-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ns5ugFmzX/OKxZaoT+02LKTUsxn+09QJksjqKIHLsukt8NII5oGWxnTYxcj6IKxP IBvxeSX2ljNoo0XdVBNJpQ== 0000950152-99-006987.txt : 19990817 0000950152-99-006987.hdr.sgml : 19990817 ACCESSION NUMBER: 0000950152-99-006987 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TELXON CORP CENTRAL INDEX KEY: 0000352495 STANDARD INDUSTRIAL CLASSIFICATION: CALCULATING & ACCOUNTING MACHINES (NO ELECTRONIC COMPUTERS) [3578] IRS NUMBER: 741666060 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-11402 FILM NUMBER: 99692749 BUSINESS ADDRESS: STREET 1: 3330 W MARKET ST CITY: AKRON STATE: OH ZIP: 44333 BUSINESS PHONE: 3306641000 MAIL ADDRESS: STREET 1: P O BOX 5582 CITY: AKRON STATE: OH ZIP: 44334-0582 10-Q 1 TELXON CORPORATION FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________TO __________ COMMISSION FILE NUMBER 0-11402 TELXON CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 74-1666060 (State or other jurisdiction of (I.R.S. employer identification no.) incorporation or organization) 3330 WEST MARKET STREET, AKRON, OHIO 44333 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (330) 664-1000 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 [ ]. No [X].* * Other than its Quarterly Report on form 10-Q for the fiscal quarter ended December 31, 1998 and its Annual Report on Form 10-K for the fiscal year ended March 31, 1999, the registrant has filed all reports required to be filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (during which the registrant has been subject to such filing requirements). At June 30, 1999, there were 16,155,606 outstanding shares of the registrant's Common Stock. This document contains 48 pages. 2 TELXON CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PART I. FINANCIAL INFORMATION: Page No. -------- Item 1: Consolidated Financial Statements Balance Sheet 3 Statement of Operations 4 Statement of Cash Flows 5 Notes to Consolidated Financial Statements 6-19 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 20-35 PART II. OTHER INFORMATION: Item 6: Exhibits and Reports on Form 8-K 36-47
2 3 PART I. FINANCIAL INFORMATION ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS TELXON CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (In thousands except share and per share amounts)
June 30, March 31, 1999 1999 ---------------- ----------------- ASSETS (Unaudited) Current assets: Cash (including cash equivalents of $8,000 and $--) $ 26,095 $ 22,459 Account receivable, net of allowance for doubtful accounts of $6,677 and $11,069 76,640 84,500 Notes and other accounts receivable 5,687 4,015 Inventories 121,250 129,049 Prepaid expenses and other 8,655 9,029 ---------------- ----------------- Total current assets 238,327 249,052 Property and equipment, net 73,272 69,557 Intangibles and other assets, net 28,142 30,235 ================ ================= Total $ 339,741 $ 348,844 ================ ================= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable $ 63,482 $ 68,567 Capital lease obligations due within one year 406 525 Accounts payable 69,036 64,966 Income taxes payable 9,017 6,434 Accrued liabilities 80,937 74,285 ---------------- ----------------- Total current liabilities 222,878 214,777 Capital lease obligations 1,330 1,435 Convertible subordinated notes and debentures 106,913 106,913 Other long-term liabilities 5,221 5,446 ---------------- ----------------- Total liabilities 336,342 328,571 Minority interest 3,371 3,307 Stockholders' equity Preferred stock, $1.00 par value per share; 500 shares authorized, none issued - - Common stock, $.01 par value per share; 50,000 shares authorized, 16,234 shares issued 162 162 Additional paid-in capital 87,029 87,029 Retained deficit (78,678) (61,977) Accumulated other comprehensive income for foreign currency translation (5,719) (5,464) Unearned compensation relating to restricted stock awards (64) (82) Treasury stock; 78 shares of common stock at cost (1,423) (1,423) Notes related to purchase of subsidiary stock (1,279) (1,279) ---------------- ----------------- Total stockholders' equity 28 16,966 ---------------- ----------------- Commitments and contingencies - - ================ ================= Total $ 339,741 $ 348,844 ================ =================
See accompanying notes to consolidated financial statements. 3 4 TELXON CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (In thousands except share and per share amounts) (Unaudited)
Three Months Ended June 30, --------------------------------------- 1999 1998 ----------------- ----------------- (Restated) Revenues: Product, net $ 77,180 $ 90,192 Customer service, net 20,139 20,970 ----------------- ----------------- Total net revenue 97,319 111,162 Cost of revenues: Product 54,184 54,473 Customer Service 12,433 12,826 ----------------- ----------------- Total cost of revenues 66,617 67,299 Gross profit 30,702 43,863 Operating expenses: Selling expenses 20,965 23,542 Product development and engineering expenses 8,908 9,014 General & administrative expenses 12,240 9,506 Unconsummated business combination costs - 1,749 ----------------- ----------------- Total operating expenses 42,113 43,811 (Loss) income from operations (11,411) 52 Interest income 323 179 Interest expense (3,292) (1,713) Gain on sale of subsidiary stock - 340 Other non-operating (expense) income, net (629) 1,020 ----------------- ----------------- Loss before income taxes (15,009) (122) Provision (benefit) for income taxes 1,692 (22) ----------------- ----------------- Net loss $ (16,701) $ (100) ================= ================= Net loss per common share: Basic $ (1.03) $ (0.01) Diluted $ (1.03) $ (0.01) Average number of common shares outstanding: Basic 16,156 16,080 Diluted 16,156 16,080
See accompanying notes to consolidated financial statements. 4 5 TELXON CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (In thousands) (Unaudited)
Three Months Ended June 30, ------------------------------------- 1999 1998 ----------------- ----------------- Cash flows from operating activities: (Restated) Net loss $ (16,701) $ (100) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 6,177 6,233 Amortization of restricted stock awards, net 18 78 Provision for doubtful accounts 1,157 2,431 Provision for inventory obsolescence 1,725 688 Gain on sale of subsidiary - (900) Gain on sale of non-marketable investments (761) - Loss on disposal of property and equipment 108 32 Loss on carrying value of non-marketable investment 1,283 - Minority interest 161 37 Changes in assets and liabilities: Accounts and notes receivable 5,588 (2,805) Inventories 6,103 (5,707) Prepaid expense and other 7 (1,706) Intangibles and other assets (325) (312) Accounts payable and accrued liabilities 13,312 (17,047) Other long-term liabilities (323) (1,732) ----------------- ----------------- Net cash provided by (used in) operating activities 17,529 (20,810) Cash flows from investing activities: Additions to property and equipment (7,845) (9,868) Software and other investments (1,031) (1,178) Purchase of non-marketable investments - (1,950) Proceeds from the sale of non-marketable investment 1,523 - Additions to long-term notes receivable - (608) ----------------- ----------------- Net cash used in investing activities (7,353) (13,604) Cash flows from financing activities: (Repayments) borrowings on notes payable, net (5,085) 22,005 Principal payments on capital leases (223) (175) Costs related to public offering of subsidiary (1,179) - Exercise of stock options (includes tax benefit) - 584 ----------------- ----------------- Net cash (used in) provided by financing activities (6,487) 22,414 Effect of exhange rate changes on cash (53) 36 ----------------- ----------------- Net increase (decrease) in cash and cash eqivalents 3,636 (11,964) Cash and cash equivalents at beginning of period 22,459 27,500 ----------------- ----------------- Cash and cash equivalents at end of period $ 26,095 $ 15,536 ================= =================
See accompanying notes to consolidated financial statements. 5 6 TELXON CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands except share and per share amounts) (Unaudited and As Restated) 1. Management Representation The consolidated financial statements of Telxon Corporation ("Telxon") and its subsidiaries (collectively with Telxon, the "Company") have been prepared without audit and in accordance with the instructions to Form 10-Q. In the opinion of the Company, all adjustments, consisting of normal recurring adjustments necessary for a fair statement of results for the interim periods, have been made. The operating results for the three months ended June 30, 1999, are not necessarily indicative of the results that may be achieved for the year ending March 31, 2000. The statements, including the March 31, 1999 balance sheet, do not include all of the information and notes required by generally accepted accounting principles for complete financial statements and should be read in conjunction with the audited consolidated financial statements as contained in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1999. Comparative June 30, 1998 consolidated financial statements are unaudited and as restated as discussed in Note 3 - Restatement. 2. Financial Results and Liquidity The Company incurred a net loss in fiscal 1999 of $136,982 with a decrease in consolidated revenues of $74,862 as compared to fiscal 1998. Cash flows used by operations were $27,616 and cash flows used in investing activities were $40,921 for fiscal 1999. The primary source of cash flows for fiscal 1999 was net borrowings under its credit facilities (including product financing arrangements) which aggregated $65,567. The Company is currently in violation of its debt covenants related to these credit facilities and is unable to borrow additional funds against these facilities. Waivers for non-compliance have been obtained through August 30, 1999. The Company's stockholders' equity and working capital at March 31, 1999 was $16,966 and $34,275, respectively. During the quarter ended June 30, 1999, the Company incurred a net loss of $16,701 with a decrease in consolidated revenues of $13,843 as compared to the quarter ended June 30, 1998. Compared to the fourth quarter of fiscal 1999 ended March 31, 1999, revenues in the June 30, 1999 quarter increased $20,236. The Company generated cash flows from operating activities of $17,529 for the quarter ended June 30, 1999. The Company's stockholders' equity and working capital at June 30, 1999 was $28 and $15,449, respectively. Since joining the Company in March 1999, the Chief Executive Officer has formed the Company's executive management team and is in the process of implementing the team's operating plan to stabilize the Company and pursue growth opportunities in the mobile information systems industry. Management is actively seeking opportunities to generate cash from sources such as inventories and accounts receivable, managing vendor payments and related operating expenditures, and is improving operating processes (such as material requirements planning and design-to-cost) required to achieve its operating and financial goals. However, there can be no assurance that the cash flows generated from such sources will be sufficient to support the Company's efforts to manage the payment of the amounts presently owing to, or subsequently incurred with, its suppliers. If cash flows are not sufficient there could be disruption of the flow of necessary materials, components, services or other cash requirements of the Company. In addition, payments may ultimately be required in the near-term in settlement of the litigation, commitments and contingencies referenced in Note 9 - Litigation and 6 7 Contingencies. Such payments could have a material adverse effect on the Company's cash flows and, in turn, on the Company's results of operations and financial condition. In connection with the granting of the waivers discussed above, the Company's existing lenders exercised their rights under the terms of their respective loans to file UCC financing statements to perfect the security interests previously conditionally granted in their favor by the Company in its accounts receivable, inventory and equipment, and the proceeds thereof, and subsequently required that the Company grant them security interests in substantially all of the Company's assets. The Company has been negotiating with financial institutions to provide adequate financial resources to execute the management team's operating plans. As discussed in Note 12 - Subsequent Events, the Company has received a commitment letter from a financial institution for a $100,000 senior credit facility. This commitment letter contains conditions precedent and subsequent. Therefore, there can be no absolute assurance that this credit facility will ultimately be executed and provide the financing sufficient to fund management's plans. Subsequent to June 30, 1999 the Company received $20,460 of the proceeds from the Initial Public Offering ("IPO") of Aironet Wireless Communications, Inc. ("Aironet"). One-half of these proceeds were used in order to partially repay the Company's current borrowings under its existing credit agreement. The remaining proceeds have been utilized to reduce amounts payable to vendors. The Company is currently meeting cash flow requirements from internally generated cash flows and has successfully managed the payments of vendors and employees without the disruption of the flow of necessary materials, components and services. However, there can be no assurance that the Company will continue to do so in the future. If the contemplated financing is not obtained prior to August 30, 1999, the Company will be required to obtain additional waivers under its current credit facilities. The lenders thereunder are under no obligation to grant such waivers. In the absence of any required further waivers the Company will be in default and subject to the lenders' rights of acceleration under its existing credit agreements and the lenders' rights and remedies as secured parties. Pending establishment of replacement credit facilities, the Company will continue to rely upon internally generated cash flows. Management believes that, despite the financial hurdles, liquidity shortfall and funding uncertainties going forward, it has a business plan that, if successfully funded and executed, can significantly improve the Company's operations and financial results. The support of the Company's vendors, customers, lenders, stockholders and employees will continue to be key to the Company's future success. 3. Restatement On February 23, 1999, the Company announced that it would restate its previously issued financial statements for the fiscal years 1996, 1997 and 1998, and its unaudited interim financial statements for the first and second quarters of fiscal 1999. This restatement was based upon the completion of a review of certain judgmental accounting matters by the Audit Committee of the Board of Directors, the Company's management and the Company's then outside auditors, PricewaterhouseCoopers LLP. 7 8 The accompanying financial statements reflect the announced restatement. The more significant restatement adjustments affecting the periods covered by the accompanying financial statements are described below. During the three months ended June 30, 1998, the Company has increased its product sales returns reserves by $3,963 to better reflect the levels of product returns in the Company's value-add distribution channel. The Company has also capitalized $1,950 previously expensed during the three months ended June 30, 1998, related to premiums paid to repurchase the common stock of its Metanetics Corporation subsidiary ("Metanetics") from a business partner, resulting in an investment to be amortized over a useful life of three years. Adjustments were also made to increase the Company's provision for the past due accounts receivable related to a foreign distributor as a result of questions regarding the on-going financial viability of the distributor. Such adjustments totaled $2,181 for the three months ended June 30, 1998. For the three months ended June 30, 1998, the Company also reduced its inventory reserves by $697 to better approximate the exposure related to on-hand inventories. Additionally, the Company has also made an adjustment to record, during the three months ended June 30, 1998, the $900 gain related to the sale of its Virtual Vision, Inc. subsidiary, which was previously recorded during the three months ended March 31, 1998, as certain conditions of the sale, though perfunctory, were not satisfied until after March 31, 1998. The following summarizes the effects of the restatement on the Company's consolidated statement of operations for the three months ended June 30, 1998: 8 9 CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended June 30, 1998 (Unaudited) As Previously Reported Restated -------- -------- Revenues: Product, net $ 94,077 $ 90,192 Customer service, net 20,970 20,970 --------- --------- Total net revenues 115,047 111,162 Cost of revenues: Product 57,310 54,473 Customer service 12,826 12,826 --------- --------- Total cost of revenues 70,136 67,299 Gross profit 44,911 43,863 Operating expenses: Selling expenses 21,361 23,542 Product development and engineering expenses 8,930 9,014 General & administrative expenses 9,436 9,506 Unconsummated business combination costs 1,749 1,749 Charge related to transactions with business partner 1,950 -- --------- --------- Total operating expenses 43,426 43,811 --------- --------- Income from operations 1,485 52 Interest income 179 179 Interest expense (1,713) (1,713) Gain on sale of subsidiary stock -- 340 Other non-operating income (expense) 460 1,020 --------- --------- Income (loss) before income taxes 411 (122) Provision (benefit) for income taxes 165 (22) --------- --------- Net income (loss) $ 246 $ (100) ========= ========= Net income (loss) per common share: Basic $ .02 $ (.01) ========= ========= Diluted $ .01 $ (.01) ========= ========= Average number of common shares outstanding: Basic 16,080 16,080 ========= ========= Diluted 16,924 16,080 ========= =========
9 10 4. Earnings Per Share Computations of basic and diluted earnings per share of common stock have been made in accordance with the Financial Accounting Standards Board's (FASB) Statement of Financial Accounting Standards No. 128, "Earnings Per Share". All securities having an anti-dilutive effect on earnings per share have been excluded from such computations. Common stock purchase rights outstanding under the Company's stockholder rights plan, which potentially have a dilutive effect, have been excluded from the weighted common shares computation as preconditions to the exercisability of such rights were not satisfied. Reconciliation of Numerators and Denominators Of the Basic and Diluted EPS Computations (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.
For the Three Months Ended For the Three Months Ended June 30, 1999 June 30, 1998 ------------------------------------------------ ------------------------------------------ Net Per Share Net Per Share Loss Shares Amount Loss Shares Amount ----------------- -------------- --------------- ------------- ------------- ------------- Net loss $(16,701) $(100) ================= ============= BASIC LOSS PER SHARE Loss incurred by common stockholders $(16,701) 16,156 $ (1.03) $(100) 16,080 $(0.01) ================= =============== ============= ============= EFFECT OF DILUTIVE SECURITIES Options - - -------------- ------------- DILUTED LOSS PER SHARE Loss incurred by holders of common stock and common stock equivalents $(16,701) 16,156 (1.03) $(100) 16,080 $(0.01) ================= ============== =============== ============= ============= =============
Options to purchase 3,788,385 shares of common stock at a weighted average exercise price of $14.95 per share were outstanding at June 30, 1999, but were not included in the computation of diluted earnings per share for the three months then ended because the options would have had an anti-dilutive effect on the net loss for the period. Options to purchase 3,240,391 shares of common stock at a weighted average exercise price of $17.80 per share were outstanding at June 30, 1998, but were not included in the computation of diluted earnings per share for the three months then ended because the options would have had an anti-dilutive effect on the net loss for the period. The shares issuable upon conversion of Telxon's 5-3/4% Convertible Subordinated Notes and 7-1/2% Convertible Subordinated Debentures were omitted from the diluted earnings per share calculations because their inclusion at June 30, 1999 and 1998 would have had an anti-dilutive effect on earnings for the three months then ended. 10 11 5. Comprehensive Income Total comprehensive income consisted of the following:
June 30, June 30, 1999 1998 ----------------- ----------------- (Restated) Net loss $(16,701) $ (100) Other comprehensive (expense) income: Foreign currency translation adjustment (255) (183) ================= ================= Total comprehensive loss $(16,956) $ (283) ================= =================
6. Inventories Inventories consisted of the following:
June 30, March 31, 1999 1999 ----------------- ----------------- Purchased components $ 51,081 $ 51,112 Work-in-process 31,426 32,360 Finished Goods 38,743 45,577 ----------------- ----------------- $121,250 $129,049 ================= =================
7. Accrued Liabilities Accrued liabilities consisted of the following:
June 30, March 31, 1999 1999 ----------------- ----------------- Deferred customer service revenues $ 15,757 $ 15,351 Deferred product revenues 21,140 14,168 Accrued discontinued product costs 12,667 12,422 Accrued payroll and other employee compensation 8,323 11,649 Other accrued liabilities 23,050 20,695 ----------------- ----------------- $ 80,937 $ 74,285 ================= =================
The Company's domestic accrual for severance costs increased from a balance of $3,429 at March 31, 1999 to a balance of $3,625 at June 30, 1999. This increase was caused by severance charges during the first quarter of fiscal 2000 of $1,018 partially offset by payments to previously terminated employees of $816. A total of 29 employees were severed during the first quarter of fiscal 2000. Of the 29 employees, 28 employees were terminated, and 1 employee was given a short period of notice. The areas of the Company affected were domestic sales operations, domestic product development, manufacturing operations and corporate administration. There have been no material changes to the amounts accrued at either March 31 or June 30, 1999. 11 12 8. Supplemental Cash Flow Information
Three Months Ended June 30, June 30, 1999 1998 ----------------- ----------------- Cash paid during the period for: Interest $ 2,649 $ 1,212 Income taxes $ 619 $ 2,156
Capital lease additions of $276 during the three months ended June 30, 1998 have been excluded from the accompanying consolidated statement of cash flows as a non-cash transaction. There were no capital lease additions during the three months ended June 30, 1999. 9. Litigation and Contingencies On September 21, 1993, a derivative Complaint was filed in the Court of Chancery of the State of Delaware, in and for Newcastle County, by an alleged stockholder of the Company derivatively on behalf of Telxon. The named defendants are the Company; Robert F. Meyerson, former Chairman of the Board, Chief Executive Officer and director; Dan R. Wipff, then President, Chief Operating Officer and Chief Financial Officer and director; Robert A. Goodman, Corporate Secretary and outside director; Norton W. Rose, outside director; and Dr. Raj Reddy, outside director. The Complaint alleges breach of fiduciary duty to the Company and waste of the Company's assets in connection with certain transactions entered into by Telxon and compensation amounts paid by the Company. The Complaint seeks an accounting, injunction, rescission, attorney's fees and costs. While the Company is nominally a defendant in this derivative action, no monetary relief is sought by the plaintiff from the Company. On November 12, 1993, Telxon and the individual director defendants filed a Motion to Dismiss. The plaintiff filed 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 12 13 defendant in the case. The post-intervention claims are the subject of ongoing discovery, and no deadline for the completion of the discovery or trial date has yet been set by the Court. The defendants believe that the post-intervention claims lack merit, and they intend to continue vigorously defending this action. While the ultimate outcome of this action cannot presently be determined, the Company does not anticipate that this matter will have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows and accordingly has not made provisions for any loss or related insurance recovery in 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. The complaint alleges counts for breach of contract and temporary and permanent injunctive relief, all related to alleged environmental contamination at the Wynnwood property, and seeks specific performance, unspecified monetary damages for all injuries suffered by plaintiff, payment of pre-judgement interest, attorneys' fees and costs and other unspecified relief. In its Answer, Telxon denied plaintiff's allegations. No hearing has been had on, or is currently scheduled for, plaintiff's claim for temporary injunctive relief. The trial previously scheduled for March 1999 has been reset to commence on a day during the Court's two week docket beginning October 5, 1999, with the specific trial date to be set by the Court at that time. While the litigation with the landlord remains pending, Telxon and the landlord have agreed to file, and on July 7, 1999 filed, 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 proposed plan projects completion of remediation and issuance of a closure certificate in 2002. To date, Telxon has not been advised of any action by the Commission with respect to the proposed plan, which could require modifications thereto as a condition of approval. Until such time as the plan is accepted and completed, its actual cost to Telxon cannot be quantified; however, the Company does not believe that remediation in accordance with the plan as proposed would have a material adverse effect on its results of operations for any quarter in which any associated charges would be taken. If the plan is not accepted substantially as proposed, or closure is not certified when contemplated by the proposed 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. Telxon believes that these claims lack merit, and it intends to vigorously defend this action. On May 8, 1998, two class action suits were filed in the Court of Chancery of the State of Delaware, in and for the County of New Castle, by certain alleged stockholders of Telxon on behalf of themselves and purported classes consisting of Telxon stockholders, other than defendants and their affiliates, relating to an alleged offer by Symbol Technologies, Inc. ("Symbol") to acquire the Company. The named defendants are Telxon and its Directors at the time, namely, Frank E. Brick, Robert A. Goodman, Dr. Raj Reddy, John H. Cribb, Richard J. Bogomolny, and Norton W. Rose. The plaintiffs allege that on April 21, 1998, Symbol made an offer to purchase Telxon for $38.00 per share in cash and that on May 8, 1998, Telxon rejected 13 14 Symbol's proposal. Plaintiffs further allege that Telxon has certain anti-takeover devices in place purportedly designed to thwart hostile bids for the Company. Plaintiffs charge the Director defendants with breach of fiduciary duty and claim that they are entrenching themselves in office. The plaintiffs seek certification of the purported class, unspecified compensatory damages, equitable and/or injunctive relief requiring the defendants to act in specified manners consistent with the defendant Directors' fiduciary duties, and payment of attorney's fees and costs. The parties have stipulated that the plaintiffs will file an Amended Complaint and that the defendants will answer only the Amended Complaint. On June 2, 1998, the Court ordered consolidation of the above-captioned cases. This action is in its early stages, with no scheduling order having been issued by the Court; discovery has not yet commenced. The defendants believe that these claims lack merit and intend to vigorously defend the consolidated action. 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. 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 have been referred to a single judge, and on February 9, 1999, the plaintiffs filed a Motion to Consolidate all of the actions. On April 26, 1999, the Court heard motions on naming class representatives and lead class counsel, but the Court has not yet ruled on those motions. The complaints allege 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 various complaints seek certification of their respective purported classes, unspecified compensatory and punitive damages, pre- and post-judgment interest, and attorneys' fees and costs. The defendants believe that these claims lack merit, and they intend to vigorously defend these actions. Defendants anticipate filing a Motion to Dismiss. By letter dated December 18, 1998, the Staff of the Division of Enforcement of the Securities and Exchange 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. In cooperation with the informal inquiry, the Company has voluntarily provided certain responsive information to the Staff. 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 duces tecum have been served on the Company requiring the production of specified documents. Similar subpoenas have been issued to one of the Company's directors, certain current Company officers and, to the belief of the Company, former Company officers and certain unaffiliated companies and their officers. The Company has delivered documents to, and intends to continue cooperating fully with, the Staff. The referenced director and current officers have also produced documents, and the director 14 15 has given oral testimony, to the Staff. Telxon believes that the unaffiliated parties have also responded to the Staff. 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. However, the Foundation has not to date asserted any claim directly against the Company. The Company believes that the patents so being asserted against its customers are invalid, unenforceable and not infringed. This position has also been taken by seven other companies in the automatic identification industry, including the Company's principal competitors, which in July 1999 announced their joint filing of a federal court action seeking a declaratory judgment to that effect against the Foundation. Except as otherwise specified, in the event that any of the foregoing litigation ultimately results in a money judgment against the Company or is otherwise determined adversely to the Company by a court of competent jurisdiction, such determination could, depending on the particular circumstances, adversely affect the Company's conduct of its business and the results and condition thereof. In the normal course of its operations, the Company is subject to performance under contracts and assertions that technologies it utilizes may infringe third party intellectual properties, and is also subject to various pending legal actions and contingencies, which may include matters involving suppliers, customers, lessors of Company products to customers and lessors of equipment to the Company. 10. Income Taxes The Company's consolidated income tax provision for the quarter ended June 30, 1999 of $1,692 consists primarily of $1,325 and $330 related to the Company's operations in foreign tax jurisdictions and the Company's Aironet subsidiary, respectively. No tax benefit was recognized for the U.S. net operating loss for the three months ended June 30, 1999 based on the Company's assessment that it is more likely than not that these deferred tax assets will not be utilized through future taxable income or implementation of tax planning strategies. 11. Subsidiary Stock Transactions and Divestitures During the three months ended June 30, 1999, the Company repurchased 60,000 shares of the voting common stock of Metanetics from former key employees, at a price of $2.00 per share. Giving effect to the share repurchase, the Company's interest in the voting common stock of Metanetics was 62% at June, 30, 1999. Prior to the repurchase of these shares, the Company's interest in the voting common stock of Metanetics was 60%. During the three months ended June 30, 1998, the Company entered into a series of transactions with a business partner relating to Metanetics, a development stage subsidiary that develops image processing technology. The Company repurchased 400,000 voting common shares of Metanetics for $1,950 or $4.875 per share. Simultaneously, the business partner agreed to pay amounts due of $1,850 for previously purchased manufacturing rights and software licenses. Additionally, the companies mutually agreed to terminate such agreements and released each other from any future liability related to the original 15 16 agreements. The Company had originally recorded the additional $1,950 investment in Metanetics as an operating expense as of June 30, 1998, because of the historical financial losses of the subsidiary and future funding requirements for its operations. However, after further assessment as part of the restatement discussed in Note 3 - Restatement above, and based in part on an independent valuation of Metanetics, the Company has capitalized this additional investment as goodwill to be amortized over a useful life of three years. Giving effect to the share repurchase, the Company's interest in the voting common stock of Metanetics was 60% at June 30, 1998. Prior to the repurchase of these shares, the company's interest in the voting common stock of Metanetics was 52%. During the three months ended June 30, 1998, the Company's Aironet subsidiary sold 222,222 shares of its voting common stock to various third party investors at a price of $3.50 per share. Proceeds from this sale of stock were $778. The resulting pre-tax net gain of $340 was recorded as non-operating income in the accompanying consolidated statement of operations. In addition to the sale of the shares of stock, 66,667 warrants at $3.50 per share for the purchase of Aironet voting common stock were issued. A gain of $47 relating to these warrants has been deferred until the warrants are exercised or lapse. The Company's remaining interest in the issued voting common stock of Aironet at June 30, 1998, was 76%. Prior to the sale of these shares, the Company's interest in the voting common stock of Aironet was 78%. Effective March 31, 1998, the Company sold the stock of its Virtual Vision subsidiary to a third party in exchange for $500 in cash and $4,500 in Series F Preferred Shares of the purchaser at a value of $6.00 per share or 750,000 shares. As all of the conditions of the sale were not satisfied as of March 31, 1998, the related pre-tax gain of $900 was deferred. During the three months ended June 30, 1998, all of the conditions of the sale were satisfied and the Company recorded a pre-tax gain of $900 as non-operating income in the accompanying consolidated statement of operations. 12. Subsequent Events Subsequent to June 30, 1999, 6,000,000 Aironet shares of voting common stock were sold in the IPO on the Nasdaq National Market at an offering price of $11.00 per share. Of the total number of shares offered, Aironet sold 4,000,000 shares, and the Company sold 2,000,000 shares. The aggregate proceeds, net of underwriting discounts and commissions, were $40,920 to Aironet and $20,460 to Telxon. Subsequent to this transaction the Company's remaining interest in Aironet was approximately 39%. Prior to the sale of these shares, the Company's interest in the voting common stock of Aironet was approximately 76%. As a result of this transaction and the dilution of its voting interest and control of Aironet, it is anticipated that the Company's consolidated results will no longer include Aironet. The following unaudited proforma statement of operations information for the three months ended June 30, 1999 and 1998 and the balance sheet data as of June 30, 1999 are presented below. The information below, which is based upon various assumptions, is not necessarily indicative of what would have occurred had the sale of Aironet shares occurred on April 1, 1998. The following proforma financial information assumes that the results of operations and financial position of Aironet have been removed from the Company's results of operations, including profit on intercompany transfers, and financial position in each period presented. The information presented also assumes that one-half of the proceeds from the sale 16 17 of Aironet shares was used to partially repay the Company's existing credit facilities and one half was used to reduce accounts payable. The reduction in the amounts outstanding under the Company's existing credit facilities resulted in assumed interest savings computed at 9.75% per annum. Proforma adjustments were also made to record the investment of Aironet on the equity method as if the Company owned a 39% equity interest in Aironet.
(Unaudited) Three Months Ended June 30, 1999 June 30, 1998 ------------- ------------- Total revenues $87,825 $104,942 (Loss) income from operations (12,230) 15 Net (loss) income (16,594) 245 (Loss) earnings per share: Basic As reported $(1.03) $(0.01) Proforma $(1.03) $ 0.02 Diluted As reported $(1.03) $(0.01) Proforma $(1.03) $ 0.02 June 30, 1999 ------------- Total assets $318,441
Subsequent to June 30, 1999, the Company received a commitment letter from a financial institution to provide a $100,000 senior secured credit facility to the Company as a replacement for the Company's existing revolving credit agreement and business purpose promissory note. Such commitment letter is subject to conditions precedent and subsequent to closing. Borrowings under the revolving loan provisions of such facility would be subject to availability on qualifying accounts receivable and inventory, reduced by amounts borrowed under the facility's term loan features and amounts outstanding under letters of credit. Availability under the agreement is estimated to be $71,000 as of August 1, 1999. The facility would have three term loan features. The first term loan would have a limit of $6,000, but would be limited to a portion of the liquidation value of the Company's machinery and equipment. The repayment terms for this term loan would be straight-line over a 10-year period. The second term loan would have a limit of $10,000 and would be limited, together with the $20,000 term loan discussed below, by specified percentages of the market value of Aironet capital stock owned by the Company. The repayment of this term loan would be straight-line over a 3-year period. The third term loan of $20,000 would be limited by a specified percentage of the market value of Aironet capital stock owned by the Company. The repayment term of this loan would be due the earlier of 120 days from closing or upon any sale of additional capital stock of Aironet by the Company. The interest rate charged on the revolving loan, the $6,000 term loan, and the $20,000 term loan would be 2.75% above the Eurodollar rate or 0.5% above the financial institution's prime lending rate. Interest would be 17 18 payable monthly. The interest rate charged would be subject to change based upon the Company's financial results. The interest rate on the $10,000 term loan would be fixed at 12.5%. The facility also would call for the payment of an unused line fee of 0.375% per annum on a monthly basis. The facility will be collateralized by substantially all of the Company's assets. Restrictive covenants with respect to this facility have not yet been determined. 13. Business Segments The company's business consists of four operating segments: a)handhelds, workslates, and other mobile computing devices, through which the Company designs, develops, markets, and services a broad line of handheld devices ranging from low-end batch terminals to highly integrated mobile computers that incorporate laser bar code readers, including a variety of pen-based and touch screen workslate devices; b)its Aironet subsidiary (majority owned by the Company until the IPO), which designs, develops, markets, and services high speed standards-based wireless local area networking (LAN) solutions, for which Aironet's products utilize advanced high radio frequency and data communication technologies to connect users to computer networks, ranging in size and complexity from enterprise-wide LANs to home networks; c)sales and distribution of all its product lines in Europe; and d)sales and distribution of all of its product lines in international locations outside of Europe. Summarized financial information concerning the Company's reportable segments is shown in the following table.
United States -------------------------- Other than Consolidated Other Adjustment & Aironet Aironet Europe Int'l Elimination Consolidated ------------------------------------------------------------------------------------ Three months ended June 30, 1999 Revenue from unaffiliated customers $60,466 $9,494 $20,875 $6,484 $97,319 Revenue from intercompany sales 11,054 2,909 154 733 (14,850) $0 ------------------------------------------------------------------------------------ Total revenues $71,520 $12,403 $21,029 $7,217 ($14,850) $97,319 ==================================================================================== (Loss) income before income tax ($17,772) $859 $2,320 $1,072 ($1,488) ($15,009) ==================================================================================== Three months ended June 30, 1998 Revenue from unaffiliated customers $80,282 $6,220 $17,561 $7,099 $111,162 Revenue from intercompany sales 10,826 3,256 146 614 (14,842) $0 ------------------------------------------------------------------------------------
18 19 Total revenues $91,108 $9,476 $17,707 $7,713 ($14,842) $111,162 ==================================================================================== (Loss) income before income tax ($4,064) $277 $2,383 $1,260 $22 ($122) ====================================================================================
14. Reclassifications Certain items in the fiscal 1999 consolidated financial statements and notes thereto have been reclassified to conform to the fiscal 2000 presentation. 19 20 TELXON CORPORATION AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS IN ADDITION TO DISCUSSING AND ANALYZING THE COMPANY'S RECENT HISTORICAL FINANCIAL RESULTS AND CONDITION, THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INCLUDES STATEMENTS REGARDING CERTAIN TRENDS OR OTHER FORWARD-LOOKING INFORMATION CONCERNING THE COMPANY'S ANTICIPATED REVENUES, COSTS, FINANCIAL RESOURCES OR OTHERWISE AFFECTING OR RELATING TO THE COMPANY WHICH ARE INTENDED TO QUALIFY FOR THE PROTECTIONS AFFORDED "FORWARD-LOOKING STATEMENTS" UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, PUBLIC LAW 104-67. THE FORWARD-LOOKING STATEMENTS MADE HEREIN AND ELSEWHERE IN THIS FORM 10-Q ARE INHERENTLY SUBJECT TO RISKS AND UNCERTAINTIES, WHICH COULD CAUSE THE COMPANY'S ACTUAL RESULTS OR OTHER FUTURE 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 THE COMPANY'S BUSINESS, OPERATING RESULTS AND FINANCIAL AND OTHER CONDITION OR SUCH OTHER FUTURE EVENTS 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, 1999. On February 23, 1999, the Company announced that it would restate its previously issued financial statements for the fiscal years 1996, 1997 and 1998, and its unaudited interim financial statements for the first and second quarters of fiscal 1999. This restatement was based upon the completion of a review of certain judgmental accounting matters by the Audit Committee of the Board of Directors, the Company's management and the Company's then outside auditors, PricewaterhouseCoopers LLP. See Note 3 - Restatement to the accompanying consolidated financial statements for further detail concerning the restatement adjustments made. The financial information for all periods included in the following discussion gives effect to the restatement and should be read in conjunction with the restated information presented in Note 3 - Restatement to the accompanying consolidated financial statements. Overview The Company recorded a net loss of $16.7 million or $1.03 per common share (diluted) for the first quarter of fiscal 2000. In comparison, the Company recorded a net loss of $.1 million or $.01 per common share (diluted) for the first quarter of fiscal 1999. Consolidated revenues decreased $13.8 million or 13% from the fiscal 1999 first quarter but increased $20.2 million from the fiscal 1999 fourth quarter. First quarter fiscal 2000 gross profit fell $13.2 million over the same period. Overall operating expenses decreased $1.7 million in the fiscal 2000 first quarter primarily due to the absence of $1.7 million of unconsummated business combination costs incurred in response to takeover and proxy contest proposals during the first quarter of fiscal 1999. Additionally, the results include a tax provision of $1.7 million on a pre-tax loss due to foreign taxes and taxes related to the Company's Aironet subsidiary of $1.3 million and $.3 million, respectively. No tax benefit has been recognized for the first quarter of fiscal 2000 U.S. operating loss based on the Company's current assessment regarding the utilization and realization of such assets. The Company's operating activities provided cash flows of $17.5 million during the first quarter of fiscal 2000. This compares with cash used by operating activities of $20.8 million during the first quarter of fiscal 1999. 20 21 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 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 business process improvement strategies by the Company's new management team; sales and manufacturing cycles from quarter to quarter and within each quarter; the lengthened sales cycle for systems sales and possible associated delays in the Company's recognition of revenue therefrom; 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 timely and cost-effectively gain and maintain market acceptance of its products; the levels of customer demand for the Company's products and customers' commitments of resources to information technology investments; concentration of revenues in the retail industry and possible decreases in their purchases from the Company in response to any downturn in general economic prospects or conditions to the extent that reduced levels of new store openings are not offset by their investment in the Company's systems to improve the efficiency of existing stores; ability to penetrate and expand revenues in new and existing markets; economic and business 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. The Company's business, operating results and financial condition is also dependent upon the adequacy of the working capital and other financial resources available to it from time to time as discussed in Note 2 to the accompanying consolidated financial statements. 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 9 - Litigation and Contingencies to the accompanying consolidated financial statements included in Item 1 above. The financial results of the Company historically have not been materially adversely impacted as a result of inflation. However, there can be no assurance that inflation will not have a material adverse impact in the future. Readiness for the Year 2000 THE INFORMATION SET FORTH UNDER THIS CAPTION IS HEREBY DESIGNATED TO BE A "YEAR 2000 READINESS DISCLOSURE" UNDER THE YEAR 2000 INFORMATION READINESS DISCLOSURE ACT (THE "YEAR 2000 ACT"), PUBLIC LAW 105-271, AND THE STATEMENTS BELOW AND THE REGISTRANT, AS THE MAKER THEREOF, SHALL BE ENTITLED TO THE PROTECTIONS PROVIDED BY THE YEAR 2000 ACT. 21 22 As the end of the twentieth century nears, there is worldwide concern regarding the use by many existing computer programs of only the last two digits rather than four to identify the year in a date field. If not corrected, many computer applications may fail to treat year dates intended to represent years in the twenty-first century as such but instead treat them as still in the twentieth century, potentially resulting in system failure or miscalculations disruptive of business operations, including, among other things, an inability to initiate, receive, process, invoice or otherwise complete normal business activities. These Year 2000 issues affect virtually all companies and organizations. Year 2000 issues affect both the Company's offerings of computer products and related services to its customers as well as its own operations. The Year 2000 readiness of the Company's operations in turn involves not only its corporate information systems but also computer-based systems used directly in the conduct of its business ("Process Management Systems"), such as hardware and software engineering design tools, manufacturing equipment and customer service and maintenance tracking systems. In addition, the Company could also be affected by the Year 2000 readiness of its customers and of its suppliers of raw materials, components, peripherals, finished products and software and its providers of facilities, equipment and services. The costs of the Company's Year 2000 readiness efforts are being funded from the Company's consolidated operating cash flows and borrowings. With respect to its products, the Company has identified those that are or will be made Year 2000 ready. Those already- or to-be-made-Year 2000 ready products represent the existing products which management believes will continue to be a significant part of the Company's ongoing product line. Customers may continue to order the Company's other existing products, but with no assurance from the Company as to their Year 2000 readiness or the feasibility or availability of an upgrade path to readiness. All new products are being designed to be Year 2000 ready. The Company has completed the software/firmware upgrades for its products which were identified to be made Year 2000 ready, subject to the completion of debugging activities. Subject to negotiated contractual commitments, the Company will make the upgrades available free of charge for products purchased after December 31, 1997 which were ordered with the latest software version as of the order date; an upgrade fee will be charged customers who requested an older software version when they ordered the equipment. Customers will be responsible for installing the upgrades, or they may retain the Company to do so for a fee. The costs to date of upgrading the Company's products to Year 2000 readiness have not been, and the Company does not expect that the remaining cost of doing so will be, material to the Company's financial position or results of operations. The Company has purchased and continues to work with outside contractors to complete the installation of new corporate-wide information systems. Though the new systems were identified as a strategic business initiative independent of Year 2000 considerations, they are also being designed to make the Company's information systems Year 2000 ready. To date, the Company has installed the following phases of the new systems installation: key financial reporting, accounting, services help desk and contract billing, order entry, manufacturing, engineering documents management, and accounts receivable. One to four additional months of work may be required in order to achieve full user acceptance of these installed systems. While the new information systems will be dynamic ones permitting ongoing improvements as business needs are identified, the basic operational systems remaining to be installed are the product repair and service management systems. The installation of these remaining systems, 22 23 is expected to be substantially completed during the second quarter of fiscal 2000. The total capital expenditures for the new systems installation, including the addition of interfaces for "bolt-on" enhancements, is presently estimated to be approximately $36.0 million. In addition, the company will also accelerate the replacement of approximately $6.7 million of computer hardware in connection with the new systems installation. As of June 30, 1999, the Company had spent approximately $33.3 million in capital expenditures, purchased $.8 million of replacement computer hardware and leased an additional $4.2 million of replacement computer hardware. The company anticipates that it will lease all of its remaining replacement hardware requirements. The forgoing time and cost targets are management's current best estimates based on presently available information and numerous assumptions. Given the uncertainties and complexities inherent in any new system installation, there can be no assurance that the project will be completed within the expected time and cost parameters. For example, to the extent that any additional work is required after the targeted installation date in order to achieve full user acceptance of the new systems, the Company's monthly systems development expenditures have ranged from approximately $1.25 million to approximately $2.1 million. In addition to these capitalized expenditures, the Company had incurred approximately $5.3 million of non-capitalizable expenses as of June 30, 1999, related to the new systems installation. These non-capitalizable expenses exclude the one-time, after-tax charge of $1.0 million recorded during fiscal 1998 as a change in accounting principle in accordance with the Financial Accounting Standards Board's Emerging Issues Task Force consensus ruling "Accounting for Costs Incurred in Connection with a Consulting Contract or an Internal Project That Combines Business Process Reengineering and Information Technology Transformation." The Company may incur additional non-capitalizable expenses in its efforts to complete the project within appropriate time constraints and to management requirements. These expenses cannot be quantified at this time. The Company has engaged an outside consultant to evaluate the Year 2000 readiness of its engineering, manufacturing and customer maintenance and service Process Management Systems and information technology infrastructure. The consultant's findings and recommendations were received by the Company on February 8, 1999. The Year 2000 readiness inventory compiled by the consultant has been under continuing, extensive review by teams, including senior management from each of the affected functional areas. Giving effect to the teams' remediation efforts to date, approximately 80% of the inventoried items are currently Year 2000 ready. The costs of the study and resulting remediation are currently being borne by the respective functional areas. The functional teams continue to work toward completing their review and any necessary remediation as soon as practicable. To the extent any Year 2000 issues are identified, remediation options will include re-writing the affected software or replacing the affected hardware or software with hardware or software that is Year 2000 ready. The Company believes that, in general, replacement, Year 2000 ready hardware and software for its Process Management Systems and information technology infrastructure are readily available, making that the most likely means of addressing any remediation needs. The timetable and cost for any remediation that may ultimately be required with respect to the Company's Process Management Systems cannot be estimated. To the extent that the re-writing of affected software is selected as the means for remediating any Year 2000 issues, whether in preparing upgrades to Company products, making Process Management Systems Year 2000 ready or otherwise, given the technical nature of the task of isolating and correcting non-compliant programming and the 23 24 limited internal resources available, the increasing demand for available external resources and the Company's ability to fund the use of external resources, to perform the work, there can be no assurances as to if, when and at what cost any such software work can be completed. The Company's own Year 2000 readiness is also affected by the Year 2000 readiness of its customers as well as of its suppliers of raw materials, components, peripherals, finished products and software and its providers of facilities, equipment and services and any failure on their part to achieve readiness in their own operations or with respect to the items they supply or otherwise provide to the Company. Insofar as no single customer has accounted for more than ten percent of the Company's revenues in recent fiscal years, the Company does not anticipate that its operating results will be materially adversely affected by the failure of any particular customer to itself be Year 2000 ready. The volume of Year 2000 inquiries which the Company has received from its customers regarding the Year 2000 readiness of the Company products they use further suggests that the Company's customers are addressing their Year 2000 issues. The Company has made Year 2000 readiness inquiries of the current suppliers to its engineering, manufacturing and service functions and is assessing the responses, which to date have been received from approximately three-quarters of those suppliers. The responses received from the suppliers have not identified any material Year 2000 issues but generally indicate only that the respective suppliers are in the midst of their own Year 2000 readiness efforts. The Company has also made readiness inquires of its providers of facilities and related equipment and services (elevators, HVAC, utilities, etc.). As the result of a limited number of potential Year 2000 issues which those inquiries have identified to date, the Company has replaced or is in the process of updating the affected items at a nominal cost. The Company is still in the process of receiving, assessing and following up on the providers' responses, most of which have indicated only that the respective providers are in the midst of their own Year 2000 readiness efforts. There are several possible scenarios, which, alone or in aggregate effect, could, depending on the particular circumstances, materially adversely affect the Company's business and/or its financial results or conditions. These scenarios could affect the Year 2000 readiness of the Company's own product or service offerings, disrupt its business operations or negatively impact its operating results. The Company could be adversely affected by the failure of one or more of its suppliers of raw materials, components, peripherals, finished products or software or its providers of facilities, equipment and services to achieve Year 2000 readiness in their own operations or with respect to the items they supply or otherwise provide to the Company. If such an event were to, or circumstances indicate that one is likely to, occur, the Company would seek alternative sources of supply (the Company periodically reviews its sourcing options as part of its general operating procedures independent of Year 2000 concerns) or seek to develop or obtain a software upgrade to make the affected item Year 2000 ready. As with all businesses engaged in some facet of the computer industry, there is a risk that the Company's customers may, in advance of or after the change in the millennium, experience Year 2000 failures or other difficulties in their use of computer systems comprised of or incorporating products or services furnished by the Company and may commence legal action or seek other compensation for their resulting losses; such legal actions, even if not ultimately determined adverse to the Company, would likely involve significant defense costs to the Company, particularly where the combination of products and/or services of several different vendors in addition to the Company in the subject customer system presents complex issues for isolating the cause of the Year 2000 problem and determining the vendor responsible for that problem. Disruptions in the economy generally, domestically and/or in foreign countries, resulting from Year 2000 issues could also materially affect the Company. At this time, the Company does not believe 24 25 that the likelihood of any of the above scenarios occurring can be reliably predicted, or that the nature or extent of their possible adverse effects on the Company, can be reasonably estimated. Though the Company currently does not have formal contingency plans in place to address any particular possible Year 2000 scenario, the Company intends to develop appropriate contingency plans if and when any significant risks relating to its Year 2000 readiness can be more definitely identified. RESULTS OF OPERATIONS The results of operations and financial position of the company discussed below contains the results of operations and financial position of Aironet for all periods presented. Revenues (in thousands)
Three Months Ended June 30, Decrease --------------------------------------------- -------------------------------------- 1999 1998 Dollar Percentage --------------- ----------------- ------------------ ----------------- Product, net $77,180 $ 90,192 $ (13,012) -14.4% Customer service, net 20,139 20,970 (831) -4.0% --------------- ----------------- ------------------ Total net revenues $97,319 $111,162 $ (13,843) -12.5% =============== ================= ==================
Net product revenues include the sale of portable tele-transaction computers ("PTCs"), including rugged, wireless mobile computers and pen-based and touch-screen workslates; hardware accessories; wireless data communication products; custom application software, network management software and software licenses; and a variety of professional services, including system integration and project management. The decrease in consolidated product revenues for the first quarter of fiscal 2000 as compared to the first quarter of fiscal 1999 was primarily due the absence of a large rollout of the Company's product to a large domestic retailer, for which revenue was deferred pending customer acceptance of such product. The amount of revenue deferred related to this transaction was $8.4 million. The revenues related to this one customer, in total, decreased $5.3 during the first quarter of fiscal 2000 as compared to the first quarter of fiscal 1999. Additionally, there was an absence of a large rollout of the Company's product to a mobile services and repair operation of a manufacturing company which took place in the first quarter of fiscal 1999. The revenues related to this one transaction were $7.8 million. Also, the volume of revenues recorded in the Company's Value-Add distributor channel decreased approximately $5.9 million for the first quarter of fiscal 2000 as compared with the first quarter of fiscal 1999 as the Company's new management is emphasizing the direct sales channel. These decreases were partially offset by increases in revenues recorded in the Company's international operations and at Aironet. The decrease in the consolidated customer service revenues during the first quarter of fiscal 2000 was primarily the result of decreased "time and material" repair billings due to start-up issues with the Company's new business information systems. This was 25 26 also supplemented by the impact of decreased product revenues over the past two quarters. Partially offsetting these decreases was the continued growth in the Company's installed base of product. Revenues from the Company's international operations (including Canada) increased $1.8 million or 5.7% during the first quarter of fiscal 2000 as compared to fiscal 1999 levels. The increase in the Company's international revenues was primarily caused by a $2.1 million increase in the Company's revenues in Germany, where a large rollout to a single customer took place and a $1.1 million increase in revenues in France. These increases were offset by a $1.2 million decrease in the Company's Canadian operation's revenues. Changes in foreign exchange rates did not have a material impact on the results of the Company's international operations. The Company's reserve for sales returns and allowances decreased from a balance at March 31, 1999 of $15.0 million to a balance of $10.8 million at June 30, 1999. This decrease was caused by fewer outstanding accounts receivable from the Company's Value-Add distributors and improved rates of return and cash collections in the Company's direct sales channel.
Cost of Revenues (in thousands) Three Months Ended June 30, Decrease ---------------------------------- ------------------------------------- Cost of Revenues: 1999 1998 Dollar Percentage --------------- ---------------- ----------------- ----------------- Product $54,184 $54,473 $ (289) -0.5% Customer service 12,433 12,826 (393) -3.1% --------------- ---------------- ----------------- Total cost of revenues $66,617 $67,299 $ (682) -1.0% =============== ================ ================= Cost of product revenue as a percentage of product revenue, net 70.2% 60.4% Cost of customer service revenue as a percentage of customer service revenue, net 61.7% 61.2%
The increase in the consolidated cost of product revenues as a percentage of consolidated product revenues was primarily the result of underabsorbed manufacturing overhead costs of $3.7 million due to lower than expected volumes and manufacturing inefficiencies. Also contributing to the increased cost percentage was an increase in the provisions for excess and obsolete manufacturing components of $.9 million, a negative purchase price variance related to manufacturing purchased components of $.3 million, and a provision for the write-down of equipment held subject to a lease of $.6 million. Fees accrued for distribution services provided by the Company's Value-Add distributors increased $.9 million during the first quarter of fiscal 2000 as compared with the first quarter of fiscal 1999. The Company also incurred severance charges of $.4 million related to terminated manufacturing personnel. 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 26 27 when existing facts and circumstances indicate that the subject inventory will not be utilized. Management disposes of excess and obsolete inventory as necessary and as manpower permits, although there are no formal plans to do so. During the first quarter of fiscal 2000, the Company physically disposed of $1.2 million of excess and obsolete material. Of this amount, $1.0 million of manufacturing purchased components were scrapped and $.2 million of inventories in the Company's international operations were disposed of. There were no recoveries related to the disposal of this material. Inventory allowance provisions for the quarter were composed of manufacturing purchased components of $1.3 million, customer service spare parts and used equipment of $.1 million and international finished goods inventories of $.3 million. At June 30, 1999, the inventory allowance accounts totaled $29.2 million and were composed of manufacturing purchased components of $22.7 million, customer service spare parts and used equipment of $4.1 million and international finished goods inventories of $2.0 million. In addition to the inventory allowance accounts, the Company has recorded accrued liabilities totaling $12.7 million for the purchase commitments to outside contract manufacturers for discontinued products. At June 30, 1999, the Company had approximately $21.9 million of finished goods inventory held at distributors and customers and approximately $5.5 million of manufacturing components at contract manufacturers. At March 31, 1999, the Company had approximately $25.7 million of finished goods inventory held at distributors and customers and approximately $5.7 million of manufacturing components at contract manufacturers. The decrease in the amount of finished goods held at distributors and customers is the result of revenue recognized upon installation and customer acceptance of the Company's product. Additionally, the inventory value of finished goods due back from customers as a result of product returns decreased in proportion to the decrease in the reserve for sales returns and allowances. The Company accrues fees due its distributors 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 the first quarter of fiscal 2000, the company incurred $.9 million of these fees. The increase in the customer service cost of revenues as a percentage of customer service revenues during the first quarter of fiscal 2000 from comparable fiscal 1999 levels was due to the decrease in repair volumes as a result of lower revenues. The decrease in revenues resulted in fixed overhead costs being spread over a smaller revenue base and therefore negatively impacting customer service gross margins. 27 28
Operating Expenses (in thousands) Three Months Ended (Decrease) June 30, Increase ------------------------------------ ----------------------------------- Operating expenses: 1999 1998 Dollar Percentage ---------------- --------------- --------------- ---------------- Selling Expenses $ 20,965 $23,542 $(2,577) -10.9% Product development and engineering expenses 8,908 9,014 (106) -1.2% General and administrative expenses 12,240 9,506 2,734 28.8% Unconsummated business combination costs - 1,749 (1,749) -100.0% ---------------- --------------- --------------- Total operating expenses $ 42,113 $43,811 $(1,698) -3.9% ================ =============== ===============
Consolidated selling expenses as a percentage of total revenues increased to 22% in the first quarter of fiscal 2000 from 21% in the first quarter of fiscal 1999. The overall decrease in consolidated selling expenses was primarily due to a decrease in the provision for doubtful accounts related to the past due accounts receivable of a foreign distributor of $1.5 million. The provision recorded for the first quarter of fiscal 2000 was $.7 million as compared to $2.2 million in the first quarter of fiscal 1999. Commission expenses recorded during the first quarter of fiscal 2000 decreased $1.1 million due to the overall decrease in product revenues for the quarter as compared to the first quarter of fiscal 1999. During the first quarter of fiscal 2000, the Company experienced a decreased level of write-offs related to test equipment sent to customers of $.6 million and reduced recruitment and relocation costs of $.3 million. These decreases were partially offset by severance costs of $.3 million. Also offsetting the decreases above were increased selling and marketing expenses at the Company's Aironet subsidiary. The Company's allowance for doubtful accounts decreased from a balance of $11.1 million at March 31, 1999 to a balance of $6.7 million at June 30, 1999. The Company provided for $1.1 million of bad debts and bad debt write-offs totaled $5.5 million during the first quarter of fiscal 2000. These bad debt write-offs included $3.3 million of accounts receivable related to the foreign distributor referenced above. Consolidated product development and engineering expenses as a percentage of total revenues increased to 9% in the first quarter of fiscal 2000 from 8% in the first quarter of fiscal 1999. Consolidated product development and engineering expenses for the first quarter of fiscal 2000 remained consistent with product development and engineering expenses from comparable fiscal 1999 levels. However, there were decreases in domestic product development and engineering expenses related to the absence of costs related to the relocation of certain product development and engineering operations from Akron, Ohio to Houston, Texas. These costs totaled $.6 million and included recruitment and relocation costs, duplicate rent, and travel expenses. Engineering and development efforts also increased at the Company's Metanetics subsidiary $.3 million from comparable fiscal 1999 levels. The Company also incurred severance charges of $.2 million during the first quarter of fiscal 2000 related to its product development and engineering operations. During the first quarter of fiscal 2000, the Company capitalized internal software development costs in accordance with the requirements of Statement of Financial Accounting Standards No. 86 "Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed" aggregating $.7 million, offset by amortization of $1.1 million on previously unamortized software. 28 29 Consolidated general and administrative expenses as a percentage of total revenues were 13% and 9% for the first quarters of fiscal 2000 and 1999, respectively. Consolidated general and administrative expenses increased primarily due to increased expenses of $1.5 million related to its corporate information systems project. Of this increase in costs, $.5 million was due to an increase in amortization of previously capitalized project costs for systems modules placed in service and the remaining $1.0 million was related to increased training and data conversion costs. Also contributing to the increase in general and administrative expenses was increased depreciation and computer hardware and software maintenance primarily related to the Company's on-going information systems of $.7 million. Severance charges of $.1 million also increased general and administrative expenses for the first quarter of fiscal 2000. The Company's domestic accrual for severance costs increased from a balance of $3.4 million at March 31, 1999 to a balance of $3.6 million at June 30, 1999. This increase was caused by severance charges during the first quarter of fiscal 2000 of $1.0 million partially offset by payments to previously terminated employees of $.8 million. A total of 29 employees were severed during the first quarter of fiscal 2000. Of the 29 employees, 28 employees were terminated and 1 employee was given a short period of notice. The areas of the Company affected were domestic sales operations, domestic product development, manufacturing operations and corporate administration. There have been no material changes to the amounts accrued at either March 31 or June 30, 1999. Operating expenses for fiscal 2000 were favorably impacted by the absence of unconsummated business combination costs incurred in response to an unsolicited takeover proposal and to a proxy contest of $1.7 million. Interest Expense and Other Non-operating Income (Expense), net (in thousands)
Three Months Ended Increase June 30, (Decrease) ----------------------------------- ------------------------------------ 1999 1998 Dollar Percentage --------------- ----------------- ---------------- ----------------- Interest income $ 323 $ 179 $ 144 80.4% Interest expense (3,292) (1,713) (1,579) 92.2% Gain on sale of subsidiary stock - 340 (340) -100.0% Other non-operating (expense) income (629) 1,020 (1,649) -161.7% --------------- ----------------- ---------------- Total interest expense and other non-operating (expense) income, net $ (3,598) $ (174) $ (3,424) N.M. =============== ================= ================
Interest expense increased for the first quarter of fiscal 2000 as compared to the first quarter of fiscal 1999 due to the increased amounts outstanding under the Company's credit facilities. Amounts oustanding under these facilities were $63.5 million as of June 30, 1999 and $25.0 million as of June 30, 1998. During the first quarter of fiscal 2000, the Company recorded $1.3 million of non-operating expense related to the reduction in carrying value of an investment in non-marketable securities. The Company's estimate of the reduction was based upon 29 30 the market value of subsequent equity transactions of the investee with third parties. The investment is composed of preferred shares in the development-stage technology company that purchased the Company's Virtual Vision subsidiary. During the first quarter of fiscal 2000, the Company sold an investment in marketable securities for cash proceeds of $1.5 million. As this investment was previously non-marketable, its carrying value was based upon the cost basis and was $.7 million. The Company therefore recorded a pre-tax gain of $.8 million. During the first quarter of fiscal 1999, the transaction to sell the stock of Virtual Vision to a third party was consummated, resulting in the recording of a $.9 million non-operating gain. Subsequent to the consummation of the transaction, positive adjustments to such gain totaling $.1 million were recorded. These adjustments related to changes in purchase price based upon key employee retention rates subsequent to the transaction. During the first quarter of fiscal 1999, Aironet sold 222,222 shares of its voting common stock to various third-party investors at a price of $3.50 per share. The resulting pre-tax net gain of approximately $.3 million was recorded as other non-operating income in the accompanying consolidated statement of operations. In addition to the sale of the shares of stock, 66,667 warrants at $3.50 per share for the purchase of Aironet voting common stock were issued. A gain of approximately $.05 million relating to these warrants has been deferred until the warrants are exercised or lapse. The Company's remaining interest in the voting common stock of Aironet at June 30, 1998, was approximately 76%.
Income Taxes (in thousands) Three Months Ended June 30, Increase ----------------------------------- ----------------------------------- 1999 1998 Dollar Percentage -------------- ---------------- -------------- ----------------- Provision (benefit) for income taxes $1,692 $ (22) $1,714 N.M.
The Company's consolidated tax provision of $1.7 million on a pre-tax loss was due to foreign taxes and taxes related to the Company's Aironet subsidiary of $1.3 million and $.3 million, respectively. No tax benefit has been recognized for the first quarter of fiscal 2000 U.S. operating loss based on the Company's current assessment that it is more likely than not that these deferred tax assets will not be utilized through future taxable income or implementation of tax planning strategies. 30 31
Liquidity (in thousands, except ratios) Dollar June 30, March 31, Increase 1999 1999 (Decrease) ---------------- ---------------- ----------------- Cash and cash equivalents $ 26,095 $ 22,459 $ 3,636 Accounts receivable 76,640 84,500 (7,860) Notes and other receivables 5,687 4,015 1,672 Inventories 121,250 129,049 (7,799) Other 8,655 9,029 (374) ---------------- ---------------- ----------------- Total current assets $238,327 $249,052 $(10,725) ================ ================ ================= Notes payable $ 63,482 $ 68,567 $ (5,085) Capital lease obligations 406 525 (119) Accounts payable 69,036 64,966 4,070 Income taxes payable 9,017 6,434 2,583 Accrued liabilities 80,937 74,285 6,652 ---------------- ---------------- ----------------- Total current liabilities $222,878 $214,777 $ 8,101 ================ ================ ================= Working capital (current assets less current liabilities) $ 15,449 $ 34,275 $(18,826) ================ ================ ================= Current ratio (current assets divided by current liabilities) 1.1 to 1 1.2 to 1
The decrease in the Company's consolidated working capital at June 30, 1999, from March 31, 1999, was due primarily to the decrease in accounts receivable and inventories and the increases in accrued liabilities and accounts payable. These reductions in working capital were partially offset by increases in cash and a decrease in the notes payable balance. The decrease in the accounts receivable balance reflects improved cash collections in the Company's domestic operations for the month of June, 1999. Accordingly, consolidated days sales outstanding decreased from 98 days at March 31, 1999 to 72 days at June 30, 1999. The decrease in the Company's inventories related to the Company's finished goods inventory held at customers as the Company's reserve for sales returns and allowances was reduced, and revenues related to such goods has been recognized. Inventories related to manufacturing operations also declined due to a decrease in the purchase of components for the Company's products. Finished goods inventories declined primarily due to a large rollout that occurred in Germany. These decreases were partially offset by an increase in customer service spare parts inventories. Consolidated inventory turns decreased to approximately 1.8 at June 30, 1999, from approximately 2.3 at March 31, 1999. This decrease in inventory turns was primarily caused by the absence of inventory and other cost of revenues charges that occurred during the fourth quarter of fiscal 1999. Accrued liabilities increased primarily due to the increase in deferred hardware revenues as a large retail customer paid for the Company's products in advance of delivery of such products. Accounts payable increased as the Company continues to manage its payments to vendors. Notes payable decreased as the Company repaid amounts outstanding to financial institutions. These repayments were primarily related to a product financing arrangement. 31 32
Cash Flows from Operating Activities (in thousands) Dollar Three Months Ended (Decrease) June 30, Increase --------------------------------------- in Cash Flow 1999 1998 Impact ---------------- ----------------- -------------------- Net loss $(16,701) $ (100) $ (16,601) Depreciation and amortization 6,177 6,233 (56) Provision for doubtful accounts 1,157 2,431 (1,274) Provision for inventory obsolescence 1,725 688 1,037 Accounts and notes receivable 5,588 (2,805) 8,393 Gain on sale of subsidiary - (900) 900 Inventories 6,103 (5,707) 11,810 Prepaid expenses and other 7 (1,706) 1,713 Accounts payable and acrued liabilities 13,312 (17,047) 30,359 Other 161 (1,897) 2,058 Net cash provided by (used in) ================ ================= ==================== operating activities $ 17,529 $(20,810) $ 38,339 ================ ================= ====================
The increase in cash flows from the Company's consolidated operating activities for the first quarter of fiscal 2000 from the corresponding fiscal 1999 period was primarily due to the increased cash flow impact of accounts payable and accrued liabilities, inventories, and accounts and notes receivable. These positive cash flow impacts were partially offset by the increase in the net loss incurred and decrease in the provision for doubtful accounts.
Cash Flows from Investing Activities (in thousands) Three Months Ended Dollar June 30, Increase ------------------------------------- in Cash Flow 1999 1998 Impact --------------- ----------------- ------------------- Additions to property and equipment $(7,845) $ (9,868) $ 2,023 Software and other investments (1,031) (1,178) 147 Purchase of non-marketable investments - (1,950) 1,950 Proceeds from sale of non-marketable investments 1,523 - 1,523 Other - (608) 608 =============== ================= =================== Net cash used in investing activities $(7,353) $(13,604) $ 6,251 =============== ================= ===================
The decrease in cash flows used in investing activities was primarily due to a decrease in the fixed asset additions for the first quarter of fiscal 2000 as compared to the first quarter of fiscal 1999. The decrease in fixed asset additions was primarily the result of the absence of $2.7 million of capital additions related to the Company's relocation of certain product development and engineering operations from Akron, Ohio to Houston, Texas. This decrease was partially offset by a $1.4 million increase in the amount of capitalization of costs related to the Company's new corporate-wide information systems as this project nears completion. Capitalized project costs related to the project were $5.2 million during the first 32 33 quarter of fiscal 2000 as compared to $3.8 million in the first quarter of fiscal 1999. Also contributing to the decrease in cash flows used in investing activities was the absence of purchases of non-marketable investments. Proceeds from the sale of non-marketable securities occurring during the first quarter of fiscal 2000 also contributed to the net decrease in cash flows used in investing activities.
Cash Flows from Financing Activities (in thousands) Three Months Ended Dollar June 30, Decrease --------------- --------------- in Cash Flow 1999 1998 Impact --------------- --------------- -------------------- (Repayments) borrowings on notes payable, net $(5,085) $22,005 $ (27,090) Principal payments on capital leases (223) (175) (48) Costs related to the public offering of subsidiary (1,179) - (1,179) Proceeds from exercise of stock options - 584 (584) =============== =============== ==================== Net cash (used in) provided by financing activities $(6,487) $22,414 $ (28,901) =============== =============== ====================
The decrease in cash flows provided by financing activities was primarily the result of increased borrowings during the first quarter of fiscal 1999 in order to meet operating cash flow requirements for that period. There were no similar borrowings during the first quarter of fiscal 2000 as the Company could not borrow additional amounts under its existing credit facilities. The Company repayment of amounts due under product financing arrangements during the quarter reduced the outstanding notes payable balance. Subsequent Events Subsequent to June 30, 1999, the Company's Aironet subsidiary sold 6,000,000 shares of Aironet voting common stock in an initial public offering on the Nasdaq National Market at an offering price of $11.00 per share. Of the total number of shares offered, Aironet sold 4,000,000 shares and the Company sold 2,000,000 shares. The aggregate proceeds, net of underwriting discounts and commissions, were $40.9 million to Aironet and $20.5 million to Telxon. Subsequent to this transaction the Company's remaining interest in Aironet was approximately 39%. Prior to the sale of these shares, the Company's interest in the voting common stock of Aironet was approximately 76%. As a result of this transaction and the dilution of its voting interest and control of Aironet, the Company intends to cease consolidation of the results of Aironet. Subsequent to June 30, 1999, the Company received a commitment letter from a financial institution to provide a $100.0 million senior secured credit facility to the Company as a replacement for the Company's existing revolving credit agreement and business purpose promissory note. Such commitment letter is subject to conditions precedent and subsequent to closing. Borrowings under the revolving loan provisions of such facility would be subject to availability on qualifying accounts receivable and inventory, reduced by amounts borrowed under the facility's term loan features and amounts outstanding under letters of credit. Availability under the agreement is estimated to be $71.0 million as of August 1, 1999. The facility would have three term loan features. The first term loan would have a limit of $6.0 million, but would be limited to a portion of the liquidation value of the Company's machinery and equipment. The repayment terms for this term loan 33 34 would be straight-line over a 10-year period. The second term loan would have a limit of $10.0 million and would be limited, together with the $20.0 million term loan discussed below, by specified percentages of the market value of Aironet capital stock owned by the Company. The repayment of this term loan would be straight-line over a 3-year period. The third term loan of $20.0 million would be limited by a specific percentages of the market value of Aironet capital stock owned by the Company. The repayment term of this loan would be due the earlier of 120 days from closing or upon any sale of additional capital stock of Aironet by the Company. The interest rate charged on the revolving loan, the $6.0 million term loan, and the $20.0 million term loan would be 2.75% above the Eurodollar rate or 0.5% above the financial institution's prime lending rate. Interest would be payable monthly. The interest rate charged would be subject to change based upon the Company's financial results. The interest rate on the $10.0 million term loan would be fixed at 12.5%. The facility also would call for the payment of an unused line fee of 0.375% per annum on a monthly basis. The facility will be collateralized by substantially all of the Company's assets. Restrictive covenants with respect to this facility have not yet been determined. New Accounting Standards In fiscal 1998, the FASB issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 establishes standards for reporting comprehensive income, which has been defined as the change in equity of an entity during a period from transactions and other events and circumstances from nonowner sources, in the basic financial statements. The Company was required to adopt the provisions of SFAS No. 130 for the fiscal year ended March 31, 1999, beginning with the quarter ended June 30, 1998, and to restate any prior period financial statements included for comparative purposes to reflect the application of SFAS No. 130. As the adoption of this pronouncement only modifies disclosures, there is no effect on the Company's consolidated financial position, results of operations or cash flows. During fiscal 1998, the FASB issued Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information" ("SFAS No. 131"). SFAS No. 131 revises the manner in which an entity determines the operating segments it must report as well as requires the disclosure of additional segment information. The Company adopted the provisions of SFAS No. 131 for the fiscal year ended March 31, 1999, and has restated prior period financial statements included for comparative purposes to reflect the application of SFAS No. 131. As the adoption of this pronouncement only modifies disclosures, there is no effect on the Company's consolidated financial position, results of operations or cash flows. In fiscal 1998, the AICPA issued Statement of Position 97-2, "Software Revenue Recognition" ("SOP 97-2"). SOP 97-2 provides guidance on the recognition of revenue for the licensing, selling, leasing and marketing of computer software to customers. The Company adopted the provisions of SOP 97-2 for the fiscal year ended March 31, 1999. The adoption of this pronouncement did not have a material effect on the Company's consolidated financial position, results of operations or cash flows. In fiscal 1998, the AICPA issued Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 requires the capitalization of certain costs incurred in the development of software used by a company for its own internal operations. The Company adopted the provisions of SOP 98-1 for the fiscal year ended March 31, 1999. The adoption of this pronouncement did not have a material effect on the Company's consolidated financial position, results of operations or cash flows. 34 35 During fiscal 1999, the AICPA issued Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5 requires costs of start-up activities and organization costs to be expensed as incurred. The Company adopted the provisions of SOP 98-5 for the fiscal year ended March 31, 1999. The adoption of this pronouncement did not have a material effect on the Company's consolidation financial position, results of operations or cash flows. During fiscal 1999, the FASB issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 provides accounting and reporting standards for derivative instruments. This standard will require the Company to recognize all derivatives as either assets or liabilities in the statement of financial position and to measure those instruments at fair value. The Company is required to adopt the provisions of SFAS No. 133 during the first quarter of fiscal 2002 (as delayed by Statement of Financial Accounting Standards No. 137 - Deferral of the Effective Date of FASB Statement No. 133). Management believes that the adoption of this pronouncement will not have a material effect on the Company's consolidated financial position, results of operations or cash flows. 35 36 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits required by Item 601 of Regulation S-K: 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 Text of form of Certificate for Registrant's Common Stock, par value $.01 per share, and description of graphic and image material appearing thereon, incorporated herein by reference to Exhibit 4.2 to Registrant's Form 10-Q for the quarter ended June 30, 1995. 4.3 Rights Agreement between Registrant and KeyBank National Association, as Rights Agent, dated as of August 25, 1987, as amended and restated as of July 31, 1996, incorporated herein by reference to Exhibit 4 to Registrant's Form 8-K dated August 5, 1996. 4.3.1 Form of Rights Certificate (included as Exhibit A to the Rights Agreement included as Exhibit 4.3 above). Until the Distribution Date (as defined in the Rights Agreement), the Rights Agreement provides that the common stock purchase rights created thereunder are evidenced by the certificates for Registrant's Common Stock (the text of which and description thereof is included as Exhibit 4.2 above, which stock certificates are deemed also to be certificates for such common stock purchase rights) and not by separate Rights Certificates; as soon as practicable after the Distribution Date, Rights Certificates will be mailed to each holder of Registrant's Common Stock as of the close of business on the Distribution Date. 36 37 4.3.2 Letter agreement among Registrant, KeyBank National Association and Harris Trust and Savings Bank, dated June 11, 1997, with respect to the appointment of Harris Trust and Savings Bank as successor Rights Agent under the Rights Agreement included as Exhibit 4.3 above, incorporated herein by reference to Exhibit 4.3.2 to Registrant's Form 10-K for the year ended March 31, 1997. 4.4 Indenture by and between Registrant and AmeriTrust Company National Association, as Trustee, dated as of June 1, 1987, regarding Registrant's 7-1/2% Convertible Subordinated Debentures Due 2012, incorporated herein by reference to Exhibit 4.2 to Registrant's Registration Statement on Form S-3, Registration No. 33-14348, filed May 18, 1987. 4.4.1 Form of Registrant's 7-1/2% Convertible Subordinated Debentures Due 2012 (set forth in the Indenture included as Exhibit 4.4 above). 4.5 Indenture by and between Registrant and Bank One Trust Company, N.A., as Trustee, dated as of December 1, 1995, regarding Registrant's 5-3/4% Convertible Subordinated Notes due 2003, incorporated herein by reference to Exhibit 4.1 to Registrant's Registration Statement on Form S-3, Registration No. 333-1189, filed February 23, 1996. 4.5.1 Form of Registrant's 5-3/4% Convertible Subordinated Notes due 2003 issued under the Indenture included as Exhibit 4.5 above, incorporated herein by reference to Exhibit 4.2 to Registrant's Registration Statement on Form S-3, Registration No. 333-1189, filed February 23, 1996. 4.5.2 Registration Rights Agreement by and among Registrant and Hambrecht & Quist LLC and Prudential Securities Incorporated, as the Initial Purchasers of Registrant's 5-3/4% Convertible Subordinated Notes due 2003, with respect to the registration of said Notes under applicable securities laws, incorporated herein by reference to Exhibit 4.3 to Registrant's Registration Statement on Form S-3, Registration No. 333-1189, filed February 23, 1996. 10.1 Compensation and Benefits Plans of Registrant. 10.1.1 Amended and Restated Retirement and Uniform Matching Profit-Sharing Plan of Registrant, as amended, incorporated herein by reference to Exhibit 10.1.1 to Registrant's Form 10-K for the year ended March 31, 1999. 10.1.2 1990 Stock Option Plan for employees of Registrant, as amended, incorporated herein by reference to Exhibit 10.1.2 to Registrant's Form 10-Q for the quarter ended September 30, 1997. 37 38 10.1.3 1990 Stock Option Plan for Non-Employee Directors of Registrant, as amended, incorporated herein by reference to Exhibit 10.1.3 to Registrant's Form 10-Q for the quarter ended September 30, 1998. 10.1.4 Non-Qualified Stock Option Agreement between Registrant and Raj Reddy, dated as of October 17, 1988, incorporated herein by reference to Exhibit 10.1.4 to Registrant's Form 10-Q for the year ended March 31, 1999. 10.1.4.a Description of amendments extending the term of the Agreement included as Exhibit 10.1.4 above, incorporated herein by reference to Exhibit 10.1.4.a to Registrant's Form 10-Q for the quarter ended September 30, 1998. 10.1.5 1992 Restricted Stock Plan of Registrant, as amended, incorporated herein by reference to Exhibit 10.1.5 to Registrant's Form 10-Q for the quarter ended December 31, 1998. 10.1.6 1995 Employee Stock Purchase Plan of Registrant, as amended, incorporated herein by reference to Exhibit 10.1.7 to Registrant's Form 10-Q for the quarter ended September 30, 1995. 10.1.7 1996 Stock Option Plan for employees, directors and advisors of Aironet Wireless Communications, Inc., a subsidiary of Registrant, incorporated herein by reference to Exhibit 10.1.7 to Registrant's Form 10-K for the year ended March 31, 1997. 10.1.7.a Amended and Restated 1996 Stock Option Plan for employees, directors and advisors of Aironet Wireless Communications, Inc., incorporated herein by reference to Exhibit 10.1.7.a to Registrant's Form 10-K for the year ended March 31, 1998. 10.1.7.b First Amendment to Amended and Restated 1996 Stock Option Plan for employees, directors and advisors of Aironet Wireless Communications, Inc., incorporated herein by reference to Exhibit 10.1.7.b to Registrant's Form 10-K for the year ended March 31, 1999. 10.1.8 1999 Stock Option Plan for Non-Employee Directors of Aironet Wireless Communications, Inc., incorporated herein by reference to Exhibit 10.1.8 to Registrant's Form 10-K for the year ended March 31, 1999. 38 39 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 Amended and Restated Employment Agreement between Registrant and James G. Cleveland, effective as of April 1, 1997, incorporated herein by reference to Exhibit 10.1.10 to Registrant's Form 10-K for the year ended March 31, 1998. 10.1.14 Amended and Restated Employment Agreement between Registrant and Danny R. Wipff, effective as of April 1, 1997, incorporated herein by reference to Exhibit 10.1.14 to Registrant's Form 10-K for the year ended March 31, 1998. 10.1.15 Description of Key Employee Retention Program, incorporated herein by reference to Exhibit 10.1.15 to Registrant's Form 10-K for the year ended March 31, 1998. 10.1.15.a Form of letter agreement made with key employees selected under the retention program described in Exhibit 10.1.15 above, incorporated herein by reference to Exhibit 10.1.15.a to Registrant's Form 10-K for the year ended March 31, 1998. 10.1.16 Employment Agreement, effective as of April 1, 1997, between Registrant and Frank E. Brick, a former executive officer, incorporated herein by reference to Exhibit 10.1.9 to Registrant's Form 10-K for the year ended March 31, 1998. 10.1.17 Amended and Restated Employment Agreement, effective as of April 1, 1997, between Registrant and Kenneth W. Haver, a former executive officer, incorporated herein by 39 40 reference to Exhibit 10.1.11 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 David W. Porter, a former executive officer, incorporated herein by reference to Exhibit 10.1.13 to Registrant's Form 10-K for the year ended March 31, 1998. 10.1.19 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. 10.1.20 Amended and Restated Employment Agreement between Registrant and Gerald J. Gabriel, effective as of April 1, 1997, incorporated herein by reference to Exhibit 10.1.20 to Amendment No. 1 on Form 10-K/A to Registrant's Form 10-K for the year ended March 31, 1999. 10.1.21 Amended and Restated Employment Agreement between Registrant and David D. Loadman, a former executive officer, incorporated herein by reference to Exhibit 10.1.12 to Registrant's Form 10-K for the year ended March 31, 1998. 10.2 Material Leases of Registrant. 10.2.1 Lease between Registrant and 3330 W. Market Properties, dated as of December 30, 1986, 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. 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. 40 41 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 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 41 42 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. 10.3 Credit Agreements of Registrant. 10.3.1 Credit Agreement by and among Registrant, the lenders party thereto from time to time and The Bank of New York, as letter of credit issuer, swing line lender and agent for the lenders, dated as of March 8, 1996, incorporated herein by reference to Exhibit 10.3.2 to Registrant's Form 10-K for the year ended March 31, 1996. 10.3.1.a Amendment No. 1, dated as of August 6, 1996, to the Agreement included as Exhibit 10.3.1 above, incorporated herein by reference to Exhibit 10.3.2.a to Registrant's Form 8-K dated August 16, 1996. 10.3.1.b Amendment No. 2, dated as of December 16, 1996, to the Agreement included as Exhibit 10.3.1 above, incorporated herein by reference to Exhibit 10.3.2.c to Registrant's Form 8-K dated December 16, 1996. 10.3.1.c Amendment No. 3, dated as of December 12, 1997, to the Agreement included as Exhibit 10.3.1 above, included herein by reference to Exhibit 10.3.1.d to Registrant's Form 10-K for the year ended March 31, 1998. 10.3.1.d Waiver and Agreement, dated as of December 29, 1998, with respect to the Agreement included as Exhibit 10.3.1 above, incorporated herein by reference to Exhibit 10.3.1.e to Registrant's Form 10-Q for the quarter ended December 31, 1998. 10.3.1.e Waiver Extension and Agreement, dated as of February 12, 1999, with respect to the Agreement included as Exhibit 10.3.1 above, incorporated herein by reference to Exhibit 10.3.1.f to 42 43 Registrant's Form 10-Q for the quarter ended December 31, 1998. 10.3.1.f Second Waiver Extension Agreement and Amendment No. 4, dated as of March 26, 1999, with respect to the Agreement included as Exhibit 10.3.1 above, incorporated herein by reference to Exhibit 10.3.1.a to Registrant's Form 8-K dated April 1, 1999. 10.3.1.g Amended and Restated Security Agreement, dated as of March 26, 1999, by and among Registrant and The Bank of New York, as Agent for the Lenders from time to time party to the Agreement included as Exhibit 10.3.1 above, incorporated herein by reference to Exhibit 10.3.1.b to Registrant's Form 8-K dated April 1, 1999. 10.3.1.h Deed of Trust, Assignment of Leases and Rents, Security Agreement, Fixture Filing and Financing Statement, dated as of March 26, 1999, by Registrant to First American Title Insurance Company as Trustee for the benefit of The Bank of New York, as Agent for the Lenders from time to time party to the Agreement included as Exhibit 10.3.1 above, incorporated herein by reference to Exhibit 10..3.1.h to Registrant's Form 10-K for the year ended March 31, 1999. 10.3.1.i Patent and Trademark Security Agreement, dated as of March 26, 1999, by Registrant and certain of its subsidiaries to The Bank of New York, as Agent for the benefit of the Lenders from time to time party to the Agreement included as Exhibit 10.3.1 above, incorporated herein by reference to Exhibit 10.3.1 to Registrant's Form 10-K for the year ended March 31, 1999. 10.3.1.j Pledge Agreement, dated as of March 26, 1999, by Registrant to The Bank of New York, as Agent for the benefit of the Lenders from time to time party to the Agreement included as Exhibit 10.3.1 above, incorporated herein by reference to Exhibit 10.3.1.j to Registrant's Form 43 44 10-K for the year ended March 31, 1999. 10.3.1.k Third Waiver Extension Agreement and Amendment No. 5, dated as of June 29, 1999, with respect to the Agreement included as Exhibit 10.3.1 above, incorporated herein by reference to Exhibit 10.3.1.a to Registrant's Form 8-K dated July 1, 1999. 10.3.2 Business Purpose Revolving Promissory Note (Swing Line) made by Registrant in favor of Bank One, NA , dated August 4, 1998 , incorporated herein by reference to Exhibit 10.3.4 to Registrant's Form 10-Q for the quarter ended June 30, 1998. 10.3.2.a Consent, dated as of December 29, 1998, with respect to the Note included as Exhibit 10.3.2 above, incorporated herein by reference to Exhibit 10.3.4.a to Registrant's Form 10-Q for the quarter ended December 31, 1998. 10.3.2.b Further Consent, dated as of February 12, 1999, with respect to the Note included as Exhibit 10.3.2 above, incorporated herein by reference to Exhibit 10.3.4.a to Registrant's Form 10-Q for the quarter ended December 31, 1998. 10.3.2.c Second Further Consent and Agreement, dated as of March 26, 1999, with respect to the Note included as Exhibit 10.3.2 above, incorporated herein by reference to Exhibit 10.3.4.c b to Registrant's Form 8-K dated April 1, 1999. 10.3.2.d Amended and Restated Security Agreement, dated as of March 26, 1999, by and among Registrant and Bank One, NA with respect to the Note included as Exhibit 10.3.2 above, incorporated herein by reference to Exhibit 10..3.2.d to Registrant's Form 10-K for the year ended March 31, 1999. 10.3.2.e Deed of Trust, Assignment of Leases and Rents, Security Agreement, Fixture Filing and Financing Statement, dated as of March 26, 1999, by Registrant to First American Title Insurance Company as Trustee for the 44 45 benefit of Bank One, NA with respect to the Note included as Exhibit 10.3.2 above, incorporated herein by reference to Exhibit 10.3.2.e to Registrant's Form 10-K for the year ended March 31, 1999.. 10.3.2.f Patent and Trademark Security Agreement, dated as of March 26, 1999, by Registrant and certain of its subsidiaries to Bank One, NA with respect to the Note included as Exhibit 10.3.2 above, incorporated herein by reference to Exhibit 10.3.2.f to Registrant's Form 10-K for the year ended March 31, 1999. 10.3.2.g Third Further Consent and Note Modification Agreement, dated as of June 29, 1999, with respect to the Note included as Exhibit 10.3.2 above, incorporated herein by reference to Exhibit 10.3.2.g b to Registrant's Form 8-K dated July 1, 1999. 10.4 Amended and Restated Agreement between Registrant and Symbol Technologies, Inc., dated as of September 30, 1992, incorporated herein by reference to Exhibit 10.4 to Registrant's Form 10-K for the year ended March 31, 1998. 10.5 License, Rights, and Supply Agreement between Aironet Wireless Communications, Inc., a subsidiary of Registrant, and Registrant, dated as of March 31, 1998, incorporated herein by reference to Exhibit 10.5 to Registrant's Form 10-K for the year ended March 31, 1998. 10.5.1 First Amendment, dated as of March 8, 1996, to the Agreement included as Exhibit 10.5 above, incorporated herein by reference to Exhibit 10.5.1 to Registrant's Form 10-K for the year ended March 31, 1999. 10.6 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. 10.7 Agreement of Purchase and Sale of Assets by and among Vision Newco, Inc., a subsidiary of Registrant, Virtual Vision, Inc., as debtor and debtor in possession, and the Official Unsecured Creditors' Committee, on behalf of the bankruptcy estate of Virtual Vision, dated as of July 13, 1995, incorporated herein by reference to Exhibit 10.8 to Registrant's Form 10-Q for the quarter ended June 30, 1995. 10.8 Stock Purchase Agreement by and among Registrant and FED Corporation, dated as of March 31, 1998, with 45 46 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 Subscription Agreement by and among New Meta Licensing Corporation, a subsidiary of Registrant, and certain officers of Registrant as Purchasers, dated as of September 19, 1995, incorporated herein by reference to Exhibit 10.8 to Registrant's Form 10-Q for the quarter ended September 30, 1995. 10.10 Amended and Restated Shareholder Agreement by and among Metanetics Corporation fka New Meta Licensing Corporation, and its Shareholders, including the officers of Registrant party to the Agreement included as Exhibit 10.8 above, dated as of March 28, 1996, incorporated herein by reference to Exhibit 10.9.3 to Registrant's Form 10-K for the year ended March 31, 1996. 10.10.1 First Amendment, dated as of March 30, 1996, to the Agreement included as Exhibit 10.9 above, incorporated herein by reference to Exhibit 10.9.4 to Registrant's Form 10-K for the year ended March 31, 1996. 10.11 Stock Purchase Agreement by and among Meta Holding Corporation, a subsidiary of Registrant, and certain officers of Registrant as Purchasers, dated as of March 30, 1996, incorporated herein by reference to Exhibit 10.8 to Registrant's Form 10-K for the year ended March 31, 1997. 10.12 Stock Purchase Agreement by and between Metanetics Corporation, a subsidiary of Registrant fka New Meta Licensing Corporation, and Accipiter II, Inc., dated as of September 30, 1996, incorporated herein by reference to Exhibit 10.8 to Registrant's Form 10-Q for the quarter ended September 30, 1996. 10.13 Stock Purchase Agreement by and between Registrant and Telantis Capital, Inc., dated as of March 31, 1997, incorporated herein by reference to Exhibit 10.10 to Registrant's Form 10-K for the year ended March 31, 1997. 10.14 Subscription Agreement by and among Aironet Wireless Communications, Inc., a subsidiary of Registrant, and the investors who executed the same, dated as of March 31, 1998, incorporated herein by reference to Exhibit 10.14 to Registrant's Form 10-K for the year ended March 31, 1998. 46 47 10.14.1 Form of Warrant issued pursuant to the Subscription Agreement included as Exhibit 10.14 above, incorporated herein by reference to Exhibit 10.14.1 to Registrant's Form 10-K for the year ended March 31, 1998. 10.14.2 Stockholders Agreement by and among Aironet Wireless Communications, Inc. and its Stockholders party thereto, including Registrant and the investors party to the Subscription Agreement included as Exhibit 10.14 above, entered into as of March 31, 1998 in connection with the transactions under the Subscription Agreement, incorporated herein by reference to Exhibit 10.14.2 to Registrant's Form 10-K for the year ended March 31, 1998. 10.14.3 Registration Rights Agreement by and among Aironet Wireless Communications, Inc. and certain of its security holders, including Registrant and the investors party to the Subscription Agreement included as Exhibit 10.14 above, entered into as of March 31, 1998 in connection with the transactions under the Subscription Agreement, incorporated herein by reference to Exhibit 10.14.3 to Registrant's Form 10-K for the year ended March 31, 1998. 10.15 DFS Vendor Agreement between Registrant and Deutsche Financial Services Corporation, dated as of September 30, 1998, incorporated herein by reference to Exhibit 10.15 to Registrant's Form 10-Q for the quarter ended December 31, 1998. 27. Financial Data Schedule as of June 30, 1999, filed herewith. (b) Reports on Form 8-K During the first quarter of fiscal 2000 to which this Annual Report on Form 10-Q relates, the Registrant filed the following Current Reports on Form 8-K: (1) Current Report bearing a cover date of April 1, 1999, attaching Registrant's press release of that date, announcing the extension of waivers under Registrant's revolving credit facility and separate business purpose revolving promissory note, effective through June 29, 1999, and certain related amendments to the underlying credit agreements, including the broadening of the lenders' collateral, as well as an approximately 4% reduction in Registrant's workforce; (2) Current Report bearing a cover date of May 14, 1999, attaching the press release issued by Registrant's Aironet Wireless Communications, Inc. subsidiary on that date regarding the filing of a Registration Statement with the Securities and Exchange Commission for a contemplated initial public offering of Aironet common stock; (3) Current Report bearing a cover date of June 16, 1999, attaching the Registrant's press release of that date, announcing a delay in the release of its financial results for the fourth quarter, ended March 31, 1999, of its 1999 fiscal year, that it expects a significant loss for the quarter, including adjustments for the "end-of-life" and discontinuation of certain products, a further restatement of the previously released results for its second fiscal quarter ended September 30, 1998 based on a year-end review by Registrant's outside auditors of a customer lease transaction and progress made by Registrant in the implementation of its new strategic plan. Subsequent to the end of the first quarter of fiscal 2000, Registrant filed the following Current Reports on Form 8-K: (i) Current Report bearing a cover date of July 1, 1999, attaching Registrant's press release of that date, announcing the further extension of waivers under Registrant's revolving credit facility and separate business purpose revolving promissory note, effective through August 30, 1999, and certain related amendments to the underlying credit agreements as well as a delay in the filing of the Form 10-K for Registrant's fiscal year ended March 31, 1999 pending completion of the closing of the Registrant's fourth fiscal quarter and the annual audit of its fiscal 1999 financial statements; (ii) Current Report bearing a cover date of July 14, 1999, which announced Registrant's financial results for the fourth quarter of fiscal 1999, and the fiscal year, ended March 31, 1999 (the press release, as incorporated in the Form 8-K, includes unaudited condensed consolidated balance sheets for the Registrant for March 31, 1999 and March 31, 1998 and unaudited condensed consolidated statements of operations for Registrant for the quarterly and twelve-month periods ended March 31, 1999 and March 31, 1998, which financial statements give effect to the restatements previously discussed in the Registrant's February 23, 1999, March 1, 1999 and June 16, 1999 press releases, each of which have been filed under cover of a form 8-K bearing a cover date as of the respective press release dates); and (iii) Current Report bearing a cover date of July 19, 1999, reporting the Company's engagement of Arthur Andersen LLP to audit the Company's consolidated financial statements for the fiscal year ending March 31, 2000 and the dismissal of PricewaterhouseCoopers LLP as the principal accountant to audit the Company's consolidated financial statements effective upon the completion of the audit of the Company's consolidated financial statements for the fiscal year ended March 31, 1999 and the issuance of their report thereon. 47 48 TELXON CORPORATION SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934,the registrant has duly caused this Form 10-Q to be signed and on its behalf by the undersigned thereunto duly authorized. Date: August 16, 1999 TELXON CORPORATION (Registrant) /s/ Woody M. McGee ----------------------- Woody M. McGee, Vice President and Chief Financial Officer 48 49 TELXON CORPORATION EXHIBITS TO FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1999 50 INDEX TO EXHIBITS
Where Filed - ----- * 3.1 Restated Certificate of Incorporation of Registrant, incorporated herein by reference to Exhibit No. 2(b) to Registrant's Registration Statement on Form 8-A with respect to its Common Stock filed pursuant to Section 12(g) of the Securities Exchange Act, as amended by Amendment No. 1 thereto filed under cover of a Form 8 and Amendment No. 2 thereto filed on Form 8-A/A. * 3.2 Amended and Restated By-Laws of Registrant, as amended, incorporated herein by reference to Exhibit 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 Text of form of Certificate for Registrant's Common Stock, par value $.01 per share, and description of graphic and image material appearing thereon, incorporated herein by reference to Exhibit 4.2 to Registrant's Form 10-Q for the quarter ended June 30, 1995. * 4.3 Rights Agreement between Registrant and KeyBank National Association, as Rights Agent, dated as of August 25, 1987, as amended and restated as of July 31, 1996, incorporated herein by reference to Exhibit 4 to Registrant's Form 8-K dated August 5, 1996. * 4.3.1 Form of Rights Certificate (included as Exhibit A to the Rights Agreement included as Exhibit 4.3 above). Until the Distribution Date (as defined in the Rights Agreement), the Rights Agreement provides that the common stock purchase rights created thereunder are evidenced by the certificates for Registrant's Common Stock (the text of which and description thereof is included as Exhibit 4.2 above, which stock certificates are deemed also to be certificates for such common stock purchase rights) and not by separate Rights Certificates; as soon as practicable after the Distribution Date, Rights Certificates will be mailed to each holder of Registrant's Common Stock as of the close of business on the Distribution Date. * 4.3.2 Letter agreement among Registrant, KeyBank National Association and Harris Trust and
51 Savings Bank, dated June 11, 1997, with respect to the appointment of Harris Trust and Savings Bank as successor Rights Agent under the Rights Agreement included as Exhibit 4.3 above, incorporated herein by reference to Exhibit 4.3.2 to Registrant's Form 10-K for the year ended March 31,1997. * 4.4 Indenture by and between Registrant and AmeriTrust Company National Association, as Trustee, dated as of June 1, 1987, regarding Registrant's 7-1/2% Convertible Subordinated Debentures Due 2012, incorporated herein by reference to Exhibit 4.2 to Registrant's Registration Statement on Form S-3, Registration No. 33-14348, filed May 18, 1987. * 4.4.1 Form of Registrant's 7-1/2% Convertible Subordinated Debentures Due 2012 (set forth in the Indenture included as Exhibit 4.4 above). * 4.5 Indenture by and between Registrant and Bank One Trust Company, N.A., as Trustee, dated as of December 1, 1995, regarding Registrant's 5-3/4% Convertible Subordinated Notes due 2003, incorporated herein by reference to Exhibit 4.1 to Registrant's Registration Statement on Form S-3, Registration No. 333-1189, filed February 23, 1996. * 4.5.1 Form of Registrant's 5-3/4% Convertible Subordinated Notes due 2003 issued under the Indenture included as Exhibit 4.5 above, incorporated herein by reference to Exhibit 4.2 to Registrant's Registration Statement on Form S-3, Registration No. 333-1189, filed February 23, 1996. * 4.5.2 Registration Rights Agreement by and among Registrant and Hambrecht & Quist LLC and Prudential Securities Incorporated, as the Initial Purchasers of Registrant's 5-3/4% Convertible Subordinated Notes due 2003, with respect to the registration of said Notes under applicable securities laws, incorporated herein by reference to Exhibit 4.3 to Registrant's Registration Statement on Form S-3, Registration No. 333-1189, filed February 23, 1996. 10.1 Compensation and Benefits Plans of Registrant. * 10.1.1 Amended and Restated Retirement and Uniform Matching Profit-Sharing Plan of Registrant, as amended, incorporated herein by reference to Exhibit 10.1.1 to Registrant's Form 10-K for the year ended March 31, 1999. * 10.1.2 1990 Stock Option Plan for employees of Registrant, as amended, incorporated herein by reference to Exhibit 10.1.2 to Registrant's Form 10-Q for the quarter ended September 30, 1997.
52 * 10.1.3 1990 Stock Option Plan for Non-Employee Directors of Registrant, as amended, incorporated herein by reference to Exhibit 10.1.3 to Registrant's Form 10-Q for the quarter ended September 30, 1998. * 10.1.4 Non-Qualified Stock Option Agreement between Registrant and Raj Reddy, dated as of October 17, 1988, incorporated herein by reference to Exhibit 10.1.4 to Registrant's Form 10-K for the year ended March 31, 1999. * 10.1.4.a Description of amendments extending the term of the Agreement included as Exhibit 10.1.4 above, incorporated herein by reference to Exhibit 10.1.4.a to Registrant's Form 10-Q for the quarter ended September 30, 1998. * 10.1.5 1992 Restricted Stock Plan of Registrant, as amended, incorporated herein by reference to Exhibit 10.1.5 to Registrant's Form 10-Q for the quarter ended December 31, 1998. * 10.1.6 1995 Employee Stock Purchase Plan of Registrant, as amended, incorporated herein by reference to Exhibit 10.1.7 to Registrant's Form 10-Q for the quarter ended September 30, 1995. * 10.1.7 1996 Stock Option Plan for employees, directors and advisors of Aironet Wireless Communications, Inc., a subsidiary of Registrant, incorporated herein by reference to Exhibit 10.1.7 to Registrant's Form 10-K for the year ended March 31, 1997. * 10.1.7.a Amended and Restated 1996 Stock Option Plan for employees, directors and advisors of Aironet Wireless Communications, Inc., incorporated herein by reference to Exhibit 10.1.7.a to Registrant's Form 10-K for the year ended March 31, 1998. * 10.1.7.b First Amendment to Amended and Restated 1996 Stock Option Plan for employees, directors and advisors of Aironet Wireless Communications, Inc., incorporated herein by reference to Exhibit 10.1.7.b to Registrant's Form 10-K for the year ended March 31, 1999. * 10.1.8 1999 Stock Option Plan for Non-Employee Directors of Aironet Wireless Communications, Inc., incorporated herein by reference to Exhibit 10.1.8 to Registrant's Form 10-K for the year ended March 31, 1999. * 10.1.9 Non-Competition Agreement by and between Registrant and Robert F. Meyerson, effective 53 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 Amended and Restated Employment Agreement between Registrant and James G. Cleveland, effective as of April 1, 1997, incorporated herein by reference to Exhibit 10.1.10 to Registrant's Form 10-K for the year ended March 31, 1998. * 10.1.14 Amended and Restated Employment Agreement between Registrant and Danny R. Wipff, effective as of April 1, 1997, incorporated herein by reference to Exhibit 10.1.14 to Registrant's Form 10-K for the year ended March 31, 1998. * 10.1.15 Description of Key Employee Retention Program, incorporated herein by reference to Exhibit 10.1.15 to Registrant's Form 10-K for the year ended March 31, 1998. * 10.1.15.a Form of letter agreement made with key employees selected under the retention program described in Exhibit 10.1.15 above, incorporated herein by reference to Exhibit 10.1.15.a to Registrant's Form 10-K for the year ended March 31, 1998. * 10.1.16 Employment Agreement, effective as of April 1, 1997, between Registrant and Frank E. Brick, a former executive officer, incorporated herein by reference to Exhibit 10.1.9 to Registrant's Form 10-K for the year ended March 31, 1998. * 10.1.17 Amended and Restated Employment Agreement, effective as of April 1, 1997, between Registrant and Kenneth W. Haver, a former executive officer, incorporated herein by reference to Exhibit 10.1.11 to Registrant's Form 10-K for the year ended March 31, 1998. 54 * 10.1.18 Amended and Restated Employment Agreement, effective as of April 1, 1997, between Registrant and David W. Porter, a former executive officer, incorporated herein by reference to Exhibit 10.1.13 to Registrant's Form 10-K for the year ended March 31, 1998. * 10.1.19 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. * 10.1.20 Amended and Restated Employment Agreement between Registrant and Gerald J. Gabriel, effective as of April 1, 1997, incorporated herein by reference to Exhibit 10.1.20 to Amendment No. 1 on Form 10-K/A to Registrant's Form 10-K for the year ended March 31, 1999. * 10.1.21 Amended and Restated Employment Agreement between Registrant and David D. Loadman, a former executive officer, incorporated herein by reference to Exhibit 10.1.12 to Registrant's Form 10-K for the year ended March 31, 1998. 10.2 Material Leases of Registrant. * 10.2.1 Lease between Registrant and 3330 W. Market Properties, dated as of December 30, 1986, 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. * 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 55 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 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. 56 * 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. 10.3 Credit Agreements of Registrant. * 10.3.1 Credit Agreement by and among Registrant, the lenders party thereto from time to time and The Bank of New York, as letter of credit issuer, swing line lender and agent for the lenders, dated as of March 8, 1996, incorporated herein by reference to Exhibit 10.3.2 to Registrant's Form 10-K for the year ended March 31, 1996. * 10.3.1.a Amendment No. 1, dated as of August 6, 1996, to the Agreement included as Exhibit 10.3.1 above, incorporated herein by reference to Exhibit 10.3.2.a to Registrant's Form 8-K dated August 16, 1996. * 10.3.1.b Amendment No. 2, dated as of December 16, 1996, to the Agreement included as Exhibit 10.3.1 above, incorporated herein by reference to Exhibit 10.3.2.c to Registrant's Form 8-K dated December 16, 1996. * 10.3.1.c Amendment No. 3, dated as of December 12, 1997, to the Agreement included as Exhibit 10.3.1 above, included herein by reference to Exhibit 10.3.1.d to Registrant's Form 10-K for the year ended March 31, 1998. * 10.3.1.d Waiver and Agreement, dated as of December 29, 1998, with respect to the Agreement included as Exhibit 10.3.1 above, incorporated herein by reference to Exhibit 10.3.1.e to Registrant's Form 10-Q for the quarter ended December 31, 1998. * 10.3.1.e Waiver Extension and Agreement, dated as of February 12, 1999, with respect to the Agreement included as Exhibit 10.3.1 above, incorporated herein by reference to Exhibit 10.3.1.f to Registrant's Form 10-Q for the quarter ended December 31, 1998. 57 * 10.3.1.f Second Waiver Extension Agreement and Amendment No. 4, dated as of March 26, 1999, with respect to the Agreement included as Exhibit 10.3.1 above, incorporated herein by reference to Exhibit 10.3.1.a to Registrant's Form 8-K dated April 1, 1999. * 10.3.1.g Amended and Restated Security Agreement, dated as of March 26, 1999, by and among Registrant and The Bank of New York, as Agent for the Lenders from time to time party to the Agreement included as Exhibit 10.3.1 above, incorporated herein by reference to Exhibit 10.3.1.b to Registrant's Form 8-K dated April 1, 1999. * 10.3.1.h Deed of Trust, Assignment of Leases and Rents, Security Agreement, Fixture Filing and Financing Statement, dated as of March 26, 1999, by Registrant to First American Title Insurance Company as Trustee for the benefit of The Bank of New York, as Agent for the Lenders from time to time party to the Agreement included as Exhibit 10.3.1 above, incorporated herein by reference to Exhibit 10.3.1.h to Registrant's Form 10-K for the year ended March 31, 1999. * 10.3.1.i Patent and Trademark Security Agreement, dated as of March 26, 1999, by Registrant and certain of its subsidiaries to The Bank of New York, as Agent for the benefit of the Lenders from time to time party to the Agreement included as Exhibit 10.3.1 above, incorporated herein by reference to Exhibit 10.3.1.i to Registrant's Form 10-K for the year ended March 31, 1999. * 10.3.1.j Pledge Agreement, dated as of March 26, 1999, by Registrant to The Bank of New York, as Agent for the benefit of the Lenders from time to time party to the Agreement included as Exhibit 10.3.1 above, incorporated herein by reference to Exhibit 10.3.1.j to Registrant's Form 10-K for the year ended March 31, 1999. 58 * 10.3.1.k Third Waiver Extension Agreement and Amendment No. 5, dated as of June 29, 1999, with respect to the Agreement included as Exhibit 10.3.1 above, incorporated herein by reference to Exhibit 10.3.1.a to Registrant's Form 8-K dated July 1, 1999. * 10.3.2 Business Purpose Revolving Promissory Note (Swing Line) made by Registrant in favor of Bank One, NA , dated August 4, 1998 , incorporated herein by reference to Exhibit 10.3.4 to Registrant's Form 10-Q for the quarter ended June 30, 1998. * 10.3.2.a Consent, dated as of December 29, 1998, with respect to the Note included as Exhibit 10.3.2 above, incorporated herein by reference to Exhibit 10.3.4.a to Registrant's Form 10-Q for the quarter ended December 31, 1998. * 10.3.2.b Further Consent, dated as of February 12, 1999, with respect to the Note included as Exhibit 10.3.2 above, incorporated herein by reference to Exhibit 10.3.4.a to Registrant's Form 10-Q for the quarter ended December 31, 1998. * 10.3.2.c Second Further Consent and Agreement, dated as of March 26, 1999, with respect to the Note included as Exhibit 10.3.2 above, incorporated herein by reference to Exhibit 10.3.4.c b to Registrant's Form 8-K dated April 1, 1999. * 10.3.2.d Amended and Restated Security Agreement, dated as of March 26, 1999, by and among Registrant and Bank One, NA with respect to the Note included as Exhibit 10.3.2 above, incorporated herein by reference to Exhibit 10.3.2.d to Registrant's Form 10-K for the year ended March 31, 1999. * 10.3.2.e Deed of Trust, Assignment of Leases and Rents, Security Agreement, Fixture Filing and Financing Statement, dated as of March 26, 1999, by Registrant to First American Title Insurance Company as Trustee for the benefit of Bank One, NA with respect to the Note included as Exhibit 10.3.2 above, 59 incorporated herein by reference to Exhibit 10.3.2.e to Registrant's Form 10-K for the year ended March 31, 1999. * 10.3.2.f Patent and Trademark Security Agreement, dated as of March 26, 1999, by Registrant and certain of its subsidiaries to Bank One, NA with respect to the Note included as Exhibit 10.3.2 above, incorporated herein by reference to Exhibit 10.3.2.f to Registrant's Form 10-K for the year ended March 31, 1999. * 10.3.2.g Third Further Consent and Note Modification Agreement, dated as of June 29, 1999, with respect to the Note included as Exhibit 10.3.2 above, incorporated herein by reference to Exhibit 10.3.2.g b to Registrant's Form 8-K dated July 1, 1999. * 10.4 Amended and Restated Agreement between Registrant and Symbol Technologies, Inc., dated as of September 30, 1992, incorporated herein by reference to Exhibit 10.4 to Registrant's Form 10-K for the year ended March 31, 1998. * 10.5 License, Rights, and Supply Agreement between Aironet Wireless Communications, Inc., a subsidiary of Registrant, and Registrant, dated as of March 31, 1998, incorporated herein by reference to Exhibit 10.5 to Registrant's Form 10-K for the year ended March 31, 1998. * 10.5.1 First Amendment, dated as of March 8, 1996, to the Agreement included as Exhibit 10.5 above, incorporated herein by reference to Exhibit 10.5.1 to Registrant's Form 10-K for the year ended March 31, 1999. * 10.6 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. * 10.7 Agreement of Purchase and Sale of Assets by and among Vision Newco, Inc., a subsidiary of Registrant, Virtual Vision, Inc., as debtor and debtor in possession, and the Official Unsecured Creditors' Committee, on behalf of the bankruptcy estate of Virtual Vision, dated as of July 13, 1995, incorporated herein by reference to Exhibit 10.8 to Registrant's Form 10-Q for the quarter ended June 30, 1995. * 10.8 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 60 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 Subscription Agreement by and among New Meta Licensing Corporation, a subsidiary of Registrant, and certain officers of Registrant as Purchasers, dated as of September 19, 1995, incorporated herein by reference to Exhibit 10.8 to Registrant's Form 10-Q for the quarter ended September 30, 1995. * 10.10 Amended and Restated Shareholder Agreement by and among Metanetics Corporation fka New Meta Licensing Corporation, and its Shareholders, including the officers of Registrant party to the Agreement included as Exhibit 10.8 above, dated as of March 28, 1996, incorporated herein by reference to Exhibit 10.9.3 to Registrant's Form 10-K for the year ended March 31, 1996. * 10.10.1 First Amendment, dated as of March 30, 1996, to the Agreement included as Exhibit 10.9 above, incorporated herein by reference to Exhibit 10.9.4 to Registrant's Form 10-K for the year ended March 31, 1996. * 10.11 Stock Purchase Agreement by and among Meta Holding Corporation, a subsidiary of Registrant, and certain officers of Registrant as Purchasers, dated as of March 30, 1996, incorporated herein by reference to Exhibit 10.8 to Registrant's Form 10-K for the year ended March 31, 1997. * 10.12 Stock Purchase Agreement by and between Metanetics Corporation, a subsidiary of Registrant fka New Meta Licensing Corporation, and Accipiter II, Inc., dated as of September 30, 1996, incorporated herein by reference to Exhibit 10.8 to Registrant's Form 10-Q for the quarter ended September 30, 1996. * 10.13 Stock Purchase Agreement by and between Registrant and Telantis Capital, Inc., dated as of March 31, 1997, incorporated herein by reference to Exhibit 10.10 to Registrant's Form 10-K for the year ended March 31, 1997. * 10.14 Subscription Agreement by and among Aironet Wireless Communications, Inc., a subsidiary of Registrant, and the investors who executed the same, dated as of March 31, 1998, incorporated herein by reference to Exhibit 10.14 to Registrant's Form 10-K for the year ended March 31, 1998. 61 * 10.14.1 Form of Warrant issued pursuant to the Subscription Agreement included as Exhibit 10.14 above, incorporated herein by reference to Exhibit 10.14.1 to Registrant's Form 10-K for the year ended March 31, 1998. * 10.14.2 Stockholders Agreement by and among Aironet Wireless Communications, Inc. and its Stockholders party thereto, including Registrant and the investors party to the Subscription Agreement included as Exhibit 10.14 above, entered into as of March 31, 1998 in connection with the transactions under the Subscription Agreement, incorporated herein by reference to Exhibit 10.14.2 to Registrant's Form 10-K for the year ended March 31, 1998. * 10.14.3 Registration Rights Agreement by and among Aironet Wireless Communications, Inc. and certain of its security holders, including Registrant and the investors party to the Subscription Agreement included as Exhibit 10.14 above, entered into as of March 31, 1998 in connection with the transactions under the Subscription Agreement, incorporated herein by reference to Exhibit 10.14.3 to Registrant's Form 10-K for the year ended March 31, 1998. * 10.15 DFS Vendor Agreement between Registrant and Deutsche Financial Services Corporation, dated as of September 30, 1998, incorporated herein by reference to Exhibit 10.15 to Registrant's Form 10-Q for the quarter ended December 31, 1998. ** 27. Financial Data Schedule as of June 30, 1999, filed herewith. - ------------------------------- * Previously filed ** Filed herewith EX-27 2 EXHIBIT 27
5 1,000 USD 3-MOS MAR-31-2000 APR-01-1999 JUN-30-1999 1 26,095 0 82,327 6,677 121,250 238,327 179,722 106,450 339,741 222,878 108,243 0 0 162 (134) 339,741 77,180 97,319 54,184 66,617 42,113 1,157 3,292 (15,009) 1,692 (16,701) 0 0 0 (16,701) (1.03) (1.03)
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