<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
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
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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 (330) 664-1000
------------------------
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 .
--- ---
At December 31, 1996, there were 16,082,310 outstanding shares of the
registrant's Common Stock, $.01 par value per share ("Common Stock").
<PAGE> 2
TELXON CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Page No.
--------
PART I. FINANCIAL INFORMATION:
<S> <C>
Item 1: Consolidated Financial Statements
Balance Sheet...........................................................................3
Statement of Operations.................................................................4
Statement of Cash Flows.................................................................5
Notes to Consolidated Financial Statements..............................................6-10
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations....................................................11-21
PART II. OTHER INFORMATION:
Item 1: Legal Proceedings...........................................................................22
Item 6: Exhibits and Reports on Form 8-K............................................................22-29
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS
TELXON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31, March 31,
ASSETS 1996 1996
----------- ------------
Current assets: (Unaudited)
<S> <C> <C>
Cash (including cash equivalents of $50,000 and
$23,411) ............................................... $ 57,706 $ 34,828
Trading securities ........................................ -- 902
Accounts receivable, net of allowance for doubtful
accounts of $2,505 and $1,731........................... 103,552 133,592
Notes and other accounts receivable ....................... 9,288 9,522
Inventories ............................................... 85,945 111,132
Prepaid expenses and other ................................ 9,934 9,939
--------- ---------
Total current assets ................................ 266,425 299,915
Property and equipment, net .................................... 46,414 54,673
Intangible and other assets, net ............................... 38,960 34,621
--------- ---------
Total ................................................. $ 351,799 $ 389,209
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable ............................................... $ 2,065 $ 66
Current portion of long-term debt ........................... 384 1,156
Accounts payable ............................................ 31,307 59,620
Capital lease obligations due within one year ............... 622 897
Accrued liabilities ......................................... 51,278 52,181
--------- ---------
Total current liabilities ............................. 85,656 113,920
Capital lease obligations ...................................... 1,127 1,982
Convertible subordinated debentures ............................ 107,224 107,224
Long-term debt ................................................. -- 1,331
Other long-term liabilities .................................... 2,339 3,562
--------- ---------
Total liabilities .................................... 196,346 228,019
Stockholders' equity:
Preferred Stock, $1.00 par value per share; 500 shares
authorized, none issued.................................. -- --
Common Stock, $.01 par value per share; 50,000 shares
authorized, 16,082 and 16,096 shares outstanding ........ 161 161
Additional paid-in capital ................................. 86,543 85,750
Retained earnings .......................................... 70,681 78,096
Equity adjustment for foreign currency translation ......... (1,062) (2,064)
Unearned compensation relating to restricted stock awards... (258) (753)
Treasury stock, 58 shares at cost .......................... (612) --
--------- ---------
Total stockholders' equity ............................ 155,453 161,190
Commitments and contingencies .................................. -- --
========= =========
Total ................................................. $ 351,799 $ 389,209
========= =========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
3
<PAGE> 4
TELXON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended December 31, Ended December 31,
1996 1995 1996 1995
---------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Product ..................................... $ 105,030 $ 113,247 $ 288,494 $ 291,382
Customer service ............................ 18,545 17,783 55,778 50,205
--------- --------- --------- ---------
Total revenues ....................... 123,575 131,030 344,272 341,587
Cost of revenues:
Product ..................................... 76,646 68,461 204,915 171,935
Customer service ............................ 12,966 10,078 35,548 28,518
--------- --------- --------- ---------
Total cost of revenues ........... 89,612 78,539 240,463 200,453
--------- --------- --------- ---------
Gross profit ................................ 33,963 52,491 103,809 141,134
Operating expenses:
Selling expenses ............................ 27,453 21,257 69,674 59,673
Product development and engineering
expenses ................................ 13,839 12,704 35,043 34,318
General and administrative expenses ......... 16,206 10,750 37,914 28,991
--------- --------- --------- ---------
Total operating expenses ......... 57,498 44,711 142,631 122,982
--------- --------- --------- ---------
(Loss) income from operations .... (23,535) 7,780 (38,822) 18,152
Interest income ................................ 161 157 511 451
Interest expense ............................... (2,130) (1,948) (6,262) (4,646)
Other non-operating income ..................... 35,176 787 35,249 1,142
--------- --------- --------- ---------
Income (loss) before income taxes 9,672 6,776 (9,324) 15,099
Provision (benefit) for income taxes ........... 7,537 2,571 (1,961) 5,854
--------- --------- --------- ---------
Net income (loss) ................ $ 2,135 $ 4,205 $ (7,363) $ 9,245
========= ========= ========= =========
Earnings per common and common equivalent share:
Net income (loss) per share ...... $ .13 $ .26 $ (.45) $ .57
========= ========= ========= =========
Average number of common and common
equivalent shares outstanding ............ 16,150 16,302 16,207 16,301
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
4
<PAGE> 5
TELXON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
December 31,
1996 1995
--------- ----------
Cash flows from operating activities:
<S> <C> <C>
Net (loss) income .................................. $ (7,363) $ 9,245
Adjustments to reconcile net (loss) income to
net cash used in operating activities:
Depreciation and amortization ................ 21,948 16,334
Non-cash compensation related to
restricted stock awards .................. 474 653
Provision for doubtful accounts .............. 947 1,427
Provision for inventory obsolescence ......... 11,502 4,919
Deferred income taxes ........................ (1,026) (1,034)
Gain on sale of assets ....................... (35,176) --
Loss on disposal of assets ................... 402 213
Trading securities ........................... -- (1,349)
Non-cash gain on trading securities ......... -- (787)
Proceeds from sale of trading securities ..... 961 --
Gain on sale of trading securities ........... (59) --
Gain on sale of subsidiary stock ............. -- (355)
Changes in assets and liabilities:
Accounts and notes receivable ............. 15,645 (65,497)
Refundable income taxes ................... -- (1,614)
Inventories ............................... (1,101) (23,784)
Prepaid expenses .......................... (472) 1,217
Intangible and other assets ............... (5,297) (1,471)
Accounts payable and accrued liabilities .. (25,499) 4,420
Other long-term liabilities ............... (1,223) 768
-------- --------
Total adjustments ................... (17,974) (65,940)
-------- --------
Net cash used in operating activities ............ (25,337) (56,695)
Cash flows from investing activities:
Additions to property and equipment ................ (10,926) (16,231)
Proceeds from the sale of assets ................... 65,655 --
Payments for acquisitions, net of cash acquired .... -- (2,401)
Software investments ............................... (5,120) (808)
-------- --------
Net cash provided by (used in) investing activities 49,609 (19,440)
Cash flows from financing activities:
Notes payable, net ................................. 1,999 (15,475)
Purchase of treasury stock ......................... (1,051) --
Principal payments on capital leases ............... (702) (660)
Principal payments on long-term borrowings ......... (2,103) (190)
Debt issue costs paid .............................. (303) (2,063)
Proceeds from issuance of convertible
subordinated notes ............................. -- 82,500
Proceeds from exercise of stock options
(includes tax benefit) ......................... 710 5,230
-------- --------
Net cash (used in) provided by financing activities (1,450) 69,342
Effect of exchange rate changes on cash ............ 56 (266)
-------- --------
Net increase (decrease) in cash and cash equivalents 22,878 (7,059)
Cash and cash equivalents at beginning of period ... 34,828 31,364
-------- --------
Cash and cash equivalents at end of period ......... $ 57,706 $ 24,305
======== ========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
5
<PAGE> 6
TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except share and per share amounts)
1. Management Representation
The consolidated financial statements of Telxon Corporation and its
subsidiaries (the "Company") have been prepared without audit. In the
opinion of the Company, all adjustments, consisting of normal recurring
adjustments and one-time adjustments recorded in the third quarter of
fiscal 1997 and aggregating $27,500, necessary for a fair statement of
results for the interim periods, have been made. The statements, which
do not include all of the information and notes required by generally
accepted accounting principles for complete financial statements,
should be read in conjunction with the audited consolidated financial
statements as contained in the Company's Annual Report on Form 10-K for
the fiscal year ended March 31, 1996.
2. 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 increased by the net shares issuable on
the assumed exercise of stock options using the treasury stock method.
All securities having a dilutive effect on earnings 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.
3. Inventories
Inventories consisted of the following:
<TABLE>
<CAPTION>
December 31,
1996 March 31,
(Unaudited) 1996
-------- -------
<S> <C> <C>
Purchased components .............................................. $ 30,417 $ 50,022
Work-in-process ................................................... 30,102 35,379
Finished goods .................................................... 25,426 25,731
-------- --------
$ 85,945 $111,132
======== ========
</TABLE>
4. Accrued Liabilities
Accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
December 31,
1996 March 31,
Unaudited) 1996
-------- --------
<S> <C> <C>
Accrued payroll and other employee compensation ................... $ 19,577 $ 14,394
Deferred customer service revenues ................................ 13,675 15,063
Other accrued liabilities ......................................... 18,026 22,724
-------- --------
$ 51,278 $ 52,181
======== ========
</TABLE>
6
<PAGE> 7
TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except share and per share amounts)
<TABLE>
<CAPTION>
5. Supplemental Cash Flow Information
Nine Months Ended
December 31, December 31,
1996 1995
------------ -------------
(Unaudited)
Cash paid during the period for
<S> <C> <C>
Interest......................... $5,846 $4,557
Income taxes..................... $7,368 4,432
</TABLE>
Capital lease additions are non-cash transactions and, accordingly, $48
and $666 have been excluded from property and equipment additions in
the fiscal 1997 and fiscal 1996 Consolidated Statement of Cash Flows.
Secured promissory notes aggregating $6,200, which were received in
connection with the Company's divestiture of certain retail application
software operations in April 1996, have been excluded from the fiscal
1997 Consolidated Statement of Cash Flows as a non-cash transaction.
The Company's re-issuance of $439 of treasury stock, which was used to
satisfy purchases made by employees through the Telxon Corporation 1995
Employee Stock Purchase Plan in July 1996, has been excluded from the
fiscal 1997 Consolidated Statement of Cash Flows as a non-cash
transaction.
6. Litigation and Contingencies
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 then
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, the 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.
7
<PAGE> 8
TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except share and per share amounts)
Following the completion of discovery (other than of experts), each
defendant filed a Motion for Summary Judgment on May 19, 1995, all of
which were opposed by the plaintiffs. On September 14, 1995, the Court
granted each defendant summary judgment on all counts, which the
plaintiffs have appealed to the defendants to the United States Sixth
Circuit Court of Appeals. The appeal was heard on October 24, 1996, and
the parties are awaiting the decision from the Court of Appeals. The
defendants intend to continue vigorously defending the Consolidated
Class Action. Though there can be no assurance that the Company's
summary judgment will be upheld on appeal on all counts or as to the
ultimate outcome of any portion of the case with respect to which the
summary judgment may be reversed, no provision has been made in the
accompanying consolidated financial statements for any liability that
may result to the Company in such an event.
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, then 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, and the defendants
filed a final responsive brief. The Motion was argued before the Court
on March 29, 1995, and on July 18, 1995, the Court issued its ruling.
The Court dismissed all of the claims relating to the plaintiff's
allegations of corporate waste. The claims relating to breach of
fiduciary duty survived the Motion to Dismiss and are now the subject
of discovery, which is continuing; no deadline for the completion of
discovery has yet been set by the Court. The defendants believe that
the remaining claims lack merit, and they intend 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, results of operations or cash flows.
In the normal course of its operations, the Company is subject to
performance under contracts and assertions that technologies it
utilizes may infringe third party intellectual properties, and has
various legal actions and certain contingencies pending, including a
claim made by the owner of a manufacturing facility formerly leased by
the Company that the Company caused and should remediate alleged soil
contamination at the facility. The Company, with professional
assistance, is investigating the existence,
8
<PAGE> 9
TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except share and per share amounts)
scope, nature and cause of the claimed contamination. Information
necessary to support a reasonable estimate of the scope of loss, if
any, is not presently available and, accordingly, no provision has
been made in accompanying financial statements. The Company, while not
conceding denial of coverage, has been advised by its insurers that
coverage is not available concerning this matter. While the Company,
based on its initial assessment of the situation, believes the
matter's ultimate resolution will not have a material adverse effect
on the Company's business or financial condition, if the Company were
ultimately required to remediate such contamination, the associated
costs could have a material adverse effect on results of operations
for one or more quarters in which the associated charge(s) would be
taken. In management's opinion, all other such outstanding matters
have either been reflected in the consolidated financial statements,
are covered by insurance or would not have a material adverse effect
on the Company's business, consolidated financial position or results
of operations or cash flows.
7. Short-Term Financing
The Company had no borrowings outstanding under its $100,000 credit
agreement at December 31, 1996, and was in compliance with all
restrictive covenants contained in the agreement at December 31, 1996.
The Company had $2,065 outstanding under its $20,000 business purpose
revolving promissory note at December 31, 1996. At December 31, 1996,
the note was bearing interest at an annual rate of 6.75%.
8. Income Taxes
The Company's consolidated effective income tax rate reflects income
before taxes plus non-deductible goodwill amortization and the tax
effect of non-recurring charges related to the redesign of certain of
the Company's international operations, which sum is multiplied by the
United States statutory rate and increased by foreign rate
differentials.
The increase in the Company's third quarter fiscal 1997 consolidated
effective income tax rate from the rate experienced during the same
period in fiscal 1996 is primarily due to the increase in foreign
income taxed at higher foreign tax rates, the tax effect of
non-recurring charges related to the redesign of certain of the
Company's international operations and the decrease in U.S. taxable
income without decreases in non-deductible reconciling items such as
goodwill amortization.
The decrease in the Company's consolidated effective income tax rate
and the corresponding reduction of tax benefits recognized for the
first nine months of fiscal 1997 from the rate experienced during
the same period in fiscal 1996 is primarily due to the decrease in
U.S. taxable income and the tax effect of non-recurring charges
related to the redesign of certain of the Company's international
operations without decreases in non-deductible reconciling items
such as goodwill amortization.
9
<PAGE> 10
TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except share and per share amounts)
9. Divestiture
Effective December 31, 1996, the Company sold substantially all of the
assets of its Itronix Corporation subsidiary, with a net book value of
$30.7 million, as well as all of the subsidiary's associated business,
for $65.5 million in cash, plus the assumption by the buyer of certain
specified liabilities of the transferred business totaling $8.3
million. The transaction resulted in a $35.2 million gain, net of
transaction costs of $7.9 million, and has been recorded as
non-operating income in the fiscal 1997 Consolidated Statement of
Operations. The cash purchase price is subject to possible adjustment
based upon an audit of the Itronix balance sheet as of the December 31,
1996 closing date, and the buyer is entitled to customary
indemnification from the Company with respect to retained liabilities
and, through March 31, 1998, to the Company's representations,
warranties and covenants in the sale agreement. Under the terms of the
sale, the Company is precluded from competing with the buyer in the
manufacture and sale of ruggedized notebook computers for a period of
five years after the date of sale, other than the Company's resale of
products obtained from the buyer under a mutual reseller agreement.
10. Subsequent Transactions and Events
Subsequent to December 31, 1996, the Company re-issued 33,806 shares of
treasury stock to satisfy purchases made by employees through the
Telxon Corporation 1995 Employee Stock Purchase Plan.
Subsequent to December 31, 1996, the Company repurchased 155,000 shares
of its common stock pursuant to its open market repurchase program
announced in June, 1996. Under this program, a total of 255,000 shares
have been repurchased.
11. Reclassifications
Certain items in the fiscal 1996 consolidated financial statements and
notes thereto have been reclassified to conform to the fiscal 1997
presentation.
10
<PAGE> 11
TELXON CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
IN ADDITION TO DISCUSSING AND ANALYZING THE COMPANY'S RECENT HISTORICAL
FINANCIAL RESULTS AND CONDITION, THE FOLLOWING MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INCLUDES
STATEMENTS CONCERNING CERTAIN TRENDS AND OTHER FORWARD-LOOKING
INFORMATION AFFECTING OR RELATING TO THE COMPANY WHICH ARE INTENDED TO
QUALIFY FOR THE PROTECTIONS AFFORDED "FORWARD-LOOKING STATEMENTS" UNDER
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, PUBLIC LAW
104-67. THE FORWARD-LOOKING STATEMENTS MADE HEREIN AND ELSEWHERE IN
THIS FORM 10-Q ARE INHERENTLY SUBJECT TO RISKS AND UNCERTAINTIES WHICH
COULD CAUSE THE COMPANY'S ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE
FORWARD-LOOKING STATEMENTS. SEE "FACTORS THAT MAY AFFECT FUTURE
RESULTS" BELOW AND CAUTIONARY STATEMENTS APPEARING UNDER "ITEM 1.
BUSINESS" AND ELSEWHERE IN THE FORM 10-K FILED BY THE COMPANY WITH
RESPECT TO ITS FISCAL YEAR ENDED MARCH 31, 1996 FOR A DISCUSSION OF THE
IMPORTANT FACTORS AFFECTING THE REALIZATION OF THOSE RESULTS.
OVERVIEW
The Company's results for the first nine months of fiscal 1997 were in
line with earlier expectations as the Company recorded slightly higher
revenue levels in comparison to the same period in the prior year and a
loss (including certain non-recurring charges discussed below) of $.45
per share. For the third quarter ended December 31, 1996, the Company
recorded net income (including a non-operating gain from the
disposition of a subsidiary, net of non-recurring charges during the
quarter) of $2.1 million, or $.13 per share. The Company anticipates
continued profitability from operations in the fourth quarter of fiscal
1997 as it continues to benefit from the implementation of certain cost
reduction and efficiency improvement initiatives. Those initiatives
include streamlining the Company's product line, improving its
manufacturing operations, workforce reductions and early retirements.
The Company will continue to review all aspects of its business and may
take further actions to achieve more effective and efficient operations
which could result in non-recurring charges in addition to those
recorded in the first nine months of fiscal 1997.
The Company's continuing strategic objectives are to increase both
revenues from continuing operations and market penetration in targeted
markets while reducing costs as a percentage of total revenues, to
drive new product development and use vertical systems groups to expand
in targeted markets. The Company's goal is to deliver profitable growth
from its core businesses and markets and increased stockholder value
over the long term.
The Company operates in a rapidly changing and dynamic market, and the
Company's strategies and plans are designed to adapt to changing market
conditions where and when possible. However, there can be no assurance
that the Company's strategies and plans will take into account all
market conditions and changes thereto or that they will be successfully
implemented. Accordingly, the historical results presented in the
Company's consolidated financial statements and discussed herein are
not necessarily indicative of future results. See "Factors That May
Affect Future Results" for a discussion of risk factors which may
affect the Company's future results of operations.
11
<PAGE> 12
FACTORS THAT MAY AFFECT FUTURE RESULTS
The risks and other important factors which may affect the Company's
business, operating results, and financial and other conditions
include, without limitation, the following:
The Company's results of operations are affected by a variety of
factors, including economic conditions specific to the industries in
which it competes, decreases in average selling price over the life of
any particular product, the timing, manufacturing complexity and
expense of new product introductions (both by the Company and its
competitors), the timely implementation of new manufacturing
technologies, the ability to safeguard patents and other intellectual
property in a rapidly evolving market, the rapid increase in demand for
some products and the rapid decline in demand for others and the
Company's ability to anticipate and plan for that changing market
demand. Certain of these factors are beyond the Company's control.
The Company's expectations regarding future cost reductions and
profitability resulting from the streamlining of the Company's product
line and operations and the achievement of greater manufacturing
efficiencies are dependent upon the successful identification and
implementation of appropriate cost saving and operational efficiency
initiatives. To the extent that these measures are not fully and
successfully implemented or that their implementation is delayed, the
Company's ability to realize such cost reductions and profitability may
be materially adversely affected.
Historically, the Company's shipments during any particular quarter
generally represent orders received either during that quarter or
shortly before the beginning of that quarter. The Company endeavors to
maintain sufficient levels of purchased components to meet the delivery
requirements of its customers. However, there can be no assurance that
during any given quarter, the Company has or can procure the
appropriate mix of purchased components to accommodate any given order.
Therefore, the Company's financial performance in any quarter is
dependent to a significant degree upon obtaining orders which can be
manufactured and delivered to its customers in that quarter. Financial
performance for any given quarter cannot be known or fully assessed
until near the end of that quarter.
The Company has also historically recognized a substantial portion of
its product revenues in the last month of each quarter. A significant
portion of the Company's expenses are relatively fixed, and timing of
increases in such expenses is based in large part on the Company's
forecast of future revenues. As a result, if revenues do not meet
expectations, the Company may be unable to quickly adjust expenses to
levels appropriate to actual revenues, which could have a materially
adverse effect on the Company's results of operations.
The markets in which the Company competes are intensely competitive and
characterized by increasingly rapid technological change, introduction
of new products with improved performance characteristics, product
obsolescence and price erosion. Failure to keep pace with product and
technological advances could negatively affect the Company's
competitive position and prospects for growth. Customers' anticipation
of new or enhanced product offerings by the Company or a competitor may
lead them to defer purchases of the Company's existing products.
In addition, companies that are
12
<PAGE> 13
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.
The Company's future success depends on its ability to develop and
rapidly bring to market technologically advanced products. From time to
time the Company invests in development stage and other entities who
possess or who could potentially possess strategically important
technologies. Due to the nature of these entities and their operations,
there can be no assurance that these investments will be realizable or
will result in marketable and/or successful products. There can be no
assurance that the Company's research and development activities will
lead to the commercially successful introduction of new or improved
products or that the Company will not encounter delays or problems in
connection therewith. The cost of perfecting new and improved
technologies to satisfy customer quality and delivery expectations as
they are brought to market cannot always be fully anticipated and may
adversely affect Company operating profits during such introductions.
In addition, the average selling prices for computer products generally
decrease over the products' lives. To mitigate such decreases, the
Company seeks to reduce manufacturing costs of existing products and to
introduce new products, functions and other price/performance-enhancing
features. To the extent that these product enhancements do not occur on
a timely basis or do not result in a sufficient increase in sales
prices to end users, the Company's operating results could be
materially adversely affected.
To date, the Company's revenues have been concentrated in the retail
industry, historically representing over 50% of its total revenues. The
Company's future growth depends, in part, on its ability to
successfully penetrate and expand its revenues in new markets. There
can be no assurance that such penetration and expansion into new
markets can be achieved.
The Company believes its future success is also dependent, in part,
upon its ability to continue to enhance its product offerings through
internal development and the acquisition of new businesses and
technologies, but there can be no assurance that the Company will be
able to identify, acquire or profitably operate new businesses or
otherwise implement its growth strategy successfully. For the Company
to manage its growth and integrate any newly acquired entities, it must
continue to improve operations and financial and management information
systems and effectively motivate and manage employees. If the Company
is unable to successfully pursue and manage such growth, its business
and results of operations could be adversely affected. As in the case
of its recent disposition of its Itronix subsidiary, and in the event
that, as part of its efforts to improve its operating efficiencies or
otherwise, the Company elects to divest itself of a majority or greater
interest in other of its technical subsidiaries, the Company's revenues
may be adversely affected.
The Company regards certain of its hardware and software technologies
as proprietary and relies on a combination of United States and foreign
patent, copyright, trademark and trade secret laws, as well as license
and other contractual confidentiality provisions, to protect its
proprietary rights. Despite the Company's efforts to safeguard its
proprietary rights, there can be no assurance that the Company will be
successful in doing so or that the Company's competitors will not
independently develop or patent technologies
13
<PAGE> 14
that are substantially equivalent or superior to or otherwise
circumvent the Company's technologies and proprietary rights.
The Company's products utilize hardware and software technologies
licensed from third parties. There can be no assurance that the Company
will be able to license needed technology in the future. An early
termination of certain of these license agreements (including patent
rights licensed from Symbol Technologies, Inc., one of its principal
competitors, necessary for the Company's manufacture and sale of its
integrated laser scanning terminals which account for a material
portion of the Company's current sales) could have a materially adverse
effect on the Company's ability to market certain of its products and,
hence, on its business, results of operations and financial condition.
The Company believes that its products, processes and trademarks do not
infringe on the rights of third parties, but third parties have
asserted, and there can be no assurance that they will not in the
future assert, infringement or other related claims against the Company
or its licensors. Any infringement claim or related litigation against
the Company, or any challenge to the validity of the Company's own
intellectual property rights, and the expense of defending the same
could materially adversely effect the Company's ability to market its
products and, hence, its business, results of operations and financial
condition.
Certain of the Company's products, sub-assemblies and components are
procured from a single source supplier, and others are procured from
only a limited number of suppliers. The Company has in the past
encountered, and may in the future encounter, shortages of supplies and
delays in deliveries of necessary components. Such shortages and delays
could have a materially adverse effect on the Company's ability to ship
products.
As a substantial portion of the Company's total revenues, ranging from
approximately 25%-30% in recent years, is from customers located
outside of the United States, the Company's results could be negatively
affected by global and regional economic conditions, changes in foreign
currency exchange rates, trade protection measures, regulatory
acceptance of the Company's products in foreign countries, longer
accounts receivable collection patterns and other considerations
peculiar to the conduct of international business. Additionally, as
certain of its products, components and sub-assemblies are purchased
from outside the United States, the Company is subject to similar risks
in those procurement activities.
Certain of the Company's products intentionally transmit radio signals
as part of their normal operation. These products are subject to
regulatory approval, restrictions on the use of certain frequencies and
the creation of interference, and other requirements by the Federal
Communications Commission and corresponding authorities in each country
in which they are marketed. Regulatory changes could significantly
impact the Company's operations by restricting the Company's
development efforts, making current products obsolete or increasing the
opportunity for additional competition. The intentional emission of
electromagnetic radiation has also been the subject of recent public
concern regarding possible health and safety risks, and though the
Company believes that the low power output and the distance typically
maintained between a product and the user means that its products do
not pose material safety concerns, there can be no assurance that such
safety issues will not arise in the future and will not have a
materially adverse effect on the Company's business.
14
<PAGE> 15
Among other things, the Company's future success depends in large part
on the continued service of its key technical, marketing and management
personnel and on its ability to continue to attract and retain
qualified employees, particularly those highly skilled design, process
and test engineers involved in the manufacture of existing products and
the development of products and processes. The competition for such
personnel is intense, and the loss of key employees could have a
materially adverse effect on the Company's business, financial
condition and results of operations.
In addition to the factors discussed above and elsewhere in this Form
10-Q which may adversely affect the Company's conduct of its business
and the results thereof, the Company's financial condition is also
subject to the possible adverse effects of certain pending litigation
and other contingencies discussed above under Note 6 to the
consolidated financial statements included in Part I - Item 1 above.
RESULTS OF OPERATIONS
Revenues
--------
Total consolidated revenues for the third quarter of fiscal 1997
decreased $7.5 million or 6% while consolidated revenues for the first
nine months of fiscal 1997 increased $2.7 million or 1% over the same
periods in fiscal 1996.
Third quarter fiscal 1997 consolidated product revenues decreased $8.2
million or 7% from results recorded during the same period in the prior
year, while consolidated product revenues for the first nine months of
fiscal 1997 decreased $2.9 million or 1% over fiscal 1996's same period
results. Product revenues include the sale of pen-based and
touch-screen workslates, rugged wireless mobile computers and other
portable tele-transaction computer ("PTC") units, hardware accessories,
custom application software and software licenses, and a variety of
professional services, including system integration and project
management. The decrease in product revenues experienced in the third
quarter and first nine months of fiscal 1997 was primarily due to a
decrease in PTC unit volume that was partially offset by an increase in
the average selling price per PTC unit as the sales mix continued to
trend towards more comprehensive products and systems. The Company's
former technical subsidiary Itronix Corporation, a designer, developer
and manufacturer of rugged wireless portable microcomputers which was
sold effective December 31, 1996, recorded total product revenues of
$21.8 million and $62.6 million during the third quarter and first nine
months of fiscal 1997, respectively, and was a significant contributor
to the increase in average selling price per PTC. Itronix had total
product revenues of $21.3 million and $30.6 million in the third
quarter and first nine months of fiscal 1996, respectively.
Customer service revenues for the third quarter and first nine months
of fiscal 1997 increased $.7 million or 4% and $5.6 million or 11%,
respectively, as compared to the same periods in fiscal 1996. These
revenue increases were primarily due to volume increases and growth in
the installed base of the Company's products.
Revenues for the Company's international operations (including Canada)
for the third quarter and first nine months of fiscal 1997 increased
$2.9
15
<PAGE> 16
million or 9% and $9.1 million or 10%, respectively, as compared to
the same periods in fiscal 1996. Changes in currency exchange rates
and intercompany hedging activities did not materially affect the
results of the Company's international operations.
The Company anticipates increased consolidated revenues from continuing
operations in the fourth quarter of fiscal 1997 from third quarter
fiscal 1997 levels. Revenue from continuing operations excludes revenue
from the Company's former Itronix subsidiary, which amounted to $22.3
million and $63.8 million, respectively, in the third quarter and
first nine months of fiscal 1997.
Costs of Revenues
-----------------
Consolidated product gross margin for the third quarter of fiscal 1997
decreased to 27% as compared to 40% for the same period in fiscal 1996
while the consolidated product gross margin for the first nine months
of fiscal 1997 decreased to 29% as compared to 41% for the same period
in fiscal 1996.
The decrease in the third quarter of fiscal 1997 consolidated product
gross margins from those recorded during the same period in fiscal 1996
was primarily due to certain non-recurring charges recorded during the
third quarter of fiscal 1997. These non-recurring items, which include
provisions for the decreased carrying value of the Company's
inventories affected by the streamlining of its product lines and
charges related to the Company's workforce reduction and early
retirement initiatives, accounted for approximately $9.4 million and
$1.7 million or 12% and 2%, respectively, of the consolidated cost of
product revenue for the third quarter of fiscal 1997 as compared with
the same period in fiscal 1996. In addition to the non-recurring
charges recorded in the third quarter of fiscal 1997, which accounted
for approximately 5% of the consolidated cost of product revenues for
the first nine months of fiscal 1997, consolidated product gross
margins for the first nine months of fiscal 1997 were reduced from
those recorded during the same period in fiscal 1996 by the mix of
large-volume/low margin business, higher costs on early stage rollouts
of new products, and additional inventory and customer allowances
provisions recorded during the first half of fiscal 1997. Included in
the fiscal 1996 results were revenues related to the sale of
non-exclusive software licenses and manufacturing rights to a
third-party business partner which increased the third quarter fiscal
1996 consolidated product gross margin by approximately 1%.
The Company anticipates the consolidated product gross margin to
increase from third quarter fiscal 1997 levels during the fourth
quarter of fiscal 1997 as a result of the absence of the aforementioned
third quarter non-recurring charges as well as the continued benefit of
the Company's implementation of certain cost reduction and efficiency
initiatives.
Consolidated customer service gross margin decreased to 30% during the
third quarter of fiscal 1997 from 43% during the same period in the
previous fiscal year. Consolidated customer service gross margin
decreased to 36% for the first nine months of fiscal 1997 as compared
to 43% for the same period in the previous fiscal year. The decrease in
the consolidated customer service gross margin during the third quarter
of fiscal 1997 was primarily due to certain non-recurring charges
recorded during the period as well as the increased direct material and
labor costs required to repair the
16
<PAGE> 17
Company's more sophisticated and complex products. These non-recurring
items, which include provisions for the decreased carrying value of
the Company's inventories affected by the streamlining of its product
lines and charges related to the consolidation of customer service
operations, accounted for approximately $.7 million and $.3 million or
5% and 2%, respectively, of the consolidated cost of customer service
revenues for the third quarter of fiscal 1997. The decrease in the
consolidated customer service gross margin for the first nine months
of fiscal 1997 was primarily due to increased direct material and
labor costs required to repair the Company's more sophisticated
products and also reflects the aforementioned third quarter
non-recurring charges, with the latter accounting for approximately 3%
of the consolidated cost of customer service revenues for the first
nine months of fiscal 1997.
The Company anticipates the consolidated customer service gross margin
to increase from third quarter fiscal 1997 levels during the fourth
quarter of fiscal 1997 as a result of the absence of the aforementioned
third quarter non-recurring charges as well as the continued benefit of
the Company's implementation of certain cost reduction and efficiency
initiatives.
Inventory valuation accounts for the third quarter of fiscal 1997 were
increased to provide for the decreased carrying value of the Company's
inventories affected by the streamlining of its product lines. As of
December 31, 1996, inventory valuation accounts increased to $18.0
million or 17% of gross inventory as compared to $10.1 million or 8% of
gross inventory as of March 31, 1996. The Company anticipates
continuing to provide for inventory obsolescence resulting from
technological change.
Operating Expenses
------------------
Selling expenses for the third quarter and first nine months of fiscal
1997 increased $6.2 million or 29% and $10.0 million or 17%,
respectively, as compared to the same periods in fiscal 1996. As a
percentage of revenues, selling expenses for the third quarter and
first nine months of fiscal 1997 increased 6% and 3%, respectively, as
compared to the same periods in fiscal 1996 and primarily reflect
certain non-recurring charges recorded during the third quarter of
fiscal 1997. These non-recurring items include charges related to the
redesign of the Company's worldwide distribution and logistics
operations as well as charges related to the Company's workforce
reduction and early retirement initiatives. These two items accounted
for approximately $3.6 million and $3.1 million or 13% and 11%,
respectively, of the selling expenses recorded during the third quarter
of fiscal 1997. In total, these non-recurring charges accounted for
approximately 10% of the selling expenses recorded during the first
nine months of fiscal 1997. The Company anticipates selling expenses to
decrease during the fourth quarter of fiscal 1997 from third quarter
fiscal 1997 levels as a result of the absence of the aforementioned
third quarter non-recurring charges, the continued benefit of the
Company's implementation of certain cost reduction initiatives, and the
elimination of selling expenses related to its former Itronix
subsidiary. Included in the Company's consolidated results for the
third quarter and first nine months of fiscal 1997 were approximately
$2.2 million and $6.2 million, respectively, of selling expenses
incurred by Itronix.
Product development and engineering expenses for the third quarter and
first nine months of fiscal 1997 increased $1.1 million or 9% and $.7
million or
17
<PAGE> 18
2%, respectively, as compared to the same periods in fiscal 1996. The
increase in third quarter product development and engineering expenses
is primarily attributable to certain non-recurring charges recorded
during the third quarter of fiscal 1997 that were partially offset by
the implementation of certain cost reduction initiatives. These
non-recurring items include charges related to the Company's workforce
reduction and early retirement initiatives as well as charges related
to the consolidation of certain product development and engineering
functions, and account for approximately $1.7 million and $.4 million
or 13% and 3%, respectively, of the product development and
engineering expenses recorded during the third quarter of fiscal 1997.
Included in the results of the first nine months of fiscal 1996 was a
$1.0 million reimbursement from a customer for certain development
expenses incurred by the Company specific to that customer. The
Company anticipates research and development activity, which includes
new and continued product development of wireless data communications
and spread spectrum technology, pen-based technology, augmented
reality hardware and software, advanced image reading and two
dimensional bar-code technology and other product improvements, to
decrease during the fourth quarter of fiscal 1997 from third quarter
fiscal 1997 levels as a result of the absence of the aforementioned
third quarter non-recurring charges, the continued benefit of the
Company's implementation of certain cost reduction initiatives, and
the elimination of product development and engineering expenses
related to its former Itronix subsidiary. Included in the Company's
consolidated results for the third quarter and first nine months of
fiscal 1997 were approximately $2.0 million and $5.2 million,
respectively, of product development and engineering expenses incurred
by Itronix.
The Company capitalized internal software development costs in
accordance with the requirements of SFAS No. 86 aggregating $1.3
million and $4.0 million during the third quarter and first nine months
of fiscal 1997, respectively. The Company anticipates the dollar amount
of internal software development costs to be capitalized during the
fourth quarter of fiscal 1997 to decrease from third quarter fiscal
1997 levels as a result of the reduction in force of certain software
development operations within the Company.
General and administrative expenses for the third quarter and first
nine months of fiscal 1997 increased $5.5 million or 51% and $8.9
million or 31%, respectively, as compared to the same periods in fiscal
1996. As a percentage of revenues, general and administrative expenses
for the third quarter and first nine months of fiscal 1997 increased
approximately 5% and 3%, respectively, as compared to the same periods
in fiscal 1996 and primarily reflect certain non-recurring charges
recorded during the third quarter of fiscal 1997. These non-recurring
items, which include charges related to the Company's workforce
reduction and early retirement initiatives, corporate information
systems, and certain consulting agreements, amounted to approximately
$5.9 million and accounted for approximately 36% and 15%, respectively,
of the general and administrative expenses recorded during the third
quarter and first nine months of fiscal 1997. The Company anticipates
general and administrative expenses to decrease during the fourth
quarter of fiscal 1997 from third quarter fiscal 1997 levels as a
result of the absence of the aforementioned third quarter
non-recurring charges, the continued benefit of the Company's
implementation of certain cost reduction initiatives, and the
elimination of general and administrative expenses related to its
former Itronix subsidiary. Included in the Company's consolidated
results for the third
18
<PAGE> 19
quarter and first nine months of fiscal 1997 were approximately $.5
million and $1.8 million, respectively, of general and administrative
expenses incurred by Itronix.
Income Taxes
------------
The Company's consolidated effective income tax rate for the third
quarter of fiscal 1997 was 78% as compared to 38% for the same period
in fiscal 1996, while the consolidated effective income tax rate for
the first nine months of fiscal 1997 was 21% as compared to 39% for the
same period in fiscal 1996. The consolidated effective income tax rate
reflects income before taxes plus non-deductible goodwill amortization
and the tax effect of non-recurring charges related to the redesign of
certain of the Company's international operations, which sum is
multiplied by the United States statutory rate and increased by foreign
rate differentials.
The increase in the Company's consolidated effective income tax rate
for the third quarter of fiscal 1997 as compared to the consolidated
effective income tax rate experienced during the same period in fiscal
1996 is due to the increase in foreign income taxed at higher foreign
tax rates, the tax effect of non-recurring charges related to the
redesign of certain of the Company's international operations and the
decrease in U.S. taxable income without decreases in non-deductible
reconciling items such as goodwill amortization.
The decrease in the consolidated effective income tax rate and the
corresponding reduction of tax benefits recognized for the first nine
months of fiscal 1997 as compared to the consolidated effective income
tax rate experienced during the same period in fiscal 1996 is due to
the decrease in U.S. taxable income and the tax effect of non-recurring
charges related to the redesign of certain of the Company's
international operations without decreases in non-deductible
reconciling items such as goodwill amortization.
The Company anticipates its consolidated effective income tax rate to
decrease in the fourth quarter of fiscal 1997 from the rate
experienced during the third quarter of fiscal 1997 due to the absence
of the tax effect of the non-recurring charges related to the redesign
of certain of the Company's international operations recorded during
the third quarter of fiscal 1997.
Other Non-Operating Transactions
--------------------------------
Effective December 31, 1996, the Company sold substantially all of the
assets of its Itronix Corporation subsidiary, with a net book value of
$30.7 million, as well as all of the subsidiary's associated business,
for $65.5 million in cash, plus the assumption by the buyer of certain
specified liabilities of the transferred business totaling $8.3
million. The transaction resulted in a $35.2 million gain, net of
transaction costs of $7.9 million, and has been recorded as
non-operating income in the fiscal 1997 Consolidated Statement of
Operations. The cash purchase price is subject to possible adjustment
based upon an audit of the Itronix balance sheet as of the December 31,
1996 closing date, and the buyer is entitled to customary
indemnification from the Company with respect to retained liabilities
and, through March 31, 1998, to the Company's representations,
warranties and covenants in the sale agreement. Under the terms of the
sale, the Company is precluded from competing with the buyer in the
manufacture and sale of ruggedized notebook computers for a period of
five years after the date of sale, other than the Company's resale of
products obtained from the buyer under a mutual reseller agreement.
19
<PAGE> 20
Liquidity
---------
At December 31, 1996, the Company had cash and cash equivalents of
$57.7 million, as compared to $34.8 million at March 31, 1996. The
Company's current ratio (current assets divided by current liabilities)
was 3.1:1 at December 31, 1996, as compared to 2.6:1 at March 31, 1996.
The Company's current ratio increased as working capital (current
assets less current liabilities) decreased slightly for the changes in
accounts receivable of $30.0 million, inventories of $25.2 million, and
notes payable of $2.0 million. These working capital decreases were
partially offset by increases resulting from changes in accounts
payable of $28.3 million and cash and cash equivalents of $22.9
million. Accounts receivable balances decreased from amounts recorded
at March 31, 1996, primarily due to the sale of the trade receivables
as part of the sale of the Company's former Itronix subsidiary.
Consolidated days sales outstanding, adjusted for the sale of the
Company's former Itronix subsidiary by excluding Itronix's results from
both comparative periods, decreased from 95 days at March 31, 1996, to
83 days at December 31, 1996. Inventory levels, in total, decreased at
December 31, 1996, as compared to those recorded at March 31, 1996,
primarily due to the Company's reduced procurement requirements
resulting from the implementation of product streamlining initiatives
as well as the sale of the inventory of the Company's former Itronix
subsidiary. Accounts payable decreased primarily due to decreased
manufacturing inventory procurement and increased payments to vendors.
The Company believes that available cash and cash equivalents,
internally generated funds and credit availability will be sufficient
to meet working capital requirements for the next twelve months.
Cash Flows from Operating Activities
------------------------------------
Net cash used in operating activities was $25.3 million for the nine
months ended December 31, 1996, as compared to net cash used in
operating activities of $56.7 million for the same period in fiscal
1996. Cash flows for the first nine months of fiscal 1997, as compared
to the same period in fiscal 1996, were positively effected by the
change in cash flow impacts of accounts and notes receivable of $81.1
million, inventories of $22.7 million, non-cash charges of $11.7
million, trading securities of $3.0 million and other positive cash
flow items aggregating $2.0 million. These positive impacts were offset
by negative cash flow impacts for the gain on the sale of the Itronix
assets of $35.2 million, accounts payable and accrued liabilities of
$29.9 million, $16.6 million reduction in net earnings, intangible and
other assets of $3.8 million, prepaid expenses of $1.7 million, and
other items aggregating $2.0 million.
Investing Activities
--------------------
Net cash provided by investing activities during the nine months ended
December 31, 1996, increased $69.0 million from net cash used during
the same period in fiscal 1996, primarily due to the receipt of $65.7
million in cash proceeds from the sale of the Itronix assets during the
first nine months of fiscal 1997. The Company invested $10.9 million in
capital equipment during the first nine months of fiscal 1997, a
decrease of $5.3 million as compared to the same period of fiscal 1996.
Software investments in the first nine months of fiscal 1997 totaled
$5.1 million, an increase of $4.3 million over the same period in the
prior year, while payments related to acquisitions
20
<PAGE> 21
decreased $2.4 million from amounts recorded in the first nine months
of fiscal 1996.
Financing Activities
--------------------
Cash flows from financing activities decreased $70.8 million during the
first nine months of fiscal 1997 as compared with the same period in
fiscal 1996. The decrease in cash flows from financing activities for
the first nine months of fiscal 1997 was primarily due to the absence
of $82.5 million in proceeds from the issuance of convertible
subordinated notes recorded during the same period in fiscal 1996 and
the cash flow impact of the $4.5 million decrease in proceeds from the
exercise of stock options, partially offset by the cash flow impact of
the $17.5 million increase in borrowings on notes payable.
Non-Cash Transactions
---------------------
Effective April 1, 1996, the Company sold certain retail application
software operations, with net assets of approximately $5.0 million, to
a third-party for $6.4 million. Of the $6.4 million sale price, $.2
million was received in cash, while the balance was received in the
form of secured promissory notes receivable and has been excluded from
the fiscal 1997 Consolidated Statement of Cash Flows as a non-cash
investing transaction. Although no gain has been recorded as of
December 31, 1996 as a result of this transaction, the Company will
recognize gain from the sale as cash proceeds are received.
Effective July 16, 1996, the Company re-issued 41,754 shares of
treasury stock, with a weighted average price per share of $10.43, to
satisfy purchases made by employees through the Telxon Corporation 1995
Employee Stock Purchase Plan for a price of $11.75 per share. The sale
of these treasury shares, which were purchased by Plan participants
through payroll deductions, has been excluded from the fiscal 1997
Consolidated Statement of Cash Flows as a non-cash financing
transaction.
Subsequent Events
-----------------
Subsequent to December 31, 1996, the Company re-issued 33,806 shares of
treasury stock to satisfy purchases made by employees through the
Telxon Corporation 1995 Employee Stock Purchase Plan.
Subsequent to December 31, 1996, the Company repurchased 155,000 shares
of its common stock pursuant to its open market repurchase program
announced in June 1996. Under this program, a total of 255,000 shares
have been repurchased.
21
<PAGE> 22
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- --------------------------
See Note 6 to the consolidated financial statements included in Part I of this
Quarterly Report on Form 10-Q for a discussion of the material pending legal
proceedings to which the Company is a party, which footnote discussion is
incorporated in this Part II by this reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) Exhibits required by Item 601 of Regulation S-K:
2 Asset Purchase Agreement by and among Dynatech
Corporation, IAQ Corporation, the Registrant and
Itronix Corporation, a wholly owned subsidiary of
the Registrant, dated as of December 28, 1996,
incorporated herein by reference to Exhibit 2 to
Registrant's Current Report on Form 8-K dated
December 31, 1996.
3.1 Restated Certificate of Incorporation of
Registrant, incorporated herein by reference to
Exhibit No. 3.1 to Registrant's Form 10-K for the
year ended March 31, 1993.
3.2 Amended and Restated By-Laws of Registrant, as
amended, incorporated herein by reference to
Exhibit No. 2(b) to Registrant's Registration
Statement on Form 8-A with respect to its Common
Stock filed pursuant to Section 12(g) of the
Securities Exchange Act, as amended by Amendment
No. 1 thereto filed under cover of a Form 8 and
Amendment No. 2 thereto filed on Form 8-A/A.
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 herein by
reference to Exhibit 3.1 to Registrant's Form 10-K
for the year ended March 31, 1993.
4.2 Text of form of Certificate for the Registrant's
Common Stock, par value $.01 per share, and
description of graphic and image material appearing
thereon, incorporated herein by reference to
Exhibit 4.2 to the Registrant's Form 10-Q for the
quarter ended June 30, 1995.
4.3 Rights Agreement between Registrant and KeyBank
National Association, as Rights Agent, dated as of
August 25, 1987, as amended and restated as of July
31, 1996, incorporated herein by reference to
Exhibit 4 to Registrant's Current Report on Form
8-K dated August 5, 1996.
4.3.1 Form of Rights Certificate (included as
Exhibit A to the Rights Agreement
included as Exhibit 4.3 above). 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 text of which and description
22
<PAGE> 23
thereof is included as Exhibit 4.2
above, 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 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 Registrant's 7-1/2%
Convertible Subordinated Debentures
Due 2012 (set forth in the Indenture
included as Exhibit 4.4 above).
4.5 Indenture by and between the Registrant and Bank
One Trust Company, N.A., as Trustee, dated as of
December 1, 1995, regarding Registrant's 5-3/4%
Convertible Subordinated Notes due 2003,
incorporated herein by reference to Exhibit 4.1 to
Registrant's Registration Statement on Form S-3,
Registration No. 333-1189, filed February 23, 1996.
4.5.1 Form of Registrant's 5-3/4%
Convertible Subordinated Notes due
2003 issued under the Indenture
included as Exhibit 4.5 above,
incorporated herein by reference to
Exhibit 4.2 to Registrant's
Registration Statement on Form S-3,
Registration No. 333-1189,
filed February 23, 1996.
4.5.2 Registration Rights Agreement by and
among the Registrant and Hambrecht &
Quist LLC and Prudential Securities
Incorporated, as the Initial
Purchasers of Registrant's 5-3/4%
Convertible Subordinated Notes due
2003, with respect to the
registration of said Notes under
applicable securities laws,
incorporated herein by reference to
Exhibit 4.3 to Registrant's
Registration Statement on Form S-3,
Registration No. 333-1189, filed
February 23, 1996.
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, incorporated herein by
reference to Exhibit 10.1.1 to
Registrant's Form 10-K for the year
ended March 31, 1994.
10.1.1.a Amendment, dated
January 1, 1994,
to the Plan
included as
Exhibit 10.1.1
above,
incorporated
herein by
reference to
Exhibit
23
<PAGE> 24
10.1.1.a to Registrant's
Form 10-K for the year
ended March 31, 1994.
10.1.1.b Amendment, dated April
1, 1994, to the Plan
included as Exhibit
10.1.1 above,
incorporated herein by
reference to Exhibit
10.1.1.b to Registrant's
Form 10-K for the year
ended March 31, 1994.
10.1.1.c Amendment, dated January
1, 1994, to the Plan
included as Exhibit
10.1.1 above,
incorporated herein by
reference to Exhibit
10.1.1.c to Registrant's
Form 10-Q for the
quarter ended December
31, 1994.
10.1.2 1990 Stock Option Plan for employees
of the Registrant, as amended,
incorporated herein by reference to
Exhibit 10.1.3 to Registrant's Form
10-Q for the quarter ended September
30, 1995.
10.1.3 1990 Stock Option Plan for
Non-Employee Directors of the
Registrant, as amended, incorporated
herein by reference to Exhibit
10.1.4 to Registrant's Form 10-Q for
the quarter ended September 30,
1995.
10.1.4 Non-Qualified Stock Option Agreement
between the Registrant and Raj
Reddy, dated as of October 17, 1988,
incorporated herein by reference to
Exhibit 10.1.6 to Registrant's
Form 10-K for the year ended March
31, 1994.
10.1.4.a Description of amendment
extending the term of
the Agreement included
as Exhibit 10.1.4 above,
incorporated herein by
reference to Exhibit
10.1.6.a to Registrant's
Form 10-Q for the
quarter ended September
30, 1994.
10.1.5 1992 Restricted Stock Plan of the
Registrant, incorporated herein by
reference to Exhibit 10.1.17 to the
Registrant's Form 10-Q for the
quarter ended December 31, 1993.
10.1.5.a Amendment, dated
December 7, 1993, to the
Plan included as Exhibit
10.1.5 above,
incorporated herein by
reference to Exhibit
10.1.17.a to the
Registrant's Form 10-Q
for the quarter ended
December 31, 1993.
10.1.5.b Amendment, dated July
18, 1994, to the Plan
included as Exhibit
10.1.5 above,
incorporated herein by
reference to Exhibit
10.1.17.b to
Registrant's Form 10-Q
for the quarter ended
September 30, 1994.
10.1.6 1995 Employee Stock Purchase Plan of
the Registrant, as amended,
incorporated herein by reference to
24
<PAGE> 25
Exhibit 10.1.7 to Registrant's Form
10-Q for the quarter ended September
30, 1995.
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
10.1.7 to Registrant's Form 10-Q for
the quarter ended June 30, 1995.
10.1.8 Employment Agreement between Telxon
Products, Inc., a wholly owned
subsidiary of the Registrant, and
Dan R. Wipff, dated September 29,
1994, incorporated herein by
reference to Exhibit 10.1.8 to
Registrant's Form 10-Q for the
quarter ended September 30, 1994.
10.1.9 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 for the
quarter ended December 31, 1992.
10.1.10 Employment Agreement between the
Registrant and Frank Brick,
effective as of October 15, 1993,
incorporated herein by reference to
Exhibit 10.1.16 on Registrant's Form
10-Q for the quarter ended September
30, 1994.
10.2 Material Leases of the Registrant.
10.2.1 Lease between Registrant and 3330 W.
Market Properties, dated as of
December 30, 1986, incorporated
herein by reference to Exhibit
10.2.1 to Registrant's Form 10-K for
the year ended March 31, 1994.
10.2.2 Standard Office Lease (Modified Net
Lease) between Registrant and John
D. Dellagnese III, dated as of July
19, 1995, including an Addendum
thereto, incorporated herein by
reference to Exhibit 10.2.4 to
Registrant's Form 10-K for the year
ended March 31, 1996.
10.2.2.a Second Addendum,
dated as of
October 5, 1995,
to the Lease
included as
Exhibit 10.2.2
above,
incorporated
herein by
reference to
Exhibit 10.2.4.a
to Registrant's
Form 10-K for the
year ended March
31, 1996.
10.2.2.b Third Addendum,
dated as of March
1, 1996, to the
Lease included as
Exhibit 10.2.2
above,
incorporated
herein by
reference to
Exhibit 10.2.4.b
to Registrant's
Form 10-K for the
year ended March
31, 1996.
10.3 Credit Agreements of the Registrant.
25
<PAGE> 26
10.3.1 Amended and Restated Revolving
Credit, Term Loan and Security
Agreement between the Registrant and
the Bank of New York Commercial
Corporation, dated as of March 31,
1995 (replaced by the revolving
credit facility established by the
Agreement included as Exhibit 10.3.2
below), incorporated herein by
reference to Exhibit 10.3 to
Registrant's Form 10-K for the year
ended March 31, 1995.
10.3.1.a Amendment No. 1, dated
as of June 16, 1995, to
the Agreement included
as Exhibit 10.3.1 above,
incorporated herein by
reference to Exhibit
10.3.1 to Registrant's
Form 10-K for the year
ended March 31, 1995.
10.3.1.b Amendment No. 2, dated
as of December 1, 1995,
to the Agreement
included as Exhibit
10.3.1 above,
incorporated herein by
reference to Exhibit
10.3.1.b to Registrant's
Form 10-Q for the
quarter ended December
31, 1995.
10.3.2 Credit Agreement by and among the
Registrant, the lenders party
thereto from time to time and The
Bank of New York, as letter of
credit issuer, swing line lender and
agent for the lenders, dated as of
March 8, 1996 (replaced the
revolving credit and term loan
facility established by the
Agreement included as Exhibit 10.3.1
above, as amended by Amendments No.
1 and 2 thereto included as Exhibits
10.3.1.a and 10.3.1.b above),
incorporated herein by reference to
Exhibit 10.3.2 to Registrant's Form
10-K for the year ended March 31,
1996.
10.3.2.a Amendment No. 1, dated
as of August 6, 1996, to
the Agreement included
as Exhibit 10.3.2 above,
incorporated herein by
reference to Exhibit
10.3.2.a to Registrant's
Current Report on Form
8-K, dated August 16,
1996.
10.3.2.b Security Agreement,
dated as of August 6,
1996, by and among the
Registrant and The Bank
of New York, as Agent,
incorporated herein by
reference to Exhibit
10.3.2.b to Registrant's
Current Report on Form
8-K, dated August 16,
1996.
10.3.2.c Amendment No. 2, dated
as of December 16, 1996,
to the Agreement
included as Exhibit
10.3.2 above,
incorporated herein by
26
<PAGE> 27
reference to Exhibit
10.3.2.c to Registrant's
Current Report on Form
8-K dated December 16,
1996.
10.3.3 Business Purpose Revolving
Promissory Note made by the
Registrant in favor of Bank One,
Akron, N.A., dated September 8,
1995, and related Letter Agreement
between them of even date,
incorporated herein by reference to
Exhibit 10.3.2 to Registrant's Form
10-Q for the quarter ended September
30, 1995.
10.3.4 Business Purpose Revolving
Promissory Note made by the
Registrant in favor of Bank One,
Akron, N.A., dated November 24,
1995, and related Letter Agreement
between them dated November 22,
1995, incorporated herein by
reference to Exhibit 10.3.3 to
Registrant's Form 10-Q for the
quarter ended December 31, 1995.
10.3.5 Business Purpose Revolving
Promissory Note made by the
Registrant in favor of Bank One,
Akron, N.A., dated January 31, 1996,
and related Letter Agreement between
them dated of even date,
incorporated herein by reference to
Exhibit 10.3.4 to Registrant's Form
10-Q for the quarter ended December
31, 1995.
10.3.6 Business Purpose Revolving
Promissory Note made by the
Registrant in favor of Bank One,
Akron, N.A., dated February 29,
1996, and related Letter Agreement
between them dated of even date,
incorporated herein by reference to
Exhibit 10.3.6 to Registrant's Form
10-K for the year ended March 31,
1996.
10.3.7 Business Purpose Revolving
Promissory Note (Swing Line) made by
the Registrant in favor of Bank One,
Akron, N.A., dated March 20, 1996,
incorporated herein by reference to
Exhibit 10.3.7 to Registrant's Form
10-K for the year ended March 31,
1996.
10.3.8 Business Purpose Revolving
Promissory Note (Swing Line) made by
the Registrant in favor of Bank One,
Akron, N.A., dated August 6, 1996
(in replacement of the Note included
as Exhibit 10.3.7 above),
incorporated herein by reference to
Exhibit 10.3.8 to Registrant's
Current Report on Form 8-K, dated
August 16, 1996.
10.3.8.a Bank One Security
Agreement, dated as of
August 6, 1996, by and
among the Registrant and
Bank One, Akron, N.A.,
incorporated herein by
reference to Exhibit
10.3.8.a to Registrant's
Current Report on Form
8-K, dated August 16,
1996.
10.4 Amended and Restated Agreement between the
Registrant and Symbol Technologies, Inc., dated as
of September 30, 1992, incorporated
27
<PAGE> 28
herein by reference to Exhibit 10.4 to Registrant's
Form 10-K for the year ended March 31, 1993.
10.5 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 for the quarter ended December 31, 1992.
10.6 Agreement of Purchase and Sale of Assets by and
among Vision Newco, Inc., a wholly owned subsidiary
of the Registrant, Virtual Vision, Inc., as debtor
and debtor in possession, and the Official
Unsecured Creditors' Committee, on behalf of the
bankruptcy estate of Virtual Vision, dated as of
July 13, 1995, incorporated herein by reference to
Exhibit 10.8 to Registrant's Form 10-Q for the
quarter ended June 30, 1995.
10.7 Subscription Agreement by and among New Meta
Licensing Corporation, a subsidiary of the
Registrant, and certain officers of the Registrant
as Purchasers, dated as of September 19, 1995,
incorporated herein by reference to Exhibit 10.8 to
Registrant's Form 10-Q for the quarter ended
September 30, 1995.
10.8 Stock Purchase Agreement by and between Metanetics
Corporation, a subsidiary of the Registrant fka New
Meta Licensing Corporation, and Accipiter II, Inc.,
dated as of September 30, 1996, incorporated herein
by reference to Exhibit 10.8 to Registrant's Form
10-Q for the quarter ended September 30, 1996.
10.9 Shareholder Agreement by and among New Meta
Licensing Corporation, a subsidiary of the
Registrant, and its Shareholders, including the
officers of the Registrant party to the Agreement
included as Exhibit 10.7 above, dated as of
September 29, 1995, incorporated herein by
reference to Exhibit 10.9 to Registrant's Form 10-Q
for the quarter ended September 30, 1995.
10.9.1 First Amendment, dated as of
September 29, 1995, to the Agreement
included as Exhibit 10.9 above,
incorporated herein by reference to
Exhibit 10.9.1 to Registrant's Form
10-Q for the quarter ended December
31, 1995.
10.9.2 Second Amendment, dated as of
January, 1996, to the Agreement
included as Exhibit 10.9 above,
incorporated herein by reference to
Exhibit 10.9.2 to Registrant's Form
10-Q for the quarter ended December
31, 1995.
10.9.3 Amended and Restated Shareholder
Agreement by and among Metanetics
Corporation (fka New Meta Licensing
Corporation) and its Shareholders,
dated as of March 28, 1996,
superseding the Agreement included
as Exhibit 10.9 above, as amended by
the First and Second Amendments
thereto included as Exhibits 10.9.1
and 10.9.2 above, incorporated
herein by reference to Exhibit
10.9.3 to Registrant's Form 10-K
filed for the year ended March 31,
1996.
28
<PAGE> 29
10.9.4 First Amendment, dated as of March
30, 1996, to the Agreement included
as Exhibit 10.9.3 above,
incorporated herein by reference to
Exhibit 10.9.4 to Registrant's Form
10-K for the year ended March 31,
1996.
11. Computation of Common Shares outstanding and earnings
per share for the nine months ended December 31, 1996
and 1995, filed herewith.
27. Financial Data Schedule as of December 31, 1996, filed
herewith.
(b) Reports on Form 8-K
During the fiscal quarter ended December 31, 1996 for which this
Quarterly Report on Form 10-K is filed, the Registrant filed a Current
Report on Form 8-K dated October 18, 1996, attaching the Registrant's
press release of that date which announced its financial results for
the second quarter and six months ended September 30, 1996 as well as
discussing the effects of its financial condition at that date under
the subordination provisions of the 5-3/4% Convertible Subordinated
Notes (the press release as incorporated into the Form 8-K included
consolidated balance sheets for the Registrant as of September 30, 1996
(unaudited), and March 31, 1996, and condensed consolidated statements
of income for the three-month and six-month periods (unaudited) ended
September 30, 1996 and 1995). In addition, subsequent to the end of the
December 31, 1996 fiscal quarter, the Registrant filed the following
Current Reports on Form 8-K: (i) Current Report dated December 16,
1996, reporting an amendment to the Company's primary credit facility
with The Bank of New York, as Agent for an eight-bank lending group;
and (ii) Current Report dated December 31, 1996, reporting the sale by
the Company of substantially all of the assets and all of the
associated business of its wholly owned Itronix Corporation subsidiary
to IAQ Corporation, a wholly owned subsidiary of Dynatech Corporation
(the "Buyer"), for approximately $65.5 million (included as Appendix A
in the Form 8-K were (1) a pro forma condensed balance sheet as of
September 30, 1996, giving effect to (A) the sale of substantially all
of the Itronix assets to, and the assumption of certain specified
Itronix liabilities by, the Buyer, and (B) related pro forma
adjustments, all as though the transaction occurred at September 30,
1996; and (2) unaudited pro forma condensed statements of operations
for the fiscal year ended March 31, 1996, and for the six months ended
September 30, 1996, giving effect to (A) the elimination of the results
of operations of the Registrant's Itronix subsidiary, as described in
Note (A), and (B) related pro forma adjustments, all as though the
transaction occurred on April 1, 1995).
29
<PAGE> 30
TELXON CORPORATION AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: February 13, 1997
TELXON CORPORATION
---------------------------------
(Registrant)
/s/ Kenneth W. Haver
----------------------------------
Kenneth W. Haver
Senior Vice President and
Chief Financial Officer
<PAGE> 31
TELXON CORPORATION
EXHIBITS TO
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1996
<PAGE> 32
INDEX TO EXHIBITS
-----------------
Where
Filed
-----
* 2 Asset Purchase Agreement by and among Dynatech
Corporation, IAQ Corporation, the Registrant and
Itronix Corporation, a wholly owned subsidiary of
the Registrant, dated as of December 28, 1996,
incorporated herein by reference to Exhibit 2 to
Registrant's Current Report on Form 8-K dated
December 31, 1996.
* 3.1 Restated Certificate of Incorporation of
Registrant, incorporated by reference to Exhibit
No. 3.1 to Registrant's Form 10-K for the year
ended March 31, 1993.
* 3.2 Amended and Restated By-Laws of Registrant, as
amended, incorporated by reference to Exhibit No.
2(b) to Registrant's Registration Statement on
Form 8-A with respect to its Common Stock filed
pursuant to Section 12(g) of the Securities
Exchange Act, as amended by Amendment No. 1
thereto filed under cover of a Form 8 and
Amendment No. 2 thereto filed on Form 8-A/A.
* 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 Form 10-K for the
year ended March 31, 1993.
* 4.2 Text of form of Certificate for the Registrant's
Common Stock, par value $.01 per share, and
description of graphic and image material
appearing thereon, incorporated herein by
reference to Exhibit 4.2 to Registrant's Form 10-Q
for the quarter ended June 30, 1995.
* 4.3 Rights Agreement between Registrant and KeyBank
National Association, as Rights Agent, dated as of
August 25, 1987, as amended and restated as of
July 31, 1996, incorporated herein by reference to
Exhibit 4 to Registrant's Current Report on Form
8-K, dated August 5, 1996.
* 4.3.1 Form of Rights Certificate (included
as Exhibit A to the Rights Agreement
included as Exhibit 4.3 above). 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 text of which and
description thereof is included as
Exhibit 4.2 above, 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.
<PAGE> 33
Where
Filed
------
* 4.4 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 Indenture
included as Exhibit 4.4 above).
* 4.5 Indenture by and between the Registrant and Bank
One Trust Company, N.A., as Trustee, dated as of
December 1, 1995, regarding Registrant's 5-3/4%
Convertible Subordinated Notes due 2003,
incorporated herein by reference to Exhibit 4.1 to
Registrant's Registration Statement on Form S-3,
Registration No. 333-1189, filed February 23,
1996.
* 4.5.1 Form of Registrant's 5-3/4% Convertible
Subordinated Notes due 2003 issued under
the Indenture included as Exhibit 4.5
above, incorporated herein by reference
to Exhibit 4.2 to Registrant's
Registration Statement on Form S-3,
Registration No. 333-1189,
filed February 23, 1996.
* 4.5.2 Registration Rights Agreement by and
among the Registrant and Hambrecht &
Quist LLC and Prudential Securities
Incorporated, as the Initial Purchasers
of Registrant's 5-3/4% Convertible
Subordinated Notes due 2003, with
respect to the registration of said
Notes under applicable securities laws,
incorporated herein by reference to
Exhibit 4.3 to Registrant's Registration
Statement on Form S-3, Registration No.
333-1189, filed February 23, 1996.
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,
incorporated herein by reference to
Exhibit 10.1.1 to Registrant's Form 10-K
for the year ended March 31, 1994.
* 10.1.1.a Amendment, dated January 1,
1994, to the Plan included
as Exhibit 10.1.1 above,
incorporated herein by
reference to Exhibit
10.1.1.a to Registrant's
Form 10-K for the year
ended March 31, 1994.
* 10.1.1.b Amendment, dated April 1,
1994, to the Plan included
as Exhibit 10.1.1 above,
incorporated herein by
reference to Exhibit
10.1.1.b to Registrant's
Form 10-K for the year
ended March 31, 1994.
<PAGE> 34
Where
Filed
-----
* 10.1.1.c Amendment, dated January 1,
1994, to the Plan included
as Exhibit 10.1.1 above,
incorporated herein by
reference to Exhibit
10.1.1.c to Registrant's
Form 10-Q for thequarter
ended December 31, 1994.
* 10.1.2 1990 Stock Option Plan for
employees of the Registrant, as
amended, incorporated herein by
reference to Exhibit 10.1.3 to
Registrant's Form 10-Q for the
quarter ended September 30, 1995.
* 10.1.3 1990 Stock Option Plan for Non-Employee
Directors of the Registrant, as amended,
incorporated herein by reference to
Exhibit 10.1.4 to Registrant's Form 10-Q
for the quarter ended September 30, 1995.
* 10.1.4 Non-Qualified Stock Option Agreement
between the Registrant and Raj Reddy,
dated as of October 17, 1988,
incorporated herein by reference to
Exhibit 10.1.6 to Registrant's Form 10-K
for the year ended March 31, 1994.
* 10.1.4.a Description of amendment
extending the term of the
Agreement included as
Exhibit 10.1.4 above,
incorporated herein by
reference to Exhibit
10.1.6.a to Registrant's
Form 10-Q for the quarter
ended September 30, 1994.
* 10.1.5 1992 Restricted Stock Plan of the
Registrant, incorporated herein by
reference to Exhibit 10.1.17 to the
Registrant's Form 10-Q for the quarter
ended December 31, 1993.
* 10.1.5.a Amendment, dated December
7, 1993, to the Plan
included as Exhibit 10.1.5
above, incorporated herein
by reference to Exhibit
10.1.17.a to the
Registrant's Form 10-Q for
the quarter ended December
31, 1993.
* 10.1.5.b Amendment, dated July 18,
1994, to the Plan included
as Exhibit 10.1.5 above,
incorporated herein by
reference to Exhibit
10.1.17.b to Registrant's
Form 10-Q for the quarter
ended September 30, 1994.
* 10.1.6 1995 Employee Stock Purchase Plan of the
Registrant, as amended, incorporated
herein by reference to Exhibit 10.1.7 to
Registrant's Form 10-Q for the quarter
ended September 30, 1995.
* 10.1.7 Description of compensation arrangements
between the Registrant and Robert F.
Meyerson, Chairman of the Board of
Registrant, incorporated herein by
reference
<PAGE> 35
Where
Filed
-----
to Exhibit 10.1.7 to Registrant's Form
10-Q for the quarter ended September 30,
1995.
* 10.1.8 Employment Agreement between Telxon
Products, Inc., a wholly owned subsidiary
of the Registrant, and Dan R. Wipff,
dated September 29, 1994, incorporated
herein by reference to Exhibit 10.1.8 to
Registrant's Form 10-Q for the quarter
ended September 30, 1994.
* 10.1.9 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 for the quarter
ended December 31, 1992.
* 10.1.10 Employment Agreement between the
Registrant and Frank Brick, effective as
of October 15, 1993, incorporated herein
by reference to Exhibit 10.1.16 on
Registrant's Form 10-Q for the quarter
ended September 30, 1994.
10.2 Material Leases of the Registrant.
* 10.2.1 Lease between Registrant and 3330 W.
Market Properties, dated as of December
30, 1986, incorporated herein by
reference to Exhibit 10.2.1 to
Registrant's Form 10-K for the year ended
March 31, 1994.
* 10.2.2 Standard Office Lease (Modified Net
Lease) between Registrant and John D.
Dellagnese III, dated as of July 19,
1995, including an Addendum thereto,
incorporated herein by reference to
Exhibit 10.2.4 to Registrant's Form 10-K
for the year ended March 31, 1996.
* 10.2.2.a Second Addendum, dated as
of October 5, 1995, to the
Lease included as Exhibit
10.2.2 above, incorporated
herein by reference to
Exhibit 10.2.4.a to
Registrant's Form 10-K for
the year ended March 31,
1996.
* 10.2.2.b Third Addendum, dated as of
March 1, 1996, to the Lease
included as Exhibit 10.2.2
above, incorporated herein
by reference to Exhibit
10.2.4.b to Registrant's
Form 10-K for the year
ended March 31, 1996.
* 10.3.1 Amended and Restated Revolving Credit,
Term Loan and Security Agreement between
the Registrant and the Bank of New York
Commercial Corporation, dated as of March
31, 1995 (replaced by the revolving
credit facility established by the
Agreement included as Exhibit 10.3.2
below), incorporated herein by reference
to
<PAGE> 36
Where
Filed
-----
Exhibit 10.3 to Registrant's Form
10-K for the year ended March 31, 1995.
* 10.3.1.a Amendment No. 1, dated as
of June 16, 1995, to the
Agreement included as
Exhibit 10.3.1 above,
incorporated herein by
reference to Exhibit 10.3.1
to Registrant's Form 10-K
for the year ended March
31, 1995.
* 10.3.1.b Amendment No. 2, dated as
of December 1, 1995, to the
Agreement included as
Exhibit 10.3.1 above,
incorporated herein by
reference to Exhibit
10.3.1.b to Registrant's
Form 10-Q for the quarter
ended December 31, 1995.
* 10.3.2 Credit Agreement by and among the
Registrant, the lenders party thereto
from time to time and The Bank of New
York, as letter of credit issuer, swing
line lender and agent for the lenders,
dated as of March 8, 1996 (replaced the
revolving credit and term loan facility
established by the Agreement included as
Exhibit 10.3.1 above, as amended by
Amendments No. 1 and 2 thereto included
as Exhibits 10.3.1.a and 10.3.1.b above),
incorporated herein by reference to
Exhibit 10.3.2 to Registrant's Form 10-K
for the year ended March 31, 1996.
* 10.3.2.a Amendment No. 1, dated as
of August 6, 1996, to the
Agreement included as
Exhibit 10.3.2 above,
incorporated herein by
reference to Exhibit
10.3.2.a to Registrant's
Current Report on Form 8-K,
dated August 16, 1996.
* 10.3.2.b Security Agreement, dated
as of August 6, 1996, by
and among the Registrant
and The Bank of New York,
as Agent, incorporated
herein by reference to
Exhibit 10.3.2.b to
Registrant's Current Report
on Form 8-K, dated August
16, 1996.
* 10.3.2.c Amendment No. 2, dated as
of December 16, 1996, to
the Agreement included as
Exhibit 10.3.2 above,
incorporated herein by
reference to Exhibit
10.3.2.c to Registrant's
Current Report on Form
8-K dated December 16,
1996.
<PAGE> 37
Where
Filed
-----
* 10.3.3 Business Purpose Revolving Promissory
Note made by the Registrant in favor of
Bank One, Akron, N.A., dated September 8,
1995, and related Letter Agreement
between them of even date, incorporated
herein by reference to Exhibit 10.3.2 to
Registrant's Form 10-Q for the quarter
ended September 30, 1995.
* 10.3.4 Business Purpose Revolving Promissory
Note made by the Registrant in favor of
Bank One, Akron, N.A., dated November 24,
1995, and related Letter Agreement
between them dated November 22, 1995,
incorporated herein by reference to
Exhibit 10.3.3 to Registrant's Form 10-Q
for the quarter ended December 31, 1995.
* 10.3.5 Business Purpose Revolving
Promissory Note made by the Registrant in
favor of Bank One, Akron, N.A., dated
January 31, 1996, and related Letter
Agreement between them dated of even
date, incorporated herein by reference to
Exhibit 10.3.4 to Registrant's Form
10-Q for the quarter ended December 31,
1995.
* 10.3.6 Business Purpose Revolving
Promissory Note made by the Registrant in
favor of Bank One, Akron, N.A., dated
February 29, 1996, and related Letter
Agreement between them dated of even
date, incorporated herein by reference to
Exhibit 10.3.6 to Registrant's Form
10-K for the year ended March 31, 1996.
* 10.3.7 Business Purpose Revolving
Promissory Note (Swing Line) made by the
Registrant in favor of Bank One, Akron,
N.A., dated March 20, 1996, incorporated
herein by reference to Exhibit 10.3.7 to
Registrant's Form 10-K for the year ended
March 31, 1996.
* 10.3.8 Business Purpose Revolving Promissory
Note (Swing Line) made by the Registrant
in favor of Bank One, Akron, N.A., dated
August 6, 1996 (in replacement of the
Note included as Exhibit 10.3.7 above),
incorporated herein by reference to
Exhibit 10.3.8 to Registrant's Current
Report on Form 8-K, dated August 16,
1996.
* 10.3.8.a Bank One Security
Agreement, dated as of
August 6, 1996, by and
among the Registrant and
Bank One, Akron, N.A.,
incorporated herein by
reference to Exhibit
10.3.8.a to Registrant's
Current Report on Form 8-K,
dated August 16, 1996.
* 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.
<PAGE> 38
Where
Filed
-----
* 10.5 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 for the quarter ended December 31, 1992.
* 10.6 Agreement of Purchase and Sale of Assets by and
among Vision Newco, Inc., a wholly owned subsidiary
of the Registrant, Virtual Vision, Inc., as debtor
and debtor in possession, and the Official Unsecured
Creditors' Committee, on behalf of the bankruptcy
estate of Virtual Vision, dated as of July 13, 1995,
incorporated herein by reference to Exhibit 10.8 to
Registrant's Form 10-Q for the quarter ended June
30, 1995.
* 10.7 Subscription Agreement by and among New Meta
Licensing Corporation, a subsidiary of the
Registrant, and certain officers of the Registrant
as Purchasers, dated as of September 19, 1995,
incorporated herein by reference to Exhibit 10.8 to
Registrant's Form 10-Q for the quarter ended
September 30, 1995.
* 10.8 Stock Purchase Agreement by and between Metanetics
Corporation, a subsidiary of the Registrant fka New
Meta Licensing Corporation, and Accipiter II, Inc.,
dated as of September 30, 1996, incorporated herein
by reference to Exhibit 10.8 to Registrant's Form
10-Q for the quarter ended September 30, 1996.
* 10.9 Shareholder Agreement by and among New Meta
Licensing Corporation, a subsidiary of the
Registrant, and its Shareholders, including the
officers of the Registrant party to the Agreement
included as Exhibit 10.7 above, dated as of
September 29, 1995, incorporated herein by reference
to Exhibit 10.9 to Registrant's Form 10-Q for the
quarter ended September 30, 1995.
* 10.9.1 First Amendment, dated as of September 29,
1995, to the Agreement included as Exhibit
10.9 above, incorporated herein by
reference to Exhibit 10.9.1 to
Registrant's Form 10-Q for the quarter
ended December 31, 1995.
* 10.9.2 Second Amendment, dated as of January,
1996, to the Agreement included as Exhibit
10.9 above, incorporated herein by
reference to Exhibit 10.9.2 to
Registrant's Form 10-Q for the quarter
ended December 31, 1995.
* 10.9.3 Amended and Restated Shareholder
Agreement by and among Metanetics
Corporation (fka New Meta Licensing
Corporation) and its Shareholders, dated
as of March 28, 1996, superseding the
Agreement included as Exhibit 10.9 above,
as amended by the First and Second
Amendments thereto included as Exhibits
10.9.1 and 10.9.2 above, incorporated
herein by reference to Exhibit 10.9.3 to
Registrant's Form 10-K for the year ended
March 31, 1996.
<PAGE> 39
Where
Filed
-----
* 10.9.4 First Amendment, dated as of March 30,
1996, to the Agreement included as Exhibit
10.9.3 above, incorporated herein by
reference to Exhibit 10.9.4 to
Registrant's Form 10-K for the year ended
March 31, 1996.
** 11. Computation of Common Shares outstanding and earnings per share for
the nine months ended December 31, 1996 and 1995, filed herewith.
** 27. Financial Data Schedule as of December 31, 1996, filed herewith.
- ----------
* Previously filed
** Filed herewith
<PAGE> 1
EXHIBIT 11
EXHIBIT (11)* TO REPORT ON FORM 10-Q
TELXON CORPORATION AND SUBSIDIARIES
COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE
(Dollars in Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended December 31, Ended December 31,
1996 1995 1996 1995
----------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Net income (loss) applicable to common shares $ 2,135 $ 4,205 $ (7,363) $ 9,245
=========== ========== ========= ==========
Weighted average common shares outstanding for the period 16,150 16,302 16,207 16,301
=========== ========== ========= ==========
Earnings (loss) per common share:
On the weighted average common
shares outstanding for the year ** $ .13 $ .26 $ (.45) $ .57
<FN>
* 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 5-3/4% Convertible Subordinated Notes and 7-1/2% Convertible
Subordinated Debentures were omitted from the fully diluted calculation
due to their antidilutive effect.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 57,706
<SECURITIES> 0
<RECEIVABLES> 115,345
<ALLOWANCES> 2,505
<INVENTORY> 85,945
<CURRENT-ASSETS> 266,425
<PP&E> 127,692
<DEPRECIATION> 81,278
<TOTAL-ASSETS> 351,799
<CURRENT-LIABILITIES> 85,656
<BONDS> 108,351
<COMMON> 161
0
0
<OTHER-SE> 155,292
<TOTAL-LIABILITY-AND-EQUITY> 351,799
<SALES> 288,494
<TOTAL-REVENUES> 344,272
<CGS> 204,915
<TOTAL-COSTS> 240,463
<OTHER-EXPENSES> 142,631
<LOSS-PROVISION> 947
<INTEREST-EXPENSE> 5,751
<INCOME-PRETAX> (9,324)
<INCOME-TAX> (1,961)
<INCOME-CONTINUING> (7,363)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,363)
<EPS-PRIMARY> (.45)
<EPS-DILUTED> (.45)
</TABLE>
