<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q/A
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the transition period from __________to __________
Commission file number 0-11402
TELXON CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 74-1666060
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
3330 West Market Street, Akron, Ohio 44333
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(330) 664-1000
----------------------------------------------------
(Registrant's telephone number, including area code)
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 June 30, 1998, there were 16,111,215 outstanding shares of the registrant's
$.01 par value Common Stock.
<PAGE> 2
This Amendment No. 1 on Form 10-Q/A (this "Amendment") amends and restates in
full the disclosures made by the registrant, Telxon Corporation ("Telxon", and
together with its subsidiaries, the "Company"), in response to "ITEM 1.
CONSOLIDATED FINANCIAL STATEMENTS" and "ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" in its Form 10-Q as
originally filed with the Securities and Exchange Commission (the "Commission")
via EDGAR transmission on August 13, 1998 (the "Original Filing"). The
disclosures responsive to all of the other Items in the Original Filing are
not affected by this Amendment but continue as set forth in the Original
Filing without change. Notwithstanding the foregoing, the disclosures in the
Original Filing, as amended by this Amendment, are subject to updating and
supplementation by the disclosures contained in the filings made by the Company
with the Commission for any period or as of any date subsequent to the quarter
ended June 30, 1998, covered by the Original Filing.
The purpose of this Amendment No. 1 is to make the following reclassification
and clarifications:
- -- In "ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS":
(i) To reclassify on the statement of operations the $1.95 million loss
resulting from transactions with a business partner from "Other non-operating
expense, net" to "Other operating items" in "Operating expenses" in order to
conform with the financial statement presentation to be used by the Company
in reporting its operating results for the quarter and six months ended
September 30, 1998.
(ii) To revise the discussion of those transactions with the business partner
in Note 9 "Subsidiary Stock and Other Transactions."
- -- In "Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS":
To revise the discussion under "Results of operations - Operating
expenses" of the transactions with a business partner.
- -- In "Item 6. EXHIBITS AND REPORTS ON FORM 8-K":
To include Exhibit 27.1 as of June 30, 1998, which serves to restate
Exhibit 27, as of June 30, 1998, filed with the Original Filing, for the
reclassification of the $1.95 million loss resulting from transactions with a
business partner.
2
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TELXON CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
IN THIS AMENDMENT NO. 1 ON FORM 10-Q/A
<TABLE>
<CAPTION>
Page No.
--------
PART I. FINANCIAL INFORMATION:
<S> <C>
Item 1: Consolidated Financial Statements
Balance Sheet.................................................................. 4
Statement of Operations........................................................ 5
Statement of Cash Flows........................................................ 6
Notes to Consolidated Financial Statements..................................... 7-11
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations............................................ 12-18
</TABLE>
3
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PART I. FINANCIAL INFORMATION
ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS
TELXON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands except per share amounts)
<TABLE>
<CAPTION>
June 30, March 31,
1998 1998
---------- ----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash (including cash equivalents of $1,000 and
$6,778) ............................................................................... $ 15,536 $ 27,500
Accounts receivable, net of allowance for
doubtful accounts of $1,152 and $1,142................................................... 136,826 125,739
Notes and other accounts receivable........................................................ 15,496 22,949
Inventories ............................................................................... 110,860 108,178
Prepaid expenses and other................................................................. 12,844 11,307
-------- --------
Total current assets.................................................................... 291,562 295,673
Property and equipment, net.................................................................. 58,398 52,108
Intangibles and other assets, net............................................................ 45,739 42,758
-------- --------
Total ................................................................................ $395,699 $390,539
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable.............................................................................. $ 25,005 $ 3,000
Capital lease obligations due within one year.............................................. 988 968
Accounts payable........................................................................... 45,621 58,634
Income taxes payable....................................................................... 1,729 3,390
Accrued liabilities........................................................................ 39,374 41,034
-------- --------
Total current liabilities............................................................... 112,717 107,026
Capital lease obligations.................................................................... 1,956 1,876
Convertible subordinated notes and debentures................................................ 106,913 107,224
Other long-term liabilities.................................................................. 5,525 6,897
-------- --------
Total liabilities....................................................................... 227,111 223,023
Minority interest............................................................................ 2,828 2,791
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, 16,230 and 16,219 shares issued....................................... 162 162
Additional paid-in capital................................................................. 88,213 87,994
Retained earnings.......................................................................... 85,233 85,053
Equity adjustment for foreign currency translation......................................... (5,112) (4,929)
Unearned compensation relating to restricted stock awards.................................. (415) (493)
Treasury stock; 119 and 162 shares of common stock at cost................................. (2,321) (3,062)
-------- --------
Total stockholders' equity.............................................................. 165,760 164,725
-------- --------
Commitments and contingencies................................................................ -- --
-------- --------
Total ............................................................................... $395,699 $390,539
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
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TELXON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended June 30,
1998 1997
--------------- ---------------
<S> <C> <C>
Revenues:
Product, net.............................................. $ 94,077 $ 86,691
Customer service, net..................................... 20,970 18,222
-------- --------
Total net revenues............................... 115,047 104,913
Cost of revenues:
Product................................................... 57,310 52,561
Customer service.......................................... 12,826 11,126
-------- --------
Total cost of revenues........................... 70,136 63,687
-------- --------
Gross profit.............................................. 44,911 41,226
Operating expenses:
Selling expenses.......................................... 21,361 18,100
Product development and engineering
expenses............................................. 8,930 9,126
General and administrative expenses....................... 9,436 9,703
Other operating items:
Take-over defense costs.............................. 1,749 --
Charge related to transactions with
business partner............................... 1,950 --
-------- --------
Total operating expenses......................... 43,426 36,929
-------- --------
Income from operations........................... 1,485 4,297
Interest income................................................ 179 498
Interest expense............................................... (1,713) (1,792)
Other non-operating expense, net............................... 460 (157)
-------- --------
Income before income taxes....................... 411 2,846
Provision for income taxes..................................... 165 1,252
-------- --------
Net income....................................... $ 246 $ 1,594
======== ========
Net income per common share:
Basic............................... $ .02 $ .10
======== ========
Diluted............................. $ .01 $ .10
======== ========
Average number of common shares outstanding:
Basic............................... 16,080 15,525
======== ========
Diluted............................. 16,924 15,783
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
5
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TELXON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30,
-------------------------------------------
1998 1997
----------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net income.................................................................... $ 246 $ 1,594
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization........................................ 6,034 5,941
Amortization of restricted stock
awards, net...................................................... 78 60
Provision for doubtful accounts...................................... 250 274
Provision for inventory obsolescence................................. 1,301 2,018
Deferred income taxes................................................ 28 210
Loss on disposal of fixed assets..................................... 32 225
Minority interest.................................................... 37 31
Changes in assets and liabilities:
Accounts and notes receivable................................... (7,049) 4,528
Inventories..................................................... (3,921) (3,862)
Prepaid expenses and other...................................... (1,547) (146)
Intangibles and other assets.................................... (312) (307)
Accounts payable and accrued liabilities........................ (16,564) (19,133)
Other long-term liabilities..................................... (1,373) 58
----------------- -----------------
Total adjustments..................................... (23,006) (10,103)
----------------- -----------------
Net cash used in operating activities......................................... (22,760) (8,509)
Cash flows from investing activities:
Additions to property and equipment........................................... (9,868) (4,208)
Software investments.......................................................... (1,178) (1,290)
Proceeds from the sale of fixed assets........................................ - 866
Additions to long-term notes receivable....................................... (608) -
----------------- -----------------
Net cash used in investing activities......................................... (11,654) (4,632)
Cash flows from financing activities:
Borrowings (repayment) on notes payable, net.................................. 22,005 (50)
Principal payments on capital leases.......................................... (175) (157)
Purchase of treasury stock.................................................... - (3,256)
Proceeds from exercise of stock options
(includes tax benefit).................................................... 584 2,563
----------------- -----------------
Net cash provided by (used in) financing activities........................... 22,414 (900)
Effect of exchange rate changes on cash....................................... 36 (43)
----------------- -----------------
Net decrease in cash and cash equivalents..................................... (11,964) (14,084)
Cash and cash equivalents at beginning of period.............................. 27,500 45,386
----------------- -----------------
Cash and cash equivalents at end of period.................................... $ 15,536 $ 31,302
================= =================
</TABLE>
See accompanying notes to consolidated financial statements.
6
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TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share amounts)
1. Management Representation
The consolidated financial statements of Telxon Corporation ("Telxon")
and its subsidiaries (collectively with Telxon, the "Company") have
been prepared without audit and in accordance with the instructions to
Form 10-Q. In the opinion of the Company, all adjustments, consisting
of normal recurring adjustments necessary for a fair statement of
results for the interim periods, have been made. The operating results
for the three months ended June 30, 1998, are not necessarily
indicative of the results that may be achieved for the year ending
March 31, 1999. The statements, including the March 31, 1998, balance
sheet data derived from audited financial statements, do not include
all of the information and notes required by generally accepted
accounting principles for complete financial statements and should be
read in conjunction with the audited consolidated financial statements
as contained in the Company's Annual Report on Form 10-K, as amended by
Amendments No. 1 and No. 2 on Form 10-K/A, for the fiscal year ended
March 31, 1998.
2. Earnings Per Share
Computations of basic and diluted earnings per share of common stock
have been made in accordance with the Financial Accounting Standards
Board's (FASB) Statement of Financial Accounting Standards No. 128,
"Earnings Per Share". All securities having an anti-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.
Reconciliation of Numerators and Denominators
Of the Basic and Diluted EPS Computations
(Dollars in thousands except per share amounts)
In the following table, income represents the numerator and the shares represent
the denominator in the Earnings per Share Calculation.
<TABLE>
<CAPTION>
For the Quarter ended For the Quarter ended
June 30, 1998 June 30, 1997
---------------------------------- -----------------------------------
Per-Share Per-Share
Income Shares Amount Income Shares Amount
------ ------ ------ ------ ------ ------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net income $246 $1,594
BASIC EPS
Income available to
Common stockholders $246 16,080 $0.02 $1,594 15,525 $0.10
===== =====
EFFECT OF DILUTIVE SECURITIES
Options 844 258
DILUTED EPS
Income available to
Stockholders of common shares
and common stock equivalents $246 16,924 $0.01 $1,594 15,783 $0.10
==== ====== ===== ====== ====== =====
</TABLE>
Options to purchase 10,000 shares of common stock at a price of $34.00
per share were outstanding at June 30, 1998, but were not included in
the computation of diluted earnings per share because the options'
exercise price was greater that the average market price for the
common shares during fiscal 1999 to date. The shares issuable upon
conversion of Telxon's 5-3/4% Convertible Subordinated Notes and 7-1/2%
Convertible Subordinated Debentures were omitted from the diluted
earnings per share calculations because their inclusion at June 30,
1998 and 1997 would have had an anti-dilutive effect on earnings.
7
<PAGE> 8
As more fully described in Note 11 - Subsequent Events, subsequent to
June 30, 1998, Telxon re-issued 23,574 shares of treasury stock to
satisfy purchases made by employees through its 1995 Employee Stock
Purchase Plan and 5,544 shares of treasury stock to satisfy stock
options exercised under its stock option plans.
3. Comprehensive Income
Beginning with the first quarter of fiscal 1999, the Company is
required to adopt the provisions of the FASB's Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
No. 130"). SFAS No. 130 establishes standards for reporting
comprehensive income, which has been defined as the change in equity of
an entity during a period from transactions and other events and
circumstances from nonowner sources. SFAS No. 130 requires the
Company's foreign currency translation adjustment to be included in
other comprehensive income. Refer to the "Consolidated Statement of
Operations" for details of the components of net income.
Total comprehensive income consisted of the following:
<TABLE>
<CAPTION>
Three Months
Ended June 30,
--------------
1998 1997
---- ----
(Unaudited)
<S> <C> <C>
Net income $246 $1,594
Other comprehensive income:
Foreign Currency Translation Adjustment (183) (287)
----- ------
Total other comprehensive income (183) (287)
----- ------
Total comprehensive income $ 63 $1,307
===== ======
4. Inventories
Inventories consisted of the following:
June 30,
1998 March 31,
(Unaudited) 1998
----------- ----
Purchased components $ 53,474 $ 49,514
Work-in-process 35,341 37,375
Finished goods 22,045 21,289
-------- --------
$110,860 $108,178
======== ========
5. Accrued Liabilities
Accrued liabilities consisted of the following:
June 30,
1998 March 31,
(Unaudited) 1998
----------- ----
Deferred customer service revenues $15,227 $13,448
Accrued payroll and other employee compensation 8,710 12,353
Other accrued liabilities 15,437 15,233
------- -------
$39,374 $41,034
======= =======
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
6. Supplemental Cash Flow Information
Three Months
Ended June 30,
--------------
1998 1997
---- ----
(Unaudited)
Cash paid during the period for:
Interest $1,212 $ 1,104
Income taxes 2,156 1,289
</TABLE>
Capital lease additions of $276 for manufacturing equipment in fiscal
1999 have been excluded from the accompanying consolidated statement of
cash flows as a non-cash transaction.
7. Litigation and Contingencies
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 the Company derivatively on behalf of Telxon.
The named defendants are the Company; Robert F. Meyerson, former
Chairman of the Board, Chief Executive Officer and director; 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,
attorney's 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. 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, however, the claims
relating to breach of fiduciary duty survived the Motion to Dismiss.
On October 31, 1996, plaintiff's counsel filed a Motion to Intervene in
the derivative action on behalf of a new plaintiff stockholder. As part
of the Motion to Intervene, the intervening plaintiff asked that the
Court designate as operative for the action the intervening plaintiff's
proposed Complaint, which alleges that a series of transactions in
which the Company acquired technology from a corporation affiliated
with Mr. Meyerson was wrongful in that Telxon already owned the
technology by means of a pre-existing consulting agreement with another
affiliate of Mr. Meyerson; the intervenor's complaint also names
Raymond D. Meyo, President, Chief Executive Officer and director at the
time of the first acquisition transaction, as a new defendant. The
defendants opposed the Motion of grounds that the new claim alleged in
the proposed Complaint and the addition of Mr. Meyo were time-barred by
the statute of limitations and the intervening plaintiff did not
satisfy the standards for intervention. After taking legal briefs, the
Court ruled on June 13, 1997, to permit the intervention. On March 18,
1998, defendant Meyo filed a Motion for Judgement on the Pleadings (as
to himself), in response to which Plaintiff has filed his Answer and
Brief in Opposition, and which remains pending before the Court. The
post-intervention claims are the subject of ongoing discovery, and no
deadline for the completion of the discovery has yet been set by the
Court.
The defendants believe that the post-intervention claims lack merit,
and they intend to continue vigorously defending 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 and accordingly has not made
provisions for any loss or related insurance recovery in the
accompanying consolidated financial statements.
On February 17, 1998, a complaint was filed against the Company in the
District Court of Harris County, Texas, by Southwest Business
Properties, the landlord of the Company's former Wynnwood Lane facility
in Houston, Texas. The complaint alleges counts for breach of contract
and temporary and permanent injunctive relief, all related to alleged
environmental contamination at the Wynnwood property, and seeks
specific performance, unspecified monetary damages for all injuries
suffered by plaintiff, payment of pre-judgement interest, attorneys'
fees and costs and other unspecified relief. In its Answer, Telxon
denied plaintiff's allegations. No hearing has been had on, or is
currently scheduled for, plaintiff's claim for temporary injunctive
relief. Pursuant to the Court's Scheduling Order for this action, trial
is set for March 8, 1999. If the Company were ultimately to become
responsible for the alleged contamination, the associated
9
<PAGE> 10
loss could have a material adverse effect on results of operations for
one or more quarters in which the associated charge(s) would be taken.
Telxon believes that these claims lack merit, and it intends to
vigorously defend this action.
On May 8, 1998, two class action suits were filed in the Court of
Chancery of the State of Delaware, in and for the County of New Castle,
by certain alleged stockholders of Telxon on behalf of themselves and
purported classes consisting of Telxon stockholders, other than
defendants and their affiliates, relating to an alleged offer by Symbol
Technologies, Inc. ("Symbol") to acquire the Company. The named
defendants are Telxon and its current Board of Directors, namely, Frank
E. Brick, Robert A. Goodman, Dr. Raj Reddy, John H. Cribb, Richard J.
Bogomolny, and Norton W. Rose.
The plaintiffs allege that on April 21, 1998, Symbol made an offer to
purchase Telxon for $38.00 per share in cash and that on May 8, 1998,
Telxon rejected Symbol's proposal. Plaintiffs further allege that
Telxon has certain anti-takeover devices in place purportedly designed
to thwart hostile bids for the Company. Plaintiffs charge the Director
defendants with breach of fiduciary duty and claim that they are
entrenching themselves in office. The plaintiffs seek certification of
the purported class, unspecified compensatory damages, equitable and/or
injunctive relief requiring the defendants to act in specified manners
consistent with the defendant Directors' fiduciary duties, and payment
of attorney's fees and costs. The parties have stipulated that the
plaintiffs will file an Amended Complaint and that the defendants will
answer only the Amended Complaint.
On June 2, 1998, the Court ordered consolidation of the above-captioned
cases. This action is in its early stages, with no scheduling order
having been issued by the Court; discovery has not yet commenced. The
defendants believe that these claims lack merit and intend to
vigorously defend the consolidated action.
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. In
management's opinion, all such 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 consolidated
financial position, results of operations or cash flows.
8. Income Taxes
The Company's consolidated effective income tax rate reflects income
before taxes increased by non-deductible goodwill amortization and the
tax effect of unutilized subsidiary net operating loss benefits, which
sum is multiplied by the United States statutory rate and increased by
foreign tax rate differentials. The effective income tax rate was
decreased by a credit for research and development and the favorable
tax treatment of the Company's foreign sales corporation.
9. Subsidiary Stock And Other Transactions
During the first quarter of fiscal 1999, the Company entered into a
series of transactions with a business partner. The Company repurchased
the voting common shares of its Metanetics subsidiary ("Metanetics"), a
development stage subsidiary that develops image processing technology,
for $1,950. The Company has assessed the additional expenditure of cash
for the increased investment in such subsidiary because of in-process
product development and the historical financial losses and future
funding requirements for its operations. As a result of this
assessment, a pre-tax loss of $1,950 was recorded in the accompanying
consolidated statement of operations. Simultaneously, the business
partner agreed to pay outstanding receivable balances of $1,850 for
previously purchased manufacturing rights agreements and software
licenses. Additionally, the companies mutually agreed to terminate such
agreements and released each other from any future liability related to
the original agreements. Giving effect to the repurchase of 400,000
shares of the subsidiary at $4.875 per share, the Company's interest
in the voting common stock of such subsidiary was 60% at June 30, 1998.
During the first quarter of fiscal 1999, the Company's Aironet Wireless
Communications, Inc. ("Aironet") subsidiary, a developer, manufacturer
and marketer of wireless LAN systems, sold 222,222 shares of its
voting common stock to various third-party investors at a price of
$3.50 per share. Proceeds from this sale of stock were $778. The
resulting pre-tax net gain of $340
10
<PAGE> 11
was recorded as other non-operating income in the accompanying
consolidated statement of operations. In addition to the sale of the
shares of stock, 66,667 warrants for the purchase of Aironet voting
common stock were issued. A gain of $47 relating to these warrants has
been deferred until the warrants are exercised or lapse. The Company's
remaining interest in the voting common stock of Aironet at June 30,
1998, was 76%.
10. Other Transactions
During the first quarter of fiscal 1999, $311 in aggregate principal
amount of the Company's 7-1/2% Convertible Subordinated Debentures were
surrendered for conversion into 11,621 shares of the Company's Common
Stock, $.01 par value per share. The surrendered Convertible
Subordinated Debentures have been cancelled effective as of their
conversion into common stock.
During the first quarter of fiscal 1999, the Company re-issued 44,848
shares of treasury stock, at a weighted average cost of $19.27, to
satisfy options exercised under the Company's stock option plans.
11. Subsequent Events
Subsequent to June 30, 1998, the Company re-issued 23,574 shares of
treasury stock to satisfy purchases made by employees through the
Telxon Corporation 1995 Employee Stock Purchase Plan. Additionally, the
Company re-issued 5,544 shares of treasury stock in July 1998 to
satisfy stock options exercised under the Company's stock option plans.
Also subsequent to June 30, 1998, the Company extended to August 3,
1999, the $20.0 million in bank credit which it maintains under its
business purpose revolving promissory note in addition to its ongoing
$100.0 million credit agreement.
12. Reclassifications
Certain items in the fiscal 1998 consolidated financial statements and
notes thereto have been reclassified to conform to the fiscal 1999
presentation.
11
<PAGE> 12
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
REGARDING CERTAIN TRENDS OR OF OTHER FORWARD-LOOKING INFORMATION CONCERNING THE
COMPANY'S ANTICIPATED REVENUES, COSTS, FINANCIAL RESOURCES OR OTHERWISE
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 THE ORIGINAL FILING AS AMENDED BY THIS FORM 10-Q/A,
ARE INHERENTLY SUBJECT TO RISKS AND UNCERTAINTIES, WHICH COULD CAUSE THE
COMPANY'S ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE FORWARD-LOOKING
STATEMENTS. THE SUMMARY OF CERTAIN OF THE RISKS AND OTHER IMPORTANT FACTORS
WHICH MAY AFFECT THE COMPANY'S BUSINESS, OPERATING RESULTS AND FINANCIAL AND
OTHER CONDITION UNDER "FACTORS THAT MAY AFFECT FUTURE RESULTS" BELOW SHOULD BE
READ IN CONJUNCTION WITH THE MORE COMPLETE DISCUSSION OF THOSE AND OTHER RISKS
AND IMPORTANT FACTORS AFFECTING THE BUSINESS, OPERATING RESULTS AND CONDITION OF
THE COMPANY UNDER "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION - FACTORS THAT MAY AFFECT FUTURE RESULTS"
(WHICH IS INCORPORATED HEREIN BY THIS REFERENCE), AND OTHER CAUTIONARY
STATEMENTS APPEARING UNDER "ITEM 1. BUSINESS" AND ELSEWHERE, IN THE COMPANY'S
ANNUAL REPORT ON FORM 10-K, AS AMENDED BY AMENDMENTS NO. 1 AND NO. 2 ON FORM
10-K/A, FOR THE FISCAL YEAR ENDED MARCH 31, 1998.
Overview
The Company recorded net income of $.2 million or $.01 per common share
(diluted) for the first quarter of fiscal 1999. In comparison, the Company
recorded net income of $1.6 million or $.10 per common share (diluted) for the
first quarter of fiscal 1998. The results for the first quarter of fiscal 1999
include after-tax charges of $1.0 million or $.06 per common share (diluted)
for costs incurred in response to an unsolicited takeover proposal and $1.0
million or $.06 per common share (diluted) related to transactions in the
voting common stock and warrants of two of the Company's subsidiaries.
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 management will identify the risks (especially those newly emerging
from time to time) affecting, and their impact on, the Company and its
business, that the Company's strategies and plans will take into account all
market conditions and changes thereto or that such strategies and plans will be
successfully implemented. Accordingly, neither the historical results presented
in the Company's consolidated financial statements and discussed herein, nor
any forward-looking statements in the Original Filing as amended by this Form
10-Q/A are necessarily indicative of the Company's 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.
Factors That May Affect Future Results
The Company's business, operating results and financial and other condition may
be affected by a number of risks and other important factors, including,
without limitation, the following, some of which are inherently difficult to
identify and predict and/or are beyond the Company's control: general and
industry-specific economic conditions; the identification and implementation of
appropriate cost saving and operational efficiency initiatives; sales and
manufacturing cycles from quarter to quarter and within each quarter; serving
markets characterized by increasingly rapid technological change and associated
changes in market demand and product obsolescence and by price erosion; intense
competition; concentration of revenues in the retail industry; ability to
penetrate and expand revenues in new and existing markets; risks associated
with foreign sales and operations; timely and efficient enhancement of
appropriate product offerings through internal development and acquisition of
or investment in new businesses and technologies; dependence on, and freedom
from infringement of, technologies and other proprietary rights of or by third
parties; government regulation of radio and other products and product health
and safety concerns; dependence on sole source, or a limited number of,
suppliers; and attracting and retaining qualified employees. In addition to
being subject to the foregoing factors and other cautionary statements
elsewhere in the Original Filing as amended by this Form 10-Q/A, the Company's
conduct of its business and the results and condition thereof are also subject
to the possible adverse effects of certain pending litigation and other
contingencies discussed in Note 7 to the accompanying consolidated financial
statements included in Item 1 above.
Readiness for the Year 2000
As the end of the twentieth century nears, there is worldwide concern regarding
the use by many existing computer programs of only the last two digits rather
than four to identify the year in a date field. If not corrected, many
computer applications may fail to treat year dates intended to represent years
in the twenty-first century as such but instead treat them as still in the
twentieth century,
12
<PAGE> 13
potentially resulting in system failure or miscalculations disruptive of
business operations, including, among other things, an inability to initiate,
receive, process, invoice or otherwise complete normal business activities.
These Year 2000 issues affect virtually all companies and organizations.
The Year 2000 issues affect both the Company's own internal operations and the
computer products and related services it provides. As further discussed below
under "FINANCIAL CONDITION - Cash Flows from Investing Activities" below, the
Company is working with outside contractors to develop and install new
corporate-wide information systems. The new systems were identified as strategic
business initiative independent of Year 2000 considerations. While the new
information systems will be dynamic ones permitting ongoing improvements as
business needs are identified, the basic operational systems are expected to be
substantially completed during early 1999 at a total estimated capital
expenditure of approximately $23.3 million. Those time and cost targets are
management's current best estimates based on presently available information and
numerous assumptions. Given the uncertainties and complexities inherent in any
new system installation, there can be no assurance that the project will be
completed within the expected time and cost parameters. The portions of the
Company's existing information systems which would require correction for Year
2000 issues will be superseded as part of the new systems, which are being
designed to be Year 2000 ready.
With respect to its own products, the Company has identified those of its
existing products (released prior to December 31, 1997) that are or will be made
Year 2000 ready. Those already- or to-be-made-Year 2000 ready products represent
the existing products which management believes will continue to be a
significant part of the Company's ongoing product line. Customers may continue
to order the Company's other existing products, but with no assurance from the
Company as to their Year 2000 readiness or the feasibility or availability of an
upgrade path to readiness. All new products released after December 31, 1997
will be Year 2000 ready when released.
The Company has substantially completed the initial writing of the
software/firmware upgrades for the existing products which are not presently,
but are to be made Year 2000 ready, and has completed a majority of the testing
of those upgrades. Subject to negotiated contractual commitments, the Company
will make the upgrades available free of charge for products purchased after
December 31, 1997, but customers will be responsible for installing the upgrades
(or they may retain the Company to do so for a fee). Given the technical nature
of the task of isolating and correcting non-compliant programming and the
limited internal resources available, and the increasing demand for available
external resources, to perform the work, there can be no assurance as to if,
when and at what cost the upgrades can be completed.
The Company could be adversely affected by the Year 2000 readiness of its
customers as well as of its suppliers of raw materials, components, peripherals,
finished products and software and its providers of facilities, equipment and
services and any failure on their part to achieve readiness in their own
operations or with respect to the items they supply or otherwise provide to the
Company. While the Company is in the process of determining what inquiries might
be appropriate to make of such other parties (principally of its suppliers and
other providers) in these regards, there can be no assurance that the Year 2000
issues confronting such other parties and any failure on their part to timely
address them will not have a material adverse effect on the Company. Disruptions
in the economy generally, domestically and/or in foreign countries, resulting
from Year 2000 issues could also materially adversely affect the Company.
13
<PAGE> 14
RESULTS
Revenues
- --------
<TABLE>
<CAPTION>
Quarter ended June 30, Increase
---------------------- --------
1998 1997 Dollar Percentage
---- ---- ------ ----------
(in thousands)
<S> <C> <C> <C> <C>
Net Revenues:
Product, net $ 94,077 $ 86,691 $ 7,386 8.5%
Customer service, net 20,970 18,222 2,748 15.1%
-------- -------- -------
Total net revenues $115,047 $104,913 $10,134 9.7%
======== ======== =======
</TABLE>
Net product revenues include the sale of portable tele-transaction computers
("PTCs"), including rugged, wireless mobile computers and pen-based and
touch-screen workslates; hardware accessories; wireless data communication
products; custom application software, network management software and
software licenses; and a variety of professional services, including system
integration and project management.
The increase in the first quarter fiscal 1999 consolidated product revenues from
the fiscal 1998 level was due primarily to a 4.1% increase in PTC unit volume
and a 5.1% increase in the average selling price per PTC unit. The increase in
consolidated PTC unit volume was the result of an approximately 400.0% increase
in pen-based product sales in the first quarter of fiscal 1999 from the first
quarter of fiscal 1998, the result of the increased market penetration achieved
by the Company with its more powerful workslate models. The Company expects
consolidated product revenues for the remainder of fiscal 1999 to increase from
the fiscal 1998 level.
The increase in the first quarter fiscal 1999 consolidated customer service
revenues from the fiscal 1998 level was primarily the result of the continued
increase in the installed base of the Company's products, which generated a
26.4% increase in domestic time and material billings and a 9.7% increase in
domestic maintenance billings. The Company anticipates increased consolidated
customer service revenues for the remainder of fiscal 1999.
Revenues from the Company's international operations (including Canada)
increased $1.5 million or 4.9% in the first quarter of fiscal 1999 from the
fiscal 1998 level. This increase was attributable primarily to the increased
revenues recorded by the Company's Canadian operations.
Cost of Revenues
- ----------------
<TABLE>
<CAPTION>
Quarter ended June 30, Increase
---------------------- --------
1998 1997 Dollar Percentage
---- ---- ------ ----------
(in thousands)
<S> <C> <C> <C> <C>
Cost of Revenues:
Product $57,310 $52,561 $4,749 9.0%
Customer service 12,826 11,126 1,700 15.3%
------- ------- ------
Total cost of revenues $70,136 $63,687 $6,449 10.1%
======= ======= ======
Cost of product revenues as a
percentage of product revenues,
net 60.9% 60.6%
Cost of customer service revenues
as a percentage of customer
service revenues, net 61.2% 61.1%
</TABLE>
Consolidated product gross margins decreased to 39.1% in the first quarter of
fiscal 1998 from 39.4% in the first quarter of fiscal 1998. This decrease was
due primarily to an increase in the average cost per PTC unit, the result of a
shift in product mix from the higher-margin non-pen-based units to the more
complex and costly pen-based and touch-screen workslates.
At June 30, 1998, consolidated inventory allowance accounts increased to $12.4
million from $11.5 million at March 31, 1998. As a percentage of consolidated
gross inventories, the Company's consolidated inventory allowances increased to
9.9% at June 30, 1998, from 9.6% at March 31, 1998. This increase is the result
of the Company's fiscal 1999 first quarter provisions for inventory
obsolescence The Company anticipates continuing to provide for inventory
obsolescence resulting from technological change.
14
<PAGE> 15
Operating Expenses
- ------------------
<TABLE>
<CAPTION>
Quarter ended June 30, Increase/(Decrease)
---------------------- -------------------
1998 1997 Dollar Percentage
---- ---- ------ ----------
(in thousands)
<S> <C> <C> <C> <C>
Operating Expenses:
Selling expenses $21,361 $18,100 $3,261 18.0%
Product development and
engineering expenses 8,930 9,126 (196) (2.1)%
General and administrative
expenses 9,436 9,703 (267) (2.8)%
Other operating items:
Take-over defense costs 1,749 - 1,749 N.M.
Charge related to transactions with
Business partner 1,950 - 1,950 N.M.
------- ------- ------
Total operating expenses $43,426 $36,929 $6,497 17.6%
======= ======= ======
</TABLE>
Selling expenses as a percentage of total revenues increased to 18.6% in the
first quarter of fiscal 1999 from 17.3% in the first quarter of fiscal 1998. The
increase in the consolidated selling expense percentage of total revenues was
due primarily to investments in personnel and resources to support the revenue
growth of the Company and its investment in indirect channel distribution. Due
to these investments, the Company expects selling expenses as a percentage of
total revenues for the remainder of fiscal 1999 to be higher than the
comparable fiscal 1998 levels.
The decrease in product development and engineering expenses in the first
quarter of fiscal 1999 from the first quarter of fiscal 1998 levels is primarily
the result of the absence in fiscal 1999 of costs associated with the
consolidation and relocation of certain of the Company's engineering and product
development operations from Akron, Ohio to Houston, Texas during fiscal 1998 as
well as the benefit derived from this action. The Company expects product
development and engineering expenses for the remainder of fiscal 1999 to be
below fiscal 1998 levels.
During the first quarter of fiscal 1999, the Company capitalized internal
software development costs in accordance with the requirements of Statement of
Financial Accounting Standards No. 86, "Accounting for the Costs of Computer
Software to Be Sold, Leased, or Otherwise Marketed" aggregating $1.2 million,
offset by amortization of $1.8 million. The Company anticipates the dollar
amount of internal software development cost capitalized during the remainder of
fiscal 1999 to remain generally consistent with the fiscal 1998 level.
During the first quarter of fiscal 1999, the Company recorded $1.7 million
related to costs incurred in response to an unsolicited takeover proposal by
Symbol Technologies, Inc. ("Symbol"). Citing the Company's rejection of the
Symbol proposal, a stockholder of the Company has notified the Company of his
intention to present six proposals to reform the Company's corporate governance
structure, particularly as it relates to takeover proposals such as Symbol's,
and to nominate a director at the Company's 1998 annual meeting of stockholders
scheduled to be held September 15, 1998 and has filed with the Securities and
Exchange Commission preliminary proxy materials for his solicitation of proxies
in that regard; on August 11, 1998, the Company filed its responsive, definitive
proxy materials for the annual meeting. The Company anticipates incurring
additional continuing litigation and other costs relating to the unsolicited
takeover proposal and the ensuing proxy solicitation.
During the first quarter of fiscal 1999, the Company entered into a series of
transactions with a business partner. The Company repurchased the voting common
shares of its Metanetics subsidiary ("Metanetics"), a development stage
subsidiary that develops image processing technology, for $1,950. The Company
has assessed the additional expenditure of cash for the increased investment in
such subsidiary because of in-process product development and the historical
financial losses and future funding requirements for its operations. As a result
of this assessment, a pre-tax loss of $1,950 was recorded in the accompanying
consolidated statement of operations. Simultaneously, the business partner
agreed to pay outstanding receivable balances of $1,850 for previously purchased
manufacturing rights agreements and software licenses. Additionally, the
companies mutually agreed to terminate such agreements and released each other
from any future liability related to the original agreements. Giving effect to
the repurchase of 400,000 shares of the subsidiary at $4.875 per share, the
Company's interest in the voting common stock of such subsidiary was 60% at June
30, 1998.
15
<PAGE> 16
Other Non-Operating Expense, net
- --------------------------------
<TABLE>
<CAPTION>
Quarter ended June 30, Increase
---------------------- --------
1998 1997 Dollar Percentage
---- ---- ------ ----------
(in thousands)
<S> <C> <C> <C> <C>
Non-Operating Income (Expense):
Gain on sale of subsidiary stock $ 340 $ - $ 340 N.M.
Other non-operating income (expense) 120 (157) 277 176.4%
------- ----- -------
Total other non-operating expense, net $ (460) $(157) $ (617)
======= ===== =======
</TABLE>
During the first quarter of fiscal 1999, the Company's Aironet Wireless
Communications, Inc. ("Aironet") subsidiary, a developer, manufacturer, and
marketer of wireless LAN systems, sold 222,222 shares of its voting common stock
to various third-party investors at a price of $3.50 per share. The resulting
pre-tax gain of $340, net of a deferred gain of $47 related to warrants for an
additional 66,667 shares that were also issued, was recorded as other
non-operating income in the accompanying consolidated statement of operations.
Income Taxes
- ------------
<TABLE>
<CAPTION>
Quarter ended June 30, (Decrease)
---------------------- ----------
1998 1997 Dollar Percentage
---- ---- ------ ----------
(in thousands)
<S> <C> <C> <C> <C>
Income Taxes:
Provision for income taxes $165 $1,252 $(1,087) (86.8)%
</TABLE>
The Company's consolidated effective tax rate was 40.1% in the first quarter of
fiscal 1999 and 44.0% in the first quarter of fiscal 1998. The consolidated
effective income tax rate for the first quarter of fiscal 1999 reflects income
before taxes multiplied by the United States federal statutory tax rate. The tax
rate was increased by nondeductible goodwill amortization, international tax
rate differentials and unutilized subsidiary net operating loss benefits. The
effective income tax rate was decreased as a result of the utilization of
research and development credits earned in prior periods and the favorable tax
treatment of the Company's foreign sales corporation.
The consolidated effective income tax rate for the first quarter of fiscal 1998
reflects income before taxes multiplied by the United States federal statutory
tax rate increased by nondeductible goodwill amortization, international tax
rate differentials and subsidiaries' net operating loss benefits not currently
utilized and decreased by the favorable tax treatment of the Company's foreign
sales corporation.
FINANCIAL CONDITION
Liquidity
- ---------
<TABLE>
<CAPTION>
Dollar
June 30, March 31, Increase
1998 1998 (Decrease)
---- ---- ----------
(in thousands except ratios)
<S> <C> <C> <C>
Cash and cash equivalents $ 15,536 $ 27,500 $(11,964)
Accounts and notes receivable 152,322 148,688 3,634
Inventories 110,860 108,178 2,682
Other 12,844 11,307 1,537
-------- -------- --------
Total current assets $291,562 $295,673 $ (4,111)
======== ======== ========
Notes payable $ 25,005 $ 3,000 $ 22,005
Accounts payable 45,621 58,634 (13,013)
Income taxes payable 1,729 3,390 (1,661)
Accrued liabilities 39,374 41,034 (1,660)
Other 988 968 20
-------- -------- --------
Total current liabilities $112,717 $107,026 $ 5,691
======== ======== ========
Working capital (current assets
less current liabilities) $178,845 $188,647 $ (9,802)
======== ======== ========
Current ratio (current assets divided
by current liabilities) 2.6 to 1 2.8 to 1
</TABLE>
As illustrated in the preceding table, the decrease in the Company's
consolidated working capital at June 30, 1998, from March 31, 1998, was due
primarily to the decreases in cash and accounts payable, offset by increases in
notes payable, accounts and notes receivable and inventories. The decrease in
cash was the result of payments to vendors, resulting in the decrease in
accounts payable. The increase
16
<PAGE> 17
in notes payable was the result of increased borrowings from the Company's
revolving credit facilities due to the timing of revenues within the quarter.
Consolidated days sales outstanding ("DSO") increased to 105 days at June 30,
1998, from 85 days at March 31, 1998. The increase in accounts receivable and
DSO was due primarily to significant billings late in the quarter, for which
payment was not received until after June 30, 1998. The increase in inventory
was the result of investments in customer service inventory to support new
products and increased revenues and in used equipment to support the Company's
expanded remanufacturing program. Consolidated inventory turns decreased to 2.0
at June 30, 1998, from 2.4 at March 31, 1998.
The Company had $25 million outstanding under its bank credit agreements at June
30, 1998, and was in compliance with all restrictive covenants contained in
those agreements.
The Company believes its existing resources, including available cash and cash
equivalents, internally generated funds and bank credit facilities ($100 million
credit agreement and $20 million promissory note) will be sufficient to meet
working capital requirements for the next twelve months.
Cash Flows from Operating Activities
- ------------------------------------
<TABLE>
<CAPTION>
Dollar
Increase
(Decrease)
Three Months ended June 30, in
--------------------------- Cash Flow
1998 1997 Impact
---- ---- ------
(in thousands)
<S> <C> <C> <C>
Net income $ 246 $ 1,594 $(1,348)
Depreciation and amortization 6,112 6,001 111
Provision for inventory obsolescence 1,301 2,018 (717)
Deferred income taxes 28 210 (182)
Accounts and notes receivable (7,049) 4,528 (11,577)
Inventories (3,921) (3,862) (59)
Prepaid expenses and other (1,547) (146) (1,401)
Accounts payable and accrued liabilities (16,564) (19,133) 2,569
Other (1,366) 281 (1,647)
-------- -------- --------
Net cash used in operating activities $(22,760) $ (8,509) $(14,251)
======== ======== ========
</TABLE>
As detailed in the preceding table, the increase in the net cash used in the
Company's consolidated operating activities for the first three months of fiscal
1999 as compared to the first three months of fiscal 1998 was the result of the
decrease in net income in the fiscal 1999 period and the change in the cash flow
impact of accounts and notes receivable and prepaid expenses, partially offset
by the change in the cash flow impact of accounts payable and accrued
liabilities.
Cash Flows from Investing Activities
- ------------------------------------
<TABLE>
<CAPTION>
Dollar
Increase
(Decrease)
Three Months ended June 30, in
--------------------------- Cash Flow
1998 1997 Impact
---- ---- ------
(in thousands)
<S> <C> <C> <C>
Additions to property and equipment $ (9,868) $(4,208) $(5,660)
Software investments (1,178) (1,290) 112
Proceeds from sale of assets - 866 (866)
Other (608) - (608)
-------- ------- -------
Net cash used in investing activities $(11,654) $(4,632) $(7,022)
========- =======- =======
</TABLE>
As detailed in the preceding table, the increase in the amount of cash used in
the Company's consolidated investing activities in the first three months of
fiscal 1999 from the first three months of fiscal 1998 was due primarily to
increased investments in property and equipment, primarily the capitalization
of $3.7 million of expenditures relating to the installation of new
corporate-wide information systems. As of June 30, 1998, the Company has
capitalized $12.4 million of the total estimated capital expenditure of
approximately $23.3 million for the new system. The Company anticipates
increased capitalization of costs associated with the new information systems
during the remainder of fiscal 1999.
17
<PAGE> 18
Cash Flows from Financing Activities
- ------------------------------------
<TABLE>
<CAPTION>
Dollar
Increase
(Decrease)
Three Months ended June 30, in
--------------------------- Cash Flow
1998 1997 Impact
---- ---- ------
(in thousands)
<S> <C> <C> <C>
Notes payable, net $22,005 $ (50) $22,055
Purchase of treasury stock - (3,256) 3,256
Proceeds from exercise of stock options 584 2,563 (1,979)
Other (175) (157) (18)
------- ------- -------
Net cash provided by (used in) financing activities $22,414 $ (900) $ 23,314
======= ======= ========
</TABLE>
As detailed in the preceding table, the increase in the Company's net cash
provided by financing activities for the first three months of fiscal 1999 from
the first three months of fiscal 1998 was due primarily to the increase in the
level of borrowings from the Company's revolving credit facilities during the
first quarter of fiscal 1999 and the absence in the fiscal 1999 period of the
cash flow impact of the repurchase of treasury stock during the first quarter of
fiscal 1998, partially offset by the decrease in the cash flow impact of the
proceeds from the exercise of stock options.
Other Transactions
- ------------------
During the first quarter of fiscal 1999, $311 in aggregate principal amount of
the Company's 7-1/2% Convertible Subordinated Debentures were surrendered for
conversion into 11,621 shares of the Company's Common Stock, $.01 par value per
share. The surrendered Convertible Subordinated Debentures have been cancelled
effective as of their conversion into common stock.
During the first quarter of fiscal 1999, the Company re-issued 44,848 shares of
treasury stock, at a weighted average cost of $19.27, to satisfy stock options
exercised under the Company's stock option plans.
Subsequent Events
- -----------------
Subsequent to June 30, 1998, the Company re-issued 23,574 shares of treasury
stock to satisfy purchases made by employees through the Telxon Corporation 1995
Employee Stock Purchase Plan. Additionally, the Company re-issued 5,544 shares
of treasury stock in July 1998 to satisfy stock options exercised under the
Company's stock option plans.
Also subsequent to June 30, 1998, the Company extended to August 3, 1999, the
$20.0 million in bank credit which it maintains under its business purpose
revolving promissory note in addition to its ongoing $100.0 million credit
agreement.
18
<PAGE> 19
TELXON CORPORATION
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Amendment No. 1 on Form 10-Q/A to be signed
on its behalf by the undersigned thereunto duly authorized.
Date: November 16, 1998
TELXON CORPORATION
(Registrant)
/s/ Kenneth W. Haver
------------------------
Kenneth W. Haver, Senior
Vice President and Chief
Financial Officer
<PAGE> 20
TELXON CORPORATION
EXHIBITS TO
FORM 10-Q/A
FOR THE QUARTER ENDED JUNE 30, 1998
<PAGE> 21
INDEX TO EXHIBITS
Where
Filed
- -----
* 2 Asset Purchase Agreement by and among Dynatech Corporation,
IAQ Corporation, Registrant and Itronix Corporation, a wholly
owned subsidiary of Registrant, dated as of December 28, 1996,
incorporated herein by reference to Exhibit 2 to Registrant's
Form 8-K dated December 31, 1996.
* 3.1 Restated Certificate of Incorporation of Registrant,
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.
* 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 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.
* 4.2 Text of form of Certificate for 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 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.
* 4.3.2 Letter agreement among Registrant, KeyBank National
Association and Harris Trust and Savings Bank, dated
June 11,
<PAGE> 22
1997, with respect to the appointment of Harris Trust
and Savings Bank as successor Rights Agent under the
Rights Agreement included as Exhibit 4.3 above,
incorporated herein by reference to Exhibit 4.3.2 to
Registrant's Form 10-K for the year ended March 31,
1997.
* 4.4 Indenture by and between 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 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
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 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.
* 10.1.1.c Amendment, dated January 1, 1994,
to the Plan included as Exhibit
10.1.1 above,
<PAGE> 23
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
Registrant, as amended, incorporated herein
by reference to Exhibit 10.1.2 to
Registrant's Form 10-Q for the quarter ended
September 30, 1997.
* 10.1.3 1990 Stock Option Plan for Non-Employee
Directors of Registrant, as amended,
incorporated herein by reference to Exhibit
10.1.3 to Registrant's Form 10-Q for the
quarter ended September 30, 1997.
* 10.1.4 Non-Qualified Stock Option Agreement between
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 Registrant,
incorporated herein by reference to Exhibit
10.1.17 to 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 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
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 1996 Stock Option Plan for employees,
directors and advisors of Aironet Wireless
Communications, Inc., a subsidiary of
Registrant, incorporated herein by reference
to Exhibit 10.1.7 to Registrant's Form 10-K
for the year ended March 31, 1997.
* 10.1.7.a Amended and Restated 1996 Stock
Option Plan for employees,
directors and advisors of Aironet
Wireless Communications, Inc., a
subsidiary of
<PAGE> 24
Registrant, incorporated herein by
reference to Exhibit 10.1.7.a to
Registrant's Form 10-K for the year
ended March 31, 1998.
* 10.1.8 Non-Competition Agreement by and between
Registrant and Robert F. Meyerson, effective
February 27, 1997, incorporated herein by
reference to Exhibit 10.1.8 to Registrant's
Form 10-K for the year ended March 31, 1997.
* 10.1.9 Employment Agreement between Registrant and
Frank E. Brick, incorporated herein by
reference to Exhibit 10.1.9 to Registrant's
Form 10-K for the year ended March 31, 1998.
* 10.1.9.a 1997 Section 162(m)
Performance-Based Compensation Plan
of Registrant with respect to its
President and Chief Executive
Officer adopted by the
Performance-Based Compensation
Committee of Registrant's Board of
Directors and approved by
Registrant's Stockholders at the
Annual Meeting thereof, held
September 10, 1997, incorporated
herein by reference to Exhibit
10.1.9.a to Registrant's Form 10-K
for the year ended March 31, 1998.
* 10.1.10 Amended and Restated Employment Agreement
between Registrant and James G. Cleveland,
effective as of April 1, 1997, incorporated
herein by reference to Exhibit 10.1.10 to
Registrant's Form 10-K for the year ended
March 31, 1998.
* 10.1.11 Amended and Restated Employment Agreement
between Registrant and Kenneth W. Haver,
effective as of April 1, 1997, incorporated
herein by reference to Exhibit 10.1.11 to
Registrant's Form 10-K for the year ended
March 31, 1998.
* 10.1.12 Amended and Restated Employment Agreement
between Registrant and David D. Loadman,
effective as of April 1, 1997, incorporated
herein by reference to Exhibit 10.1.12 to
Registrant's Form 10-K for the year ended
March 31, 1998.
* 10.1.13 Amended and Restated Employment Agreement
between Registrant and David W. Porter,
effective as of April 1, 1997, incorporated
herein by reference to Exhibit 10.1.13 to
Registrant's Form 10-K for the year ended
March 31, 1998.
* 10.1.14 Amended and Restated Employment Agreement
between Registrant and Danny R. Wipff,
effective as of April 1, 1997, incorporated
herein by reference to Exhibit 10.1.14 to
Registrant's Form 10-K for the year ended
March 31, 1998.
* 10.1.15 Description of Key Employee Retention
Program, incorporated herein by reference to
Exhibit 10.1.15 to
<PAGE> 25
Registrant's Form 10-K for the year ended
March 31, 1998.
* 10.1.15.a Form of letter agreement made with
key employees selected under the
retention program described in
Exhibit 10.1.15 above, incorporated
herein by reference to Exhibit
10.1.15.a to Registrant's Form 10-K
for the year ended March 31, 1998.
* 10.1.16 Letter of the Audit Committee of
Registrant's Board of Directors, dated July
22, 1996, engaging Norton Rose to act as the
Committee's delegate to advise and assist
Registrant's management, incorporated herein
by reference to Exhibit 10.1.16 to
Registrant's Form 10-K for the year ended
March 31, 1997.
* 10.1.17 Letter agreement of Registrant with Robert
A. Goodman, dated as of December 29, 1997
and executed and delivered January 20, 1998,
for continued consulting services following
certain changes in his law practice,
incorporated herein by reference to Exhibit
10.1.17 to Registrant's Form 10-K for the
year ended March 31, 1998.
* 10.2 Material Leases of 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 Lease Agreement between The Woodlands
Commercial Properties Company, L.P. and
Registrant, made and entered into as of
January 16, 1998, including Rider No. 1
thereto, for premises at 8302 New Trails
Drive, The Woodlands, Texan, incorporated
herein by reference to Exhibit 10.2.2 to
Registrant's Form 10-K for the year ended
March 31, 1998.
* 10.2.3 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.
* 10.2.3.a Second Addendum, dated as of
October 5, 1995, to the Lease
included as Exhibit 10.2.3 above,
incorporated herein by reference to
Exhibit 10.2.4.a to Registrant's
Form 10-K for the year ended March
31, 1996.
* 10.2.3.b Third Addendum, dated as of March
1, 1996, to the Lease included as
Exhibit 10.2.3 above, incorporated
herein by reference to Exhibit
10.2.4.b to
<PAGE> 26
Registrant's Form 10-K for the year
ended March 31, 1996.
* 10.2.3.c Fourth Addendum, dated as of April
16, 1996, to the Lease included as
Exhibit 10.2.3 above, incorporated
herein by reference to Exhibit
10.2.2.c to Registrant's Form 10-Q
for the quarter ended June 30,
1997.
* 10.2.3.d Fifth Addendum, dated as of June
24, 1997, to the Lease included as
Exhibit 10.2.3 above, incorporated
herein by reference to Exhibit
10.2.2.d to Registrant's Form 10-Q
for the quarter ended June 30,
1997.
* 10.2.4 Lease Contract between Desarrollos
Inmobiliarios Paso del Norte, S.A. de C.V.
and Productos y Servicios de Telxon, S.A. de
C.V., a subsidiary of Registrant, for in
Ciudad Juarez, Chihuahua, Mexico, made and
entered into as of April 10, 1997,
incorporated herein by reference to Exhibit
10.2.4 to Registrant's Form 10-K for the
year ended March 31, 1998.
* 10.3 Credit Agreements of Registrant.
* 10.3.1 Credit Agreement by and among 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,
incorporated herein by reference to Exhibit
10.3.2 to Registrant's Form 10-K for the
year ended March 31, 1996.
* 10.3.1.a Amendment No. 1, dated as of August
6, 1996, to the Agreement included
as Exhibit 10.3.1 above,
incorporated herein by reference to
Exhibit 10.3.2.a to Registrant's
Form 8-K dated August 16, 1996.
* 10.3.1.b Security Agreement, dated as of
August 6, 1996, by and among
Registrant and The Bank of New
York, as Agent, incorporated herein
by reference to Exhibit 10.3.2.b to
Registrant's Form 8-K dated August
16, 1996.
* 10.3.1.c Amendment No. 2, dated as of
December 16, 1996, to the Agreement
included as Exhibit 10.3.1 above,
incorporated herein by reference to
Exhibit 10.3.2.c to Registrant's
Form 8-K dated December 16, 1996.
* 10.3.1.d Amendment No. 3, dated as of
December 12, 1997, to the Agreement
included as Exhibit 10.3.1 above,
incorporated herein by reference to
Exhibit 10.3.1.d
<PAGE> 27
to Registrant's Form 10-K for the
year ended March 31, 1998.
* 10.3.2 Business Purpose Revolving Promissory Note
(Swing Line) made by Registrant in favor of
Bank One, Akron, N.A., dated August 6, 1996,
incorporated herein by reference to Exhibit
10.3.8 to Registrant's Form 8-K dated August
16, 1996.
* 10.3.2.a Bank One Security Agreement, dated
as of August 6, 1996, by and among
Registrant and Bank One, Akron
N.A., incorporated herein by
reference to Exhibit 10.3.8.a to
Registrant's Form 8-K dated August
16, 1996.
* 10.3.3 Business Purpose Revolving Promissory Note
(Swing Line) made by Registrant in favor of
Bank One, NA (fka Bank One, Akron, N.A.),
dated August 5, 1997 (extending the credit
facility evidenced by the Note included as
Exhibit 10.3.2 above), incorporated herein
by reference to Exhibit 10.3.8 to
Registrant's Form 10-Q for the quarter ended
June 30, 1997.
* 10.3.4 Business Purpose Revolving Promissory Note
(Swing Line) made by Registrant in favor of
Bank One, NA (fka Bank One, Akron, N.A.),
dated August 5, 1997 (extending the credit
facility evidenced by the Note included as
Exhibit 10.3.3 above), filed with the
Original Filing.
* 10.4 Amended and Restated Agreement between 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, 1998.
* 10.5 License, Rights, and Supply Agreement between Aironet
Wireless Communications, Inc., a subsidiary of
Registrant, and Registrant, dated as of March 31,
1998, incorporated herein by reference to Exhibit
10.5 to Registrant's Form 10-K for the year ended
March 31, 1998.
* 10.6 Agreement of Purchase and Sale of Assets by and among
Vision Newco, Inc., a subsidiary of 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 Stock Purchase Agreement by and among Registrant and
FED Corporation, dated as of March 31, 1998, with
respect to FED Corporation's purchase of all of the
stock of Virtual Vision, Inc. (fka Vision Newco,
Inc.), incorporated herein by reference Exhibit 10.7
to Registrant's Form 10-K for the year ended March
31, 1998.
* 10.7.1 Escrow Agreement by and among FED Corporation,
Registrant and First Union National Bank, with
respect to the transactions under the Stock Purchase
Agreement included as Exhibit 10.7 above,
incorporated herein by reference to Exhibit 10.7.1 to
Registrant's Form 10-K for the year ended March 31,
1998.
<PAGE> 28
* 10.8 Subscription Agreement by and among New Meta
Licensing Corporation, a subsidiary of Registrant,
and certain officers of 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.
* 10.9 Amended and Restated Shareholder Agreement by and
among Metanetics Corporation fka New Meta Licensing
Corporation, and its Shareholders, including the
officers of Registrant party to the Agreement
included as Exhibit 10.8 above, dated as of March 28,
1996, incorporated herein by reference to Exhibit
10.9.3 to Registrant's Form 10-K for the year ended
March 31, 1996.
* 10.10 First Amendment, dated as of March 30, 1996, to the
Agreement included as Exhibit 10.9 above,
incorporated herein by reference to Exhibit 10.9.4 to
Registrant's Form 10-K for the year ended March 31,
1996.
* 10.11 Stock Purchase Agreement by and among Meta Holding
Corporation, a subsidiary of Registrant, and certain
officers of Registrant as Purchasers, dated as of
March 30, 1996, incorporated herein by reference to
Exhibit 10.8 to Registrant's Form 10-K for the year
ended March 31, 1997.
* 10.12 Stock Purchase Agreement by and between Metanetics
Corporation, a subsidiary of 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.
* 10.13 Stock Purchase Agreement by and between Registrant
and Telantis Capital, Inc., dated as of March 31,
1997, incorporated herein by reference to Exhibit
10.10 to Registrant's Form 10-K for the year ended
March 31, 1997.
* 10.14 Subscription Agreement by and among Aironet Wireless
Communications, Inc., a subsidiary of Registrant, and
the investors who executed the same, dated as of
March 31, 1998, incorporated herein by reference to
Exhibit 10.14 to Registrant's Form 10-K for the year
ended March 31, 1998.
* 10.14.1 Form of Warrant issued pursuant to the
Subscription Agreement included as Exhibit
10.14 above, incorporated herein by
reference to Exhibit 10.14.1 to Registrant's
Form 10-K for the year ended March 31, 1998.
* 10.14.2 Stockholders Agreement by and among Aironet
Wireless Communications, Inc. and its
Stockholders party thereto, including
Registrant and the investors party to the
Subscription Agreement included as Exhibit
10.14 above, entered into as of March 31,
1998 in connection with the transactions
under the Subscription Agreement,
incorporated herein by reference to Exhibit
10.14.2 to Registrant's Form 10-K for the
year ended March 31, 1998.
* 10.14.3 Registration Rights Agreement by and among
Aironet Wireless Communications, Inc. and
certain of its security holders, including
Registrant and the investors party to the
Subscription Agreement included as Exhibit
10.14 above, entered into as of March 31,
1998 in connection with the transactions
under the Subscription Agreement,
incorporated
<PAGE> 29
herein by reference to Exhibit 10.14.3 to
Registrant's Form 10-K for the year ended
March 31, 1998.
* 27. Financial Data Schedule as of June 30, 1998,
filed with the Original Filing.
** 27.1 Restated Financial Data Schedule as of June 30, 1998,
filed herewith.
* Previously filed
** Filed herewith
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