<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 SEPTEMBER 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 September 30, 2000, there were 17,543,198 outstanding shares of the
registrant's Common Stock.
This document contains 70 pages.
<PAGE> 2
TELXON CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Part I. FINANCIAL INFORMATION: Page No.
--------
<S> <C> <C>
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
and Results of Operations 20-37
Item 3: Quantitative and Qualitative Disclosure About Market Risk 38-39
Part II. OTHER INFORMATION:
Item 1: Legal Proceedings 40
Item 6: Exhibits and Reports on Form 8-K 40-69
</TABLE>
2
<PAGE> 3
TELXON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
2000 2000
--------- ---------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash (including cash equivalents of $4,419 and $6,000) $ 6,027 $ 34,197
Accounts receivable, net of allowances for doubtful accounts of $10,351
and $7,116, respectively, and sales returns and allowances of $6,657
and $5,255, respectively 88,588 70,831
Notes and other accounts receivable 2,384 4,545
Inventories 86,729 81,923
Prepaid expenses and other 30,070 29,615
--------- ---------
Total current assets 213,798 221,111
Property and equipment, net 55,547 62,067
Investment in marketable securities and related hedge 262,256 321,863
Intangibles and other assets, net 28,318 31,249
--------- ---------
Total assets $ 559,919 $ 636,290
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Capital lease obligations due within one year $ 241 $ 236
Note Payable 19,000 -
Accounts payable 43,183 30,116
Income taxes payable 1,607 11,039
Accrued liabilities 56,868 53,771
--------- ---------
Total current liabilities 120,899 95,162
Capital lease obligations 246 369
Convertible subordinated notes and debentures 106,913 106,913
Deferred income taxes 79,461 109,519
Other long-term liabilities 1,872 2,500
--------- ---------
Total liabilities 309,391 314,463
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, 17,543 and 17,514 shares issued 175 175
Additional paid-in capital 105,798 105,639
Retained earnings 159,306 188,998
Note related to the purchase of common stock (3,141) -
Unearned compensation relating to restricted stock awards (16) (75)
Accumulated other comprehensive (loss) income:
Foreign currency translation (8,333) (6,009)
Unrealized holding (loss) gain on marketable securities and related hedge,
net of deferred taxes of ($2,187) and $21,060 (3,261) 33,099
--------- ---------
Total stockholders' equity 250,528 321,827
--------- ---------
Commitments and contingencies - -
--------- ---------
Total liabilities and stockholders' equity $ 559,919 $ 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 SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Product, net $ 68,066 $ 76,621 $ 133,598 $ 144,536
Customer service, net 21,425 19,674 41,492 39,584
--------- --------- --------- ---------
Total net revenues 89,491 96,295 175,090 184,120
Cost of revenues:
Product 59,259 57,428 106,219 108,297
Customer service 13,338 12,078 25,270 24,289
--------- --------- --------- ---------
Total cost of revenues 72,597 69,506 131,489 132,586
Gross profit:
Product 8,807 19,193 27,379 36,239
Customer service 8,087 7,596 16,222 15,295
--------- --------- --------- ---------
Total gross profit 16,894 26,789 43,601 51,534
Operating expenses:
Selling expenses 19,537 18,235 38,297 36,842
Product development and engineering expenses 6,370 5,992 12,631 13,142
General & administrative expenses 17,172 16,114 33,177 27,356
Merger transaction costs (Note 2) 1,622 - 1,622 -
--------- --------- --------- ---------
Total operating expenses 44,701 40,341 85,727 77,340
Loss from operations (27,807) (13,552) (42,126) (25,806)
Interest income 39 159 470 415
Interest expense (1,755) (3,559) (3,424) (6,801)
--------- --------- --------- ---------
Loss before other non-operating (expense) income (29,523) (16,952) (45,080) (32,192)
and income taxes
Other non-operating (expense) income (24) 32,650 92 32,467
--------- --------- --------- ---------
(Loss) income before income taxes (29,547) 15,698 (44,988) 275
(Benefit) provision for income taxes (10,046) 738 (15,296) 2,016
--------- --------- --------- ---------
Net (loss) income $ (19,501) $ 14,960 $ (29,692) $ (1,741)
========= ========= ========= =========
Net (loss) income per share:
Basic $ (1.11) $ 0.92 $ (1.69) $ (0.11)
Diluted $ (1.11) $ 0.92 $ (1.69) $ (0.11)
Average number of common shares outstanding:
Basic 17,530 16,232 17,522 16,194
Diluted 17,530 16,233 17,522 16,194
</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>
SIX MONTHS ENDED
SEPTEMBER 30,
--------------------
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(29,692) $ (1,741)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 13,446 12,231
Amortization of restricted stock awards, net 59 176
Provision for doubtful accounts 3,329 1,256
Provision for sales returns and allowances 11,749 5,234
Provision for inventory obsolescence 8,366 3,616
Deferred income taxes (7,408) (189)
Gain on sale of subsidiary stock - (32,167)
Gain on sale of non-marketable investments - (761)
Equity in earnings of affiliate - (702)
Loss (gain) on disposal of property and equipment 297 (107)
Loss on carrying value of non-marketable investment - 1,283
Impairment charge - 381
Change in operating assets and liabilities:
Accounts and notes receivable (30,927) 1,510
Amounts due to and from affiliate - 3,171
Inventories (13,034) 19,245
Prepaid expenses and other current assets (402) 1,607
Intangibles and other assets 88 (180)
Accounts payable and accrued liabilities 15,650 (20,022)
Income taxes payable (9,432) 1,738
Other long-term liabilities (32) (1,048)
-------- --------
Net cash used in operating activities (37,943) (5,469)
Cash flows from investing activities:
Additions to property and equipment (2,541) (8,969)
Software and other investments (951) (2,027)
Business acquisition (1,500) -
Proceeds from the sale of subsidiary stock, net of cash given - 17,211
Proceeds from the sale of property and equipment - 261
Proceeds from the sale of non-marketable investments - 1,523
-------- --------
Net cash (used in) provided by investing activities (4,992) 7,999
Cash flows from financing activities:
Notes payable, net 19,000 -
Exinguishment of former credit facility,net - (48,888)
Repayments on former credit facility - (17,179)
Borrowings on long-term provisions of debt facility - 17,000
Borrowings on debt facility, net - 37,792
Principal payments on capital leases (117) (322)
Debt issue costs paid - (1,215)
Proceeds from exercise of stock options 160 -
Note related to the purchase of stock (3,141) -
-------- --------
Net cash provided by (used in) financing activities 15,902 (12,812)
Effect of exchange rate changes on cash (1,137) (1)
-------- --------
Net decrease in cash and cash equivalents (28,170) (10,283)
Cash and cash equivalents at beginning of period 34,197 22,459
-------- --------
Cash and cash equivalents at end of period $ 6,027 $ 12,176
======== ========
</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 and six months ended
September 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 March 31, 2000 condensed 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. POTENTIAL MERGER OF THE COMPANY
On July 26, 2000, Symbol Technologies, Inc. ("Symbol") and the Company announced
that they had entered into a merger agreement ("the Agreement") providing for
Symbol's acquisition of the Company. Under the terms of the Agreement, Company
shareholders are to receive .50 shares of Symbol for each share of the Company.
The transaction has an estimated total value of approximately $315,229 based
upon the closing price of Symbol common stock on September 29, 2000 of $35.94 a
share. Both the Company and Symbol anticipate that the transaction will be
accounted for under the purchase accounting method.
The waiting period under the Hart Scott Rodino Antitrust Improvements Act of
1976 expired as of October 12, 2000. No further U.S. or foreign antitrust
clearance is necessary for completion of the acquisition. The Company's
stockholders will vote to approve or reject the proposed merger at a special
stockholder meeting scheduled for Tuesday, November 28, 2000. The record date
for stockholders entitled to notification of and to vote at the special meeting
was the close of business on October 20, 2000. Provided stockholder approval is
obtained, the merger is expected to be completed on November 30, 2000.
Following the consummation of the merger the Company will de-list its common
stock and, as a result, terminate its reporting obligations to the Securities
and Exchange Commission ("SEC") with respect to its common stock.
3. FINANCIAL RESULTS AND LIQUIDITY
During the quarter and six months ended September 30, 2000, the Company incurred
a net loss of $19,501 and $29,692, respectively, with a decrease in consolidated
revenues of $6,804 and $9,030 as compared to these same periods in fiscal 2000.
The Company incurred net losses from operations of $27,807 and $42,126 for the
quarter and six months ended September 30, 2000, respectively. The
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<PAGE> 7
Company's stockholders' equity and working capital at September 30, 2000 were
$250,528 and $92,899, 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. For the six months ended September 30, 2000, the Company used
$37,943 of cash in operating activities. A portion of the cash used in operating
activities resulted from transaction costs related to the proposed merger of the
Company with Symbol Technologies, Inc. Additionally, the significant cash used
in operating activities reflects the Company's reliance upon cash and marketable
securities, both directly and indirectly, to meet the majority of its current
cash flow requirements. To augment the Company's cash flows the Company utilized
$19,000 from a financing arrangement to meet its cash operating requirements,
during the quarter ended September 30, 2000.
The Company believes its existing resources, including available cash and cash
equivalents, marketable securities, internally generated funds and credit
facilities will be sufficient to meet working capital requirements for the next
twelve months.
4. 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.
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
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------------------------------ ----------------------------------------
NET PER SHARE NET PER SHARE
LOSS SHARES AMOUNT INCOME SHARES AMOUNT
------------- ------------ ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS
(Loss) income available to
common stockholders $(19,501) 17,530 $(1.11) $14,960 16,232 $.92
--------------- ------------- ---------------- -----------
EFFECT OF DILUTIVE SECURITIES
Options -- 1
------------ -----------
DILUTED EPS
(Loss) income available to
holders of common shares
and common share equivalents $(19,501) 17,530 $(1.11) $14,960 16,233 $.92
=============== ============ ============= ================ =========== ===========
</TABLE>
7
<PAGE> 8
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED FOR THE SIX MONTHS ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 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 $(29,692) 17,522 $(1.69) $(1,741) 16,194 $(.11)
--------------- ------------- ---------------- -----------
EFFECT OF DILUTIVE SECURITIES
Options -- --
------------ -----------
DILUTED EPS
Loss available to holders
of common shares and common
share equivalents $(29,692) 17,522 $(1.69) $(1,741) 16,194 $(.11)
=============== ============ ============= ================ =========== ===========
</TABLE>
Options to purchase 3,415,392 shares of common stock at a weighted average
exercise price of $14.10 per share were outstanding at September 30, 2000, but
were not included in the computation of diluted earnings per share for the three
and six months then ended because the options would have had an anti-dilutive
effect on the net loss for the period.
Options to purchase 3,571,698 shares of common stock at a weighted average
exercise price of $14.43 per share were outstanding at September 30, 1999, but
were not included in the computation of diluted earnings per share for the three
months then ended because the exercise price of such options was greater than
the weighted average market price of common shares for the period.
Options to purchase 3,485,698 shares of common stock at a weighted average
exercise price of $14.43 per share were outstanding at September 30, 1999 but
were not included in the computation of diluted earnings per share for the six
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 September 30,
2000 and 1999 would have had an anti-dilutive effect on earnings for the three
and six months then ended.
5. COMPREHENSIVE (LOSS) INCOME
Total comprehensive (loss) income consisted of the following:
<TABLE>
<CAPTION>
Three Months Ended
September 30, September 30,
2000 1999
-----------------------------------------
<S> <C> <C>
Net (loss) income $(19,501) $14,960
Other comprehensive (losses) income:
</TABLE>
8
<PAGE> 9
<TABLE>
<S> <C>
Unrealized holding loss on marketable securities, net (1,556) --
Foreign currency translation adjustment (1,420) 430
----------------------------------------
Total comprehensive (loss) income $(22,477) $15,390
========================================
</TABLE>
<TABLE>
Six Months Ended
September 30, September 30,
2000 1999
----------------------------------------
<S> <C> <C>
Net loss $(29,692) $(1,741)
Other comprehensive (losses) income:
Unrealized holding loss on marketable securities, net (36,360) --
Foreign currency translation adjustment (2,324) 175
----------------------------------------
Total comprehensive loss $(68,376) $(1,566)
========================================
</TABLE>
6. SUPPLEMENTAL CASH FLOW
<TABLE>
<CAPTION>
Six Months Ended
September 30, September 30,
2000 1999
---------------------- ---------------------
<S> <C> <C>
Cash paid during the period for:
Interest $ 3,479 $ 6,172
Income taxes $ 1,857 $ 1,965
</TABLE>
There were no capital lease additions during the six months ended September 30,
2000 or 1999.
7. INVENTORIES
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
2000 2000
---------------- ---------------
<S> <C> <C>
Purchased components $47,003 $46,514
Work-in-process 23,449 21,404
Finished goods 16,277 14,005
---------------- ---------------
$86,729 $81,923
================ ===============
</TABLE>
At September 30, 2000, the inventory allowance accounts totaled $31,228 and were
composed of manufacturing purchased components of $21,372, customer service
spare parts and used equipment of $7,961 and international finished goods of
$1,896. These amounts compare to March 31, 2000 inventory allowance accounts
that totaled $40,457 and were composed of manufacturing purchased components of
$30,424, customer service spare parts and used equipment of $8,115 and
international finished goods of $1,918. Inventory allowance provisions for the
quarter totaled $5,797. Inventory provisions for the second quarter of fiscal
2001 were composed of manufacturing purchased components of $4,674, customer
service spare parts and used equipment of $963 and international finished goods
of $160. Inventory provisions aggregating $7,748 for the first half of fiscal
2001 were composed of manufacturing purchased components of $6,230, customer
service spare parts and used equipment of $1,143 and international finished
goods of $375. During the first quarter
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<PAGE> 10
of fiscal 2001, a $7,800 reduction in the gross inventory value of trade-in
product reduced the inventory allowance accounts. Since both the gross inventory
value and the decrease to the reserve were for the same amount, there was no
impact on net inventories.
Management disposes of excess and obsolete inventory as necessary and as
manpower permits. During the first half of fiscal 2001, the Company disposed of
$9,177 of excess and obsolete material. Of this amount $7,562 related to
manufacturing purchased components, $1,306 related to the Company's customer
service inventories and $306 related to the Company's international operations.
In addition to the inventory allowance accounts, the Company has recorded
accrued liabilities totaling $1,981, at September 30, 2000, for purchase
commitments to an outside vendor for purchased components whose net realizable
value is below historical purchased cost. This accrual was adjusted $619 during
the first quarter of fiscal 2001 to reflect changes in the estimated net
realizable value of the underlying inventory.
At September 30, 2000, the Company had approximately $7,477 of finished goods
inventory held at distributors and customers and approximately $2,189 of
manufacturing purchased components at contract manufacturers. At March 31, 2000,
the Company had approximately $6,236 of finished goods inventory held at
distributors and customers and approximately $10,107 of manufacturing purchased
components at contract manufacturers. The increase in the amount of finished
goods held at distributors and customers was the result of the shipment of
product to a major domestic retail customer prior to the recognition of revenue
of $1,322 million and the increase in the inventory recovery related to sales
returns reserved for in the allowance for sales returns and allowances. The
decrease in the amount of inventory held by contract manufacturers was due to
timing of product builds of subcomponents of the Company's products as compared
to the timing of customer demands.
8. MARKETABLE SECURITIES AND RELATED DERIVATIVE
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
2000 2000
------------------------------------------------
<S> <C> <C>
Cost basis $ 267,704 $ 267,704
Gross unrealized holding (losses) gains (5,448) 54,159
------------------------------------------------
Aggregate fair market value $ 262,256 $ 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
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<PAGE> 11
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. This amount is adjusted, in accordance with FASB 115, to reflect
the market price of the portfolio as of the end of each accounting
period. 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. As of September 30, 2000 this
value was decreased to the securities' minimum hedged value for the hedged
shares, as described below, since the value of each share of Cisco stock at
September 30, 2000 decreased to a closing price below the minimum amount that
the Company would recognize upon the sale of these securities should the Company
exercise the hedge. These adjustments to the carrying amount, net of tax,
represent non-cash activities.
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 most of 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
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 covered by the
Collar at September 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
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<PAGE> 12
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.
Statement of Financial Accounting Standards Board 133, Accounting for
Derivatives and Hedging Activities ("SFAS 133"), once implemented, will require
the Company to display the fair market value of the Collar as an asset or
liability on its consolidated balance sheet. At the end of each accounting
period, the change in the fair market value of the Collar will be netted against
the change in the fair market value of the Company's holdings of Cisco shares.
The amount by which these values do not completely hedge each other will, in
effect, increase or decrease the Company's non-operating income for the period.
The Company has not fully evaluated the impact SFAS 133 will have upon its
financial statements, and it is not required to implement this standard until
the first quarter of its next fiscal year.
As of September 30, 2000, an independent determination of the fair market value
of the Collar was conducted. This independent calculation determined that the
Company's ownership percentage of the Collar had a fair market value of $47,011
on that date.
As of September 30, 2000, the Company realized $32,080 of the fair market value
of the Collar in order to effectively value its marketable securities at the
collared value.
9. ACCRUED LIABILITIES
Accrued liabilities at September 30, 2000 and for the year ended March 31, 2000
consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
2000 2000
-------------- -------------
<S> <C> <C>
Deferred customer service revenues $10,370 $11,823
Accrued payroll and other employee compensation 7,493 8,624
Accrued taxes other than payroll and income taxes 6,198 4,429
Accrued royalties 2,951 3,651
Accrued loss contract costs 7,268 3,523
Accrued employee termination benefits 2,104 3,483
Accrued professional fees 2,051 2,947
Accrued litigation and mediation liabilities 5,000 -
Accrued losses on inventory purchase commitments and
discontinued product costs 1,981 2,751
Accrued facility closing costs 2,844 2,083
Accrued interest 1,810 1,813
Deferred product revenues 346 1,193
Accrued commissions 1,147 1,056
Other accrued liabilities 5,305 6,395
-------------- -------------
$56,868 $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 September 30 and March 31, 2000 include
costs to terminate 15 and 14 employees, respectively. Costs totaling $20, $7,
$290, $52 and $65 were charged to cost of product revenue, cost of customer
service revenue, selling expenses, product
12
<PAGE> 13
development and engineering expenses and general and administrative expenses
during the first half 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 fiscal
2000.
The Company's domestic accrual for severance costs decreased from a balance of
$3.5 million at March 31, 2000 to a balance of $2.1 million at September 30,
2000. This decrease was caused by severance charges of $1.6 million during the
first half of fiscal 2001, which were more than offset by severance payments of
$2.9 million to terminated employees. As mentioned above, a total of 15
employees were terminated during the first half of fiscal 2001 and 76 employees
were notified of the Company's plans to move certain customer service repair
operations from Houston, Texas to Juarez, Mexico. The Company accrued $.3
million in stay on bonuses earned by effected employees during the second
quarter of fiscal 2001 and this amount is included in the amounts noted above.
These stay bonuses have been accrued ratably over the employees contractual stay
period. The areas of the Company affected were domestic sales operations,
domestic product development, manufacturing and customer service operations and
corporate administration. There have been no material changes to the amounts
accrued at March 31, 2000. In addition to the domestic severance activity, 1
employee was terminated in the Company's international administrative operations
during the second quarter of fiscal 2001. The severance recorded related to this
employee was $.3 million.
10. SHORT-TERM FINANCING
During fiscal 2000, the Company entered into a loan and pledge agreement
arranged with a lending institution to provide the Company with an open line of
credit not to exceed $236,000 collateralized by the Company's investment in
marketable securities. The maximum availability of $236,000 is based upon 90% of
the floor value of the Collar as described in Note 8 - Marketable Securities and
Related Derivative. The line of credit, which carries a borrowing rate of LIBOR
plus thirty basis points, has no fees associated with it. The one-month LIBOR
rate at September 30, 2000 was 6.63%. The weighted-average borrowings for the
quarter under this line were $11,804. The weighted-average interest rate charged
for these funds was 6.93%, during the quarter. These funds were utilized to
facilitate the Company's efforts in satisfying short-term working capital
requirements.
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.
13
<PAGE> 14
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. 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.
14
<PAGE> 15
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 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.
15
<PAGE> 16
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 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, which was denied on September 29, 2000. Following the denial, the
parties filed a proposed joint case schedule, discovery commenced, and the
parties each filed their initial disclosures. On October 30, 2000, defendants
filed their answer to the plaintiffs' Amended Complaint as well as a Motion for
Reconsideration or to Certify the Order Denying the Motion to Dismiss for
Interlocutory Appeal and request for oral argument, and a memorandum of points
and authorities in support of that motion, which remains pending before the
court. Discovery is in its preliminary stages. 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
production of specified documents and testimony. The Company and its current and
former independent accountants have assessed the effects of 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 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.
16
<PAGE> 17
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 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 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.
On August 12, 2000, the Court granted a stipulation and order consolidating the
Company's declaratory judgement action with the declaratory judgement action
filed by the seven other companies in the automatic identification industry.
Discovery is in the early stages. 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.
17
<PAGE> 18
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 any such matters cannot presently be determined, the
Company accrues for all probable liabilities when and to the extent incurred and
estimable. As of the end of the second quarter of fiscal 2001, the Company
accrued $5,000 for contingencies related to two customer sales contracts in
accordance with the criteria set forth in Statement of Financial Accounting
Standards No. 5 "Accounting for Contingencies". Other than those two disputes,
the Company does not believe that such matters are likely to 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 with respect to such
matters.
12. INCOME TAX
An income tax benefit of $10,046 and $15,296 has been recognized for financial
reporting purposes for the quarter and six months ending September 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. It is the Company's current assessment that it
is more likely than not that these losses and the Company's 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 $738 and $2,016 for the second
quarter and first half of fiscal 2000, respectively, relate to foreign taxes on
the Company's international subsidiaries. No taxes were provided for the gain in
the second quarter of fiscal 2000 related to the sale of Aironet voting common
stock as the Company had sufficient current year operating loss carryforwards to
prevent a tax provision or liability. As of the end of the second quarter of
fiscal 2000 the Company had not recognized any income tax benefits other than
those utilized through the realization of gains from the sale of Aironet voting
common stock based on the Company's assessment that it was more likely than not
that the deferred tax assets would not be utilized through future taxable income
or the 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.
18
<PAGE> 19
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 &
SEPTEMBER 30, 2000 STATES EUROPE INTERNATIONAL ELIMINATION CONSOLIDATED
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues from
unaffiliated customers $ 62,939 $20,424 $6,553 $ (425) $ 89,491
Revenues from inter-company
sales 15,303 175 956 (16,434) --
------------------------------------------------------------------------------
Total revenues $ 78,242 $20,599 $7,509 $(16,859) $ 89,491
==============================================================================
(Loss) before income tax $(28,201) $ (768) $ (119) $ (459) $(29,547)
==============================================================================
<CAPTION>
THREE MONTHS ENDING UNITED OTHER ADJUSTMENT &
SEPTEMBER 30, 1999 STATES EUROPE INTERNATIONAL ELIMINATION CONSOLIDATED
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues from
unaffiliated customers $71,980 $18,784 $5,531 $ -- $96,295
Revenues from inter-company
sales 11,089 174 1,253 (12,516) --
------------------------------------------------------------------------------
Total revenues $83,069 $18,958 $6,784 $(12,516) $96,295
==============================================================================
Income before income tax $15,347 $ 985 $ 861 $ (1,495) $15,698
==============================================================================
<CAPTION>
SIX MONTHS ENDING UNITED OTHER ADJUSTMENT &
SEPTEMBER 30, 2000 STATES EUROPE INTERNATIONAL ELIMINATION CONSOLIDATED
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues from
unaffiliated customers $123,801 $39,412 $12,301 $ (424) $175,090
Revenues from inter-company
sales 30,575 690 1,675 (32,940) --
------------------------------------------------------------------------------
Total revenues $154,376 $40,102 $13,976 $(33,364) $175,090
==============================================================================
Loss before income tax $(42,808) $ (582) $ (656) $ (942) $(44,988)
==============================================================================
<CAPTION>
SIX MONTHS ENDING UNITED OTHER ADJUSTMENT &
SEPTEMBER 30, 1999 STATES EUROPE INTERNATIONAL ELIMINATION CONSOLIDATED
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues from
unaffiliated customers $132,446 $39,658 $12,016 $ -- $184,120
Revenues from inter-company
sales 22,142 328 1,986 (24,456) --
------------------------------------------------------------------------------
Total revenues $154,588 $39,986 $14,002 $(24,456) $184,120
==============================================================================
(Loss) income before
income tax $ (1,980) $ 3,305 $ 1,933 $ (2,983) $ 275
==============================================================================
</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
PENDING ACQUISITION OF THE COMPANY BY SYMBOL TECHNOLOGIES, INC., 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 OR OTHER EVENTS
PERTAINING TO THE COMPANY TO DIFFER MATERIALLY FROM THE FORWARD-LOOKING
STATEMENTS. THE SUMMARY OF CERTAIN OF THE RISKS AND OTHER IMPORTANT FACTORS
WHICH MAY AFFECT SYMBOL'S PROPOSED ACQUISITION OF THE COMPANY AND 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
During the second quarter ended September 30, 2000 the Company entered into an
Agreement and Plan of Merger pursuant to which Symbol Technologies, Inc.
("Symbol") agreed to acquire the Company in a stock-for-stock merger.
Consummation of the proposed merger is subject to approval by the Company's
stockholders and customary closing conditions. The Special Meeting of Company's
Stockholders to consider the merger is scheduled to be held November 28, 2000.
Provided stockholder approval is obtained at this meeting, the closing of the
merger is anticipated to occur on November 30, 2000.
With respect to its operations, the Company recorded a net loss of $19.5 million
or $1.11 per common share (diluted) and a net loss of $29.7 million or $1.69 per
common share (diluted) for the second quarter and first half of fiscal 2001. In
comparison, the Company recorded net income of $15.0 million or $.92 per common
share (diluted) and a net loss of $1.7 million or $.11 per common share
(diluted) for the second quarter and first half of fiscal 2000. The net income
for the second quarter of fiscal 2000 was primarily the result of a
non-operating gain recorded related to the sale of voting common stock in the
Company's Aironet subsidiary of $32.2 million. The Company also recorded a loss
from operations of $27.8 and $42.1 million during the second quarter and first
half of fiscal 2001, respectively, compared to a loss from operations of $13.6
million and $25.8 million incurred during the same periods last year,
respectively. Consolidated revenues decreased $6.8 million or 7% and $9.0
million or 5% for the second quarter and first half of fiscal 2001,
respectively, compared to the same periods in fiscal 2000. The Company's
consolidated gross margin percentage decreased to 19% and 25%
20
<PAGE> 21
for the second quarter and first half of fiscal 2001, respectively, compared to
28% for both of the same periods in fiscal 2000. Operating expenses increased
$4.4 million or 11% and $8.4 or 11% for the three and six-month periods ended
September 30, 2000, respectively. These increases resulted primarily from
increased provisions for doubtful accounts, provisions for contingent
liabilities related to customer sales contracts and increased salary and
contract labor expenses related to the transition of the Company's workforce to
its new corporate headquarters in Cincinnati, Ohio and operations in Houston,
Texas, during fiscal 2001. Additionally, merger transaction costs incurred
during the second quarter of fiscal 2001 related to the anticipated merger of
the Company with Symbol increased the Company's operating expenses compared to
the same period of fiscal 2000. The fiscal 2001 results include a tax benefit of
$10.0 million and $15.3 million for the second quarter and first half of fiscal
2001, respectively. Recognizing this tax benefit results from 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
$37.9 million during the first half of fiscal 2001. This compared to cash used
by operating activities of $5.5 million during the first half of fiscal 2000.
The significant increase in cash flows used by operating activities resulted
primarily from increasing operating losses and higher levels of accounts
receivable. During the quarter ended September 30, 2000, the Company borrowed a
net $19.0 million of short-term debt. These borrowings were undertaken to
satisfy operating cash requirements.
The Company operates in a rapidly changing and dynamic market, and the Company's
strategies and plans are designed to adapt to changing market conditions where
and when possible. However, there can be no assurance that the Company's
management will identify the risks (especially those newly emerging from time to
time) affecting, and their impact on, the Company and its business, that the
Company's strategies and plans will take into account all market conditions and
changes thereto, or that such strategies and plans will be successfully
implemented. Accordingly, neither the historical results presented in the
Company's consolidated financial statements and discussed herein, nor any
forward-looking statements in this Form 10-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 terms and conditions of, and the risks and other important factors relating
to, the proposed acquisition of the Company by Symbol, as well as the Special
Meeting of Stockholders to be held for the approval thereof, are described and
discussed in detail in the proxy statement/prospectus concerning the transaction
that has been filed with the Securities and Exchange Commission and mailed to
stockholders. The proxy statement/prospectus contains important information that
Telxon shareholders should consider before making any decision regarding the
proposed transaction. Stockholders can obtain the proxy statement/prospectus, as
well as other information about Symbol and Telxon, without charge, at the SEC's
Internet site (http://www.sec.gov). Copies of the proxy statement/prospectus and
the SEC filings that are incorporated by reference
21
<PAGE> 22
in the proxy statement/prospectus can be obtained, without charge, from Symbol
and Telxon.
In addition, 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; the performance of Company
products and services to customer specifications and requirements; 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; currency exchange rates and other risks associated with foreign sales
and operations; timely and efficient enhancement of appropriate product
offerings through internal development and acquisition of, or investment in, new
businesses and technologies; dependence on, and freedom from infringement of,
technologies and other proprietary rights of, or by, third parties; government
regulation of radio and other products, and product health and safety concerns;
dependence on sole source, or a limited number of, suppliers; and attracting and
retaining qualified employees. In addition to being subject to the foregoing
factors and other cautionary statements elsewhere in 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 condensed 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.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Revenues
(In thousands)
Three Months
Ended September 30, (Decrease) Increase
-------------------------- --------------------------------
2000 1999 Dollar Percentage
---------- ------------ ----------- ----------------
<S> <C> <C> <C> <C>
Product, net $ 68,066 $ 76,621 $ (8,555) (11.2)%
Customer service, net 21,425 19,674 1,751 8.9 %
---------- ------------ -----------
Total net revenues $ 89,491 $ 96,295 $ (6,804) (7.1)%
========== ============ ===========
</TABLE>
22
<PAGE> 23
<TABLE>
<CAPTION>
Revenues
(In thousands)
Six Months
Ended September 30, (Decrease) Increase
------------------------- ------------------------------
2000 1999 Dollar Percentage
--------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Product, net $133,598 $144,536 $ (10,938) (7.6)%
Customer service, net 41,492 39,584 1,908 4.8 %
--------- ----------- ------------
Total net revenues $175,090 $184,120 $ (9,030) (4.9)%
========= =========== ============
</TABLE>
Net product revenues include the sale of portable tele-transaction computers
("PTCs"), including rugged, wireless mobile computers and pen-based and
touch-screen workslates; hardware accessories; wireless data communication
products; custom application software, network management software and software
licenses; and a variety of professional services, including systems integration
and project management.
Consolidated product revenues decreased as compared to prior year levels but
increased by 4% as compared to those levels experienced in the first quarter of
fiscal 2001. Current demand for the Company's products as measured by product
shipments, improved as compared with fiscal 2000, particularly in the Company's
North American operations despite the aging of the Company's products. Revenues
from the Company's pen-based products and newly introduced products remained a
minor percentage of total revenues. However, the decrease in the overall product
revenues for fiscal 2001 as compared with fiscal 2000 was primarily caused by
the recording of reserves and revenue adjustments positively impacting prior
year results and negatively impacting fiscal 2001 results as described below.
Consolidated product revenues were negatively impacted by adjustments to
revenues for the second quarter and first half of fiscal 2001 to reflect sales
concessions granted on trade-in products related to a major domestic retailer of
$3.2 million and $5.3 million, respectively. Additionally, the recording of a
$3.5 million contingency related to a customer sales contract also negatively
impacted consolidated product revenues. This adjustment has been recorded as a
reduction to revenue. Consolidated product revenues for the second quarter of
fiscal 2000 included $13.0 million of revenue related to transactions previously
deferred pending customer acceptance of such goods. Deferrals of product
revenues or the recognition of previously deferred product revenues did not
materially impact fiscal 2001 consolidated product revenues. Product revenues
for the second quarter of fiscal 2001 and fiscal 2000 included revenues of $12.5
million and $14.5 million, respectively, related to the rollout of Company
products to a large domestic retailer. Revenues related to this one customer
accounted for 18% and 19% of the Company's consolidated product revenues for the
second quarter of fiscal 2001 and fiscal 2000, respectively. For the second
quarter and first half of fiscal 2001, the volume of revenues from the Company's
Value-Added Distributor ("VAD") channel increased approximately $.8 million and
$4.9 million as compared to the same periods in fiscal 2000. Although the level
of revenues from the VAD channel increased over the same periods in fiscal 2000,
these levels remain significantly less than the Company's historical experience
as the Company's management continues to emphasize the direct sales channel.
Revenues related to VADs continue to represent less than 10% of product
revenues.
23
<PAGE> 24
Consolidated customer service revenues increased as the result of increased
maintenance contract activity in the Company's North American operations.
Maintenance contract revenues increased $1.9 million or 8% for the first half of
fiscal 2001 as compared to the first half of fiscal 2000. "Time and material"
billings also increased by $.8 million due to the absence of start-up issues
with the Company's new information system and customer demand for these
services. Offsetting these increases were lower spare parts and upgrade revenues
of $.8 million.
Revenues from the Company's international operations (including Canada)
increased $.5 million or 1% and $3.5 million or 13% during the second quarter
and first half of fiscal 2001 compared to the same periods in fiscal 2000,
respectively. The increase in the Company's international revenues was primarily
the result of increased revenues from shipments of the Company's product to
locations of a major U.S. based retailer in the United Kingdom. Revenues in the
United Kingdom increased $1.8 million or 24% and $3.0 million or 21% for the
second quarter and first half of fiscal 2001 as compared to the some periods in
fiscal 2000, respectively. Additionally, shipments to the Company's
international distributors increased by $.8 million or 25% and $.6 million or 6%
for the second quarter and first half of fiscal 2001 as compared to the some
periods in fiscal 2000, respectively. These increases were partially offset in
the first half of fiscal 2001 by relatively lower revenues during the first
quarter of the fiscal year. The results of the Company's international
operations were negatively impacted by changes in foreign currency exchange
rates relative to the U.S. dollar. The weakness of the local currencies in the
Company's European subsidiaries lowered the translated U.S. dollar revenues by
approximately $2.2 million for the first half of fiscal year 2001.
The Company's reserve for sales returns and allowances increased from a balance
at March 31, 2000 of $5.3 million to $6.7 million at September 30, 2000. During
the second quarter and first half of fiscal 2001, the Company issued $5.5
million and $10.3 million of credits for sales returns and allowances. The total
negative impact to revenues from these credits issued and the increase in the
reserve for sales returns and allowances was $11.7 million, during the second
quarter of fiscal 2001. This increase was caused by greater average outstanding
accounts receivable and an increased average rate of return from 5% to 6%
related to the Company's direct sales channel.
At September 30, 2000, the Company had $4.1 million of accounts receivable
outstanding from VADs and a reserve of $2.6 million against those accounts. This
compares with $4.2 million of accounts receivable from VADs outstanding at March
31, 2000 and reserves against those accounts of $2.4 million. Net revenues in
the VAD sales channel were $3.2 million and $8.1 million for the second quarter
and the first half of fiscal 2001. This compares with net revenues for the
second quarter and first half of fiscal 2000 of $5.0 million and $5.6 million,
respectively. The primary reasons for the increase in the VAD revenues for the
first half of fiscal 2001 was due to a decrease of $4.2 million in the amount of
credits issued during the first half of fiscal 2001. The majority of the
decrease in credits issued occurred during the first quarter of fiscal 2001. The
sales returns and allowances experience rate decreased to 20% at September 30,
2000 as compared to 36% at March 31, 2000.
24
<PAGE> 25
<TABLE>
<CAPTION>
Cost of Revenues
(In thousands)
Three months
ended September 30, Increase
------------------------------------- --------------------------------------
2000 1999 Dollar Percentage
--------------- ------------------ ----------------- ----------------
<S> <C> <C> <C> <C>
Product $59,259 $57,428 $1,831 3.2%
Customer service 13,338 12,078 1,260 10.4%
--------------- ------------------ -----------------
Total cost of revenues $72,597 $69,506 $3,091 4.4%
=============== ================== =================
Cost of product revenues as
percentage of product
revenues, net 87.1% 75.0%
Cost of customer service
revenues as a percentage
of customer service
revenues, net 62.3% 61.4%
</TABLE>
Cost of Revenues
(In thousands)
<TABLE>
<CAPTION>
Six months
ended September 30, Increase (Decrease)
------------------------------------- --------------------------------------
2000 1999 Dollar Percentage
--------------- ------------------ ----------------- ----------------
<S> <C> <C> <C> <C>
Product $106,219 $108,297 $(2,078) (1.9)%
Customer service 25,270 24,289 981 4.0 %
--------------- ------------------ -----------------
Total cost of revenues $131,489 $132,586 $(1,097) (0.1)%
=============== ================== =================
Cost of product revenues as
percentage of product
revenues, net 79.5% 74.9%
Cost of customer service
revenues as a percentage
of customer service
revenues, net 61.0% 61.4%
</TABLE>
The increase in the consolidated cost of product revenues as a percentage of
consolidated product revenues was primarily the result of the negative gross
margin impact of revenues related to a loss contract with a large domestic
retail customer. Since the loss on this contract was recognized for financial
reporting purposes during the fourth quarter of fiscal 2000, all subsequent
shipments of product under the contract have no gross margin contribution.
During the second quarter and first half of fiscal 2001 the Company shipped $8.4
million and $17.7 million, respectively. This activity caused a loss of
normalized gross margin for this customer of $2.5 million and $5.3 million for
the second quarter and first half of fiscal 2001, as compared to fiscal 2000,
respectively. In addition to the revenues noted above with no gross margin, the
Company also reserved $3.5 million during the second quarter of fiscal 2001 for
a contingency related to a customer sales contract. This charge to consolidated
product revenues decreased gross margins for both the second quarter and first
half of fiscal 2001 by that same amount since there was no related cost recovery
recorded for the subject property. The Company also increased the provisions for
excess and obsolete inventories and the net realizable value of inventories by
approximately $9.0 million for both the second quarter and first half of fiscal
2001 as compared to the same periods in fiscal 2000, respectively. These
increased provisions are primarily the result of excess supplies of
manufacturing purchased component inventories as compared to historical and
forecasted usage and a loss recorded for
25
<PAGE> 26
inventory purchased under a purchase commitment with a major purchased component
vendor. The Company had estimated, based upon recent sales activity for the
product and market information available from independent sources, that the net
realizable value of such inventory was substantially less than its purchased
cost. Also decreasing the Company's consolidated gross margins was lower gross
margins in the Company's international operations of $1.5 million for both the
second quarter and the first half of fiscal 2001 as compared to the same periods
in fiscal 2000. The lower gross margins were primarily caused by low margin
product revenues related to shipments of the Company's product to locations of a
major U.S. retailer in the United Kingdom. The Company's non-standard
manufacturing costs also increased by $1.0 million and $1.8 million for the
second quarter and first half of fiscal 2001 as compared to the same periods in
fiscal 2000, respectively. The primary reasons for these increases were
increased freight costs, shipments of test equipment and allocated overhead
costs. Further contributing to the lower gross margins was decreased gross
profit contribution in the Company's professional services operations of $.4
million for the second quarter and first half of fiscal 2001. This decrease was
due to low revenue volumes in that product offering and the maintenance of fixed
costs within the Company's professional services cost structure.
The decreases to the product costs noted above were partially offset by the
following. Manufacturing overhead expenses were more fully absorbed by
manufacturing activity by $4.7 million and $8.6 million for the second quarter
and first half of fiscal 2001 as compared to the same periods in fiscal 2000,
respectively. The Company's close matching of expected and actual production
volumes and manufacturing efficiencies caused the reduced undersabsorbed
overhead costs as compared to fiscal 2000. Also contributing to the increased
gross margin was the release of estimated royalties of $1.6 million and $2.4
million for the second quarter and first half of fiscal 2001 as compared to
fiscal 2000. The amount accrued for contingencies was reduced as the result of
an unanticipated settlement of disputed royalties with a major vendor and
licensor of key product technology. In addition to the reduction in these
royalties, the Company benefited from the fully paid-up royalty related to
Aironet of $1.3 million and $1.6 million for the second quarter and first half
of fiscal 2001 as compared to the same periods in fiscal 2000. The royalties due
on the sale of Aironet products became fully paid late in fiscal 2000 with the
purchase of Aironet by Cisco Systems, Inc. Product gross margins were further
enhanced by reduced costs for purchase price variance, non-conformance costs,
software amortization and miscellaneous product costs aggregating $2.0 million
and $2.5 million for the second quarter and first half of fiscal 2001 as
compared to the same periods in fiscal 2000, respectively.
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 September 30, 2000, the inventory allowance accounts totaled $31.2 million
and were composed of manufacturing purchased components of $21.3 million,
customer service spare parts and used equipment of $8.0 million and
international finished goods of $1.9 million. These amounts compare
26
<PAGE> 27
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 of $1.9 million. Inventory allowance provisions for the quarter
totaled $5.8 million. Inventory provisions for the second quarter of fiscal 2001
were composed of manufacturing purchased components of $4.7 million, customer
service spare parts and used equipment of $1.0 million and international
finished goods of $.1 million. Inventory provisions aggregating $7.7 million for
the first half of fiscal 2001 were composed of manufacturing purchased
components of $6.2 million, customer service spare parts and used equipment of
$1.1 million and international finished goods of $.4 million. During the first
quarter of fiscal 2001, a $7.8 million reduction in the gross inventory value of
trade-in product reduced the inventory allowance accounts. Since both the gross
inventory value and the decrease to the reserve were for the same amount, there
was no impact on net inventories.
Management disposes of excess and obsolete inventory as necessary and as
manpower permits. During the first half of fiscal 2001, the Company disposed of
$9.2 million of excess and obsolete material. Of this amount $7.6 million
related to manufacturing purchased components, $1.3 million related to the
Company's customer service inventories and $.3 million related to the Company's
international operations.
In addition to the inventory allowance accounts, the Company has recorded
accrued liabilities totaling $2.1 million for purchase commitments to an outside
vendor for purchased components whose net realizable value is below historical
purchased cost. This accrual was adjusted $.6 million during the first quarter
of fiscal 2001 to reflect changes in the estimated net realizable value of the
underlying inventory.
At September 30, 2000, the Company had approximately $7.5 million of finished
goods inventory held at distributors and customers and approximately $2.2
million of manufacturing purchased 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 purchased components at contract manufacturers. The increase in
the amount of finished goods held at distributors and customers was the result
of the shipment of product to a major domestic retail customer prior to the
recognition of revenue of $1.3 million and the increase in the inventory
recovery related to sales returns reserved for in the allowance for sales
returns and allowances. The decrease in the amount of inventory held by contract
manufacturers was due to timing of product builds of subcomponents of the
Company's products as compared to the timing of customer demands.
The Company accrues fees due 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. During both the second quarter and first half of fiscal 2001, the
Company incurred $.2 million of these fees as VAD activity continues at
relatively low levels.
The decrease in the customer service cost of revenues as a percentage of
customer service revenues during the first half of fiscal 2001 as compared to
the first half of fiscal 2000 was primarily
27
<PAGE> 28
caused by the leveraging of fixed costs over an increased revenue base, cost
containment efforts and cost benefits derived from the Company's service repair
operations in Juarez, Mexico.
Due to the weaknesses of local currencies, particularly European, where the
Company's international subsidiaries operate, consolidated gross margin was
negatively impacted by approximately $.5 million during the second quarter of
fiscal 2001.
Operating Expenses
(In thousands)
<TABLE>
<CAPTION>
Three Months
Ended September 30, Increase
------------------------------------- --------------------------------------
2000 1999 Dollar Percentage
--------------- ------------------ ----------------- ----------------
<S> <C> <C> <C> <C>
Selling expenses $19,537 $18,235 $ 1,302 7.1%
Product development and
engineering expenses 6,370 5,992 378 6.3%
General and administrative
expenses 17,172 16,114 1,058 6.6%
Merger transaction costs 1,622 - 1,622 N.M
--------------- ------------------ -----------------
Total operating expenses $44,701 $40,341 $ 4,360 10.8%
=============== ================== =================
<CAPTION>
Operating Expenses
(In thousands)
Six Months
Ended September 30, Increase (Decrease)
------------------------------------- --------------------------------------
2000 1999 Dollar Percentage
--------------- ------------------ ----------------- ----------------
<S> <C> <C> <C> <C>
Selling expenses $38,297 $36,842 $1,455 3.9 %
Product development and
engineering expenses 12,631 13,142 (511) (3.9)%
General and administrative
expenses 33,177 27,356 5,821 21.3 %
Merger transaction costs 1,622 - 1,622 N.M.
--------------- ------------------ -----------------
Total operating expenses $85,727 $77,340 $8,387 10.8 %
=============== ================== =================
</TABLE>
Consolidated selling expenses as a percentage of revenues increased to 22%
during both the second quarter and first half of fiscal 2001, respectively,
compared to 19% and 20% for these same periods last year, respectively. During
the second quarter and first half of fiscal 2001, the Company experienced an
increase in expense related to sales and marketing demonstration equipment sent
to the Company's direct sales force of $1.3 and $2.0 million, respectively,
coinciding with the introduction of new products and product enhancements. These
increases were offset by a decrease in expenses related to international sales
administration and management of $1.0 and $1.8 million for these same periods,
respectively. This decrease was primarily the result of the absence of severance
expense in the Company's international operations. The related personnel were
terminated in fiscal 2000, which resulted in greater severance expense of $1.2
million during the second quarter and first half of fiscal 2000 compared to the
same periods in fiscal 2001.
The Company's allowance for doubtful accounts increased from a balance of $7.1
million at March 31, 2000 to a balance of $10.4 million at September 30, 2000.
The Company provided for $2.2 and $3.3 million of bad debts for the second
quarter and first half of fiscal 2001, respectively, and bad debt write-offs
totaled $.1 million for both of these same periods. This
28
<PAGE> 29
consolidated provision increased by $2.0 million compared to both the second
quarter and first half of fiscal 2000.
The Company incurred severance charges of $.1 and $.3 million during the second
quarter and first half of fiscal 2001 related it its' marketing and sales
departments. This amount was more than offset by $.3 and $.7 million in
severance payments paid recently terminated sales and marketing personnel.
Consolidated product development and engineering expenses as a percentage of
total revenues increased to 7% for the second quarter of fiscal 2001 from 6% in
the second quarter of fiscal 2000. Consolidated product development and
engineering expenses, as a percentage of total revenues remained consistent at
7% for both the first half of fiscal 2001 and 2000. The increase in consolidated
product development and engineering expenses for the second quarter and first
half of fiscal 2001 resulted primarily from an increase in goodwill amortization
of $1.2 and $2.5 million, respectively, compared to the same periods last year.
This increased amortization was related to the repurchase of minority shares in
the Company's Metanetics subsidiary, which occurred in the fourth quarter of
fiscal 2000. Also contributing to the increase was $.1 and $.5 million of
additional net software expense incurred during the second quarter and first
half of fiscal 2001, respectively, due to the reduction in the amount of
software costs capitalized as current year activities did not meet the criteria
for capitalization under Statement of Financial Accounting Standards No. 86
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed" ("SFAS 86"). This increase was partially offset by a decrease in the
use of outside design services for the development the Company's products for
these same periods of $.9 and $2.3 million, respectively. Engineering expenses
at the Company's Metanetics subsidiary also decreased $.3 million for the
quarter and first half of fiscal 2001, respectively.
During the second quarter and first half of fiscal 2001, the Company capitalized
internal software development costs in accordance with the requirements of SFAS
86 aggregating $.2 and $1.0 million, respectively, offset by amortization of
$1.0 and $2.0 million on previously unamortized software.
Consolidated general and administrative expenses as a percentage of revenues
were 19% for the second quarter of fiscal 2001 as compared to 17% the second
quarter of fiscal 2000. Consolidated general and administrative expenses as a
percentage of revenues were 19% and 15% for the first half and second quarter of
fiscal 2001 as compared to the first half of fiscal 2000.
The increase in general and administrative expenses for second quarter of fiscal
2001 as compared with the same period in fiscal 2000 was primarily due to the
following. A provision for a litigation matter concerning a customer sales
contract was made for $1.5 million in accordance with the requirements of
Statement of Financial Accounting Standards No. 5 "Accounting for Contingencies"
("SFAS 5"). Incentive employee compensation of $1.0 million was accrued based
upon the Company's Fiscal 2001 Incentive Compensation Plan as approved by the
Company's Board of Directors, during the fiscal 2001 planning process. Also, an
additional provision of $.5 million was made for lease abandonment costs related
to the Company's former headquarters located in Akron, Ohio as facts and
circumstances
29
<PAGE> 30
changed regarding potential subleasing transactions. Additionally, a severance
charge of $.3 million was recorded for the termination of one employee in the
Company's international administrative operations. These increases to general
and administrative expenses were partially offset by foreign exchange gains of
$.8 million resulting from the weakness of the European currencies relative to
the U.S. dollar.
The increase in general and administrative expenses for the first half of fiscal
2001 as compared with the same period in fiscal 2000 was primarily due to the
following. The Company incurred additional administrative costs related to the
transition of the Company's corporate headquarters to Cincinnati, Ohio and the
transition of the Company's administrative operations to Houston, Texas. These
costs included provisions for stay on bonuses aggregating $.9 million and $1.8
million in contract labor costs related to the aforementioned transition of the
Company's data center to Houston, Texas. Also, provisions of $1.5 million were
recorded for lease abandonment and duplicate facility costs related to the
Company's former headquarters located in Akron, Ohio as facts and circumstances
changed regarding potential subleasing transactions. The Company also
experienced increased depreciation of $.8 million in the first half of fiscal
2001 as compared to the same period in fiscal 2000 primarily as the result of
increased amortization of its corporate information system, which was not fully
placed in service, and therefore not amortized until the second quarter of
fiscal 2000. A provision for a litigation matter concerning a customer sales
contract was made for $1.5 million in accordance with the requirements of SFAS
No. 5 and the $1.0 million incentive employee compensation, as noted above.
Legal and accounting expenses increased $.4 million due to increased activity
related to litigation matters and the ongoing investigation of the Company by
the Securities and Exchange Commission. Additionally, as noted above, during the
first half of fiscal 2001 a severance charge of $.3 million was recorded for the
termination of one employee in the Company's international operations.
Offsetting these increases in general and administrative expenses were the
following. General and administrative expenses were reduced due to the
discontinuance of Company's former corporate jet operations of $.5 million.
Contract labor costs related to the Company's corporate information systems
decreased $1.3 million, reflecting the completion of implementation phases,
including greater training and data conversion activity, during the first half
of fiscal 2000. Foreign currency transaction gains of $.5 million also
contributed to the offsetting decreases to general and administrative expenses.
The Company incurred $1.6 million of direct merger related expenses during the
second quarter of fiscal 2001. These costs consisted of professional fees for
investment banking, legal and accounting services and were expensed as incurred.
The Company's domestic accrual for severance costs decreased from a balance of
$3.5 million at March 31, 2000 to a balance of $2.1 million at September 30,
2000. This decrease was caused by severance charges of $1.6 million during the
first half of fiscal 2001, which were more than offset by severance payments of
$2.9 million to terminated employees. A total of 15 employees were terminated
during the first half of fiscal 2001 and 76 employees were notified of the
Company's plans to move certain customer service repair operations from Houston,
Texas to Juarez, Mexico. The Company accrued $.3 million in stay on bonuses
earned by effected employees during the second quarter of fiscal 2001 and this
amount is
30
<PAGE> 31
included in the amounts noted above. These stay-on bonuses are accrued ratably
over the contractual employee stay-on period. The areas of the Company affected
were domestic sales operations, domestic product development, manufacturing and
customer service operations and corporate administration. There have been no
material changes to the amounts accrued at March 31, 2000. In addition to the
domestic severance activity, 1 employee was terminated in the Company's
international administrative operations during the second quarter of fiscal
2001. The severance recorded related to this employee was $.3 million.
Interest Income/(Expense)
(In thousands)
<TABLE>
<CAPTION>
Three Months
Ended September 30, (Decrease) Increase
---------------------- ----------------------
2000 1999 Dollar Percentage
-------- -------- --------
<S> <C> <C> <C> <C>
Interest income $ 39 $ 159 $ (120) (75.5)%
Interest expense (1,755) (3,559) 1,804 50.7 %
Gain on sale of
subsidiary stock -- 32,167 (32,167) N.M.
Other non-operating
(expense) income (24) 483 (507) N.M.
-------- -------- --------
Total interest expense
and other non-operating
(expense)income, net $ (1,740) $ 29,250 $(30,990) N.M.
======== ======== ========
<CAPTION>
Six Months
Ended September 30, Increase (Decrease)
---------------------- ----------------------
2000 1999 Dollar Percentage
-------- -------- --------
<S> <C> <C> <C> <C>
Interest income $ 470 $ 415 $ 55 13.3 %
Interest expense (3,424) (6,801) 3,377 49.7 %
Gain on sale of
subsidiary stock -- 32,167 (32,167) N.M.
Other non-operating income 92 300 (208) (69.3)%
-------- -------- --------
Total interest expense
and other non-operating
income, net $ (2,862) $ 26,081 $(28,943) N.M.
======== ======== ========
</TABLE>
Net interest expense decreased during the second quarter and first half of
fiscal 2001 compared to the second quarter and first half of fiscal 2000, due to
the extinguishment in the fourth quarter of fiscal 2000 of the Company's credit
facilities. Amounts outstanding under the Company's lines of credit were $19.0
million as of September 30, 2000 and the Company incurred a weighted-average
interest rate of 6.93% on this amount. Amounts outstanding under the Company's
credit facilities were $53.1 million as of September 30, 1999 and the Company
incurred a weighted-average rate of 9.81% on this amount. The Company's interest
expense for the second quarter and first half 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 on 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
31
<PAGE> 32
composed of stock in a development-stage company that purchased the Company's
Virtual Vision subsidiary.
During the first quarter of fiscal 2000, the Company sold an investment in
marketable securities of another development stage technology Company 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. During the second quarter of
fiscal 2000, the Company entered into a set of transactions whereby the Company
purchased and leased-back, and resold its corporate jet to a third party. As a
result of these transactions, the Company retained net cash proceeds of $.3
million. This was recorded as a non-operating gain.
During the second quarter of fiscal 2000, Aironet and the Company sold 6,846,800
shares of Aironet's voting common stock in an initial public offering on the
Nasdaq National Market at a price of $11.00 per share. Of the total number of
shares offered, Aironet sold 4,564,562 shares, and the Company sold 2,282,238
shares. The aggregate proceeds, net of underwriting discounts and commissions,
were $47.4 million to Aironet and $23.3 million to Telxon. Subsequent to this
transaction, the Company's remaining interest in Aironet was approximately 35%.
As a result of this transaction, the Company recorded a non-operating gain of
approximately $32.2 million, net of additional transaction costs of $1.5
million. Also as a result of this transaction, the Company ceased consolidation
of Aironet effective April 1, 1999. The Company accounts for its investment
under the equity method of accounting. Investment income of $.4 million and $.7
million was recorded for the Company's interest in the earnings of Aironet for
the second quarter and first half of fiscal 2000.
Income Taxes
(In thousands)
<TABLE>
<CAPTION>
Three months
ended September 30, Decrease
---------------------------------------- ----------------------------------------
2000 1999 Dollar Percentage
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
(Benefit)provision for
income taxes $ (10,046) $ 738 $ (10,784) N.M
<CAPTION>
Six months
ended September 30, Decrease
---------------------------------------- ----------------------------------------
2000 1999 Dollar Percentage
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
(Benefit) provision for
income taxes $ (15,296) $ 2,016 $ (17,312) N.M.
</TABLE>
An income tax benefit of $10.0 million and $15.3 million has been recognized for
financial reporting purposes for the quarter and six months ending September 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 Company's
assessment as of the end of the second quarter of fiscal 2000, the Company's
current assessment is
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<PAGE> 33
that it is more likely than not that these losses and the Company's 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 $.7 million and $2.0 million for the
second quarter and first half of fiscal 2000, respectively, relate to foreign
taxes on the Company's international subsidiaries. No taxes were provided for
the gain in the second quarter of fiscal 2000 related to the sale of Aironet
voting common stock as the Company had sufficient current year operating loss
carryforwards to prevent a tax provision or liability. As of the end of the
second quarter of fiscal 2000 the Company had not recognized any income tax
benefits other than those utilized through the realization of gains from the
sale of Aironet voting common stock based on the Company's assessment that it
was more likely than not that the deferred tax assets would not be utilized
through future taxable income or the implementation of tax planning strategies.
Liquidity
(In thousands)
<TABLE>
<CAPTION>
Dollar
September 30, March 31, (Decrease)
2000 2000 Increase
------------- ------------- ----------------
<S> <C> <C> <C>
Cash and cash equivalents $ 6,027 $ 34,197 $(28,170)
Accounts and notes receivable 90,972 75,376 15,596
Inventories 86,729 81,923 4,806
Other 30,070 29,615 455
------------- ------------- ----------------
Total current assets $213,798 $221,111 $ (7,313)
============= ============= ================
Accounts payable $ 43,183 $ 30,116 $ 13,067
Notes payable 19,000 -- 19,000
Income taxes payable 1,607 11,039 (9,432)
Accrued liabilities 56,868 53,771 3,097
Other 241 236 5
------------- ------------- ----------------
Total current liabilities $120,899 $ 95,162 $ 25,737
============= ============= ================
Working capital (current assets
less current liabilities) $ 92,899 $125,949 $(33,050)
============= ============= ==================
Current ratio (current assets divided
by current liabilities) 1.8 to 1 2.3 to 1
</TABLE>
The decrease in the Company's consolidated working capital at September 30,
2000, from March 31, 2000, was primarily due to decreases in cash and cash
equivalents and an increase in notes payable, accounts payable and accrued
liabilities offset by increases in accounts receivable and inventories and a
decrease in income taxes payable.
The significant decrease of cash at September 30, 2000 was a result of the
Company's management of its working capital requirements to the extent possible,
with internally generated funds. The Company used cash flows of $37.9 million to
support operating activities during the quarter. An additional $5.0 million of
cash was utilized to support investing activities and $15.9 million was provided
by financing activities. At September 30, 2000, $19.0 million was outstanding on
the Company's lines of credit.
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<PAGE> 34
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 need for the borrowing of 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
six months ending September 30, 2000. Accordingly, consolidated days sales
outstanding increased from 76 days at March 31, 2000 to 91 days at September 30,
2000. This increase in days of sales outstanding was primarily due to a large
number of shipments occurring near the end of the second fiscal quarter.
The increase in the Company's inventories was primarily the result of an
increased level of purchased manufacturing components of $2.8 million. This $2.8
million was composed of an $8.0 million purchase of inventory in fulfillment of
contract commitments with a major vendor. A reserve of $2.8 million was
immediately recorded to adjust the value of this inventory to its fair market
value. Obsolescence provisions were increased $3.2 million to reflect the
Company's current estimate of the value of its manufacturing component
inventory. Additionally, $8.4 million of inventories, which were previously
reserved for, were disposed, during the second quarter of fiscal 2001. Customer
service spare parts increased $.8 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. Inventory held by customers
increased $1.0 million compared to balances at March 31, 2000 since criteria
required to meet the Company's revenue recognition policies were not satisfied
as of September 30, 2000 on these finished goods. Consolidated inventory turns
decreased to approximately 2.9 at September 30, 2000, from approximately 3.4 at
March 31, 2000. This decrease in inventory turns was primarily caused by the
absence of inventory valuation provisions and other cost of revenue charges that
occurred during the fourth quarter of fiscal 2000.
Accrued liabilities increased primarily due to increased contingent liabilities
recorded of $5.0 million related to completed customer sales contracts. Also
increasing accrued liabilities is a $3.7 million increase related to obligations
due a major customer for trade-in over allowances. These over-allowances equated
to the amount by which the trade-in value of certain products returned by this
customer, under the terms of a pre-existing contract between the customer and
the Company, exceeded the estimated net realizable value of the product. These
increases to accrued liabilities were offset by decreases in deferred customer
service revenues and deferred product revenues of $1.5 and $.8 million,
respectively, as revenue recognition criteria were ratably met during the first
half of fiscal 2001 on customer service and product revenue previously deferred.
Additionally, accrued payroll and other employee compensation decreased by $1.1
million at September 30, 2000 due to the timing of related payments. Accrued
employee termination benefits also decreased $1.4 million as severance benefits
were paid ratably over the first half of fiscal 2001.
Income taxes payable decreased by $9.4 million primarily due to a tax benefit of
$12.8 million that was recognized during the first half of fiscal 2001. Also
contributing to the decrease was a $1.3 million tax payment related to revenue
earned in a prior period.
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<PAGE> 35
Cash Flows from Operating Activities
(In thousands)
<TABLE>
<CAPTION>
Six months (Decrease)
Ended September 30, Increase
--------------------------------------- In Cash
2000 1999 Flow Impact
------------------- ------------------ ------------------
<S> <C> <C> <C>
Net loss $(29,692) $ (1,741) $ (27,951)
Depreciation and amortization 13,446 12,231 1,215
Amortization of restricted stock awards, net 59 176 (117)
Provision for doubtful accounts 3,329 1,256 2,073
Provision for sales returns and allowances 11,749 5,234 6,515
Provision for inventory obsolescence 8,366 3,616 4,750
Deferred income taxes payable (7,408) (189) (7,219)
Gain on sale of subsidiary - (32,167) 32,167
Gain on sale of non-marketable investment (761) 761
Equity loss in affiliate - (702) 702
Loss (gain)on disposal of property
and equipment 297 (107) 404
Loss on carrying value of non-marketable
investment - 1,283 (1,283)
Impairment charge - 381 (381)
Changes in operating assets and liabilities:
Accounts and notes receivable (30,927) 1,510 (32,437)
Amounts due to and from affiliate - 3,171 (3,171)
Inventories (13,034) 19,245 (32,279)
Prepaid expenses and other current assets (402) 1,607 (2,009)
Intangibles and other assets 88 (180) 268
Accounts payable and accrued liabilities 15,650 (20,022) 35,672
Income taxes payable (9,432) 1,738 (11,170)
Other long-term liabilities (32) (1,048) 1,016
------------------- ------------------ ------------------
Net cash used in operating activities $(37,943) $(5,469) $(32,474)
=================== ================== ==================
</TABLE>
The significant increase in cash flows used in the Company's consolidated
operating activities for the first half of fiscal 2001 from comparable fiscal
2000 levels was primarily due to the negative cash flow impacts of increased
accounts receivable and inventories and decreased income taxes payable.
Additionally, the Company's increased net loss for the first half of fiscal 2001
compared to the same period last year also contributed to the significant
increase in cash used in operating activities. These negative cash flow impacts
were partially offset by the positive cash flow impact resulting from an
increase in accounts payable.
Cash Flows from Investing Activities
(In thousands)
<TABLE>
<CAPTION>
Six months Increase
Ended September 30, (Decrease)
--------------------------------------- In Cash
2000 1999 Flow Impact
------------------- ------------------ ------------------
<S> <C> <C> <C>
Additions to property and equipment $ (2,541) $(8,969) 6,428
Software and other investments (951) (2,027) 1,076
Business acquisition (1,500) -- (1,500)
Proceeds from the sale of subsidiary
stock, net of cash given -- 17,211 (17,211)
Proceeds from non-marketable investments -- 1,523 (1,523)
Proceeds from the sale of property
and equipment -- 261 (261)
------------------- ------------------ ------------------
Net cash (used in) provided by
investing activities $ (4,992) $ 7,999 $ (12,991)
=================== ================== ==================
</TABLE>
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<PAGE> 36
The decrease in cash flows provided by investing activities was primarily due to
the absence during the first half of fiscal 2001 of proceeds realized from the
sale of subsidiary stock as recorded during the first half of fiscal 2000. These
proceeds related to the initial public offering and sale of common voting stock
of the Company's former subsidiary, Aironet Wireless Communications, during the
first half of fiscal 2000. A decrease in the fixed asset additions and software
improvements for the first half of fiscal 2001 as compared to the first half of
fiscal 2000 partially offset the decrease in cash provided by investing
activities during these periods. The decrease in fixed asset additions is
primarily attributable to the absence, during fiscal 2001, of capitalized
project costs related to the Company's corporate-wide information systems
project. A purchase instead of a sale, as occurred in fiscal 2000, of
non-marketable investments also contributed to the net decrease in cash flows
provided by investing activities.
Cash Flows from Financing Activities
(In thousands)
<TABLE>
<CAPTION>
Six months Increase
ended September 30, (Decrease)
--------------------------------------- In Cash
2000 1999 Flow Impact
------------------- ------------------ ---------------
<S> <C> <C> <C>
Notes payable, net $ 19,000 $ -- $ 19,000
Extinguishment of former credit facility -- (48,888) 48,888
Repayments on former credit facility, net -- (17,179) 17,179
Borrowings on long-term provisions of
debt facility -- 17,000 (17,000)
Borrowings on debt facility, net -- 37,792 (37,792)
Principal payments on capital leases (117) (322) 205
Debt issue costs paid subsidiary -- (1,215) 1,215
Proceeds from the exercise of stock options 160 -- 160
Note related to purchase of stock (3,141) -- (3,141)
------------------- ------------------ ---------------
Net cash provided by (used in)
financing activities $ 15,902 $ (12,812) $ 28,714
=================== ================== ===============
</TABLE>
The most significant factor contributing to the increase in cash provided by
financing activities has been the Company's financing of the majority of its
working capital requirements with the available line of credit during fiscal
2001. Conversely, during the first half of fiscal 2000, the Company repaid
amounts owed and extinguished its former credit facility in order to replace it
with a new credit facility. Thereafter, the new credit facility was primarily
utilized to meet working capital requirements of the Company during the first
half of fiscal 2000. The net effect of these repayments and borrowings was a net
repayment of $11.3 million as of September 30, 1999. The combination of these
borrowing and repayment activities contributed significantly to the net increase
in cash provided by financing activities.
For the first half of fiscal 2001 cash flows used for financing activities
consisted of a $3.1 million note to the Chief Executive Officer, John W. Paxton,
the proceeds of which were utilized to refinance a bank loan he had used to
purchase the common stock of the Company pursuant to his employment contract
with the Company.
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 principles generally accepted in the United States
36
<PAGE> 37
while recognizing revenue. The Company has complied with 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 complied
with 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. 138, "Deferral of the Effective
Date of FASB Statement No. 133"). At this time management has not fully
evaluated the impact that SFAS 133 will have upon its financial statements.
37
<PAGE> 38
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 8 - Marketable Securities and Related Derivative, 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 September 30, 2000 the
Company held 4,166,086 shares of Cisco. The market value of the Company's
holdings of Cisco at September 30, 2000 was valued at $262.3 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 8 -
Marketable Securities and Related Derivative, 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 the subsidiaries are located which assists in managing
this risk. At September 30, 2000, the Company had several forward foreign
currency exchange contracts to purchase various foreign currencies aggregating
$16,315 in U.S. dollars. The fair value of these instruments is not significant
to the condensed consolidated financial statements of the Company.
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<PAGE> 39
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 debentures. At September
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 and are tied to the lending institution's prime lending rate and the
one-month LIBOR rate, respectively. If these rates were to change when the
Company had borrowings under such facilities, the interest expense would
decrease or increase accordingly. At September 30, 2000, $19,000 was outstanding
under these lines of credit.
The Company monitors its interest rate risk, but does not engage in any hedging
activities using derivative financial instruments to manage its interest rate
risk.
39
<PAGE> 40
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 11 to the condensed 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, incorporated herein by reference to Exhibit 2 to
Registrant's Form 10-Q for the quarter ended June 30, 2000.
2.1 First Amendment, dated as of October 25, 2000, to the
Agreement and Plan of Merger included as Exhibit 2
above, 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
40
<PAGE> 41
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.
4.2.3 Amendment, dated as July 25, 2000, to the Rights
Agreement included as Exhibit 4.2 above, between
Registrant and Computershare Investor Services, LLC, as
successor Rights Agent, incorporated herein by
reference to Exhibit 4.1 to Registrant's Form 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.
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<PAGE> 42
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
December 31, 1999.
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 December 31, 1999.
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 December 31, 1999.
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, filed herewith.
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.
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<PAGE> 43
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 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 Exhinit 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 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.
10.1.16 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.
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<PAGE> 44
10.1.16.a Form of letter agreement made with key
employees selected under the retention
program described in Exhibit 10.1.16 above,
incorporated herein by reference to Exhibit
10.1.15.a to Registrant's Form 10-K for the
year ended March 31, 1998.
10.1.17 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.
10.1.18 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.
10.1.19 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.
10.1.20 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.
10.1.21 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.
10.2 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.
10.2.3 Standard Office Lease (Modified Net Lease) between
Registrant and John D. Dellagnese III,
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<PAGE> 45
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.
10.2.3.h Sublease Agreement, dated as of September 1,
1998, between Registrant and Aironet Wireless
45
<PAGE> 46
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
(refinanced and replaced as part of the Loan and
Security Agreement included as Exhibit 10.3.3 below),
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.
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<PAGE> 47
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, incorporated 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 (terminated in connection with the
refinancing obtained pursuant to the Loan and
Security Agreement included as Exhibit 10.3.3
below), 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
47
<PAGE> 48
of New York, as Agent for the Lenders from
time to time party to the Agreement included
as Exhibit 10.3.1 above (terminated in
connection with the refinancing obtained
pursuant to the Loan and Security Agreement
included as Exhibit 10.3.3 below),
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
(terminated in connection with the
refinancing obtained pursuant to the Loan and
Security Agreement included as Exhibit 10.3.3
below), 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, (terminated in
connection with the refinancing obtained
pursuant to the Loan and Security Agreement
included as Exhibit 10.3.3 below),
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 (refinanced and replaced as part of the
Loan and Security Agreement included as Exhibit 10.3.3
below), 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
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<PAGE> 49
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 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
(terminated in connection with the
refinancing obtained pursuant to the Loan and
Security Agreement included as Exhibit 10.3.3
below), 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 (terminated
in connection with the refinancing obtained
pursuant to the Loan and Security Agreement
included as Exhibit 10.3.3 below),
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 (terminated in connection with
the refinancing obtained pursuant to the Loan
and Security Agreement included as Exhibit
10.3.3 below), incorporated
49
<PAGE> 50
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
Statements 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 as 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 as 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),
50
<PAGE> 51
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 Statements 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
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.
51
<PAGE> 52
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, which License Agreement
continues in effect but which Purchase Agreement was superseded
upon Registrant becoming part of Cisco's system integration
program), 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 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 Plan and Agreement 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 10.11 to Registrant's Form 10-K
for the year ended March 31, 2000.
52
<PAGE> 53
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 10.12 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 ot the Plan and Agreement of
Merger included as Exhibit 10.11 above, incorporated
herein by reference to Exhibit 10.12.1 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
10.13 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 September 30, 2000 filed herewith.
(b) Reports on Form 8-K
During the second quarter of fiscal 2001 to which this Form 10-Q
relates, the Registrant filed a Current Report on Form 8-K on July
27, 2000, attaching the Registrant's press release dated July 26, 2000
which announced that on July 25, 2000 the Company entered into an
Agreement and Plan of Merger (the "Merger Agreement") pursuant to which
Symbol Technologies, Inc. agreed to acquire Registrant in a
stock-for-stock merger, as further discussed under Item 2 above.
53
<PAGE> 54
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: November 14, 2000
TELXON CORPORATION
(Registrant)
/s/ Woody M. McGee
-----------------------
Woody M. McGee,
Vice President and Chief
Financial Officer
54
<PAGE> 55
TELXON CORPORATION
EXHIBITS
TO
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
55
<PAGE> 56
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, incorporated herein by
reference to Exhibit 2 to the Registrant's Form 10-Q
for the quarter ended June 30, 2000.
** 2.1 First Amendment, dated as of October
25, 2000, to the Agreement and Plan of
Merger included as Exhibit 2 above,
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
56
<PAGE> 57
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.
* 4.2.3 Amendment, dated as of July 25, 2000,
to the Rights Agreement included as
Exhibit 4.2 above, between Registrant
and Computershare Investor Services,
LLC, as successor Rights Agent,
incorporated herein by reference to
Exhibit 4.1 to Registrant's Form 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.
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<PAGE> 58
* 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 December 31, 1999.
* 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 December 31,
1999.
* 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 December 31, 1999.
* 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, filed herewith.
* 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.
58
<PAGE> 59
* 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 Exhinit 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 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.
* 10.1.16 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.
* 10.1.16.a Form of letter agreement
made with key employees
selected under the
retention program described
in Exhibit 10.1.16 above,
incorporated herein by
reference to Exhibit
59
<PAGE> 60
10.1.15.a to Registrant's
Form 10-K for the year
ended March 31, 1998.
* 10.1.17 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.
* 10.1.18 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.
* 10.1.19 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.
* 10.1.20 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.
* 10.1.21 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.
10.2 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.
* 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.
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<PAGE> 61
* 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.
* 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
61
<PAGE> 62
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
(refinanced and replaced as part of the
Loan and Security Agreement included as
Exhibit 10.3.3 below) to Registrant's
Form 10-K for the year ended March 31,
1996.
* 10.3.1.a Amendment No. 1, dated as
of August 6, 1996, to the
Agreement included as
Exhibit 10.3.1 above,
incorporated herein by
reference to Exhibit
10.3.2.a to Registrant's
Form 8-K dated August 16,
1996.
* 10.3.1.b Amendment No. 2, dated as
of December 16, 1996, to
the Agreement included as
Exhibit 10.3.1 above,
incorporated herein by
reference to
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<PAGE> 63
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,
incorporated 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
(terminated in connection
with the refinancing
obtained pursuant to the
Loan and Security Agreement
included as Exhibit 10.3.3
below), 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 (terminated in
connection with the
refinancing
63
<PAGE> 64
obtained pursuant to the
Loan and Security Agreement
included as Exhibit 10.3.3
below), 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 (terminated in
connection with the
refinancing obtained
pursuant to the Loan and
Security Agreement
included as Exhibit 10.3.3
below), 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
(terminated in connection
with the refinancing
obtained pursuant to the
Loan and Security Agreement
included as Exhibit 10.3.3
below), 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 (refinanced and replaced as part
of the Loan and Security Agreement
included as Exhibit 10.3.3 below),
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.
64
<PAGE> 65
* 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 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
(terminated in connection
with the refinancing
obtained pursuant to the
Loan and Security Agreement
included as Exhibit 10.3.3
below), 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 (terminated in
connection with the
refinancing obtained
pursuant to the Loan and
Security Agreement included
as Exhibit 10.3.3 below),
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 (terminated in
connection with the
refinancing obtained
pursuant to the Loan and
Security Agreement included
as Exhibit 10.3.3 below),
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
65
<PAGE> 66
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
Statements 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
as 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 as 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.
66
<PAGE> 67
* 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
Statements 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
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
67
<PAGE> 68
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, which License
Agreement continues in effect but which Purchase
Agreement was superseded upon Registrant becoming
part of Cisco's systems integration program),
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 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 Plan and
Agreement 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 10.11 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 10.12 to Registrant's
Form 10-K for the year ended March 31, 2000.
68
<PAGE> 69
* 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 of the Plan
and Agreement of Merger included as
Exhibit 10.11 above, incorporated
herein by reference to Exhibit 10.12.1
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 10.13 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 September 30, 2000
filed herewith.
----------
* Previously filed
** Filed herewith
69
