to a business established in Texas in 1967. The
Company's name was changed to "Telxon Corporation" in 1974.
Telxon completed its initial public offering of 1,600,000 shares in July 1983, a
secondary offering of 1,150,000 shares in July 1985, and in June 1987, a $46
million 7-1/2% Convertible Subordinated Debenture due 2012. The Company
re-purchased $21.3 million of the debentures as of March 31, 1994.
Since the early 1970s, Telxon has developed and marketed portable handheld
terminals to retailers and wholesalers in the grocery, drug and hardware
industries. These terminals were used for order entry and inventory
applications. Demand for handheld devices expanded as bar code identification
systems were adopted by these and other industries, and as the need for timely,
accurate information became more important to reducing costs, improving
productivity and enhancing customer service. As new generations of products and
applications evolved, Telxon became a leading provider of PTCs and PTC wireless
networks to these three major retail and wholesale industries.
Commercial demand over the past five years has been driving the use of portable
and wireless tele-transaction computers and systems to other retail industries
including mass merchandisers, department stores and specialty store chains.
Telxon systems are also being used and/or evaluated in a wide variety of other
industries, including manufacturing, transportation, logistics, healthcare,
finance, insurance, and mobile field repair.
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Three Year Strategic Plan Effective April 1, 1993.
During the first quarter of fiscal 1994, management initiated a three-year
strategic plan to position the Company for expanding its current markets and
penetrating new markets through a revitalized global sales organization, new
vertical systems groups and new products and technology.
This plan incorporates five basic elements:
I. Global Sales, Marketing and Technical Service Operation
II. Vertical Systems Group
III. Technical Subsidiaries Group
IV. Advanced Research and Product Development
V. Telxon Manufacturing and Product Maintenance
These five elements are designed to drive the Company's sales and profits while
general and administration functions are available as shared resources.
I. GLOBAL SALES, MARKETING AND TECHNICAL SERVICES
Global Sales, Marketing and Technical Services includes three divisions:
- - North American Division
The North American Division is responsible for the sales and profits of
all Telxon products, systems and services in the United States and
Canada. In fiscal 1994, North American sales increased 29%, and 89% in
the fourth quarter of fiscal 1994 compared to the same period in the
prior year. The North American Division sells direct through its own
sales force as well as through selected value added resellers ("VARs"),
system integrators, original equipment manufacturers ("OEMs") and
strategic partners.
Wal-Mart Stores, Inc., Telxon's largest customer, accounted for 11% of
total revenues in fiscal 1994. No other customer accounted for 10% or
more of the Company's total revenues in fiscal 1994.
- - International Division
The International Division is responsible for the sales and profits of
all Telxon products, systems and services outside of the United States
and Canada. In fiscal 1994, International Division sales increased 11%,
and 50% in the fourth quarter of fiscal 1994 compared to the same
period in the prior year. The International Division sells direct
through its own sales force as well as through selected distributors,
VARs, system integrators, OEMs and strategic partners.
The International Division subsidiaries are located in Australia,
Belgium, France, Germany, Italy, Japan, Spain, and the United Kingdom,
and through distributors in Africa, Asia, Europe, Mexico, the Middle
East and South America. Distributor support offices are located in
Belgium, Brazil, and Singapore. (For more information regarding
geographical segments and revenues from the Company's International
Division, see Note 12 to the consolidated financial statements and Item
7, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.").
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- - Global Technical Services Division
The Global Technical Services Division is responsible for developing
and integrating PTC products, application systems, wireless PTC
networks and system integration services for the North American and
International Divisions.
The Global Technical Services Division provides customer specific
products and solutions, which integrate the Company's Gateway
Connectivity System(TM) ("GCS(TM)") technology with PTCs and the
customer's host interface. This Division performs site surveys,
utilizes protocol software for host connectivity, and implements user
applications.
II. VERTICAL SYSTEMS GROUP
The Vertical Systems Group ("VSG"), composed of five industry-specific marketing
groups, partners with Telxon's Global Sales, Marketing and Technical Services,
VARs and system integrators to provide industry specific solutions for customers
in each vertical industry.
- - The Retail Technology Group
The Retail Technology Group ("RTG") was formed in January 1993 to focus
on serving customers in the retail industry. RTG serves the needs of
department store, grocery, mass merchandiser, drug store, hardware and
specialty chains.
Traditionally, Telxon's market focus has been on the retail industry.
From its original base of batch, hand-held terminals (for order entry
and inventory), Telxon has become a leading provider of in-store
portable automation systems linking the Company's PTCs with in-store
processors and point-of-sale ("POS") systems via the Company's wireless
technology. Applications involving real-time communications include
shelf auditing, direct store delivery, and POS transactions.
- - The Industrial Technology Group
The Industrial Technology Group serves the manufacturing, warehousing,
and distribution markets. Telxon's portable industrial systems consist
of handheld or vehicle mounted PTCs which communicate in real time via
spread spectrum and/or narrowband wireless data communications. A
variety of connectivity options enable migration paths to various host
interfaces, such as IBM(R) SNA and Unix(R). The Industrial Technology
Group's systems support the following applications: shipping,
receiving, inventory management, work order processing, and quality
control.
- Gateway Connectivity System and GCS are trademarks of Telxon
Corporation.
- IBM is a registered trademark of International Business
Machines, Inc.
- UNIX is a registered trademark of Unix Systems Laboratories,
Inc.
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- - The Logistics and Transportation Technology Group
The Logistics and Transportation Technology Group markets the Company's
PTC and wireless network solutions to the materials management and
transport industry. Industry segments include warehousing and
logistics, air passenger, air cargo, couriers, motor carriers,
railroads, and water carriers.
The Company integrates its handheld, pen-based, cradle, and wireless
LANs and Wide Area Network ("WAN") technologies to automate
applications including package tracking, fleet management, payload
management, inspection, and work order processing.
- - The Healthcare Technology Group
The Healthcare Technology Group serves healthcare institutions, VARs
and integrators which are searching for opportunities to reduce costs
while improving the quality of patient care. The Company integrates its
pen-based PTC technology and wireless communication technology to
enhance hospital information networks and home healthcare data
transfers. Existing hospital software and computer systems can be
linked to Telxon PTCs. The Healthcare Technology Group targets hospital
and home healthcare clinicians to use their systems for admitting,
billing, charting, electronic patient record updating, and
point-of-care services.
- - The Insurance and Financial Services Group
The Insurance and Financial Services Group was recently formed to
provide the Company's pen-based and wireless communications solutions
for insurance and financial service firms. The Company's pen-based and
Wide Area Radio Network ("WARN") radio systems solutions currently
target insurance applications including premium audit inspection,
property valuation, and insurance claims management.
The Company's primary market segment has long been the retail industry, which
represents over 55% of current revenues. The Company's future growth will depend
in part on the ability of VSG to successfully penetrate new markets.
III. THE TECHNICAL SUBSIDIARIES GROUP
In the third quarter of fiscal 1993, the Company began a program to accelerate
advanced research, technology and product development by forming or purchasing
new product and technology companies that were driven through entrepreneurial
innovation and leadership. The Company also increased its investment in its own
research and product development operations. The following products and
technologies were identified to meet the Company's goals through this program:
- Ruggedized wide area radio PTCs
- Wireless pen-based workslates
- Advanced character recognition software
- Advanced 2D bar code encoding and autodiscriminating decode
software
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- Advanced 902 MHz and 2.4 GHz spread spectrum radios and
wireless networks
- Advanced CPU and ASIC design
- Advanced speech recognition
The Technical Subsidiaries Groups have been structured to work together with the
shared corporate resources of the Advanced Research and Product Development
Group to design, develop and produce leading-edge technology products for the
future. The companies acquired or formed through this program are detailed
below.
Itronix(R) Corporation
In March 1993, the Company acquired Itronix Corporation ("Itronix") of Spokane,
Washington. Itronix designs, develops, manufactures, and markets ruggedized,
portable microcomputers designed for mobile, telecommunications workers and
field service technicians.
Itronix products are environmentally sealed, protecting them against the effects
of water, shock, temperature extremes, dust, and rough handling. WARN technology
is integrated with the ruggedized, mobile terminals to provide data transfer
over long distances and open spaces via third party WANS.
PenRight! Corporation
In February 1994, the Company acquired PenRight! Corporation ("PenRight!") of
Fremont, California. PenRight! is a leading developer of pen-based character
recognition software. PenRight!'s Pro(R) software acts as a DOS based software
development tool which can be utilized to create pen-based applications in
Microsoft "C." PenRight!'s Pro(R) software supports ten international languages.
The Company is developing a new version to support 486 platforms and Pen for
Windows(R).
Teletransaction(R), Inc.
In February 1993, the Company acquired Teletransaction, Inc. ("Teletransaction")
of Akron, Ohio. Teletransaction is a developer of advanced pen and touch-screen,
wireless, mobile workslates for vertical markets, including:
- Retail
- Industrial
- Logistics and transportation
- Healthcare
- Insurance and financial services
- - Itronix is a registered trademark of Itronix Corporation.
- - PenRight! Pro is a registered trademark of PenRight! Corporation.
- - Pen for Windows is a registered trademark of Microsoft Corporation.
- - Teletransaction is a trademark of Teletransaction, Inc.
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Metanetics Corporation
Metanetics Corporation ("Metanetics(TM)") was formed in January 1994 in Fort
Myers, Florida, in part from the acquisition of Metamedia Corporation of Port
Jefferson, New York.
Metanetics develops 2D bar code encoding and autodiscriminating decode software.
AIRONET Wireless Communications, Inc.
In January 1994, the Company formed AIRONET Wireless Communications, Inc.
("AIRONET(TM)") of Akron, Ohio to continue development and marketing of wireless
LAN and WAN systems. AIRONET was formed from one subsidiary company and two
units of the Company:
- - Telesystems SLW, Inc. -- a designer and manufacturer of wireless spread
spectrum LAN radios that was purchased by Telxon in 1992.
- - Telxon's Radio and Wireless Network Engineering Group -- designers of
advanced spread spectrum technology radios and network software.
- - Telxon's RF Software Engineering Group -- advanced software designers
of universal wireless connectivity systems for integration to other
computer manufacturers' networks.
AIRONET developed one of the first commercial applications for spread spectrum
radio technology and currently designs and develops universal modular LAN and
WAN radio products and networks which it sells to Telxon, VARs and OEMs. In
addition, AIRONET acquired the FieldNet(R) product line, which simplifies the
development and deployment of PC, PTC or workslate applications incorporating
WARN connectivity.
Telxon's future growth will depend in part on the success of the Worldwide
Sales, Marketing and Technical Services Group, Vertical Systems Group and
Technical Subsidiaries Group.
IV. ADVANCED RESEARCH AND PRODUCT DEVELOPMENT
The Company's advanced research focuses on advanced hardware, software, and
firmware designs that utilize Telxon proprietary ASIC (Application Specific
Integrated Circuits) chips. The Company's product development strategy is to
enhance the functionality and improve the price and performance of its hardware
and software, and to improve the packaging of its PTC systems to address the
specific requirements of target market areas. Products and systems are designed
for modularity and the ability to upgrade, where possible.
- - Metanetics is a trademark of Metanetics Corporation.
- - AIRONET is a trademark of AIRONET Wireless Communications, Inc.
- - FieldNet is a registered trademark of AIRONET Wireless Communications,
Inc.
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During fiscal 1994, 1993, and 1992, the Company spent approximately $29.1
million, $17.8 million and $12.1 million, respectively, for Company-sponsored
research, development and engineering. For further discussion, see "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION -
Operating Expenses."
V. TELXON MANUFACTURING AND PRODUCT MAINTENANCE
- - Manufacturing Operations
Manufacturing operations consist of assembling, testing and the quality
assurance of components, sub-assemblies and finished products. The
Company's products are built and configured to customer specifications
for various memory sizes, packaging, peripherals, keyboards and
displays.
In May 1994, Manufacturing Operations were consolidated into a newly
constructed 116,000 square foot facility. The facility provides a more
efficient plant layout and an opportunity for expansion of
manufacturing capacity in the future.
All component parts in the Company's products are purchased from
outside sources. All packaging, custom-integrated circuits, keyboards
and printed circuit boards are produced to the Company's
specifications. A number of peripheral products, including wands, laser
scanners, controllers and receivers, are purchased as completed
assemblies and attached to and staged with the Telxon products before
delivery. Some products are produced by outside contract manufacturers.
In fiscal 1994, Telxon's International Procurement Office ("IPO") in
Singapore completed its third year of operation, presenting the Company
with an overall cost reduction in material procured in the Far East,
inclusive of incremental freight and tariffs. As more commodities are
procured by the IPO staff, continued cost savings are expected.
- - Product Maintenance Operations
The Company provides maintenance and repair services for Telxon
customers from its recently constructed National Service Center in
Houston, Texas. The Company also services various third party products,
including personal computers, printers and communication devices.
The Company also maintains a number of customer specific service depots
to provide service to users with large concentrations of Telxon
products. The Company offers a broad array of repair services and
maintenance agreements ranging from time and material charges to
sophisticated plans, such as the "just in time" program that offers
spare Telxon equipment supplied on site to the customer, virtually
eliminating any system downtime.
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PRODUCTS AND SYSTEMS
Handheld PTCs
The Company has developed a line of handheld PTCs, which range from low-end
batch terminals to highly integrated PTCs using laser bar code readers and
spread spectrum radios. The current products in this group include: Telxon PTC
600, 610, 710, 860, 910, 912, 921, 960 and Itronix 3400.
Workslate and Other PTC Products
The Company has developed a line of pen-based and touch-screen workslate PTCs
through Teletransaction. These products include the PTC 1140 and PTC 1180. The
Telxon PTC 860IM fork lift truck mount, the POS-5000 portable point-of-sale
terminal, the AMT-925 arm mounted terminal, and the Itronix T-5000 are also
included in this group.
Wireless Products, Network Systems and Software
Through AIRONET, the Company has developed a series of spread spectrum data
radios, repeaters, routers and bridges. The current products use the 902 MHz or
2.4 GHz frequency bands at data rates ranging from 232Kbps up to 2Mbps. These
radio products are integrated with Telxon's Microcellular Architecture ("TMA")
software to create wireless LANs, or with FieldNet wireless network software to
build universal wireless networks that incorporate WARN connections.
Telxon's universal wireless networks interface seamlessly with other
manufacturers' communication networks.
The Company also makes a line of base station and client/server card
transceivers through its GCS series that interface portable wireless products
with a client/server or mainframe. These products include the GCS 1000 and 2000.
Wireless Data Communications
Telxon provides wireless data communication products for mobile, distributed
data processing application systems. The Company uses industry standard "open"
system protocols to provide connectivity across a wide range of host computer
systems including SNA and TCP/IP.
The Company offers customers optional built-in acoustic couplers or integrated
modems that allow data transmission from remote tele-communication locations
into a host computer and client servers.
The Company's PTCs can be equipped with radios to transfer programs or data to
and from other computers or peripheral devices while remaining mobile. The four
types of available radio are (1) spread spectrum, (2) wide area, (3) micro
radios, and (4) narrow band FM radios.
Telxon's DataSpan 2000 System(TM) provides 902MHz and 2.4GHz spread spectrum
radio technology for fast, robust wireless data communications. Spread spectrum
technology and the Company's GCS are used to create a wireless interface between
Telxon PTCs and the
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customers' host computers. The Company's spread spectrum radios are designed to
fit into Telxon's PTCs and a variety of personal computers (PCs) and client
servers.
Mobile, wireless communication is provided using Telxon's Microcellular
Architecture ("TMA"). The DataSpan 2000 System has one or more radio cells which
support an area of coverage. The TMA system allows PTCs to move from cell to
cell while maintaining a wireless connection to the host computer. The system
can be expanded to provide more cells and greater coverage to over 4 million
square feet.
The Company has been granted a number of patents for its spread spectrum
technology and was the first company in the wireless industry to receive the
United States' FCC and Canada's Department of Communication approval for its
spread spectrum radios.
The Company markets the wireless LAN product line worldwide through AIRONET.
The Company announced a wireless network communication development alliance with
IBM's AS/400 Division in May 1994. The alliance advances the joint development,
marketing, and sales of technology, products, and solutions by the two
companies.
Through Itronix and Teletransaction, third party wide area network radios are
integrated with PTCs via the ARDIS(R) or RAM(R) mobile data networks. Accessing
the ARDIS or RAM wireless wide area packet data networks is accomplished by
integrating third party radio modem boards into the Company's PTCs.
"Micro radios" are small, low-power FM radios designed and manufactured by the
Company and integrated into Telxon PTCs and peripherals to provide cable-free
data communications between system components.
Narrow band FM radios from major manufacturers have been provided by Telxon
since 1984. These radios operate in the 450 Mhz band and require site licensing.
Peripherals
The Company integrates a variety of peripheral products into or with its regular
product line. They include: laser bar code readers (internal and external),
modular printers (24, 40 and 80 columns), chargers, cradles, modems, and RS232
interfaces. Many of these products or components of products are purchased from
outside vendors.
Software Products
The Company develops, through its subsidiaries, PenRight! and Metanetics,
advanced character recognition software and advanced 2D bar code encoding and
autodiscriminating decode software.
- - DATASPAN 2000 is a trademark of Telxon Corporation.
- - ARDIS is a registered trademark of IBM Corporation and Motorola
Corporation.
- - RAM is a registered trademark of RAM Mobile Data, Inc.
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Software Operating Systems, Languages and Applications
Telxon continues to invest in the research and development of operating systems,
software development tools, connectivity and ASIC microchips.
The Company continues to refine its proprietary PTC operating system TCOS(TM)
(Telxon Common Operating System) and TCAL(R) (Telxon Common Application
Language) to provide advanced application development programs in DOS, C and
other user friendly operating systems.
In 1989 Telxon introduced RAMsaver(TM), an improved Microsoft(R) MS-DOS version
3.21, to enhance conservation of battery power, support bar code readers,
minimize use of Random Access Memory (RAM) and permit the operating system and
application programs to run from Read Only Memory (ROM). RAMsaver expands the
flexibility of Telxon PTCs and offers new application opportunities by making
the Company's PTCs readily accessible to PC software developers using familiar
application development tools and languages, such as Microsoft "C", GW-BASIC(R),
Pascal, Fortran, Assembler (MASM(R)) and Borland Turbo C(R). Telxon's recent
release of MS-DOS version 5.0 is the Company's fourth release of MS-DOS.
The new pen-based and touch-screen workslates offer application development
capabilities in DOS, Pen for Windows and C.
INTELLECTUAL PROPERTY
The Company regards certain of its hardware and software products as proprietary
and relies on a combination of United States and foreign patent, copyright,
trademark and trade secret laws and license and other contractual
confidentiality provisions to protect its proprietary rights. In addition, the
Company's products also utilize hardware and software technologies licensed from
third parties. Given the rapidity of industry technological change, however, the
competence and creative ability of the Company's development, engineering,
programming, marketing and service personnel may be as or more important to its
competitive position as the legal protections and rights afforded by patent and
other owned or licensed intellectual property rights.
BACKLOG
Backlog at any particular date is dependent on timing of receipt of orders and,
therefore, is not a reliable indicator of future sales over an extended period
of time. The Company operates with a sales forecasting and manufacturing build
plan which provides a more reliable indicator to management of short and
long-term sales.
- - TCOS is a trademark, and TCAL is a registered trademark, of Telxon
Corporation.
- - MS-DOS is a registered trademark of Microsoft Corporation.
- - RAMsaver is a trademark of Telxon Corporation.
- - GW-BASIC and MASM are registered trademarks of Microsoft Corporation.
- - Turbo C is a registered trademark of Borland International, Inc.
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COMPETITION
The computer industry, of which portable tele-transaction systems are a part, is
highly competitive and characterized by advances in technology which frequently
result in the introduction of new products with improved performance
characteristics. Failure to keep pace with product and technological advances
could negatively affect the Company's competitive position and prospects for
growth.
The Company competes directly and indirectly with a number of companies in its
market segments. Frequent competitors include Symbol Technologies, Inc.,
Bohemia, New York and Norand Corporation, Cedar Rapids, Iowa. In addition,
companies that are participants in the broader computer industry are potential
competitors. Some of the Company's competitors and potential competitors have
substantially greater financial, technical, intellectual property, marketing and
human resources than the Company.
EMPLOYEES
As of May 31, 1994, the Company employed approximately 1650 people. The Company
has never experienced a work stoppage due to labor difficulties and believes
that relations with its employees are good.
ITEM 2. PROPERTIES
The Company's corporate and engineering offices are located in Akron, Ohio, in a
100,000 square foot office building constructed in 1979. Such offices are
occupied by the Company pursuant to a lease expiring December 31, 2001. The
lease provides the Company with the option, exercisable on September 1, 2001, to
purchase the office building and the land on which it is situated for its then
current fair market value.
The Company owns a 32,500 square foot one-story facility approximately one mile
from its corporate offices which houses its Customer Support Center, the
Training and Technical Publications Group and the New Product Support
Department.
In addition, the Company leases approximately 29,500 square feet of office space
pursuant to a lease expiring on March 31, 1997. This space is located less than
one mile from the Company's corporate offices and houses its AIRONET and
PenRight! subsidiaries, as well as its Systems Integration Department.
The Company owns two buildings in Houston, Texas of concrete construction,
located on a 15 acre site. The first building is a 116,000 square foot
manufacturing facility that was completed in April 1994. This building houses
all manufacturing and warehousing operations for the Company, as well as
administrative and manufacturing engineering offices. The second building is
36,000 square feet and houses the Company's National Service Center. This
building was completed in November 1993.
The Company's Itronix subsidiary is located in Spokane, Washington, where it
occupies approximately 22,500 square feet of office space pursuant to a lease
expiring May 31, 1998.
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The Company's Telesystems subsidiary is located in Markham, Ontario, Canada,
where it occupies approximately 9,600 square feet of office and manufacturing
space pursuant to a lease expiring November 30, 1998.
In addition to these principal locations, the Company maintains 49 locations in
the United States, Canada, Western Europe, Australia, Japan and Southeast Asia
which are used principally for sales and customer service offices, as well as
for executive and engineering offices for certain of its domestic and its
international subsidiaries. These locations are generally leased for terms which
range from one to three years. The Company believes that its existing and
planned facilities will be adequate for its reasonably foreseeable level of
operations.
ITEM 3. LEGAL PROCEEDINGS
In December 1992, four class action suits were filed in the United States
District Court, Northern District of Ohio, by certain alleged stockholders of
the Company on behalf of themselves and purported classes consisting of Telxon
stockholders, other than defendants and their affiliates, who purchased the
Company's common stock between May 20, 1992 and January 19, 1993. The named
defendants are the Company, former President and Chief Executive Officer Raymond
D. Meyo, and current President, Chief Operating Officer and Chief Financial
Officer Dan R. Wipff. On February 1, 1993, the Plaintiffs filed their Amended
and Consolidated Class Action Complaint related to the four actions, alleging
claims for fraud on the market and negligent misrepresentation, arising from
alleged misrepresentations and omissions with respect to the Company's financial
performance and prospects, and alleged trading activities of the named
individual defendants. The Amended Complaint seeks certification of the
purported class, unspecified compensatory damages, the imposition of a
constructive trust on certain of the defendants' assets and other unspecified
extraordinary equitable and/or injunctive relief, interest, attorneys' fees and
costs. The defendants, including the Company, filed a Motion to Dismiss which
was denied by the court on June 3, 1993. On April 16, 1993, Plaintiffs filed
their Motion for Class Certification. The defendants, including the Company,
filed their briefs in opposition to Class Certification on October 13, 1993. On
December 17, 1993, the District Court certified the class, consisting of Telxon
stockholders, other than defendants and their affiliates, who purchased Telxon
common stock between May 20, 1992 and December 14, 1992. The defendants intend
to vigorously defend this Consolidated Class Action.
On September 21, 1993, a derivative Complaint was filed in the Court of Chancery
of the State of Delaware, in and for Newcastle County, by an alleged stockholder
of Telxon derivatively on behalf of Telxon. The named defendants are the
Company; Robert F. Meyerson, Chairman of the Board and Chief Executive Officer;
Dan R. Wipff, President, Chief Operating Officer and Chief Financial Officer and
director; Robert A. Goodman, Corporate Secretary and outside director; Norton W.
Rose, outside director; and Dr. Raj Reddy, outside director. The Complaint
alleges breach of fiduciary duty to the Company and waste of the Company's
assets in connection with certain transactions entered into by Telxon and
compensation amounts paid by the Company. The Complaint seeks an accounting,
injunction, rescission, attorneys' fees and costs.
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While the Company is nominally a defendant in this derivative action, no
monetary relief is sought by the plaintiff from the Company; accordingly, no
provisions for any loss nor any related insurance recovery therefor have been
made in the accompanying consolidated financial statements. On November 12,
1993, Telxon and the individual director defendants filed a Motion to Dismiss.
The plaintiff filed his brief in opposition to the Motion on May 2, 1994. The
defendants intend to file a responsive final brief and to vigorously defend this
action. While the ultimate outcome of this action cannot presently be
determined, the Company does not anticipate that this matter will have a
material adverse effect on the Company's consolidated financial position or
results of operations.
In the normal course of its operations, the Company is subject to performance
under contracts, and has various legal actions pending. However, in management's
opinion, any such outstanding matters have been reflected in the consolidated
financial statements, are covered by insurance or would not have a material
adverse effect on the Company's consolidated financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the quarter
ended March 31, 1994.
ITEM X. EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth certain information with respect to each executive
officer of the Company. Executive officers of the Company are annually elected
by the Board of Directors of the Company or are annually appointed by the Chief
Executive Officer and ratified and approved by the Board of Directors.
Robert F. Meyerson, 57, has been Chief Executive Officer of the Company since
October 1992 and Chairman of the Board of Directors since November 1981. Mr.
Meyerson was Chief Executive Officer from August 1978 to May 1985, and was
President from August 1978 until November 1981. He was a director of the Company
since 1977. Mr. Meyerson was Chairman of the Board of Basicomputer Corporation
("Basicomputer"), a major regional distributor of PC products, peripherals,
services and systems, from January 1984 until it was acquired by The Future Now,
Inc. in September 1993, and Chief Executive Officer of Accipiter Corporation, a
consulting firm, from June 1985 through October 1992.
Dan R. Wipff, 51, has been President and Chief Operating Officer of the Company
since October 1992 and the Company's Chief Financial Officer since December
1991. He was Senior Executive Vice President and Chief Operating Officer from
October 1989 to October 1992. He also served as the Company's Chief Financial
Officer from October 1989 to July 1990 and from October 1990 to September 1991.
Mr. Wipff has been a director of the Company since September 1980 and was also a
director of the Company from April 1974 until September 1979. He was Executive
Vice President of Park Heights Investments, Inc., a consulting company, during
1989, and President of Sandia Federal Savings & Loan Association ("Sandia") from
1984 to 1989. On February 10, 1989, the Federal Home Loan Bank Board appointed
the Federal Savings and Loan Insurance Corporation as conservator of Sandia. On
September 14, 1989, the Office of Thrift Supervision appointed the Resolution
Trust Corporation as receiver of Sandia.
14
<PAGE> 15
Lawrence L. Allman, 51, is the President and Chief Executive Officer of Itronix,
which became a wholly owned subsidiary of the Company in April 1993. Mr. Allman
became the President and Chief Executive Officer of Itronix in 1992. He was
Senior Vice President of Operations and Marketing from 1989 to 1992, and Vice
President of Operations from 1987 to 1989, of Itron, Inc., a manufacturer and
marketer of data collection and interactive field service systems for utilities
and general field service workforce companies.
Frank E. Brick, 45, has been Senior Executive Vice President of the Company
since November 1993. For more than five years prior to joining the Company, he
served as Chief Executive Officer of Basicomputer.
John H. Cribb, 60, has been President, International, of the Company since
January 1993, and was the Company's Senior Vice President of International
Operations from January 1990 to January 1993. Mr. Cribb was a Vice President of
Telxon and Managing Director of Telxon Limited, Telxon's United Kingdom
subsidiary, from 1982 to 1990.
D. Michael Grimes, 54, has been the President and Chief Executive Officer of
AIRONET Wireless Communications, Inc., a wholly owned subsidiary of the Company,
since April 1994. He served as President of RTG from its formation in January
1993 until April 1994. He previously served the Company as Vice President,
Channels Marketing and Major Accounts, from June 1992 to December 1992, from
December 1990 to May 1992 and Senior Vice President, Sales and Marketing, from
September 1989 to December 1990.
William J. Murphy, 60, has been Executive Vice President, North American
Operations, of the Company since January 1993. Mr. Murphy was Area Vice
President, East, of the Company from November 1992 until January 1993, and
served as a District Manager of the Company from September 1989 until November
1992. From May 1989 to August 1989, Mr. Murphy was Area Vice President, North
Eastern Region, of the Company.
15
<PAGE> 16
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has been publicly traded since July 21, 1983, in the
over-the-counter market under the symbol TLXN. The following table sets forth,
with respect to the past two fiscal years of the Company, the range of high and
low closing prices as reported in the NASDAQ National Market System and cash
dividends paid. The Company has not paid other than nominal dividends. The
Company intends to follow a policy of retaining earnings in order to finance the
continued growth and development of its business. Payment of dividends is within
the discretion of the Company's Board of Directors and will depend on, among
other factors, earnings, capital requirements and the operating and financial
condition of the Company.
<TABLE>
<CAPTION>
Fiscal Quarter
--------------------------------------------------------------
Year Ended March 31, First Second Third Fourth Year
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994
High............................ $11.00 $12.75 $11.75 $16.63 $16.63
Low............................. 6.50 9.25 7.63 10.13 6.50
Dividends paid.................. -- -- -- .01 .01
1993
High............................ $24.50 $23.75 $21.75 $12.50 $24.50
Low............................. 19.00 19.50 11.50 9.75 9.75
Dividends paid.................. -- -- -- .01 .01
</TABLE>
As of May 31, 1994, there were approximately 1,645 holders of record of the
Company's Common Stock.
16
<PAGE> 17
ITEM 6. SELECTED FINANCIAL DATA
Set forth below are selected financial data for the five years ended March 31,
1994, which have been derived from the Company's audited financial statements
for the periods indicated. The selected financial data should be read in
conjunction with the financial statements for the three years ended March 31,
1994, 1993 and 1992 included elsewhere herein. For further details on 1994
results, refer to Item 7 and Note 16 to the Consolidated Financial Statements.
<TABLE>
<CAPTION>
Income Statement Data: Year Ended March 31,
1994 1993 1992 1991 1990
---------- --------- --------- --------- ----------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Revenues:
Product $ 252,341 $ 197,116 $ 177,560 $ 152,656 $ 115,773
Customer service 43,652 41,298 37,460 31,917 27,664
---------- --------- --------- --------- ----------
Total revenues 295,993 238,414 215,020 184,573 143,437
Costs and expenses:
Cost of product revenues 143,347 123,511 93,203 77,715 75,413
Cost of customer service revenues 31,958 29,956 21,631 18,903 17,274
Selling expenses 59,894 46,393 42,564 35,823 41,370
Product development and engineering expenses 29,058 17,798 12,131 11,571 10,337
General and administrative expenses 31,854 36,113 21,249 22,280 19,657
Loss on sale of operating division -- -- -- -- 4,577
---------- --------- --------- --------- ----------
Total costs and expenses 296,111 253,771 190,778 166,292 168,628
---------- --------- --------- --------- ----------
Income (loss) from operations (118) (15,357) 24,242 18,281 (25,191)
Interest income 653 1,947 2,998 4,149 3,937
Interest expense (2,459) (2,271) (2,203) (2,560) (3,914)
---------- --------- --------- --------- ----------
Income (loss) before income taxes,
extraordinary items and cumulative
effect of an accounting change (1,924) (15,681) 25,037 19,870 (25,168)
Provision (benefit) for income taxes 875 (4,056) 9,139 7,533 (10,728)
---------- --------- --------- --------- ----------
Income (loss) before extraordinary
items and cumulative effect of
an accounting change (2,799) (11,625) 15,898 12,337 (14,440)
Extraordinary items:
Income tax effect of net operating
loss carryover utilized -- -- 1,091 620 --
Gain from early extinguishment
of debt, net of taxes -- -- -- 4,045 --
---------- --------- --------- --------- ----------
Income (loss) before cumulative
effect of an accounting change (2,799) (11,625) 16,989 17,002 (14,440)
Cumulative effect of a change in
accounting for income taxes -- (439) -- -- --
---------- --------- --------- --------- ----------
Net income (loss) $ (2,799) $ (12,064) $ 16,989 $ 17,002 $ (14,440)
========== ========= ========= ========= ==========
Earnings per common and common
equivalent share:
Income (loss) before extraordinary
items and cumulative effect of
an accounting change $ (.18) $ (.83) $ 1.13 $ .91 $ (1.09)
Income tax effect of net operating
loss carryover utilized -- -- .08 .05 --
Gain from early extinguishment
of debt, net of taxes -- -- -- .30 --
---------- --------- --------- --------- ----------
Income (loss) per share
before cumulative effect of
an accounting change $ (.18) $ (.83) $ 1.21 $ 1.26 $ (1.09)
Cumulative effect of a change in
accounting for income taxes -- (.03) -- -- --
---------- --------- --------- --------- ----------
Net Income (loss) per share $ (.18) $ (.86) $ 1.21 $ 1.26 $ (1.09)
========== ========= ========= ========= ==========
Average number of common and common
equivalent shares outstanding 15,210 13,991 14,067 13,510 13,224
Cash dividends $ .01 $ .01 $ .01 $ .01 $ .01
</TABLE>
17
<PAGE> 18
ITEM 6. SELECTED FINANCIAL DATA (Continued)
Balance Sheet Data:
<TABLE>
<CAPTION>
March 31,
--------------------------------------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Total assets $259,968 $212,621 $199,162 $166,588 $166,819
Notes payable, capital lease
and other obligations due
within one year 25,207 679 867 888 631
Total long-term debt and
capital lease obligations 27,534 24,930 25,556 26,009 36,466
Working capital 80,066 84,738 117,216 102,029 96,060
Stockholders' equity 124,715 128,219 124,398 102,163 83,434
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
SUMMARY
The following table sets forth for the periods indicated (i) certain expense and
income items expressed as a percentage of total revenues, and (ii) the
percentage increase or decrease of such items as compared to the corresponding
prior period.
<TABLE>
<CAPTION>
Period to Period
Percentage of Total Revenues Increase (Decrease)
---------------------------- -------------------
1994 1993
Year ended March 31, Compared Compared
1994 1993 1992 to 1993 to 1992
------- ------ ------ --------- --------
<S> <C> <C> <C> <C> <C>
Product revenues 85.3% 82.7% 82.6% 28.0% 11.0%
Customer service 14.7 17.3 17.4 5.7 10.2
----- ----- -----
Total revenues 100.0 100.0 100.0 24.2 10.9
Cost of product revenues 48.4 51.8 43.3 16.1 32.5
Cost of customer service revenues 10.8 12.5 10.1 6.7 38.5
Selling expenses 20.2 19.5 19.8 29.1 9.0
Product development and
engineering expenses 9.8 7.5 5.6 63.3 46.7
General and administrative expenses 10.8 15.1 9.9 (11.8) 70.0
----- ----- -----
100.0 106.4 88.7 16.7 33.0
----- ----- -----
Income (loss) from operations -- (6.4) 11.3 (99.2) (163.3)
Interest income .2 .8 1.4 (66.5) (35.1)
Interest expense (.8) (1.0) (1.0) 8.3 3.1
----- ----- -----
Income (loss) before income
taxes, extraordinary
items and cumulative effect
of an accounting change (.6) (6.6) 11.7 (87.7) (162.6)
Provision (benefit) for income taxes .3 (1.7) 4.3 (121.6) (144.4)
----- ----- -----
Income (loss) before
extraordinary items
and cumulative effect
of an accounting change (.9) (4.9) 7.4 (75.9) (173.1)
Extraordinary items:
Income tax effect of net
operating loss carry-
over utilized -- -- .5 -- (100.0)
Gain from early extinguishment
of debt, net of taxes -- -- -- -- --
----- ----- -----
Income (loss) before
cumulative effect of
an accounting change (.9) (4.9) 7.9 (75.9) (168.4)
Cumulative effect of a
change in accounting
for income taxes -- (.2) -- (100.0) 100.0
----- ----- -----
Net income (loss) (.9)% (5.1)% 7.9% (76.8)% (171.0)%
===== ===== =====
</TABLE>
18
<PAGE> 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (Continued)
RESULTS OF OPERATIONS
Overview
The Company's financial performance during fiscal 1994 reflects a continuation
of the corporate re-engineering program started in fiscal 1993 to reposition the
Company for long-term growth in the marketplace of the future.
Several of the Company's goals set forth in its Strategic Plan a year ago have
been achieved during fiscal 1994. The North American Sales Division has been
reorganized with improved revenues as a direct result. In addition, the Vertical
Systems Group ("VSG"), composed of five industry-specific marketing groups, was
established in the third quarter of fiscal 1994. VSG provides specific solutions
to customers in targeted industries including retail, manufacturing, logistics
and transportation, healthcare and insurance and financial services.
Revenues continued to increase during fiscal 1994 as a result of the
implementation of the first phase of the Strategic Plan achieving record levels
in both the third and fourth quarters. Even more important than the revenue
increase is the return to an operating profit during the third quarter of fiscal
1994, the first operating profit in five quarters. This return to operating
profitability continued through the fourth quarter of fiscal 1994.
Additionally, the Company has completed the consolidation of its U.S. customer
service operations into a single National Service Center in order to speed
service delivery, increase quality and reduce costs through shared manufacturing
and customer service inventories. By the end of fiscal 1994, the Company also
substantially completed its new manufacturing facility located adjacent to the
National Service Center. The move to the new manufacturing facility occurred in
May, 1994. This facility, with its expanded capacity and smoothed production
flow, should serve the Company's needs for the foreseeable future.
The successes mentioned above have not occurred without some investments. The
Company's inventories increased during fiscal 1994 due to the long lead-time
procurement for pen-based product offerings and increased safety stock levels
procured in anticipation of the manufacturing operations move to new facilities.
Inventory levels are expected to decline in fiscal 1995 as the changeover to the
new manufacturing facilities is completed.
Revenues
1994 vs. 1993
Consolidated revenues for fiscal 1994 increased $57.6 million or 24% as compared
to fiscal 1993. The Company's largest customer in fiscal 1994, Wal-Mart Stores,
Inc., accounted for approximately 11% of total revenues.
19
<PAGE> 20
Product revenues for fiscal 1994 increased $55.2 million or 28% as compared to
fiscal 1993. Product revenues include the sale of Portable Tele-transaction
Computer ("PTC") units, pen-based and touch-screen workslates, hardware
accessories, customer application software and software license fees. The
product revenue increase was due to a 16% increase in PTC unit volume and a 10%
increase in the average selling price per PTC unit. The acquisition of Itronix
Corporation ("Itronix") in the fourth quarter of fiscal 1993 has contributed to
these increases. For fiscal 1994 Itronix product revenues increased $23.8
million as compared with the one month reported results in fiscal 1993.
Customer service revenues increased $2.4 million or 6% for fiscal 1994 as
compared to fiscal 1993. This growth was due to the increase in the installed
base of the Company's products offset by a reduction in the discretionary
spending by customers for servicing of the PTC installed base. The acquisition
of Itronix again contributed to this revenue increase. Fiscal 1994 customer
service revenues generated by Itronix increased $1.3 million as compared with
fiscal 1993.
Revenues from the Company's international operations (including Canada) were
$83.8 million and $73.7 million in fiscal 1994 and 1993, respectively. This
increase was primarily attributable to increased sales to unaffiliated
international distributors and increased Canadian subsidiary revenues. The
changes in currency exchange rates and intercompany hedging activities did not
have a material effect on the results of the Company's international operations.
Consolidated revenues for fiscal 1995 are expected to increase over fiscal 1994
levels.
1993 vs. 1992
Consolidated revenues for fiscal 1993 increased $23.4 million or 11% from fiscal
1992. The Company's largest customer in fiscal 1993, Wal-Mart Stores, Inc.,
accounted for approximately 11% of total revenues.
Product revenues for fiscal 1993 increased $19.6 million or 11% from fiscal
1992. The product revenue increase was due to a 7% increase in average selling
price per PTC unit and a 4% increase in PTC unit volume. The lower average
selling price in fiscal 1992 was due primarily to the sale of a significant
number of low-end model PTC units in 1992 to a single customer. The PTC unit
volume increase was primarily due to shipments to Wal-Mart Stores, Inc. to equip
its stores with the Company's wireless spread spectrum systems.
Customer service revenues for fiscal 1993 increased $3.8 million or 10% from
fiscal 1992. This revenue growth was due to continuing growth in the installed
base of the Company's products and through the addition of specialized service
contracts. These specialized service contracts include "depot express" that
guarantees one-day service and provides customers a service which tracks and
maintains inventory records for customers' spare parts and a "just in time"
program that offers spare Telxon equipment supplied on-site to the customer
virtually eliminating system downtime.
Revenues from the Company's international operations (including Canada) were
$73.7 million and $70.6 million in fiscal 1993 and 1992, respectively.
International revenues as a percentage of total revenues were 31% and 33%
20
<PAGE> 21
in fiscal 1993 and 1992, respectively. The changes in currency exchange rates
and intercompany hedging activities did not have a material effect on the
results of the Company's international operations.
Costs and Operating Expenses
1994 vs. 1993
Total operating expenses, as a percentage of revenues, were lower in fiscal 1994
as compared to 1993 due primarily to unusual costs and other non-recurring
charges recognized in the prior year.
Cost of product revenues as a percentage of product revenues was 57% in fiscal
1994 as compared to 63% in fiscal 1993. The reduction was primarily related to
non-recurring charges in fiscal 1993 aggregating $9.3 million including the
discontinuance of older product lines of $6.8 million, consulting fees of $1.5
million, product enhancement costs of $.7 million and other miscellaneous costs
of $.3 million. Additionally, fiscal 1993 results reflected lower margins
attributable to a single large contract and general pricing pressures.
Cost of customer service revenues as a percentage of customer service revenues
was 73% in both fiscal 1994 and 1993. Fiscal 1993 included $1.9 million of
charges relating to the consolidation of the customer service depots. Despite
the absence of these charges in fiscal 1994, the cost of customer service
revenues remained constant due to increased costs to repair more sophisticated
products currently offered by the Company.
For the year ended March 31, 1994, inventory allowance accounts increased to
$9.9 million from $7.5 million at March 31, 1993. This increase was due to
provisions for obsolescence of $6.7 million offset by disposals of obsolete
material of $4.3 million. However, as a percentage of gross inventories, the
inventory allowances decreased to 11% at March 31, 1994 from 13% at March 31,
1993. The Company continues to anticipate provisions for obsolescence as revenue
volumes generated by new product offerings replace revenues from older products.
Selling expenses as a percentage of revenues were 20% in both fiscal 1994 and
1993. Selling expense increased $13.5 million in fiscal 1994 as compared to
fiscal 1993. Fiscal 1993 selling expense included certain non-recurring
severance and relocation charges of $.8 million. The absence of these charges in
fiscal 1994 was offset by additional expenses of $4.3 million related to the
acquisitions made in the fourth quarter of fiscal 1993, variable selling
expenses (primarily wages and commissions related to revenue growth) and
expenses relating to the initial formation of VSG.
Product development and engineering expenses were 10% and 8% of revenues in
fiscal 1994 and 1993, respectively. The increase of $11.3 million in fiscal 1994
as compared to 1993 was primarily attributable to research and development
activities related to new product development. These activities included
increased research and development costs associated with wireless data
communications and spread spectrum technology, pen-based technology, mobile
workforce products and other product improvements and new product introductions.
The product introductions as a result of these expenditures began in the fourth
quarter of fiscal 1994 and are expected to continue into fiscal 1995.
21
<PAGE> 22
General and administrative expenses as a percentage of revenues were 11% and 15%
for fiscal years 1994 and 1993, respectively. The decrease of $4.3 million was
primarily attributable to the unusual and non-recurring charges in the prior
year aggregating $9.1 million, including severance charges, increased provision
for doubtful accounts and increased consulting and professional fees. At March
31, 1994 amounts accrued for such activity but yet unpaid related to severance
and aggregated $1.5 million. There were no material adjustments recorded in
fiscal 1994 to amounts recorded in fiscal 1993. The decrease in 1994 when
compared to 1993 was partially offset by increases in expenses of $1.4 million
resulting from acquisitions made in the fourth quarter of fiscal 1993 and
additional corporate expenses aggregating $3.4 million required to support the
Company's revenue growth.
Selling, product development and engineering and administrative expenses are
expected to decrease as a percentage of revenues for fiscal 1995 as compared to
fiscal 1994.
1993 vs. 1992
Operating expenses, as a percentage of revenues, were generally higher in fiscal
1993 than fiscal 1992 due to increased technology investments and unusual and
other non-recurring charges.
Cost of product revenues as a percentage of product revenues was 63% in fiscal
1993 as compared to 52% in fiscal 1992. The increased cost percentage in fiscal
1993 primarily was the result of $9.3 million of non-recurring charges primarily
relating to the discontinuance of older product lines, consulting fees and
product enhancement costs, as described above.
Cost of customer service revenues as a percentage of customer service revenues
was 73% in fiscal 1993 as compared to 58% in fiscal 1992. Fiscal 1993 includes
$1.9 million of non-recurring charges primarily relating to the consolidation of
the Company's service depots to one National Service Center and increased
operating costs to repair more sophisticated products. Additionally, as a result
of the reorganization of the customer service operations to include post-sales
technical support personnel, fiscal 1993 customer service costs increased $1.2
million. These costs were previously included in cost of product revenues.
For the year ended March 31, 1993, inventory allowance accounts increased to
$7.5 million from $4.4 million at March 31, 1992, or $3.1 million. This increase
was due to provisions for inventory obsolescence of $9.7 million offset by
disposals of obsolete materials and other of $6.6 million. As a percentage of
gross inventories, the inventory allowances increased to 13% at March 31, 1993
versus 7% at March 31, 1992. Provisions for inventory obsolescence increased due
to the increased demand and production volumes of new product offerings which
were introduced in the prior year. The success of these newer product offerings
prompted management to reduce support for older PTC models causing a greater
risk of obsolescence for such items.
Selling expenses as a percentage of revenues were 20% in both fiscal 1993 and
1992. This percentage remained constant despite substantial severance and
relocation charges in fiscal 1993 due to cost containment efforts. The increase
in selling expenses in fiscal 1993 as compared to fiscal 1992 reflects expenses
relating to the acquisitions described in Note 14 to the Consolidated Financial
Statements and the additional cost associated with direct sales and support
personnel needed to adequately support the Company's revenue growth.
22
<PAGE> 23
Product development and engineering expenses as a percentage of revenues were 8%
and 6% in fiscal 1993 and 1992, respectively as the Company increased its focus
on technology and product introductions. The increase was primarily due to
research and development activities of $3.2 million related to acquisitions of
and increased product development in the second half of fiscal 1993. These
activities included product refinement and prototype costs associated with
wireless data communications and spread spectrum technology, pen-based
technology and other product improvements.
General and administrative expenses as a percentage of revenues were 15% for
fiscal 1993, an increase of 5% from 10% in fiscal 1992. This increase of $14.8
million was primarily attributable to a number of unrelated unusual charges
aggregating $11.2 million that were recognized in fiscal 1993. The costs
included severance charges for the former Chief Executive Officer and others of
$4.4 million, consulting and professional fees of $2.0 million, primarily
related to strategic business planning and a continuous improvement project at
the Company's manufacturing operations, amortization of non-cash compensation
related to restricted stock grants of $1.1 million, settlements of disputes with
customers and suppliers of $.8 million, additional bad debt provisions of $2.3
million as several specific customers experienced financial difficulties and a
valuation allowance for fixed assets of $.6 million. Fiscal 1993 costs also
included increased amortization of intangibles related to acquisitions and
additional corporate expenses to support the Company's revenue growth.
Interest Income (Expense)
1994 vs. 1993
Net interest income (expense) as a percentage of revenues was (.6%) and (.2%) in
fiscal 1994 and 1993, respectively. The increase in fiscal 1994 as compared to
fiscal 1993 reflected the lower average cash and short-term investment balances
primarily due to increased investing activities aggregating $26.9 million which
caused cash requirements in excess of internally generated funds. These
investing activities are discussed in greater detail below.
1993 vs. 1992
Net interest income (expense) as a percentage of revenues was (.2%) and .4% in
fiscal 1993 and 1992, respectively. The change to net interest expense in fiscal
1993 as compared to net interest income in fiscal 1992 reflected the lower
average cash and short-term investment balances throughout fiscal 1993 which
were primarily due to the increased cash used in investing and financing
activities aggregating $28.5 million offset by increased cash flows from
operating activities of $13.8 million.
Income Taxes
1994 vs. 1993
The Company's effective income tax rate was 46% in fiscal 1994. The consolidated
effective tax rate reflects the loss before taxes increased by nondeductible
goodwill amortization, the sum of which is multiplied by the United States
statutory rate and increased by international rate differentials, partially
offset by research and development credits and adjustment to the valuation
allowance. On August 10, 1993, the President signed into law the Omnibus Budget
Reconciliation Act of 1993 which contains certain provisions covering the
calculation of the corporate income tax liability. These income tax law changes
did not have a significant effect.
23
<PAGE> 24
1993 vs. 1992
The Company's effective rates for income tax expense (benefit) were (26%) and
37% in fiscal 1993 and 1992, respectively. The consolidated effective tax rate
for fiscal 1993 reflects the benefit from the net operating loss carryback for
the U.S. operations to prior years offset by the international tax rate
differential and non-deductible goodwill amortization.
In February 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No.
109"). SFAS No. 109 requires a change from the deferred method of accounting for
income taxes of Accounting Principles Board Opinion 11 to the asset and
liability method. Effective April 1, 1992, the Company adopted the provisions of
SFAS No. 109 and reported, in the amount of $.4 million, the cumulative effect
of the accounting change in the fiscal 1993 consolidated statement of income.
Liquidity
1994 vs. 1993
At March 31, 1994, the Company had cash, cash equivalents and short-term
investments of $24.8 million, as compared with $27.2 million at March 31, 1993.
The Company's current ratio (current assets divided by current liabilities) was
1.8:1 and 2.6:1 at March 31, 1994 and 1993, respectively. The primary components
of this decrease in working capital and the current ratio were decreases in cash
and short-term investments of $2.4 million and refundable income taxes of $3.0
million and increases in notes payable of $24.6 million and accounts payable of
$26.7 million. The increase in accounts payable is a direct result of increased
inventory purchases.
These decreases to working capital were offset by increases to inventories of
$27.9 million and accounts and notes receivable of $24.2 million. The increase
in inventories was primarily due to long lead-time procurement for pen-based
product offerings, increased safety stock levels related to the move of the
Company's manufacturing operations and the revenue growth experienced in the
later part of the fiscal year. Although the Company has increased its investment
in accounts receivable, days sales outstanding has decreased to 57 days at March
31, 1994 from 73 days at March 31, 1993. The Company believes this is a result
of increased control over the granting of extended credit terms and increased
management emphasis on cash collections and monitoring of past due accounts.
The Company believes that its existing resources, including available cash,
short-term investments, internally generated funds and credit facility, will be
sufficient to meet working capital requirements for the next twelve months.
1993 vs. 1992
At March 31, 1993, the Company had cash, cash equivalents and short-term
investments of $27.2 million as compared with $42.3 million at March 31, 1992.
The Company's current ratio (current assets divided by current liabilities) was
2.6:1 and 3.6:1 at March 31, 1993 and March 31, 1992, respectively. The primary
components of the decrease in working capital and the current ratio were
decreases in cash and short-term investments of $15.1 million, accounts
receivable of $5.9 million and inventories of $6.2 million, and increases in
accounts payable of $2.2 million and accrued liabilities of $9.8 million. These
decreases were partially offset by an increase in refundable income taxes of
$4.7 million and a decrease in income taxes payable of $2.6 million.
24
<PAGE> 25
These working capital changes were primarily due to the Company's re-engineering
of operations which included significant investments in new products and
technologies.
Cash Flows from Operations
1994 vs. 1993
Cash flows (used in) provided by operations were $(2.4) million and $19.4
million in fiscal 1994 and 1993, respectively. Fiscal 1994 cash flows were
positively impacted by the reduction in the net loss reported of $9.3 million
and net increases in non-cash charges of $4.3 million. These positive impacts
were offset by changes in assets and liabilities which had a net negative impact
aggregating $35.4 million. All such changes are detailed on the consolidated
statement of cash flows.
1993 vs. 1992
Cash flows provided by operations were $19.4 million and $5.5 million in fiscal
1993 and fiscal 1992, respectively. Fiscal 1993 cash flows were negatively
impacted by the net loss of $12.1 million in fiscal 1993 versus net income of
$17.0 in fiscal 1992, a net decrease to operating cash flows of $29.1 million.
This decrease was more than offset by net increases to non-cash charges of $10.5
million and changes in assets and liabilities which had a positive $32.4 million
impact. All such changes are detailed on the consolidated statement of cash
flows.
Investing Activities
1994 vs. 1993
The Company invested $21.7 million and $16.4 million in facilities and capital
equipment in fiscal 1994 and 1993, respectively. This increase in additions
included the construction of new manufacturing and customer service facilities
which began during the first quarter of fiscal 1994 in Houston, Texas. Cash
flows from investing activities were also reduced by decreased utilization of
short-term investments of $24.4 million. This decrease was offset by reductions
in payments for acquisitions and contract rights and other of $6.4 million and
$6.6 million, respectively.
1993 vs. 1992
The Company invested $16.4 million and $9.0 million in capital equipment in
fiscal 1993 and 1992, respectively. Capital investments were primarily
concentrated in the continued automation and expansion of manufacturing
operations, information systems used in hardware and software development,
administrative functions and facilities expansion. Additionally, in fiscal 1993,
the Company invested $10.4 million and $6.6 million in acquisitions and contract
rights, respectively. See Note 14 to the Consolidated Financial Statements for
details of these transactions. These investments are consistent with
management's strategy to strengthen the Company's technological and market
positions. These expenditures were offset in 1993 by a liquidation of $24.3
million in short-term investments compared to an increase in short-term
investments of $9.1 million in fiscal 1992.
25
<PAGE> 26
Financing Activities
1994 vs. 1993
Cash flows from financing activities increased $27.2 million for fiscal 1994 as
compared to fiscal 1993. This increase was primarily due to both short-term and
long-term borrowings aggregating $26.4 million in fiscal 1994 versus short-term
borrowing repayments of $1.3 million in fiscal 1993.
Effective October 20, 1993, the Company entered into a revolving credit, term
loan and security agreement which, as amended, is with two banks through March
31, 1996. The agreement calls for a credit limit of $50 million and bears
interest at the prime lending rate plus 1% or LIBOR plus 2.5%. At March 31,
1994, the Company had $24.6 million outstanding under this agreement. The
Company anticipates continued borrowing under this agreement during fiscal 1995.
1993 vs. 1992
Cash flows from financing activities decreased $3.7 million for fiscal 1993 as
compared to 1992. This decrease was primarily due to a $2.4 million decrease in
stock option activity and the repayment of a $1.3 million short-term borrowing
by one the Company's international subsidiaries.
26
<PAGE> 27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Pages
<S> <C>
Financial Reports:
Report of Management................................................ 28
Report of Independent Accountants................................... 29
Consolidated Financial Statements:
Consolidated Balance Sheet.......................................... 30
Consolidated Statement of Income.................................... 31
Consolidated Statement of Cash Flows................................ 32
Consolidated Statement of Changes in Stockholders' Equity........... 33
Notes to Consolidated Financial Statements.......................... 34-52
Financial Statement Schedules:
II - Amounts Receivable from Related Parties and
Underwriters, Promoters and Employees Other
Than Related Parties............................ 59
VIII - Valuation and Qualifying Accounts and Reserves......... 60
IX - Short-Term Borrowings.................................. 61
X - Supplementary Income Statement Information............. 62
</TABLE>
All other schedules are omitted because they are not applicable or the required
information is presented in the financial statements or the notes thereto.
27
<PAGE> 28
REPORT OF MANAGEMENT
To the Board of Directors and Stockholders of Telxon Corporation
The management of Telxon is responsible for the preparation, integrity and
objectivity of the financial statements and all other financial information
included in this report. Management believes that the financial statements have
been prepared in accordance with generally accepted accounting principles and
that any amounts included herein which are based on estimates of the expected
effects of events and transactions have been made with sound judgment and
approved by qualified personnel.
Telxon maintains an internal control structure to provide reasonable assurance
that assets are safeguarded and that transactions and events are recorded
properly. The internal control structure is regularly reviewed, evaluated and
revised as necessary by management. Additionally, the Telxon Statement of
Corporate Ethics requires every Company employee to maintain the highest level
of ethical standards in the conduct of all aspects of the Company's business,
and their compliance is regularly monitored.
The financial statements in this report have been audited by the independent
accounting firm of Coopers & Lybrand. Their audits were conducted in accordance
with generally accepted auditing standards and included a study and evaluation
of our internal control structure as they considered necessary to determine the
extent of tests and audit procedures required for expressing an opinion on the
Company's financial statements.
The Audit Committee of the Board of Directors, of which all outside directors
are members, meets periodically with the independent auditors and management to
review accounting, auditing, internal control and financial reporting matters.
The external auditors have full and free access to the Audit Committee and its
individual members at any time.
/s/ Robert F. Meyerson
- --------------------------------------
Robert F. Meyerson
Chairman of the Board and
Chief Executive Officer
/s/ Dan R. Wipff
- --------------------------------------
Dan R. Wipff
President, Chief Operating Officer and
Chief Financial Officer
28
<PAGE> 29
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Telxon Corporation
We have audited the consolidated financial statements and the financial
statement schedules of Telxon Corporation and Subsidiaries listed in the index
on page 26 of this Form 10-K. These financial statements and financial statement
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Telxon
Corporation and Subsidiaries as of March 31, 1994 and 1993, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended March 31, 1994, in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedules referred to above, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly, in all
material respects, the information required to be included therein.
As discussed in Note 1 to the consolidated financial statements, effective April
1, 1992, the Company changed its method of accounting for income taxes.
As discussed in Note 15 to the consolidated financial statements, the Company is
a defendant in a Consolidated Class Action.
COOPERS & LYBRAND
Akron, Ohio
June 27, 1994
29
<PAGE> 30
Telxon Corporation
and Subsidiaries
Consolidated Balance Sheet
Dollars in Thousands (except per share amounts)
<TABLE>
<CAPTION>
March 31,
-----------------------------
1994 1993
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash (including cash equivalents of
$8,478 and $21,962) ............................. $ 24,041 $ 26,515
Short-term investments .............................. 764 645
Accounts receivable, net of allowance for
doubtful accounts of $1,635 and $2,689 .......... 64,009 43,908
Notes and other accounts receivable ................. 5,723 1,603
Refundable income taxes ............................. 1,848 4,803
Inventories ......................................... 79,267 51,340
Prepaid expenses and other .......................... 10,288 9,132
--------- ---------
Total current assets ................... 185,940 137,946
Property and equipment, net ......................... 41,561 31,337
Intangible and other assets, net .................... 32,467 43,338
--------- ---------
Total .................................. $ 259,968 $ 212,621
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable ....................................... $ 24,573 $ --
Accounts payable .................................... 43,344 16,650
Capital lease obligations due within one year ....... 391 679
Income taxes payable ................................ 2,162 2,521
Accrued liabilities ................................. 35,404 33,358
--------- ---------
Total current liabilities .............. 105,874 53,208
Capital lease obligations ........................... 463 196
Convertible subordinated debentures ................. 24,734 24,734
Other long-term liabilities ......................... 4,182 6,264
--------- ---------
Total liabilities ...................... 135,253 84,402
Stockholders' equity:
Preferred Stock, $1.00 par value per share;
500,000 shares authorized, none issued ..... -- --
Common Stock, $.01 par value per share;
50,000,000 shares authorized, 15,346,329
and 15,201,883 shares outstanding .......... 153 152
Additional paid-in capital ...................... 74,830 73,370
Retained earnings ............................... 54,653 57,612
Equity adjustment for foreign currency
translation ................................ (3,587) (2,115)
Unearned compensation relating to restricted
stock awards ............................... (1,334) (800)
--------- ---------
Total stockholders' equity ............. 124,715 128,219
--------- ---------
Commitments and contingencies (Note 15) ......... -- --
--------- ---------
Total .................................. $ 259,968 $ 212,621
========= =========
</TABLE>
See accompanying notes to
consolidated financial statements
30
<PAGE> 31
Telxon Corporation
and Subsidiaries
Consolidated Statement of Income
<TABLE>
<CAPTION>
Dollars in thousands
(except per share amounts) Year ended March 31,
----------------------------------------------------------
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Product ..................................... $ 252,341 $ 197,116 $ 177,560
Customer service ............................ 43,652 41,298 37,460
------------ ------------ ------------
Total revenues ................. 295,993 238,414 215,020
------------ ------------ ------------
Costs and expenses:
Cost of product revenues .................... 143,347 123,511 93,203
Cost of customer service revenues ........... 31,958 29,956 21,631
Selling expenses ............................ 59,894 46,393 42,564
Product development and engineering
expenses ................................ 29,058 17,798 12,131
General and administrative expenses ......... 31,854 36,113 21,249
------------ ------------ ------------
Total costs and expenses ........... 296,111 253,771 190,778
------------ ------------ ------------
Income (loss) from operations ...... (118) (15,357) 24,242
Interest income .................................. 653 1,947 2,998
Interest expense ................................. (2,459) (2,271) (2,203)
------------ ------------ ------------
Income (loss) before income
taxes, extraordinary items
and cumulative effect of an
accounting change ................. (1,924) (15,681) 25,037
Provision (benefit) for income taxes ............. 875 (4,056) 9,139
------------ ------------ ------------
Income (loss) before extra-
ordinary items and cumulative
effect of an accounting change (2,799) (11,625) 15,898
Extraordinary items:
Income tax effect of net operating
loss carryover utilized ................. -- -- 1,091
------------ ------------ ------------
Income (loss) before cumulative
effect of an accounting change (2,799) (11,625) 16,989
------------ ------------ ------------
Cumulative effect of a change in
accounting for income taxes .................... -- (439) --
------------ ------------ ------------
Net income (loss) .................. $ (2,799) $ (12,064) $ 16,989
============ ============ ============
Earnings per common and common
equivalent share:
Income (loss) before extraordinary
items and cumulative effect of an
accounting change ....................... $ (.18) $ (.83) $ 1.13
Income tax effect of net operating
loss carryover utilized ................. -- -- .08
------------ ------------ ------------
Income (loss) per share before
cumulative effect of an
accounting change .............. (.18) (.83) 1.21
------------ ------------ ------------
Cumulative effect of a change in
accounting for income taxes ............. -- (.03) --
------------ ------------ ------------
Net income (loss) per share ........ $ (.18) $ (.86) $ 1.21
============ ============ ============
Average number of common and common
equivalent shares outstanding .................. 15,210,497 13,991,346 14,066,980
</TABLE>
See accompanying notes to consolidated financial statements
31
<PAGE> 32
Telxon Corporation
and Subsidiaries
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Dollars in Thousands Year ended March 31,
------------------------------------------------
1994 1993 1992
--------- -------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) .................................. $ (2,799) $(12,064) $ 16,989
Adjustments to reconcile net income (loss)
to net cash (used in) provided by oper-
ating activities:
Depreciation and amortization ............. 19,738 14,322 11,484
Cumulative effect of an accounting
change ................................ -- 439 --
Non-cash compensation related to
restricted stock awards ............... 795 829 --
Provision for doubtful accounts ........... 817 2,745 458
Provision for inventory obsolescence ...... 6,674 9,700 1,492
Deferred income taxes ..................... (313) (4,879) (181)
Write-down of fixed assets ................ -- 527 --
Loss on disposal of assets ................ 425 183 100
Changes in assets and liabilities:
Accounts and notes receivable ......... (24,400) 2,930 (12,279)
Refundable income taxes ............... 2,955 (4,671) 135
Inventories ........................... (35,190) (952) (12,968)
Prepaid expenses and other ............ (871) 3,674 (4,466)
Intangibles and other assets .......... 1,543 (4,173) (903)
Accounts payable and accrued
liabilities ....................... 31,534 10,840 3,840
Income taxes payable .................. (359) 149 1,909
Other long-term liabilities ........... (2,994) (239) (89)
--------- -------- ---------
Total adjustments ............ 354 31,424 (11,468)
Net cash (used in) provided by
operating activities .................. (2,445) 19,360 5,521
Cash flows from investing activities:
Proceeds from disposal of fixed
assets ................................ 750 -- --
Additions to property and equipment ....... (21,702) (16,443) (9,044)
Purchase of contract right and other ...... -- (6,637) --
Short-term investments .................... (119) 24,268 (9,145)
Payments for acquisitions, net of cash
acquired .............................. (3,964) (10,378) 411
Software investments ...................... (318) (175) (206)
Other ..................................... (520) -- (1,119)
--------- -------- ---------
Net cash used in investing
activities ............................ (25,873) (9,365) (19,103)
Cash flows from financing activities:
Notes payable ............................. 24,330 (1,272) 51
Proceeds from long-term financing
agreement ............................. 2,080 -- --
Principal payments on capital leases ...... (787) (940) (964)
Proceeds from exercise of stock
options (includes tax benefit) ........ 125 752 3,168
Payment of cash dividends ................. (152) (152) (139)
--------- -------- ---------
Net cash provided by (used in)
financing activities .................. 25,596 (1,612) 2,116
Effect of exchange rate changes on
cash .................................. 248 758 (109)
--------- -------- ---------
Net increase (decrease) in cash and
cash equivalents ...................... (2,474) 9,141 (11,575)
Cash and cash equivalents at beginning
of year ............................... 26,515 17,374 28,949
--------- -------- ---------
Cash and cash equivalents at end of
year .................................. $ 24,041 $ 26,515 $ 17,374
========= ======== =========
</TABLE>
See accompanying notes to
consolidated financial statements
32
<PAGE> 33
Telxon Corporation
and Subsidiaries
Consolidated Statement of
Changes in Stockholders' Equity
Dollars in Thousands (except per share amounts)
<TABLE>
<CAPTION>
Equity
Adjustment
Additional for Foreign
Common Paid-in Retained Currency Unearned
Stock Capital Earnings Translation Compensation
------ ---------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1991 ............ $ 133 $ 45,503 $ 55,745 $ 782 $ --
Exercise of stock options ....... 8 7,119 -- -- --
Dividends paid - $.01 per
share ....................... -- -- (139) -- --
Income tax benefit from
stock option transac-
tions ....................... -- 2,279 -- -- --
Common Stock retired
(187,500 shares) ............ (2) (1,450) (2,507) -- --
Adjustment for foreign
currency translation ........ -- -- -- (62) --
Net income for 1992 ............. -- -- 16,989 -- --
----- -------- -------- -------- --------
Balance at March 31, 1992 ............ 139 53,451 70,088 720 --
Exercise of stock options ....... 1 1,352 -- -- --
Dividends paid - $.01 per
share ....................... -- -- (152) -- --
Income tax benefit from
stock option transac-
tions ....................... -- 1,446 -- -- --
Common Stock retired
(27,527 shares) ............. -- (247) (260) -- --
Stock issued under re-
stricted stock plan,
net of amortization ......... 1 1,149 -- -- (800)
Issuance of stock related
to acquisitions ............. 11 16,219 -- -- --
Adjustment for foreign
currency translation ........ -- -- -- (2,835) --
Net loss for 1993 ............... -- -- (12,064) -- --
----- -------- -------- -------- --------
Balance at March 31, 1993 ............ 152 73,370 57,612 (2,115) (800)
Exercise of stock options ....... -- 120 -- -- --
Dividends paid - $.01 per
share ....................... -- -- (152) -- --
Income tax benefit from
stock option transac-
tions ....................... -- 23 -- -- --
Common stock retired
(1,503 shares) .............. -- (9) (8) -- --
Stock issued under re-
stricted stock plan, net
of amortization ............. 1 1,326 -- -- (534)
Adjustment for foreign
currency translation ........ -- -- -- (1,472) --
Net loss for 1994 ............... -- -- (2,799) -- --
----- -------- -------- -------- --------
Balance at March 31, 1994 ............ $ 153 $ 74,830 $ 54,653 $ (3,587) $ (1,334)
===== ======== ======== ======== ========
</TABLE>
See accompany notes to
consolidated financial statements
33
<PAGE> 34
Telxon Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
Dollars in Thousands (except per share amounts)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the financial statements of the
Company and its subsidiaries. All significant intercompany transactions have
been eliminated in consolidation.
Foreign Currency Translation
The financial statements of foreign operations are translated into U.S. dollars
using the local currency as the functional currency in accordance with Statement
of Financial Accounting Standards No. 52. Accordingly, all assets and
liabilities are translated at current rates of exchange, and operating
transactions are translated at weighted average rates during the year. The
translation gains and losses are accumulated as a separate component of
stockholders' equity until realized. There were no income taxes allocated to the
translation adjustments and transfers to net income in 1994, 1993 and 1992. Net
transaction gains or losses were not material in 1994, 1993 and 1992. For
further detail by geographic areas, see Note 12 - Business Segment.
Hedging Activities
The Company's hedging activities relate primarily to the use of forward exchange
contracts purchased by certain of its international subsidiaries to purchase
U.S. dollars for repayment of purchases of inventory from the parent company.
The aggregate amount of forward exchange contracts outstanding at any time
during the year, as well as the aggregate amount of gains and losses resulting
from these and other foreign currency transactions, were not material.
Cash and Cash Equivalents
The Company considers all highly liquid investments which are both readily
convertible to cash and have a maturity of three months or less when purchased
to be cash equivalents. At March 31, 1994, the Company had restricted cash of
$1,000 related to funds held in escrow related to an acquisition. Because the
restriction lapses within one year, these funds have been classified as current
assets.
Short-Term Investments
Short-term investments are stated at the lower of cost or market. The Company
has a widely diversified investment portfolio which is not concentrated in any
one investment instrument or industry. The difference between the aggregate cost
or market value for such investments was not material as of March 31, 1994 and
1993.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
34
<PAGE> 35
Telxon Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Property and Equipment
Depreciation of property and equipment is provided over the estimated useful
lives of the assets using the straight-line method for financial reporting
purposes. The ranges of the estimated useful lives are: buildings, 19 years;
machinery and equipment, furniture and fixtures, and transportation equipment,
3-10 years; marketing, customer service equipment, and tooling, 3 years; and
leasehold improvements, over the shorter of the useful life of the asset or the
life of the lease.
Software Costs, Intangibles and Other Assets
Software costs are capitalized in accordance with Statement of Financial
Accounting Standards No. 86.
Purchased computer software is capitalized and amortized for both financial and
tax reporting purposes, using the straight-line method, over the expected useful
life of the software, generally from three to seven years. Similarly, internally
developed computer software is capitalized and amortized for financial reporting
purposes using the straight-line method over three years; for tax purposes,
however, these costs are expensed as incurred. Product development and
engineering expenses are expensed as incurred for both financial and tax
reporting purposes.
Convertible subordinated debenture issue costs are amortized over the life of
the debt, with accelerated amortization recorded on any debentures purchased;
goodwill is amortized over five to ten years; non-compete agreements are
amortized over the life of the related contract; and other assets are amortized
over their expected useful life.
Revenue Recognition
Revenues from hardware sales and software licenses are recognized at the time of
shipment. In accordance with Statement of Position 91-1, "Software Revenue
Recognition", revenues from custom application software sales are recognized
using a percentage-of-completion method. Revenues from customer service are
recognized ratably over the maintenance contract period or as the services are
performed.
Income Taxes
In February 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No.
109"). Effective April 1, 1992, the Company adopted the provisions of SFAS No.
109 and has reported the $.4 million cumulative effect of that change in the
method of accounting for income taxes in the fiscal 1993 consolidated statement
of income. SFAS No. 109 requires a change from the deferred method of accounting
for income taxes of Accounting Principles Board Opinion No. 11 ("APB 11") to the
asset and liability method. Under the asset and liability method, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to temporary differences between the financial reporting basis
35
<PAGE> 36
Telxon Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
of existing assets and liabilities and their respective tax basis. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. Under SFAS No. 109, the effect on deferred tax assets
and liabilities of tax rate changes is recognized in income in the period that
includes the enactment date. Tax credits, when available, are applied to reduce
the provision for income taxes in the year in which the credits arise.
Undistributed earnings of foreign subsidiaries are reinvested in their
operations. Accordingly, no provision is made for additional income taxes that
might be payable on the distribution of such earnings.
Pursuant to the provisions of APB 11, which was applied in fiscal 1992 and prior
years, deferred income taxes were recognized for income and expense items that
were reported in different years for financial reporting purposes and income tax
purposes using the tax rate applicable for the year of the calculation. Under
this method, deferred taxes were not adjusted for subsequent changes in tax
rates.
Earnings Per Share
Computations of earnings per common and common equivalent share of Common Stock
are based on the weighted average number of common shares outstanding during the
period (15,210,000 in 1994, 13,991,000 in 1993 and 13,630,000 in 1992),
increased by the net shares issuable on the assumed exercise of stock options
using the treasury stock method (none in 1994 and 1993, and 437,000 in 1992).
All securities having an anti-dilutive effect on earning per share have been
excluded from such computations. Common Stock purchase rights outstanding under
the Company's stockholder rights plan, which potentially have a dilutive effect,
have been excluded from the weighted common shares computation as preconditions
to the exercisability of such rights were not satisfied.
Reclassifications
Certain items in the 1993 and 1992 consolidated financial statements and notes
thereto have been reclassified to conform to the 1994 presentation.
Contingent and Unusual Items
Contingent and unusual items are expensed as incurred when events giving rise to
such items are probable and the amounts are estimable in accordance with the
requirements of Statement of Financial Accounting Standards No. 5.
NOTE 2 -- INVENTORIES
Inventories at March 31 consisted of the following:
<TABLE>
<CAPTION>
1994 1993
------- ------
<S> <C> <C>
Purchased components ........................................................ $44,378 $30,686
Work-in-process ............................................................ 18,664 9,451
Finished goods............................................................... 16,225 11,203
------- -------
$79,267 $51,340
======= =======
36
</TABLE>
<PAGE> 37
Telxon Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
NOTE 3 -- PROPERTY AND EQUIPMENT
Property and equipment, at cost, at March 31 consisted of the following:
<TABLE>
<CAPTION>
1994 1993
------- ------
<S> <C> <C>
Machinery and equipment...................................................... $39,426 $33,119
Tooling .................................................................... 15,243 11,851
Furniture and office equipment............................................... 13,889 12,168
Capital lease assets and other............................................... 6,203 3,882
Leasehold improvements....................................................... 6,032 5,845
Buildings, improvements and leasehold
interest ........................................................... 4,808 2,738
Land .................................................................... 1,978 420
Transportation equipment..................................................... 2,434 2,221
------- -------
90,013 72,244
Less-accumulated depreciation and
amortization........................................................ 48,452 40,907
------- -------
$41,561 $31,337
======= =======
</TABLE>
Depreciation expense for 1994, 1993 and 1992 amounted to $11,238, $8,848 and
$7,233, respectively.
Net capital lease retirements were $1,492, $190 and $181 in 1994, 1993 and 1992,
respectively. These additions or retirements are non-cash transactions and,
accordingly, have been excluded from property and equipment additions in the
accompanying consolidated statement of cash flows. Amortization of capital lease
assets has been included in depreciation expense. Accumulated depreciation
related to capital lease assets aggregated $473, $2,101 and $1,466 in 1994, 1993
and 1992, respectively.
NOTE 4 -- INTANGIBLE AND OTHER ASSETS
Intangible and other assets, net, consisted of the following at March 31:
<TABLE>
<CAPTION>
1994 1993
------- ------
<S> <C> <C>
Capitalized software, net of amortization
of $8,346 and $6,947.................................................. $ 4,433 $ 5,151
Goodwill relating to acquisitions, net of
amortization of $7,551 and $3,408..................................... 19,354 25,156
Non-compete agreements with former share-
holders of acquisitions, net of
amortization of $3,234 and $1,318.................................. 3,236 5,152
Licenses, net of short-term portion of
$700 and amortization of $1,050 and
$350.................................................................. 1,050 1,750
Convertible subordinated debenture issue
costs, net of amortization of $900 and
$868.................................................................. 581 613
Other, net of amortization of $5,595 and
$5,285.............................................................. 3,813 5,516
------- -------
$32,467 $43,338
======= =======
</TABLE>
37
<PAGE> 38
Telxon Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Amortization expense for the years ended March 31, was as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ -----
<S> <C> <C> <C>
Capitalized software.......................................... $1,399 $1,560 $1,109
Goodwill...................................................... 4,143 2,179 397
Non-compete agreements........................................ 1,916 1,318 --
Licenses...................................................... 700 350 --
Convertible subordinated debenture
issue costs............................................ 32 32 32
Prepaid royalty............................................... -- -- 1,750
Other ....................................................... 310 35 963
------ ------ ------
$8,500 $5,474 $4,251
====== ====== ======
</TABLE>
In connection with the acquisition of Teletransaction, Inc. ("Teletransaction"),
the Company acquired the rights to consulting services (principally performed by
Robert F. Meyerson, Chairman of the Board and Chief Executive Officer) from
Accipiter Corporation ("Accipiter"), which is owned by Mr. Meyerson's wife and
also secured a non-competition covenant from Accipiter and Mr. Meyerson.
Aggregate payments for these rights were $3.6 million. The cost of these rights
is being amortized over the five year terms of the agreements. See Note 14 for a
description of the Teletransaction acquisition.
NOTE 5 -- SHORT-TERM FINANCING
Effective October 20, 1993, the Company entered into a revolving credit, term
loan and security agreement which, as amended, is with two banks through March
31, 1996. The agreement calls for a credit limit of $50 million and bears
interest at the banks' prime lending rate plus 1% or LIBOR plus 2.5%. The
facility is secured by substantially all of the United States assets and certain
foreign assets of the Company. The agreement contains restrictive covenants,
certain of which require the Company to maintain specified levels of net worth
and working capital and to meet certain current ratios, debt to net worth
ratios, and fixed charge coverages. At March 31, 1994, the Company had $24,573
outstanding under the revolving credit facility of this agreement and was in
compliance with all restrictive covenants contained in the agreement.
NOTE 6 -- ACCRUED LIABILITIES
Accrued liabilities at March 31 consisted of the following:
<TABLE>
<CAPTION>
1994 1993
------- ------
<S> <C> <C>
Current liability to former shareholders of
acquired companies............................................................... $ 1,533 $ 3,541
Accrued payroll and other employee compensation......................................... 10,610 10,160
Accrued commissions..................................................................... 2,362 1,522
Accrued taxes other than payroll and income taxes....................................... 1,715 1,930
Deferred customer service revenues...................................................... 9,240 7,545
Accrued royalties....................................................................... 3,737 1,021
Other accrued liabilities............................................................... 6,207 7,639
------- -------
$35,404 $33,358
======= =======
38
</TABLE>
<PAGE> 39
Telxon Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
NOTE 7 -- INCOME TAXES
Components of income (loss) before income taxes, extraordinary items and
cumulative effect of an accounting change follow:
<TABLE>
<CAPTION>
1994 1993 1992
------- -------- ------
<S> <C> <C> <C>
Domestic operations .............................................. $(6,325) $(24,330) $17,979
International operations.......................................... 4,401 8,649 7,058
------- -------- -------
$(1,924) $(15,681) $25,037
======= ======== =======
</TABLE>
As discussed in Note 1, the Company adopted the provisions of SFAS No. 109,
effective April 1, 1992. The cumulative effect of this change in accounting for
income taxes of $439 was determined as of April 1, 1992 and is reported
separately in the consolidated statement of income for the year ended March 31,
1993. The effect of applying SFAS No. 109 on income (loss) before extraordinary
items and cumulative effect of an accounting change for the year ended March 31,
1993 was insignificant. Prior years' financial statements have not been restated
to apply the provisions of SFAS No. 109.
Components of the provision (benefit) for income taxes by taxing jurisdiction
follow:
<TABLE>
<CAPTION>
Currently payable (refundable): 1994 1993 1992
------- ------- ------
<S> <C> <C> <C>
U.S.................................................................... $(1,748) $(3,587) $5,347
State and local........................................................ 70 (11) 703
International.......................................................... 1,801 2,653 2,179
------- ------- ------
123 (945) 8,229
------- ------- ------
Deferred:
U.S.................................................................... (382) (4,221) (149)
State and local........................................................ (121) (13) --
International.......................................................... 203 (206) (32)
------- ------- ------
(300) (4,440) (181)
------- ------- ------
Charge equivalent to tax effect of
operating loss carryovers utilized ................................... 1,052 1,329 1,091
------- ------- ------
U.S. and international taxes (benefit) on
income before extraordinary credit..................................... $ 875 $(4,056) $9,139
======= ======= ======
</TABLE>
The reconciliation between the reported total income tax expense (benefit) and
the amount computed by multiplying income (loss) before income taxes and
cumulative effect of an accounting change by the U.S. federal statutory tax rate
is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ -----
<S> <C> <C> <C>
U.S. federal statutory tax rate ............................................. (34.0)% (34.0)% 34.0%
International tax rate differential
including adjustments for intercompany
eliminations............................................................. 48.4 5.3 3.5
</TABLE>
39
<PAGE> 40
Telxon Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
<TABLE>
<S> <C> <C> <C>
State and local taxes ......................... (1.8) (0.1) 2.2
Research and development credits .............. (22.6) (0.2) (0.3)
Tax benefits related to export sales .......... -- -- (1.2)
Goodwill ...................................... 80.1 3.5 0.4
Change in deferred tax asset valuation
allowance ................................. (16.2) -- --
Other ......................................... (8.4) (0.4) (2.1)
---- ---- ----
Consolidated effective income tax rate ..... 45.5% (25.9)% 36.5%
==== ==== ====
</TABLE>
Deferred taxes related to temporary differences between the financial reporting
basis of assets and liabilities and their respective tax basis (1994 and 1993)
and timing differences in the recognition of revenues and expenses for tax and
financial reporting purposes (1992) follow:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- ---------
<S> <C> <C> <C>
Inventory obsolescence ............... $ (919) $ (1,164) $ (126)
Depreciation ......................... (137) 55 (3)
Bad debt reserve ..................... 412 (500) 185
Computer software costs .............. (91) (102) (98)
Restricted stock compensation ........ (214) 313 --
Restructuring reserves ............... 495 (600) --
Severance ............................ 325 (1,461) --
Other items .......................... (171) (981) (139)
-------- -------- --------
$ (300) $ (4,440) $ (181)
======== ======== ========
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities at March 31, 1994 are presented
below:
<TABLE>
<CAPTION>
1994
--------
<S> <C>
Deferred tax assets:
Allowance for doubtful accounts ......................... $ 864
Inventory obsolescence .................................. 3,400
Uniform capitalization costs ............................ 878
Restructuring reserves .................................. 241
Severance and vacation pay accruals ..................... 1,396
State and local income taxes, net of federal benefit .... 863
Net operating loss and research and development credit
carryovers ......................................... 1,561
State and local tax carryovers, net of federal benefit .. 707
Undistributed losses of affiliated companies ............ 490
Contribution and capital loss carryovers ................ 232
Deferred revenues ....................................... 255
Other ................................................... 1,267
--------
Total gross deferred tax assets ..................... 12,154
Less valuation allowance ............................ (4,336)
--------
Total deferred tax assets ........................... 7,818
--------
</TABLE>
40
<PAGE> 41
Telxon Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
<TABLE>
<S> <C>
Deferred tax liabilities:
Prepaid healthcare costs ................................. (344)
Depreciation ............................................. (1,273)
Restricted stock compensation ............................ (99)
State and local income taxes, net of federal benefit ..... (206)
Other .................................................... (160)
--------
Total gross deferred tax liabilities ............ (2,082)
--------
Net deferred tax asset .......................... $ 5,736
========
</TABLE>
The valuation allowance for deferred tax assets as of April 1, 1993 was $3,163.
The net change in the total valuation allowance for the year ended March 31,
1994 was an increase of $1,173. The net deferred tax asset is deemed realizable
based on the Company's ability to recognize taxable income in prior carryback
years and is classified in the prepaid expenses and other ($4,230) and
intangible and other assets, net ($1,506) caption on the consolidated balance
sheet.
Subsequently recognized tax benefits relating to the valuation allowance for
deferred tax assets as of March 31, 1994 will be allocated as follows:
<TABLE>
<CAPTION>
1994
-------
<S> <C>
Income tax benefit that would be reported in the
consolidated statement of income ........................... $ 2,240
Income tax benefit that would reduce goodwill and
other noncurrent intangible assets ......................... 2,096
-------
Total ................................................. $ 4,336
=======
</TABLE>
No provision for U.S. income taxes on $22,684 of undistributed earnings of
international subsidiaries at March 31, 1994 has been made because these
earnings are indefinitely reinvested in the subsidiaries. Determination of the
amount of the unrecognized deferred tax liability for temporary differences
related to investment in foreign subsidiaries is not practicable.
Income taxes paid in 1994, 1993 and 1992 were $2,282, $4,483 and $6,414,
respectively. Income tax refunds received in fiscal 1994 aggregated $5,486. No
income tax refunds were received in fiscal 1993 or fiscal 1992.
As of March 31, 1994, the Company had foreign operating loss carryovers and
research and development credit carryovers for both tax and financial reporting
purposes of $1,294 and $672, respectively. Certain of these carryovers
aggregating $512 for both tax and financial reporting purposes have indefinite
carryover periods. The remaining carryovers expire at various dates through
fiscal 1999. As a result of acquisitions in prior years, the Company has
domestic operating loss carryovers and research and development credit
carryovers for tax and financial reporting purposes in the amounts of $2,061 and
$188, respectively. These carryovers expire at various dates through fiscal
2008. There can be no assurance that foreign and U.S. tax carryovers will be
utilized.
41
<PAGE> 42
Telxon Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
NOTE 8 -- STOCK OPTIONS AND RESTRICTED STOCK
During the periods shown below, the Company had in effect three stock option
plans for the officers and other key employees of the Company - the Telxon
Corporation 1983 Stock Option Plan (the "1983 Plan"), the Telxon Corporation
1988 Stock Option Plan (the "1988 Plan") and the Telxon Corporation 1990 Stock
Option Plan (the "1990 Plan"). The options outstanding under the 1983 Plan, the
1988 Plan and the 1990 Plan generally vest in equal installments over a
three-year period on the first three anniversary dates after the date of grant.
The option price is equal to the market price for the Company's Common Stock at
the time of grant.
The following is a summary of the activity in the Company's stock option plans
during fiscal 1992, 1993 and 1994:
<TABLE>
<CAPTION>
Stock Options
--------------------------
Average Price
Shares Per Share
--------- -------------
<S> <C> <C>
March 31, 1991 ...................................... 1,850,510 $ 10.94
Granted ........................................ 245,750 22.35
Exercised ...................................... (747,573) 9.06
Returned to pool due to employee
terminations ................................ (75,459) 12.72
---------
March 31, 1992 ...................................... 1,273,228 14.14
Granted ........................................ 558,500 12.13
Exercised ...................................... (137,404) 9.00
Returned to pool due to employee
terminations ................................ (249,168) 15.04
---------
March 31, 1993 ...................................... 1,445,156 13.69
Granted ........................................ 803,011 10.68
Exercised ...................................... (18,003) 6.63
Returned to pool due to employee
terminations and one-for-two program ........ (477,464) 20.11
---------
March 31, 1994 ...................................... 1,752,700 $ 10.64
=========
</TABLE>
At March 31, 1994, there were no options outstanding or exercisable under the
1983 Plan. At March 31, 1994, there were 233,284 options outstanding and
exercisable under the 1988 Plan at $5.125 to $11.00 per share. At March 31,
1994, there were 1,519,416 options exercisable under the 1990 Plan at $8.75 to
$23.00 per share.
Options available to be granted under the 1990 Plan at March 31, 1994, were
297,679. No further options can be granted under the 1983 Plan or the 1988 Plan.
The Company also has in effect a stock option plan for non-employee directors
(the "Director Plan"). During the fiscal year ended March 31, 1994, 80,000
options were granted at an average price per share of $10.75. At March 31, 1994,
there were 191,665 options outstanding under the Director Plan at $9.125 to
$23.00 per share. Options available to be granted under the Director Plan at
March 31, 1994 were 50,000.
42
<PAGE> 43
Telxon Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
At March 31, 1994, there were 12,000 options outstanding and exercisable at
$14.63 per share which were not granted under the Company's stock option plans.
During fiscal 1993, no options were exercised.
Effective September 14, 1993, a committee of the Company's Board of Directors
approved a voluntary program which enabled all employees (other than directors)
of the Company as of September 14, 1993 to trade existing options under the 1990
Plan, with option prices in excess of the then current market price, for new
options on a one-for-two basis at $10.125 per share, the September 14, 1993
market price of the Company's stock. As a result of the program, there was a
174,911 shares net reduction in the stock options outstanding.
In connection with its acquisition of Itronix Corporation ("Itronix") further
described in Note 14, the Company issued an aggregate of 47,980 shares of
restricted Company stock to three Itronix officers. Such shares were not granted
under the Restricted Stock Plan as described below. At March 31, 1994, all such
restricted shares continued to be subject to forfeiture.
During fiscal 1993, the Company adopted a Restricted Stock Plan (the "Restricted
Stock Plan"), under which 250,000 shares may be issued. A committee of the Board
of Directors determines the time periods during which and the criteria upon
which the Restricted Stock is subject to forfeiture. During fiscal 1994, 70,000
shares, which vest over a three year period, were granted under the Restricted
Stock Plan. At March 31, 1994, 40,000 shares granted under the Restricted Stock
Plan prior to fiscal 1994 had vested, 130,000 shares granted thereunder
(including 70,000 granted in fiscal 1994) were outstanding subject to forfeiture
and 80,000 shares were available for grant.
NOTE 9 -- LEASES
The Company leases certain equipment under capital leases generally for terms of
five years or less with renewal and purchase options. The present value of
future minimum lease payments for these capital lease obligations is reflected
in the consolidated balance sheet as current and noncurrent capital lease
obligations. In addition, the Company leases office facilities, customer service
locations and certain equipment under noncancelable operating leases.
Future minimum lease payments for years ending March 31, are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
-------- ---------
<S> <C> <C>
1995 ..................................... $ 438 $ 6,266
1996 ..................................... 365 5,552
1997 ..................................... 122 4,659
1998 ..................................... -- 3,482
1999 ..................................... -- 3,064
2000 and thereafter ...................... -- 6,427
-------- --------
925 $ 29,450
========
</TABLE>
43
<PAGE> 44
Telxon Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
<TABLE>
<S> <C>
Amount representing interest ......................... (71)
-----
Present value of net minimum lease payments .......... 854
Current portion ...................................... (391)
-----
Long-term portion .................................... $ 463
=====
</TABLE>
The Company has an option to purchase the 100,000-square-foot facility currently
occupied by its corporate and engineering offices. The purchase option is
exercisable for a price equal to the fair market value of the premises as
determined by an independent appraisal prior to September 1, 2001.
Rent expense for 1994, 1993 and 1992 amounted to $7,962, $7,291 and $6,405,
respectively.
NOTE 10 -- LONG-TERM DEBT
Long-term debt at March 31, 1994 and 1993 consisted of $24,734 of 7-1/2%
Convertible Subordinated Debentures issued June 1, 1987, due in the year 2012.
The current conversion price of $26.75 is subject to adjustment in certain
events. Interest is payable on June 1 and December 1 in each year, and commenced
December 1, 1987. On or after June 1, 1994, the Debentures are redeemable at any
time at the option of the Company, in whole or in part, at 102.25% of the
principal amount redeemed, declining annually to par on and after June 1, 1997.
The sinking fund requires mandatory annual payments of 5% of the original
$46,000 principal amount commencing June 1, 1997, calculated to retire 75% of
the issue prior to maturity. During fiscal 1991, the Company purchased and
retired Debentures with a principal face amount aggregating $21,266 which will
be applied to the earliest of the Company's sinking fund payment obligations.
Effective March 25, 1994, the Company entered into a long-term financing
agreement to borrow $2,080. The long-term portion of this debt is classified in
the other long-term liabilities caption of the consolidated balance sheet. This
agreement is secured by certain transportation equipment owned by the Company
and bears interest at the Federal Reserve Commercial Paper Rate plus 3.15%. At
March 31, 1994, the actual rate was 6.77%. The maturities of this note for the
next four years after March 31, 1994 are $243, $257, $275, $294, respectively.
Amounts maturing thereafter aggregate $1,011.
In addition, the Company has a $500 subordinated promissory note assumed in
connection with the acquisition of Itronix, which is due June 30, 1996 and on
which interest is due at the rate of prime plus one-half percent. This note has
been classified in the other long-term liabilities caption of the consolidated
balance sheet.
Total interest paid by the Company in 1994, 1993 and 1992 was $2,498, $2,291,
and $2,148, respectively.
44
<PAGE> 45
Telxon Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
NOTE 11 -- STOCKHOLDERS' EQUITY
On May 3, 1985, the Board of Directors approved a stock split of three shares
for every two shares outstanding, effective June 21, 1985, for holders of record
on May 20, 1985.
On April 8, 1986, the Board of Directors approved a stock split of three shares
for every two shares outstanding, effective May 12, 1986, for holders of record
on April 22, 1986.
These stock splits have been retroactively reflected in the accompanying
financial statements and all stock-related disclosures.
During fiscal 1988, the Company purchased 544,100 shares or 4.1% of its Common
Stock for $7,283 at an average price of $13.39. As authorized by the Board of
Directors, the purchased shares were retired.
The exercise of non-qualified stock options results in state and federal income
tax benefits to the Company equal to the difference between the market price at
the date of exercise and the option price. During 1994, 1993 and 1992, $23,
$1,446 and $2,279, respectively was credited to additional paid-in capital as a
result of such option exercises.
NOTE 12 -- BUSINESS SEGMENT
The Company designs, develops, manufactures, markets and services portable
interactive microcomputer systems. The Company's business is a single segment.
The Company does not believe that it is dependent upon any one customer or group
of customers. The Company's largest United States customer, Wal-Mart Stores,
Inc., accounted for approximately 11% of total revenues in fiscal 1994 and
fiscal 1993.
The Company sells its products to customers in diversified industries, primarily
in North America and Europe. The Company realizes approximately one-half of its
revenues from customers in retail industries who are in widely diversified
geographic locations and markets. The Company performs ongoing credit
evaluations of its customers and generally does not require collateral. The
Company maintains reserves for potential credit losses, and such losses have
historically been within management's expectations.
The Company has operations in the United States, Europe, Canada, Australia and
Asia. Information for 1994, 1993 and 1992 follows below.
Of the U.S. revenues from unaffiliated customers in 1994, 1993 and 1992,
$14,704, $10,265, and $8,591 are export revenues from markets in Europe, Canada,
South America, Asia, Africa and the Middle East.
Transfers between geographic areas were at cost plus a negotiated mark-up.
Assets of geographic areas are identified with the operations of each area.
Corporate assets consist of property and equipment.
45
<PAGE> 46
Telxon Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
<TABLE>
<CAPTION>
United Adjustment &
1994 States Europe Other Elimination Consolidated
---- --------- --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues from unaffiliated
customers .................................. $ 226,885 $ 44,561 $ 24,547 -- $ 295,993
Transfers between geo-
graphic areas .............................. 28,737 607 16,236 (45,580) --
--------- --------- --------- --------- ---------
Total revenues .......................... $ 255,622 $ 45,168 $ 40,783 $ (45,580) $ 295,993
========= ========= ========= ========= =========
Operating income ........................... $ 20,462 $ 1,685 $ 3,247 $ (572) $ 24,822
========= ========= ========= =========
Interest expense, net ....................... (1,806)
Foreign currency transac-
tion gain, (loss) net ...................... -- 100 154 -- 254
========= ========= ========= ========= =========
Corporate expenses, net ..................... (25,194)
---------
Loss before income taxes .................... $ (1,924)
=========
Identifiable assets at
March 31, 1994 .......................... $ 186,801 $ 31,277 $ 31,292 -- $ 249,370
========= ========= ========= ========= =========
Corporate assets ............................ 10,598
---------
Total assets at
March 31, 1994 .......................... $ 259,968
=========
</TABLE>
<TABLE>
<CAPTION>
United Adjustment &
1993 States Europe Other Elimination Consolidated
---- --------- --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues from unaffiliated
customers ....................................... $ 175,022 $ 43,575 $ 19,817 $ -- $ 238,414
Transfers between geo-
graphic areas ................................... 20,338 436 12,385 (33,159) --
--------- --------- --------- --------- ---------
Total revenues .............................. $ 195,360 $ 44,011 $ 32,202 $ (33,159) $ 238,414
========= ========= ========= ========= =========
Operating income ................................ $ 1,684 $ 4,722 $ 4,263 $ (1,569) $ 9,100
========= ========= ========= =========
Interest expense, net ............................ (324)
Foreign currency transac-
tion gain (loss), net ........................... -- 844 (255) -- 589
========= ========= ========= ========= =========
Corporate expenses, net .......................... (25,046)
---------
Loss before income taxes
and cumulative effect of
an accounting change ............................ $ (15,681)
=========
Identifiable assets at
March 31, 1993 .............................. $ 146,081 $ 28,724 $ 28,861 -- $ 203,666
========= ========= ========= ========= =========
Corporate assets ................................. 8,955
---------
Total assets at
March 31, 1993 .............................. $ 212,621
=========
</TABLE>
46
<PAGE> 47
Telxon Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
<TABLE>
<CAPTION>
United Adjustment &
1992 States Europe Other Elimination Consolidated
---- --------- --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues from unaffiliated
customers ........................................ $ 153,032 $ 44,050 $ 17,938 -- $ 215,020
Transfers between geo-
graphic areas .................................... 21,031 866 -- (21,897) --
--------- --------- --------- --------- ---------
Total revenues ............................... $ 174,063 $ 44,916 $ 17,938 $ (21,897) $ 215,020
========= ========= ========= ========= =========
Operating income ................................. $ 34,268 $ 5,823 $ 505 $ 139 $ 40,735
========= ========= ========= =========
Interest income, net .............................. 795
Foreign currency transac-
tion gain, net ................................... -- 75 103 -- 178
========= ========= ========= ========= =========
Corporate expenses, net ........................... (16,671)
---------
Income before income
taxes and extraordinary
item ............................................. $ 25,037
=========
Identifiable assets at
March 31, 1992 ............................... $ 149,691 $ 31,476 $ 10,746 -- $ 191,913
========= ========= ========= ========= =========
Corporate assets .................................. 7,249
---------
Total assets at
March 31, 1992 ............................... $ 199,162
=========
</TABLE>
NOTE 13 -- INTERNATIONAL OPERATIONS
The consolidated financial statements include the following with respect to the
net income and net assets of the Company's international subsidiaries and
branches during the three years ended March 31:
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- ------
<S> <C> <C> <C>
Net income .................. $ 2,694 $ 5,942 $ 4,382
Net assets .................. $46,470 $46,631 $32,205
</TABLE>
NOTE 14 -- ACQUISITIONS AND DIVESTITURES
Effective March 1, 1992, the Company acquired, for $3 million in cash plus a
deferred payment provision of $2 million, the assets and business of Retail
Management Systems Corporation ("RMS"), a company that designs and integrates
software for the retail industry. The cash payment of $3 million was made
subsequent to March 31, 1992 and, accordingly, was classified as a current
liability as of that date. The acquisition was accounted for as a purchase, and
$4.4 million of the purchase price was allocated to software and has been
included in the other assets section of the consolidated balance sheet. These
intangible assets are being amortized on a straight-line basis over a 7 year
period.
Effective April 10, 1992, the Company acquired Telesystems SLW Inc.
("Telesystems") of Toronto, Ontario, Canada, a developer and supplier of
wireless data communications and local area networks using spread spectrum radio
technology. The purchase price consisted of approximately $2.6 million in cash
and 353,172 shares of the Company's Common Stock which is
47
<PAGE> 48
Telxon Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
treated as a non-cash item in the accompanying consolidated statement of cash
flows. In connection with the acquisition, the Company acquired approximately
$3.5 million (U.S.) of Canadian federal tax non-capital loss carryforwards and
$.3 million (U.S.) of investment tax credits which were used to reduce income
taxes payable and the goodwill relating to the acquisition. In addition, the
Company acquired a non-compete agreement with the founders of Telesystems for
which it paid $4.8 million in cash. The excess of the purchase price over the
fair value of the net assets acquired approximates $8.6 million, net of tax
credits utilized in fiscal 1994 of $.6 million, and is being amortized on a
straight-line basis over a ten year period. The acquisition was accounted for as
a purchase.
Effective February 2, 1993, the Company acquired the remaining 55% of the common
stock of Teletransaction for a purchase price of 720,000 shares of the Company's
Common Stock, which is treated as a non-cash item in the accompanying
consolidated statement of cash flows. The Company previously acquired 15% of
Teletransaction's common stock in March 1992 for $1.7 million and an additional
30% of Teletransaction's common stock in December 1992 for $3.0 million; these
investments were accounted for under the equity method prior to the acquisition
of the remaining shares of Teletransaction in February 1993. Teletransaction,
which was owned by Mr. Meyerson and members of his family as well as
Teletransaction employees prior to the acquisition, is the owner of certain
technology, product development and design rights related to portable pen-based
products. The common stock of the Company issued to shareholders of
Teletransaction was, at the time of issuance, subject to restrictions for
periods ranging from 1 to 3 years. This business combination has been treated as
a purchase and the resulting goodwill of $13.3 million is included in the
intangible and other assets, net caption of the consolidated balance sheet and
is being amortized on a straight-line basis over a 5 year period.
Effective March 1, 1993, the Company acquired, for $3.0 million in cash plus a
deferred payment provision of $1.0 million, all of the common stock of Itronix,
a Washington corporation which designs and manufactures hand-held computers,
systems components and software for the mobile workforce and field service
markets. The cash purchase price was paid subsequent to March 31, 1993, and
accordingly, was classified as a current liability as of that date. The
acquisition was accounted for as a purchase, and the resulting goodwill of $2.5
million, net of goodwill adjustments of $1.1 million, is being amortized on a
straight-line basis, over a 10 year period.
The following unaudited proforma combined results of operations for the years
ended March 31, 1993 and March 31, 1992, assume the acquisitions of Telesystems,
Teletransaction and Itronix had occurred April 1, 1991. The combined results
below, which are based on various assumptions, are not necessarily indicative of
what would have occurred had the acquisitions been consummated as of April 1,
1991.
48
<PAGE> 49
Telxon Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
<TABLE>
<CAPTION>
(Unaudited)
For the years ended March 31,
1993 1992
--------- ---------
<S> <C> <C>
Total revenues ................................ $ 249,424 $ 228,314
Income (loss) before extraordinary
items and cumulative effect of
an accounting change ..................... (17,148) 9,772
Net income (loss) .................... (17,587) 10,863
Net income (loss) per share ................... $ (1.15) $ .72
</TABLE>
In May, 1990, the Company disposed of Information Management Group ("IMG"), an
operating division of the Company's Retail Automation Group, to Telxon's former
Vice President of Marketing. IMG, acquired in 1989, provided integrated retail
store management and corporate-level accounting software for IBM's 3X series and
A/S 400 computers. The Company incurred a loss of $4,577 on the sale which was
fully reserved as of March 31, 1990. IMG's revenues and operating loss amounted
to $1,558 and $2,224, respectively, in 1990.
During fiscal 1994, 1993 and 1992, the Company recorded royalty income (expense)
due from (to) IMG of $110, $(117) and $117, respectively.
NOTE 15 -- COMMITMENTS AND CONTINGENCIES
Pursuant to a Settlement Agreement dated November 4, 1988, between the Company
and Symbol Technologies, Inc. ("Symbol") relating to the termination of the
Company's tender offer to purchase all the common stock of MSI Data Corporation
("MSI"), the Company entered into an agreement, which was amended and restated
effective September 30, 1992, providing, among other things, for the licensing
of certain Symbol and MSI patented technologies for specified royalties. Under
the agreement as amended and restated, the Company paid $2.8 million for certain
license fees and is obligated to pay the following ongoing royalties based on
the sales value of Company products incorporating the licensed technologies: (i)
from 10% on the first $25 million in cumulative sales, declining to 5% on
cumulative sales in excess of $100 million, of products utilizing a MSI patent;
and (ii) 7.5% on all sales of products utilizing one or more of the Symbol
patents.
In December 1992, four class action suits were filed in the United States
District Court, Northern District of Ohio, by certain alleged stockholders of
the Company on behalf of themselves and purported classes consisting of Telxon
stockholders, other than defendants and their affiliates, who purchased the
Company's common stock between May 20, 1992 and January 19, 1993. The named
defendants are the Company, former President and Chief Executive Officer Raymond
D. Meyo, and current President, Chief Operating Officer and Chief Financial
Officer Dan R. Wipff. On February 1, 1993, the plaintiffs filed their Amended
and Consolidated Class Action Complaint related to the four actions, alleging
claims for fraud on the market and negligent misrepresentation, arising from
alleged misrepresentations and omissions with respect to the Company's financial
performance and prospects, and alleged trading activities of the named
individual defendants. The Amended Complaint seeks certification of the
purported
49
<PAGE> 50
Telxon Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
class, unspecified compensatory damages, the imposition of a constructive trust
on certain of the defendants' assets and other unspecified extraordinary
equitable and/or injunctive relief, interest, attorneys' fees and costs. The
defendants, including the Company, filed a Motion to Dismiss which was denied by
the court on June 3, 1993.
On April 16, 1993, Plaintiffs filed their Motion for Class Certification. The
defendants, including the Company, filed their briefs in opposition to Class
Certification on October 13, 1993. On December 17, 1993, the District Court
certified the class, consisting of Telxon stockholders, other than defendants
and their affiliates, who purchased Telxon common stock between May 20, 1992 and
December 14, 1992. The defendants intend to vigorously defend this Consolidated
Class Action, however, the ultimate outcome of this litigation cannot presently
be determined. Accordingly, no provision for any liability that may result from
adjudication has been made in the accompanying consolidated financial
statements.
On September 21, 1993, a derivative Complaint was filed in the Court of Chancery
of the State of Delaware, in and for Newcastle County, by an alleged stockholder
of Telxon derivatively on behalf of Telxon. The named defendants are the
Company; Robert F. Meyerson, Chairman of the Board and Chief Executive Officer;
Dan R. Wipff, President, Chief Operating Officer and Chief Financial Officer and
director; Robert A. Goodman, Corporate Secretary and outside director; Norton W.
Rose, outside director and Dr. Raj Reddy, outside director. The Complaint
alleges breach of fiduciary duty to the Company and waste of the Company's
assets in connection with certain transactions entered into by Telxon and
compensation amounts paid by the Company. The Complaint seeks an accounting,
injunction, rescission, attorneys' fees and costs. While the Company is
nominally a defendant in this derivative action, no monetary relief is sought by
the plaintiff from the Company; accordingly, no provisions for any loss nor any
related insurance recovery therefor have been made in the accompanying
consolidated financial statements. On November 12, 1993, Telxon and the
individual director defendants filed a Motion to Dismiss. The plaintiff filed
his brief in opposition to the Motion on May 2, 1994. The defendants intend to
file a responsive final brief and to vigorously defend this action. While the
ultimate outcome of this action cannot presently be determined, the Company does
not anticipate that this matter will have a material adverse effect on the
Company's consolidated financial position or results of operations.
In the normal course of its operations, the Company is subject to performance
under contracts, and has various legal actions pending. However, in management's
opinion, any such outstanding matters have been reflected in the consolidated
financial statements, are covered by insurance or, would not have a material
adverse effect on the Company's consolidated financial position.
50
<PAGE> 51
Telxon Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
NOTE 16 -- QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
Quarter
------------------------------------------------
1994 First Second Third Fourth(a) Year
- ---- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Revenues ..................... $ 56,541 $ 63,085 $ 76,968 $ 99,399 $ 295,993
Gross profit ................. 24,445 25,436 31,870 38,937 120,688
Net income (loss) ............ $ (1,977) $ (1,090) $ (617) $ 885 $ (2,799)
========= ========= ========= ========= =========
Earnings per common and common
equivalent share:
Net income (loss) per share .. $ (.13) $ (.07) $ (.04) $ .06 $ (.18)
========= ========= ========= ========= =========
</TABLE>
(a) During the fourth quarter of fiscal 1994, the Company recorded pretax
charges aggregating $3.4 million. These charges included $1.6 million
related to severance, $1.2 million related to inventory obsolescence
and $1.7 million related to physical inventory adjustments. These
charges were offset by miscellaneous adjustments increasing pretax
income of $1.1 million.
After the related income tax benefit, the aggregate impact on fourth
quarter earnings was $(2.1) million or $(.13) per share.
<TABLE>
<CAPTION>
Quarter
--------------------------------------------------
1993 First(a) Second Third(b) Fourth(c) Year
- ---- -------- ------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Revenues .................................. $67,412 $66,380 $48,910 $55,712 $238,414
Gross profit .............................. 26,854 26,964 16,544 14,585 84,947
Income (loss) before cumulative effect
of an accounting change ............... 4,372 3,504 (9,127) (10,374) (11,625)
Cumulative effect of a change in
accounting for income taxes ........... (439) -- -- -- (439)
------- ------- ------- -------- --------
Net income (loss).......................... $ 3,933 $ 3,504 $(9,127) $(10,374) $(12,064)
======= ======= ======= ======== ========
Earnings per common and common
equivalent share:
Income (loss) before cumulative
effect of an
accounting change................... $ .30 $ .24 $ (.65) $ (.72) $ (.83)
Cumulative effect of a change
in accounting for income taxes .......... (.03) -- -- -- (.03)
------- ------- ------- -------- --------
Net income (loss) per share................ $ .27 $ .24 $ (.65) $ (.72) $ (.86)
======= ======= ------- -------- --------
</TABLE>
(a) As discussed in Note 1, the Company adopted the provisions of SFAS No.
109 during the fourth quarter of fiscal 1993, effective April 1, 1992.
As a result, the first quarter has been restated to reflect the
cumulative effect adjustment of $.4 million.
51
<PAGE> 52
Telxon Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(b) During the third quarter of fiscal 1993, the Company recognized the
following pre-tax provisions for restructuring and other non-recurring
charges aggregating $11.4 million and consisting of: inventory obsolescence
of $3.1 million related to the change in the Company's strategy on
continued sales of older product lines, severance costs of $3.8 million
related primarily to the termination of the Company's Chief Executive
Officer during the quarter, provision for bad debts of $.8 million
primarily related to a specific customer in bankruptcy proceedings and
credits granted on sales of $1.0 million, compensation expense related to
restricted stock awards of $1.0 million, consulting and professional fees
of $.8 million primarily relating to a continuous improvement project at
the Company's manufacturing operations and miscellaneous charges of $.9
million.
After the related income tax benefit, the aggregate impact on earnings for
the first three quarters of fiscal 1993 was $(7.8) million or $(.56) per
share.
(c) During the fourth quarter of fiscal 1993, the Company recognized pre-tax
provisions for unusual and other non-recurring items aggregating $11.3
million. These charges were primarily related to the following items:
inventory obsolescence of $4.5 million related primarily to purchased
components of older product lines, relocation and severance costs of $3.7
million incurred as the Company consolidated its customer service depots
located throughout the U.S. into a single National Service Center in
Houston, relocation of the Company's manufacturing operations to new
facilities and other organizational changes and professional fees, which
were expensed as incurred, of $2.2 million related primarily to a
continuous improvement project at the Company's manufacturing operations,
strategic business planning, and miscellaneous charges of $.9 million.
Individually, these miscellaneous charges were not material.
After the related income tax benefit, the aggregate impact on fourth
quarter earnings was $(7.8) million or $(.56) per share.
52
<PAGE> 53
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES
Not applicable.
PART III
Except for certain information relating to the Company's Executive Officers
included in Part I of this Form 10-K, the information called for by this Part
III is not set forth herein but is incorporated by reference from the definitive
proxy statement which the Company intends to file with the Securities and
Exchange Commission within 120 days of the close of its fiscal year ended March
31, 1994, with respect to the 1994 Annual Meeting of the Company's Stockholders
scheduled to be held August 19, 1994, or will otherwise be timely filed.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this Report:
1. Consolidated Financial Statements: Reference is made to the
Index on Page 26 herein.
2. Financial Statement Schedules: Reference is made to the Index
on Page 26 herein. All other schedules are omitted because
they are not applicable or the required information is shown
in the financial statements or the notes thereto.
3. Exhibits.
(b) The Company did not file a Form 8-K during its last quarter of fiscal
1994.
(3) EXHIBITS
3.1 Restated Certificate of Incorporation of Registrant,
incorporated by reference to Exhibit No. 3.1 to Registrant's
Form 10-K filed for the year ended March 31, 1993.
3.2 Amended and Restated By-Laws of Registrant, incorporated by
reference to Exhibit No. 3.2 to Registrant's Form 10-K filed
for the year ended March 31, 1993.
3.2.1 Amendment and Restatement of Article III of the Amended
By-Laws of Registrant dated July 23, 1989, incorporated
by reference to Exhibit No. 19.ii.1 to Registrant's
Form 10-Q filed for the quarter ended September 30,
1989.
4.1 Portions of the Restated Certificate of Incorporation of
Registrant pertaining to the rights of holders of Registrant's
Common Stock, par value $.01 per share incorporated by
reference to Exhibit 3.1 to Registrant's Annual Report on Form
10-K for the year ended March 31, 1993.
53
<PAGE> 54
4.2 Form of Certificate for the Registrant's Common Stock, par
value $.01 per share, incorporated herein by reference to
Exhibit 4.2 to Registrant's Form 10-K filed for the year ended
March 31, 1990.
4.3 Form of Rights Agreement between Registrant and AmeriTrust
Company National Association, as Rights Agent, dated as of
August 25, 1987, incorporated herein by reference to Exhibit
2(c) to Amendment No. 1, dated May 21, 1992, to Registrant's
Registration Statement on Form 8-A, filed December 19, 1983,
with respect to Registrant's Common Stock.
4.3.1 Form of Rights Certificate (included as Exhibit A to
the Rights Agreement included as Exhibit 4.3 to the
Annual Report on Form 10-K). Until the Distribution
Date (as defined in the Rights Agreement), the Rights
Agreement provides that the common stock purchase
rights created thereunder are evidenced by the
certificates for Registrant's Common Stock (the form of
which is included as Exhibit 4.3 to this Annual Report
on Form 10-K, which stock certificates are deemed also
to be certificates for such common stock purchase
rights) and not by separate Rights Certificates; as
soon as practicable after the Distribution Date, Rights
Certificates will be mailed to each holder of
Registrant's Common Stock as of the close of business
on the Distribution Date.
4.4 Form of Indenture by and between the Registrant and AmeriTrust
Company National Association, as Trustee, dated as of June 1,
1987, regarding Registrant's 7-1/2% Convertible Subordinated
Debentures Due 2012, incorporated herein by reference to
Exhibit 4.2 to Registrant's Registration Statement on Form
S-3, Registration No. 33-14348, filed May 18, 1987.
4.4.1 Form of the Registrant's 7-1/2% Convertible
Subordinated Debentures Due 2012 (set forth in the form
of Indenture included as Exhibit 4.4 to this Annual
Report on Form 10-K).
10.1 Compensation and Benefits Plans of the Registrant.
10.1.1 Amended and Restated Retirement and Uniform Matching
Profit-Sharing Plan of Registrant, effective July 1,
1993, filed herewith.
10.1.1.a Amendment, dated January 1, 1994, filed
herewith.
10.1.1.b Amendment, dated April 1, 1994, filed
herewith.
10.1.2 1988 Stock Option Plan of Registrant, filed herewith.
10.1.2.a Amendment, dated January 31, 1990, filed
herewith.
54
<PAGE> 55
10.1.3 1990 Stock Option Plan of the Registrant, as
amended, filed herewith.
10.1.4 1990 Stock Option Plan of the Registrant for
non-employee directors, as amended, filed herewith.
10.1.5 Non-Qualified Stock Option Agreement between the
Registrant and Dan R. Wipff, dated October 17, 1988,
filed herewith.
10.1.6 Non-Qualified Stock Option Agreement between the
Registrant and Raj Reddy, dated as of October 17,
1988, filed herewith.
10.1.7 Description of compensation arrangements between the
Registrant and Robert F. Meyerson, Chairman of the
Board of Registrant, incorporated herein by
reference to Exhibit 10.14 to Registrant's Form 10-K
filed for the year ended March 31, 1990.
10.1.8 Employment Agreement between the Registrant and Dan
R. Wipff, dated as of April 1, 1991, incorporated
herein by reference to Exhibit 19.02 to Registrant's
Form 10-Q filed for the quarter ended September 30,
1991.
10.1.9 Consulting Agreement between the Registrant and
Accipiter Corporation, dated March 6, 1992,
incorporated herein by reference to Exhibit 10.17 to
the Registrant's Form 10-K filed for the year ended
March 31, 1992.
10.1.10 Services and Non-Competition Agreement, dated as of
January 18, 1993, among Accipiter Corporation,
Robert F. Meyerson and the Registrant, incorporated
herein by reference to Exhibit 10.28 to the
Registrant's Form 10-Q filed for the quarter ended
December 31, 1992.
10.1.11 Employment Agreement between the Registrant and John
H. Cribb effective as of April 1, 1993, filed
herewith.
10.1.12 Severance and Settlement Agreement, dated as of
December 23, 1992, between the Registrant and
Raymond D. Meyo, incorporated herein by reference to
Exhibit 10.26 to the Registrant's Form 10-Q filed
for the quarter ended December 31, 1992.
10.1.13 Consulting Agreement, dated as of December 23, 1992,
between the Registrant and Raymond D. Meyo,
incorporated herein by reference to Exhibit 10.26 to
the Registrant's Form 10-Q filed for the quarter
ended December 31, 1992.
55
<PAGE> 56
10.1.14 Employment Agreement between the Registrant and D.
Michael Grimes, dated as of February 25, 1993,
incorporated herein by reference to Exhibit 10.1.14
to the Registrant's Form 10-K filed for the year
ended March 31, 1993.
10.1.15 Employment Agreement between the Registrant and
William J. Murphy, dated as of March 12, 1993,
incorporated herein by reference to Exhibit 10.1.15
to the Registrant's Form 10-K filed for the year
ended March 31, 1993.
10.1.16 Employment Agreement among the Registrant, Itronix
Corporation, a wholly owned subsidiary of the
Registrant, and Lawrence L. Allman, dated as of
April 12, 1993, incorporated herein by reference to
Exhibit 10.1.16 to the Registrant's Form 10-K filed
for the year ended March 31, 1993.
10.1.16.a Agreement to amend and restate Allman
Employment Agreement between the
Registrant and Lawrence Allman, filed
herewith.
10.1.17 1992 Restricted Stock Plan of the Registrant,
incorporated herein by reference to Exhibit 10.1.17
to the Registrant's Form 10-Q filed for the quarter
ended December 31, 1993.
10.1.17.a Amendment, dated December 7, 1993,
incorporated herein by reference to
Exhibit 10.1.17.a to the Registrant's
Form 10-Q filed for the quarter ended
December 31, 1993.
10.2 Material Leases of the Registrant.
10.2.1 Lease between Registrant and 3330 W. Market
Properties, dated as of December 30, 1986, filed
herewith.
10.2.2 Lease between Itronix, a wholly-owned subsidiary of
the Registrant, and Hutton Settlement, Inc., dated
as of April 5, 1993, incorporated herein by
reference to Exhibit 10.2.3 to the Registrant's Form
10-K filed for the year ended March 31, 1993.
10.3 Credit Agreements of the Registrant.
10.3.1 Revolving Credit, Term Loan and Security Agreement
between the Registrant and the Bank of New York
Commercial Corporation dated as of October 20, 1993,
incorporated by reference to Exhibit 10.3 to the
Registrant's Form 10-Q filed for the quarter ended
September 30, 1993.
10.3.1.a First Amendment to Revolving Credit,
Term Loan and Security Agreement between
the Registrant and the Bank of New York
Commercial Corporation dated as of March
30, 1994, filed herewith.
56
<PAGE> 57
10.3.1.b Second Amendment to Revolving Credit,
Term Loan and Security Agreement between
the Registrant and Bank of New York
Commercial Corporation dated as of June
10, 1994, filed herewith.
10.4 Amended and Restated Agreement between the Registrant and
Symbol Technologies, Inc., dated as of September 30, 1992,
incorporated herein by reference to Exhibit 10.4 to
Registrant's Form 10-K for the year ended March 31, 1993.
10.5 Stock Purchase Agreement by and among the Registrant, Robert
F. Meyerson and members of the Meyerson family dated as of
March 18, 1992, incorporated herein by reference to Exhibit
10.22 to the Registrant's Form 10-K filed for the year ended
March 31, 1992.
10.6 Stock Purchase Agreement, dated December 31, 1992, among the
Registrant, Robert F. Meyerson and certain members of Mr.
Meyerson's family, incorporated herein by reference to Exhibit
10.30 to the Registrant's Form 10-Q filed for the quarter
ended December 31, 1992.
10.7 Plan and Agreement of Merger, dated as of January 18, 1993,
among the Registrant, WSACO, Inc. and Teletransaction, Inc.,
incorporated herein by reference to Exhibit 10.29 to the
Registrant's Form 10-Q filed for the quarter ended December
31, 1992.
10.7.1 Notice of Termination by WSACO,
Inc., as contemplated by Section 5.7
of the Plan and Agreement of Merger,
of Amended and Restated Consulting
Agreement between Accipiter
Corporation and Teletransaction,
Inc., incorporated herein by
reference to Exhibit 10.7.1 to
Registrant's Form 10-K for the year
ended March 31, 1993.
10.8 Asset Purchase Agreement between the Registrant and
Retail Management Systems Corporation, dated as of
April 3, 1992, incorporated herein by reference to
Exhibit 10.23 to the Registrant's Form 10-K filed
for the year ended March 31, 1992.
10.9 Stock Purchase Agreement among the Registrant and
the stockholders of Telesystems SLW Inc., dated as
of April 10, 1992, relating to the acquisition of
all the capital stock of Telesystems SLW Inc.,
incorporated herein by reference to Exhibit 10.24
to the Registrant's Form 10-K filed for the year
ended March 31, 1992.
10.10 Agreement of Merger among the Registrant,
Itracquico Corporation and Itronix Corporation
dated as of March 22, 1993, incorporated herein by
reference to Exhibit 10.10 to the Registrant's Form
10-K for the year ended March 31, 1993.
10.11 Agreement for Sale and Licensing of Assets between
AST Research, Inc. and PenRight! Corporation, a
wholly-owned subsidiary of the Registrant, dated as
of January 26, 1994, incorporated herein by
reference to Exhibit 10.11 to the Registrant's Form
10-Q for the quarter ended December 31, 1993.
57
<PAGE> 58
11. Computation of Common Shares outstanding and earnings per
share for fiscal years ended 1994, 1993 and 1992, filed
herewith.
21. Subsidiaries of the Registrant, filed herewith.
24.1 Consent of Coopers & Lybrand, filed herewith.
24.2 Consent of Coopers & Lybrand, filed herewith.
25. Powers of Attorney executed by members of the Board of
Directors, filed herewith.
58
<PAGE> 59
TELXON CORPORATION AND SUBSIDIARIES
SCHEDULE II
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
Dollars in Thousands
<TABLE>
<CAPTION>
Deductions
Balance at
Year Ended Beginning Amounts Amounts Balance at the
March 31 Name of Debtor of Period Additions Collected Written-Off End of Period
--------- -------------- ----------- --------- --------- ----------- ----------------------
Not
Current Current
------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1994 Frank E. Brick $ -- $134 (c) $ -- $ -- $ 45 $ 89
William J. Murphy $200 $ -- (a) $ -- $ -- $200 $ --
1993 William J. Murphy $ -- $200 (a) $ -- $ -- $ -- $200
1992 Robert F. Meyerson $167 $ 13 (b) $180 $ -- $ -- $ --
Raymond D. Meyo $112 $ 9 (c) $121 $ -- $ -- $ --
Dan R. Wipff $121 $ 18 (c) $139 $ -- $ -- $ --
</TABLE>
- --------------------
(a) Represents non-interest bearing promissory note due on or before April
1, 1994 as authorized per employment agreement.
(b) Represented expenses paid by the Company on behalf of the employee and
interest calculated at the rate charged by the Company's primary
domestic lender.
(c) Represented advances against bonus compensation and loan as authorized
per employment agreement. Amount also included interest on any
outstanding loan for taxes at the rate charged by the Company's
primary domestic lender.
59
<PAGE> 60
TELXON CORPORATION AND SUBSIDIARIES
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Dollars in Thousands
<TABLE>
<CAPTION>
Balance at Additions Balance at
Beginning of Charged to End of
Description Period Costs and Expenses Deductions Period
- ----------- ----------- ------------------ ---------- ----------
<S> <C> <C> <C> <C>
Valuation account for accounts
receivable:
Year ended March 31, 1994: $2,689 $ 817 $1,871 (a) $1,635
Year ended March 31, 1993: $1,321 $2,745 $1,377 (a) $2,689
Year ended March 31, 1992: $1,483 $ 458 $ 620 (a) $1,321
Valuation account for inventory:
Year ended March 31, 1994: $7,486 $6,674 $4,310 (b) $9,850
Year ended March 31, 1993: $4,356 $9,700 $6,570 (b) $7,486
Year ended March 31, 1992: $4,242 $1,492 $1,378 (b) $4,356
</TABLE>
(a) Doubtful accounts charged off, net of recoveries.
(b) Write off of excess and/or obsolete material.
60
<PAGE> 61
TELXON CORPORATION AND SUBSIDIARIES
SCHEDULE IX
SHORT-TERM BORROWINGS
Dollars in Thousands
<TABLE>
<CAPTION>
Maximum Average Weighted
Weighted Amount Amounts Average
Year Category of Balance at Average Outstanding Outstanding Interest Rate
Ended Aggregate Short-Term End of Interest During the During the During the
March 31, Borrowings Period Rate(a) Period Period(b) Period(c)
- --------- -------------------------- ---------- --------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
1994 Notes payable to banks $24,573 7.08% $24,573 $4,140 7.0%
1993 Notes payable to banks (d) $ -- N.A. $ 2,000 $ 159 6.0%
Notes payable to banks (e) $ -- N.A. $ 927 $ 918 10.375%
1992 Notes payable to Govern-
mental Agencies (f) $ 337 N.A. $ 337 $ 337 11.0%
Notes payable to banks (e) $ 935 10.375% $ 985 $ 899 10.7%
</TABLE>
(a) The averages were computed based on the annualized interest rate of
all debt outstanding at period end.
(b) These averages were based upon the monthly weighted averages of
short-term borrowings outstanding.
(c) These averages were computed by dividing the total interest on
short-term borrowings for the period or period in which the borrowing
was outstanding by the average amount of short-term borrowings
outstanding during the period and does not give consideration to
foreign currency fluctuations.
(d) Represents U.S. loan from December 31, 1992 to January 29, 1993.
(e) Represents non-U.S. dollar denomination borrowings by international
subsidiaries guaranteed by the parent company.
(f) Assumed on March 1, 1992, as part of RMS acquisition.
61
<PAGE> 62
TELXON CORPORATION AND SUBSIDIARIES
SCHEDULE X
SUPPLEMENTARY INCOME STATEMENT INFORMATION
Dollars in Thousands
<TABLE>
<CAPTION>
Item Charged to Costs and Expenses
- --------------------------------------------------
Year Ended March 31,
--------------------------
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Advertising costs ................................ $4,300 $4,352 $3,897
Taxes, other than payroll and income taxes ....... $3,180 * *
Maintenance and repairs .......................... * * *
Royalties ........................................ $8,387 $5,976 $2,975
</TABLE>
* Disclosure not required because expenditures were less than 1% of
revenues for these periods.
62
<PAGE> 63
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Annual Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TELXON CORPORATION
Date: June 26, 1995 By: /s/ Gerald J. Gabriel
---------------------------------------
Gerald J. Gabriel, Corporate Controller
(principal accounting officer)
63
<PAGE> 64
TELXON CORPORATION
EXHIBITS TO
FORM 10-K
FOR THE FISCAL YEAR ENDED MARCH 31, 1994
64
<PAGE> 65
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
Page
----
<S> <C> <C>
* 3.1 Restated Certificate of Incorporation of Registrant, incorporated by reference to Exhibit No. 3.1
to Registrant's Form 10-K filed for the year ended March 31, 1993.
* 3.2 Amended and Restated By-Laws of Registrant, incorporated by reference to Exhibit No. 3.2 to
Registrant's Form 10-K filed for the year ended March 31, 1993.
* 3.2.1 Amendment and Restatement of Article III of the Amended By-Laws of Registrant dated July 23,
1989, incorporated by reference to Exhibit No. 19.ii.1 to Registrant's Form 10-Q filed for
the quarter ended September 30, 1989.
* 4.1 Portions of the Restated Certificate of Incorporation of Registrant pertaining to the rights of
holders of Registrant's Common Stock, par value $.01 per share incorporated by reference to Exhibit
3.1 to Registrant's Annual Report on Form 10-K for the year ended March 31, 1993.
* 4.2 Form of Certificate for the Registrant's Common Stock, par value $.01 per share, incorporated herein
by reference to Exhibit 4.2 to Registrant's Form 10-K filed for the year ended March 31, 1990.
* 4.3 Form of Rights Agreement between Registrant and AmeriTrust Company National Association, as
Rights Agent, dated as of August 25, 1987, incorporated herein by reference to Exhibit 2(c) to
Amendment No. 1, dated May 21, 1992, to Registrant's Registration Statement on Form 8-A, filed
December 19, 1983, with respect to Registrant's Common Stock.
* 4.3.1 Form of Rights Certificate (included as Exhibit A to the Rights Agreement included as
Exhibit 4.3 to the Annual Report on Form 10-K). Until the Distribution Date (as defined
in the Rights Agreement), the Rights Agreement provides that the common stock purchase
rights created thereunder are evidenced by the certificates for Registrant's Common Stock
(the form of which is included as Exhibit 4.3 to this Annual Report on Form 10-K, which
stock certificates are deemed also to be certificates for such common stock purchase
rights) and not by separate Rights Certificates; as soon as practicable after the
Distribution Date, Rights Certificates will be mailed to each holder of Registrant's Common
Stock as of the close of business on the Distribution Date.
65
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* 4.4 Form of Indenture by and between the Registrant and
AmeriTrust Company National Association, as Trustee,
dated as of June 1, 1987, regarding Registrant's
7-1/2% Convertible Subordinated Debentures Due 2012,
incorporated herein by reference to Exhibit 4.2 to
Registrant's Registration Statement on Form S-3,
Registration No. 33-14348, filed May 18, 1987.
* 4.4.1 Form of the Registrant's 7-1/2%
Convertible Subordinated Debentures Due
2012 (set forth in the form of Indenture
included as Exhibit 4.4 to this Annual
Report on Form 10-K).
10.1 Compensation and Benefits Plans of the Registrant.
10.1.1 Amended and Restated Retirement and Uniform
Matching Profit-Sharing Plan of Registrant,
effective July 1, 1993, filed herewith.
10.1.1.a Amendment, dated January 1,
1994, filed herewith.
10.1.1.b Amendment, dated April 1, 1994,
filed herewith.
10.1.2 1988 Stock Option Plan of Registrant, filed
herewith.
10.1.2.a Amendment, dated January 31,
1990, filed herewith.
10.1.3 1990 Stock Option Plan of the Registrant,
as amended, filed herewith.
10.1.4 1990 Stock Option Plan of the Registrant
for non-employee directors, as amended,
filed herewith.
10.1.5 Non-Qualified Stock Option Agreement
between the Registrant and Dan R. Wipff,
dated October 17, 1988, filed herewith.
10.1.6 Non-Qualified Stock Option Agreement
between the Registrant and Raj Reddy, dated
as of October 17, 1988, filed herewith.
10.1.7 Description of compensation arrangements
between the Registrant and Robert F.
Meyerson, Chairman of the Board of
Registrant, incorporated herein by
reference to Exhibit 10.14 to Registrant's
Form 10-K filed for the year ended March
31, 1990.
10.1.8 Employment Agreement between the Registrant
and Dan R. Wipff, dated as of April 1,
1991, incorporated herein by reference to
Exhibit 19.02 to Registrant's Form 10-Q
filed for the quarter ended September 30,
1991.
</TABLE>
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* 10.1.9 Consulting Agreement between the Registrant
and Accipiter Corporation, dated March 6,
1992, incorporated herein by reference to
Exhibit 10.17 to the Registrant's Form 10-K
filed for the year ended March 31, 1992.
* 10.1.10 Services and Non-Competition Agreement,
dated as of January 18, 1993, among
Accipiter Corporation, Robert F. Meyerson
and the Registrant, incorporated herein by
reference to Exhibit 10.28 to the
Registrant's Form 10-Q filed for the
quarter ended December 31, 1992.
10.1.11 Employment Agreement between the Registrant
and John H. Cribb effective as of April 1,
1993, filed herewith.
* 10.1.12 Severance and Settlement Agreement, dated
as of December 23, 1992, between the
Registrant and Raymond D. Meyo,
incorporated herein by reference to Exhibit
10.26 to the Registrant's Form 10-Q filed
for the quarter ended December 31, 1992.
* 10.1.13 Consulting Agreement, dated as of December
23, 1992, between the Registrant and
Raymond D. Meyo, incorporated herein by
reference to Exhibit 10.26 to the
Registrant's Form 10-Q filed for the
quarter ended December 31, 1992.
* 10.1.14 Employment Agreement between the
Registrant and D. Michael Grimes,
dated as of February 25, 1993,
incorporated herein by reference to
Exhibit 10.1.14 to the Registrant's
Form 10-K filed for the year ended
March 31, 1993.
* 10.1.15 Employment Agreement between the
Registrant and William J. Murphy,
dated as of March 12, 1993,
incorporated herein by reference to
Exhibit 10.1.15 to the Registrant's
Form 10-K filed for the year ended
March 31, 1993.
* 10.1.16 Employment Agreement among the
Registrant, Itronix Corporation, a
wholly owned subsidiary of the
Registrant, and Lawrence L. Allman,
dated as of April 12, 1993,
incorporated herein by reference to
Exhibit 10.1.16 to the Registrant's
Form 10-K filed for the year ended
March 31, 1993.
10.1.16.a Agreement to amend
and restate Allman Employment
Agreement between the
Registrant and Lawrence Allman,
filed herewith.
</TABLE>
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* 10.1.17 1992 Restricted Stock Plan of the
Registrant, incorporated herein by
reference to Exhibit 10.1.17 to the
Registrant's Form 10-Q filed for the
quarter ended December 31, 1993.
* 10.1.17.a Amendment, dated December 7,
1993, incorporated herein by
reference to Exhibit 10.1.17.a
to the Registrant's Form 10-Q
filed for the quarter ended
December 31, 1993.
10.2 Material Leases of the Registrant.
10.2.1 Lease between Registrant and 3330 W. Market
Properties, dated as of December 30, 1986,
filed herewith.
* 10.2.2 Lease between Itronix, a wholly-owned
subsidiary of the Registrant, and Hutton
Settlement, Inc., dated as of April 5,
1993, incorporated herein by reference to
Exhibit 10.2.3 to the Registrant's Form
10-K filed for the year ended March 31,
1993.
10.3 Credit Agreements of the Registrant.
* 10.3.1 Revolving Credit, Term Loan and Security
Agreement between the Registrant and the
Bank of New York Commercial Corporation
dated as of October 20, 1993, incorporated
by reference to Exhibit 10.3 to the
Registrant's Form 10-Q filed for the
quarter ended September 30, 1993.
10.3.1.a First Amendment to Revolving
Credit, Term Loan and Security
Agreement between the
Registrant and the Bank of New
York Commercial Corporation
dated as of March 30, 1994,
filed herewith.
10.3.1.b Second Amendment to Revolving
Credit, Term Loan and Security
Agreement between the
Registrant and Bank of New York
Commercial Corporation dated as
of June 10, 1994, filed
herewith.
* 10.4 Amended and Restated Agreement between the Registrant
and Symbol Technologies, Inc., dated as of September
30, 1992, incorporated herein by reference to Exhibit
10.4 to Registrant's Form 10-K for the year ended
March 31, 1993.
* 10.5 Stock Purchase Agreement by and among the Registrant,
Robert F. Meyerson and members of the Meyerson family
dated as of March 18, 1992, incorporated herein by
reference to Exhibit 10.22 to the Registrant's Form
10-K filed for the year ended March 31, 1992.
</TABLE>
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* 10.6 Stock Purchase Agreement, dated December 31, 1992,
among the Registrant, Robert F. Meyerson and
certain members of Mr. Meyerson's family,
incorporated herein by reference to Exhibit 10.30
to the Registrant's Form 10-Q filed for the quarter
ended December 31, 1992.
* 10.7 Plan and Agreement of Merger, dated as of January
18, 1993, among the Registrant, WSACO, Inc. and
Teletransaction, Inc., incorporated herein by
reference to Exhibit 10.29 to the Registrant's Form
10-Q filed for the quarter ended December 31, 1992.
* 10.7.1 Notice of Termination by WSACO, Inc., as
contemplated by Section 5.7 of the Plan and
Agreement of Merger, of Amended and
Restated Consulting Agreement between
Accipiter Corporation and Teletransaction,
Inc., incorporated herein by reference to
Exhibit 10.7.1 to Registrant's Form 10-K
for the year ended March 31, 1993.
* 10.8 Asset Purchase Agreement between the Registrant and
Retail Management Systems Corporation, dated as of
April 3, 1992, incorporated herein by reference to
Exhibit 10.23 to the Registrant's Form 10-K filed for
the year ended March 31, 1992.
* 10.9 Stock Purchase Agreement among the Registrant and the
stockholders of Telesystems SLW Inc., dated as of
April 10, 1992, relating to the acquisition of all the
capital stock of Telesystems SLW Inc., incorporated
herein by reference to Exhibit 10.24 to the
Registrant's Form 10-K filed for the year ended March
31, 1992.
* 10.10 Agreement of Merger among the Registrant, Itracquico
Corporation and Itronix Corporation dated as of March
22, 1993, incorporated herein by reference to Exhibit
10.10 to the Registrant's Form 10-K for the year ended
March 31, 1993.
* 10.11 Agreement for Sale and Licensing of Assets between AST
Research, Inc. and PenRight! Corporation, a
wholly-owned subsidiary of the Registrant, dated as of
January 26, 1994, incorporated herein by reference to
Exhibit 10.11 to the Registrant's Form 10-Q for the
quarter ended December 31, 1993.
11. Computation of Common Shares outstanding and earnings
per share for fiscal years ended 1994, 1993 and 1992,
filed herewith.
21. Subsidiaries of the Registrant, filed herewith.
24.1 Consent of Coopers & Lybrand, filed herewith.
24.2 Consent of Coopers & Lybrand, filed herewith.
25. Powers of Attorney executed by members of the Board of
Directors, filed herewith.
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* Previously filed
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Exhibit 11
EXHIBIT (11)* TO REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED MARCH 31, 1994
TELXON CORPORATION
COMPUTATION OF COMMON SHARES OUTSTANDING
AND EARNINGS PER SHARE
(Dollars in Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Net income (loss) applicable to common
shares $(2,799) $(12,064) $16,989
======= ======== =======
Weighted average common shares outstand-
ing for the year 15,210 13,991 14,067
Increase in weighted average from:
Dilutive effect of stock options -- -- 62
------ ------- -------
Weighted average common shares, assuming
issuance of the above securities 15,210 13,991 14,129
====== ======= =======
Earnings (loss) per common share:
On the weighted average common
shares outstanding for the year $ (.18) $ (.86) $ 1.21
Assuming issuance of shares for
dilutive stock options** $ (.18) $ (.86) $ 1.20
</TABLE>
* Numbered in accordance with Item 601 of Regulation S-K.
** This calculation is submitted in accordance with Regulation S-K Item
601(b)(1) although not required for income statement presentation because it
results in dilution of less than three percent. The Company's 7-1/2% Convertible
Debentures were omitted from the fully diluted calculation due to their
anti-dilutive effect.
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
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Name Jurisdiction of Incorporation
---- -----------------------------
<S> <C>
Telxon Australia Pty. Ltd. Australia
N.V. Telxon Belgium S.A. Belgium
Telxon France S.A. France
Telxon Italia s.r.1. Italy
Telxon mde GmbH Germany
Telxon Limited England
Telxon Japan Japan
Telxon Canada Corporation, Ltd. Ontario, Canada
MicroOffice Systems Technology, Inc. Delaware
Telxon Europe BV The Netherlands
Telxon Data Systems AG Switzerland
Itronix Corporation Washington
Telxon Foreign Sales Corp. U.S. Virgin Islands
New England Data Systems, Inc. Delaware
PTC Airco, Inc. Delaware
Retail Technology Group, Inc. Delaware
Teletransaction, Inc. Delaware
Telesystems SLW Inc. Ontario, Canada
AIRONET Wireless Communications, Inc. Delaware
Aironet Canada, Inc. Ontario, Canada
PenRight! Corporation Delaware
Telxon Trading Co. Delaware
Telxon Corporation Systems Espana, S.A. Spain
Metanetics Corporation, Inc. Delaware
</TABLE>
<PAGE> 1
Exhibit 24.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Prospectus constituting part
of this Registration Statement of Telxon Corporation and Subsidiaries on Form
S-8 (Nos. 2-88298, 2-92434, 33-16939, 33-989, 33-32600, 33-37177, 33-43314,
33-43315, 33-60968, 33-60970 and 33-60972) of our report, which includes an
explanatory paragraph related to a Consolidated Class Action, dated June 27,
1994, on our audits of the consolidated financial statements and financial
statement schedules of Telxon Corporation and Subsidiaries, as of March 31, 1994
and 1993, and for each of the three years in the period ended March 31, 1994,
appearing on page 28 of the Form 10-K. We also consent to the reference to us
under "Selected Financial Data" appearing on page 17 of the Form 10-K.
COOPERS & LYBRAND
Akron, Ohio
June 27, 1994
<PAGE> 1
Exhibit 24.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the application of our report dated June 27, 1994, included in the
annual report on Form 10-K of Telxon Corporation for the year ended March 31,
1994, to the amended consolidated balance sheets as of March 31, 1994 and 1993
and the related statements of income, cash flows, and changes in stockholders'
equity and notes to the consolidated financial statements for the years ended
March 31, 1994, 1993 and 1992, which are included in this amendment on Form
10-K/A.
COOPERS & LYBRAND
Akron, Ohio
June 26, 1995
