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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K/A
(Amendment No. 1)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 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)
Registrant's telephone number, including area code (330) 664-1000
Securities registered pursuant Name of each exchange
to Section 12(b) of the Act: on which registered:
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NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
(Title of class)
7-1/2% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2012
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ]. No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ].
The aggregate market value of registrant's Common Stock held by non-affiliates
as of May 29, 1998, based on the last reported sales price of the Common Stock
as reported on the Nasdaq National Market for such date, was $526,439,071.
At May 29, 1998, there were 16,095,367 outstanding shares of the registrant's
Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant's definitive proxy statement for its 1998 Annual Meeting of
Stockholders to be held in September 1998, which the registrant intends to
file with the Securities and Exchange Commission within 120 days of the close of
its fiscal year ended March 31, 1998, is incorporated by reference in Part III
of this Annual Report on Form 10-K from the date of filing such document.
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This Amendment No. 1 on Form 10-K/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.
BUSINESS", "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION", and "ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA" in its Form 10-K as original filed with the Securities and
Exchange Commission (the "Commission") via EDGAR transmission on June 29, 1998
(the "Original Filing"). The disclosures responsive to all of the other Items in
the Original Filing shall not be 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 fiscal year ended March 31, 1998, covered by the Original Filing.
The purpose of this Amendment No. 1 is to make the following corrections and
clarifications:
-- In "ITEM 1. BUSINESS", to correct the portion of the business of the
Company's Aironet Wireless Communications, Inc. subsidiary identified as
being with Telxon, and
-- In "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA",
i) to eliminate the overstatement of "Other long-term liabilities" in
the Cash Flows from Operations section of the Consolidated Statement of
Cash Flows resulting from the double-counting in that line item of the
separately stated line item for "Minority interests" in the same
section of that Statement (the amounts of "Total adjustments" and "Net
cash provided by operating activities" stated in that section of the
Original Filing were correctly computed without any double-counting
and, therefore, have not changed),
ii) to correct a rounding error in the amount shown for the "Other"
line item for 1998 in the reconciliation of tax rates in Note 7 to the
consolidated financial statements (the "Consolidated effective income
tax rate" stated for 1998 in the reconciliation in the Original Filing
was correct and, therefore, has not been changed), and
iii) to correct the number of shares of the Company's Metanetics
Corporation subsidiary stated in Note 16 to the consolidated financial
statements as having been repurchased during the year from former
employees and the corresponding percentage of the subsidiary's stock
owned by the Company.
Except as specifically identified above, no changes have been made in the body
of the consolidated financial statements themselves. In addition to the
foregoing corrections, certain corrections of grammar and of internal
inconsistencies in the amounts stated for certain items discussed in more than
one place within the Original Filing and of the internal page numbering
cross-references and other clerical errors have been made at various places
throughout the aforementioned Items 1, 7 and 8 in the Original Filing. Except
for the corrections described above, the disclosures set forth herein do not
differ from those in Items 1, 7 and 8 of the Original Filing. The response to
Item 14 has been amended only to reflect the replacement of the Consent of the
Company's independent accountants, Coopers & Lybrand L.L.P. included as Exhibit
23 to the Original Filing with the consent of PricewaterhouseCoopers LLP (the
successor to Coopers & Lybrand L.L.P. effective July 1, 1998) included as
Exhibit 23 to this Amendment which is necessitated by the above-described
corrections to the audited financial statements included in amended and restated
Item 8.
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PART I
ITEM 1. BUSINESS
GENERAL
DESCRIPTION OF COMPANY'S BUSINESS
Telxon Corporation (including its subsidiaries, "Telxon" or the "Company")
designs, manufactures, integrates, markets and supports transaction-based
wireless workforce automation systems. The Company's mobile computing devices
and wireless local area network ("WLAN") products are integrated with its
customers' host enterprise computer systems and third-party wide area networks
("WANs"), enabling mobile workers to process data on a real-time basis at the
point of transaction. Telxon customers' needs to reduce cycle times, improve
asset management and create new services drive their requirements for real-time
information throughout their organizations. Telxon's products are sold worldwide
for use in key vertical markets, including retail, warehouse/logistics and
manufacturing. The Company also serves several segments of the emerging mobile
services market, such as field service, insurance claims processing and work
force automation.
HISTORICAL OVERVIEW
The Company was incorporated in Delaware in 1969 as "Electronic Laboratories,
Inc.", as the successor to a business established in Texas in 1967. The
Company's name was changed to "Telxon Corporation" in 1974.
Telxon completed its initial public offering of 1,600,000 shares of common stock
in July 1983, a secondary offering of 1,150,000 common shares in July 1985, a
$46 million issue of 7-1/2% Convertible Subordinated Debentures due 2012 in June
1987, and an $82.5 million issue of 5-3/4% Convertible Subordinated Notes due
2003 in December 1995. During fiscal 1991, the Company purchased and retired
$21.3 million of the 7-1/2% Debentures, and to date, the holders of $.3 million
of the 7-1/2% Debentures have elected to convert them into common shares.
For more than two decades, the Company has developed and marketed portable
handheld terminals to retailers and wholesalers in the grocery, drug, hardware,
mass merchandising, full-line department store and specialty retail chain
segments. An increasing number of markets outside retail are also adopting
mobile transaction-based systems, including warehouse/logistics, manufacturing
and mobile services.
Telxon pioneered the commercialization of spread spectrum radio frequency ("RF")
technology in WLANs for vertical market applications. Telxon is the leading
supplier of RF-enabled devices, having shipped over 500,000 units to date.
The Company's core mobile computing and wireless data communication products
integrate a wide array of electronic and RF components and advanced data
collection technologies. Through a combination of proprietary
application-specific integrated circuit ("ASIC") technology, data radio
technology and market-responsive packaging, the Company seeks to deliver
cost-effective products that meet the technical and ergonomic needs of the
Company's targeted markets. The Company's wireless data networks are designed
to take advantage of Telxon's patented microcellular network architecture to
allow mobile devices to roam seamlessly through large buildings and groups of
buildings with uninterrupted data flow.
The Company competes in a highly competitive marketplace characterized by
rapidly evolving technology. Certain of the important factors, risks and
uncertainties affecting its business and results of operations are referenced in
the discussion of the Company's business that follows. For a more detailed
discussion of those and other such factors, risks and uncertainties, see
"FACTORS THAT MAY AFFECT FUTURE RESULTS" under "Item 7. "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION" below in this
Form 10-K, which discussion should be read in conjunction with the discussion
under this Item 1.
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TRANSITION TO NEW BUSINESS MODEL
To improve returns to shareholders and to position the Company as a world-class
provider of wireless mobile information system solutions, Telxon's board and
senior management in June 1996 began implementing a new, three-phase business
model focusing on continuous improvement in operations and new product
development.
In the first phase, implemented during fiscal 1997, the Company focused on
continuous improvements in operations and new product development. The Company
implemented a number of programs aimed at reducing the cost of its products
through new design procedures, improved sourcing and model consolidations. The
Company believes this phase has been successful in increasing its gross margin
from an average of approximately 32 percent in the first half of fiscal 1997 to
an average of over 40 percent in fiscal 1998.
The second phase, implemented during fiscal 1997, focused on improving operating
efficiencies and lowering the overall cost of serving the Company's global
markets. Key management changes were made in sales, product marketing, product
development, customer service and operations to drive greater efficiencies
throughout the Company's business processes. The Company believes this phase is
largely completed. Aggregate selling, product development and engineering, and
general and administrative expenses have been reduced on an annual run-rate
basis by approximately $2-$3 million per quarter from peak levels incurred in
the first half of fiscal 1997.
In fiscal 1998, the Company began the consolidation and relocation of certain of
its engineering, product development and customer service operations to Houston,
Texas, in close proximity to its existing manufacturing and National Service
Center operations. This new structure will enable Telxon to realize the benefits
of concurrent engineering and improve its ability to integrate world class
technology and customer service capabilities. In addition to a reduction in its
overall operating costs, the Company expects the consolidation to result in a
reduction of its product development time to market and an enhanced ability to
support its customers on a worldwide basis.
To complete the transition, the Company has begun the third phase of its new
business model, focusing on redesigning Telxon's infrastructure and logistics
systems to address changing market conditions more effectively. As part of its
program of continuous improvement, all operations of the Company will be subject
to ongoing review. In addition, Telxon continues to evaluate alternative
strategies to better reflect the embedded value of investments in its technical
subsidiaries in its market value.
GLOBAL SALES AND MARKETING
The Company's sales in the United States and Canada are made directly through
its own sales force as well as through selected distributors, Value-Added
Resellers ("VARs"), independent software vendors ("ISVs"), system integrators,
OEMs and strategic partners.
The Company's international sales are made through subsidiaries located in
Australia, Belgium, France, Germany, Italy, Japan, Spain and the United Kingdom,
and through distributors in Africa, Asia, Europe, Mexico, the Middle East and
South America. Distributor support offices are located in Belgium, Brazil and
Singapore. (For further information regarding geographical segments and revenues
from the Company's International Division, see Note 13 to the consolidated
financial statements and Item 7, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION.")
No customer accounted for 10% or more of the Company's total revenues in fiscal
1998.
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WORLD CLASS SYSTEMS INTEGRATION WITH VERTICAL MARKET FOCUS
Telxon delivers transaction-based wireless workforce automation systems to its
customers on a world-wide basis. The Company utilizes its global technical
resources to integrate its full line of mobile computing products with a wide
array of operating systems and application software, advanced data collection
technologies and wireless networking systems. The end result is a fully
integrated solution that seamlessly connects the customers' mobile workers with
its host enterprise system, providing them with real-time access to the
information they need. The Company has developed a full menu of system
integration services, including engineering site surveys and project management.
The Company's global technical resources are available in each of its targeted
vertical markets. Telxon employs marketing specialists with industry-specific
knowledge to partner with its direct sales representatives and systems
engineers, VARs and system integrators to provide industry specific solutions
for its customers.
TECHNICAL SUBSIDIARIES
To more fully participate in rapidly growing sectors of the wireless
communications and computing industries, Telxon, in fiscal 1993, began a program
to accelerate advanced research, technology and product development. The major
initiative in this strategy was forming or purchasing new product and
technology companies exhibiting entrepreneurial innovation and leadership.
Telxon also increased its investment in its own research and product
development operations.
Products and technologies that have been identified through this strategy
include:
* Ruggedized mobile computers with wide area radio capabilities
* Wireless pen-based workslates
* Advanced character recognition software
* Advanced 2D bar code encoding and autodiscriminating decode
software
* Advanced image processing
* Advanced 900 Mhz and 2.4 Ghz spread spectrum radios and wireless
networks
* Advanced CPU and ASIC design
The Company's technical subsidiaries have been structured to work together with
its own advanced research and product development resources to design, develop
and produce leading-edge technology products for the future. The Company's
current subsidiaries acquired or formed through this program are detailed below.
Aironet Wireless Communications(TM), Inc.
In January 1994, the Company formed Aironet Wireless Communications,
Inc. ("Aironet"(R)) of Akron, Ohio, to continue development and
marketing of WLAN systems. Aironet was formed from one subsidiary
company and two units of the Company:
* Telesystems SLW, Inc. -- designer and manufacturer of wireless
spread spectrum WLAN radios that was purchased by Telxon in 1992.
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* Aironet and Aironet Wireless Communications are registered
trademarks of Aironet Wireless Communications, Inc.
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* Telxon's Radio and Wireless Network Engineering Group --
designers of advanced spread spectrum radio technology and
network software.
* Telxon's RF Software Engineering Group -- advanced software
designers of universal wireless connectivity systems for
integration to other computer manufacturers' networks.
Aironet developed one of the first commercial applications for spread
spectrum radio technology and currently designs and develops universal
modular WLAN radio products and networks which it sells to Telxon, VARs
and OEMs.
Metanetics(R) Corporation
Metanetics Corporation ("Metanetics") was formed in January 1994 in
Fort Myers, Florida, in part from the acquisition of Metamedia
Corporation of Port Jefferson, New York.
Metanetics develops 2D bar code encoding and autodiscriminating decode
software and advanced image processing technology.
Teletransaction(TM), Inc.
In February 1993, the Company acquired Teletransaction, Inc.
("Teletransaction") of Akron, Ohio. Teletransaction is a developer of
advanced pen and touch-screen wireless mobile workslates for vertical
markets served by the Company.
PenRight!(R) Corporation
In February 1994, the Company acquired PenRight! Corporation
("PenRight!") of Fremont, California. PenRight! is a leading developer
of pen-based character recognition software. PenRight! Pro(R) software
acts as a DOS based software development tool for creating pen-based
applications in Microsoft(R)"C". PenRight! Pro supports ten
international languages. The Company has developed a new version to
support 486 platforms and Pen for Windows(R).
The Company has realized the value of two of its former technical subsidiaries
through sale transactions, under the terms of which the Company retained access
to the technologies developed by the former subsidiaries important to the
Company's business going forward.
In addition to their technological value, the Company's technical subsidiaries
are also a potential source of financial value. The Company sold its ruggedized
notebook computer subsidiary, Itronix Corporation, which it had acquired in
March 1993 for $4 million, to Dynatech Corporation of Burlington, Massachusetts
in December 1996 for $65 million in cash. The Company also sold its head mounted
display subsidiary, Virtual Vision(R), Inc., to FED Corporation of Hopewell
Junction, New York in March 1998 for $5 million in cash and stock. The Company
had acquired Virtual Vision in July 1995 for $3 million.
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* Metanetics is a registered trademark of Metanetics
Corporation.
* Teletransaction is a trademark of Teletransaction, Inc.
* PenRight! and PenRight! Pro are registered trademarks of
PenRight! Corporation.
* Microsoft and Pen for Windows are registered trademarks of
Microsoft Corporation.
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THE COMPANY'S STRATEGIC PLAN FOR AIRONET
Overview
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The Company has been an early leader in the WLAN industry with over 500,000
RF-enabled devices installed, serving over 2,000 customers worldwide. Aironet,
the Company's WLAN subsidiary, has essentially been its sole supplier of
spread-spectrum radios, the key component in a WLAN system. The Company was
Aironet's largest customer in fiscal 1998, representing approximately 55% of
their volume.
The Company and Aironet have identified emerging market opportunities that will
be driven by the evolution of WLAN technologies from proprietary to
open-systems. In June 1997, the long-expected IEEE 802.11 interoperability
standard for WLAN products was ratified. This evolution is expected to expand
market acceptance of WLAN technologies through lower costs, new applications and
new users among the Company's traditional vertical markets and new markets such
as those that serve the occasionally-connected mobile professional or the needs
of the small office/home office. These new markets will adopt WLAN products as a
mobile or flexible low-cost alternative to typical wired-line connections.
Over the last 3 years, the Company has designed and initiated a plan to expand
the Company's and Aironet's leadership in the WLAN industry, maximize the value
of its investment in Aironet and generate increased value for the Company's
shareholders ("Aironet Plan"). Key elements of the Aironet Plan address how the
Company and Aironet can most effectively support their legacy WLAN installed
base, manage and assist customers' transition from proprietary to open WLAN
systems, access and compete in the high growth new emerging markets, and attract
and retain the highest quality technical resources.
Independent Ownership
- ---------------------
The Company believes that as the use of WLAN technology expands and these
emerging opportunities are realized, the incremental value being generated by
Aironet will likely be under-recognized as an embedded asset within the
Company's traditional valuation multiples. In early 1996, The Company and
Aironet initiated discussions with outside advisors and potential investors to
outline and initiate the next phase of the Aironet Plan to expose and unlock
this embedded value.
The Company's board approved a plan to position Aironet as an independent
organization by initiating outside minority ownership and outside participation
on the Aironet board. The plan expects to draw on the prior experience,
expertise and relationships of these outside investors and board members to
help drive the process of increasing and unlocking the value in Aironet and to
assess possible strategies that include a public offering, private sale of
Aironet,a spin-off of the Company's shares in Aironet to the Company's
shareholders or some combination of these alternatives. Aironet, as an
independent organization, is expected to create an entrepreneurial environment,
effective in the competitive recruitment of technical WLAN and RF resources,
utilizing a variety of incentives to key employees including equity
participation and employee stock options.
As a result of Aironet's increased focus of its resources on leading technology
development and these emerging opportunities and the benefits and incentives of
the entrepreneurial environment, the Company expects Aironet to achieve higher
revenues and earnings growth as an independent organization than it would as a
wholly owned subsidiary of the Company.
Manufacturing Rights, Software License and Supply Agreements ("Agreements")
- ---------------------------------------------------------------------------
The Company and Aironet executed various Agreements in March 1998 assured that
the Company's continued access to Aironet's WLAN products and technology
necessary to continue to support its current and future customers WLAN
requirements.
These Agreements provide for the Company to assume full control of sourcing and
support for its own legacy RF product requirements. Since July 1997, the
Company has assumed the sourcing duties for its legacy WLAN product
requirements,
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effectively moving the production management of Aironet's traditional volume to
the Company's Houston-based manufacturing group. Shifting these sourcing duties
to the Company allows Aironet to focus its resources on the development of new
products for current markets and the high growth, high volume emerging markets.
Under these Agreements, the Company pays royalties to Aironet that approximate
the inter-company mark-up amount previously reflected in Aironet's pricing to
the Company, subject to various annual caps, declining rates and sunset
provisions. For example, royalties under the Manufacturing Rights Agreement
become fully paid-up after 3 years or sooner in the event certain reductions in
the Company's ownership in Aironet. The Company has no guarantees or minimum
obligations to Aironet under the Agreements.
The Company and Aironet have also entered into a Supply Agreement which outlines
the terms under which the Company may purchase new products from Aironet,
including recently announced 802.11 compliant products. The Company does not
have manufacturing rights for these new products, with certain exceptions for
discontinued products.
The Company estimates that 85% of its FY 1999 RF requirements will be for legacy
products fulfilled under the manufacturing rights, with the remaining 15% being
new products, including 802.11 compliant products, sourced from Aironet or other
suppliers.
Private Placement Overview
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In late 1997, the Company and Aironet initiated discussions with selected
venture capital firms, soliciting equity investment commitments into Aironet
under terms reflective of a late-stage investment venture and the rights,
benefits and value retained by the Company under the Manufacturing Rights and
Software License, including the various annual caps, declining rates and sunset
provisions on royalties payable to Aironet. These terms, while assuring the
Company's continued and favorable access to Aironet's products and technology,
effectively eliminates over three years or less the legacy product income
Aironet earns from the Company. The value of Aironet to outside investors
therefore is heavily tied to the future success of Aironet's new products and
ability to access the new emerging market opportunities outside the traditional
inter-company business with the Company.
After several months of negotiation, a $3.4 million private placement was
completed in March 1998 with three open commitments (under the same March 1998
terms) totaling $.8 million, completed in April 1998. Aironet issued 1,206,349
shares at $3.50 per share with 361,905 warrants, exercisable within 3 years
under certain conditions, at $3.50.
Other key terms of this $4.2 million private placement include the right for the
investor group to designate one board seat and one observer seat on the Aironet
board, with expanded rights if the Company's ownership interest in Aironet is
reduced below certain levels or in the event of a hostile change of control of
the Company, and three demand registration rights after 12 months or certain
changes in Aironet ownership. Investors who purchased shares in the private
placement will have a one-time opportunity, 90 days after a non-hostile change
in control of the Company to sell their then owned Aironet shares to the
successor within 30 days, at $10.50 per share.
An Aironet stock option plan was adopted in April 1996, and subsequently
amended, which authorized a pool of 1.95 million stock options. Approximately
1.7 million options have been granted at fair market value through June 29, 1998
at exercise prices of $1.86 - $3.50 per share.
As of June 29, 1998, the Company owned 76% of the common shares outstanding in
Aironet and 63% after the effect of all dilutive stock options and warrants.
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Telxon's future growth will depend in part on the success of both its global
sales and marketing efforts and its systems integration and project management
services, as well as further penetration of its targeted vertical markets and
its ability to capitalize on the investment in its technical subsidiaries.
ADVANCED RESEARCH AND PRODUCT DEVELOPMENT
The Company focuses on advanced hardware, software, and firmware designs that
utilize Telxon proprietary ASIC chips. The Company's product development
strategy is to enhance the functionality and improve the price and performance
of its hardware and software, and to improve the packaging of its mobile
computing devices to address the specific requirements of each targeted market.
Products and systems are designed for modularity and the ability to upgrade,
where possible.
There can be no assurance that the Company's research and development activities
will lead to the successful introduction of new or improved products or that the
Company will not encounter delays or problems in connection therewith.
Furthermore, customers may defer purchases of existing products in anticipation
of new or improved versions of those products. Although the Company contemplates
the introduction of new products in fiscal 1999, the majority are scheduled for
introductions in the second half of the year. There can be no assurance that
there will not be delays in commencing volume production of such products or
that such products will ultimately be commercially successful.
During fiscal 1998, 1997 and 1996, the Company spent $37.5 million, $44.4
million and $45.4 million, respectively, for Company-sponsored research,
development and engineering. For further discussion, see "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION -
Operating Expenses."
VIII. MANUFACTURING AND PRODUCT MAINTENANCE
* MANUFACTURING OPERATIONS
Manufacturing operations consist of the assembly, testing and quality
assurance of components, sub-assemblies and finished products. The
Company's products are built and configured with various memory sizes,
packaging, peripherals, keyboards and displays.
In 1994, the Company's principal manufacturing operations were
consolidated into a newly constructed, Company-owned 116,000 square
foot facility. The facility provides a more efficient plant layout and
an opportunity for expansion of manufacturing capacity in the future.
For information regarding subsidiaries' manufacturing operations, see
"Item 2 -- PROPERTIES."
All component parts in the Company's products are purchased from
outside sources. Packaging, custom-integrated circuits, keyboards and
printed circuit boards are produced to the Company's specifications. A
number of peripheral products, including wands, laser scanners,
controllers and receivers, are purchased as completed assemblies and
attached to and staged with Telxon's own products before delivery. Some
products are produced by outside contract manufacturers.
Telxon's International Procurement Office ("IPO") located in Singapore
provides the Company with an opportunity to procure materials from
lower cost, Far East suppliers. As more commodities are procured by the
IPO staff, continued cost savings are expected. The Company has not to
date experienced any adverse effects from its Singapore procurement
operations as the result of the recent economic difficulties
experienced in Southeast Asia, though there can be no assurance that
future events, including government economic regulation, civil unrest
or otherwise, will not materially adversely affect the Singapore
operations and, in turn, the operations and financial results of the
Company.
The Company has in the past encountered, and may in the future
encounter, shortages of supplies and delays in deliveries of necessary
components. While such shortages and delays could have a material
adverse effect on the Company's
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ability to ship products, the Company has not suffered any such effects
as the result of past shortages and delays. Additionally, the Company
does not believe that the loss of any one supplier or subassembly
manufacturer would have a material long-term adverse effect on its
business, although set-up costs and delays could occur if the Company
changed any single source supplier.
* PRODUCT MAINTENANCE OPERATIONS
The Company provides maintenance and repair services for Telxon
customers from its 36,000 square foot National Service Center in
Houston, Texas. The Company also services various third-party products,
including personal computers, printers and communication devices.
During fiscal 1998, the Company began to relocate certain of its
product repair and maintenance operations related to its high volume,
low-end products, to a newly constructed 50,000 square foot leased
facility in Ciudad Juarez, Mexico. The Company also maintains a number
of customer specific service depots to provide service to users with
large concentrations of Telxon products.
The Company offers a broad array of repair services and maintenance
agreements ranging from time and material charges to sophisticated
plans, such as the "just in time" program that offers spare Telxon
equipment supplied on-site to the customer, virtually eliminating any
system downtime.
PRODUCTS AND SYSTEMS
HANDHELDS, WORKSLATES AND OTHER MOBILE COMPUTING DEVICES
The Company has developed a broad line of handheld devices, which range from
low-end batch terminals to highly integrated mobile computers incorporating
laser bar code readers and spread spectrum radios, including a variety of
pen-based and touch-screen workslate devices.
WIRELESS DATA COMMUNICATION PRODUCTS, NETWORK SYSTEMS AND SOFTWARE
Telxon provides wireless data communication solutions for mobile, distributed
data processing application systems through computing devices equipped with
radios to transfer programs or data to and from other computers or peripheral
devices while remaining mobile. The four types of available radios are (1)
spread spectrum (both direct sequence and frequency hopping) radios, (2) wide
area radios, (3) micro radios, and (4) narrow band FM radios. The Company uses
industry standard "open" system protocols to provide seamless connectivity
across a wide range of host computer systems, including SNA and TCP/IP and other
manufacturers' communication networks.
The portable computer wireless local area network markets in which Telxon
participates have exhibited rapid rates of growth, and are projected to continue
to grow rapidly. According to Frost & Sullivan, the worldwide market for
portable computing products totaled roughly $30 billion in 1996, and has grown
at a compound annual rate of over 25 percent from 1992 to 1996. Frost &
Sullivan projects that the major segments of this market will grow at compound
annual rates of between 17-25 percent through 2003.
According to Frost & Sullivan, the North American market for wireless local area
networks totaled approximately $166 million in 1995, and has grown at a
compound annual rate of over 30 percent from 1992 to 1995. Frost & Sullivan
projects this market will continue to grow at this rate through 2002.
Through Aironet, the Company has developed a series of spread spectrum data
radios, access points, repeaters, routers and bridges. The current products use
the 900 Mhz or 2.4 Ghz frequency bands, available utilizing either direct
sequence or frequency hopping technology, at data rates ranging up to 2 Mbps.
These radio products are built upon Telxon's AirAWARE(TM) family of enterprise
software for mobile information solutions, and are integrated with Telxon's
Microcellular Architecture ("TMA") software to build wireless networks.
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The Company has been granted a number of patents for its spread spectrum
technology and was the first company in the wireless industry to receive FCC and
Canadian Department of Communication approval for its spread spectrum radios. In
June 1996, Aironet received approval from the United States Federal
Communication Commission ("FCC") for its new 2.4 Ghz frequency hopping family of
WLAN products, making Aironet the only company that currently designs and
manufactures both 900 Mhz and 2.4 Ghz direct sequence and 2.4 Ghz frequency
hopping spread spectrum radios. The designs of the Company's WLAN systems and
products are based upon the Institute of Electrical and Electronic Engineer's
(IEEE) 802.11 specification for RF protocol standards, which was ratified by the
IEEE Standards Activity Board on June 26, 1997. The Company intends to bring its
systems and products into compliance with the IEEE 802.11 standards. In April
1998, Aironet became the first company in the WLAN industry to break the 10 Mbps
barrier and receive FCC approval for its newly announced 11 Mbps wireless PC
card for operation in the unlicensed 2.4 Ghz ISM band.
Telxon's Air-I/O(TM) System provides 900 Mhz and 2.4 Ghz spread spectrum radio
technology for fast, robust wireless data communications by using spread
spectrum technology and the Company's Gateway Connectivity System(TM)
("GCS"(TM)) to create a wireless interface between Telxon mobile devices and
customers' host computers. The Company's spread spectrum radios are designed to
fit into Telxon's mobile devices and a variety of personal computers (PCs),
client servers and other mobile devices.
The Air-I/O System creates one or more radio cells, with each cell supporting an
area of coverage. TMA allows mobile devices to move from cell to cell while
maintaining a wireless connection to the host computer. Implementation of the
system have included an installation providing coverage for over 4 million
square feet.
The Company makes a line of base station and client/server card transceivers
that interface portable wireless products with a client/server or mainframe. The
Company also offers customers optional built-in acoustic couplers and integrated
modems that allow data transmission from remote telecommunication locations into
a host computer or client servers.
Third-party wide area network radios are integrated with the Company's mobile
computing devices for access to wireless wide area packet data networks such as
ARDIS(R), RAM(R), or CDPD.
"Micro radios" are small, low-power FM radios designed and manufactured by the
Company and integrated into Telxon mobile devices and peripherals to provide
cable-free data communications between system components.
Narrow band FM radios from major manufacturers have been provided by Telxon
since 1984. These radios operate in the 450 Mhz band and require FCC site
licensing.
Subsequent to March 31, 1998, the Company announced ShopKeeper(TM), a low cost
wireless solution that will enable retail chains with small store formats to
link their in-store processors, POS systems and wireless mobile computers
together on the same network. ShopKeeper(TM) is based on the new Company's
MiniNet(TM) 2.4 Ghz radio and new low cost Connection Manager, which combine
with AirAWARE to create a single cell wireless network supporting up to eight
Telxon wireless PTC-921 DOS or PTC-960LE mobile computers for a single site
retail environment.
- ----------
* Air-I/O, AirAWARE, Gateway Connectivity System and GCS
are trademarks of Telxon Corporation.
* ARDIS is a registered trademark of IBM Corporation and
Motorola Corporation.
* RAM is a registered trademark of RAM Mobile Data, Inc.
* ShopKeeper and MiniNet are trademarks of Telxon Corporation.
10
<PAGE> 12
PERIPHERALS
The Company integrates a variety of peripheral products into or with its regular
product line, including laser bar code readers (internal and external), modular
printers (24, 40 and 80 columns), chargers, cradles, modems and communication
interfaces. Many of these products or components are purchased from outside
vendors.
SOFTWARE OPERATING SYSTEMS, LANGUAGES AND APPLICATIONS
The Company is transitioning to a new generation of modularly designed mobile
computers, which embrace thin-client, industry standard, open systems
architectures in order to offer its customers access to a multitude of operating
systems, including Windows NT(R), Windows CE(R) and Windows 95(R) and Sun
Microsystems' JavaOS(TM) and HotJava(TM) Browser.
The Company develops, through its PenRight! and Metanetics subsidiaries,
advanced character recognition software, advanced image processing and 2D bar
code encoding and autodiscriminating decode software.
INTELLECTUAL PROPERTY
The Company regards certain of its hardware and software products as proprietary
and relies on a combination of United States and foreign patent, copyright,
trademark and trade secret laws and license and other contractual
confidentiality provisions to protect its proprietary rights. In addition, the
Company's products also utilize hardware and software technologies licensed from
third parties. Given the rapidly changing nature of the industry's technology,
however, the competence and creative ability of the Company's development,
engineering, programming, marketing and service personnel may be as or more
important to its competitive position as the legal protections and rights
afforded by patent and other owned or licensed intellectual property rights. The
Company believes that its products and trademarks do not infringe on the rights
of third parties, but there can be no assurance that third parties will not
assert infringement claims.
GOVERNMENT REGULATION
The Company believes that its products are in material compliance with current
government regulations; however, regulatory changes may require modifications to
Company products in order for the Company to continue to be able to manufacture
and market these products. There can be no assurances that more stringent
regulations will not be issued in the future which could have an adverse effect
on the business of the Company. In addition, sales of the Company's products
could be adversely affected if more stringent safety standards are adopted by
customers.
Certain Company products intentionally transmit radio signals as part of their
normal operation. These products are subject to regulatory approval by the FCC
and corresponding authorities in each country in which they are marketed. Such
approvals are typically valid for the life of the product unless and until the
circuitry of the product is altered in material respects, in which case a new
approval may be required.
BACKLOG
Backlog at any particular date is dependent on timing of receipt of orders and,
therefore, is not a reliable indicator of future sales over an extended period
of time.
- --------------
* Windows NT, Windows CE and Windows 95 are registered
trademarks of Microsoft Corporation.
* JavaOS and HotJava Browser are trademarks of Sun Microsystems,
Inc.
11
<PAGE> 13
Historically, shipments made by the Company during any particular quarter have
generally represented orders received either during that quarter or shortly
before the beginning of that quarter, and shipments for orders received in a
fiscal quarter have generally been filled from products manufactured in that
quarter. The Company maintains significant levels of raw materials to facilitate
meeting delivery requirements of its customers, but there can be no assurance
that during any given quarter, the Company has or can procure the appropriate
mix of raw materials in order to accommodate such orders. Therefore, the
Company's financial performance in any quarter has generally been dependent to a
significant degree upon obtaining orders in that quarter which can be
manufactured and delivered to its customers in that quarter. As a result,
financial performance for any given quarter cannot be known or fully assessed
until near the end of that quarter. However, the Company's product line
streamlining and standardization initiatives are intended, among other things,
to reduce its dependence on same quarter sales fulfillment through normalized
production levels. There can be no assurances that such initiatives will be
successfully implemented or produce the intended benefits.
COMPETITION
The computer industry, of which Telxon's mobile computing systems are a part, is
highly competitive and characterized by advances in technology which frequently
result in the introduction of new products with improved performance
characteristics. Failure to keep pace with product and technological advances
could negatively affect the Company's competitive position and prospects for
growth and, in turn, its business, results of operations and financial
condition.
The Company competes directly and indirectly with a number of companies in its
market segments. Frequent competitors include Symbol Technologies, Inc.,
Holtsville, New York, and the Intermec and Norand divisions of UNOVA, Inc.,
Beverly Hills, California. In addition, companies that are participants in the
broader computer industry are potential competitors. Some of the Company's
competitors and potential competitors have substantially greater financial,
technical, intellectual property, marketing and human resources than the
Company.
EMPLOYEES
As of May 31, 1998, the Company employed approximately 1,550 full-time
personnel. The Company also employs temporary production and other personnel.
12
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
SUMMARY
The following table sets forth for the periods indicated (1) certain expense and
income items expressed as a percentage of total revenues, and (2) the percentage
increase or decrease of such items as compared to the corresponding prior
period. This table and the textual discussion and analysis which follows should
be read in conjunction with the accompanying consolidated financial statements,
including the notes thereto, for each of the three years in the period ended
March 31, 1998, as included in Item 8 herein.
<TABLE>
<CAPTION>
PERIOD TO PERIOD
PERCENTAGE OF TOTAL REVENUES INCREASE(DECREASE)
---------------------------- --------------------
1998 1997
YEAR ENDED MARCH 31, COMPARED COMPARED
1998 1997 1996 TO 1997 TO 1996
---- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C>
Product revenues, net ...................... 83.5% 84.0% 85.9% (.6)% (6.3)%
Customer service revenues, net ............. 16.5 16.0 14.1 2.9 8.5
----- ----- -----
Total net revenues ................ 100.0 100.0 100.0 N.M. (4.2)
Cost of product revenues ................... 49.0 57.2 51.2 (14.4) 7.0
Cost of customer service revenues .......... 10.5 10.1 8.0 3.4 21.1
Selling expenses ........................... 16.7 19.0 17.0 (11.8) 7.4
Product development and engineering expenses 8.0 9.5 9.3 (15.6) (2.1)
General and administrative expenses ........ 8.4 11.5 8.1 (26.7) 35.1
----- ----- -----
92.6 107.3 93.6 (13.7) 9.8
----- ----- -----
Income (loss) from operations ..... 7.4 (7.3) 6.4 201.4 (208.1)
Interest income ............................ .3 .3 .2 5.6 95.9
Interest expense ........................... (1.5) (1.7) (1.4) (10.9) 19.0
Gain on sale of subsidiary stock ........... .3 -- .2 N.M. N.M.
Other non-operating (expense) income ....... (.3) 7.5 .1 N.M. N.M.
----- ----- -----
Income (loss) before income taxes
and cumulative effect of an
accounting change ................. 6.2 (1.2) 5.5 607.0 (121.2)
Provision for income taxes ................. 2.7 .3 2.1 807.0 (86.7)
----- ----- -----
Net income (loss) before cumulative
effect of an accounting change .... 3.5 (1.5) 3.4 333.0 (142.7)
----- ----- -----
Cumulative effect of an accounting change,
net of taxes ............................. .2 -- -- N.M. --
----- ----- -----
Net income (loss) ................. 3.3% (1.5)% 3.4% 4.8% (142.7)
===== ===== =====
</TABLE>
19
<PAGE> 15
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-K 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 THIS FORM 10-K FOR A DISCUSSION OF THE IMPORTANT
FACTORS AFFECTING THE REALIZATION OF THOSE RESULTS.
OVERVIEW
For fiscal 1998, the Company recorded income before the cumulative effect of an
accounting change of $16.4 million or $1.01 per share. This compares to a net
loss of $7.1 million or $.44 per share for fiscal 1997. Inflation has not had a
significant impact on the Company's consolidated results of operations.
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 this Form 10-K, 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 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 generally (both domestic and foreign) as well as
those specific to the industry 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.
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, but
there can be no assurance that during any given quarter, the Company has or can
procure the appropriate mix of purchased components to accommodate such orders.
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. As a result, 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
20
<PAGE> 16
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 Company's sales efforts have increasingly been focused on sales, both by
the Company directly and though OEMs, VARs, ISVs and other indirect sales
channels, of complete data transaction systems rather than on sales of handheld
computer products alone. System sales tend to be more costly and, therefore,
require a longer selling cycle, longer payment terms and more complex
integration and installation services.
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 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 with those products. 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. Among other factors,
the economic condition and prospects of current and prospective customers in the
markets which the Company serves may affect the Company's own financial results.
The Company's future growth depends, in part, on its ability to successfully
penetrate and expand its revenues in new markets as well as increased
penetration in the retail market. There can be no assurance that penetration and
expansion into new and existing markets can be profitably 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.
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 that
are substantially equivalent or superior to or otherwise circumvent the
Company's technologies and proprietary rights.
21
<PAGE> 17
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 single source suppliers, 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 products,
sub-assemblies and components from its third party suppliers. Such shortages and
delays, or should any third party supplier become unable or unwilling to supply
such items to the Company consistent with the Company's volume and quality
requirements, could have a materially adverse effect on the Company's ability to
ship products, and, in turn, its business and results of operations could be
materially adversely affected.
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,
the Company is subject to similar risks in its procurement of certain of its
products, components and sub-assemblies outside the United States. As a
particular instance, the financial press has widely reported the significant
economic difficulties being experienced by a number of Asian economies. While
the Company's cost of doing business in the affected countries has declined as
a result of those difficulties, the revenues derived from such countries are
likely to be adversely affected by those difficulties. Since sales to Asia have
historically not been material in amount, the Company does not believe that the
economic difficulties in Asia of the nature, scope and extent recently
experienced will have a material adverse effect of the Company's results of
operations. However, in the event of a significant adverse change in Asian
business conditions due to government economic regulation, civil unrest or
otherwise, or should the economic difficulties in such countries spread or
have an adverse impact of business activities in North America, Europe and/or
elsewhere in the world, the Company's results of operations could be
materially adversely affected.
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
22
<PAGE> 18
not arise in the future and will not have a materially adverse effect on the
Company's business.
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-K 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 "Item 3. LEGAL PROCEEDINGS", and in Note 18 to the financial
statements included below in Item 8 in this Form 10-K.
READINESS FOR THE YEAR 2000
Customary computer programming practices, developed prior to the upcoming change
in the century becoming a concern, have used two digits rather than four to
identify the year in date fields. 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,
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 under
"FINANCIAL CONDITION - Cash Flows from Investing Activities" below, the Company
is working with outside contractors to develop and install a new corporate-wide
information system. The new system was identified as a strategic business
initiative independent of Year 2000 considerations. While the new information
system will be a dynamic one 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 $23.0 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 system which would require correction for Year 2000 issues
will be superseded as part of this larger, new system installation, which is
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
23
<PAGE> 19
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 resulting from Year 2000
issues could also materially adversely affect the Company.
24
<PAGE> 20
RESULTS OF OPERATIONS
REVENUES
1998 VS. 1997
The table below sets forth the consolidated net revenues of the Company for
fiscal 1998 and 1997, without adjustments for the sale of its former Itronix
Corporation ("Itronix") subsidiary, which was effective December 31, 1996. As
further explained below, after adjusting fiscal 1997 revenues to exclude the
Itronix operations, consolidated revenues from the Company's continuing
operations increased $63.7 million or 15.8%, as compared to fiscal 1997.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, INCREASE (DECREASE)
-------------------- -------------------
1998 1997 DOLLAR PERCENTAGE
---- ---- ------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Product, net .............. $389,124 $391,406 $(2,282) (0.6)%
Customer service, net ..... 76,746 74,606 2,140 2.9 %
-------- -------- -------
Total net revenues $465,870 $466,012 $ (142) N.M.
======== ======== =======
</TABLE>
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 and software licenses; and a variety of
professional services, including system integration and project management.
Consolidated product revenues from continuing operations increased $60.4 million
or 18.5% during fiscal 1998 as compared to fiscal 1997. The reported results of
fiscal 1997 included $62.6 million of product revenues recorded by Itronix. The
increase in consolidated product revenues was due to a 19.9% increase in
consolidated volume with a 2.1% reduction in the average selling price per PTC
unit. The increase in consolidated volume was comprised of a 10.0% increase in
non pen-based units, reflecting continued growth in customers' demand for the
Company's newer, more sophisticated units, and a 53.4% increase in pen-based
unit volume, the result of the Company's development and increased market
penetration of its more powerful workslate models. The Company expects increased
consolidated product revenues in fiscal 1999.
The $3.3 million or 4.5% increase in consolidated customer service revenues from
continuing operations during fiscal 1998 as compared to fiscal 1997 was due
primarily to the continued increase in the installed base of the Company's
products, in turn generating increased maintenance and "time & material"
billings. Consolidated customer service revenue, as a percentage of consolidated
product revenue, has remained relatively constant, 21.1% in fiscal 1998 vs.
23.7% in fiscal 1997, illustrating the correlative relationship between
consolidated customer service revenue and consolidated product revenues. The
Company anticipates increased consolidated customer service revenues in fiscal
1999.
The Company's international operations (including Canada) provided revenues of
$133.7 million and $134.2 million in fiscal 1998 and 1997, respectively. This
slight decrease was the result of the $6.5 million decline in Canadian sales
caused by the relocation of the Aironet Canadian operations to Akron, Ohio
during the second and third quarters of fiscal 1998 partially offset by the $6.0
million of increased revenue reported by the Company's other foreign
subsidiaries, primarily the Company's subsidiaries in the United Kingdom and
Germany, as well as increased sales to foreign distributors. The strength of the
United States dollar against the local, functional currencies of certain of the
Company's foreign subsidiaries negatively impacted international revenues by
$6.2 million or 6.3% during fiscal 1998 as compared to the $3.3 million or 3.4%
foreign currency effect of fiscal 1997.
25
<PAGE> 21
1997 VS. 1996
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, INCREASE (DECREASE)
-------------------- -------------------
1997 1996 DOLLAR PERCENTAGE
---- ---- ------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Product, net .................... $391,406 $417,725 $(26,319) (6.3)%
Customer service, net............ 74,606 68,744 5,862 8.5%
-------- -------- --------
Total net revenues .............. $466,012 $486,469 $(20,457) (4.2)%
======== ======== ========
</TABLE>
The decrease in consolidated product revenues in fiscal 1997 from fiscal 1996
levels was due primarily to the absence in the fourth quarter of product
revenues from Itronix as the result of the sale of that subsidiary's business at
December 31, 1996. During the fourth quarter of fiscal 1996, Itronix recorded
total product revenues of $30.8 million. The Company's fiscal 1997 and 1996
consolidated product revenues, adjusted for the sale of Itronix by excluding
Itronix total product revenues of $62.6 million for the first nine months of
fiscal 1997 and $61.5 million for the twelve months of fiscal 1996, amounted to
$328.8 million and $356.2 million, respectively. In addition to the impact of
the sale of Itronix, the Company's fiscal 1997 product revenues were negatively
impacted by a decrease in PTC unit volume that was partially offset by an
increase in the average selling price per PTC unit. The increased average
selling price per PTC unit was primarily due to the increase in the Company's
sales volume of comprehensive wireless systems and other more complex and costly
products (such as pen-based and touch-screen workslates) as a percentage of
total product revenues.
The increase in consolidated customer service revenue in fiscal 1997 from fiscal
1996 levels was due primarily to the continued increase in the installed base of
the Company's products.
Revenues from the Company's international operations (including Canada) were
$134.2 million and $123.5 million in fiscal 1997 and 1996, respectively. This
increase was primarily attributable to increased revenues recorded by the
Company's Australian subsidiary and certain of its Canadian operations as well
as increased sales to foreign distributors. The strengthening of the United
States Dollar against the local, functional currency of certain of the Company's
foreign subsidiaries negatively impacted international revenues by $3.3 million
or 3.4% during fiscal 1997 as compared to less than $.1 million or .3% in fiscal
1996.
COST OF REVENUES
1998 VS. 1997
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, INCREASE (DECREASE)
-------------------- -------------------
1998 1997 DOLLAR PERCENTAGE
---- ---- ------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Product ......................... $228,318 $266,624 $(38,306) (14.4)%
Customer service ................ 48,836 47,248 1,588 3.4 %
-------- -------- --------
Total cost of revenues .......... $277,154 $313,872 $(36,718) (11.7)%
======== ======== ========
Cost of product revenues as a
percentage of product revenues,
net ........................... 58.7% 68.1%
Cost of customer service revenues
as a percentage of customer
service revenues, net ......... 63.6% 63.3%
</TABLE>
The consolidated cost of product revenues from continuing operations increased
$5.4 million or 2.4% during fiscal 1998 as compared to fiscal 1997. The reported
consolidated results of fiscal 1997 included $43.7 million of cost of product
revenue recorded by Itronix. The increase in cost of product revenue from
continuing operations is directly related to the increase in consolidated
product revenue. Consolidated product gross margins from continuing operations
increased to 41.3% in fiscal 1998 from 35.4% in fiscal 1997, due primarily to
the absence of non-recurring
26
<PAGE> 22
charges recorded in fiscal 1997 for the decreased carrying value of the
inventory affected by the streamlining of the Company's product lines ($7.2
million) and the Company's workforce reduction and early retirement initiatives
($1.8 million). Fiscal 1998's consolidated product gross margin was also
positively impacted by the reduced provisions for inventory obsolescence due to
improved inventory management and the streamlining of the Company's product
offerings. The Company expects fiscal 1999 product gross margins to remain
consistent with the levels recorded during fiscal 1998.
Consolidated inventory allowance accounts decreased to $11.5 million at March
31, 1998, from $16.0 million at March 31, 1997. This decrease was primarily the
result of the physical disposition of $9.1 million of fully reserved obsolete
material during fiscal 1998 that had previously been identified during the
streamlining of the Company's product lines in fiscal 1997, partially offset by
the continued provision for inventory obsolescence. As a percentage of
consolidated gross inventories, the Company's consolidated inventory allowances
decreased to 9.6% at March 31, 1998, from 15.9% at March 31, 1997.
<TABLE>
<CAPTION>
1997 VS. 1996
YEAR ENDED MARCH 31, INCREASE
-------------------- --------
1997 1996 DOLLAR PERCENTAGE
---- ---- ------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Product .............................. $266,624 $249,120 $ 17,504 7.0%
Customer service ..................... 47,248 39,016 8,232 21.1%
-------- -------- --------
Total cost of revenues ............... $313,872 $288,136 $ 25,736 8.9%
======== ======== ========
Cost of product revenues as a
percentage of product revenues,
net ................................ 68.1% 59.6%
Cost of customer service revenues
as a percentage of customer
service revenues, net .............. 63.3% 56.8%
</TABLE>
The increase in the fiscal 1997 consolidated product revenues cost percentage
from fiscal 1996 levels was primarily due to non-recurring charges recorded
during the third quarter of fiscal 1997. These non-recurring items included
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, which accounted
for approximately $7.2 million and $1.8 million or 2.7% and .7%, respectively,
of the fiscal 1997 consolidated cost of product revenues. In addition to the
impact of these non-recurring charges, product gross margins declined from
fiscal 1996 levels due to an increase in the amount of large-volume/low margin
business and early stage rollouts of new products during 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 reduced the fiscal 1996 consolidated product revenues cost percentage by
approximately 1%.
The increase in the fiscal 1997 consolidated customer service cost percentage
from fiscal 1996 levels was primarily due to non-recurring charges recorded
during the third quarter of fiscal 1997 as well as the increased direct material
and labor costs required to repair the Company's more sophisticated and complex
products. These non-recurring items, which included provisions for the decreased
carrying value of the Company's service inventories affected by the streamlining
of its product lines and charges related to the consolidation of field service
operations, accounted for approximately $1.0 million or 2% of the fiscal 1997
consolidated cost of customer service revenues.
For the year ended March 31, 1997, inventory allowance accounts increased to
$16.0 million from $10.1 million at March 31, 1996. As a percentage of gross
inventories, inventory allowances increased to 15.9% at March 31, 1997, from
8.3% at March 31, 1996. The increase in the inventory allowance accounts as well
as the increase in the
27
<PAGE> 23
allowance as a percentage of gross inventories reflects the additional
provisions recorded primarily during the third quarter of fiscal 1997 in
conjunction with the Company's streamlining of its product lines.
OPERATING EXPENSES
1998 VS. 1997
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, (DECREASE)
-------------------- ----------
1998 1997 DOLLAR PERCENTAGE
---- ---- ------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Selling expenses ............ $ 77,858 $ 88,321 $(10,463) (11.8)%
Product development and
engineering expenses ...... 37,500 44,439 (6,939) (15.6)%
General and administrative...
expenses .................. 39,028 53,230 (14,202) (26.7)%
-------- -------- --------
Total operating expenses .... $154,386 $185,990 $(31,604) (17.0)%
======== ======== ========
</TABLE>
Consolidated selling expenses as a percentage of total revenues were 17% and 19%
in fiscal 1998 and 1997, respectively. The selling expenses reported in fiscal
1997 included $6.2 million of selling expenses recorded by Itronix. Consolidated
selling expenses from continuing operations decreased $4.3 million or 6% in
fiscal 1998 from fiscal 1997. The decrease in consolidated selling expenses
from continuing operations was due primarily to the absence of the $6.0 million
of non-recurring charges recorded during fiscal 1997 related to the Company's
workforce reduction and early retirement initiatives and the redesign of the
Company's worldwide distribution and logistics operations. This reduction was
partially offset by increased marketing expenses during fiscal 1998 related to
the creation of a new product marketing group as well as Aironet's increased
emphasis on the development of its external sales and the building of greater
customer awareness and name recognition. The Company expects fiscal 1999
selling expenses as a percentage of total revenues to remain generally
consistent with the fiscal 1998 percentage.
Product development and engineering expenses as a percentage of total revenues
were 8% in fiscal 1998 as compared to 10% in fiscal 1997. The Company's fiscal
1997 consolidated results included $5.2 million of product development and
engineering expenses incurred by Itronix. Product development and engineering
expenses from continuing operations decreased $1.7 million or 4% in fiscal 1998
from fiscal 1997. This decrease was the result of the absence of $2.2 million of
non-recurring charges related to the Company's workforce reduction and early
retirement initiatives recorded during fiscal 1997, offset by the expenses
incurred in fiscal 1998 to relocate certain of the Company's engineering and
product development operations from Akron, Ohio to Houston, Texas. The Company
expects its fiscal 1999 product development and engineering expenses to decrease
from fiscal 1998 due to the absence of relocation expenses as well as the
benefit derived from the consolidation of its engineering and product
development operations.
During fiscal 1998, the Company capitalized internal software development costs
in accordance with the requirements of the Financial Accounting Standards Board
("FASB") Statement of Financial Accounting Standards No. 86, "Accounting for the
Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed" ("SFAS No.
86") aggregating $.5 million, net of amortization of $6.4 million. The Company
expects the capitalization of internal software development costs in fiscal 1999
to continue at fiscal 1998 levels.
General and administrative expenses as a percentage of total revenues were 8% in
fiscal 1998 as compared to 11% in fiscal 1997. The decrease in consolidated
general and administrative expenses during fiscal 1998 was due primarily to the
absence of the $5.9 million of non-recurring charges related to the Company's
workforce reduction and early retirement initiatives, corporate information
systems and certain consulting agreements as well as the $5.5 million charge
related to the retirement of Robert F. Meyerson, the Company's former Chairman
and CEO, all of which were recorded during fiscal 1997. The Company expects
fiscal 1999 general and administrative
28
<PAGE> 24
expenses as a percentage of total revenues to remain generally consistent with
the percentage recorded during fiscal 1998.
1997 VS. 1996
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, INCREASE (DECREASE)
-------------------- -------------------
1997 1996 DOLLAR PERCENTAGE
---- ---- ------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Selling expenses ............................. $ 88,321 $ 82,207 $ 6,114 7.4%
Product development and
engineering expenses ....................... 44,439 45,383 (944) (2.1)%
General and administrative ...................
expenses ................................... 53,230 39,415 13,815 35.1%
-------- -------- --------
Total operating expenses ..................... $185,990 $167,005 $ 18,985 11.4%
======== ======== ========
</TABLE>
Selling expenses as a percentage of total revenues were 19% in fiscal 1997 as
compared to 17% in fiscal 1996. The increase in the fiscal 1997 consolidated
selling expenses as a percentage of total revenues from fiscal 1996 levels was
primarily due to non-recurring charges recorded during the third quarter of
fiscal 1997. These non-recurring items included 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. In total, these non-recurring items accounted for approximately
$6.0 million or 7% of the selling expenses recorded during fiscal 1997.
Product development and engineering expenses as a percentage of total revenues
were 10% in fiscal 1997 as compared to 9% in fiscal 1996. Included in the
Company's fiscal 1997 consolidated product development and engineering expenses
were non-recurring charges related to the Company's workforce reduction and
early retirement initiatives and the consolidation of certain product
development and engineering functions. These non-recurring charges, which were
recorded during the third quarter of fiscal 1997 and accounted for approximately
$2.2 million or 5% of the fiscal 1997 consolidated product development and
engineering expenses, were substantially offset by the absence of fourth quarter
product development and engineering expenses of Itronix. During the fourth
quarter of fiscal 1996, Itronix recorded product development and engineering
expenses of approximately $1.6 million. Included in the Company's consolidated
fiscal 1997 results were approximately $5.2 million of product development and
engineering expenses incurred by Itronix during the first nine months of fiscal
1997. The Company's fiscal 1996 consolidated results included approximately $4.4
million of product development and engineering expenses incurred by Itronix.
Additionally, Itronix's fiscal 1996 product development and engineering expenses
included a $1.0 million reimbursement from a customer for certain development
expenses incurred by Itronix during fiscal 1996 specific to that customer.
During fiscal 1997, the Company capitalized internal software development costs
in accordance with the requirements of SFAS No. 86 aggregating $3.9 million, net
of amortization of $3.8 million.
General and administrative expenses as a percentage of total revenues were 11%
in fiscal 1997 and 8% in fiscal 1996. The increase in the Company's fiscal 1997
consolidated general and administrative expenses from fiscal 1996 levels was
primarily due to non-recurring charges recorded during the third and fourth
quarters of fiscal 1997. The non-recurring third quarter items, which included
charges related to the Company's workforce reduction and early retirement
initiatives, corporate information systems, and certain consulting agreements,
accounted for approximately $5.9 million or 11% of the fiscal 1997 consolidated
general and administrative expenses. During the fourth quarter of fiscal 1997,
the Company recorded a non-recurring charge of $5.5 million or 10% of the fiscal
1997 consolidated general and administrative expenses related to the retirement
of Robert F. Meyerson. The $5.5 million was comprised of $2.5 million cash
payment for the non-renewal of the Company's consulting agreement with a company
affiliated with Mr. Meyerson and a $3.0 million cash retirement package.
Included in the Company's fiscal 1997 consolidated results were approximately
$1.8 million of general and administrative expenses incurred by Itronix for the
first nine months of fiscal 1997. The Company's fiscal
29
<PAGE> 25
1996 consolidated results included approximately $1.8 million of general and
administrative expenses incurred by Itronix.
INTEREST EXPENSE
1998 VS. 1997
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, INCREASE (DECREASE)
-------------------- -------------------
1998 1997 DOLLAR PERCENTAGE
---- ---- ------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income ......... $ 1,573 $ 1,489 $ 84 5.6 %
Interest expense ........ (7,181) (8,056) (875) (10.9)%
-------- -------- --------
Net interest expense .... $ (5,608) $ (6,567) $ (959) (14.6)%
======== ======== ========
</TABLE>
Net interest expense as a percentage of revenues was approximately 1% in both
fiscal 1998 and fiscal 1997. The decrease in the Company's consolidated net
interest expense between fiscal 1998 and fiscal 1997 was the result of the
decrease in the Company's use of its credit agreements. The Company had a
weighted average of $3.5 million outstanding under its credit agreements during
fiscal 1998 as compared to a weighted average of $7.8 million outstanding during
fiscal 1997. This was partially offset by an increase in the weighted average
interest rate (8.9% per annum in fiscal 1998 as compared to 7.0% per anum in
fiscal 1997).
1997 VS. 1996
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, INCREASE
-------------------- --------
1997 1996 DOLLAR PERCENTAGE
---- ---- ------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income ......... $ 1,489 $ 760 $ 729 95.9%
Interest expense ........ (8,056) (6,770) 1,286 19.0%
-------- -------- --------
Net interest expense .... $ (6,567) $ (6,010) $ 557 9.3%
======== ======== ========
</TABLE>
Net interest expense as a percentage of revenues was approximately 1% in both
fiscal 1997 and 1996. The increase in the Company's fiscal 1997 consolidated net
interest expense from fiscal 1996 was primarily due to the fact that the
Company's 5-3/4% convertible subordinated notes, which were issued during the
third quarter of fiscal 1996, were outstanding for the entire 1997 fiscal year.
INCOME TAXES
1998 VS. 1997
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, INCREASE (DECREASE)
-------------------- -------------------
1998 1997 DOLLAR PERCENTAGE
---- ---- ------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Provision for income taxes...... $ 12,408 $ 1,368 $11,040 N.M.
</TABLE>
The Company's consolidated effective tax rate was 43% in fiscal 1998 as compared
to 24% in fiscal 1997. The consolidated effective tax rate for fiscal 1998
reflects income before taxes multiplied by the United States federal statutory
tax rate. This was increased by nondeductible goodwill amortization, other
miscellaneous items such as state income tax expense and tax reserve and
international rate differentials. The effective tax rate was decreased by
research and development credits and the favorable tax treatment of the foreign
sales corporation.
30
<PAGE> 26
1997 VS. 1996
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, (DECREASE)
-------------------- ----------
1997 1996 DOLLAR PERCENTAGE
---- ---- ------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Provision for income taxes........ $ 1,368 $ 10,314 $ (8,946) (86.7)%
</TABLE>
The Company's consolidated effective tax rate was 24% in fiscal 1997 and 38% in
fiscal 1996. The consolidated effective tax rate for fiscal 1997 reflects income
before taxes multiplied by the United States federal statutory tax rate. The
rate was increased by the net taxes on repatriated foreign earnings,
nondeductible goodwill amortization, international rate differentials and
separate company net operating loss benefits not currently utilized. The
effective tax rate was decreased by research and development credits and the
favorable tax treatment of the foreign sales corporation. The credit for
increasing research and development expenditures, which had expired at June 30,
1995, was reinstated at July 1, 1996. There were no other significant tax law
changes during fiscal 1997 that had a significant effect on the calculation of
the income tax liability.
The consolidated effective tax rate for fiscal 1996 reflects income before taxes
increased by nondeductible goodwill amortization, the sum of which was
multiplied by the United States federal statutory tax rate and increased by
international tax rate differentials. The increase in the consolidated effective
tax rate arising from the addition of nondeductible goodwill and international
tax rate differentials was partially offset by research and development credits
earned through the first quarter of fiscal 1996 and benefits from research and
development credit carryforwards from prior fiscal years.
NON-OPERATING INCOME
1998 VS. 1997
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, INCREASE (DECREASE)
-------------------- -------------------
1998 1997 DOLLAR PERCENTAGE
---- ---- ------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Gain on sale of subsidiary
stock............................... $ 1,637 $ -- $ 1,637 N.M.
Other non-operating (expense)
income.............................. (1,504) 34,726 (36,230) N.M.
-------- -------- --------
Total non-operating income............ $ 133 $ 34,726 $(34,593)
======== ======== ========
</TABLE>
During fiscal 1998, the Company sold 984,126 shares of voting common stock of
its Aironet subsidiary to third-party investors at a price of $3.50 per share.
Proceeds from this sale of stock totaled $3.4 million. The resulting pre-tax
gain of $.4 million, net of related transaction costs, was recorded as
non-operating income in the accompanying consolidated statement of operations.
The Company's remaining interest in the voting common stock of Aironet at March
31, 1998, was 78%, as compared to 90% at March 31, 1997.
During fiscal 1998, certain employees of the Company's Aironet subsidiary
exercised 270,000 options to purchase Aironet voting common stock at $1.86 per
share. The pre-tax gain of $.2 million was recorded as non-operating income in
the accompanying consolidated statement of operations.
Effective March 31, 1998, the Company sold the stock of its Virtual Vision
subsidiary to a third party in exchange for $.5 million in cash and $4.5 million
in Series F Preferred Shares of FED Corporation at a value of $6.00 per share or
750,000 shares. The Company recorded a pre-tax gain of $.7 million, net of
transaction costs, as non-operating income in the accompanying consolidated
statement of operations.
During fiscal 1997, the Company also engaged in a certain transaction involving
the stock of its Aironet subsidiary, which, as further discussed in Note 16 of
the accompanying consolidated financial statements, resulted in a deferred gain
at March 31, 1997, as the criteria for the recognition of gain on the sale of
31
<PAGE> 27
subsidiary stock had not been met. During fiscal 1998, the criteria for the
recognition of gain on the sale of subsidiary stock were fulfilled and
accordingly, the $1.0 million of deferred gain was recorded as non-operating
income in the accompanying consolidated statement of operations.
During the fourth quarter of fiscal 1998, the Company recorded $1.4 million of
non-operating expense related to the revaluation of certain non-marketable
investments.
1997 VS. 1996
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, INCREASE (DECREASE)
-------------------- -------------------
1997 1996 DOLLAR PERCENTAGE
---- ---- ------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Gain on sale of subsidiary
stock............................ $ -- $ 1,116 $ (1,116) N.M.
Other non-operating income......... 34,726 401 34,325 N.M.
-------- ------- --------
Total non-operating income......... $ 34,726 $ 1,517 $ 33,209 N.M.
======== ======= ========
</TABLE>
Effective December 31, 1996, the Company sold substantially all of the assets of
Itronix, with a net book value of $30.8 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 $8.2 million. The transaction resulted in a $32.7 million gain, net of
transaction costs of $10.3 million, which was recorded as other non-operating
income in the accompanying consolidated statement of operations. The buyer is
entitled to customary indemnification from the Company with respect to retained
liabilities and taxes. 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.
During fiscal 1997, the Company also engaged in certain transactions involving
the stock of its Aironet and Metanetics Subsidiaries, which transactions, as
further discussed in Note 16 of the accompanying consolidated financial
statements, had no net effect on the Company's consolidated non-operating
income.
FINANCIAL CONDITION
LIQUIDITY
1998 VS. 1997
<TABLE>
<CAPTION>
MARCH 31, DOLLAR
--------- INCREASE
1998 1997 (DECREASE)
---- ---- ----------
(IN THOUSANDS EXCEPT RATIOS)
<S> <C> <C> <C>
Cash and cash equivalents ................... $ 27,500 $ 45,386 $(17,886)
Accounts and notes receivable ............... 148,688 128,271 20,417
Inventories ................................. 108,178 84,499 23,679
Other ....................................... 11,307 11,956 (649)
-------- -------- --------
Total current assets ........................ $295,673 $270,112 $ 25,561
======== ======== ========
Notes payable ............................... $ 3,000 $ 50 $ 2,950
Accounts payable ............................ 58,634 47,917 10,717
Income taxes payable ........................ 3,390 3,077 313
Accrued liabilities ......................... 41,034 49,000 (7,966)
Other ....................................... 968 1,010 (42)
-------- -------- --------
Total current liabilities ................... $107,026 $101,054 $ 5,972
======== ======== ========
Working capital (current assets
less current liabilities) ................. $188,647 $169,058 $ 19,589
======== ======== ========
Current ratio (current assets divided
by current liabilities) ................... 2.8 to 1 2.7 to 1
</TABLE>
32
<PAGE> 28
As illustrated in the preceding table, the increase in the Company's working
capital at March 31, 1998, from March 31, 1997, was primarily attributable to
the increases in accounts and notes receivable and inventories and the decrease
in accrued liabilities. The increase in accounts receivable was primarily the
result of the increase in domestic sales in the fourth quarter of fiscal 1998
versus the fourth quarter of fiscal 1997. Additionally, domestic days sales
outstanding increased to 85 days at March 31, 1998, from 83 days at March 31,
1997. The increase in inventories at March 31, 1998, was due to increased
purchases of raw materials to take advantage of volume discounts and inventory
required for the initial production of the Company's two new pen-based product
models. Consolidated inventory turns decreased to 2.4 at March 31, 1998, from
2.8 at March 31, 1997. The increases in the components of the Company's working
capital were partially reduced by a decrease in cash and cash equivalents and an
increase in accounts payable. The decrease in cash, as illustrated in the
"Consolidated Statement of Cash Flows" included in Item 8 of this Form 10-K, was
due primarily to the increase in accounts receivable. The increase in accounts
payable was the result of increased liabilities for inventory purchases offset
by increased payments to vendors.
The Company believes its existing resources, including 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.
1997 VS. 1996
<TABLE>
<CAPTION>
MARCH 31, DOLLAR
--------- INCREASE
1997 1996 (DECREASE)
---- ---- ----------
(IN THOUSANDS EXCEPT RATIOS)
<S> <C> <C> <C>
Cash and cash equivalents ................... $ 45,386 $ 34,828 $ 10,558
Accounts and notes receivable ............... 128,271 143,114 (14,843)
Inventories ................................. 84,499 111,132 (26,633)
Other ....................................... 11,956 10,841 1,115
-------- -------- --------
Total current assets ........................ $270,112 $299,915 $(29,803)
======== ======== ========
Notes payable ............................... $ 50 $ 66 $ (16)
Accounts payable ............................ 47,917 59,620 (11,703)
Income taxes payable ........................ 3,077 7,029 (3,952)
Accrued liabilities ......................... 49,000 45,152 3,848
Other ....................................... 1,010 2,053 (1,043)
-------- -------- --------
Total current liabilities ................... $101,054 $113,920 $(12,866)
======== ======== ========
Working capital (current assets
less current liabilities) ................. $169,058 $185,995 $(16,937)
======== ======== ========
Current ratio (current assets divided
by current liabilities) ................... 2.7 to 1 2.6 to 1
</TABLE>
The decrease in the Company's working capital at March 31, 1997, from March 31,
1996, was primarily comprised of the decrease in accounts and notes receivable
and inventories and the increase in accrued liabilities, as detailed in the
preceding table. The decrease in accounts and notes receivable at March 31,
1997, from amounts recorded at March 31, 1996, was primarily due to the sale of
the trade receivables of Itronix. Included in the Company's consolidated balance
sheet at March 31, 1996, were accounts and notes receivable totaling $8.8
million recorded by Itronix. Consolidated days sales outstanding, adjusted for
the sale of Itronix by excluding Itronix's results from both periods, decreased
to 88 days at March 31, 1997, from 95 days at March 31, 1996. The decrease in
inventories at March 31, 1997, from March 31, 1996, was primarily due to the
sale of the inventory of Itronix as well as the increase in the Company's
inventory allowance accounts. Included in the Company's consolidated balance
sheet at March 31, 1996, were inventories of $12.8 million recorded by Itronix.
These decreases in the Company's working capital were partially offset by the
increase in cash and cash equivalents and the decrease in accounts payable and
income taxes payable, as detailed in the preceding table. The increase in cash
and cash equivalents at March 31, 1997, from March 31, 1996, was primarily due
33
<PAGE> 29
to the receipt of cash proceeds from the sale of Itronix. Similarly, the
decrease in accounts payable at March 31, 1997, from March 31, 1996, was
primarily the result of the buyer's assumption of the accounts payable of
Itronix. Included in the Company's consolidated balance sheet at March 31, 1996,
were accounts payable of $14.1 million recorded by Itronix.
CASH FLOWS FROM OPERATING ACTIVITIES
1998 VS. 1997
<TABLE>
<CAPTION>
DOLLAR
INCREASE
(DECREASE)
YEAR ENDED MARCH 31, IN
-------------------- CASH FLOW
1998 1997 IMPACT
---- ---- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Net income (loss) ........................... $ 15,207 $ (7,059) $ 22,266
Cumulative effect of an accounting change ... 2,176 -- 2,176
Depreciation and amortization ............... 25,373 28,689 (3,316)
Provision for inventory obsolescence ........ 4,135 11,521 (7,386)
Deferred income taxes ....................... (419) (947) 528
Gain on sale of assets ...................... (669) (32,653) 31,984
Minority interest ........................... 2,122 669 1,453
Accounts and notes receivable ............... (17,936) 171 (18,107)
Inventories ................................. (28,934) (131) (28,803)
Intangibles and other assets ................ 2,082 (2,783) 4,865
Accounts payable and accrued liabilities .... 1,654 (7,472) 9,126
Income taxes payable ........................ 732 (3,005) 3,737
Other ....................................... 3,816 248 3,568
-------- -------- --------
Net cash provided by (used in)
operating activities ..................... $ 9,339 $(12,752) $ 22,091
======== ======== ========
</TABLE>
As detailed in the preceding table, the increase in the Company's cash flows
from operations for fiscal 1998 was primarily the result of the cash flow impact
of the increase in net income, the absence of the cash flow impact from the gain
on the sale of Itronix, the change in the cash flow impact of intangibles and
other assets and the change in the cash flow impact of accounts payable and
accrued liabilities. The effect of these positive cash flow items was partially
offset by the negative cash flow impact of the change in accounts and notes
receivable and the change in the cash flow impact of inventories.
1997 VS. 1996
<TABLE>
<CAPTION>
DOLLAR
INCREASE
(DECREASE)
YEAR ENDED MARCH 31, IN
-------------------- CASH FLOW
1997 1996 IMPACT
---- ---- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Net (loss) income ........................... $ (7,059) $ 16,521 $(23,580)
Depreciation and amortization ............... 28,689 23,747 4,942
Provision for inventory obsolescence ........ 11,521 2,026 9,495
Deferred income taxes ....................... (947) 4,161 (5,108)
Gain on sale of assets ...................... (32,653) -- (32,653)
Minority interest ........................... 669 -- 669
Accounts and notes receivable ............... 171 (54,103) 54,274
Inventories ................................. (131) (41,139) 41,008
Intangibles and other assets ................ (2,783) (2,416) (367)
Accounts payable and accrued liabilities .... (7,472) 38,238 (45,710)
Income taxes payable ........................ (3,005) (2,302) (703)
Other ....................................... 248 2,019 (1,771)
-------- -------- --------
Net cash used in operating activities ....... $(12,752) $(13,248) $ 496
======== ======== ========
</TABLE>
34
<PAGE> 30
The Company's fiscal 1997 cash flows from operations were positively impacted by
the change in the cash flow impact of the non-cash charge for depreciation and
amortization, the change in the cash flow impact of the non-cash provision for
inventory obsolescence, the change in the cash flow impact of accounts and notes
receivable and the change in the cash flow impact of inventories, as detailed in
the preceding table. These positive cash flow impacts were substantially offset
by the negative cash flow impact of the decrease in net income, the change in
the cash flow impact of the non-cash provision for income taxes, the change in
the cash flow impact of the gain on the sale of assets, the change in the cash
flow impact of accounts payable and accrued liabilities and the change in the
cash flow impact of other operating items, as detailed in the preceding table.
CASH FLOWS FROM INVESTING ACTIVITIES
1998 VS. 1997
<TABLE>
<CAPTION>
DOLLAR
INCREASE
(DECREASE)
YEAR ENDED MARCH 31, IN
-------------------- CASH FLOW
1998 1997 IMPACT
---- ---- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Proceeds from sale of assets..................... $ 5,444 $ 65,674 $(60,230)
Additions to property and equipment.............. (26,124) (14,576) (11,548)
Software investments............................. (6,936) (7,731) 795
Purchase of non-marketable investments........... (5,600) (6,691) 1,091
Other............................................ 453 (2,000) 2,453
-------- --------- --------
Net cash (used in) provided by investing
activities..................................... $(32,763) $ 34,676 $(67,439)
======== ========= ========
</TABLE>
The Company's cash flows from investing activities decreased in fiscal 1998 from
fiscal 1997, primarily as the result of the absence of the cash proceeds from
the sale of Itronix, the capitalization of $8.6 million of expenditures relating
to the installation of a new corporate-wide information system, the increase
in the Company's investment in a development and marketing equity partnership
and the non-marketable investment in a foreign distributor. As detailed in the
preceding table, these negative cash flow items were partially offset by the
positive cash flow effect of other investing activities. The Company anticipates
the continued capitalization of costs associated with the installation of its
new corporate-wide information system during fiscal 1999.
1997 VS. 1996
<TABLE>
<CAPTION>
DOLLAR
INCREASE
(DECREASE)
YEAR ENDED MARCH 31, IN
-------------------- CASH FLOW
1997 1996 IMPACT
---- ---- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Proceeds from sale of assets..................... $ 65,674 $ -- $ 65,674
Additions to property and equipment.............. (14,576) (22,749) 8,173
Software investments............................. (7,731) (9,025) 1,294
Purchase of non-marketable investments........... (6,691) (1,562) (5,129)
Other............................................ (2,000) (3,053) 1,053
-------- --------- --------
Net cash provided by (used in) investing
activities..................................... $ 34,676 $ (36,389) $ 71,065
======== ========= ========
</TABLE>
35
<PAGE> 31
The increase in the Company's cash flows from investing activities in fiscal
1997 from fiscal 1996 was primarily due to the receipt of cash proceeds from the
sale of the Company's former Itronix subsidiary and the positive cash flow
impact of the decrease in additions to property and equipment, as detailed in
the preceding table.
These positive cash flow impacts were partially offset by the negative cash flow
impact of other investing activities, as detailed in the preceding table.
Effective April 1, 1996, the Company sold the assets of certain retail
application software operations, with net assets of approximately $5.0 million,
to a third-party for approximately $.2 million in cash and $7.0 million in
secured promissory notes, including interest. In addition to the proceeds from
the sale, the Company also entered into a software license agreement with the
third-party purchaser. The agreement provides for the Company to receive, over
the next five years, license fees amounting to 20% of the revenue generated by
the purchased software, with minimum required payments aggregating $6.6 million.
The $7.0 million in promissory notes received in connection with the divestiture
have been excluded from the accompanying consolidated statement of cash flows as
a non-cash transaction.
During fiscal 1997, the Company sold 808,500 shares of voting common
stock of its Aironet subsidiary to a corporation owned by Mr. Meyerson at a
price of $1.86 per share in exchange for a secured promissory note in the
amount of approximately $1.5 million. This transaction resulted in the
establishment of a minority interest of approximately $.7 million which has
been included in minority interest in the consolidated balance sheet at March
31, 1997. At March 31, 1997, the Company had deferred a gain related to this
transaction as the criteria for the recognition of gain on the sale of
subsidiary stock had not been met. This sale of Aironet common stock has been
excluded from the accompanying fiscal 1997 consolidated statement of cash flows
as a non-cash transaction.
CASH FLOWS FROM FINANCING ACTIVITIES
1998 VS. 1997
<TABLE>
<CAPTION>
DOLLAR
INCREASE
YEAR ENDED MARCH 31, IN
-------------------- CASH FLOW
1998 1997 IMPACT
---- ---- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Notes payable, net .......................... $ 2,567 $ (16) $ 2,583
Purchase of treasury stock .................. (5,070) (9,328) 4,258
Proceeds from exercise of stock options ..... 9,400 1,615 7,785
Other ....................................... (1,018) (3,428) 2,410
-------- -------- --------
Net cash provided by (used in) financing
activities ................................ $ 5,879 $(11,157) $ 17,036
======== ======== ========
</TABLE>
The increase in the Company's cash flows from financing activities was the
result of the positive cash flow impact of the increase in the Company's notes
payable, the positive cash flow impact of the reduction in the number of shares
of common stock repurchased under the Company's open market repurchase programs
during fiscal 1998 (294,200 shares during fiscal 1998 at a weighted average
price of $17.23 vs. 633,000 shares during fiscal 1997 at a weighted average
price of $14.74), as well as the positive cash flow impact of the increase in
the proceeds from the exercise of stock options. This activity is detailed in
the preceding table.
Effective August 5, 1997, the Company's $20 million business purpose revolving
promissory note was extended to August 4, 1998. During fiscal 1998, the Company
had a weighted average of $3.5 million outstanding under its $100 million credit
agreement and $20 million promissory note with a weighted average interest rate
of 8.9% per annum. At March 31, 1998, the Company had $3 million outstanding
under the promissory note and was in compliance with all restrictive covenants
of the credit agreements.
36
<PAGE> 32
1997 VS. 1996
<TABLE>
<CAPTION>
DOLLAR
INCREASE
(DECREASE)
YEAR ENDED MARCH 31, IN
-------------------- CASH FLOW
1997 1996 IMPACT
---- ---- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Notes payable, net .......................... $ (16) $(30,084) $ 30,068
Proceeds from convertible debt .............. -- 82,500 (82,500)
Purchase of treasury stock .................. (9,328) -- (9,328)
Proceeds from exercise of stock options ..... 1,615 5,977 (4,362)
Other ....................................... (3,428) (4,821) 1,393
-------- -------- --------
Net cash (used in) provided by financing
activities ................................ $(11,157) $ 53,572 $(64,729)
======== ======== ========
</TABLE>
The decrease in the Company's cash flows from financing activities was primarily
due to the cash flow impact of the absence in fiscal 1997 of proceeds from the
issuance of the 5-3/4% convertible subordinated notes in fiscal 1996 and the
Company's repurchase of 633,000 shares of common stock during fiscal 1997 under
its open market repurchase program, as detailed in the preceding table. These
negative cash flow impacts were partially offset by the positive change in the
cash flow impact of notes payable, as detailed in the preceding table.
Effective August 6, 1996, the Company's $20 million business purpose revolving
promissory note was extended to August 5, 1997. Additionally, during August
1996, the Company's $100 million credit agreement and $20 million business
purpose revolving promissory note were amended to conditionally grant to the
lenders a security interest in certain assets of the Company which will only
become effective if the Company were to become in default under the credit
agreement and then only if the requisite lenders under that facility were to
direct that the security documents be filed. At March 31, 1997, the Company had
no amounts outstanding under either agreement and was in compliance with all
restrictive covenants.
During fiscal 1997, the Company had a weighted average of $7.8 million
outstanding under its bank credit facilities with a weighted average interest
cost of 7.0% per annum.
ACCOUNTING CHANGE
On November 20, 1997, the FASB's Emerging Issues Task Force issued a new
consensus ruling, "Accounting for Costs Incurred in Connection with a Consulting
Contract of an Internal Project That Combines Business Process Reengineering and
Information Technology Transformation" ("EITF 97-13"). EITF 97-13 requires
business process reengineering costs associated with information systems
development to be expensed as incurred. The Company has been involved in a
corporate-wide information systems implementation project that was affected by
this pronouncement. In accordance with this ruling, during the quarter ended
December 31, 1997, the Company recorded a one-time, after-tax, non-cash charge
of $1.2 million or $.08 per share to expense previously capitalized costs
associated with this project. Such costs had primarily been incurred during the
second quarter of fiscal 1998.
NEW ACCOUNTING STANDARDS
During fiscal 1998, the FASB issued 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, in the basic financial
statements. The Company is required to adopt the provisions of SFAS No. 130 for
the fiscal year ending
37
<PAGE> 33
March 31, 1999, beginning with the quarter ended June 30, 1998, and to restate
any prior period financial statements included for comparative purposes to
reflect the application of SFAS No. 130. As the adoption of this pronouncement
will only modify disclosures, there will be no effect on the Company's
consolidated financial position or results of operations or cash flows.
During fiscal 1998, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures About Segments of an Enterprise and Related Information"
("SFAS No. 131"). SFAS No. 131 revises the manner in which an entity determines
the operating segments it must report as well as requires the disclosures of
additional segment information. The Company is required to adopt the provisions
of SFAS No. 131 for the fiscal year ending March 31, 1999, and restate any prior
period financial statements included for comparative purposes to reflect the
application of SFAS No. 131. As the adoption of this pronouncement will only
modify disclosures, there will be no effect on the Company's consolidated
financial position or results of operations or cash flows.
In fiscal 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position 97-2, "Software Revenue Recognition" ("SOP 97-2).
SOP 97-2 provides guidance on the recognition of revenue for the licensing,
selling, leasing and marketing of computer software to customers. The Company is
required to adopt the provisions of SOP 97-2 for the fiscal year ending March
31, 1999. Management believes that the adoption of this pronouncement will not
have a material effect on the Company's consolidated financial position, results
of operations or cash flows.
In fiscal 1998, the AICPA issued Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use" ("SOP 98-1").
SOP 98-1 requires the capitalization of certain costs incurred in the
development of software used by a company for its own internal operations. The
Company is required to adopt the provisions of SOP 98-1 for the fiscal year
ending March 31, 1999. Management believes that the adoption of this
pronouncement will not have a material effect on the Company's consolidated
financial position, results of operations or cash flows.
Subsequent to fiscal 1998, the FASB issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging" ["SFAS
No. 133"]. SFAS No. 133 provides accounting and reporting standards for
derivative instruments. This standard will require the Company to recognize
all derivatives as either assets or liabilities in the statement of financial
position and to measure those instruments at fair value. The Company is
required to adopt the provisions of SFAS No. 133 during the first quarter of
fiscal 2001. Management believes that the adoption of this pronouncement will
not have a material effect on the Company's consolidated financial position,
results of operations or cash flows.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable
38
<PAGE> 34
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
PAGES
-----
<S> <C>
Financial Reports:
Report of Management...................................................... 40
Report of Independent Accountants......................................... 41
Consolidated Financial Statements:
Consolidated Balance Sheet................................................ 42
Consolidated Statement of Operations...................................... 43
Consolidated Statement of Cash Flows...................................... 44
Consolidated Statement of Changes in Stockholders' Equity................. 45
Notes to Consolidated Financial Statements................................ 46 - 67
Financial Statement Schedule:
II - Valuation and Qualifying Accounts and Reserves................ 77
</TABLE>
All other schedules are omitted because they are not applicable or the required
information is presented in the financial statements or the notes thereto.
39
<PAGE> 35
REPORT OF MANAGEMENT
To the Board of Directors and Stockholders
of Telxon Corporation
The management of Telxon is responsible for the preparation, integrity and
objectivity of the financial statements and all other financial information
included in this report. Management believes that the financial statements have
been prepared in accordance with generally accepted accounting principles and
that any amounts included herein which are based on estimates of the expected
effects of events and transactions have been made with sound judgment and
approved by qualified personnel.
Telxon maintains an internal control structure to provide reasonable assurance
that assets are safeguarded and that transactions and events are recorded
properly. The internal control structure is regularly reviewed, evaluated and
revised as necessary by management. Additionally, the Telxon Statement of
Corporate Ethics requires every Company employee to maintain the highest level
of ethical standards in the conduct of all aspects of the Company's business,
and their compliance is regularly monitored.
The financial statements in this report have been audited by the independent
accounting firm of Coopers & Lybrand L.L.P. Their audits were conducted in
accordance with generally accepted auditing standards and included a study and
evaluation of our internal control structure as they considered necessary to
determine the extent of tests and audit procedures required for expressing an
opinion on the Company's financial statements.
The Audit Committee of the Board of Directors, of which all outside directors
are members, meets periodically with the independent auditors and management to
review accounting, auditing, internal control and financial reporting matters.
The external auditors have full and free access to the Audit Committee and its
individual members at any time.
/s/ Frank E. Brick
Frank E. Brick
President and Chief Executive Officer
/s/ Kenneth W. Haver
Kenneth W. Haver
Senior Vice President and Chief Financial Officer
40
<PAGE> 36
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Telxon Corporation
We have audited the consolidated financial statements and the financial
statement schedule of Telxon Corporation and Subsidiaries listed in the index on
page 39 of this Form 10-K. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Telxon
Corporation and Subsidiaries as of March 31, 1998 and 1997, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended March 31, 1998, in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedule referred to above, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
/s/ COOPERS & LYBRAND L.L.P.
Akron, Ohio
June 26, 1998
41
<PAGE> 37
TELXON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
IN THOUSANDS (EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31,
----------------------------
ASSETS 1998 1997
---- ----
<S> <C> <C>
Current assets:
Cash (including cash equivalents of $6,778 and
$38,100).................................................. $ 27,500 $ 45,386
Accounts receivable, net of allowance for
doubtful accounts of $1,142 and $1,596 ................... 125,739 111,959
Notes and other accounts receivable ........................ 22,949 16,312
Inventories ................................................ 108,178 84,499
Prepaid expenses and other ................................. 11,307 11,956
--------- ---------
Total current assets .................................... 295,673 270,112
Property and equipment, net .................................. 52,108 45,578
Intangible and other assets, net ............................. 42,758 46,094
--------- ---------
Total ................................................... $ 390,539 $ 361,784
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable .............................................. $ 3,000 $ 50
Current portion of long-term debt .......................... -- 383
Capital lease obligations due within one year .............. 968 627
Accounts payable ........................................... 58,634 47,917
Income taxes payable ....................................... 3,390 3,077
Accrued liabilities ........................................ 41,034 49,000
--------- ---------
Total current liabilities ............................... 107,026 101,054
Capital lease obligations .................................... 1,876 968
Convertible subordinated notes and debentures ................ 107,224 107,224
Long-term debt ............................................... -- --
Other long-term liabilities .................................. 6,897 5,168
--------- ---------
Total liabilities ....................................... 223,023 214,414
Minority interest (Note 1) ................................... 2,791 669
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, 16,219 and 16,186 shares issued ....... 162 162
Additional paid-in capital ................................... 87,994 87,105
Retained earnings ............................................ 85,053 70,821
Equity adjustment for foreign currency translation ........... (4,929) (2,643)
Unearned compensation relating to restricted stock awards .... (493) (210)
Treasury stock; 162 and 557 shares of common stock at cost ... (3,062) (8,534)
--------- ---------
Total stockholders' equity .............................. 164,725 146,701
--------- ---------
Commitments and contingencies (Note 18) ...................... -- --
--------- ---------
Total ................................................... $ 390,539 $ 361,784
========= =========
</TABLE>
See accompanying notes to consolidated financial statements
42
<PAGE> 38
TELXON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
IN THOUSANDS (EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenues:
Product, net ........................................... $ 389,124 $ 391,406 $ 417,725
Customer service, net .................................. 76,746 74,606 68,744
--------- --------- ---------
Total net revenues .............................. 465,870 466,012 486,469
--------- --------- ---------
Cost of revenues:
Product ................................................ 228,318 266,624 249,120
Customer service ....................................... 48,836 47,248 39,016
--------- --------- ---------
Total cost of revenues .......................... 277,154 313,872 288,136
--------- --------- ---------
Gross profit ........................................... 188,716 152,140 198,333
Operating expenses:
Selling expenses ....................................... 77,858 88,321 82,207
Product development and
engineering expenses ................................. 37,500 44,439 45,383
General and administrative
expenses ............................................. 39,028 53,230 39,415
--------- --------- ---------
Total operating expenses ........................ 154,386 185,990 167,005
--------- --------- ---------
Income (loss) from operations ................... 34,330 (33,850) 31,328
Interest income .......................................... 1,573 1,489 760
Interest expense ......................................... (7,181) (8,056) (6,770)
Gain on sale of subsidiary stock ......................... 1,637 -- 1,116
Other non-operating (expense) income ..................... (1,504) 34,726 401
--------- --------- ---------
Income (loss) before income taxes and
cumulative effect of an accounting change .... 28,855 (5,691) 26,835
Provision for income taxes ............................... 12,408 1,368 10,314
--------- --------- ---------
Income (loss) before cumulative
effect of an accounting change ............... 16,447 (7,059) 16,521
--------- --------- ---------
Cumulative effect of an accounting change,
net of taxes .......................................... 1,240 -- --
--------- --------- ---------
Net income (loss) ............................... $ 15,207 $ (7,059) $ 16,521
========= ========= =========
Net income (loss) per share before
cumulative effect of an accounting change:
Basic ...................................... $ 1.04 $ (.44) $ 1.04
Diluted .................................... $ 1.01 $ (.44) $ 1.00
========= ========= =========
Cumulative effect of an accounting change:
Basic ........................................ $ (.08) -- --
Diluted ...................................... $ (.08) -- --
========= ========= =========
Net income (loss) per common share:
Basic ........................................ $ .96 $ (.44) $ 1.04
Diluted ...................................... $ .93 $ (.44) $ 1.00
========= ========= =========
Average number of common shares outstanding:
Basic ........................................ 15,809 16,062 15,910
Diluted ...................................... 16,289 16,062 16,479
</TABLE>
See accompanying notes to consolidated financial statements
43
<PAGE> 39
TELXON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
IN THOUSANDS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) .............................. $ 15,207 $ (7,059) $ 16,521
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Cumulative effect of an accounting change ...... 2,176 -- --
Depreciation and amortization .................. 25,174 28,570 22,945
Amortization of restricted stock awards, net ... 199 119 802
Provision for doubtful accounts ................ 513 378 1,538
Provision for inventory obsolescence ........... 4,135 11,521 2,026
Deferred income taxes .......................... (419) (947) 4,161
Gain on sale of assets ......................... (669) (32,653) --
Trading securities, net ........................ -- 902 (902)
Minority interest .............................. 2,122 669 --
Loss on disposal of assets ..................... 800 592 393
Changes in assets and liabilities:
Accounts and notes receivable ................ (17,936) 171 (54,103)
Refundable income taxes ...................... -- -- 935
Inventories .................................. (28,934) (131) (41,139)
Prepaid expenses and other ................... 627 (2,561) (976)
Intangibles and other assets ................. 2,082 (2,783) (2,416)
Accounts payable and accrued liabilities ..... 1,654 (7,472) 38,238
Income taxes payable ......................... 732 (3,005) (2,302)
Other long-term liabilities .................. 1,876 937 1,031
-------- -------- --------
Total adjustments ....................... (5,868) (5,693) (29,769)
Net cash provided by (used in) operating
activities ................................... 9,339 (12,752) (13,248)
Cash flows from investing activities:
Proceeds from sale of assets ................... 5,444 65,674 --
Additions to property and equipment ............ (26,124) (14,576) (22,749)
Software investments ........................... (6,936) (7,731) (9,025)
Purchase of non-marketable investments ......... (5,600) (6,691) (1,562)
Additions to long-term notes receivable ........ (580) (2,000) (650)
Proceeds from non-marketable investments ....... 1,033 -- --
Payments for acquisitions, net of cash
acquired ..................................... -- -- (2,403)
-------- -------- --------
Net cash (used in) provided by investing
activities ................................... (32,763) 34,676 (36,389)
Cash flows from financing activities:
Notes payable, net ............................. 2,567 (16) (30,084)
Principal payments on long-term financing
agreement .................................... -- (2,104) (230)
Principal payments on capital leases ........... (832) (856) (968)
Proceeds from convertible debt ................. -- -- 82,500
Debt issue costs paid .......................... (24) (306) (3,463)
Proceeds from exercise of stock options ........ 9,400 1,615 5,977
Purchase of treasury stock ..................... (5,070) (9,328) --
Payment of cash dividends ...................... (162) (162) (160)
-------- -------- --------
Net cash provided by (used in)
financing activities ......................... 5,879 (11,157) 53,572
Effect of exchange rate changes on cash ........ (341) (209) (471)
-------- -------- --------
Net (decrease) increase in cash and
cash equivalents ............................. (17,886) 10,558 3,464
Cash and cash equivalents at beginning
of year ...................................... 45,386 34,828 31,364
-------- -------- --------
Cash and cash equivalents at end of year ....... $ 27,500 $ 45,386 $ 34,828
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
44
<PAGE> 40
TELXON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
IN THOUSANDS (EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOREIGN UNEARNED
ADDITIONAL CURRENCY COMPENSATION TREASURY
COMMON PAID-IN RETAINED TRANSLATION RESTRICTED STOCK AT
STOCK CAPITAL EARNINGS ADJUSTMENT STOCK COST
----- ------- -------- ---------- ----- ----
<S> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1995 .................... $156 $ 78,548 $ 62,954 $(1,525) $(1,555) $ --
Exercise of stock options, net of
tax ........................................ 5 7,260 (734) -- -- --
Retirement of common stock (80,206 shares) ... -- (241) (485) -- -- --
Amortization of restricted stock ............. -- -- -- -- 802 --
Stock issued under employee stock
purchase plan (8,815 shares) ............... -- 183 -- -- -- --
Currency translation adjustment .............. -- -- -- (539) -- --
Dividends paid ($.01 per share) .............. -- -- (160) -- -- --
Net income for 1996 .......................... -- -- 16,521 -- -- --
---- -------- -------- ------- ------- -------
Balance at March 31, 1996 .................... 161 85,750 78,096 (2,064) (753) --
Exercise of stock options, net of
tax ........................................ 1 1,670 (51) -- -- --
Retirement of common stock (15,037 shares) ... -- (2) (3) -- -- --
Amortization of restricted stock ............. -- -- -- -- 376 --
Forfeiture of restricted stock ............... -- (424) -- -- 167 --
Repurchase of common stock (633,000 shares) .. -- -- -- -- -- (9,328)
Reissue of treasury stock under employee
stock purchase plan (75,560 shares) ........ -- 111 -- -- -- 794
Currency translation adjustment .............. -- -- -- (579) -- --
Dividends paid ($.01 per share) .............. -- -- (162) -- -- --
Net loss for 1997 ............................ -- -- (7,059) -- -- --
---- -------- -------- ------- ------- -------
Balance at March 31, 1997 .................... 162 87,105 70,821 (2,643) (210) (8,534)
Exercise of stock options, net of
tax ........................................ -- 580 (813) -- -- 9,634
Amortization of restricted stock ............. -- -- -- -- 199 --
Grants of restricted stock ................... -- 482 -- -- (482) --
Repurchase of common stock (294,200 shares) .. -- -- -- -- -- (5,070)
Reissue of treasury stock under employee
stock purchase plan (57,112 shares) ........ -- (173) -- -- -- 908
Currency translation adjustment .............. -- -- -- (2,286) -- --
Dividends paid ($.01 per share) .............. -- -- (162) -- -- --
Net income for 1998 .......................... -- -- 15,207 -- -- --
---- -------- -------- ------- ------- -------
Balance at March 31, 1998 .................... $162 $ 87,994 $ 85,053 $(4,929) $ (493) $(3,062)
==== ======== ======== ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements
45
<PAGE> 41
TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
IN THOUSANDS (EXCEPT PER SHARE AMOUNTS)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
- ---------------------------
The Company's consolidated financial statements include the financial statements
of the Company and its wholly-owned and majority-owned subsidiaries. All
significant intercompany transactions have been eliminated in consolidation.
MINORITY INTERESTS
- ------------------
The difference between the proceeds from the sale of stock by a subsidiary and
the Company's carrying value of such stock is recorded as a non-operating gain
or loss at the time of the sale, provided that the criteria for gain recognition
on the sale of subsidiary stock have been met. Minority interests then represent
the unaffiliated stockholders' interests in the cumulative earnings of the
subsidiary.
At March 31, 1998 and 1997, the Company has recorded minority interests of
$2,791 and $669, respectively, in the caption titled Minority Interest in the
accompanying consolidated financial statements related to the sales of common
stock of its Aironet Wireless Communications, Inc. ("Aironet") subsidiary.
Refer to Note 16 -- Subsidiary Stock Transactions for additional details on the
sales of Aironet common stock.
FOREIGN CURRENCY TRANSLATION
- ----------------------------
The financial statements of foreign operations are translated into U.S. dollars
using the local currency as the functional currency in accordance with the
Financial Accounting Standards Board ("FASB") Statement of Financial Accounting
Standards No. 52, "Foreign Currency Translation". Accordingly, all assets and
liabilities are translated at current rates of exchange, and operating
transactions are translated at weighted average rates during the year. The
translation gains and losses are accumulated as a separate component of
stockholders' equity until realized. There were no income taxes allocated to the
translation adjustments and transfers to net income in 1998, 1997 and 1996. Net
transaction gains or losses are included in the results of operations and were
not material in 1998, 1997 and 1996. For further detail by geographic areas, see
Note 13 -- Business Segment.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
- -------------------------------------------
The Company enters into forward foreign currency exchange contracts, which
generally involve the exchange of one currency for a second currency at some
future date, to hedge against the impact of changes in foreign currency exchange
rates on specific foreign currency commitments. Unrealized gains and losses on
these forward foreign exchange contracts are deferred and realized upon
settlement of the commitment transaction. Refer to Note 11 -- Fair Value of
Financial Instruments for additional details on forward foreign currency
exchange contracts.
CASH AND CASH EQUIVALENTS
- -------------------------
The Company considers all highly liquid investments which are both readily
convertible to cash and have a maturity of three months or less when purchased
to be cash equivalents. At March 31, 1998, the Company had cash of $900 held in
escrow; $500 related to a Standstill Agreement with a third-party and $400
related to the sale of a non-marketable investment. At March 31, 1997, the
Company had cash of $500 held in escrow related to a Standstill Agreement with a
third-party.
46
<PAGE> 42
TRADING SECURITIES
- ------------------
Trading securities, which consist of marketable securities that the Company has
purchased with the intent of selling within the near term, have been stated at
fair value in accordance with the FASB Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS No. 115"). Under SFAS No. 115, the Company records all
unrealized holding gains and losses as non-operating income or loss.
During fiscal 1996, the Company recognized $339 of net unrealized holding gains
on trading securities.
INVENTORIES
- -----------
Inventories are stated at the lower of cost (first-in, first-out) or market.
PROPERTY AND EQUIPMENT
- ----------------------
Property and equipment are recorded at historical cost and depreciated over the
estimated useful lives of the assets using the straight-line method for
financial reporting purposes. The ranges of the estimated useful lives are:
buildings, 19-25 years; machinery and equipment, furniture and fixtures, and
transportation equipment, 3-10 years; marketing and customer service equipment
and tooling, 3 years; and leasehold improvements, over the shorter of the useful
life of the asset or the life of the lease. Gains and losses from the sale or
retirement of property and equipment are included in income. Fully depreciated
assets are written off against accumulated depreciation.
SOFTWARE COSTS, INTANGIBLES AND OTHER ASSETS
- --------------------------------------------
Software costs are capitalized in accordance with the FASB Statement of
Financial Accounting Standards No. 86, "Accounting for the Cost of Computer
Software to Be Sold, Leased, or Otherwise Marketed" and are included in
intangible and other assets in the accompanying consolidated balance sheet.
Purchased computer software is capitalized and amortized for both financial and
tax reporting purposes, using the straight-line method, over the expected useful
life of the software, generally three years. Similarly, internally developed
computer software for sale or lease is capitalized and amortized for financial
reporting purposes using the straight-line method over three years; for tax
purposes, these costs are generally expensed as incurred, though certain of
these costs have been capitalized and will be amortized using the straight-line
method over three years. Product development and engineering expenses are
expensed as incurred for both financial and tax reporting purposes.
The excess of the purchase cost over the fair value of net assets acquired in an
acquisition (goodwill) is included in intangible and other assets in the
accompanying consolidated balance sheet. Goodwill is amortized on a
straight-line basis over five to ten years. The Company periodically reviews
goodwill to assess recoverability, and impairments, if any, would be recognized
in results of operations if a permanent reduction in value were to occur.
The non-compete agreements, deferred financing costs and license agreements have
also been included in intangible and other assets in the accompanying
consolidated balance sheet. Non-compete and license agreements are amortized on
a straight-line basis over the life of the related contract. Deferred financing
costs are amortized on a straight-line basis over the life of the related debt,
with accelerated amortization recorded on any indebtedness retired prior to its
scheduled maturity. All other assets included in intangible and other assets are
recorded at cost and are amortized on a straight-line basis over their expected
useful lives.
47
<PAGE> 43
REVENUE RECOGNITION
- -------------------
Revenues from computer hardware sales and software licenses are recognized at
the time of shipment or, if professional services are also performed, at the
time of title transfer. Professional services revenues, which include system
integration and project management fees, are recognized as services are
performed. In accordance with the American Institute of Certified Public
Accountants ("AICPA") Statement of Position 91-1, "Software Revenue
Recognition", revenues from custom application software sales are recognized
using a percentage-of-completion method. Revenues from customer service
contracts are recognized ratably over the maintenance contract period or as the
services are performed.
During fiscal 1997, the Company entered into certain software license agreements
and manufacturing rights contracts with third-parties. The sale of these rights
was recorded as product revenue.
PRODUCT DEVELOPMENT AND ENGINEERING EXPENSES
- --------------------------------------------
Expenditures for the development and engineering of products are expensed as
incurred in accordance with the requirements of the FASB Statement of Financial
Accounting Standards No. 2, "Accounting for Research and Development Costs".
During fiscal 1996, the Company was reimbursed $1,000 by a major customer for
product development and engineering costs incurred by the Company during the
year in connection with a product development agreement between the Company and
the customer. The reimbursement has been recorded as a reduction to the
Company's product development and engineering expenses.
STOCK OPTION AND STOCK PURCHASE PLANS
- -------------------------------------
Stock options, which are granted to employees and non-employee directors under
the Company's stock option plans at the quoted closing market price of the
Company's common stock as of the last trading day prior to the grant date, and
stock purchased by eligible employees under the Company's employee stock
purchase plan are accounted for under Accounting Principles Board Opinion 25,
"Accounting for Stock Issued to Employees" ("APB 25"). As the stock options are
granted at the quoted market price of the Company's common stock as of the grant
date, no compensation expense has been recorded in accordance with APB 25. The
Employee Stock Purchase Plan meets the criteria of a non-compensatory plan under
APB 25.
EARNINGS PER SHARE
- ------------------
Computations of basic and diluted earnings per share of common stock have been
made in accordance with the FASB Statement of Financial Accounting Standards No.
128, "Earnings Per Share" ("SFAS No. 128"). The Company was required to adopt
the provisions of SFAS No. 128 beginning with the quarter ended December 31,
1997. All prior and interim period earnings per share amounts have been restated
accordingly. 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 exercisablity of such rights were not
satisfied.
48
<PAGE> 44
RECONCILIATION OF NUMERATORS AND DENOMINATORS OF THE BASIC
AND DILUTED EPS COMPUTATIONS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
In the following table, income (loss) represents the numerator and the shares
represent the denominator in the Earnings Per Share Calculation.
<TABLE>
<CAPTION>
For the Year ended For the Year ended For the Year ended
March 31, 1998 March 31, 1997 March 31, 1996
-------------------------- -------------------------- -------------------------
Per-Share Per-Share Per-Share
Income Shares Amount (Loss) Shares Amount Income Shares Amount
------ ------ --------- ------ ------ --------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net income (loss)................ $15,207 $(7,059) $16,521
BASIC EPS
Income (loss) available to
common stockholders........... $15,207 15,809 $ 0.96 $(7,059) 16,062 $(0.44) $16,521 15,910 $ 1.04
====== ====== ======
EFFECT OF DILUTIVE SECURITIES
Options.......................... 480 -- 569
DILUTED EPS
Income (loss) available to
stockholders of common
shares and common share
equivalents................... $15,207 16,289 $ 0.93 $(7,059) 16,062 $(0.44) $16,521 16,479 $ 1.00
======= ====== ====== ======= ====== ====== ======= ====== ======
</TABLE>
Options to purchase 737,626 shares of common stock at prices of $22.25 to $25.31
per share were outstanding at March 31, 1998, but were not included in the
computation of diluted EPS because the options' exercise prices were greater
than the average market price for the common shares for fiscal 1998. 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 EPS
calculations because their inclusion at March 31, 1998, 1997 and 1996, would
have had an anti-dilutive effect on earnings.
As more fully described in Note 21 -- Subsequent Events, Telxon reissued 44,848
shares of treasury stock subsequent to March 31, 1998, to satisfy stock options
exercised under its stock option plans.
USE OF ESTIMATES
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CONTINGENT AND UNUSUAL ITEMS
- ----------------------------
Contingent and unusual items are expensed as incurred when events giving rise to
such items are probable and the amounts are estimable in accordance with the
requirements of the FASB Statement of Financial Accounting Standards No. 5,
"Accounting for Contingencies".
RECLASSIFICATIONS
- -----------------
Certain items in the fiscal 1997 and 1996 consolidated financial statements and
notes thereto have been reclassified to conform to the fiscal 1998 presentation.
49
<PAGE> 45
NOTE 2 -- INVENTORIES
Inventories at March 31, consisted of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Purchased components ............................................ $ 49,514 $ 29,983
Work-in-process ................................................. 37,375 31,579
Finished goods .................................................. 21,289 22,937
-------- --------
$108,178 $ 84,499
======== ========
</TABLE>
NOTE 3 -- PROPERTY AND EQUIPMENT
Property and equipment, at cost, at March 31, consisted of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Machinery and equipment ........................................ $ 59,849 $ 56,187
Tooling ........................................................ 28,624 24,356
Furniture and office equipment ................................. 19,620 19,104
Capital lease assets and other ................................. 14,386 4,553
Buildings, improvements and leasehold
interest ..................................................... 11,672 12,242
Leasehold improvements ......................................... 7,680 7,992
Land ........................................................... 1,978 1,978
Transportation equipment ....................................... 660 2,988
-------- --------
144,469 129,400
Less-accumulated depreciation and
amortization ................................................. 92,361 83,822
-------- --------
$ 52,108 $ 45,578
======== ========
</TABLE>
Depreciation expense for fiscal 1998, 1997 and 1996 amounted to $14,369, $18,893
and $15,184, respectively.
Net capital lease additions (retirements) were $1,698, $(1,008) and $1,348 in
fiscal 1998, 1997 and 1996, respectively. These additions and retirements were
non-cash transactions and, accordingly, have been excluded from property and
equipment additions in the accompanying consolidated statement of cash flows.
Amortization of capital lease assets has been included in depreciation expense.
Accumulated depreciation related to capital lease assets aggregated $1,732,
$1,177 and $1,680 in fiscal 1998, 1997 and 1996, respectively.
NOTE 4 -- INTANGIBLE AND OTHER ASSETS
Intangible and other assets, net, consisted of the following at March 31:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Investments in non-traded, closely
held companies ............................................... $ 12,853 $ 8,403
Capitalized software, net of amortization
of $12,670 and $7,379 ........................................ 11,954 11,451
Long-term notes receivable ..................................... 6,401 9,855
Goodwill relating to acquisitions, net of
amortization of $18,540 and $16,889 .......................... 3,463 8,962
Deferred financing costs, net of amortization
of $2,339 and $1,708 ......................................... 2,935 3,542
Other, net of amortization of $464 and
$95 .......................................................... 5,152 3,881
-------- --------
$ 42,758 $ 46,094
======== ========
</TABLE>
50
<PAGE> 46
Amortization expense for the years ended March 31, was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Capitalized software ................................... $ 6,433 $3,862 $2,385
Goodwill ............................................... 3,500 4,126 4,100
Deferred financing costs ............................... 631 612 164
Non-compete agreements ................................. -- 600 720
Licenses ............................................... -- -- 350
Other .................................................. 241 127 42
------ ------ ------
$10,805 $9,327 $7,761
======= ====== ======
</TABLE>
During fiscal 1998, the Company sold the stock of its Virtual Vision subsidiary.
Included in the sale was goodwill with a net book value of $2,001 and patents
and trademarks with a net book value of $207. Refer to Note 15 -- Divestitures
for additional details on the sale.
During fiscal 1997, the Company sold the assets of certain retail application
software operations, including capitalized software with a net book value of
$2,545. Refer to Note 15 -- Divestitures for additional details on the sale.
During fiscal 1997, the Company sold substantially all of the assets of its
Itronix Corporation subsidiary, including capitalized software with a net book
value of $439. Additionally, the Company expensed $1,589 of unamortized goodwill
during fiscal 1997 related to the sale. Refer to Note 15 -- Divestitures for
additional details on the sale.
In connection with the acquisition of Teletransaction, Inc. in fiscal 1993, the
Company acquired the rights to consulting services (principally performed by
Robert F. Meyerson, then Chairman of the Board and Chief Executive Officer of
the Company) from Accipiter Corporation ("Accipiter"), a company owned by Mr.
Meyerson's wife, and also secured a non-competition covenant from Accipiter and
Mr. Meyerson. Aggregate payments for these rights were $3,600. The costs of
these rights were amortized over the five year terms of the agreements and were
fully amortized at March 31, 1997.
NOTE 5 -- SHORT-TERM FINANCING
Effective March 8, 1996, the Company replaced its previous revolving credit,
term loan, and security agreement with a new credit agreement with a group of
eight banks. The credit agreement, which expires on March 8, 2001, provides the
Company with a maximum credit facility of $100,000 and permits the Company to
borrow funds as domestic or Eurodollar advances. Funds borrowed as domestic
advances bear interest at the greater of the agent bank's "Prime Commercial
Lending Rate" or the Federal Funds rate plus .50% while Eurodollar advances bear
interest at the agent bank's Eurodollar rate plus .50% to 1.25% based on certain
capitalization levels. At March 31, 1998, the interest rate in effect under this
credit agreement for domestic advances was 8.50% and for Eurodollar advances was
6.40%. In addition, the agreement requires the Company to pay a commitment fee
of .15% to .375% per annum, based on certain capitalization levels, on the
unused portion of the revolving commitment amount. The Company is also required
to pay a utilization fee of .125% to .25% per annum, based on certain
capitalization levels, on Eurodollar advances at certain borrowing levels. At
March 31, 1998, the commitment fee and utilization fee rates were .20% and .125%
per annum, respectively. The agreement also contains certain restrictive
covenants which require the Company to maintain certain leverage, net worth and
fixed charge coverage ratios. The Company had no borrowings outstanding under
the credit agreement at March 31, 1998. At March 31, 1998, the Company was in
compliance with all restrictive covenants contained in the credit agreement.
Effective March 20, 1996, the Company entered into a business purpose revolving
promissory note with a bank. The note provides the Company with a maximum credit
facility of $20,000 and bears interest at the lending bank's "Money Market Rate"
plus .50% to 1.25% per annum, based on certain capitalization levels. Effective
August 5, 1997, the note was extended to August 4, 1998. At March 31, 1998, the
interest rate
51
<PAGE> 47
in effect under the note was 7.126%. The Company had $3,000 outstanding under
the promissory note at March 31, 1998.
Both credit facilities were amended in August 1996 to conditionally grant to the
lenders a security interest in certain assets of the Company which will only
become effective if the Company were to become in default under the credit
agreement and then only if the requisite lenders under that facility were to
direct that the security documents be filed.
During fiscal 1998, the Company had a weighted average of $3,463 outstanding
under its $100,000 credit agreement and $20,000 promissory note with a weighted
average interest rate of 8.9% per annum. During fiscal 1997, the Company had a
weighted average of $7,760 outstanding with a weighted average interest rate of
7.0% per annum.
NOTE 6 -- ACCRUED LIABILITIES
Accrued liabilities at March 31, consisted of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Deferred customer service revenues ............................................ $13,448 $14,329
Accrued payroll and other employee compensation ............................... 9,559 15,799
Accrued royalties ............................................................. 3,781 4,516
Accrued taxes other than payroll and income taxes ............................. 3,000 3,162
Accrued commissions ........................................................... 2,794 3,510
Accrued interest .............................................................. 1,875 1,847
Other accrued liabilities ..................................................... 6,577 5,837
------- -------
$41,034 $49,000
======= =======
</TABLE>
NOTE 7 -- INCOME TAXES
Components of income (loss) before taxes:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Domestic operations .......................................................... $20,495 $(19,589) $13,758
International operations ..................................................... 8,360 13,898 13,077
------- -------- -------
$28,855 $ (5,691) $26,835
======= ======== =======
</TABLE>
The Company accounts for income taxes in accordance with the FASB Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No.
109"). Under SFAS No. 109, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and
liabilities and are measured using the tax rates and laws that are currently in
effect.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
Components of the provision for income taxes by taxing jurisdiction are as
follows:
<TABLE>
<CAPTION>
Currently payable (refundable): 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
U.S. ......................................................................... $ 6,565 $ (450) $ 3,796
State and local .............................................................. 498 196 264
Foreign ...................................................................... 3,470 5,090 4,727
-------- -------- --------
10,533 4,836 8,787
-------- -------- --------
Deferred:
U.S. ......................................................................... 2,051 (2,900) 1,586
State and local .............................................................. (46) (393) 178
Foreign ...................................................................... (130) (175) (237)
-------- -------- --------
1,875 (3,468) 1,527
-------- -------- --------
Provision for Income Taxes ................................................... $ 12,408 $ 1,368 $ 10,314
======== ======== ========
</TABLE>
52
<PAGE> 48
The reconciliation between the reported total income tax expense (benefit) and
the amount computed by multiplying income (loss) before income taxes by the U.S.
federal statutory tax rate is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
U.S. federal statutory tax rate .................... 35.0% (35.0)% 35.0%
Net taxes on repatriated foreign earnings .......... -.- 41.8 -.-
Foreign tax rate differential ...................... .9 7.8 1.7
Research and development credits ................... (.7) (19.7) (2.2)
Goodwill ........................................... 4.2 25.5 5.6
Foreign sales corporation tax benefit .............. (1.0) (6.3) -.-
Net operating losses not currently utilized ........ -.- 7.4 -.-
Other .............................................. 4.6 2.5 (1.7)
-------- -------- --------
Consolidated effective income tax rate ............. 43.0% 24.0% 38.4%
======== ======== ========
</TABLE>
The reconciliation between the reported total income tax expense (benefit) and
the amount computed by multiplying income (loss) before income taxes by the U.S.
statutory tax rate is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
U.S. federal statutory tax rate .................... $ 10,099 $ (1,992) $ 9,392
Net taxes on repatriated foreign earnings .......... -- 2,380 --
Foreign tax rate differential ...................... 249 422 468
Research and development credits ................... (207) (1,121) (593)
Goodwill ........................................... 1,202 1,449 1,494
Foreign sales corporation tax benefit .............. (291) (357) --
Net operating losses not currently utilized ........ -- 442 --
Other .............................................. 1,356 145 (447)
-------- -------- --------
Consolidated effective income tax rate ............. $ 12,408 $ 1,368 $ 10,314
======== ======== ========
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities at March 31, are presented below:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Deferred tax assets:
Foreign tax credit carryover ....................... $ 1,289 $ 4,827
Allowance for doubtful accounts .................... 1,504 1,195
Inventory obsolescence and capitalization .......... 4,242 5,794
State and local income benefits .................... 127 2,092
Net operating loss and research and development
and alternative minimum tax credit carryovers .... 3,862 1,839
Warranty reserves .................................. 1,007 1,374
Employee benefits and compensation ................. 1,116 1,929
Other 5,552 1,816
-------- --------
Total gross deferred tax assets ........... 18,699 20,866
Less valuation allowance .................. (3,919) (7,559)
-------- --------
Total deferred tax assets ................. 14,780 13,307
-------- --------
Deferred tax liabilities:
Depreciation and amortization .................... (7,522) (5,191)
Other ............................................ (2,282) (1,265)
-------- --------
Total gross deferred tax liabilities ...... (9,804) (6,456)
-------- --------
Net deferred tax asset .................... $ 4,976 $ 6,851
======== ========
</TABLE>
The net change in the total valuation allowance for deferred tax assets for the
years ended March 31, 1998 and 1997, was a decrease of $3,640 and an increase of
$5,175,
53
<PAGE> 49
respectively. The net deferred tax asset is deemed realizable by management and
is classified as a prepaid expense in the accompanying consolidated balance
sheet.
Subsequently recognized tax benefits relating to the valuation allowance for
deferred tax assets as of March 31, will be allocated as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Income tax benefit that would be reported in the
consolidated statement of income ............................................ $ -- $1,402
Income tax benefit that would reduce goodwill and
other noncurrent intangible assets .......................................... 3,919 6,157
------ ------
Total ................................................................ $3,919 $7,559
====== ======
</TABLE>
No provision for U.S. income taxes on $5,337 of undistributed earnings of
international subsidiaries at March 31, 1998, was made because these earnings
were indefinitely reinvested in the subsidiaries. Determination of the amount of
the unrecognized deferred tax liability for temporary differences related to
investment in foreign subsidiaries is not practicable.
Income taxes paid in fiscal 1998, 1997 and 1996 were $9,428, $8,734 and $6,340,
respectively. Income tax refunds received in fiscal 1998, 1997 and 1996
aggregated $473, $604 and $1,620, respectively.
As of March 31, 1998, the Company had foreign operating loss carryovers of
$3,506 for both tax and financial reporting purposes. These foreign carryovers
expire at various dates through fiscal 2005.
As a result of acquisitions in prior years, the Company had domestic operating
loss carryovers and domestic research and development credit carryovers for tax
and financial reporting purposes in the amounts of $1,018 and $753,
respectively. These domestic carryovers expire at various dates through fiscal
2008. As of March 31, 1998, the Company had domestic alternative minimum tax
credit carryovers of $1,239. The domestic alternative minimum tax credit
carryforward period is indefinite. There can be no assurance that foreign and
domestic tax carryovers will be utilized.
As of March 31, 1998, the Company had foreign tax credit carryovers of $1,289.
The carryforward period is five years and expires in fiscal 2002.
NOTE 8 -- STOCK OPTIONS AND RESTRICTED STOCK
The Company accounts for stock based compensation issued to its employees and
non-employee directors in accordance with APB 25 and has elected to adopt the
"disclosure-only" provisions of the FASB Statement of Financial Accounting
Standards No. 123, "Accounting for Stock Based Compensation" ("SFAS No. 123").
During the periods shown below, the Company had in effect two stock option plans
for the officers and other key employees of the Company - the Telxon Corporation
1988 Stock Option Plan (the "1988 Plan") and the Telxon Corporation 1990 Stock
Option Plan (the "1990 Plan"). The persons to whom options are granted, the
number of shares granted to each and the period over which the options become
exercisable (generally in equal installments over a three-year period on the
first three anniversaries after the date of grant) are determined by the Option
and Stock Committee of the Board of Directors ("the Committee"). The exercise
price is equal to the closing market price for the Company's Common Stock as of
the last trading day prior to the grant date.
54
<PAGE> 50
The following is a summary of the activity in the Company's employee stock
option plans during fiscal 1996, 1997 and 1998:
<TABLE>
<CAPTION>
STOCK OPTIONS
-------------
AVERAGE PRICE
SHARES PER SHARE
------ ---------
<S> <C> <C>
March 31, 1995 .................................... 2,286,221 12.66
Granted ......................................... 1,184,626 19.10
Exercised ....................................... (513,927) 10.94
Returned to pool due to employee
terminations .................................. (5,990) 12.28
---------
March 31, 1996 .................................... 2,950,930 15.54
Granted ......................................... 956,500 14.89
Exercised ....................................... (127,337) 11.84
Returned to pool due to employee
terminations .................................. (665,471) 16.27
---------
March 31, 1997 .................................... 3,114,622 15.23
Granted ......................................... 727,475 23.19
Exercised ....................................... (745,358) 13.28
Returned to pool due to employee
terminations .................................. (151,154) 19.19
---------
March 31, 1998 .................................... 2,945,585 17.59
=========
</TABLE>
At March 31, 1998, there were 2,945,585 options outstanding under the 1990 Plan
at the exercise prices of $8.75 to $25.38 per share, with a remaining weighted
average contractual life of 6.58 years. Of the outstanding options, 1,644,852
are vested.
Outstanding and Excercisable
at March 31, 1998
<TABLE>
<CAPTION>
Options Outstanding Options Excercisable
------------------------------ ----------------------------
Range of Weighted Ave. Weighted Ave. Weighted Ave.
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 3/31/98 Life Price at 3/31/98 Price
- --------------- ------------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
$ 8.750-$11.500....... 443,048 5.64 $11.18 443,048 $ 9.68
$12.500-$14.500....... 464,237 6.72 $13.71 401,848 $13.89
$15.250-$15.500....... 371,866 6.81 $15.40 295,511 $15.38
$16.750-$19.625....... 608,333 6.81 $17.32 202,778 $17.32
$20.125-$21.875....... 405,475 6.13 $20.77 185,000 $20.21
$22.250-$23.375....... 274,001 6.28 $22.69 116,667 $22.30
$25.310-$25.375....... 378,625 7.60 $25.32 - -
------------- ------------- ------------- ----------- ------------
2,945,585 6.58 $17.59 1,644,852 $14.75
============= ============= ============= =========== ============
</TABLE>
During fiscal 1998, the Company's stockholders approved an amendment to the 1990
Plan that increased the number of shares available for issuance by 750,000
shares, to a total of 4,100,000 shares. During fiscal 1996, the Company's
stockholders approved an amendment to the 1990 Plan which authorized an
additional 850,000 shares for issuance. Options available to be granted under
the 1990 Plan at March 31, 1998, were 292,036. No further options can be granted
under the 1988 Plan.
The Company also has in effect a stock option plan for non-employee directors
(the "Director Plan"). During fiscal 1996, the Company's stockholders approved
an amendment to the Director Plan that increased the number of shares available
for issuance by 150,000 shares, to a total of 400,000 shares. During the fiscal
year ended March 31, 1998, 105,000 options were granted at an average price per
share of $23.62. At March 31, 1998, there were 340,000 options outstanding under
the Director Plan at exercises prices of $9.125 to $25.25 per share, with a
weighted average contractual life of 5.44 years. Of the outstanding options,
186,667 are vested. At March 31, 1998, there were 1,667 options available to be
granted under the Director Plan.
55
<PAGE> 51
Outstanding and Excercisable
at March 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Options Outstanding Options Excercisable
------------------------------ ----------------------------
Range of Weighted Ave. Weighted Ave. Weighted Ave.
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 3/31/98 Life Price at 3/31/98 Price
- --------------- ------------- ------------- ------------- ----------- -------------
$ 9.125-$11.500 ...... 60,000 5.42 $10.63 40,000 $10.38
$11.750-$14.750 ...... 50,000 5.49 $13.98 46,667 $14.13
$15.750-$21.250 ...... 65,000 4.90 $18.88 50,000 $19.05
$22.500-$23.250 ...... 80,000 4.95 $22.91 43,333 $22.85
$23.375-$25.250 ...... 85,000 6.29 $23.79 6,667 $23.50
------------- ------------- ------------- ----------- -------------
340,000 5.44 $18.88 186,667 $15.36
============= ============= ============= =========== =============
</TABLE>
At March 31, 1998 and 1997, there were 6,000 options outstanding and exercisable
at $14.63 per share which were granted to a non-employee Director prior to the
adoption of the Director plan.
During fiscal 1993, the Company adopted a Restricted Stock Plan (the "Restricted
Stock Plan"), under which 250,000 shares may be issued. The Committee determines
the persons to whom restricted stock is granted, the number of shares granted to
each and the time periods during which and the criteria upon which the
restricted stock is subject to forfeiture (generally, the forfeiture
restrictions lapse as to equal installments of each grant over a five-year
period on the first five anniversaries of the date of grant, provided that the
grantee then continues in the Company's employ). At March 31, 1998, 187,000
shares granted under the Restricted Stock Plan had vested, 52,000 shares were
outstanding subject to forfeiture, and 11,000 shares were available to be
granted as a result of forfeited shares.
During fiscal 1996, the Company's stockholders approved the 1995 Employee Stock
Purchase Plan (the "1995 Stock Purchase Plan"), under which 500,000 shares of
common stock were authorized for sale to eligible employees at a 15% discount
from market value. During fiscal 1998, the Company re-issued 57,112 shares of
its treasury stock in satisfaction of purchases made under the 1995 Stock
Purchase Plan. At March 31, 1998, a total of 141,487 shares had been issued and
purchased under the 1995 Stock Purchase Plan since its inception and 358,513
shares remained available for future purchases.
For SFAS No. 123 purposes, the fair value of each option granted under the 1990
and Director Plans is estimated as of the date of grant using the Black-Scholes
option pricing model with the following weighted average assumptions used for
stock options granted in fiscal 1998 and 1997, respectively: dividend yield of
.038% and .047%, expected volatility of 44.66% and 56.22%, risk-free interest
rates of 5.88% and 6.40%, and an expected life of five years for grants in both
fiscal 1998 and 1997.
The fair value of each right to purchase stock under the 1995 Stock Purchase
Plan is estimated as of the first day of each six-month payment period (during
which payroll deductions for purchases are made) using the Black-Scholes option
pricing model with the following weighted average assumptions used in fiscal
1998 and 1997, respectively: dividend yield of .038% and .047%, expected
volatility of 44.66% and 56.22%, risk-free interest rates of 5.29% and 5.18%,
and an expected life of six months in both fiscal 1998 and 1997.
56
<PAGE> 52
If the Company had elected to recognize the compensation cost of its stock
option and stock purchase plans based on the fair value of the awards under
those plans in accordance with SFAS No. 123, net income (loss) and earnings
(loss) per share would have been reduced (increased) to the pro forma amounts
below:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C> <C>
Net income (loss): As reported .................................... $15,207 $ (7,059)
Pro forma ...................................... 7,934 (11,651)
Earnings per share:
Basic As reported .................................... $.96 $(.44)
Pro forma ...................................... .50 (.73)
Diluted As reported .................................... $.93 $(.44)
Pro forma ...................................... .49 (.73)
</TABLE>
The significant increase in the pro forma compensation expense in fiscal 1998
was the result of 495,000 options that were granted March 17, 1997. The
compensation expense recorded in the pro forma disclosure of fiscal 1997
included 14 days of expense as compared to the full year of expense recorded
in fiscal 1998.
NOTE 9 -- LEASES
The Company leases certain equipment under capital leases generally for terms of
five years or less with renewal and purchase options. The present value of
future minimum lease payments for these capital lease obligations is reflected
in the consolidated balance sheet as current and noncurrent capital lease
obligations. In addition, the Company leases office facilities, customer service
locations and certain equipment under noncancellable operating leases.
Future minimum lease payments for the fiscal years ending March 31, are as
follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------ --------
<S> <C> <C>
1999............................................................................ $1,109 $ 8,113
2000............................................................................ 648 7,241
2002............................................................................ 519 6,133
2002............................................................................ 519 3,403
2003............................................................................ 499 1,676
2004 and thereafter............................................................. 63 6,400
---- -------
3,357 $32,966
=======
Amount representing interest.................................................... (513)
------
Present value of net minimum lease payments..................................... 2,844
Current portion................................................................. (968)
------
Long-term portion............................................................... $1,876
======
</TABLE>
The Company has an option to purchase the 100,000-square-foot facility currently
occupied by its corporate offices. The purchase option is exercisable for a
price equal to the fair market value of the premises as determined by an
independent appraisal prior to September 1, 2001.
Rent expense for fiscal 1998, 1997 and 1996 amounted to $10,820, $12,296 and
$10,623, respectively.
57
<PAGE> 53
NOTE 10 -- CONVERTIBLE SUBORDINATED NOTES AND DEBENTURES
Convertible subordinated notes and debentures at March 31, 1998 and 1997,
consisted of $82,500 of 5-3/4% Convertible Subordinated Notes (the "5-3/4%
Notes") and $24,724 of 7-1/2% Convertible Subordinated Debentures (the "7-1/2%
Debentures").
The 5-3/4% Notes, which were issued December 12, 1995, are due January 1, 2003.
The conversion price for the 5-3/4% Notes is $27.50 per common share and is
subject to adjustment in certain events. Interest is payable on January 1 and
July 1 in each year, and commenced July 1, 1996. On or after January 5, 1999,
the 5-3/4% Notes are redeemable at any time at the option of the Company, in
whole or in part, at the following prices for the following calendar years:
1999, 103.286%; 2000, 102.464%; 2001, 101.643% and 2002, 100.821%.
The 7-1/2% Debentures, which were issued June 1, 1987, are due June 1, 2012. The
conversion price for the 7-1/2% Debentures of $26.75 is subject to adjustment in
certain events. Interest is payable on June 1 and December 1 in each year, and
commenced December 1, 1987. At March 31, 1997, the Debentures were redeemable at
any time at the option of the Company, in whole or in part, at 100.75% of the
principal amount redeemed. On and after June 1, 1997, the Debentures are
redeemable at par. The sinking fund requires mandatory annual payments of 5% of
the original $46,000 principal amount commencing June 1, 1997, calculated to
retire 75% of the issue prior to maturity. During fiscal 1991, the Company
purchased and retired Debentures with a principal face amount aggregating
$21,266, which will be applied to the earliest of the Company's sinking fund
payment obligations.
Total interest paid by the Company in fiscal 1998, 1997 and 1996 (including but
not limited to the interest on the Convertible Subordinated Notes and
Debentures) was $7,417, $8,368 and $5,046, respectively.
NOTE 11 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The FASB Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value Financial Instruments", requires that the Company disclose the fair
value of its financial instruments for which it is practicable to estimate fair
value.
The following methods and assumptions were used by the Company in estimating the
fair value of the following financial instruments:
Cash and Cash Equivalents
-------------------------
The carrying amounts reported in the accompanying consolidated balance
sheet for cash and cash equivalents approximate fair value due to the
short-term nature of these instruments.
5-3/4% Notes
------------
The fair value of the Company's 5-3/4% Notes is based on discounted
cash flow analysis (there being no regular public trading market for
the 5-3/4% Notes). Refer to Note 10 -- Convertible Subordinated Notes
and Debentures for additional information concerning the 5-3/4% Notes.
7-1/2% Debentures
-----------------
The fair value of the Company's 7-1/2% Debentures is based on quoted
market prices. Refer to Note 10 -- Convertible Subordinated Notes and
Debentures for additional information concerning the 7-1/2% Debentures.
<TABLE>
<CAPTION>
1998 1997
---- ----
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------ ----- ------ -----
<S> <C> <C> <C> <C>
Cash and cash equivalents.................... $27,500 $27,500 $45,386 $45,386
5-3/4% Notes................................. 82,500 79,907 82,500 79,314
7-1/2% Debentures............................ 24,724 25,713 24,724 23,982
</TABLE>
58
<PAGE> 54
Forward Foreign Currency Exchange Contracts
-------------------------------------------
The fair value of forward foreign currency exchange contracts is
estimated based on quotes from currency brokers. At March 31, 1998, the
Company had several forward foreign currency exchange contracts to
purchase various foreign currencies with an aggregate contract value of
$4,534 and an aggregate fair value of $4,574. At March 31, 1998, these
contracts were scheduled to mature in April 1998.
Investments in Non-traded Companies
-----------------------------------
It was not practicable for the Company to estimate the fair value of
its investments in certain non-traded, closely held companies because
of the lack of quoted market prices for those investments and the
inability to estimate fair values without incurring excessive costs.
These investments, which the Company holds for purposes other than
trading, totaled $12,853 and $8,403 at March 31, 1998 and 1997,
respectively, and are carried at cost in intangible and other assets in
the accompanying consolidated balance sheets. Refer to Note
4 -- Intangible and Other Assets for additional information concerning
the Company's investments in non-traded companies.
Long-term Notes Receivable
--------------------------
It was not practicable for the Company to estimate the fair value of
its long-term notes receivable from certain non-traded, closely held
companies because of the lack of quoted market prices for similar
financial instruments and the inability to estimate fair values without
incurring excessive costs. The notes, which the Company intends to hold
to maturity, bear interest at various fixed and variable rates and have
maturities ranging from one to four years. The long-term notes
receivable, which total $6,401 and $9,855 at March 31, 1998 and 1997,
respectively, are carried at cost in intangible and other assets in the
accompanying consolidated balance sheets. Refer to Note 4 -- Intangible
and Other Assets for additional information concerning long-term notes
receivable.
NOTE 12 -- STOCKHOLDERS' EQUITY
The exercise of non-qualified stock options results in state and federal income
tax benefits to the Company equal to the difference between the market price at
the date of exercise and the option price. During fiscal 1998, 1997 and 1996,
$2,180, $353 and $1,751, respectively, was credited to additional paid-in
capital as a result of such option exercises.
NOTE 13 -- BUSINESS SEGMENT
The Company designs, develops, manufactures, markets and services mobile and
wireless transaction systems and solutions for vertical markets. The Company's
business is a single segment. The Company does not believe that it is dependent
upon any one customer or group of customers. No customer accounted for 10% or
more of total revenues in fiscal 1998, 1997 or 1996.
The Company sells its products to customers in diversified industries, primarily
in North America and Europe. The Company realizes approximately one-half of its
revenues from customers in retail industries who are in widely diversified
geographic locations and markets. The Company performs ongoing credit
evaluations of its customers and generally does not require collateral. The
Company maintains reserves for potential credit losses, and such losses have
historically been within management's expectations.
The Company has operations in the United States, Europe, Canada, Mexico,
Australia and Asia. Information for fiscal 1998, 1997 and 1996 follows below.
59
<PAGE> 55
Of the U.S. revenues from unaffiliated customers in fiscal 1998, 1997 and 1996,
$28,625, $24,425 and $20,070 were exports to Europe, Canada, South America,
Asia, Africa and the Middle East.
Transfers between geographic areas were at cost plus a negotiated mark-up.
Assets of geographic areas are identified with the operations of each area.
Corporate assets consist of property and equipment.
<TABLE>
<CAPTION>
UNITED ADJUSTMENT &
1998 STATES EUROPE OTHER ELIMINATION CONSOLIDATED
---- ------ ------ ----- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues from
unaffiliated customers ............... $362,776 $71,835 $31,259 $ -- $465,870
Transfers between geo-
graphic areas ........................ 44,978 567 21,122 (66,667) --
-------- ------- ------- -------- --------
Total revenues ................ $407,754 $72,402 $52,381 $(66,667) $465,870
======== ======= ======= ======== ========
Operating income ....................... $ 63,797 $ 5,692 $ 3,070 $ (8,596) $ 63,963
======== ======= ======= ======== ========
Interest expense, net (5,608)
Non-operating income 133
Foreign currency
transaction gain
(loss), net .......................... 140 (183) (15) -- (58)
Corporate expenses, net (29,575)
Income before income --------
taxes $ 28,855
========
Identifiable assets at
March 31, 1998 ....................... $316,849 $38,556 $22,046 $ -- $377,451
======== ======= ======= ========
Corporate assets 13,088
Total assets at --------
March 31, 1998 $390,539
========
</TABLE>
<TABLE>
<CAPTION>
UNITED ADJUSTMENT &
1997 STATES EUROPE OTHER ELIMINATION CONSOLIDATED
---- ------ ------ ----- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues from
unaffiliated customers ............... $355,256 $65,292 $45,464 $ -- $466,012
Transfers between geo-
graphic areas ........................ 70,251 463 43,874 (114,588) --
-------- ------- ------- -------- --------
Total revenues ................ $425,507 $65,755 $89,338 $(114,588) $466,012
======== ======= ======= ========= ========
Operating income ....................... $ 17,105 $ 1,680 $22,036 $ (25,641) $ 15,180
======== ======= ======= ========= ========
Interest expense, net (6,566)
Non-operating income 34,726
Foreign currency
transaction (loss), net .............. (19) (387) (58) -- (464)
Corporate expenses, net (48,567)
(Loss) before income --------
taxes ................................ $ (5,691)
========
Identifiable assets at
March 31, 1997 ....................... $287,644 $32,578 $27,157 $ -- $347,379
======== ======= ======= ========
Corporate assets 14,405
Total assets at --------
March 31, 1997 $361,784
========
</TABLE>
60
<PAGE> 56
<TABLE>
<CAPTION>
UNITED ADJUSTMENT &
1996 STATES EUROPE OTHER ELIMINATION CONSOLIDATED
---- ------ ------ ----- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues from
unaffiliated customers ............... $382,156 $69,588 $34,725 $ -- $486,469
Transfers between geo-
graphic areas......................... 45,508 896 38,603 (85,007) --
-------- ------- ------- -------- --------
Total revenues................. $427,664 $70,484 $73,328 $(85,007) $486,469
======== ======= ======= ======== ========
Operating income........................ $ 50,935 $ 6,506 $ 5,759 $ 996 $ 64,196
======== ======= ======= ======== ========
Interest expense, net (6,010)
Non-operating income 1,517
Foreign currency
transaction (loss) gain
net................................... (18) 115 (157) -- (60)
Corporate expenses, net (32,808)
Income before income --------
taxes................................. $ 26,835
========
Identifiable assets at
March 31, 1996........................ $297,154 $43,142 $35,130 $ -- $375,426
======== ======= ======= ========
Corporate assets 13,783
Total assets at --------
March 31, 1996........................ $389,209
========
</TABLE>
NOTE 14 -- INTERNATIONAL OPERATIONS
The consolidated financial statements include the following with respect to the
net income and net assets of the Company's international subsidiaries and
branches during the three years ended March 31:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net income ..................... $ 5,020 $18,484 $ 7,695
Net assets ..................... $45,642 $36,727 $58,764
</TABLE>
NOTE 15 -- DIVESTITURES
Effective March 31, 1998, the Company sold the stock of its Virtual Vision
subsidiary to a third party in exchange for $500 in cash and $4,500 in Series F
Preferred Shares of FED Corporation at a value of $6.00 per share or 750,000
shares. The amount of these preferred shares is recorded in notes and other
accounts receivable in the accmpanying consolidated balance sheet. The Company
recorded a pre-tax gain of $669, net of transaction costs, as non-operating
income in the accompanying consolidated statement of operations.
Effective April 1, 1996, the Company sold the assets of certain retail
application software operations, with net assets of approximately $5,000, to a
third-party in exchange for $150 in cash and $7,000 in secured promissory notes,
including interest. In addition to the proceeds from the sale, the Company also
entered into a software license agreement with the third-party purchaser. The
agreement provides for the Company to receive, over the next five years, license
fees amounting to 20% of the revenue generated by the purchased software, with
minimum required payments agregated $6,600. The $7,000 in promissory notes
received in connection with the divestiture have been excluded from the
accompanying fiscal 1997 consolidated statement of cash flows as a non-cash
transaction.
Effective December 31, 1996, the Company sold substantially all of the assets of
its Itronix Corporation subsidiary, with a net book value of $30,848, as well as
all of the subsidiary's associated business, in exchange for $65,524 in cash,
plus the buyer's assumption of certain specified liabilities of the transferred
business totaling $8,229. The transaction resulted in a $32,653 gain, net of
transaction costs of $10,252, which has been recorded as other non-operating
income in the accompanying fiscal 1997 consolidated statement of operations. The
buyer is
61
<PAGE> 57
entitled to customary indemnification from the Company with respect to retained
liabilities and taxes. 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.
NOTE 16 -- SUBSIDIARY STOCK TRANSACTIONS
During fiscal 1998, the Company's Aironet subsidiary sold 984,126 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 $3,444. The resulting
pre-tax gain of $402, net of related transaction costs, was recorded as
non-operating income in the accompanying consolidated statement of operations.
In addition to the sale of the shares of stock, 295,237 warrants for the
purchase of Aironet voting common stock were issued. A gain of $251 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 March 31,
1998, was 78%.
During fiscal 1998, certain Aironet employees exercised 270,000 options to
purchase Aironet voting common stock at $1.86 per share. The pre-tax gain of
$241 was recorded as non-operating income in the accompanying consolidated
statement of operations.
During fiscal 1997, the Company sold 808,500 shares of voting common stock of
its Aironet subsidiary to a corporation owned by Mr. Meyerson at a price of
$1.86 per share in exchange for a promissory note, secured by the purchased
stock, in the amount of $1,504. This transaction resulted in the establishment
of a minority interest of $669 which has been included in the caption titled
minority interest in the accompanying consolidated balance sheet at March 31,
1997. The Company's remaining percentage interest in the voting common of
Aironet at March 31, 1997, was 90%. The sale of Aironet common stock has been
excluded from the accompanying fiscal 1997 consolidated statement of cash flows
as a non-cash transaction. At March 31, 1997, the Company deferred recognition
of the gain as the criteria for the recognition of gain on the sale of
subsidiary stock had not been met. During fiscal 1998, the criteria for the
recognition of gain on the sale of subsidiary stock were fulfilled and
accordingly, the $1.0 million of deferred gain was recorded as non-operating
income in the accompanying consolidated statement of operations.
During fiscal 1998, the Company repurchased 100,000 shares of the voting
common stock of its Metanetics Corporation ("Metanetics") subsidiary, a
licensor and developer of image processing technology, from former key
employees, at a price of $1.04 per share. Giving effect to this repurchase of
shares, the Company's interest in the voting common stock of Metanetics was 52%
at March 31, 1998.
During fiscal 1997, the Company repurchased 432,558 shares of the voting common
stock of Metanetics from a former employee. The shares were repurchased by the
Company at a price of $1.04 per share and resulted in a $449 non-operating loss.
The Company subsequently re-sold the repurchased shares during fiscal 1997 to a
corporation owned by Mr. Meyerson and his wife at a price of $1.04 per share
price, resulting in a non-operating gain of $449. The Company's remaining
percentage interest in the voting common stock of Metanetics at March 31, 1997,
was 49%.
62
<PAGE> 58
NOTE 17 -- TREASURY STOCK TRANSACTIONS
During fiscal 1998, the Company repurchased 294,200 shares of its common stock,
at a weighted average price of $17.23 per share, pursuant to its open market
repurchase programs. Additionally, during fiscal 1998, the Company re-issued
57,112 shares of its treasury stock at a weighted average price of $15.91 per
share to satisfy purchases made by employees through the 1995 Stock Purchase
Plan and 632,111 shares at a weighted average price of $16.00 per share to
satisfy stock options exercised under the Company's stock options plans. The
remaining 162,417 shares of treasury stock have been accounted for at cost plus
brokerage fees under the caption of treasury stock in the accompanying
consolidated financial statements. The re-issuances of treasury stock in
satisfaction of the purchases made through the 1995 Stock Purchase Plan and
exercises of stock options under the Company's stock option plans have been
excluded from the accompanying consolidated statement of cash flows as non-cash
transactions.
NOTE 18 -- COMMITMENTS 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, 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. 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 certain
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 on 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
Judgment 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.
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<PAGE> 59
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-judgment interest, attorneys'
fees and costs and other unspecified relief. In its Answer, Telxon denied
plaintiff's allegations. Plaintiff's claim for temporary injunctive relief is
set to be heard by the Court on July 16, 1998. Pursuant to the Court's
Scheduling Order in this action, trial is set for March 8, 1999. Telxon believes
that the 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 attorneys' 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 and no scheduling order has been issued by
the Court, and discovery has not yet commenced. The defendants believe that
these claims lack merit and intent 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 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
consolidated financial position or results of operations or cash flows.
NOTE 19 -- CHANGE IN ACCOUNTING PRINCIPLE
On November 20, 1998, the FASB's Emerging Issues Task Force issued a new
consensus ruling, "Accounting for Costs Incurred in Connection with a Consulting
Contract of an Internal Project That Combines Business Process Reengineering and
Information Technology Transformation" ("EITF 97-13"). EITF 97-13 requires
business process reengineering costs associated with information systems
development to be expensed as incurred. The Company has been involved in a
corporate-wide information systems implementation project that is affected by
this pronouncement. In accordance with this ruling, during the quarter ended
December 31, 1997, the Company recorded a one-time, after-tax, non-cash charge
of $1.2 million to expense previously capitalized costs associated with this
project. Such costs had primarily been incurred during the second quarter of
fiscal 1998.
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<PAGE> 60
NOTE 20 -- NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS
In fiscal 1998, the FASB issued 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, in the basic financial
statements. The Company is required to adopt the provisions of SFAS No. 130 for
the fiscal year ending March 31, 1999, beginning with the quarter ended June 30,
1998, and to restate any prior period financial statements included for
comparative purposes to reflect the application of SFAS No. 130. As the
adoption of this pronouncement will only modify disclosures, there will be no
effect on the Company's consolidated financial position, results of
operations or cash flows.
During fiscal 1998, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures About Segments of an Enterprise and Related Information"
("SFAS No. 131"). SFAS No. 131 revises the manner in which an entity determines
the operating segments it must report as well as requires the disclosure of
additional segment information. The Company is required to adopt the provisions
of SFAS No. 131 for the fiscal year ending March 31, 1999, and to restate any
prior period financial statements included for comparative purposes to reflect
the application of SFAS No. 131. As the adoption of this pronouncement will only
modify disclosures, there will be no effect on the Company's consolidated
financial position, results of operations or cash flows.
In fiscal 1998, the AICPA issued Statement of Position 97-2, "Software Revenue
Recognition" ("SOP 97-2"). SOP 97-2 provides guidance on the recognition of
revenue for the licensing, selling, leasing and marketing of computer software
to customers. The Company is required to adopt the provisions of SOP 97-2 for
the fiscal year ending March 31, 1999. Management believes that the adoption of
this pronouncement will not have a material effect on the Company's consolidated
financial position, results of operations or cash flows.
In fiscal 1998, the AICPA issued Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use" ("SOP 98-1").
SOP 98-1 requires the capitalization of certain costs incurred in the
development of software used by a company for its own internal operations. The
Company is required to adopt the provisions of SOP 98-1 for the fiscal year
ending March 31, 1999. Management believes that the adoption of this
pronouncement will not have a material effect on the Company's consolidated
financial position, results of operations or cash flows.
Subsequent to fiscal 1998, the FASB issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging" ("SFAS
No. 133"). SFAS No. 133 provides accounting and reporting standards for
derivative instruments. This standard will require the Company to recognize all
derivatives as either assets or liabilities in the statement of financial
position and to measure those instruments at fair value. The Company is
required to adopt the provisions of SFAS No. 133 during the first quarter of
fiscal 2001. Management believes that the adoption of this pronouncement will
not have a material effect on the Company's consolidated financial position,
results of operations or cash flows.
NOTE 21 -- SUBSEQUENT EVENTS
On April 21, 1998, an article was published in THE WALL STREET JOURNAL reporting
that Symbol Technologies, Inc. "ha[d] made an offer to purchase smaller rival
Telxon Corp. for $38 a share" in a letter to the Company dated April 8, 1998. On
May 8, 1998, the Company issued a press release announcing that its board of
directors had determined that Symbol's suggested business combination was not in
the best interest of the Company and its stockholders. Symbol subsequently
issued a press release on June 2, 1998 announcing that the Company "had
rejected Symbol's written proposal of
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<PAGE> 61
June 1, 1998 to acquire Telxon for $40 per share in cash or up to $42 per share
in cash and Symbol shares, subject to due diligence," noting that the
"acquisition proposal will expire by its terms at noon on June 8, 1998." On June
5, 1998, the Company issued a press release announcing that, following private
discussions with Symbol in an attempt to reach a mutual agreement, the Company's
board of directors had rejected Symbol's unsolicited $40 cash proposal. The
Company's press release further noted that the second Symbol proposal involving
a combination of cash/stock did not contain enough information to be considered
by the Company's board. A Symbol press release issued June 8, 1998 announced
that the proposals described in the June 2, 1998 Symbol press release had been
withdrawn.
Subsequent to March 31, 1998, $311 in aggregate principal amount of the
Company's Convertible 7-1/2% Debentures were surrendered for conversion into
11,621 shares of the Company's Common Stock. The surrendered Convertible
Debentures have been cancelled effective as of their conversion into common
stock.
Subsequent to March 31, 1998, the Company repurchased 400,000 shares of
Metanetics common stock from a third-party at $4.875 per share, resulting in a
non-operating loss of $1,950, which was recorded during the first quarter of
fiscal 1999. This repurchase of common stock resulted in an increase of the
Company's interest in the voting common stock of Metanetics to 60%.
Subsequent to March 31, 1998, the Company re-issued 44,848 shares of treasury
stock, at a weighted average cost of $19.27, to satisfy stock options exercised
under its stock option plans during the first quarter of fiscal 1999.
Subsequent to March 31, 1998, Aironet 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 Company's remaining interest in the
voting common stock of Aironet after giving effect to these additional sales is
76%.
NOTE 22 -- QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER
-------
1998 FIRST SECOND THIRD FOURTH(a) YEAR(b)
- ---- ----- ------ ----- --------- -------
<S> <C> <C> <C> <C> <C>
Revenues.......................... $104,913 $110,320 $117,307 $133,330 $465,870
Gross profit...................... 41,226 43,708 48,576 55,206 188,716
Income before
cumulative effect of
an accounting change............ $ 1,594 $ 2,388 $ 4,357 $ 8,108 $ 16,447
======== ======== ======== ======== ========
Income per share before
cumulative effect of
an accounting change:
Basic........................... $ .10 $ .15 $ .28 $ .52 $ 1.04
Diluted......................... $ .10 $ .15 $ .27 $ .50 $ 1.01
Net Income $ 1,594 $ 2,388 $ 3,117 $ 8,108 $ 15,207
======== ======== ======== ======== ========
Net income per share:
Basic........................... $ .10 $ .15 $ .20 $ .52 $ .96
Diluted......................... $ .10 $ .15 $ .19 $ .50 $ .93
</TABLE>
(a) Fourth quarter adjustments were not material to the quarterly results
of operations.
(b) The net income per share for the quarters does not equal net income per
share for the year due to differentials in the impact of quarterly and
annual weighted new stock issuances on the weighted average number of
shares outstanding for each respective period.
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<PAGE> 62
<TABLE>
<CAPTION>
QUARTER
-------
1997 FIRST SECOND THIRD FOURTH(a) YEAR
- ---- ----- ------ ----- --------- ----
<S> <C> <C> <C> <C> <C>
Revenues.................. $112,383 $108,314 $123,575 $121,740 $466,012
Gross profit.............. 35,510 34,335 33,963 48,332 152,140
Net (loss) income......... $ (4,797) $ (4,702) $ 2,135 $ 305 $ (7,059)
======== ======== ======== ======== ========
Earnings per common
and common
equivalent share:
Net (loss) income
per share
Basic................... $ (.30) $ (.29) $ .13 $ .02 $ (.44)
Diluted................. $ (.30) $ (.29) $ .13 $ .02 $ (.44)
</TABLE>
(a) Fourth quarter adjustments were not material to the quarterly results
of operations.
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<PAGE> 63
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this Report:
(1) Consolidated Financial Statements: Reference is made to the
Index on page 39 of Amendment No. 1 on Form 10-K/A for the
Year Ended March 31, 1998.
(2) Financial Statement Schedule: Reference is made to
the Index on page 39 of Amendment No. 1 on Form
10-K/A for the Year Ended March 31, 1998. All other
schedules are omitted because they are not applicable or the
required information is shown in the financial
statements of the notes thereto.
(3) Exhibits required by Item 601 of Regulation S-K:
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.
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<PAGE> 64
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,
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.
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<PAGE> 65
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,
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.
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<PAGE> 66
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 Registrant,
filed with the Original
Filing.
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,
filed with the Original Filing.
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, filed
with the Original
Filing.
10.1.10 Amended and Restated Employment
Agreement between Registrant and
James G. Cleveland, effective as
of April 1, 1997, filed
with the Original Filing.
10.1.11 Amended and Restated Employment
Agreement between Registrant and
Kenneth W. Haver, effective as
of April 1, 1997, filed
with the Original Filing.
10.1.12 Amended and Restated Employment
Agreement between Registrant and
David D. Loadman, effective as
of April 1, 1997, filed
with the Original Filing.
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<PAGE> 67
10.1.13 Amended and Restated Employment
Agreement between Registrant and
David W. Porter, effective as of
April 1, 1997, filed with the
Original Filing.
10.1.14 Amended and Restated Employment
Agreement between Registrant and
Danny R. Wipff, effective as of
April 1, 1997, filed with the
Original Filing.
10.1.15 Description of Key Employee
Retention Program, filed with the
Original Filing.
10.1.15.a Form of letter
agreement made
with key employees
selected under the
retention program
described in
Exhibit 10.1.15
above, filed
with the Original
Filing.
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, filed with the
Original Filing.
10.2 Material Leases of Registrant.
10.2.1 Lease between Registrant and
3330 W. Market Properties, dated
as of December 30, 1986, for
premises at 3330 W. Market
Street, Akron, Ohio,
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, Texas,
filed with the Original Filing.
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,
for premises at 3875 Embassy
Parkway, Bath Township (Akron),
Ohio, 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
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<PAGE> 68
Exhibit 10.2.4.b
to 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, filed with the Original
Filing.
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, filed
with the Original
Filing.
10.3.2 Business Purpose Revolving
Promissory Note (Swing Line)
made by 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.
73
<PAGE> 69
10.3.3 Business Purpose Revolving
Promissory Note (Swing Line)
made by Registrant in favor of
Bank One, Akron, N.A., dated
August 6, 1996 (in replacement
of the Note included as Exhibit
10.3.2 above), incorporated
herein by reference to Exhibit
10.3.8 to Registrant's Form 8-K
dated August 16, 1996.
10.3.3.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.
10.3.4 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), incorporated herein by
reference to Exhibit 10.3.8 to
Registrant's Form 10-Q for the
quarter ended June 30, 1997.
10.4 Amended and Restated Agreement between
Registrant and Symbol Technologies, Inc.,
dated as of September 30, 1992, filed
with the Original Filing.
10.5 License, Rights, and Supply Agreement
between Aironet Wireless Communications,
Inc., a subsidiary of Registrant, and
Registrant, dated as of March 31, 1998,
filed with the Original Filing.
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.), filed with the Original Filing.
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, filed with the
Original Filing.
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, a
subsidiary of Registrant 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,
74
<PAGE> 70
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, filed with the Original Filing.
10.14.1 Form of Warrant issued
pursuant to the
Subscription Agreement
included as Exhibit 10.14
above, filed with the
Original Filing.
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,
filed with the Original
Filing.
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,
filed with the Original
Filing.
21. Subsidiaries of Registrant, filed with the Original
Filing.
23. Consent of PricewaterhouseCoopers, LLP, filed
herewith.
24. Power of Attorney, executed by members of the Board
of Directors of Registrant, filed with the Original
Filing.
27.1 Financial Data Schedule as of March 31, 1998, filed
with the Original Filing.
75
<PAGE> 71
27.2 Financial Data Schedule as of September 30, 1997,
restated in compliance with SFAS No. 128, filed
with the Original Filing.
27.3 Financial Data Schedule as of June 30, 1997,
restated in compliance with SFAS No. 128, filed
with the Original Filing.
27.4 Financial Data Schedule as of March 31, 1997,
restated in compliance with SFAS No. 128, filed
with the Original Filing.
27.5 Financial Data Schedule as of December 31, 1996,
restated in compliance with SFAS No. 128, filed
with the Original Filing.
27.6 Financial Data Schedule as of September 30, 1996,
restated in compliance with SFAS No. 128, filed
with the Original Filing.
27.7 Financial Data Schedule as of June 30, 1996,
restated in compliance with SFAS No. 128, filed
with the Original Filing.
27.8 Financial Data Schedule as of March 31, 1996,
restated in compliance with SFAS No. 128, filed
with the Original Filing.
(b) Reports on Form 8-K
No Current Report on Form 8-K was filed by Registrant during the last
quarter of the fiscal year ended March 31, 1998, for which this Annual
Report on Form 10-K is filed. Subsequent to the end of that fiscal
quarter, Registrant filed the following Current Reports on Form 8-K:
(i) Current Report dated April 21, 1998, reporting that Registrant had
received a letter from Symbol Technologies, Inc. ("Symbol") expressing
interest in a business combination with Registrant; (ii) Current Report
dated May 8, 1998, reporting that Registrant's board of directors had
determined that Symbol's suggested business combination was not in the
best interest of the Company and its shareholders as well as the filing
of two purported class action lawsuits alleging claims relating to the
suggested business combination against Registrant and its directors;
and (iii) Current Report dated June 5, 1998 reporting that, following
private discussions with Symbol in an attempt to reach a mutual
agreement, Registrant's board of directors had rejected an unsolicited
$40 cash acquisition proposal from Symbol and that a second Symbol
proposal involving up to $42 per share in cash and Symbol shares did
not contain enough information to be considered by the board.
76
<PAGE> 72
TELXON CORPORATION AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
DOLLARS IN THOUSANDS
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND END OF
DESCRIPTION PERIOD EXPENSES DEDUCTIONS PERIOD
- ----------- ------ -------- ---------- ------
Valuation account for accounts receivable:
<S> <C> <C> <C> <C>
Year ended March 31, 1998:................ $ 1,596 $ 513 $ 967 (a) $ 1,142
Year ended March 31, 1997:................ $ 1,731 $ 378 $ 513 (a) $ 1,596
Year ended March 31, 1996:................ $ 1,832 $ 1,538 $ 1,639 (a) $ 1,731
Valuation account for inventory:
Year ended March 31, 1998:................ $15,983 $ 4,135 $ 8,993 (b) $ 11,125
Year ended March 31, 1997:................ $10,063 $ 11,521 $ 5,601 (b) $ 15,983
Year ended March 31, 1996:................ $10,942 $ 2,026 $ 2,905 (b) $ 10,063
</TABLE>
(a) Doubtful accounts charged off, net of recoveries.
(b) Write off of excess and/or obsolete material.
77
<PAGE> 73
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Amendment No. 1 on Form 10-K/A to be signed
on its behalf by the undersigned, thereunto duly authorized.
TELXON CORPORATION
Date: July 15, 1998 By: /s/ Kenneth W. Haver
--------------------------
Kenneth W. Haver, Senior
Vice President and Chief
Financial Officer
<PAGE> 74
TELXON CORPORATION
EXHIBITS TO
FORM 10-K
FOR THE FISCAL YEAR ENDED MARCH 31, 1998
(as amended)
<PAGE> 75
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, 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.
<PAGE> 76
* 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, 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.
<PAGE> 77
* 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 Registrant, filed with the
Original Filing.
* 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, filed with the Original Filing.
* 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, filed with the
Original Filing.
* 10.1.10 Amended and Restated Employment Agreement between
Registrant and James G. Cleveland, effective as
of April 1, 1997, filed with the Original Filing.
<PAGE> 78
* 10.1.11 Amended and Restated Employment Agreement between
Registrant and Kenneth W. Haver, effective as of
April 1, 1997, filed with the Original Filing.
* 10.1.12 Amended and Restated Employment Agreement between
Registrant and David D. Loadman, effective as of
April 1, 1997, filed with the Original Filing.
* 10.1.13 Amended and Restated Employment Agreement between
Registrant and David W. Porter, effective as of
April 1, 1997, filed with the Original Filing.
* 10.1.14 Amended and Restated Employment Agreement between
Registrant and Danny R. Wipff, effective as of
April 1, 1997, filed with the Original Filing.
* 10.1.15 Description of Key Employee Retention Program and
form of letter agreements made by Registrant with
key employees thereunder, filed with the Original
Filing.
* 10.1.15.a Form of letter agreement made with
key employees selected under the
retention program described in
Exhibit 10.1.15 above, filed
with the Original Filing.
* 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, filed with the
Original Filing.
10.2 Material Leases of Registrant.
* 10.2.1 Lease between Registrant and 3330 W. Market
Properties, dated as of December 30, 1986, for
premises at 3330 W. Market Street, Akron, Ohio,
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, Texas, filed
with the Original Filing.
* 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, for premises at 3875 Embassy Parkway,
Bath Township (Akron), Ohio, 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 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.
<PAGE> 79
* 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, filed with the Original Filing.
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,
filed with the Original Filing.
* 10.3.2 Business Purpose Revolving Promissory Note
(Swing Line) made by 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.
* 10.3.3 Business Purpose Revolving Promissory Note
(Swing Line) made by Registrant in favor of Bank
One, Akron, N.A., dated August 6, 1996 (in
replacement of the Note included as Exhibit
10.3.2 above), incorporated herein by reference
to Exhibit 10.3.8 to Registrant's Form 8-K dated
August 16, 1996.
* 10.3.3.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.
* 10.3.4 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),
incorporated herein by reference to Exhibit
10.3.8 to Registrant's Form 10-Q for the quarter
ended June 30, 1997.
<PAGE> 80
* 10.4 Amended and Restated Agreement between Registrant and Symbol
Technologies, Inc., dated as of September 30, 1992, filed
with the Original Filing.
* 10.5 License, Rights, and Supply Agreement between Aironet Wireless
Communications, Inc., a subsidiary of Registrant, and
Registrant, dated as of March 31, 1998, filed with the
Original Filing.
* 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.), filed with the Original Filing.
* 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, filed with the Original Filing.
* 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, a subsidiary of Registrant 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.
<PAGE> 81
* 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,
filed with the Original Filing.
* 10.14.1 Form of Warrant issued pursuant to the
Subscription Agreement included as Exhibit 10.14
above, filed with the Original Filing.
* 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, filed with the Original Filing.
* 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, filed with the Original Filing.
* 21. Subsidiaries of Registrant, filed with the Original Filing.
** 23. Consent of PricewaterhouseCoopers, LLP, filed herewith.
* 24. Power of Attorney, executed by members of the Board of
Directors of Registrant, filed with the Original Filing.
* 27.1 Financial Data Schedule as of March 31, 1998, filed with the
Original Filing.
* 27.2 Financial Data Schedule as of September 30, 1997, restated
in compliance with SFAS No. 128, filed with the
Original Filing.
* 27.3 Financial Data Schedule as of June 30, 1997, restated in
compliance with SFAS No. 128, filed with the Original Filing.
* 27.4 Financial Data Schedule as of March 31, 1997, restated in
compliance with SFAS No. 128, filed with the Original Filing.
* 27.5 Financial Data Schedule as of December 31, 1996, restated in
compliance with SFAS No. 128, filed with the Original Filing.
* 27.6 Financial Data Schedule as of September 30, 1996, restated in
compliance with SFAS No. 128, filed with the Original Filing.
* 27.7 Financial Data Schedule as of June 30, 1996, restated in
compliance with SFAS No. 128, filed with the Original Filing.
* 27.8 Financial Data Schedule as of March 31, 1996, restated in
compliance with SFAS No. 128, filed with the Original Filing.
* Previously filed
** Filed herewith
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Prospectus constituting part
of this Registration Statement of Telxon Corporation and Subsidiaries on
Form S-8 (File Nos.33-16939, 33-32600, 33-43314, 33-43318, 33-56205, 33-62957,
333-00449, 333-01189, 333-33177, 333-43121) of our report, dated June 26, 1998,
on our audits of the consolidated financial statements and financial statement
schedule of Telxon Corporation and Subsidiaries, as of March 31, 1998 and 1997,
and for each of the three years in the period ended March 31, 1998, which report
is included in this Amendment No. 1 on Form 10-K/A to the Company's Annual
Report on Form 10-K.
/s/ PricewaterhouseCoopers, LLP
Akron, Ohio
July 13, 1998
