Telxon Corp. has merited much publicity in the past couple of years – most of it negative.
Launched in Texas in 1969 as Electronic Laboratories Inc., the name changed to Telxon in 1974. Telxon’s corporate headquarters moved to Akron in 1978. It became a publicly held company in 1983. And its troubles began in 1998.
Hostile takeover attempts. Proxy battles. Competitor lawsuits. SEC scrutiny. Financing obstacles. Class-action shareholder litigation. Employee job cuts. Top management ousting.
As Telxon’s vice president of investor and public relations, Alex Csiszar says that, after its well-documented woes, it’s remarkable the technology giant has been able to regain footing and restore public confidence.
“It’s very hard to gain credibility and very easy to lose it. You work so hard to build up a company, then to see it torn down in a matter of months, it’s tough to take,” Csiszar says.
Telxon is a global enterprise that designs and manufacturers wireless and mobile information systems. The corporation provides jobs for more than 1,400 people, has more than 40 offices in the U.S., and subsidiaries and distributors in more than 60 countries.
People wonder how such a seemingly substantial company could fall prey to so much pandemonium.
“It may have been a case of inexperienced management to tackle so many things at once,” Csiszar says diplomatically, referring to former company officials. “Any time you have something like that going on, there’s a cloud hanging over you. But as time goes on, investors tend to look at the company’s ability to be successful and profitable in the future.”
And so they are, as Telxon mounts a massive turnaround. The company’s resurrection is attributed to its new leader, who brought in new management, instituted disciplined processes and accountability systems, restored company credit and cut costs.
But drastic results take drastic measures, and one of the decisions new management had to make was whether to move the company’s headquarters out of Fairlawn. In November, the decision was made to move Telxon to Cincinnati. The relocation, due to take place in late March 2000, will consolidate operations, improve efficiency and further reduce overall costs. The move is expected to save the company an additional $6 million a year.
Industry giant
On March 22, 1999, the auto identification data collection (AIDC) industry raised its eyebrows when John W. Paxton Sr. took the helm as Telxon’s new chairman, president and CEO. Paxton came out of retirement to tackle the Telxon task.
Having made his mark in the trade as a leader at Western Atlas (Intermec), Litton Industries, RCA Corp. and Martin Marietta, Paxton has a reputation for rehabilitating struggling companies. To him, reorganizing Telxon is his greatest challenge.
“Telxon is a unique challenge from the standpoint that it’s a global company and we have to do a number of things, from putting processes in place to putting in a strategic plan that’s tied to an operating plan. And that has to be done worldwide,” Paxton says.
Since he was involved in the AIDC industry for two decades, Paxton knew the Telxon technology was the best in the marketplace. He also knew Telxon had a top-notch customer base: Home Depot, Sears, Macy’s, Ford, GM, British Airways, Union Pacific.
Still, before he accepted the post, Paxton hired Arthur Anderson to do due diligence on Telxon, including a blind survey of the company’s top customers.
Although not one of those customers was interested in leaving Telxon, Paxton says, “My impression was that they wanted the board of directors to do something to stabilize the corporation and make it more viable.”
Paxton says the 60 customers surveyed also had a few complaints.
“Their biggest concerns were that, while Telxon had very good products, there were problems in delivering the products on time, and there were workmanship defects in a product when it was delivered to the customer,” says Paxton.
What Telxon needed, Paxton determined, was a disciplined approach and strategic processes to better manage its affairs and deliver quality products — disciplines any company needs to be a consistent performer.
Paxton told Telxon’s board he would take the position, on one condition: He wanted total control.
“These kinds of turnaround situations involve a lot of structural, personnel, product and marketing changes, and you have to be free to do that without any encumbrances,” Paxton says. “It’s very difficult to do it if you’re not the top guy that has the latitude to make the decisions and do the turnaround.”
Although Paxton was initially named president, chairman and CEO, he made sure the board realized he planned to bring a president and COO on board as quickly as possible.
Synchronizing watches
Paxton marched into a corporation that was bottoming out in a downward sales spiral. He embraced the task of turning that trend to an upward surge.
“Telxon had started into a tailspin on revenues in the second quarter, when we did $104 million, $96 million in the third quarter, and bottomed out with $77 million in the March quarter,” Csiszar recalls, noting that Telxon fiscal years end in March.
Fortuitously, Telxon stock rose 36 percent after Paxton took the helm. When Paxton came on board, Telxon’s stock price was $8.72. Since then, shares have hit a high of $12.63. In his first quarter alone, Paxton’s new management principles generated $97 million in revenue.
Paxton says the minute milestones resulted from his “power of the minds” philosophy. The more people who knew the objectives he wanted to achieve and the strategies to get there, the more likely Telxon would succeed, he says.
“The probability of success goes up in great magnitude when you communicate your objectives to everyone and have the entire organization focused on those objectives,” he says, emphasizing that it is only when every employee commits to achieving objectives that a company will succeed.
On Paxton’s first day at Telxon, he scheduled a staff meeting to let everyone know he was now in charge and that Telxon would do business differently than it had in the past. Over the next two weeks, he met with every employee in Akron, Houston, Mexico and Europe, candidly outlining his strategy. And after his first strategic meeting with senior level staff, all employees received a laminated card that contained the company’s mission statement and strategies.
“Now, when we do quarterly strategic planning under John Paxton, we meet with all the top-level executives and middle management,” Csiszar says. “We discuss critical success factors and specific objectives — like revenue, gross margin and operating income — and strategies for accomplishing our goals.”
Middle management then becomes torchbearers to the rest of the organization.
Paxton’s “power of the minds” approach has turned employees’ morale from a low to a high, Csiszar says. “They feel part of the team. It gives you a sense the company has hope and that you have a future with the company.”
In late April, Paxton shared his vision for the three-year strategic plan he believes will take Telxon to new heights.
Shifting gears
Masterminding a turnaround is one thing, Paxton says. Changing a company’s culture is another.
“John has put a change of culture into play. We have changed from a sales-driven to a market-driven company,” Csiszar says.
Telxon’s former sales-driven mindset resulted in product development that didn’t adequately meet a market need, and hampered its competitiveness. To implement a market-driven discipline, Paxton divided Telxon’s market into segments. Within each segment are submarkets, defined by specific applications for which consumers can use products.
“Now, we take features demanded by our market and develop a product that meets customer demand. But guess what? The product must also meet the profit objectives of our business plan,” Csiszar explains.
That’s what Paxton calls “design to cost.” He implemented the approach the day he came to Telxon, predicting 12 months to get the process in place.
But Telxon is already reaping benefits from the discipline.
In addition to the design-to-cost process, Paxton says Telxon needed a design review process to ensure customers received products free of workmanship defects.
“We created a quality and reliability engineering group that really helped to make products manufacturable and also meet specifications,” says Paxton.
“Then we put in a group that tested products independently from manufacturing and engineering.”
Something else Telxon lacked was a materials resource planning (MRP) system.
“That was one of the things that had caused us financial trouble — inventory had gotten way out of hand,” says Csiszar. “We didn’t have a controlled process of what we were buying components for.”
Paxton recruited one of the leading MRP consultants in the country to serve on Telxon’s board of directors, which implemented a master schedule based on a detailed 12-month sales forecast. Every Telxon sales person feeds product and consumer information into the master schedule, which is reviewed monthly to determine purchases and to predict when product will be available.
“Over the last six months, we’ve reduced our inventory by $11 million, just by disciplining ourselves to a MRP model that commits us to that sales forecast,” Csiszar says. “That’s a whole different culture change for Telxon.”
The bottom line
Paxton’s next pledge was to ensure the company was above board in all transactions. He did that by instituting scrupulous internal controls.
Telxon’s international operations were reorganized to affect flexibility, responsiveness and accountability. The company’s worldwide operations became three geographic regions: the Americas (North, Central and South America); Europe/Middle East/Africa; and Asia/Pacific.
“What used to happen was we had different people reporting to our distributors, vs. our direct sales
force,” Csiszar says. “There was a lot of confusion as to who was in charge.”
All three regions now report to an executive vice president. And from a tactical standpoint, Paxton centralized the CFO’s office on a global basis.
“Before, we had a lot of the accounting, especially in the international operations, reporting to managing directors who made decisions in their individual areas of control. We broke those barriers down and every financial person now reports directly to Akron headquarters, so one hand knows what the other’s doing,” Csiszar says.
One of Paxton’s greater challenges was to get Telxon’s financial ducks in a row.
In July, Telxon made an initial public offering of its key subsidiary, Aironet Wireless Communications Inc. Selling off 2 million shares of Aironet stock for $32.2 million helped Telxon surmount its financial hurdles. Then, in August, Telxon refinanced its existing revolving credit agreement and promissory note with a $100 million secured credit facility provided by Foothill Capital Corp.
“We needed to get a new bank group that would allow us to pay that bank debt off, plus have flexibility to borrow additional funds, based on our ability to grow our business,” says Csiszar. “Our new credit facility gave us the ability to shore up the finances. Now we’ve got collateral-based lending.”
Telxon announced in August that the company was on the road to recovery, assuring the worst of its troubles was over.
The announcement was substantiated last month when Aironet was bought by Cisco Systems Inc., and Telxon received an additional $240 million for its remaining 4.9 million shares of Aironet stock.
“My guidance to Wall Street is that revenues for fiscal 2000 will be in the area of $400 million,” Paxton says. “That will be a significant turnaround if we can accomplish that.”
Couple and conquer
To give customers something extra, Telxon formed new strategic partnerships to affect value-added differentiation.
“We can’t do everything, but we can find the right partners to bring missing pieces together, whether it’s hardware or software, so we can deliver to our customer base,” says Csiszar.
Telxon’s alliance with wireless telephone systems provider SprectraLink Corp. brings voice-over Internet protocol to certain Telxon products. Its partnership with mobile computing solutions provider Intelliworxx Inc. adds voice recognition to some of Telxon’s hand-held wireless computers.
And PinPoint Corp., a pioneer in real time locating system technology, is sharing its expertise to enable tracking of the movement of goods via radio.
A new face
“This is what Paxton has brought to Telxon — a disciplined approach of processes that have been proven to work time and again,” says Csiszar. “It’s all basic Business 101. But that’s how Paxton brought focus back to the company.
“It doesn’t matter who the company is. You take Telxon off the nameplate and put XYZ company up there, these disciplined approaches will work there, too.”
Despite Telxon’s turnaround, innuendo lingers. But the company won’t stoop to rebuttal.
“If you answer to one rumor, then you’ve always got to answer to rumors,” Csiszar says. “Besides, I’ve not heard any recently that are giving us any heartburn. Have you?”
The new and improved Telxon is evident in the company’s public relations materials. Its 1999 annual report captures Paxton’s “power of the minds” team philosophy and depicts Telxon as a disciplined, re-engineered enterprise.
“We wanted to come across with a story that tells people we’re back in business. We didn’t want to be glitzy. We just wanted to be believable,” Csiszar says.
But seeing is believing, says Csiszar.
“People say, ‘You’ve told me this before. Now show me.’ And that’s what Paxton has inherited. He has to show – to the shareholders, the customers, the employees – that when he says he’ll produce something, he’ll do it.
“He’s doing it with a very disciplined approach, step-by-step.”
How to reach: Telxon Corp., (800) 800-8008; www.telxon.com
Telxon’s troubles
- April 1998: Telxon’s rival, Symbol Technologies Inc. of Holtsville, N.Y., makes a hostile takeover attempt on Telxon. Bid price is $830 million, $38 a share. Telxon stock skyrockets.
- May 1998: Telxon scoffs at Symbol’s offer. Shareholders shiver.
- June 1998: Symbol retargets Telxon, offering $40 a share in cash, or $42 cash and stock. Telxon rejects, stumping analysts and stockholders. New York arbitrageur Guy P. Wyser-Pratte (who weeks earlier bought 730,000 Telxon shares) incites shareholder mutiny.
- July 1998: Telxon sues Wyser-Pratte, alleging he lied to shareholders to sway votes against Telxon’s board.
- August 1998: Telxon and Wyser-Pratte call a truce. Telxon temporarily tosses its poison-pill defense against certain takeover bids; Wyser-Pratte must stop soliciting shareholder proxies.
- September 1998: At Telxon annual meeting, shareholders question why board rejected Symbol offers.
- November 1998: Symbol makes last pass at Telxon, but lets offer expire.
- December 1998: Telxon restates fiscal second quarter results, reducing bottom line by $14 million.
- December 1998-March 1999: Shareholders file 27 class-action lawsuits against Telxon, alleging Telxon flubbed financial statements and overstated revenues.
- January 1999: Telxon delays quarterly earnings report due to accounting difficulties. Stock plunges.
- February 1999: Telxon sues Symbol, claiming Symbol spread lies about Telxon’s financial status. SEC investigates Telxon accounting and stock trading practices. NASDAQ slaps “E” grade on Telxon ticker symbol. Telxon reveals it overstated last three years of earnings by $16.7 million. Stock slides 16 percent.
- March 1999: Telxon must restate last 14 quarterly earnings. Telxon CEO Frank Brick and CFO Kenneth Haver leave company. Share price rises 36 percent when John Paxton becomes COB and CEO.
- April 1999: Cost-cutting results in 50 Telxon job cuts.
- Current: Ruling looms on class-action claims against Telxon.