<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): March 15, 2000
TELXON CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 0-11402 74-1666060
- ---------------------------- ---------------------- -------------------
(State or other jurisdiction Commission (IRS Employer
of incorporation) File Number) Identification No.)
1000 Summit Drive Cincinnati, Ohio 45150
- --------------------------------------------------------------------------------
(Address of principal executive offices)
Issuer's telephone number, including area code: (513) 576-7010
--------------
<PAGE> 2
Item 2. Disposition of Assets.
On November 9, 1999, Cisco Systems, Inc. ("Cisco" or to the "Buyer") announced
that it had entered into a merger agreement (the "Agreement") providing for its
acquisition of Aironet Wireless Communications, Inc. ("Aironet"), an affiliate
of Telxon Corporation (the "Registrant", and together with its subsidiaries,
the "Company"), for shares of Cisco common stock (the "Cisco/Aironet
Transaction"). As a result of the Cisco/Aironet Transaction, which became
effective March 15, 2000, Aironet common stockholders received .6373 shares of
Cisco common stock for each common share of Aironet owned. (This merger exchange
ratio and all Cisco share amounts and prices stated in this Current Report on
Form 8-K are stated prior to giving effect to the two for one forward split of
Cisco's common stock which became effective March 22, 2000; Aironet stockholders
are entitled to the Cisco stock split.) Immediately prior to the Cisco/Aironet
Transaction the Company owned 4,994,262 shares of Aironet. Aironet had been
organized as a subsidiary by the Registrant in 1993 and had effected its
initial public offering in July 1999. Upon consummation of the Cisco/Aironet
Transaction the Company owned 3,182,843 shares of Cisco common stock. The
shares of Cisco owned by the Company were valued at $409.4 million based on a
market price of $128.63 per Cisco share on March 15, 2000. Prior to
consummation of the Cisco/Aironet Transaction the Company owned 35.162% of
Aironet, and had accounted for its investment in Aironet under the equity
method of accounting. The Company's investment balance in Aironet prior to the
Cisco/Aironet Transaction was $21.6 million. As a result of the Cisco/Aironet
Transaction, the Company will account for the investment retained in Cisco
shares in accordance with the requirements of SFAS No. 115 "Accounting for
Certain Investments in Debt and Equity Securities." That statement requires
investments in marketable equity securities to be recorded at fair value.
Accordingly, the difference between the carrying value of the Company's
investment prior to Cisco/Aironet Transaction and the fair value on the date of
the transaction has been recorded as a non-operating pre-tax gain.
Upon consummation of the Cisco/Aironet Transaction, the Company sold
approximately $150.0 million of its holdings in Cisco shares to a third party.
These proceeds were subsequently utilized to retire amounts outstanding under
its senior credit facility and other identified liabilities.
Other than the transactions contemplated by the Agreement, the Registrant is not
aware of any material relationship between the Buyer and the Registrant or any
of its affiliates, any director or officer of the Registrant, or any associate
of any such director or officer.
The unaudited pro forma consolidated financial statements included in this
Current Report on Form 8-K as listed under Item 7(b) below are presented for
informational purposes only with respect to the pro forma financial effects of
the Cisco/Aironet Transaction on the Company, as determined in accordance with
the financial reporting rules of the Securities and Exchange Commission (the
"Commission"). Such financial statements do not purport to be indicative of the
financial position that would have actually existed or the results of operations
that would have actually been attained if the gain related to the Cisco/Aironet
Transaction noted above had occurred and been recognized in the periods
indicated. Nor do such financial statements purport to be indicative of the
financial position or results of operations that may exist or be attained in the
future. For a discussion of the risks and other important factors which may
affect the Company's business, operating results and financial and other
conditions reference should be made to the discussion of such risks and other
factors as included from time to time in the Registrant's filings with the
Commission.
<PAGE> 3
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(b) Pro Forma Financial Information.
The following unaudited pro forma financial information of the
Company is attached as Appendix A to this Current Report on
Form 8-K and by this reference incorporated herein:
(i) Introduction;
(ii) Pro Forma Consolidated Balance Sheet (Unaudited) at
December 31, 1999;
(iii) Pro Forma Consolidated Statement of Operations
(Unaudited) for the nine months ended December 31, 1999;
(iv) Pro Forma Consolidated Statement of Operations
(Unaudited) for the year ended March 31, 1999;
(v) Notes to Unaudited Pro Forma Consolidated Financial
Statements.
(c) Exhibit.
1 Agreement and Plan of Merger and Reorganization By
and Among Cisco Systems, Inc., Osprey Acquisition
Corporation and Aironet Wireless Communications,
Inc., dated November 8, 1999, which, insofar as the
Registrant is not a signatory party to, but as an
Aironet stockholder is a beneficiary of, such
agreement, is incorporated herein by reference to
Exhibit 1 to the Schedule 13D filed by Cisco on
November 18, 1999.
<PAGE> 4
APPENDIX A
Telxon Corporation and Subsidiaries
Unaudited Pro Forma Consolidated Financial Statements
Introduction
- ------------
The following unaudited Pro Forma Consolidated Balance Sheet as of December 31,
1999, gives effect to pro forma adjustments described in the notes thereto. This
balance sheet is presented as though the recognition of gain in investment value
resulting from the disposition of Aironet (deemed to have resulted upon the
Cisco/Aironet Transaction) occurred on December 31, 1999. Pro forma adjustments
have also been included to illustrate the subsequent retirement of debt and
other identified liabilities accomplished with the proceeds from the sale of a
portion of the Cisco shares acquired as a result of the Cisco/Aironet
Transaction. These pro forma adjustments have been segregated and presented in a
separate Utilization of Proceeds Pro Forma Adjustments column.
Shortly after consummation of the transaction, the Company also entered into two
premium neutral collar hedging transactions whereby the aggregate fair value of
the Company's remaining investment in Cisco shares and the related derivatives
will, on a combined basis, not increase above 135% nor fall below 85% of the
fair market value of those shares at the inception date. No pro forma adjustment
is required to reflect these transactions on the accompanying Pro Forma
Consolidated Financial Statements as hedge accounting will apply.
The following unaudited Pro Forma Consolidated Statement of Operations for the
nine months ended December 31, 1999 gives effect to the pro forma adjustments as
described in the notes thereto. This unaudited Pro Forma Consolidated Statement
of Operations is presented as though the Cisco/Aironet Transaction occurred on
March 31, 1998.
The following unaudited Pro Forma Consolidated Statement of Operations for the
fiscal year ended March 31, 1999 gives effect to: (i) the elimination of the
results of operations of Aironet, which was disposed of as described in Note
(A), and (ii) the related pro forma adjustments described in the notes thereto.
This unaudited Pro Forma Statement of Operations is presented as though the
Cisco/Aironet Transaction occurred on March 31, 1998.
The unaudited Pro Forma Consolidated Balance Sheet and Statements of Operations
should be read in conjunction with the notes thereto and with the historical
consolidated financial statements of the Company and the notes thereto as
included in the reports filed by the Company with the Commission from time to
time.
<PAGE> 5
TELXON CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Utilization
Consolidated Disposition Subtotal of Proceeds Final
December 31, Pro Forma Pro Forma Pro Forma Pro Forma
1999 Adjustments Results Adjustments Results
--------- ------------ --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash $ 9,794 $ - $ 9,794 $35,924 (C)-(K) $ 45,718
Account receivable, net 74,388 - 74,388 - 74,388
Notes and other accounts receivable 6,305 - 6,305 - 6,305
Inventories 85,509 - 85,509 - 85,509
Prepaid expenses and other 6,906 12,008 (A) 18,914 (2,123)(D),(Q) 16,791
--------- ------------ --------- --------- ---------
Total current assets 182,902 12,008 194,910 33,801 228,711
Property and equipment, net 65,086 - 65,086 184 (F) 65,270
Intangibles and other assets, net 19,002 - 19,002 - 19,002
Investment in affiliate/marketable securities 21,645 387,774 (A) 409,419 (149,995)(C) 259,424
--------- ------------ --------- --------- ---------
Total $ 288,635 $ 399,782 $ 688,417 $(116,010) $ 572,407
========= ============ ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 55,015 $ - $ 55,015 $ (54,722)(D) $ 293
Capital lease obligations 405 - 405 (344)(F) 61
Accounts payable 42,711 4,769 (B) 47,480 (33,891)(J),(K) 13,589
Accounts payable affiliate 4,769 (4,769)(B) - - -
Income taxes payable 6,594 1,654 (A) 8,248 - 8,248
Accrued liabilities 50,450 - 50,450 (11,307)(D),(F)-(I) 39,143
--------- ------------ --------- --------- ---------
Total current liabilities 159,944 1,654 161,598 (100,264) 61,334
Capital lease obligations 1,143 - 1,143 (984)(F) 159
Convertible subordinated notes and debentures 106,913 - 106,913 - 106,913
Long-term debt 11,083 - 11,083 (11,083)(D) -
Deferred income taxes - 109,208 (A) 109,208 - 109,208
Other long-term liabilities 6,394 - 6,394 - 6,394
--------- ------------ --------- --------- ---------
Total liabilities 285,477 110,862 396,339 (112,331) 284,008
Stockholders' equity:
Common stock 164 - 164 - 164
Additional paid-in capital 88,140 - 88,140 - 88,140
Retained (deficit) earnings (78,495) 288,920 (A) 210,425 (3,679)(D),(E), 206,746
(G),(Q)
Foreign currency translation adjustment (5,087) - (5,087) - (5,087)
Unearned compensation (179) - (179) - (179)
Treasury stock, at cost (106) - (106) - (106)
Notes related to purchase of subsidiary stock (1,279) - (1,279) - (1,279)
--------- ------------ --------- --------- ---------
Total stockholders' equity 3,158 288,920 292,078 (3,679) 288,399
--------- ------------ --------- --------- ---------
Total $ 288,635 $ 399,782 $ 688,417 $(116,010) $ 572,407
========= ============ ========= ========= =========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Financial Statements for
explanations of pro forma adjustments.
<PAGE> 6
TELXON CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED DECEMBER 31, 1999
(In thousands except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Telxon Adjustments Results
--------- ----------- ---------
<S> <C> <C> <C>
Revenues:
Product, net $ 219,479 $ - $ 219,479
Customer service, net 60,875 - 60,875
--------- --------- ---------
Total net revenues 280,354 - 280,354
Cost of revenues:
Product 163,728 (4,759)(O),(P) 158,969
Customer service 37,260 - 37,260
--------- --------- ---------
Total cost of revenues 200,988 (4,759) 196,229
--------- --------- ---------
Gross profit:
Product 55,751 4,759 60,510
Customer service 23,615 - 23,615
--------- --------- ---------
Total gross profit 79,366 4,759 84,125
--------- --------- ---------
Operating expenses:
Selling expenses 55,202 - 55,202
Product development and engineering expenses 19,492 - 19,492
General & administrative expenses 41,216 (2,580) (D) 38,636
--------- --------- ---------
Total operating expenses 115,910 (2,580) 113,330
--------- --------- ---------
Loss from operations (36,544) 7,339 (29,205)
Interest income 552 - 552
Interest expense (10,414) 4,967 (D),(F)-(H) (5,447)
--------- --------- ---------
Loss before other non-operating income (expense)
and income taxes (46,406) 12,306 (34,100)
Gain on sale of subsidiary stock 32,167 (32,167) (L) -
Other non-operating income (expense), net 363 (1,040) (M) (677)
--------- --------- ---------
Loss before income taxes (13,876) (20,901) (34,777)
Provision (benefit) for income taxes 2,637 (13,285) (Q) (10,648)
--------- --------- ---------
Net loss $ (16,513) $ (7,616) $(24,129)
========= ========= =========
Net loss per common share:
Basic $ (1.02) $ (1.49)
Diluted $ (1.02) $ (1.49)
Average number of common shares outstanding:
Basic 16,235 16,235
========= =========
Diluted 16,235 16,235
========= =========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Financial Statements for
explanations of pro forma adjustments.
<PAGE> 7
TELXON CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED MARCH 31, 1999
(In thousands except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Consolidated Pro Forma Pro Forma
Telxon Aironet Adjustments Results
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Product, net $ 305,380 $ (27,529) $ - $ 277,851
Customer service, net 82,914 (883) - 82,031
--------- --------- --------- ---------
Total net revenues 388,294 (28,412) - 359,882
Cost of revenues:
Product 241,265 (17,718) 45 (P) 223,592
Customer service 55,078 (827) - 54,251
--------- --------- --------- ---------
Total cost of revenues 296,343 (18,545) 45 277,843
--------- --------- --------- ---------
Gross profit:
Product 64,115 (9,811) (45) 54,259
Customer service 27,836 (56) - 27,780
--------- --------- --------- ---------
Total gross profit 91,951 (9,867) (45) 82,039
--------- --------- --------- ---------
Operating expenses:
Selling expenses 96,109 (6,686) - 89,423
Product development & engineering expenses 42,986 (6,309) - 36,677
General & administrative expenses 54,923 (5,330) (873) (D) 48,720
Unconsumated business combination costs 8,070 - - 8,070
--------- --------- --------- ---------
Total operating expenses 202,088 (18,325) (873) 182,890
--------- --------- --------- ---------
Loss from operations (110,137) 8,458 828 (100,851)
Interest income 801 (153) - 648
Interest expense (9,872) 130 3,850 (D),(F),(H) (5,892)
--------- --------- --------- ---------
Loss before other non-operating (expense) income
and income taxes (119,208) 8,435 4,678 (106,095)
Gain on sale of subsidiary stock 340 - (340)(M),(N) -
Other non-operating (expense) income, net (754) 302 324 (M) (128)
--------- --------- --------- ---------
Loss before income taxes (119,622) 8,737 4,662 (106,223)
Provision (benefit) for income taxes 17,360 87 (55,579) (Q) (38,132)
--------- --------- --------- ---------
Net loss $(136,982) $ 8,650 $ 60,241 $ (68,091)
========= ========= ========= =========
Net loss per common share:
Basic $ (8.50) $ (4.23)
Diluted $ (8.50) $ (4.23)
Average number of common shares outstanding:
Basic 16,108 16,108
========= =========
Diluted 16,108 16,108
========= =========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Financial Statements for
explanations of pro forma adjustments.
<PAGE> 8
Telxon Corporation
and Subsidiaries
Notes to Unaudited Pro Forma Financial Statements
- -------------------------------------------------
Basis of Presentation
- ---------------------
At December 31, 1999, and for the nine month period ended December 31, 1999, the
Company had accounted for its investment in Aironet under the equity method of
accounting in accordance with APB 18 "The Equity Method of Accounting for
Investments in Common Stock" since the Company's ownership percentage in Aironet
was reduced to 35% upon Aironet's initial public offering in July, 1999. Because
the Company owned approximately 76% of Aironet during the prior fiscal year, the
Consolidated Telxon column in the unaudited Pro Forma Consolidated Statement of
Operations for the fiscal year ended March 31, 1999 presents the consolidated
results of operations of the Company, including Aironet. Therefore, this
statement of operations also includes a separate pro forma adjustment column to
illustrate the effect of presenting the Company on a pro forma basis excluding
Aironet's results.
The Aironet column in the unaudited Pro Forma Consolidated Statement of
Operations for the fiscal year ended March 31, 1999 reflects the results of
operations of Aironet, excluding intercompany transactions, for the full twelve
month period. Since the unaudited Pro Forma Consolidated Statements of
Operations contained herein are presented as if the Cisco/Aironet Transaction
described above occurred on March 31, 1998, the related gain has not been
presented on either unaudited Pro Forma Consolidated Statement of Operations.
Note (A)
- --------
The unaudited Pro Forma Consolidated Balance Sheet reflects an adjustment to
illustrate the increase in share value of $387.8 million resulting from the
acquisition of Aironet by Cisco as described in "Item 2. Disposition of Assets"
in the accompanying Current Report on Form 8-K, in excess of the recorded
existing equity method investment in Aironet of $21.6 million. This increase
was calculated based upon the fair value of the Company's holdings of Aironet
shares at March 15, 2000, based upon a share value of $81.98 per Aironet share.
At that value, the total consideration to the Company was $409.4 million. A
deferred income tax liability of $109.2 million and an income tax payable of
$1.7 million have been established using an anticipated U.S. federal and state
effective income tax rate of approximately 38%, after taking into consideration
that the gain described above would allow the Company to utilize previously
reserved net operating loss carryforwards of approximately $100.0 million.
Moreover, net deferred income tax assets of approximately $12.0 million, which
were previously fully reserved, have been reinstated to full value through
reduction in the related valuation reserves. The resulting net income impact of
the gain and the income tax adjustments described above was $288.9 million and
was recorded as an increase to retained earnings.
Note (B)
- --------
The unaudited Pro Forma Consolidated Balance Sheet also reflects an adjustment
to record the reclassification of approximately $4.8 million of accounts
payable, which were due to Aironet as a trade accounts payable. Prior to the
consummation of the Cisco/Aironet Transaction, these payables were recorded as
payables due to affiliate. However, since the Company no longer has significant
control over Aironet or the ability to directly influence Aironet management,
these receivables should no longer be classified as payables due to affiliate.
<PAGE> 9
Telxon Corporation
and Subsidiaries
Notes to Unaudited Pro Forma Financial Statements (Continued)
- -------------------------------------------------------------
Note (C)
- --------
The unaudited Pro Forma Consolidated Balance Sheet includes an adjustment to
record the sale of 1.1 million Cisco shares just following the transaction date
for cash proceeds. This sale resulted in cash proceeds of approximately $150.0
million at a weighted average sale price of $136.36 per share.
Note (D)
- --------
The Utilization of Proceeds Pro Forma Adjustments column of the unaudited Pro
Forma Consolidated Balance Sheet includes an adjustment to record the retirement
of amounts outstanding under the Company's $100.0 million senior credit
facility. This included the retirement of $54.7 and $11.1 million of notes
payable and long-term debt, respectively. Additionally, the related $1.1 million
of prepaid debt issuance costs, $.6 million of accrued interest and fees and $.5
million of accrued debt issuance costs were adjusted as if they had been
expensed or paid as a result of the transaction.
The unaudited Pro Forma Adjustments column of the unaudited Pro Forma
Consolidated Statement of Operations for the nine months ended December 31, 1999
and the year ended March 31, 1999 includes adjustments to reflect the absence of
this credit facility and the Company's former credit facility on the operating
results of the Company. This adjustment is reflected as a decrease to interest
expense of $4.2 and $3.7 million, and a decrease in amortization of debt
issuance costs of $2.6 and $.9 million for the nine and twelve months ending
December 31 and March 31, 1999, respectively.
Note (E)
- --------
A $1.5 million termination fee was also incurred as a result of the retirement
of the Company's senior credit facility described in Note (D) above. This
expense is illustrated on the unaudited Pro Forma Consolidated Balance Sheet as
a reduction in cash of $1.5 million and a reduction of retained earnings of $1.5
million.
Since the presentation date of this transaction for Consolidated Statement of
Operations purposes is March 31, 1998, as described above, no pro forma
adjustment on either unaudited Pro Forma Statement of Operations was necessary
to reflect this termination fee.
Note (F)
- --------
The unaudited Pro Forma Consolidated Balance Sheet includes an adjustment to
reflect the retirement of certain capital lease obligations. The Company has
opted to maintain these leased assets and to continue to utilize them in its
ongoing operations. The payoff amount of these capital lease obligations
exceeded the carrying value by $.2 million; therefore, this amount has been
presented as an increase in the fixed assets' carrying value and will be
depreciated over the remaining useful lives of the assets in accordance with the
requirements of Statement of Financial Accounting Standard 13 "Accounting for
Leases", and as interpreted by Financial Accounting Standards Board
Interpretation 26 "Accounting for the Purchase of a Leased Asset by the Lessee
During the Term of the Lease".
<PAGE> 10
Telxon Corporation
and Subsidiaries
Notes to Unaudited Pro Forma Financial Statements (Continued)
- -------------------------------------------------------------
This utilization of proceeds resulted in a reduction of $.3 million and $1.0
million of capital lease obligations due within a year and long-term capital
lease obligations, respectively. These amounts have also been illustrated within
the Utilization of Proceeds column of the unaudited Pro Forma Consolidated
Balance Sheet.
Both unaudited Pro Forma Statements of Operations presented include adjustments
within the Pro Forma Adjustment columns to reflect the absence of these leases
upon the Company's operating results. The unaudited Statement of Operations for
the nine months ending December 31, 1999 and the twelve months ending March 31,
1999 include adjustments of $.1 million for both periods to decrease interest
expense to reflect the retirement of the lease obligations. The additional
amortization that would be created by this transaction, due to the increase in
the assets basis as described above is insignificant, and therefore not
presented.
Note (G)
- --------
The Utilization of Proceeds column of the unaudited Pro Forma Consolidated
Balance Sheet includes an adjustment to reflect the payment of $5.4 million for
a note payable and amounts payable due to a vendor related to a liability
recorded to recognize purchase commitments for discontinued products. Since the
note did not bear interest, it was discounted at its inception in accordance
with the requirements of APB 21 "Interest on Receivables and Payables."
Therefore, the payment amount was greater than the present value of the
liability recorded on the balance sheet as of December 31, 1999 and an operating
loss of $.1 million was recorded upon the discharge of the obligation. Since the
Company has classified these obligations as accrued liabilities on the
consolidated balance sheet, the pro forma adjustment has been reflected in that
financial statement line item.
The unaudited Pro Forma Statement of Operations for the nine months ended
December 31, 1999 includes an adjustment to reflect the absence of this note and
interest expense of $.5 million.
Note (H)
- --------
The Utilization of Proceeds column of the unaudited Pro Forma Consolidated
Balance Sheet includes an adjustment to reflect the early retirement of a
$1.8 million note payable owed a vendor. As of December 31, 1999, this early
retirement also included the payment of $.2 million of accrued interest.
The Pro Forma Adjustments column of the unaudited Pro Forma Consolidated
Statement of Operations for the nine months ended December 31, 1999 includes an
adjustment to reflect the absence of this note upon the Company's operating
results, and reduced interest expense of $.4 million.
Since a portion of this debt was outstanding during fiscal 1999, a pro forma
adjustment has also been made to the unaudited Pro Forma Statement of Operations
for the year ended March 31, 1999. To reflect the absence of this liability upon
the Company's operating results, an adjustment of $.1 million has been made to
reduce interest expense for the period.
<PAGE> 11
Telxon Corporation
and Subsidiaries
Notes to Unaudited Pro Forma Financial Statements (Continued)
- -------------------------------------------------------------
Note (I)
- --------
The Utilization of Proceeds column of the unaudited Pro Forma Consolidated
Balance Sheet includes an adjustment to reflect the retirement of a $3.0
million portion of amounts owed to a financial institution that resulted from
the Company's guarantee of a customer's lease payments and the customer's
subsequent default. Since this obligation is due within a year, and to
facilitate the recording of the amount, the amount has been classified as an
accrued liability in the accompanying unaudited Pro Forma Consolidated Balance
Sheet. Therefore, the adjustment to reflect the discharge of a portion of this
obligation has been illustrated as an adjustment to accrued liabilities.
Note (J)
- --------
The Utilization of Proceeds column of the unaudited Pro Forma Consolidated
Balance Sheet includes an adjustment of $4.8 million to reflect the payment of
accounts payable due to Aironet.
Note (K)
- --------
The Utilization of Proceeds column of the unaudited Pro Forma Consolidated
Balance Sheet also includes an adjustment of $29.1 million to reflect the
utilization of proceeds to pay a significant amount of the Company's accounts
payable. This adjustment reflects the payment of $3.5 million of current
accounts payable with critical vendors and $25.7 million of past due accounts
payable.
Note (L)
- --------
The Pro Forma Adjustments column of the unaudited Pro Forma Consolidated
Statement of Operations for the nine months ending December 31, 1999 includes a
pro forma adjustment of $32.2 million to illustrate the reversal of the gain
recognized from the sale of Aironet shares in July of 1999. These shares were
sold pursuant to the initial public offering of Aironet as described in the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1999. The unaudited Pro Forma Statement of Operations has been presented on a
pro forma basis as if the purchase of Aironet by Cisco occurred on March 31,
1998; consequently, this gain has been reversed to properly present pro forma
results.
Note (M)
- --------
The unaudited Pro Forma Consolidated Statement of Operations for the nine months
ended December 31, 1999 includes an adjustment to reverse $1.0 million in
investment income originally recorded to reflect the Company's interest in the
earnings of Aironet under the equity method of accounting.
The unaudited Pro Forma Consolidated Statement of Operations for the year ended
March 31, 1999 includes an adjustment to reverse the minority interest impact
recorded to reflect the minority shareholders' interest in the net earnings of
Aironet. The amount of the reversal decreased the other non-operating expense
for the year ended March 31, 1999 by $.3 million.
<PAGE> 12
Telxon Corporation
and Subsidiaries
Notes to Unaudited Pro Forma Financial Statements (Continued)
- -------------------------------------------------------------
Note (N)
- --------
The unaudited Pro Forma Consolidated Statement of Operations for the fiscal year
ended March 31, 1999 includes an adjustment of $.3 million to reflect the
reversal of a gain on the sale of subsidiary stock, all of which related to
Aironet.
Note (O)
- --------
The Pro Forma Adjustments column of the unaudited Pro Forma Consolidated
Statement of Operations for the nine months ended December 31, 1999 includes an
adjustment to reverse royalty expense of $5.1 million for legacy Aironet
products manufactured and sold by the Company pursuant to license rights granted
to Registrant under the License, Rights and Supply Agreement between Aironet and
Registrant, dated as of March 31, 1998, as amended by the First Amendment
thereto dated as of March 8, 1999, included as Exhibits 10.5 and 10.5.1,
respectively, to the Registrant's Annual Reports on Form 10-K for the years
ended March 31, 1998 and 1999, respectively. However, contemporaneously and in
connection with Aironet's entry into the Cisco/Aironet Transaction, the
Registrant entered into an Agreement, dated as of November 8, 1999, with Cisco
and Aironet, included as Exhibit 10.5.2 to Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1999, restating the license rights
granted by Aironet to Telxon, and providing for those license rights to become
fully paid-up, with no further royalties due Aironet, effective as of the
consummation of the Cisco/Aironet Transaction. Since the royalty expense has
been accounted for as a cost of product revenues, an adjustment for such
elimination of royalties has been reflected in that financial statement line
item. The Pro Forma Adjustments column of the unaudited Pro Forma Consolidated
Statement of Operations for the year ended March 31, 1999 does not include an
adjustment to reverse royalty expense related to legacy Aironet products since
the results of Aironet were consolidated and all intercompany transactions were
eliminated.
Note (P)
- --------
The Pro Forma Adjustments column of the unaudited Pro Forma Consolidated
Statement of Operations for the nine months ended December 31, 1999 includes an
adjustment to cost of product revenues of $.3 million to reverse the net impact
of an intercompany profit held in inventory which was previously reversed in
consolidation. This intercompany gross profit related to components purchased
from Aironet. Since the transfer price charged on these components by Aironet
included a profit margin, a portion of this cost equivalent to the Company's
ownership percentage in Aironet was eliminated in consolidation to prevent
improper recognition of this profit and overstatement of consolidated inventory.
Since this pro forma statement presents the Company's results of operations as
if Aironet was an independent vendor as of March 31, 1998, these elimination
entries have been reversed.
Note (Q)
- --------
With the exception of Note (A), the pro forma adjustments described above have
been presented on a pre-tax basis. The following income tax rates have been
utilized to reflect the income tax impact of these adjustments.
For the unaudited Pro Forma Consolidated Balance Sheet at December 31, 1999, an
effective U.S. federal and state income tax rate of 38% was used to reflect the
<PAGE> 13
Telxon Corporation
and Subsidiaries
Notes to Unaudited Pro Forma Financial Statements (Continued)
- -------------------------------------------------------------
impact of the gain on disposition of the Aironet shares for Cisco shares, the
utilization of previously unrecognized net operating loss carryforwards and the
pro forma adjustments related to the early extinguishment of debt. The aggregate
balance sheet income tax impact of the charges related to the early
extinguishment of debt was $1.0 million.
For the unaudited Pro Forma Consolidated Statements of Operations for the nine
months ended December 31, 1999 and the year ended March 31, 1999, an effective
U.S. federal and state income tax rate of 36% was used to reflect the income tax
impact of all pro forma adjustments. The aggregate impact of these income tax
adjustments for the nine months ended December 31, 1999 was a $7.5 million
decrease to the provision for income taxes. The aggregate impact of these income
tax adjustments for the year ended March 31, 1999 was a $1.7 million increase to
the provision for income taxes.
The pro forma adjustments made presume that the Cisco/Aironet Transaction had
occurred on March 31, 1998. The historical Consolidated Statements of Operations
for the year ended March 31, 1999 and the nine months ended December 31, 1999,
did not contain any benefit from U.S. net operating losses based upon the
Company's assessment that it was more likely than not that the Company would not
be able utilize these net operating loss carryforwards through future taxable
income or implementation of tax planning strategies. However, given the pro
forma impact of the taxable income generated by the Cisco/Aironet Transaction,
these income tax benefits would have been available in the periods presented.
Therefore, pro forma adjustments have been made to reflect the income tax
benefits generated for those periods. The impact of these adjustments to record
income tax benefits for U.S. operating losses for the nine months ended
December 31, 1999 and the year ended March 31, 1999 were $5.8 million and $57.3
million, respectively.
<PAGE> 14
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
TELXON CORPORATION
Date: March 30, 2000 By: /s/ Woody McGee
-------------------------------
Woody McGee
Chief Financial Officer
<PAGE> 15
INDEX TO EXHIBITS
-------------
Telxon Corporation and Subsidiaries
Current Report on Form 8-K
(Earliest Event Reported: March 15, 2000)
1 Agreement and Plan of Merger and Reorganization By and Among Cisco
Systems, Inc., Osprey Acquisition Corporation and Aironet Wireless
Communications Inc., dated as of November 8, 1999, which insofar as the
Registrant is not a signatory party to, but as an Aironet stockholder
is a beneficiary of, such agreement, is incorporated herein by
reference to Exhibit 1 to the Schedule 13D filed by Cisco on November
18, 1999.
