<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
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)
1000 SUMMIT DRIVE CINCINNATI, OHIO 45150
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (330) 664-1000
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [x]. No [ ].
At June 30, 2000, there were 17,514,296 outstanding shares of the registrant's
Common Stock.
This document contains 65 pages.
<PAGE> 2
TELXON CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
Part I. FINANCIAL INFORMATION:
Item 1: Condensed Consolidated Financial Statements
Condensed Balance Sheets 3
Condensed Statements of Operations 4
Condensed Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6-19
Item 2: Management Discussion and Analysis of Financial Condition 20-32
and Results of Operations
Item 3: Quantitative and Qualitative Disclosure About Market Risk 33-34
Part II. OTHER INFORMATION:
Item 1: Legal Proceedings 35
Item 6: Exhibits and Reports on Form 8-K 35-48
</TABLE>
2
<PAGE> 3
TELXON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
2000 2000
--------- ---------
<S> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash (including cash equivalents of $77 and $6,000) $ 5,620 $ 34,197
Accounts receivable, net of allowances for doubtful accounts of $8,329
and $7,116 and sales returns and allowances of $5,255 76,100 70,831
Notes and other accounts receivable 6,268 4,545
Inventories 91,820 81,923
Prepaid expenses and other 30,182 29,615
--------- ---------
Total current assets 209,990 221,111
Property and equipment, net 59,205 62,067
Investment in marketable securities 264,807 321,863
Intangibles and other assets, net 29,070 31,249
--------- ---------
Total assets $ 563,072 $ 636,290
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Capital lease obligations due within one year $ 251 $ 236
Accounts payable 36,643 30,116
Income taxes payable 4,498 11,039
Accrued liabilities 52,034 53,771
--------- ---------
Total current liabilities 93,426 95,162
Capital lease obligations 309 369
Convertible subordinated notes and debentures 106,913 106,913
Deferred income taxes 87,863 109,519
Other long-term liabilities 1,728 2,500
--------- ---------
Total liabilities 290,239 314,463
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, 17,514 shares issued 175 175
Additional paid-in capital 105,639 105,639
Retained earnings 178,807 188,998
Note related to the purchase of stock (3,141) --
Unearned compensation relating to restricted stock awards (29) (75)
Accumulated other comprehensive income (loss):
Foreign currency translation (6,913) (6,009)
Unrealized holding (loss) gain on marketable securities,
net of deferred taxes of ($1,192) and $21,060 (1,705) 33,099
--------- ---------
Total stockholders' equity 272,833 321,827
--------- ---------
Commitments and contingencies -- --
--------- ---------
Total liabilities and stockholders' equity $ 563,072 $ 636,290
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
TELXON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
-----------------------
2000 1999
-------- --------
<S> <C> <C>
Revenues:
Product, net $ 65,532 $ 67,916
Customer service, net 20,066 19,909
-------- --------
Total net revenues 85,598 87,825
Cost of revenues:
Product 46,961 50,867
Customer service 11,932 12,211
-------- --------
Total cost of revenues 58,893 63,078
Gross profit:
Product 18,571 17,049
Customer service 8,134 7,698
-------- --------
Total gross profit 26,705 24,747
Operating expenses:
Selling expenses 18,760 18,606
Product development and engineering expenses 6,261 7,150
General & administrative expenses 16,002 11,243
-------- --------
Total operating expenses 41,023 36,999
Loss from operations (14,318) (12,252)
Interest income 431 255
Interest expense (1,669) (3,242)
-------- --------
Loss before other non-operating income (expense) and income taxes (15,556) (15,239)
Other non-operating income (expense) 115 (184)
-------- --------
Loss before income taxes (15,441) (15,423)
(Benefit) provision for income taxes (5,250) 1,278
-------- --------
Net loss $(10,191) $(16,701)
======== ========
Net loss per share:
Basic $ (0.58) $ (1.03)
Diluted $ (0.58) $ (1.03)
Average number of common shares outstanding:
Basic 17,514 16,156
Diluted 17,514 16,156
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
TELXON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
-----------------------
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(10,191) $(16,701)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization 6,851 5,831
Amortization of restricted stock awards, net 46 18
Provision for doubtful accounts 1,157 1,070
Provision for inventory obsolescence 2,131 1,635
Loss on disposal of assets 189 108
Gain on sale of non-marketable investments -- (761)
Equity loss in earnings of affiliate -- 184
Loss on carrying value of non-marketable investment -- 1,283
Change in operating assets and liabilities:
Accounts and notes receivable (8,157) 3,816
Inventories (11,963) 6,033
Prepaid expenses and other current assets (567) (11)
Intangibles and other assets 385 (1,725)
Accounts payable and accrued liabilities 4,666 11,619
Income taxes payable (6,541) 2,839
Other long-term liabilities (176) (226)
-------- --------
Net cash (used in) provided by operating activities (22,170) 15,012
Cash flows from investing activities:
Additions to property and equipment (1,786) (7,255)
Software investments (705) (1,005)
Proceeds from the sale of non-marketable investments -- 1,523
Impact of Aironet deconsolidation -- (3,986)
-------- --------
Net cash (used in) investing activities (2,491) (10,723)
Cash flows from financing activities:
Notes payable, net -- (5,080)
Principal payments on capital leases (46) (223)
Note related to the purchase of stock (3,141) --
-------- --------
Net cash used in financing activities (3,187) (5,303)
Effect of exchange rate changes on cash (729) (53)
-------- --------
Net decrease in cash and cash equivalents (28,577) (1,067)
Cash and cash equivalents at beginning of period 34,197 22,459
-------- --------
Cash and cash equivalents at end of period $ 5,620 $ 21,392
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
1. MANAGEMENT REPRESENTATION
The condensed consolidated financial statements of Telxon Corporation ("Telxon")
and its subsidiaries (collectively with Telxon, the "Company") have been
prepared without audit and in accordance with the instructions to Form 10-Q. In
the opinion of the Company, all adjustments, consisting of normal recurring
adjustments necessary for a fair statement of results for the interim periods,
have been made. The operating results for the three months ended June 30, 2000,
are not necessarily indicative of the results that may be achieved for the
fiscal year ending March 31, 2001. The statements, including the condensed March
31, 2000 consolidated balance sheet, do not include all of the information and
notes required by accounting principles generally accepted in the United States
for complete financial statements and should be read in conjunction with the
audited consolidated financial statements as contained in the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 2000.
2. SUBSEQUENT EVENT
On July 25, 2000, Symbol Technologies ("Symbol") announced its intention to
acquire the Company for shares of Symbol common stock after receiving approval
from Symbol's and the Company's Boards of Directors. According to the terms of
the definitive merger agreement, Company shareholders will receive .50 shares of
Symbol stock for each share of the Company's common stock. The transaction has a
total equity value of approximately $465,000 based upon the closing price of
Symbol stock on July 25, 2000 of $49.88 a share. The transaction is expected to
be accounted for under the purchase accounting method, and is expected to
consummate prior to December 31, 2000. The proposed transaction is pending
regulatory and shareholder approval.
3. BASIS OF PRESENTATION
During fiscal 2000, the Company and its former subsidiary, Aironet Wireless
Communications, Inc. ("Aironet") sold shares of Aironet's voting common stock on
the Nasdaq National Market in an initial public offering ("IPO"). As a result of
the IPO, the Company's percentage interest in the voting common stock of Aironet
was approximately 35%. As a result of this transaction, the Company ceased to
consolidate the financial position and results of operations of Aironet and
accounted for its investment under the equity method of accounting, in
accordance with APB 18 "The Equity Method of Accounting". Additionally, during
fiscal 2000, and subsequent to the Aironet IPO discussed above, Cisco Systems
("Cisco") announced that it had entered into a merger agreement providing for
its acquisition of Aironet for shares of Cisco common stock. As a result of this
transaction, which became effective March 15, 2000, the Company accounted for
its investment in Cisco shares under the requirements of Statement of Financial
Accounting Standard 115, "Accounting for Certain Investments in Debt and Equity
Securities", as "available for sale" marketable equity securities.
6
<PAGE> 7
The Company had previously reported its financial position and results of
operations at and for the period ending June 30, 1999 on a consolidated basis,
which included the results of Aironet. Due to the timing and nature of the
events described above, the Company has ceased to consolidate the results,
financial position and cash flows of Aironet as of April 1, 1999, the beginning
of the Company's 2000 fiscal year. This reclassified presentation reflects the
financial position and results of operations and cash flows of the Company on a
consistent basis with the period ended June 30, 2000.
4. FINANCIAL RESULTS AND LIQUIDITY
The Company incurred a net loss during the first quarter of fiscal 2001 of
$10,191 with a decrease in consolidated revenues of $2,227 compared to the first
quarter of fiscal 2000. During the quarter ended June 30, 1999, the Company
incurred a net loss of $16,701. Cash flows used by operations were $22,170 and
cash flows used by investing activities were $2,491 during the first quarter of
fiscal 2001. The significant cash used in operating activities reflects the
Company's reliance upon internally generated funds to meet its current cash flow
requirements rather than utilizing credit facilities. The Company generated cash
flows from operating activities of $15,012 for the quarter ended June 30, 1999.
The Company stockholders' equity and working capital at June 30, 2000 was
$272,833 and $116,564, respectively. The Company's working capital was
significantly improved during the fourth quarter of fiscal 2000 when the Company
utilized proceeds from its investments in marketable securities to extinguish
its notes payable, certain lease liabilities and a significant portion of its
accounts payable. The Company's stockholders' equity and working capital at June
30, 1999 were $28 and $15,449, respectively.
As mentioned above, the Company is currently meeting cash flow requirements from
internally generated cash flows and has successfully managed the payments of
vendors and employees without the disruption of the flow of necessary materials,
components and services. The Company has obtained additional financing
arrangements that may be utilized in the event that internally generated funds
are not adequate to cover the costs of operations.
Management believes that the Company currently has the financial wherewithal and
liquidity to execute its business plan, and if successfully executed, this
business plan can significantly improve the Company's operations and financial
results.
5. EARNINGS PER SHARE
Computations of basic and diluted earnings per share of common stock have been
made in accordance with Financial Accounting Standards Board (FASB) Statement of
Financial Accounting Standard No. 128, "Earnings Per Share". All securities
having an anti-dilutive effect on earnings per share have been excluded from
such computations. Common stock purchase rights outstanding under the Company's
stockholder rights plan, which potentially have a dilutive effect, have been
excluded from the weighted common shares computation as preconditions to the
exercisability of such rights were not satisfied.
7
<PAGE> 8
Reconciliation of Numerators and Denominators
Of the Basic and Diluted EPS Computations
(In thousands except per share amounts)
In the following table, net loss represents the numerator, and the shares
represent the denominator, in the earnings per share calculation.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE THREE MONTHS ENDED
JUNE 30, 2000 MARCH 31, 1999
-------------------------------- --------------------------------
NET PER SHARE NET PER SHARE
LOSS SHARES AMOUNT LOSS SHARES AMOUNT
-------- ------ --------- -------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS
Loss available to common
stockholders $(10,191) 17,514 $(.58) $(16,701) 16,156 $(1.03)
--------- --------- --------- ---------
EFFECT OF DILUTIVE SECURITIES
Options -- --
------ ------
DILUTED EPS
Loss available to holders
of common shares and
common share equivalents $(10,191) 17,514 $(.58) $(16,701) 16,156 $(1.03)
========= ====== ========= ========= ====== =========
</TABLE>
Options to purchase 3,480,732 shares of common stock at a weighted average
exercise price of $14.14 per share were outstanding at June 30, 2000, but were
not included in the computation of diluted earnings per share for the three
months then ended because the options would have had an anti-dilutive effect on
the net loss for the period.
Options to purchase 3,788,385 shares of common stock at a weighted average
exercise price of $14.95 per share were outstanding at June 30, 1999, but were
not included in the computation of diluted earnings per share for the three
months then ended because the options would have had an anti-dilutive effect on
the net loss for the period.
The shares issuable upon conversion of Telxon's 5-3/4% convertible subordinated
notes and 7-1/2% convertible subordinated debentures were omitted from the
diluted earnings per share calculations because their inclusion at June 30, 2000
and 1999 would have had an anti-dilutive effect on earnings for the three months
then ended.
8
<PAGE> 9
6. COMPREHENSIVE INCOME
Total comprehensive loss consisted of the following:
<TABLE>
<CAPTION>
Three Months Ended
June 30, June 30,
2000 1999
---------- ----------
<S> <C> <C>
Net loss $(10,191) $(16,701)
Other comprehensive losses:
Unrealized holding loss on marketable securities (34,804) -
Foreign currency translation adjustment (904) (255)
---------- ----------
Total comprehensive loss $(45,899) $(16,956)
========== ==========
</TABLE>
7. SUPPLEMENTAL CASH FLOW
<TABLE>
<CAPTION>
Three Months Ended
June 30, June 30,
2000 1999
-------- --------
<S> <C> <C>
Cash paid during the period for:
Interest $ 951 $ 2,604
Income taxes $1,625 $ 619
</TABLE>
There were no capital lease additions during the three months ended June 30,
2000 or 1999.
8. INVENTORIES
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
2000 2000
-------- ---------
<S> <C> <C>
Purchased components $43,607 $46,514
Work-in-process 26,130 21,404
Finished goods 22,083 14,005
-------- ---------
$91,820 $81,923
======== =========
</TABLE>
At June 30, 2000, the inventory allowance accounts totaled $34,500 and were
composed of manufacturing purchased components of $24,200, customer service
spare parts and used equipment of $8,500 and international finished goods
inventories of $1,800. In addition to the inventory allowance accounts, the
Company has recorded accrued liabilities totaling $2,000 for a loss on an
inventory purchase commitment to a vendor.
Inventory allowance provisions for the quarter were composed of manufacturing
purchased components of $1,500, customer service spare parts and used equipment
of $400 and international finished goods inventories of $200. Inventory
allowance accounts were reduced by $7,800 for a reduction in the gross inventory
value of trade-in product held in inventory charged against the related
valuation allowance. Since both the gross inventory
9
<PAGE> 10
amount and the decrease to the reserve was the same amount there was no impact
on net inventories.
Management disposes of excess and obsolete inventory as necessary and as
manpower permits, although there are no formal plans to do so. During the first
quarter of fiscal 2001, the Company physically disposed of $300 of excess and
obsolete material inventories in the Company's international operations. This
disposal also contributed to the reduction in the inventory allowance explained
above. There were no recoveries related to the disposal of this material.
At March 31, 2000, inventory allowance accounts aggregated $40,457 and were
composed of manufactured purchased components of $30,424, customer service spare
parts and used equipment of $8,115 and international finished goods inventories
of $1,918. In addition to the inventory allowance accounts, the Company has
recorded accrued liabilities totaling $150 for purchase commitments to outside
contract manufacturers for discontinued products and $2,600 for a loss on an
inventory purchase commitment to a vendor.
Inventory allowance provisions for fiscal 2000 total $30,673 and were composed
of manufacturing purchased components of $14,643, customer service spare parts
and used equipment of $360, trade-in and remanufacturing inventory of $14,492
and international finished goods inventories of $1,178. The $14,643 provision
for manufacturing purchased components was due to a reduction in shipments and
expected demand for certain of the Company's older product lines and the
Company's reassessment of the methodology which takes into account recent
technological and market conditions including the impact of the introduction of
new products. The $14,492 provision for trade-in and remanufacturing inventory
was primarily due to a reduction in the estimated net realizable value of
existing inventory. The provision was the result of the acceptance of quantities
in excess of projected demand of trade-in units of the Company's older products
to satisfy a significant customer's requirements. The $1,178 provision for
international finished goods was due to a write-down of the carrying value on
older products.
During fiscal 2000, the Company disposed of $24,619 of excess and obsolete
material. Of this amount $21,806 related to manufacturing purchased components,
$1,770 related to the Company's customer service inventories and $1,043 related
to the Company's international operations. There were no material recoveries
related to the disposal of this material.
At June 30, 2000, the Company had approximately $5,700 of finished goods
inventory held at distributors and customers and approximately $3,000 of
manufacturing components at contract manufacturers. At March 31, 2000, the
Company had approximately $6,200 of finished goods inventory held at
distributors and customers and approximately $10,100 of manufacturing components
at contract manufacturers. The $500 decrease in the amount of finished goods
held at distributors and customers is the result of revenue recognized upon
installation and customer acceptance of the Company's product. The decrease in
the amount of inventory at contract manufacturers was due to the relatively
large amount of shipments from those manufacturers during the current quarter.
10
<PAGE> 11
9. MARKETABLE SECURITIES AND DERIVATIVES
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
2000 2000
--------- ----------
<S> <C> <C>
Cost basis $ 267,704 $ 267,704
Gross unrealized holding (losses) gains (2,897) 54,159
--------- ----------
Aggregate fair market value $ 264,807 $ 321,863
========= ==========
</TABLE>
During fiscal 2000, Cisco Systems ("Cisco") merged with the Company's Aironet
subsidiary in exchange for shares of Cisco common stock. At March 15, 2000, the
consummation date of the merger, the Company owned 6,366,086 shares of Cisco and
the closing price on that date was $64.32 per share (as adjusted for the two for
one stock split that occurred on March 23, 2000). The Company has treated the
exchange of its Aironet shares for Cisco shares under the requirements of APB 29
"Accounting for Non-monetary Transactions" thus recognizing a non-operating gain
upon the exchange of shares. Subsequent to the Cisco/Aironet merger, the Company
accounted for the investment retained in Cisco shares in accordance with the
requirements of SFAS 115 based upon the Company's intent to hold the securities
for an extended length of time and to not engage in frequent buying and selling
of the securities. That statement requires investments in marketable equity
securities to be accounted for as either "trading" or "available for sale"
securities. The Company has recorded its investment in Cisco shares as
"available for sale" securities. The Company has recorded a cost basis for these
securities equivalent to the securities fair market value as of the
Cisco/Aironet merger consummation, and subsequently adjusted this amount at June
30, 2000 to reflect the market value on this date. On March 31, 2000, a $54,159
unrealized holding gain was recorded to reflect an increase in market value of
the Company's investment in Cisco, in accordance with the requirements of SFAS
115. Similarly, on June 30, 2000 a $57,056 adjustment was recorded to reflect
the decrease in market value recognized during the first quarter of fiscal 2001.
The Company has reduced the related market risk in its investment of Cisco
securities by entering into two derivative financial instruments (referred to
collectively herein as (the "Collar")), on March 23, 2000. The Collar
essentially hedges the Company's risk of loss on the marketable securities by
utilizing put options. Conversely, the Collar arrangement also limits the
Company's potential gain by employing call options. By employing a hedging
alternative such as the Collar, the Company can be assured that its gains and
losses will reside within the range created by the Collar assuming performance
by the counterparty of the Collar. This range is set in such a way that the
Black Scholes value of the call is equivalent to the Black Scholes value of the
put; therefore, utilizing this means of hedging is cost effective for the
Company since the premiums and costs related to the two opposing features are
effectively netted.
Information regarding the Collar is illustrated in the table below.
<TABLE>
<CAPTION>
OPTION STRIKE NUMBER OF NUMBER OF
TYPE PRICE OPTIONS SHARES HEDGED
------- -------- --------- -------------
<S> <C> <C> <C>
Call $ 106.99 20,800 2,080,000
Put $ 59.33 20,800 2,080,000
</TABLE>
11
<PAGE> 12
<TABLE>
<S> <C> <C> <C>
Call $ 94.25 20,800 2,080,000
Put $ 66.75 20,800 2,080,000
</TABLE>
The effect of the Collar is to hedge 4,160,000 shares, or 99.9%, of the
Company's remaining investment in Cisco. The Collar limits the Company's loss by
placing a floor on the value the shares may be potentially sold at of, on
average, $63.04 per share. Conversely, the Collar also limits the Company's gain
by creating a ceiling on the value the shares may be potentially sold at of, on
average, $100.62 per share. Therefore, the Company's maximum potential gain or
(loss) realized from the sale of its marketable securities at June 30, 2000 is
on average $151,487 or ($5,074), respectively. This potential gain or loss was
calculated by utilizing the average strike prices from above, and the Company's
original cost basis in its investment in Cisco at March 31, 2000 of $267,704.
However, the options contained within the Collar agreement have an expiration
date of March 26, 2001 and may only be exercised on this date. For each collar,
the election of a third party to exercise the call feature, or the Company's
option to exercise the put feature, will automatically terminate the opposing
component of the Collar agreement, and the owner of such option agreement will
have no further rights or obligations under the agreement once this occurs.
10. ACCRUED LIABILITIES
Accrued liabilities for the three months ended June 30, 2000 and for the year
ended March 31, 2000 consisted of the following:
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
2000 2000
-------- ---------
<S> <C> <C>
Deferred customer service revenues $10,673 $11,823
Accrued payroll and other employee compensation 7,578 8,624
Accrued taxes other than payroll and income taxes 5,036 4,429
Accrued royalties 3,715 3,651
Provision for loss contract 5,143 3,523
Accrued employee termination benefits 3,520 3,483
Accrued professional fees 2,804 2,947
Accrued losses on inventory purchase commitments and
discontinued product costs 2,006 2,751
Accrued facility closing costs 2,162 2,083
Accrued interest 2,543 1,813
Deferred product revenues 565 1,193
Accrued commissions 1,000 1,056
Other accrued liabilities 5,289 6,395
-------- ---------
$52,034 $53,771
======== =========
</TABLE>
Pursuant to Emerging Issues Task Force Issue No. 94-3 "Liability Recognition for
Cost to Exit an Activity (Including Certain Costs Incurred in a Restructuring)",
accrued employee termination benefits at June 30 and March 31, 2000 include
costs to terminate 9 and 16 employees, respectively. Costs totaling $20, $7 and
$233 were charged to cost of product revenue, cost of customer service revenue
and selling expenses during the first quarter of fiscal 2001. This compares to
costs totaling $169, $95, $657, $51 and $2,511 which were charged to cost of
product revenue, cost of customer service revenue, selling expenses, product
development and engineering expenses and general and administrative expenses,
respectively, during the fourth quarter of fiscal 2000.
12
<PAGE> 13
The Company's domestic accrual for severance costs, including stay on bonuses,
decreased from a balance of $3,400 at March 31, 2000 to a balance of $3,300 at
June 30, 2000. Severance charges incurred in the first quarter of fiscal 2001
aggregated $1,200, which were offset by payments to previously terminated
employees of $1,300. A total of 9 employees were severed during the first
quarter of fiscal 2001 compared to 29 employees during the first quarter of
fiscal 2000. The areas of the Company affected for both quarters were domestic
sales operations, domestic product development, manufacturing operations and
corporate administration.
During fiscal 2000, the Company recorded an estimated loss of $2,600 related to
a non-cancelable purchase commitment with a bar code scanner supplier. The
commitment calls for the purchase of specified products offered by the supplier
over a specified time period. The Company had received a portion of the product
during fiscal 2000. However, the Company has returned the goods to the supplier
based upon significant questions raised as to the products salability and is
negotiating with the supplier regarding its commitment. There are no assurances
that these negotiations will relieve the Company of any liability under the
commitment. The amount of the estimated loss was determined based upon quoted
market prices from the supplier's distributors of those products.
11. LITIGATION AND CONTINGENCIES
On September 21, 1993, a derivative Complaint was filed in the Court of Chancery
of the State of Delaware, in and for Newcastle County, by an alleged stockholder
of the Company derivatively on behalf of Telxon. The named defendants are the
Company; Robert F. Meyerson, former Chairman of the Board, Chief Executive
Officer and director; Dan R. Wipff, then President, Chief Operating Officer and
Chief Financial Officer and director; Robert A. Goodman, Corporate Secretary and
outside director; Norton W. Rose, then an outside director; and Dr. Raj Reddy,
outside director. The Complaint alleges breach of fiduciary duty to the Company
and waste of the Company's assets in connection with certain transactions
entered into by Telxon and compensation amounts paid by the Company. The
Complaint seeks an accounting, injunction, rescission, attorney's fees and
costs. While the Company is nominally a defendant in this derivative action, the
plaintiff seeks no monetary relief from the Company.
On November 12, 1993, Telxon and the individual director defendants filed a
Motion to Dismiss. The plaintiff filed its brief in opposition to the Motion on
May 2, 1994, and the defendants filed a final responsive brief. The Motion was
argued before the Court on March 29, 1995, and on July 18, 1995, the Court
issued its ruling. The Court dismissed all of the claims relating to the
plaintiff's allegations of corporate waste; however, the claims relating to
breach of fiduciary duty survived the Motion to Dismiss.
On October 31, 1996, plaintiff's counsel filed a Motion to Intervene in the
derivative action on behalf of a new plaintiff stockholder. As part of the
Motion to Intervene, the intervening plaintiff asked that the Court designate as
operative for the action the intervening plaintiff's proposed Complaint, which
alleges that a series of transactions in which the Company acquired technology
from a corporation affiliated with Mr. Meyerson was wrongful in that Telxon
already owned the technology by means of a pre-existing consulting agreement
with another affiliate of Mr.
13
<PAGE> 14
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 Judgement on the Pleadings (as to
himself), in response to which Plaintiff filed its Answer and Brief in
Opposition. The Motion was argued before the Court on November 4, 1998, and was
granted from the bench, dismissing Meyo as a defendant in the case.
The defendants filed a Motion For Summary Judgment on November 15, 1999, and the
plaintiff filed a cross Motion for Summary Judgment on December 7,1999. The
Motions were argued before the Court in February 2000. Following the hearing,
the parties submitted supplemental briefs, the last of which was filed on March
6, 2000. The Court decided the cross motions for summary judgment on July 24,
2000. As a result of that ruling only the plaintiff's claims relating to the
directors' fiduciary duty of care continue to be pending. No trial date has been
set.
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 its financial statements.
On February 7, 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, alleging counts
for breach of contract and temporary and permanent injunctive relief, all
related to alleged environmental contamination at the Wynnwood property, and
seeking specific performance, unspecified monetary damages for all injuries
suffered by plaintiff, payment of pre-judgement interest, attorneys' fees and
costs and other unspecified relief. In December 1999, the case was settled by
the parties, and the $500 cost of the initial settlement, $275 of which has been
covered by the Company's insurer, was recorded in the Company's financial
statements; additional amounts of up to $100 are required to be paid as part of
the settlement in the event that the remediation described below is not timely
completed.
While the litigation with the landlord was pending, Telxon and the landlord
filed on July 7, 1999 a joint application with the Texas Natural Resource
Conservation Commission for approval of a proposed Response Action Work Plan for
the property pursuant to the Commission's Voluntary Cleanup Program. The plan,
which was approved by the Commission in August 1999, projects completion of
remediation and issuance of a closure certificate in 2002, for which the Company
had at March 31, 2000 accrued the then estimated costs of $250. As the result of
changes to the remediation plan made after March 31, 2000 which better assure
its completion within the projected schedule, the Company's estimate of the
total cost is expected to increase to $350. If closure of the remediation is not
certified when contemplated by the plan, and the Company were
14
<PAGE> 15
ultimately to become responsible for the alleged contamination, the associated
loss could have a material adverse effect on results of operations for one or
more quarters in which the associated charge(s) would be taken.
From December 1998 through March 1999, a total of 27 class actions were filed in
the United States District Court, Northern District of Ohio, by certain alleged
stockholders of the Company on behalf of themselves and purported classes
consisting of Telxon stockholders, other than the defendants and their
affiliates, who purchased stock during the period, from May 21, 1996 through
February 23, 1999 or various portions thereof, alleging claims for "fraud on the
market" arising from alleged misrepresentations and omissions with respect to
the Company's financial performance and prospects and an alleged violation of
generally accepted accounting principles by improperly recognizing revenues. The
named defendants are the Company, former President and Chief Executive Officer
Frank E. Brick and former Senior Vice President and Chief Financial Officer
Kenneth W. Haver. The actions were referred to a single judge. On February 9,
1999, the plaintiffs filed a Motion to consolidate all of the actions and the
Court heard motions on naming class representatives and lead class counsel on
April 26, 1999.
On August 25, 1999, the Court appointed lead plaintiffs and their counsel,
ordered the filing of an Amended Complaint, and dismissed 26 of the 27 class
action suits without prejudice and consolidated those 26 cases into the first
filed action. The appointed lead plaintiffs appointed by the Court filed an
Amended Class Action Complaint on September 30, 1999. The Amended Complaint
alleges that the defendants engaged in a scheme to defraud investors through
improper revenue recognition practices and concealment of material adverse
conditions in Telxon's business and finances. The Amended Complaint seeks
certification of the identified class, unspecified compensatory and punitive
damages, pre- and post-judgment interest, and attorneys' fees and costs. Various
appeals and writs challenging the District Court's August 25, 1999 rulings were
filed by two of the unsuccessful plaintiffs but have all been denied by the
Court of Appeals.
On November 8, 1999, the defendants jointly moved to dismiss the Amended
Complaint. The Court held a case management conference on November 16, 1999 at
which it set a conditional schedule. Briefing of the defendants' motion to
dismiss and the plaintiffs' opposition thereto was completed January 18, 2000.
The motion to dismiss remains pending, and all discovery remains stayed pending
the Court's ruling on the motion. The court has denied a motion filed by the
plaintiffs on November 16, 1999 to lift the discovery stay to allow the Court
the serving of discovery requests on a non-party. The defendants believe that
these claims lack merit, and they intend to vigorously defend the consolidated
action.
By letter dated December 18, 1998, the Staff of the Division of Enforcement of
the Securities and Exchange Commission (the "Commission") advised the Company
that it was conducting a preliminary, informal inquiry into trading of the
securities of the Company at or about the time of the Company's December 11,
1998 press release announcing that the Company would be restating the revenues
for its second fiscal quarter ended September 30, 1998. On January 20, 1999, the
Commission issued a formal Order Directing Private Investigation And Designating
Officers To Take Testimony with respect to the referenced trading and specified
accounting matters, pursuant to which subpoenas have been served requiring the
15
<PAGE> 16
production of specified documents and testimony. The Company and its current
and former independent accountants have assessed the effects of recent comments
issued to the Company by the Commission's Division of Corporation Finance
as part of its ongoing review of various accounting matters in the Company's
previous filings with the Commission, including, but not limited to, the
recognition of revenues from the Company's indirect sales channel and the
timing of charges which the Company recorded during fiscal 1999, 1998 and 1997
for inventory obsolescence, severance and asset impairment. The Company has
responded to the Commission's Comments and made necessary changes to its fiscal
2000 Annual Report on Form 10-K.
On June 29, 2000, as a result of an assessment performed by the Company and its
current and former independent accountants, the Company announced that it would
restate its results of operations for fiscal years ending March 31, 1999 and
1998. The restatement related to an agreement made during the fourth quarter of
fiscal 1998 with a Value-Added Distributor ("VAD") which provided the VAD with
rights to return specified goods, and rights to require the company to
repurchase or pay the carrying costs of those goods. Because of this agreement,
$8.1 million in fiscal 1998 fourth quarter revenues from this VAD and $4.9
million of related cost of product revenues more appropriately should have been
recognized on a sell-through basis during fiscal 1999. The related income tax
impacts of $1.3 million were recorded in the 1999 and 1998 annual fiscal
periods to reflect the income tax consequences of the restatement adjustments
described above.
The Company has cooperated, and intends to continue cooperating fully with, the
Commission Staff. The Company has not accrued for any fines or penalties under
SFAS 5 because it has no basis to conclude that it is probable that at the
conclusion of the investigation the Commission will seek a fine or penalty, and
because the amount of any such fine or penalty is not estimable.
On December 30, 1999, 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; the then directors of the Company, Richard J. Bogomolny, John H. Cribb,
Robert A. Goodman, Raj Reddy, Frank Brick and Norton Rose; Robert F. Meyerson,
former Chairman of the Board, Chief Executive Officer and director; and Telantis
Venture Partners V Inc., an affiliate of Robert F. Meyerson. The Complaint
alleges that Telxon's sale of stock in its then Aironet Wireless Communications,
Inc. subsidiary to Meyerson interests constitutes a waste and gift of Telxon
assets in breach of the defendant directors' duties of care and to act in good
faith. The Complaint also alleges that the defendant directors' opposition of an
alleged offer by Symbol Technologies, Inc. to acquire the Company in the Spring
of 1998 violated their duties of loyalty, good faith and due care and wasted
Company assets. The Complaint seeks an order rescinding the Aironet stock
transactions (or in the event such relief cannot be granted, recissory damages),
requiring the defendants other than the Company to account for Telxon's losses
in connection with the alleged wrongs (including the funds spent resisting the
alleged Symbol bid) and awarding plaintiff its attorneys' fees and expenses.
While the Company is nominally a defendant in this derivative action, the
plaintiff seeks no monetary relief from the Company.
On March 8, 2000, all defendants except Messrs. Goodman and Meyerson answered
the complaint and moved for judgment on the pleadings. Messrs. Goodman and
Meyerson have filed motions to dismiss. In addition, all defendants have moved
to stay discovery. All of these motions are currently being briefed, and no
hearing date has been scheduled for any of the motions.
The defendants believe that these derivative claims lack merit and intend to
vigorously defend this action. While the ultimate outcome of this action cannot
presently be determined, the Company does not anticipate that this matter will
have a material adverse effect on the Company's consolidated financial position,
results of operations or cash flows and accordingly has not made provisions for
any loss or related insurance recovery in its financial statements.
The Company has received a number of letters from its customers requesting
Telxon to indemnify them with respect to their defense of demands which have
been made on them by the Lemelson Medical, Education & Research Foundation
Limited Partnership for the payment of a license fee for the
16
<PAGE> 17
alleged infringement of the Foundation's so-called "bar-code" patents by the
customers' systems utilizing automatic identification technology, portions of
which have been supplied by the Company. On October 27, 1999, the Foundation
also sent a letter directly to the Company similarly demanding that the Company
purchase a license with respect to "Telxon's use of machine vision and bar
coding technology." On April 14, 2000 the Foundation filed five lawsuits against
a total of approximately 430 end users, including a number of the Company's
customers, whom the Foundation alleges use automatic identification technology
which infringes the Foundation's patents; the Company is not named as defendant
in any of these lawsuits. The Company continues to receive requests for
indemnity from customers with regard to claims being informally asserted against
them by the Foundation as well as from customers who have been formally sued by
the Foundation.
The Company believes that the patents so being asserted against it and its
customers are invalid, unenforceable and not infringed and on April 24, 2000
filed a federal court action against the Foundation seeking a declaratory
judgment to that effect. The Company's declaratory judgment action is
substantially similar to the federal court action jointly filed by seven other
companies in the automatic identification industry, including the Company's
principal competitors, in July 1999 seeking like declaratory relief against the
Foundation. On May 30, 2000 the Foundation filed an answer and counterclaim
against the Company in response to its declaratory judgment action denying the
invalidity that its patents are invalid, unenforceable or not infringed by the
Company or its customers and counter-claiming that the Company likely induces or
contributes to the direct infringement of unspecified claims of the Foundation's
patents. Discovery in the Company's declaratory judgment action is just
beginning. The parties to the two declaratory judgment actions have agreed to
the consolidation of the cases, and a stipulated consolidation order is before
the Court for approval. The Company believes that the Foundation's counterclaim
is without merit and intends to vigorously defend against it.
Except as otherwise specified, in the event that any of the foregoing litigation
ultimately results in a money judgment against the Company or is otherwise
determined adversely to the Company by a court of competent jurisdiction, such
determination could, depending on the particular circumstances, adversely affect
the Company's conduct of its business and the results and condition thereof.
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 is also subject to various pending legal
actions and contingencies, which may include matters involving suppliers,
customers, lessors of Company products to customers, lessors of equipment to the
Company and existing and potential business and development partners. The
Company is vigorously defending all such claims that do not lack merit. 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 its financial statements.
17
<PAGE> 18
12. INCOME TAX
An income tax benefit of $5,250 has been recognized for financial reporting
purposes for the quarter ending June 30, 2000. The effective income tax rate
used to calculate this benefit was calculated as a combined federal and state
statutory tax rate adjusted for tax provisions on international subsidiary
income. In contrast to the first quarter of fiscal 2000 the Company's current
assessment is that it is more likely than not that these deferred tax assets
will be benefited through future taxable income or through the implementation of
tax planning strategies.
The Company's consolidated income tax provision for the quarter ended June 30,
1999 of $1,278 consisted primarily of income taxes related to the Company's
operations in foreign tax jurisdictions. No tax benefit was recognized for the
U.S. net operating loss for the three months ended June 30, 1999 based on the
Company's assessment that it was more likely than not that these deferred tax
assets would not be utilized through future taxable income or implementation of
tax planning strategies.
13. BUSINESS SEGMENTS
The Company designs, develops, manufactures, markets and services mobile and
wireless transaction systems and solutions for vertical markets. The Company's
business consists of three geographic operating segments: a) sales and
distribution of all of its product lines in the United States; b) sales and
distribution of all of its product lines in Europe and c) sales and distribution
of all of its product lines in international locations outside of Europe.
The Company has operations in the United States, Europe, Canada, and other
international locations including Mexico, Australia and Asia.
Intercompany sales were at cost plus a negotiated mark-up. During fiscal 2000,
the Company increased its transfer price to more currently reflect costs
incurred in the United States related to sales to its international
subsidiaries.
<TABLE>
<CAPTION>
THREE MONTHS ENDING UNITED OTHER ADJUSTMENT &
JUNE 30, 2000 STATES EUROPE INTERNATIONAL ELIMINATION CONSOLIDATED
-------- -------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues from
unaffiliated customers $ 60,862 $ 18,988 $ 5,748 $ -- $ 85,598
Revenues from inter-company
sales 15,272 515 719 (16,506) --
-------- -------- -------- -------- --------
Total revenues $ 76,134 $ 19,503 $ 6,467 $(16,506) $ 85,598
======== ======== ======== ======== ========
(Loss) income before
income tax $(14,608) $ 233 $ (584) $ (482) $(15,441)
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDING UNITED OTHER ADJUSTMENT &
JUNE 30, 2000 STATES EUROPE INTERNATIONAL ELIMINATION CONSOLIDATED
-------- -------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues from
unaffiliated customers $ 60,466 $ 20,875 $ 6,484 $ -- $ 87,825
</TABLE>
18
<PAGE> 19
<TABLE>
<S> <C> <C> <C> <C> <C>
Revenues from inter-company
sales 11,054 413 733 (12,200) --
-------- -------- -------- -------- --------
Total revenues $ 71,520 $ 21,288 $ 7,217 $(12,200) $ 87,825
======== ======== ======== ======== ========
(Loss) income before
income tax $(18,187) $ 2,282 $ 1,072 $ (590) $(15,423)
======== ======== ======== ======== ========
</TABLE>
14. RECLASSIFICATION
Certain items in the fiscal 2000 consolidated financial statements and notes
thereto have been reclassified to conform to the fiscal 2001 presentation.
19
<PAGE> 20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
IN ADDITION TO DISCUSSING AND ANALYZING THE COMPANY'S RECENT HISTORICAL
FINANCIAL RESULTS AND CONDITION, THE FOLLOWING MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INCLUDES STATEMENTS
REGARDING CERTAIN TRENDS OR OTHER FORWARD-LOOKING INFORMATION CONCERNING THE
COMPANY'S ANTICIPATED REVENUES, COSTS, FINANCIAL RESOURCES OR OTHERWISE
AFFECTING OR RELATING TO THE COMPANY WHICH ARE INTENDED TO QUALIFY FOR THE
PROTECTIONS AFFORDED "FORWARD-LOOKING STATEMENTS" UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995, PUBLIC LAW 104-67. THE FORWARD-LOOKING STATEMENTS
MADE HEREIN AND ELSEWHERE IN THIS FORM 10-Q ARE INHERENTLY SUBJECT TO RISKS AND
UNCERTAINTIES, WHICH COULD CAUSE THE COMPANY'S ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THE FORWARD-LOOKING STATEMENTS. THE SUMMARY OF CERTAIN OF THE
RISKS AND OTHER IMPORTANT FACTORS WHICH MAY AFFECT THE COMPANY'S BUSINESS,
OPERATING RESULTS AND FINANCIAL AND OTHER CONDITION UNDER "FACTORS THAT MAY
AFFECT FUTURE RESULTS" BELOW SHOULD BE READ IN CONJUNCTION WITH THE MORE
COMPLETE DISCUSSION OF THOSE AND OTHER RISKS AND IMPORTANT FACTORS AFFECTING THE
BUSINESS, OPERATING RESULTS AND CONDITION OF THE COMPANY UNDER "ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION - FACTORS THAT MAY AFFECT FUTURE RESULTS", AND OTHER CAUTIONARY
STATEMENTS APPEARING UNDER "ITEM 1. BUSINESS" AND ELSEWHERE, IN THE COMPANY'S
ANNUAL REPORT ON FORM 10-K, FOR THE FISCAL YEAR ENDED MARCH 31, 2000.
Overview
The Company recorded a net loss of $10.2 million or $0.58 per common share
(diluted) for the first quarter of fiscal 2001. In comparison, the Company
recorded a net loss of $16.7 million or $1.03 per common share (diluted) for the
first quarter of fiscal 2000. The Company also recorded a loss from operations
of $14.3 million during the current period compared to $12.3 million incurred
during the same quarter last year. Consolidated revenues decreased $2.2 million
or 2.5% compared to the same quarter in fiscal 2000. Overall, operating expenses
increased $4.0 million or 10.9% primarily due to a $3.6 million increase in
salary and contract labor expenses related to the duplication of expenses
incurred in the transition of the Company's workforce to its new corporate
headquarters in Cincinnati and operations in Houston. Additionally, the fiscal
2000 results include a tax benefit of $5.3 million. Recognizing this tax benefit
illustrates the Company's assessment that such benefits arising from net
operating losses will be benefited in future periods. The Company experienced
significant cash flows used by operating activities of $22.2 million during the
first quarter of fiscal 2001. This compared to cash provided by operating
activities of $15.0 million during the first quarter of fiscal 2000 after
reflecting the deconsolidation of Aironet Wireless Communications during the
first quarter of fiscal 2000 (refer to Note 3 - Basis of Presentation for
further discussion regarding the deconsolidation of Aironet). The significant
decrease in cash flows provided by operating activities resulted from the
Company's use of on-hand cash to support operating cash requirements rather than
utilizing debt. During the quarter ended June 30, 2000, the Company did not have
any short term debt outstanding.
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
20
<PAGE> 21
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-Q are necessarily indicative of the
Company's future results. See "Factors That May Affect Future Results" for a
discussion of risk factors which may affect the Company's future results of
operations.
Factors That May Affect Future Results
The Company's business, operating results and financial and other condition may
be affected by a number of risks and other important factors, including, without
limitation, the following, some of which are inherently difficult to identify
and predict and/or are beyond the Company's control: general and
industry-specific economic conditions; the identification and implementation of
appropriate cost reduction, efficiency and other operating improvement
strategies; the continued adequacy of the Company's internal and external
sources of working capital; sales and manufacturing cycles from quarter to
quarter and within each quarter; serving markets characterized by increasingly
rapid technological change and associated changes in market demand, product
obsolescence and price erosion; intense competition; the Company's ability to
gain and maintain market acceptance of its products; the levels of customer
demand for the Company's products and customers' commitments of resources to
information technology investments; concentration of revenues in the retail
industry and possible decreases in their purchases from the Company in response
to any downturn in general economic prospects or conditions to the extent that
reduced levels of new store openings are not offset by their investment in the
Company's systems to improve the efficiency of existing stores; ability to
penetrate and expand revenues in new and existing markets; risks associated with
foreign sales and operations; timely and efficient enhancement of appropriate
product offerings through internal development and acquisition of, or investment
in, new businesses and technologies; dependence on, and freedom from
infringement of, technologies and other proprietary rights of, or by, third
parties; government regulation of radio and other products, and product health
and safety concerns; dependence on sole source, or a limited number of,
suppliers; attracting and retaining qualified employees. In addition to being
subject to the foregoing factors and other cautionary statements elsewhere in
this Form 10-Q, the Company's conduct of its business, and the results and
condition thereof, is also subject to the possible adverse effects of certain
pending litigation and other contingencies discussed in Note 11 - Litigation and
Contingencies to the accompanying consolidated financial statements included in
Item 1 above. The financial results of the Company historically have not been
materially adversely impacted as a result of inflation. However, there can be no
assurance that inflation will not have a material adverse impact in the future.
21
<PAGE> 22
RESULTS OF OPERATIONS
Revenues
(In thousands)
<TABLE>
<CAPTION>
Three Months
Ended June 30, (Decrease) Increase
---------------------- -------------------------
2000 1999 Dollar Percentage
-------- -------- --------- ----------
<S> <C> <C> <C> <C>
Product, net $ 65,532 $ 67,916 $ (2,384) (3.5)%
Customer service, net 20,066 19,909 157 .1 %
-------- -------- ---------
Total net revenues $ 85,598 $ 87,825 $ (2,227) (2.5)%
======== ======== =========
</TABLE>
During the periods presented, product revenues include the sale of portable
tele-transaction computers ("PTCs") including rugged, wireless, mobile computers
and pen-based, touch-screen workslates; telephony products; hardware
accessories; wireless data communication products; custom application software
and software licenses; and a variety of professional services, including system
integration and project management.
The decrease in consolidated product revenues during the first quarter of fiscal
2001 compared to the first quarter of fiscal 2000 was primarily caused by a
decrease in international product revenues of $3.0 million. International
product revenues decreased 12% in the first quarter of fiscal 2001 as compared
to the same period last year. The current year decrease primarily reflected the
absence, during the current period, of a sale made by one of the Company's
European subsidiaries to a large customer during fiscal 2000. Partially
offsetting this decrease was an increase in North American product revenues of
$.6 million. North American product revenues increased 1% in the first quarter
of fiscal 2001 as compared to the first quarter of fiscal 2000. Changes in
foreign exchange rates did not have a material impact on the results of the
Company's international operations.
Within the Company's North American product revenues offsetting factors led to
the relatively small increase in revenues noted above. Increasing the fiscal
2001 first quarter product revenues were increased revenues of $4.0 million
related to the rollout of the Company's replacement products for existing
Company products from a large domestic retailer. Also increasing product
revenues were increased net product revenues recognized in the Company's VAD
channel of $4.4 million.
The items above increasing fiscal 2001 product revenues relative to that
experienced in the prior year were offset by the absence of larger rollouts of
the Company's PTC 960 products to the Company's retail customers. The decreases
in these larger rollouts aggregated $7.4 million and included a $3.6 million
contribution from the Company's remanufactured products. The Company's has since
curtailed its remanufactured product offerings. The first quarter of fiscal 2000
included a positive revenue adjustment related to a decrease in the reserve for
sales returns and allowances of $3.2 million. There was no such positive
adjustment in the current quarter related to the reserve for sales returns and
allowances. Aggregate other increases in product revenues were $1.3 million. The
Company attributes the declines in revenues to increased competitive pressures
in the Company's core markets and product offerings. The
22
<PAGE> 23
Company did not experience a significant contribution of revenues from new
products during the current fiscal quarter.
The increase in the consolidated customer service revenues during the first
quarter of fiscal 2001 primarily resulted from increased maintenance contract
revenues in the Company's North American operations. The customer service
revenues in the North American operations increased $.4 million, or 2.7%, during
the first quarter of fiscal 2001 as compared to the same period in the previous
fiscal year. Offsetting this increase was a decrease in customer service revenue
of $.2 million, or 6%, in the Company's international operations, during the
first quarter of fiscal 2001, as compared to the previous fiscal year's period.
As noted above, the Company experienced a significant increase in revenues
related to a large domestic retailer. The total revenues related to this one
customer were $9.3 million for the first quarter of fiscal 2001 as compared to
$5.3 million for the comparable period in the prior year. Revenues from this one
customer represented 10.9% of consolidated total revenues for the quarter ended
June 30, 2000. Revenues related to this same customer were less than 10% of
total consolidated revenues for the first quarter of fiscal 2000.
The Company's reserve for sales returns and allowances remained constant at a
balance of $5.3 million at June 30, 2000 as compared to March 31, 2000.
During the first quarter of fiscal 2001, the Company issued credits for sales
returns and allowances of $4.9 million. The amount of credits issued directly
impacted consolidated revenues since there was no change in the reserve for
sales returns and allowances.
During the first quarter of fiscal 2000 the Company issued $5.8 million of
credits for sales returns and allowances. Additionally, the reserve for sales
returns and allowances decreased by $3.2 million for that same period due to
decreased exposure for future return of product. Therefore, that quarter's
revenues were negatively impacted by the net of credits issued and by a decrease
to the reserve for sales returns and allowances of $2.6 million.
At June 30, 2000, the Company had $3.7 million of accounts receivable
outstanding from VADs and a reserve of $1.9 million against those accounts. This
compares with $4.2 million of accounts receivable outstanding at March 31, 2000
and a reserve of $2.4 million related to VAD accounts receivable. Net revenues
in the VAD sales channel were $4.9 million for the first quarter of fiscal 2001
as compared with $.6 million for the comparable period in the prior fiscal
period. The primary reason for the increase in revenues in the VAD channel was
the decrease in the amount of credits issued of $3.5 million for the first
quarter of fiscal 2001 as compared to the first quarter of fiscal 2000. The
moving twelve-month average credit experience rate in the VAD channel decreased
to 21.4% for the first quarter of fiscal 2001 as compared to 35.0% for the same
period last fiscal year.
23
<PAGE> 24
Cost of Revenues
(In thousands)
<TABLE>
<CAPTION>
Three months
ended June 30, (Decrease)
----------------- -----------------------
2000 1999 Dollar Percentage
------- ------- -------- ----------
<S> <C> <C> <C> <C>
Product $46,961 $50,867 $(3,906) (7.7)%
Customer service 11,932 12,211 (279) (2.3)%
------- ------- --------
Total cost of revenues $58,893 $63,078 $(4,185) (6.6)%
======= ======= ========
Cost of product revenues as
percentage of product
revenues, net 71.7% 74.9%
Cost of customer service
revenues as a percentage
of customer service 59.5% 61.3%
revenues, net
</TABLE>
The decrease in consolidated cost of product revenues as a percentage of
consolidated net product revenues of 3.2% was the result several offsetting
factors.
Factors decreasing the cost percentage were as follows. Underabsorbed
manufacturing costs in the current fiscal quarter decreased $.9 million as
compared to the same period last fiscal year. This decreased the cost percentage
by approximately 1.4%. The Company also decreased its provisions for royalties
by $.8 million due to an adjustment to accrued royalties for excess amounts
previously accrued. The adjustment was made based upon a settlement of contended
items reached in the current fiscal quarter. Also reducing royalty costs was the
elimination of $.3 million of fixed royalties due Aironet due to the merger with
Cisco during the fourth quarter of fiscal 2000. The combination of these two
items related to royalty costs decreased the cost percentage by 1.7%. Also
contributing to the decrease was a reduction of $.9 million in the fees accrued
for distribution services provided by the Company's VADs in the first quarter of
fiscal 2001 as compared to the same period last year. This was as a result of
decreased management emphasis on the indirect sales channel during the prior
fiscal year and current quarter. This decrease in VAD distribution fees reduced
the cost percentage by approximately 1.3%. Other items decreased the costs by
$.7 million, including lower amounts of software amortization due to lower
capitalization rates in recent fiscal periods, which reduced the cost percentage
by approximately 1.0%.
Offsetting the decreases in the cost percentage discussed above was the impact
of a sales transaction shipped to a large domestic retail customer that was
recorded at a zero gross margin. The product revenues related to this
transaction were approximately $5.0 million during the quarter ended June 30,
2000. The product shipments during the current quarter were part of a loss
contract entered into during the last quarter of fiscal 2000. The entire loss
was recorded, when it was probable and estimable, in accordance with the
requirements of Accounting Research Bulletin No. 45, in the last quarter of
fiscal 2000. Since the entire loss has previously been recognized, no gross
margin was recognized on any shipments under this contract during the current
quarter. The lost normalized gross margin dollars of $1.5 million at a 29.0%
normalized gross margin would have increased the cost percentage by 2.2%.
24
<PAGE> 25
The Company is subject to a high degree of technological change in market and
customer demands. The Company therefore continually monitors its inventories for
excess and obsolete items based upon a combination of historical usage and
forecasted usage of such inventories. Additionally, discrete provisions are made
when existing facts and circumstances indicate that the subject inventory will
not be utilized.
At June 30, 2000, the inventory allowance accounts totaled $34.5 million and
were composed of manufacturing purchased components of $24.2 million, customer
service spare parts and used equipment of $8.5 million and international
finished goods inventories of $1.8 million. These amounts compare to March 31,
2000 inventory allowance accounts that totaled $40.5 million and were composed
of manufacturing purchased components of $30.5 million, customer service spare
parts and used equipment of $8.1 million and international finished goods
inventories of $1.9 million. Inventory allowance provisions for the quarter were
composed of manufacturing purchased components of $1.5 million, customer service
spare parts and used equipment of $.4 million and international finished goods
inventories of $.2 million. Inventory allowance accounts were reduced by $7.8
million for a reduction in the gross inventory value of trade-in product held in
inventory charged against the related valuation allowance. Since both the gross
inventory amount and the decrease to the reserve was the same amount there was
no impact on net inventories.
Management disposes of excess and obsolete inventory as necessary and as
manpower permits, although there are no formal plans to do so. During the first
quarter of fiscal 2001, the Company physically disposed of $.3 million of excess
and obsolete material inventories in the Company's international operations.
This disposal also contributed to the reduction in the inventory allowance
account discussed above. There were no recoveries related to the disposal of
this material.
In addition to the inventory allowance accounts, the Company has recorded
accrued liabilities totaling $2.0 million for a loss on an inventory purchase
commitment to a vendor.
At June 30, 2000, the Company had approximately $5.7 million of finished goods
inventory held at distributors and customers and approximately $3.0 million of
manufacturing components at contract manufacturers. At March 31, 2000, the
Company had approximately $6.2 million of finished goods inventory held at
distributors and customers and approximately $10.1 million of manufacturing
components at contract manufacturers. The $.5 million decrease in the amount of
finished goods held at distributors and customers is the result of revenue
recognized upon installation and customer acceptance of the Company's product.
The decrease in the amount of inventory at contract manufacturers was due to the
relatively large amount of shipments from those manufacturers during the current
quarter.
The Company accrues fees due to its VADs for the distribution services and
technical support provided to end users as well as cooperative advertising
costs. These fees are generally based upon the sales value of the goods to the
end user. The Company did not incur any of these fees during the first quarter
of fiscal 2001 as compared to $.9 million in the first quarter of fiscal 2000.
The decrease in the customer service cost of revenues as a percentage of
customer service revenues during the first quarter of fiscal 2001 from
25
<PAGE> 26
comparable fiscal 2000 levels was due primarily to decreased costs in the North
American operations. Although North American revenues increased 2.7%, cost of
revenues actually decreased 1.5% due primarily to decreased labor and freight
costs due in part to the lower costs associated with the Company's operations in
Ciudad Juarez, Mexico.
Operating Expenses
(In thousands)
<TABLE>
<CAPTION>
Three Months
Ended June 30, Increase (Decrease)
------------------- -------------------------
2000 1999 Dollar Percentage
------- -------- ------- ----------
<S> <C> <C> <C> <C>
Selling expenses $18,760 $18,606 $ 154 .1 %
Product development and
engineering expenses 6,261 7,150 (889) (12.4)%
General and administrative
expenses 16,002 11,243 4,759 42.4 %
------- -------- -------
Total operating expenses $41,023 $36,999 $4,024 10.9 %
======= ======== =======
</TABLE>
Consolidated selling expenses, as a percentage of total consolidated revenues
remained relatively flat at 21.9% compared to 21.2% for the same period last
year. During the first quarter of fiscal 2001, the Company experienced an
increase in expense related to sales demonstration equipment sent to customers
of $.6 million coinciding with introduction of new products, and an increase in
recruitment and relocation costs of $.2 million. These increases were offset by
a decrease in expenses related to international sales administration and
management of $.7 million. This decrease was the result of the absence of
salaries and wage expense in the Company's Belgium subsidiary. The related
personnel were terminated in fiscal 2000. Commission expenses recorded during
the first quarter of fiscal 2001 of $1.4 million remained consistent with
commission expenses recorded during the same period last year.
The provisions for past due accounts related to a foreign distributor aggregated
$1.1 million for the first quarter of fiscal 2001. This compares with no
provision for the comparable period in the prior fiscal year for this foreign
distributor.
The Company's allowance for doubtful accounts increased from a balance of $7.1
million at March 31, 2000 to a balance of $8.3 million at June 30, 2000. The
Company provided for $1.2 million of bad debts and bad debt write-offs totaled
$.1 million during the first quarter of fiscal 2000. This consolidated provision
remained consistent with the first quarter of last year, however, provisions for
specific domestic past due accounts decreased by approximately $.9 million.
The Company incurred severance charges of $.2 million during the first quarter
of fiscal 2001 related it its' marketing and sales departments. This amount was
more than offset by $.3 million in severance payments paid recently terminated
sales and marketing personnel.
Consolidated product development and engineering expenses as a percentage of
total revenues decreased to 7.3% in the first quarter of fiscal 2001 from 8.1%
in the first quarter of fiscal 2000. The decrease in consolidated product
development and engineering expenses for the first
26
<PAGE> 27
quarter of fiscal 2001 resulted primarily from the decreased use of outside
design services while developing the Company's products of $1.4 million compared
the same period last year. Additionally, engineering overhead costs, primarily
composed of depreciation of engineering equipment, decreased $.2 million from
the levels experienced in the comparable period of fiscal 2000. However, this
decrease was partially offset by an increase in expense related to the
amortization of goodwill related to the repurchase of Metanetics shares in the
fourth quarter of fiscal 2000 of $1.3 million. Also contributing to the decline
in expense were reductions aggregating $.4 million related to decreases in the
cost of operating parts and supplies utilized in the development process and
engineering scrap. This decrease was primarily due to management focus during
later periods of fiscal 2000 and the first quarter of fiscal 2001 on engineering
processes and engineering project completion. Engineering and development
efforts also decreased at the Company's Metanetics subsidiary by $.1 million
from comparable fiscal 2000 levels.
During the first quarter of fiscal 2000, the Company capitalized internal
software development costs in accordance with the requirements of Statement of
Financial Accounting Standard No. 86 "Accounting for the Costs of Computer
Software to Be Sold, Leased, or Otherwise Marketed" aggregating $.7 million
offset by amortization of $1.1 million on previously unamortized software. The
Company also incurred severance charges of $.2 million during the first quarter
of fiscal 2000 related to its product development and engineering operations.
Consolidated general and administrative expenses as a percentage of total
revenues were 18.7% and 12.8% for the first quarters of fiscal 2001 and 2000,
respectively. Compared to the same period last year consolidated general and
administrative expenses increased primarily due to increased labor expenses of
$3.6 million. This increase related primarily to additional costs incurred for
the transition of the Company's corporate headquarters to Cincinnati, Ohio and
to the transition of its administrative operations to Houston, Texas. These
costs included provisions of $.9 million related to stay on bonuses and $1.8
million in contract labor related to the aforementioned transition of the
Company's data center to Houston, Texas. Also increasing general and
administrative expenses were duplicate expenses for rent of $.3 million and
telephone of $.4 million related to the Company's facilities in Akron, Ohio.
Additionally, the Company incurred increased recruiting and relocation expenses
of $.3 million due to the move of its operations as described above. The Company
also incurred increased accounting and audit expenses of $.4 million and $.8
million of increased depreciation. The increased depreciation was primarily
related to the amortization of its corporate information system, which was not
amortized for the full period during fiscal 2000 since all of the related
modules were not placed in service until the second quarter of fiscal 2000.
Offsetting these increases were reduced contract labor expenses of approximately
$1.3 million related to the final implementation phases (including training and
data conversion costs) of the Company's corporate information systems during
fiscal 2000.
The Company's domestic accrual for severance costs, including stay on bonuses,
decreased from a balance of $3.4 million at March 31, 2000 to a balance of $3.3
million at June 30, 2000. Severance charges incurred in the first quarter of
fiscal 2001 aggregated $1.2 million, which were offset by payments to previously
terminated employees of $1.3 million. A total of 9 employees were severed during
the first quarter of fiscal 2001
27
<PAGE> 28
compared to 29 employees during the first quarter of fiscal 2000. The areas of
the Company affected for both quarters were domestic sales operations, domestic
product development, manufacturing operations and corporate administration.
Interest Income/(Expense)
(In thousands)
<TABLE>
<CAPTION>
Three Months
Ended June 30, Increase (Decrease)
------------------------- ----------------------------
2000 1999 Dollar Percentage
------- ------- ------- ----------
<S> <C> <C> <C> <C>
Interest income $ 431 $ 255 $ 176 69.1 %
Interest expense (1,669) (3,242) (1,573) (48.6)%
------- ------- -------
Net interest expense $(1,238) $(2,987) $(1,749) (58.6)%
======= ======= =======
</TABLE>
Net interest expense decreased during the first quarter of fiscal 2001 compared
to the first quarter of fiscal 2000, due to the extinguishment in the fourth
quarter of fiscal 2000 of the Company's credit facilities. Although the Company
has established new lines of credit with its creditors these credit facilities
were not utilized during the first quarter of fiscal 2000. Amounts outstanding
under the Company's credit facilities were $64.0 million as of June 30, 1999 and
the Company incurred a weighted-average rate of 9.87% on this amount. The
Company's interest expense for the first quarter of fiscal 2001 consists
primarily of interest on the $106.9 million of convertible subordinated
debentures recorded on the accompanying consolidated balance sheets.
During the first quarter of fiscal 2000, the Company recorded $1.3 million of
non-operating expense related to the reduction in carrying value of an
investment in non-marketable securities. The Company's estimate of the reduction
was based upon the market value of subsequent equity transactions of the
investee with third parties. The investment is composed of preferred shares in
the development-stage technology company that purchased the Company's Virtual
Vision subsidiary.
During the first quarter of fiscal 2000, the Company sold an investment in
marketable securities for cash proceeds of $1.5 million. As this investment was
previously non-marketable, its carrying value was based upon the cost basis and
was $.7 million. The Company therefore recorded a pre-tax gain of $.8 million.
Income Taxes
(In thousands)
<TABLE>
<CAPTION>
Three months
ended June 30, Decrease
------------------------ --------------------------
2000 1999 Dollar Percentage
---------- ---------- --------- -------------
<S> <C> <C> <C> <C>
(Restated)
Provision for income
taxes $ (5,250) $ 1,278 $ 6,528 510.8%
</TABLE>
A tax benefit of $5,250 has been recognized for the first quarter of fiscal
2001. The rate used to calculate this benefit was calculated as a combined
federal and state statutory tax rate adjusted for tax provisions paid on
international subsidiary income. In contrast to the first quarter of fiscal 2000
the Company's current assessment is that it is more likely than not
28
<PAGE> 29
that these deferred tax assets will be benefited through future taxable income
or through the implementation of tax planning strategies.
The Company's consolidated tax provision of $1.3 million charged on a pre-tax
loss of $15.4 million, during the first quarter of fiscal 2000, related entirely
to taxes charged its foreign subsidiaries for the first quarter of fiscal 2000.
No tax benefit was recognized regarding the first quarter fiscal 2000 U.S.
operating loss based on the Company's then current assessment that it was more
likely than not that a deferred tax assets would not be benefited through future
taxable income or implementation of tax planning strategies.
<TABLE>
<CAPTION>
Liquidity
(In thousands) Working
Capital
June 30, March 31, (Decrease)
2000 2000 Increase
-------- -------- ---------
<S> <C> <C> <C>
Cash and cash equivalents $ 5,620 $ 34,197 $(28,577)
Accounts and notes receivable 82,368 75,376 6,992
Inventories 91,820 81,923 9,897
Other 30,182 29,615 567
-------- -------- --------
Total current assets $209,990 $221,111 $(11,121)
======== ======== ========
Accounts payable $ 36,643 $ 30,116 $ (6,527)
Income taxes payable 4,498 11,039 6,541
Accrued liabilities 52,034 53,771 1,737
Other 251 236 (15)
-------- -------- --------
Total current liabilities $ 93,426 $ 95,162 $ 1,736
======== ======== ========
Working capital (current assets
less current liabilities) $116,564 $125,949 $ (9,385)
======== ======== ========
Current ratio (current assets divided
by current liabilities) 2.2 to 1 2.3 to 1
</TABLE>
The decrease in the Company's consolidated working capital at June 30, 2000,
from March 31, 2000, was due primarily to decreases in cash and cash equivalents
and an increase in accounts payable offset by increases in accounts receivable
and inventories and a decrease in income taxes payable. As discussed below the
Company used cash flows of $22.2 million to support operating activities during
the quarter. An additional $2.5 million of cash was utilized to support
investing activities and $3.2 million was utilized to support financing
activities. Since the Company did not utilize its lines of credit the Company's
cash balances were its sole source of funding for the quarter. The increase in
accounts payable was the result of purchases of manufacturing purchased
components late in the quarter as well as the management of cash payments to
vendors in order to minimize the needs for the borrowing of any funds to finance
current operations.
The increase in the accounts receivable balance reflects a decline in cash
collections within the Company's domestic and international operations for the
quarter ending June 30, 2000. The Company feels a portion of the increase
relates to the impact of transitioning collection efforts from its Akron
location to its Houston operations. Accordingly, consolidated days sales
outstanding increased from 76 days at March 31, 2000 to 81 days at June 30,
2000.
29
<PAGE> 30
The increase in the Company's inventories was primarily the result of an
increase in the level of purchased manufacturing components (to meet increased
expected demand, which did not materialize during the first quarter of fiscal
2001) related to newly introduced products and the increased level of safety
stock maintained by the Company. A significant portion of the safety stock
purchased was composed of Aironet radios. The Company purchased the present
models offered by Aironet based upon uncertainties surrounding the future supply
of these radios. The inventory value of purchased manufacturing components
increased $6.9 million in anticipation of increased sales during the first
quarter of fiscal 2001 compared to the fourth quarter of fiscal 2000.
Additionally, customer service spare parts and international finished goods
inventory also increased $2.3 and $2.0 million, respectively, compared to the
fourth quarter of fiscal 2000. Customer service spare parts inventory increased
primarily due to inventory stock purchased to service newer PTC models. These
increases in inventory levels were offset by decreases of $.8 and $.3 million of
inventory held by distributors and staged to rollout to customers pending the
satisfaction of the Company's revenue recognition criteria. Consolidated
inventory turns decreased to approximately 2.3 at June 30, 2000, from
approximately 3.4 at March 31, 2000. This decrease in inventory turns was
primarily caused by the absence of inventory and other cost of revenue charges
that occurred during the fourth quarter of fiscal 2000.
Accrued liabilities decreased primarily due to the decrease in deferred customer
service revenues of $1.2 million as revenue recognition criteria were ratably
met during the first quarter of fiscal 2001 on customer service revenue
previously deferred. Additionally, accrued payroll and other compensation of
$1.1 million decreased as of June 30, 2000 do to the timing of these payments.
These decreases were offset by a $1.6 million increase in accrued liabilities
related to an increase in payments due a major customer for returned goods of
the Company.
Income taxes payable also decreased by $6.5 million primarily due to a tax
benefit of $5.3 million that was recognized during the first quarter of fiscal
2001. Also contributing the decrease was a $1.3 million in tax payment related
to revenue earned in a prior period.
<TABLE>
<CAPTION>
Cash Flows from Operating Activities
(In thousands)
Three months Increase
Ended June 30, (Decrease)
-------------------- in Cash
2000 1999 Flow Impact
-------- -------- -----------
(Restated)
<S> <C> <C> <C>
Net loss $(10,191) $(16,701) $ 6,510
Depreciation and amortization 6,851 5,831 1,020
Amortization of restricted stock awards, net 46 18 28
Provision for doubtful accounts 1,157 1,070 87
Provision for inventory obsolescence 2,131 1,635 496
Loss on disposal of assets 189 108 81
Gain on sale of non-marketable investment -- (761) 761
Equity loss in affiliate -- 184 (184)
Loss on carrying value of non-marketable -- 1,283 (1,283)
Investment
Changes in operating assets and liabilities:
Accounts and notes receivable (8,157) 3,816 (11,973)
</TABLE>
30
<PAGE> 31
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Inventories (11,963) 6,033 (17,996)
Prepaid expenses and other current assets (567) (11) (556)
Intangibles and other assets 385 (1,725) 2,110
Accounts payable and accrued liabilities 4,666 11,619 (6,953)
Income taxes payable (6,541) 2,839 (9,380)
Other long-term liabilities (176) (226) 50
-------- -------- --------
Net cash (used in) provided by operating
Activities $(22,170) $ 15,012 $(37,182)
======== ======== ========
</TABLE>
The decrease in cash flows from the Company's consolidated operating activities
for the first quarter of fiscal 2001 from comparable fiscal 2000 levels was
primarily due to the increased cash flow impact of accounts receivable,
inventories, accounts payable, accrued liabilities and income taxes payable.
These negative cash flow impacts were partially offset by the decrease in the
net loss incurred during the first quarter of fiscal 2001 as compared to the
same quarter last year.
<TABLE>
<CAPTION>
Cash Flows from Investing Activities
(In thousands)
Three months Increase
ended June 30, (Decrease)
-------------------- in Cash
2000 1999 Flow Impact
--------- -------- -----------
<S> <C> <C> <C>
Additions to property and equipment $ (1,786) (7,255) 5,469
Software improvements (705) (1,005) 300
Proceeds from non-marketable investments -- 1,523 (1,523)
Impact of Aironet deconsolidation -- (3,986) 3,986
-------- -------- --------
Net cash used in investing activities $ (2,491) $(10,723) $ 8,232
======== ======== ========
</TABLE>
The decrease in cash flows used in investing activities was primarily due to a
decrease in the fixed asset additions for the first quarter of fiscal 2001 as
compared to the first quarter of fiscal 2000. The decrease in fixed asset
additions is primarily attributable to the absence of capitalized project costs
related to the Company's corporate-wide information systems project. Aggregated
costs capitalized during the first quarter of fiscal 2000 were $5.2 million.
Also causing this decrease was the absence of the impact of deconsolidating the
results of Aironet, which occurred during fiscal 2000. The absence of similar
proceeds from the sale of non-marketable investments as occurred during the
first quarter of fiscal 2000 also affected the net decrease in cash flows used
in investing activities.
<TABLE>
<CAPTION>
Cash Flows from Financing Activities
(In thousands)
Three months Increase
ended June 30, (Decrease)
------------------- in Cash
2000 1999 Flow Impact
-------- -------- -----------
<S> <C> <C> <C>
Notes payable, net $ -- $(5,080) $ 5,080
Principal payments on capital leases (46) (223) 177
Note related to purchase of stock (3,141) -- (3,141)
------- ------- -------
Net cash (used for) in financing
Activities $(3,187) $(5,303) $ 2,116
======= ======= =======
</TABLE>
For the first quarter of fiscal 2001 cash flows used for financing activities
primarily consisted of a $3.1 million note to the Chief Executive Officer, John
W. Paxton, the proceeds of which were utilized to purchase stock in the Company
pursuant to his employment contract with the Company. The note calls for the
repayment of the amount due upon registration of the shares purchased. The
decrease in cash flows used for financing activities also resulted from
31
<PAGE> 32
decreased borrowings during the first quarter of fiscal 2001. During the fourth
quarter of fiscal 2000 the Company extinguished its remaining notes payable.
Subsequent to this extinguishment cash flows from operating activities have been
utilized to fund the Company's operations as described above.
Subsequent Events
On July 25, 2000, Symbol Technologies ("Symbol") announced its intention to
acquire the Company for shares of Symbol common stock after receiving approval
from Symbol's and the Company's Boards of Directors. According to the terms of
the definitive merger agreement, Company shareholders will receive .50 shares
of Symbol stock for each share of the Company's common stock. The transaction
has a total equity value of approximately $465.0 million based upon the closing
price of Symbol stock on July 25, 2000 of $49.88 a share. The transaction is
expected to be accounted for under the purchase accounting method, and is
expected to consummate prior to December 31, 2000. The proposed transaction is
pending regulatory and shareholder approval.
New Accounting Standards
On December 3, 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin 101, "Revenue Recognition in Financial Statements". This
document expresses the views of the Securities and Exchange Commission in
applying accounting principals generally accepted in the United States while
recognizing revenue. The Company has abided by the guidance contained within
this document when recognizing revenue.
On November 24, 1999 the Securities and Exchange Commission issued Staff
Accounting Bulletin 100, "Restructuring and Impairment Charges". This
authoritative document expresses the views of the SEC staff regarding the
accounting and disclosure of certain expenses commonly reported in connection
with exit activities and business combinations. The Company has also abided by
the guidance contained within this document in accounting for current exit
costs.
During fiscal 1999, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 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 133 during the first quarter of fiscal 2002 (as delayed by
Statement of Financial Accounting Standards No. 137, "Deferral of the Effective
Date of FASB Statement No. 133"). Management is evaluating the impact of this
statement; however at this time, it 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.
32
<PAGE> 33
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
In the ordinary course of business, the Company is subject to market, foreign
currency and interest rate risks. The risks primarily relate to stock price
volatility relating to its marketable securities, the sale of the Company's
products to foreign customers through its foreign subsidiaries and changes in
interest rates on the Company's short-term financing and capital lease
obligations.
Market Risk
As discussed in Note 9 - Marketable Securities and Derivatives, during fiscal
2000 Cisco acquired the Company's former subsidiary, Aironet Wireless
Communications for shares of Cisco common stock. Subsequent to this transaction
the Company held 6,366,086 shares of Cisco common stock (the Cisco share amount
illustrated here and throughout the Form 10-Q, unless otherwise noted, gives
effect to the two for one forward split of Cisco's common stock which became
effective March 22, 2000). A portion of these shares was sold to satisfy working
capital and debt obligations, during fiscal 2000. At June 30, 2000 the Company
maintained 4,166,086 shares of Cisco. The market value of the Company's holdings
of Cisco at June 30, 2000 was valued at $264.8 million. In relation to the
Company's consolidated balance sheet, this is a material holding. As such, the
Company is exposed to a significant degree of market risk relating to the price
volatility of Cisco common stock. As discussed in Note 9 - Marketable Securities
and Derivatives, the Company has chosen to mitigate a portion of this risk by
purchasing derivative collar contracts, which help to ensure that the Company's
potential gain or loss is within reasonable levels. These contracts will expire
on March 26, 2001. Although the counter-party to the derivative collar contract
is a major financial institution the Company is exposed to market risk loss in
the event of nonperformance by this financial institution. Management does
monitor the credit rating of the financial institution and considers the risk of
nonperformance to be remote.
Foreign Currency Risk
The financial results of the Company's foreign subsidiaries are measured in
their local currencies. Assets and liabilities are translated into U.S. dollars
at the rates of exchange at the end of each year and revenues and expenses are
reported at average rates of exchange. Resulting translation adjustments are
reported as a component of comprehensive income.
Historically, the Company has not experienced any significant foreign currency
gains or losses involving U.S. Dollars and other currencies. This is primarily
due to natural hedges of revenues and expenses in the functional currencies of
the countries in which subsidiaries are located which assists in managing this
risk. At June 30, 2000, the Company had several forward foreign currency
exchange contracts to purchase various foreign currencies aggregating $15.4
million in U.S. dollars.
Interest Rate Risk
The Company's convertible subordinated debentures carry fixed rates of interest
and therefore do not pose interest rate risk to the Company. However, interest
rate changes would effect the fair market value of the
33
<PAGE> 34
debentures. At June 30, 2000, the Company had $106.9 million of convertible
subordinated debentures outstanding.
Interest rate risk does exist relative to the Company's $236.0 million and $5.0
million lines of credit due to the variable rates of interest charged on these
facilities. The rates charged on these facilities are subject to adjustment by
the lender however, at June 30, 2000 no borrowings were outstanding.
The Company monitors its interest rate risk, but does not engage in any hedging
activities using derivative financial instruments to manage the interest rate
risk.
34
<PAGE> 35
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 11 to the consolidated financial statements included in Part I of this
Quarterly Report on Form 10-Q for a discussion of the material pending legal
proceedings to which the Company is a party, which footnote discussion is
incorporated in this Part II by this reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K:
2. Agreement and Plan of Merger, dated as of July 25,
2000, among Symbol Technologies, Inc., TX Acquisition
Corporation and Registrant, filed herewith.
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,
incorporated herein by reference to Exhibit 3.2 to
Registrant's Form 10-K for the year ended March 31,
1999.
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 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.
4.2.1 Form of Rights Certificate (included as
Exhibit A to the Rights Agreement included
as Exhibit 4.2 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
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.
4.2.2 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
35
<PAGE> 36
Agreement included as Exhibit 4.2 above,
incorporated herein by reference to Exhibit
4.3.2 to Registrant's Form 10-K for the year
ended March 31, 1997.
4.2.3 Amendment to the Rights Agreement included
as exhibit 4.2 above, between Registrant and
Computershare Investor Services, LLC,
incorporated herein by reference to
registrant's 8-K dated July 25, 2000.
4.3 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.
4.3.1 Form of Registrant's 7-1/2% Convertible
Subordinated Debentures Due 2012 (set forth
in the Indenture included as Exhibit 4.3
above).
4.4 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.
4.4.1 Form of Registrant's 5-3/4% Convertible
Subordinated Notes due 2003 issued under the
Indenture included as Exhibit 4.4 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.
4.4.2 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,
as amended, incorporated herein by reference
to Exhibit 10.1.1 to Registrant's Form 10-K
for the year ended March 31, 1999.
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
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<PAGE> 37
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, 1998.
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 10.1.4 to Registrant's
Form 10-Q for the year ended March 31, 1999.
10.1.4.a Description of amendments extending
the term of the Agreement included
as Exhibit 10.1.4 above,
incorporated herein by reference to
Exhibit 10.1.4.a to Registrant's
Form 10-Q for the quarter ended
September 30, 1998.
10.1.5 1992 Restricted Stock Plan of Registrant, as
amended, incorporated herein by reference to
Exhibit 10.1.5 to Registrant's Form 10-Q for
the quarter ended December 31, 1998.
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.,
incorporated herein by reference to
Exhibit 10.1.7.a to Registrant's
Form 10-K for the year ended March
31, 1998.
10.1.7.b First Amendment to Amended and
Restated 1996 Stock Option Plan for
employees, directors and advisors
of Aironet Wireless Communications,
Inc., incorporated herein by
reference to Exhibit 10.1.7.b to
Registrant's Form 10-K for the year
ended March 31, 1999.
10.1.8 1999 Stock Option Plan for Non-Employee
Directors of Aironet Wireless
Communications, Inc., incorporated herein by
reference to Exhibit 10.1.8 to Registrant's
Form 10-K for the year ended March 31, 1999.
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<PAGE> 38
10.1.9 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.
10.1.10 Employment Agreement between Registrant and
John W. Paxton, Sr., effective as of March
22, 1999, incorporated herein by reference
to Exhibit 10.1.10 to Registrant's Form 10-K
for the year ended March 31, 1999.
10.1.11 Employment Agreement between Registrant and
Kenneth A. Cassady, effective as of June 7,
1999, incorporated herein by reference to
Exhibit 10.1.11 to Registrant's Form 10-K
for the year ended March 31, 1999.
10.1.12 Employment Agreement between Registrant and
Woody M. McGee, effective as of June 1,
1999, incorporated herein by reference to
Exhibit 10.1.12 to Registrant's Form 10-K
for the year ended March 31, 1999.
10.1.13 Employment Agreement between Registrant and
David M. Biggs, effective as of June 7,
1999, incorporated herein by reference to
Exhibit 10.1.13 to Registrants 10-Q for the
quarter ended December 31, 1999.
10.1.13.a Letter agreement continuing Mr.
Biggs' employment with the
Registrant, dated June 15, 2000
incorporated by reference to
Exhibit 10.13.1.a to Registrant's
Form 10-K for the year ended March
31, 2000.
10.1.14 Amended and Restated Employment Agreement
between Registrant and Gene Harmegnies,
effective as of January 31, 2000,
incorporated herein by reference to Exhibit
10.1.14 to Registrant's Form 10-Q for the
quarter ended December 31, 1999.
10.1.15 Description of Key Employee Retention
Program, incorporated herein by reference to
Exhibit 10.1.15 to Registrant's Form 10-K
for the year ended March 31, 1998.
10.1.15.a Form of letter agreement made with
key employees selected under the
retention program described in
Exhibit 10.1.15 above,
incorporated herein by reference
to Exhibit 10.1.15.a to
Registrant's Form 10-K for the
year ended March 31, 1998.
10.1.16 Employment Agreement, effective as of April
1, 1997, between Registrant and Frank E.
Brick, a former executive officer,
incorporated herein by reference to Exhibit
10.1.9 to Registrant's Form 10-K for the
year ended March 31, 1998.
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<PAGE> 39
10.1.17 Amended and Restated Employment Agreement,
effective as of April 1, 1997, between
registrant and James G. Cleveland, a former
executive officer, incorporated herein by
reference to Exhibit 10.1.10 to Registrant's
Form 10-K for the year ended March 31, 1998.
10.1.18 Amended and Restated Employment Agreement,
effective as of April 1, 1997, between
Registrant and Kenneth W. Haver, a former
executive officer, incorporated herein by
reference to Exhibit 10.1.11 to Registrant's
Form 10-K for the year ended March 31, 1998.
10.1.19 Amended and Restated Employment Agreement,
effective as of April 1, 1997, between
Registrant and David W. Porter, a former
executive officer, incorporated herein by
reference to Exhibit 10.1.13 to Registrant's
Form 10-K for the year ended March 31, 1998.
10.1.20 Amended and Restated Employment Agreement,
effective as of April 1, 1997, between
Registrant and Danny R. Wipff, a former
executive officer, incorporated herein by
reference to Exhibit 10.1.14 to Registrant's
Form 10-K for the year ended March 31, 1998.
10.1.21 Letter agreement of Registrant with Robert
A. Goodman, dated as of December 29, 1997
and executed and delivered January 20, 1998,
for continued consulting services following
certain changes in his law practice,
incorporated herein by reference to Exhibit
10.1.17 to Registrant's Form 10-K for the
year ended March 31, 1998.
10.1.22 Letter agreement of Registrant with R. Dave
Garwood, dated August 30, 1999, for MRP-II
consulting services, incorporated herein by
reference to Exhibit 1.1.20 to Registrant's
Form 10-Q for the quarter ended September
30, 1999.
10.1.23 Employment Agreement between Registrant and
William J. Murphy, effective as of February
1, 2000, incorporated herein by reference to
Exhibit 10.1.23 to Registrant's Form 10-K
for the year ended March 31, 2000.
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 West 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, 1999.
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
39
<PAGE> 40
premises at 8302 New Trails Drive, The
Woodlands, Texas, incorporated herein by
reference to Exhibit 10.2.2 to Registrant's
Form 10-K for the year ended March 31, 1998.
10.2.3 Standard Office Lease (Modified Net Lease)
between Registrant and John D. Dellagnese
III, dated as of July 19, 1995, for premises
at 3875 Embassy Parkway, Bath, Ohio,
including an Addendum thereto, incorporated
herein by reference to Exhibit 10.2.4 to
Registrant's Form 10-K for the year ended
March 31, 1996.
10.2.3.a Second Addendum, dated as of
October 5, 1995, to the Lease
included as Exhibit 10.2.3 above,
incorporated herein by reference to
Exhibit 10.2.4.a to Registrant's
Form 10-K for the year ended March
31, 1996.
10.2.3.b Third Addendum, dated as of March
1, 1996, to the Lease included as
Exhibit 10.2.3 above, incorporated
herein by reference to Exhibit
10.2.4.b to 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.
10.2.3.e Sixth Addendum, dated as of March,
1998, to the Lease included as
Exhibit 10.2.3 above, incorporated
herein by reference to Exhibit
10.2.3.e to Registrant's Form 10-Q
for the quarter ended September 30,
1998.
10.2.3.f Seventh Addendum, dated as of July
20, 1998, to the Lease included as
Exhibit 10.2.3 above, incorporated
herein by reference to Exhibit
10.2.3.f to Registrant's Form 10-Q
for the quarter ended September 30,
1998.
10.2.3.g Eighth Addendum, dated as of
September 8, 1998, to the Lease
included as Exhibit 10.2.3 above,
incorporated herein by reference to
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<PAGE> 41
Exhibit 10.2.3.g to Registrant's
Form 10-Q for the quarter ended
September 30, 1998.
10.2.3.h Sublease Agreement, dated as of
September 1, 1998, between
Registrant and Aironet Wireless
Communications, Inc. for the
premises subject to the Lease
included as Exhibit 10.2.3 above,
as amended through the Eighth
Addendum thereto included as
Exhibit 10.2.3.g above,
incorporated herein by reference to
Exhibit 10.2.3.h to Registrant's
Form 10-K for the year ended March
31, 1999.
10.2.3.i Renewal, dated June 16, 1999, with
respect to the Sublease Agreement
included as Exhibit 10.2.3.h above,
incorporated herein by reference to
Exhibit 10.2.3.i to Registrant's
Form 10-K for the year ended March
31, 1999.
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
premises in Ciudad Juarez, Chihuahua,
Mexico, made and entered into as of April
10, 1997, incorporated herein by reference
to Exhibit 10.2.4 to Registrant's Form 10-K
for the year ended March 31, 1998.
10.2.5 Lease between Milford Partners, LLC and
Registrant, made as of March 17, 2000 for
premises in Ridgewood Corporate Center, 1000
Summit Drive, Milford, Ohio incorporated
herein by reference to Exhibit 10.2.5 to
Registrant's Form 10-K for the year ended
March 31, 2000.
10.2.6 Lease Agreement between the Woodlands Office
Equities - '95 Limited and Registrant,
effective January 20, 2000, for premises at
8701 New Trails Drive, The Woodlands, Texas,
including an Expansion, Modification and
Ratification thereof dated May 1, 2000,
incorporated herein by reference to Exhibit
10.2.6 to Registrant's Form 10-K for the
year ended March 31, 2000.
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
41
<PAGE> 42
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 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.c Amendment No. 3, dated as of
December 12, 1997, to the Agreement
included as Exhibit 10.3.1 above,
included herein by reference to
Exhibit 10.3.1.d to Registrant's
Form 10-K for the year ended March
31, 1998.
10.3.1.d Waiver and Agreement, dated as of
December 29, 1998, with respect to
the Agreement included as Exhibit
10.3.1 above, incorporated herein
by reference to Exhibit 10.3.1.e to
Registrant's Form 10-Q for the
quarter ended December 31, 1998.
10.3.1.e Waiver Extension and Agreement,
dated as of February 12, 1999, with
respect to the Agreement included
as Exhibit 10.3.1 above,
incorporated herein by reference to
Exhibit 10.3.1.f to Registrant's
Form 10-Q for the quarter ended
December 31, 1998.
10.3.1.f Second Waiver Extension Agreement
and Amendment No. 4, dated as of
March 26, 1999, with respect to the
Agreement included as Exhibit
10.3.1 above, incorporated herein
by reference to Exhibit 10.3.1.a to
Registrant's Form 8-K dated April
1, 1999.
10.3.1.g Amended and Restated Security
Agreement, dated as of March 26,
1999, by and among Registrant and
The Bank of New York, as Agent for
the Lenders from time to time party
to the Agreement included as
Exhibit 10.3.1 above, incorporated
herein by reference to Exhibit
10.3.1.b to Registrant's Form 8-K
dated April 1, 1999.
10.3.1.h Deed of Trust, Assignment of Leases
and Rents, Security Agreement,
Fixture Filing and Financing
Statement, dated as of March 26,
1999, by Registrant to First
American Title Insurance Company as
Trustee for the benefit of The Bank
42
<PAGE> 43
of New York, as Agent for the
Lenders from time to time party to
the Agreement included as Exhibit
10.3.1 above, incorporated herein
by reference to Exhibit 10.3.1.h to
Registrant's Form 10-K for the year
ended March 31, 1999.
10.3.1.i Patent and Trademark Security
Agreement, dated as of March 26,
1999, by Registrant and certain of
its subsidiaries to The Bank of New
York, as Agent for the benefit of
the Lenders from time to time party
to the Agreement included as
Exhibit 10.3.1 above, incorporated
herein by reference to Exhibit
10.3.1 to Registrant's Form 10-K
for the year ended March 31, 1999.
10.3.1.j Pledge Agreement, dated as of March
26, 1999, by Registrant to The Bank
of New York, as Agent for the
benefit of the Lenders from time to
time party to the Agreement
included as Exhibit 10.3.1 above,
incorporated herein by reference to
Exhibit 10.3.1.j to Registrant's
Form 10-K for the year ended March
31, 1999.
10.3.1.k Third Waiver Extension Agreement
and Amendment No. 5, dated as of
June 29, 1999, with respect to the
Agreement included as Exhibit
10.3.1 above, incorporated herein
by reference to Exhibit 10.3.1.a to
Registrant's Form 8-K dated July 1,
1999.
10.3.2 Business Purpose Revolving Promissory Note
(Swing Line) made by Registrant in favor of
Bank One, NA, dated August 4, 1998,
incorporated herein by reference to Exhibit
10.3.4 to Registrant's Form 10-Q for the
quarter ended June 30, 1998.
10.3.2.a Consent, dated as of December 29,
1998, with respect to the Note
included as Exhibit 10.3.2 above,
incorporated herein by reference to
Exhibit 10.3.4.a to Registrant's
Form 10-Q for the quarter ended
December 31, 1998.
10.3.2.b Further Consent, dated as of
February 12, 1999, with respect to
the Note included as Exhibit 10.3.2
above, incorporated herein by
reference to Exhibit 10.3.4.a to
Registrant's Form 10-Q for the
quarter ended December 31, 1998.
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<PAGE> 44
10.3.2.c Second Further Consent and
Agreement, dated as of March 26,
1999, with respect to the Note
included as Exhibit 10.3.2 above,
incorporated herein by reference to
Exhibit 10.3.4.c b to Registrant's
Form 8-K dated April 1, 1999.
10.3.2.d Amended and Restated Security
Agreement, dated as of March 26,
1999, by and among Registrant and
Bank One, NA with respect to the
Note included as Exhibit 10.3.2
above, incorporated herein by
reference to Exhibit 10.3.2.d to
Registrant's Form 10-K for the year
ended March 31, 1999.
10.3.2.e Deed of Trust, Assignment of Leases
and Rents, Security Agreement,
Fixture Filing and Financing
Statement, dated as of March 26,
1999, by Registrant to First
American Title Insurance Company as
Trustee for the benefit of Bank
One, NA with respect to the Note
included as Exhibit 10.3.2 above,
incorporated herein by reference to
Exhibit 10.3.2.e to Registrant's
Form 10-K for the year ended March
31, 1999.
10.3.2.f Patent and Trademark Security
Agreement, dated as of March 26,
1999, by Registrant and certain of
its subsidiaries to Bank One, NA
with respect to the Note included
as Exhibit 10.3.2 above,
incorporated herein by reference to
Exhibit 10.3.2.f to Registrant's
Form 10-K for the year ended March
31, 1999.
10.3.2.g Third Further Consent and Note
Modification Agreement, dated as of
June 29, 1999, with respect to the
Note included as Exhibit 10.3.2
above, incorporated herein by
reference to Exhibit 10.3.2.g b to
Registrant's Form 8-K dated July 1,
1999.
10.3.3 Loan and Security Agreement, dated as of
August 26, 1999, by and between the
Registrant, the Lenders party thereto, and
Foothill Capital Corporation, as Agent
(repaid and retired in full during March
2000 as described in the Registrant's
consolidated financial statement including
such month), incorporated by reference to
Exhibit 10.3.3 to Registrant's Form 8-K
dated August 30, 1999.
10.3.3.a Pledge Agreement, dated as of
August 26, 1999, between Foothill
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<PAGE> 45
Capital Corporation, as agent for
the Lenders from time to time party
to the Loan and Security Agreement
included in Exhibit 10.3.3 above,
pledging among other assets, the
stock owned by the Registrant in
Aironet Wireless Communications,
Inc. and Registrant subsidiaries to
Agent as collateral to secure
Registrant's obligations under the
Loan and Security Agreement
(terminated in connection with the
repayment and retirement of
Registrant's indebtedness under the
Loan and Security Agreement during
March 2000 as described in
Registrant's Consolidated Financial
Statements including such month),
incorporated herein by reference to
Exhibit 10.3.3.a to Registrant's
Form 10-Q for the quarter ended
September 30, 1999.
10.3.3.b Real Property Deed of Trust (Harris
County, Texas), made as of August
26, 1999 by Registrant unto Joseph
C. Mathews as trustee for the
benefit of Foothill Capital
Corporation, as Agent for the
lenders form time to time party to
the Loan and Security Agreement
included in Exhibit 10.3.3 above
(terminated in connection with the
repayment and retirement of the
Registrant's indebtedness under the
Loan and Security Agreement during
March 2000 as described in the
Registrant's Consolidated Financial
Statements including such month),
incorporated by reference to
Exhibit 10.3.3.b to Registrant's
Form 10-Q for the quarter ended
September 30, 1999.
10.3.3.c Patent, Trademark, Copyright and
License Mortgage, made as of August
26, 1999, by Registrant in favor of
Foothill Capital Corporation, as
Agent for the Lenders from time to
time party to the Loan and Security
Agreement included as Exhibit
10.3.3 above (terminated in
connection with the repayment and
retirement of Registrant's
indebtedness under the Loan and
Security Agreement during March
2000 as described in Registrant's
Consolidated Financial Statement
including such month), incorporated
herein by reference to Exhibit
10.3.3.c to Registrant's Form 10-Q
for the quarter ended September 30,
1999.
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<PAGE> 46
10.3.3.d First Amendment, dated as of
November 18, 1999, to the Loan and
Security Agreement included as
Exhibit 10.3.3 above, incorporated
herein by reference to Exhibit
10.3.3.d to Registrant's Form 10-Q
for the quarter ended December 31,
1999.
10.3.3.e Second Amendment, dated as of
February 11, 2000, to the Loan and
Security Agreement included as
Exhibit 10.3.3 above, incorporated
herein by reference to Exhibit
10.3.3.e to Registrant's Form 10-Q
for the quarter ended December 31,
1999.
10.3.4 Loan and Pledge Agreement dated as of March
15, 2000, by and among Deutsche Bank AG,
London Branch, with Deutsche Bank
Securities, Inc., as agent, and Telxon
System Services Inc., a wholly owned
subsidiary of the Registrant (secured by the
Cisco Systems, Inc. stock subject to the
options transactions effected pursuant to
the Confirmations included as Exhibit 10.4
below) and letter confirming determination
of interest applicable to borrowings
thereunder, incorporated herein by reference
to Exhibit 10.3.4 to Registrant's Form 10-K
for the year ended March 31, 2000.
10.3.5 Promissory Note, dated June 16, 2000, by
Registrant with respect to uncommitted swing
line for working capital financing available
from Firth Third Bank, Northwestern Ohio,
incorporated herein by reference to Exhibit
10.3.5 to Registrant's Form 10-K for the
year ended March 31, 2000.
10.4 Confirmations of Share Option Transactions of Telxon
System Services, Inc., a wholly owned subsidiary of
Registrant, with Deutsche Bank AG, London Branch with
respect to substantially all of the stock which
Telxon System Services continues to hold in Cisco
Systems, Inc. dated as of March 23, 2000,
incorporated herein by reference to Exhibit 10.4 to
Registrant's Form 10-K for the year ended March 31,
2000.
10.5 Amended and Restated Agreement between Registrant and
Symbol Technologies, Inc., dated as of September 30,
1992, incorporated herein by reference to Exhibit
10.4 to Registrant's Form 10-K for the year ended
March 31, 1998.
10.6 Agreement dated as of November 8, 1999, by and among
Registrant, Cisco Systems, Inc. and Aironet Wireless
Communications, Inc. (the forms of the Purchase
Agreement and License Agreement included as Exhibits
A and B, respectively, thereto became effective upon
the March 15, 2000 consummation of the acquisition
through Merger of Aironet and Cisco), incorporated
herein by reference to Exhibit 10.5.2 to Registrant's
Form 10-Q for the quarter ended September 30, 1999.
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<PAGE> 47
10.7 Asset Purchase Agreement by and among Dynatech
Corporation, IAQ Corporation, Registrant and Itronix
Corporation, then a 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.
10.8 Stock Purchase Agreement by and among Registrant and
FED Corporation, dated as of March 31, 1998, with
respect to FED Corporation's purchase of all of the
stock of Virtual Vision, Inc. (fka Vision Newco,
Inc.), incorporated herein by reference to Exhibit
10.7 to Registrant's Form 10-K for the year ended
March 31, 1998.
10.8.1 Escrow Agreement by and among FED
Corporation, Registrant and First Union
National Bank, with respect to the
transactions under the Stock Purchase
Agreement included as Exhibit 10.7 above,
incorporated herein by reference to Exhibit
10.7.1 to Registrant's Form 10-K for the
year ended March 31, 1998.
10.9 Stock Purchase Agreement, dated as of January 19,
2000, between Registrant, Accipiter Corporation and
Accipiter II, Inc. (superseded by the Agreement and
Plan of Merger, Included as Exhibit 10.11 below),
incorporated herein by reference to Exhibit 10.13 to
Registrant's Form 10-Q for the quarter ended December
31, 1999.
10.10 Stock Purchase Agreement, dated as of February 17,
2000, by and between Registrant and named minority
stockholders of Registrant's Metanetics Corporation
subsidiary, incorporated herein by reference to
Exhibit 10.10 to Registrant's Form 10-K for the year
ended March 31, 2000.
10.11 Plan and Agreement of Merger, dated as of February
22, 2000, among Registrant, its wholly owned Meta
Technologies Corporation subsidiary and its
Metanetics Corporation subsidiary, incorporated
herein by reference to Exhibit 10.11 to Registrant's
Form 10-K for the year ended March 31, 2000.
10.11.1 Investment and Registration Rights
Agreement, dated as of February 22, 2000, by
and among Accipiter Corporation, Accipiter
II, Inc., Registrant and Registrant's wholly
owned Meta Technologies Corporation
subsidiary made pursuant to the Plan and
Agreement of Merger included as Exhibit
10.11 above, incorporated herein by
reference to Exhibit 10.11.1 to Registrant's
Form 10-K for the year ended March 31, 2000.
10.12 Stockholder Agreement, made as of November 8, 1999
between Cisco Systems, Inc., Osprey Acquisition
Corporation and Registrant, and related Irrevocable
Proxy, executed by Registrant as a stockholder of
Aironet Wireless Communication, Inc. as an inducement
toward the entry by Cisco Systems, Inc. and Osprey
Acquisition Corporation into an Agreement and Plan of
Merger and Reorganization dated of even date
providing for the acquisition of Aironet by Cisco,
and Joinders thereto by, and related Irrevocable
Proxy of, The Retail Technology Group, Inc., a wholly
owned subsidiary of Registrant, and
47
<PAGE> 48
in turn, by and of Telxon System Services, Inc., a
wholly owned subsidiary of The Retail Technology
Group, incorporated herein by reference to Exhibit
10.12 to Registrant's Form 10-K for the year ended
March 31, 2000.
10.13 DFS Vendor Agreement between Registrant and Deutsche
Financial Services Corporation, dated as of September
30, 1998, incorporated herein by reference to Exhibit
10.15 to Registrant's Form 10-Q for the quarter ended
December 31, 1998.
27. Financial Data Schedule as of June 30, 2000 filed
herewith.
(b) Reports on Form 8-K
During the first quarter of fiscal 2001 to which this Form
10-Q relates, the Registrant filed a Current Report on Form
8-K dated June 30, 2000, which attached the Registrant's press
release of that date. This press release announced its
restatement of earnings for fiscal years 1999 and 1998, which
resulted from an agreement made during the fourth quarter of
fiscal 1998 with a value-added distributor on terms making
recognition of revenue more appropriate on a sell through
basis. The press release also announced the Company's delay in
filing its Form 10-K for the year ended March 31, 2000. This
delay permitted the Company, and its current and former
independent accountants, to examine and incorporate into the
financial statements, which were to be included in Form 10-K,
the effects of the restatement and the then recent comments
received from the Securities and Exchange Commission's
Division of Corporate Finance regarding the Registrant's
previous filings.
Subsequent to the end of the first quarter of fiscal 2001, the
Company filed a Current Report on Form 8-K dated July 27,
2000, attaching the Registrant's press release dated July 26,
2000 which announced that on July 25, 2000 the Company entered
into a Definitive Agreement and Plan of Merger (the "Merger
Agreement") pursuant to which Symbol Technologies Inc. agreed
to acquire Telxon.
48
<PAGE> 49
TELXON CORPORATION
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,the
registrant has duly caused this Form 10-Q to be signed and on its behalf by the
undersigned thereunto duly authorized.
Date: August 11, 2000
TELXON CORPORATION
(Registrant)
/s/ Woody M. McGee
-------------------------
Woody M. McGee,
Vice President and Chief
Financial Officer
<PAGE> 50
TELXON CORPORATION
EXHIBITS
TO
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2000
<PAGE> 51
INDEX TO EXHIBITS
Where
Filed
** 2. Agreement and Plan of Merger, dated as of July 25, 2000, among
Symbol Technologies, Inc., TX Acquisition Corporation and
Registrant, filed herewith.
* 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, incorporated
herein by reference to Exhibit 3.2 to Registrant's Form 10-K
for the year ended March 31, 1999.
* 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 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.
* 4.2.1 Form of Rights Certificate (included as Exhibit A to
the Rights Agreement included as Exhibit 4.2 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 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.
* 4.2.2 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
4.2 above, incorporated herein by reference to
Exhibit 4.3.2 to Registrant's Form 10-K for the year
ended March 31, 1997.
<PAGE> 52
* 4.2.3 Amendment to the Rights Agreement included as exhibit
4.2 above, between Registrant and Computershare
Investor Services, LLC, incorporated herein by
reference to registrant's 8-K dated July 25, 2000.
* 4.3 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.
* 4.3.1 Form of Registrant's 7-1/2% Convertible Subordinated
Debentures Due 2012 (set forth in the Indenture
included as Exhibit 4.3 above).
* 4.4 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.
* 4.4.1 Form of Registrant's 5-3/4% Convertible Subordinated
Notes due 2003 issued under the Indenture included as
Exhibit 4.4 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.
* 4.4.2 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, as amended,
incorporated herein by reference to Exhibit 10.1.1 to
Registrant's Form 10-K for the year ended March 31,
1999.
* 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,
<PAGE> 53
incorporated herein by reference to Exhibit 10.1.3 to
Registrant's Form 10-Q for the quarter ended
September 30, 1998.
* 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
10.1.4 to Registrant's Form 10-Q for the year ended
March 31, 1999.
* 10.1.4.a Description of amendments extending the term
of the Agreement included as Exhibit 10.1.4
above, incorporated herein by reference to
Exhibit 10.1.4.a to Registrant's Form 10-Q
for the quarter ended September 30, 1998.
* 10.1.5 1992 Restricted Stock Plan of Registrant, as amended,
incorporated herein by reference to Exhibit 10.1.5 to
Registrant's Form 10-Q for the quarter ended December
31, 1998.
* 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.,
incorporated herein by reference to Exhibit
10.1.7.a to Registrant's Form 10-K for the
year ended March 31, 1998.
* 10.1.7.b First Amendment to Amended and Restated 1996
Stock Option Plan for employees, directors
and advisors of Aironet Wireless
Communications, Inc., incorporated herein by
reference to Exhibit 10.1.7.b to
Registrant's Form 10-K for the year ended
March 31, 1999.
* 10.1.8 1999 Stock Option Plan for Non-Employee Directors of
Aironet Wireless Communications, Inc., incorporated
herein by reference to Exhibit 10.1.8 to Registrant's
Form 10-K for the year ended March 31, 1999.
* 10.1.9 Non-Competition Agreement by and between Registrant
and Robert F. Meyerson, effective February 27, 1997,
incorporated herein by
<PAGE> 54
reference to Exhibit 10.1.8 to Registrant's Form 10-K
for the year ended March 31, 1997.
* 10.1.10 Employment Agreement between Registrant and John W.
Paxton, Sr., effective as of March 22, 1999,
incorporated herein by reference to Exhibit 10.1.10
to Registrant's Form 10-K for the year ended March
31, 1999.
* 10.1.11 Employment Agreement between Registrant and Kenneth
A. Cassady, effective as of June 7, 1999,
incorporated herein by reference to Exhibit 10.1.11
to Registrant's Form 10-K for the year ended March
31, 1999.
* 10.1.12 Employment Agreement between Registrant and Woody M.
McGee, effective as of June 1, 1999, incorporated
herein by reference to Exhibit 10.1.12 to
Registrant's Form 10-K for the year ended March 31,
1999.
* 10.1.13 Employment Agreement between Registrant and David M.
Biggs, effective as of June 7, 1999, incorporated
herein by reference to Exhibit 10.1.13 to Registrants
10-Q for the quarter ended December 31, 1999.
* 10.1.13.a Letter agreement continuing Mr. Biggs'
employment with the Registrant, dated June
15, 2000 incorporated by reference to
Exhibit 10.13.1.a to Registrant's Form 10-K
for the year ended March 31, 2000.
* 10.1.14 Amended and Restated Employment Agreement between
Registrant and Gene Harmegnies, effective as of
January 31, 2000, incorporated herein by reference to
Exhibit 10.1.14 to Registrant's Form 10-Q for the
quarter ended December 31, 1999.
* 10.1.15 Description of Key Employee Retention Program,
incorporated herein by reference to Exhibit 10.1.15
to Registrant's Form 10-K for the year ended March
31, 1998.
* 10.1.15.a Form of letter agreement made with key
employees selected under the retention
program described in Exhibit 10.1.15 above,
incorporated herein by reference to Exhibit
10.1.15.a to Registrant's Form 10-K for the
year ended March 31, 1998.
* 10.1.16 Employment Agreement, effective as of April 1, 1997,
between Registrant and Frank E. Brick, a former
executive officer, incorporated herein by reference
to Exhibit 10.1.9 to Registrant's Form 10-K for the
year ended March 31, 1998.
* 10.1.17 Amended and Restated Employment Agreement, effective
as of April 1, 1997, between registrant and James G.
Cleveland, a former
<PAGE> 55
executive officer, incorporated herein by reference
to Exhibit 10.1.10 to Registrant's Form 10-K for the
year ended March 31, 1998.
* 10.1.18 Amended and Restated Employment Agreement, effective
as of April 1, 1997, between Registrant and Kenneth
W. Haver, a former executive officer, incorporated
herein by reference to Exhibit 10.1.11 to
Registrant's Form 10-K for the year ended March 31,
1998.
* 10.1.19 Amended and Restated Employment Agreement, effective
as of April 1, 1997, between Registrant and David W.
Porter, a former executive officer, incorporated
herein by reference to Exhibit 10.1.13 to
Registrant's Form 10-K for the year ended March 31,
1998.
* 10.1.20 Amended and Restated Employment Agreement, effective
as of April 1, 1997, between Registrant and Danny R.
Wipff, a former executive officer, incorporated
herein by reference to Exhibit 10.1.14 to
Registrant's Form 10-K for the year ended March 31,
1998.
* 10.1.21 Letter agreement of Registrant with Robert A.
Goodman, dated as of December 29, 1997 and executed
and delivered January 20, 1998, for continued
consulting services following certain changes in his
law practice, incorporated herein by reference to
Exhibit 10.1.17 to Registrant's Form 10-K for the
year ended March 31, 1998.
* 10.1.22 Letter agreement of Registrant with R. Dave Garwood,
dated August 30, 1999, for MRP-II consulting
services, incorporated herein by reference to Exhibit
1.1.20 to Registrant's Form 10-Q for the quarter
ended September 30, 1999.
* 10.1.23 Employment Agreement between Registrant and William
J. Murphy, effective as of February 1, 2000,
incorporated herein by reference to Exhibit 10.1.23
to Registrant's Form 10-K for the year ended March
31, 2000.
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 West 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,
1999.
* 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, incorporated herein by
reference to Exhibit 10.2.2 to Registrant's Form 10-K
for the year ended March 31, 1998.
<PAGE> 56
* 10.2.3 Standard Office Lease (Modified Net Lease) between
Registrant and John D. Dellagnese III, dated as of
July 19, 1995, for premises at 3875 Embassy Parkway,
Bath, Ohio, including an Addendum thereto,
incorporated herein by reference to Exhibit 10.2.4 to
Registrant's Form 10-K for the year ended March 31,
1996.
* 10.2.3.a Second Addendum, dated as of October 5,
1995, to the Lease included as Exhibit
10.2.3 above, incorporated herein by
reference to Exhibit 10.2.4.a to
Registrant's Form 10-K for the year ended
March 31, 1996.
* 10.2.3.b Third Addendum, dated as of March 1, 1996,
to the Lease included as Exhibit 10.2.3
above, incorporated herein by reference to
Exhibit 10.2.4.b to 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.
* 10.2.3.e Sixth Addendum, dated as of March, 1998, to
the Lease included as Exhibit 10.2.3 above,
incorporated herein by reference to Exhibit
10.2.3.e to Registrant's Form 10-Q for the
quarter ended September 30, 1998.
* 10.2.3.f Seventh Addendum, dated as of July 20, 1998,
to the Lease included as Exhibit 10.2.3
above, incorporated herein by reference to
Exhibit 10.2.3.f to Registrant's Form 10-Q
for the quarter ended September 30, 1998.
* 10.2.3.g Eighth Addendum, dated as of September 8,
1998, to the Lease included as Exhibit
10.2.3 above, incorporated herein by
reference to Exhibit 10.2.3.g to
Registrant's Form 10-Q for the quarter ended
September 30, 1998.
<PAGE> 57
* 10.2.3.h Sublease Agreement, dated as of September 1,
1998, between Registrant and Aironet
Wireless Communications, Inc. for the
premises subject to the Lease included as
Exhibit 10.2.3 above, as amended through the
Eighth Addendum thereto included as Exhibit
10.2.3.g above, incorporated herein by
reference to Exhibit 10.2.3.h to
Registrant's Form 10-K for the year ended
March 31, 1999.
* 10.2.3.i Renewal, dated June 16, 1999, with respect
to the Sublease Agreement included as
Exhibit 10.2.3.h above, incorporated herein
by reference to Exhibit 10.2.3.i to
Registrant's Form 10-K for the year ended
March 31, 1999.
* 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 premises in Ciudad Juarez, Chihuahua,
Mexico, made and entered into as of April 10, 1997,
incorporated herein by reference to Exhibit 10.2.4 to
Registrant's Form 10-K for the year ended March 31,
1998.
* 10.2.5 Lease between Milford Partners, LLC and Registrant,
made as of March 17, 2000 for premises in Ridgewood
Corporate Center, 1000 Summit Drive, Milford, Ohio
incorporated herein by reference to Exhibit 10.2.5 to
Registrant's Form 10-K for the year ended March 31,
2000.
* 10.2.6 Lease Agreement between the Woodlands Office Equities
- '95 Limited and Registrant, effective January 20,
2000, for premises at 8701 New Trails Drive, The
Woodlands, Texas, including an Expansion,
Modification and Ratification thereof dated May 1,
2000, incorporated herein by reference to Exhibit
10.2.6 to Registrant's Form 10-K for the year ended
March 31, 2000.
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.
<PAGE> 58
* 10.3.1.b 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.c Amendment No. 3, dated as of December 12,
1997, to the Agreement included as Exhibit
10.3.1 above, included herein by reference
to Exhibit 10.3.1.d to Registrant's Form
10-K for the year ended March 31, 1998.
* 10.3.1.d Waiver and Agreement, dated as of December
29, 1998, with respect to the Agreement
included as Exhibit 10.3.1 above,
incorporated herein by reference to Exhibit
10.3.1.e to Registrant's Form 10-Q for the
quarter ended December 31, 1998.
* 10.3.1.e Waiver Extension and Agreement, dated as of
February 12, 1999, with respect to the
Agreement included as Exhibit 10.3.1 above,
incorporated herein by reference to Exhibit
10.3.1.f to Registrant's Form 10-Q for the
quarter ended December 31, 1998.
* 10.3.1.f Second Waiver Extension Agreement and
Amendment No. 4, dated as of March 26, 1999,
with respect to the Agreement included as
Exhibit 10.3.1 above, incorporated herein by
reference to Exhibit 10.3.1.a to
Registrant's Form 8-K dated April 1, 1999.
* 10.3.1.g Amended and Restated Security Agreement,
dated as of March 26, 1999, by and among
Registrant and The Bank of New York, as
Agent for the Lenders from time to time
party to the Agreement included as Exhibit
10.3.1 above, incorporated herein by
reference to Exhibit 10.3.1.b to
Registrant's Form 8-K dated April 1, 1999.
* 10.3.1.h Deed of Trust, Assignment of Leases and
Rents, Security Agreement, Fixture Filing
and Financing Statement, dated as of March
26, 1999, by Registrant to First American
Title Insurance Company as Trustee for the
benefit of The Bank of New York, as Agent
for the Lenders from time to time party to
the Agreement included as Exhibit 10.3.1
above, incorporated herein
<PAGE> 59
by reference to Exhibit 10.3.1.h to
Registrant's Form 10-K for the year ended
March 31, 1999.
* 10.3.1.i Patent and Trademark Security Agreement,
dated as of March 26, 1999, by Registrant
and certain of its subsidiaries to The Bank
of New York, as Agent for the benefit of the
Lenders from time to time party to the
Agreement included as Exhibit 10.3.1 above,
incorporated herein by reference to Exhibit
10.3.1 to Registrant's Form 10-K for the
year ended March 31, 1999.
* 10.3.1.j Pledge Agreement, dated as of March 26,
1999, by Registrant to The Bank of New York,
as Agent for the benefit of the Lenders from
time to time party to the Agreement included
as Exhibit 10.3.1 above, incorporated herein
by reference to Exhibit 10.3.1.j to
Registrant's Form 10-K for the year ended
March 31, 1999.
* 10.3.1.k Third Waiver Extension Agreement and
Amendment No. 5, dated as of June 29, 1999,
with respect to the Agreement included as
Exhibit 10.3.1 above, incorporated herein by
reference to Exhibit 10.3.1.a to
Registrant's Form 8-K dated July 1, 1999.
* 10.3.2 Business Purpose Revolving Promissory Note (Swing
Line) made by Registrant in favor of Bank One, NA,
dated August 4, 1998, incorporated herein by
reference to Exhibit 10.3.4 to Registrant's Form 10-Q
for the quarter ended June 30, 1998.
* 10.3.2.a Consent, dated as of December 29, 1998, with
respect to the Note included as Exhibit
10.3.2 above, incorporated herein by
reference to Exhibit 10.3.4.a to
Registrant's Form 10-Q for the quarter ended
December 31, 1998.
* 10.3.2.b Further Consent, dated as of February 12,
1999, with respect to the Note included as
Exhibit 10.3.2 above, incorporated herein by
reference to Exhibit 10.3.4.a to
Registrant's Form 10-Q for the quarter ended
December 31, 1998.
* 10.3.2.c Second Further Consent and Agreement, dated
as of March 26, 1999, with respect to the
Note included as Exhibit 10.3.2 above,
incorporated herein by reference to
<PAGE> 60
Exhibit 10.3.4.c b to Registrant's Form 8-K
dated April 1, 1999.
* 10.3.2.d Amended and Restated Security Agreement,
dated as of March 26, 1999, by and among
Registrant and Bank One, NA with respect to
the Note included as Exhibit 10.3.2 above,
incorporated herein by reference to Exhibit
10.3.2.d to Registrant's Form 10-K for the
year ended March 31, 1999.
* 10.3.2.e Deed of Trust, Assignment of Leases and
Rents, Security Agreement, Fixture Filing
and Financing Statement, dated as of March
26, 1999, by Registrant to First American
Title Insurance Company as Trustee for the
benefit of Bank One, NA with respect to the
Note included as Exhibit 10.3.2 above,
incorporated herein by reference to Exhibit
10.3.2.e to Registrant's Form 10-K for the
year ended March 31, 1999.
* 10.3.2.f Patent and Trademark Security Agreement,
dated as of March 26, 1999, by Registrant
and certain of its subsidiaries to Bank One,
NA with respect to the Note included as
Exhibit 10.3.2 above, incorporated herein by
reference to Exhibit 10.3.2.f to
Registrant's Form 10-K for the year ended
March 31, 1999.
* 10.3.2.g Third Further Consent and Note Modification
Agreement, dated as of June 29, 1999, with
respect to the Note included as Exhibit
10.3.2 above, incorporated herein by
reference to Exhibit 10.3.2.g b to
Registrant's Form 8-K dated July 1, 1999.
* 10.3.3 Loan and Security Agreement, dated as of August 26,
1999, by and between the Registrant, the Lenders
party thereto, and Foothill Capital Corporation, as
Agent (repaid and retired in full during March 2000
as described in the Registrant's consolidated
financial statement including such month),
incorporated by reference to Exhibit 10.3.3 to
Registrant's Form 8-K dated August 30, 1999.
* 10.3.3.a Pledge Agreement, dated as of August 26,
1999, between Foothill Capital Corporation,
as agent for the Lenders from time to time
party to the Loan and Security Agreement
included in Exhibit 10.3.3 above, pledging
among other assets, the
<PAGE> 61
\ stock owned by the Registrant in Aironet
Wireless Communications, Inc. and Registrant
subsidiaries to Agent as collateral to
secure Registrant's obligations under the
Loan and Security Agreement (terminated in
connection with the repayment and retirement
of Registrant's indebtedness under the Loan
and Security Agreement during March 2000 as
described in Registrant's Consolidated
Financial Statements including such month),
incorporated herein by reference to Exhibit
10.3.3.a to Registrant's Form 10-Q for the
quarter ended September 30, 1999.
* 10.3.3.b Real Property Deed of Trust (Harris County,
Texas), made as of August 26, 1999 by
Registrant unto Joseph C. Mathews as trustee
for the benefit of Foothill Capital
Corporation, as Agent for the lenders form
time to time party to the Loan and Security
Agreement included in Exhibit 10.3.3 above
(terminated in connection with the repayment
and retirement of the Registrant's
indebtedness under the Loan and Security
Agreement during March 2000 as described in
the Registrant's Consolidated Financial
Statements including such month),
incorporated by reference to Exhibit
10.3.3.b to Registrant's Form 10-Q for the
quarter ended September 30, 1999.
* 10.3.3.c Patent, Trademark, Copyright and License
Mortgage, made as of August 26, 1999, by
Registrant in favor of Foothill Capital
Corporation, as Agent for the Lenders from
time to time party to the Loan and Security
Agreement included as Exhibit 10.3.3 above
(terminated in connection with the repayment
and retirement of Registrant's indebtedness
under the Loan and Security Agreement during
March 2000 as described in Registrant's
Consolidated Financial Statement including
such month), incorporated herein by
reference to Exhibit 10.3.3.c to
Registrant's Form 10-Q for the quarter ended
September 30, 1999.
* 10.3.3.d First Amendment, dated as of November 18,
1999, to the Loan and Security Agreement
included as Exhibit 10.3.3 above,
incorporated herein by reference to Exhibit
<PAGE> 62
10.3.3.d to Registrant's Form 10-Q for the
quarter ended December 31, 1999.
* 10.3.3.e Second Amendment, dated as of February 11,
2000, to the Loan and Security Agreement
included as Exhibit 10.3.3 above,
incorporated herein by reference to Exhibit
10.3.3.e to Registrant's Form 10-Q for the
quarter ended December 31, 1999.
* 10.3.4 Loan and Pledge Agreement dated as of March 15, 2000,
by and among Deutsche Bank AG, London Branch, with
Deutsche Bank Securities, Inc., as agent, and Telxon
System Services Inc., a wholly owned subsidiary of
the Registrant (secured by the Cisco Systems, Inc.
stock subject to the options transactions effected
pursuant to the Confirmations included as Exhibit
10.4 below) and letter confirming determination of
interest applicable to borrowings thereunder,
incorporated herein by reference to Exhibit 10.3.4 to
Registrant's Form 10-K for the year ended March 31,
2000.
* 10.3.5 Promissory Note, dated June 16, 2000, by Registrant
with respect to uncommitted swing line for working
capital financing available from Firth Third Bank,
Northwestern Ohio, incorporated herein by reference
to Exhibit 10.3.5 to Registrant's Form 10-K for the
year ended March 31, 2000.
* 10.4 Confirmations of Share Option Transactions of Telxon System
Services, Inc., a wholly owned subsidiary of Registrant, with
Deutsche Bank AG, London Branch with respect to substantially
all of the stock which Telxon System Services continues to
hold in Cisco Systems, Inc. dated as of March 23, 2000,
incorporated herein by reference to Exhibit 10.4 to
Registrant's Form 10-K for the year ended March 31, 2000.
* 10.5 Amended and Restated Agreement between Registrant and Symbol
Technologies, Inc., dated as of September 30, 1992,
incorporated herein by reference to Exhibit 10.4 to
Registrant's Form 10-K for the year ended March 31, 1998.
* 10.6 Agreement dated as of November 8, 1999, by and among
Registrant, Cisco Systems, Inc. and Aironet Wireless
Communications, Inc. (the forms of the Purchase Agreement and
License Agreement included as Exhibits A and B, respectively,
thereto became effective upon the March 15, 2000 consummation
of the acquisition through Merger of Aironet and Cisco),
incorporated herein by reference to Exhibit 10.5.2 to
Registrant's Form 10-Q for the quarter ended September 30,
1999.
* 10.7 Asset Purchase Agreement by and among Dynatech Corporation,
IAQ Corporation, Registrant and Itronix Corporation, then a
subsidiary of Registrant, dated as of December 28, 1996,
incorporated herein by reference to
<PAGE> 63
Exhibit 2 to Registrant's Form 8-K dated December 31, 1996.
* 10.8 Stock Purchase Agreement by and among Registrant and FED
Corporation, dated as of March 31, 1998, with respect to FED
Corporation's purchase of all of the stock of Virtual Vision,
Inc. (fka Vision Newco, Inc.), incorporated herein by
reference to Exhibit 10.7 to Registrant's Form 10-K for the
year ended March 31, 1998.
* 10.8.1 Escrow Agreement by and among FED Corporation,
Registrant and First Union National Bank, with
respect to the transactions under the Stock Purchase
Agreement included as Exhibit 10.7 above,
incorporated herein by reference to Exhibit 10.7.1 to
Registrant's Form 10-K for the year ended March 31,
1998.
* 10.9 Stock Purchase Agreement, dated as of January 19, 2000,
between Registrant, Accipiter Corporation and Accipiter II,
Inc. (superseded by the Agreement and Plan of Merger, Included
as Exhibit 10.11 below), incorporated herein by reference to
Exhibit 10.13 to Registrant's Form 10-Q for the quarter ended
December 31, 1999.
* 10.10 Stock Purchase Agreement, dated as of February 17, 2000, by
and between Registrant and named minority stockholders of
Registrant's Metanetics Corporation subsidiary, incorporated
herein by reference to Exhibit 10.10 to Registrant's Form 10-K
for the year ended March 31, 2000.
* 10.11 Plan and Agreement of Merger, dated as of February 22, 2000,
among Registrant, its wholly owned Meta Technologies
Corporation subsidiary and its Metanetics Corporation
subsidiary, incorporated herein by reference to Exhibit 10.11
to Registrant's Form 10-K for the year ended March 31, 2000.
10.11.1 Investment and Registration Rights Agreement, dated
as of February 22, 2000, by and among Accipiter
Corporation, Accipiter II, Inc., Registrant and
Registrant's wholly owned Meta Technologies
Corporation subsidiary made pursuant to the Plan and
Agreement of Merger included as Exhibit 10.11 above,
incorporated herein by reference to Exhibit 10.11.1
to Registrant's Form 10-K for the year ended March
31, 2000.
* 10.12 Stockholder Agreement, made as of November 8, 1999 between
Cisco Systems, Inc., Osprey Acquisition Corporation and
Registrant, and related Irrevocable Proxy, executed by
Registrant as a stockholder of Aironet Wireless Communication,
Inc. as an inducement toward the entry by Cisco Systems, Inc.
and Osprey Acquisition Corporation into an Agreement and Plan
of Merger and Reorganization dated of even date providing for
the acquisition of Aironet by Cisco, and Joinders thereto by,
and related Irrevocable Proxy of, The Retail Technology Group,
Inc., a wholly owned subsidiary of Registrant, and in turn, by
and of Telxon System Services, Inc., a wholly owned subsidiary
of The Retail Technology Group, incorporated herein by
reference to Exhibit 10.12 to Registrant's Form 10-K for the
year ended March 31, 2000.
<PAGE> 64
* 10.13 DFS Vendor Agreement between Registrant and Deutsche Financial
Services Corporation, dated as of September 30, 1998,
incorporated herein by reference to Exhibit 10.15 to
Registrant's Form 10-Q for the quarter ended December 31,
1998.
**
27. Financial Data Schedule as of June 30, 2000 filed herewith.
----------------------------
* Previously filed
** Filed herewith
