<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
(Mark One)
[ X ] Quarterly Report Pursuant To Section 13 Or 15(d) Of The Securities
Exchange Act Of 1934 For the quarterly period ended
January 29, 1994
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 1-7636
DATAPOINT CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 74-1605174
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5-7 rue Montalivet 75008, Paris, France
8400 Datapoint Drive
San Antonio, Texas 78229-8500
(Address of principal executive offices and zip code)
(33-1) 40 07 37 37
(210) 593-7000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes X . No___.
As of February 5, 1994, 14,442,576 shares of Datapoint Corporation
Common Stock were outstanding, exclusive of 6,548,641 shares held in
Treasury.
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DATAPOINT CORPORATION AND SUBSIDIARIES
INDEX
Page
Number
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -
January 29, 1994 and July 31, 1993 3
Consolidated Statements of Operations -
Three and Six Months Ended January 29, 1994 and
January 30, 1993 4
Consolidated Statements of Cash Flows -
Six Months Ended January 29, 1994 and January 30, 1993 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. Other Information 10
Signature 11
<PAGE> 3
Part I. Financial Information
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
Datapoint Corporation and Subsidiaries
<TABLE>
<CAPTION>
(In thousands, except share data) (Unaudited)
January 29, July 31,
1994 1993
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $8,936 $22,452
Restricted cash and cash equivalents 3,573 4,459
Marketable securities, at market 1,175 789
Accounts receivable, net 53,474 45,090
Inventories 18,811 17,536
Prepaid expenses and other current assets 3,998 3,843
Total current assets 89,967 94,169
Fixed assets, net 27,494 27,950
Excess of cost of investment over net assets acquired, net 56,525 58,216
Other assets, net 23,170 21,940
$197,156 $202,275
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Payable to banks $17,513 $14,129
Current maturities of long-term debt 2,988 4,246
Accounts payable 19,357 15,914
Accrued expenses 23,270 26,683
Deferred revenue 15,371 12,579
Income taxes payable 622 1,208
Total current liabilities 79,121 74,759
Long-term debt, exclusive of current maturities 70,754 71,551
Other liabilities 8,693 8,944
Commitments and contingencies
Stockholders' equity:
Preferred stock of $1.00 par value. Shares authorized
10,000,000; shares issued and outstanding
1,784,456 (aggregate liquidation preference $35,689). 1,784 1,784
Common stock of $.25 par value. Shares authorized
40,000,000; shares issued of 20,991,217 in fiscal 1994
and 20,991,217 in fiscal 1993, including treasury
shares of 6,548,744 and 6,637,065, respectively. 5,248 5,248
Other capital 212,599 212,599
Foreign currency translation adjustment 5,956 7,707
Retained deficit (132,996) (125,581)
Treasury stock, at cost (54,003) (54,736 )
Total stockholders' equity 38,588 47,021
$197,156 $202,275
<FN>
See accompanying notes to consolidated financial statements
</TABLE>
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CONSOLIDATED STATEMENTS OF OPERATIONS
Datapoint Corporation and Subsidiaries
(Unaudited)
<TABLE>
<CAPTION>
(In thousands, except share data)
Three Months Ended Six Months Ended
January 29, January 30, January 29, January 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Revenue:
Sales $23,306 $26,340 $42,635 $56,196
Service and other 21,480 27,956 43,799 58,643
Total revenue 44,786 54,296 86,434 114,839
Operating costs and expenses:
Cost of sales 11,068 9,497 21,909 24,322
Cost of service and other 14,489 18,830 28,182 38,812
Research and development 1,542 2,052 3,258 4,014
Selling, general and administrative 15,703 18,772 31,392 39,518
Restructuring costs - 1,455 - 1,644
Total operating costs and expenses 42,802 50,606 84,741 108,310
Operating income 1,984 3,690 1,693 6,529
Non-operating income (expense):
Interest expense (2,214) (2,339) (4,485) (4,468)
Other, net 1,150 752 1,435 231
Income (loss) before income taxes
and extraordinary credit 920 2,103 (1,357) 2,292
Income taxes 388 869 437 1,436
Income (loss) before extraordinary credit 532 1,234 (1,794) 856
Extraordinary credit:
Utilization of tax loss carryforward - 722 - 1,195
Net income (loss) before effect of change
in accounting principle $532 $1,956 $(1,794) $2,051
Effect of change in accounting principle - - 1,340 -
Net income (loss) $532 $1,956 $(454) $2,051
Net income (loss) less preferred stock dividend $86 $1,510 $(1,346) $1,159
Net income (loss) per common share:
Before extraordinary item and effect of change in
accounting principle $.01 $.06 $(.18) $-
Extraordinary item - .05 - .08
Effect of change in accounting principle - - .09 -
Net income (loss) $.01 $.11 $(.09) $.08
Average common shares 14,434,696 13,931,360 14,407,684 13,911,563
<FN>
See accompanying notes to consolidated financial statement
</TABLE>
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CONSOLIDATED STATEMENTS OF CASH FLOWS
Datapoint Corporation and Subsidiaries
(Unaudited)
<TABLE>
<CAPTION>
(In Thousands)
Six Months Ended
January 29, January 30,
1994 1993
<S> <C> <C>
Cash flow from operating activities:
Net income (loss) $(454) $2,051
Adjustments to reconcile net income to net cash provided
from operating activities:
Losses incurred in lag month eliminated (5,470) -
Effect of change in accounting principle (1,340) -
Provision for unrealized losses (recoveries)
on marketable securities (386) (117)
Depreciation and amortization 5,318 7,958
Provision for (gains) losses on accounts receivable 107 (391)
Realized gain on fixed assets fire settlement (840) (1,165)
Change in assets and liabilities:
(Increase) decrease in receivables (9,749) 6,998
(Increase) decrease in inventory (1,566) 910
Increase (decrease) in accounts payable 3,769 (2,610)
Decrease in accrued expenses (2,793) (8,291)
Increase in other liabilities and deferred credits 2,380 1,104
Other, net 126 36
Net cash (used in) and provided from operating activities (10,898) 6,483
Cash flow from investing activities:
Proceeds from marketable securities - 42
Payments for fixed assets (4,890) (4,971)
Proceeds from disposition of fixed assets 1,926 2,790
Investments in capitalized software and license fees (192) (1,575)
Other, net (245) 230
Net cash used in investing activities (3,401) (3,484)
Cash flow from financing activities:
Proceeds from borrowings 19,409 40,437
Payments on borrowings (18,330) (39,618)
Payments of dividends on preferred stock (892) (892)
Decrease in restricted cash for letters of credit 886 54
Other, net 133 162
Net cash provided from financing activities 1,206 143
Effect of foreign currency translation on cash (424) (240)
Net increase (decrease) in cash and cash equivalents (13,517) 2,902
Cash and cash equivalents at beginning of year 22,452 20,021
Cash and cash equivalents at end of period $8,935 $22,923
Cash payments (refunds) for:
Interest $4,161 $4,596
Income taxes, net $580 $(38)
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
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DATAPOINT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1. Preparation of Financial Statements
The consolidated financial statements included herein have been prepared by
Datapoint Corporation (the "Company"), without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission and in accordance
with generally accepted accounting principles. In the opinion of management,
the information furnished reflects all adjustments which are necessary for a
fair statement of the results of the interim periods presented. All
adjustments made in the interim statements are of a normal recurring nature.
It is recommended that these statements be read in conjunction with the
financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the year ended July 31, 1993.
The results of operations for the three and six months ended January 29, 1994
are not necessarily indicative of the results to be expected for the full
year.
2. Extraordinary Item
The utilization of post-acquisition net operating loss carryforwards of
certain foreign subsidiaries resulted in extraordinary credits during the
second quarter and first six months of fiscal 1993 of $0.7 million and $1.2
million, respectively.
3. Change in Accounting Principle
Effective August 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes."
SFAS 109 requires that liabilities and receivables for future taxes be
calculated using a balance sheet approach rather than the income statement
approach. As a result, the Company recorded additional deferred income tax
assets of $2,075, after a valuation allowance of $66,720, and increased
deferred income tax liabilities by $735 which, in total, resulted
in a $1,340 credit ($.09 per share) for the cumulative effect of the
accounting change. Management believes that future taxable income of the
Company will more likely than not result in utilization of the net deferred
tax asset at August 1, 1993. Such future income levels are not assured due to
the nature of the Company's business which is generally characterized by
rapidly changing technology and intense competition.
After adoption of SFAS 109, the primary components of the Company's deferred
tax assets and liabilities as of August 1, 1993 were as follows:
Deferred tax assets:
Property, plant and equipment $3,445
Loss and credit carryforwards 58,731
Other 8,385
70,561
Less: Valuation allowance (66,720)
3,841
Deferred tax liabilities:
Accrued retirement costs 1,979
Other 1,065
3,044
Net deferred tax assets $797
<PAGE> 7
4. Inventories
Inventories consist of:
January 29, July 31,
1994 1993
Raw materials $5,442 $5,619
Work in process 3,355 2,041
Finished goods 10,014 9,876
$18,811 $17,536
5. Commitments and Contingencies
The Company is a defendant in various lawsuits generally incidental to its
business. The amounts sought by the plaintiffs in such cases are substantial
and, if all such cases were decided adversely to the Company, the Company's
aggregate liability might be material. However, the Company does not
expect such an aggregate result based upon the limited number of such actions
and an assessment that most such actions will be successfully defended. No
provision has been made in the accompanying financial statements for any
possible liability with respect to such lawsuits.
<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
(Years Referred to are Fiscal Years)
Results of Operations
The Company had operating income of $2.0 million and net income of $0.5
million for the second quarter of 1994. This compares with operating
income of $3.7 million and net income of $2.0 million for the second
quarter of 1993. The Company had operating income of $1.7 million and a
net loss of $0.5 million for the first six months of 1994, compared with
operating income of $6.5 million and net income of $2.1 million for the
first six months of 1993. Operating income during the second quarter of
1994 included a partial fire insurance settlement gain of $1.7 million
related to a fire in the second quarter in a leased warehouse facility in
the Company's Belgian subsidiary. The $3.7 million of operating
income in the second quarter of fiscal 1993 also included $2.8 million in
gains on a fire insurance settlement related to a fire in the French
subsidiary, and an additional $2.5 million for business interruption
coverage.
The following is a summary of the Company's sources of revenue:
Three Months Ended Six Months Ended
(In thousands) 01/29/94 01/30/93 01/29/94 01/30/93
Sales:
U.S. $1,490 $1,118 $3,811 $2,588
Foreign 21,816 25,222 38,824 53,608
23,306 26,340 42,635 56,196
Service and other:
U.S. 264 397 596 824
Foreign 21,216 27,559 43,203 57,819
21,480 27,956 43,799 58,643
Total revenue $44,786 $54,296 $86,434 $114,839
Revenue declined during the second quarter of 1994 $9.5 million,
or 17.5%, and for the first six months of 1994 $28.4 million, or 24.7%,
compared with the same periods of the prior year. These declines were
partly due to a stronger U.S. dollar this year as compared to the same
periods last year against the functional currencies of the Company's European
subsidiaries. The strengthening of the U.S. dollar negatively impacted
sales revenue for the second quarter and first six months by $2.0
million and $5.8 million, respectively, while service and other revenue
were negatively impacted by $2.1 million and $7.2 million, respectively.
In addition, revenue for the second quarter and first six months of 1993
included $2.2 million and $4.2 million, respectively, for the former
Australian subsidiary which was subsequently sold at the end of the second
quarter of 1993. Excluding these items, revenue declined for the second
quarter and first six months by $3.2 million and $11.2 million; the Company
attributes this to the weak economic environment in many of the European
countries in which the Company does a preponderance of its business,
primarily France, Sweden and Germany.
Gross profit margins for the second quarter and first six months of 1994 were
42.9% and 42.0%, respectively, compared with 47.7% and 45.0% for the same
periods a year ago. Excluding the effect of the fires noted above which
favorably impacted cost of sales, gross profit margins for the second quarter
and first six months of 1994 would have been 39.1% and 40.1%, respectively,
compared with 37.9% and 40.3% for the same periods of the prior year.
Operating expenses (Research and development plus Selling, general &
administrative) during the second quarter and first six months of 1994
declined $3.6 million and $8.9 million, respectively, from the same periods
a year ago. Excluding the effect of the stronger U.S. dollar, operating
expenses declined $2.4 million or 11.4% and $5.6 million or 12.9% for the
second quarter and first six months, respectively, attributable to
significantly reduced costs of internal operations over the past year.
Also included in operating costs and expenses during the second quarter and
first six months of 1993 were restructuring charges of $1.5 million and
$1.6 million, respectively, for the streamlining of selected operations.
Non-operating results for both the second quarter of 1994 and 1993 included
fire settlement gains on fixed assets of $0.8 million and $1.2 million,
respectively. Excluding the impact of the fire, and interest expense, the
Company had non-operating income of $0.3 million and $0.6 million for the
second quarter and first six months of 1994, respectively, compared with
nonoperating losses of $0.4 million and $0.9 million for the same periods of
the prior year. The non-operating losses during 1993 exceeded those of 1994
primarily due to the unfavorable impact of changes in foreign currency
exchange rates on certain of the Company's intercompany receivables and
payables.
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Income tax expense for the second quarter and first six months of 1994
includes a $0.4 million tax effect related to the fire in the Belgian
subsidiary.
In the first quarter of 1994, the Company adopted Statement of Financial
Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes."
SFAS 109 requires that liabilities and receivables for future taxes be
calculated using a balance sheet approach rather than the income statement
approach. As a result, the Company recorded additional deferred income tax
assets of $2.1 million, after a valuation allowance of $66.7 million, and
increased deferred income tax liabilities by $0.7 million which, in total,
resulted in a $1.3 million credit ($.09 per share) for the cumulative effect
of the accounting change. The valuation allowance reflects the Company's
assessment regarding the realizability of certain U.S. and non-U.S. deferred
income tax assets. Management believes that future taxable income
of the Company will more likely than not result in utilization of the net
deferred tax asset at August 1, 1993. Such future income levels are not
assured due to the nature of the Company's business which is generally
characterized by rapidly changing technology and intense competition.
The Company evaluates realizability of the deferred income tax assets on a
quarterly basis.
Prior to 1994, the Company's foreign subsidiaries reported their results to
the parent on a one-month lag which allowed more time to compile results
but produced comparability problems in management accounting. Due to
improved internal operations, the one-month lag became unnecessary and
therefore was eliminated subsequent to 1993 and prior to 1994. As a result,
the July 1993 results of operations for the Company's foreign subsidiaries
was recorded to the retained deficit. This action resulted in a charge
of $5.5 million being recorded against the retained deficit. The loss
incurred in July 1993 resulted primarily from a low revenue level, which is
usual for the month following the end of a fiscal year.
Financial Condition
During the first six months of 1994, the Company's cash and cash equivalents
decreased $13.5 million due primarily to the use of cash in operations.
The decrease in cash was the result of a succession of quarterly losses on
weakening revenues, coupled with the investment in inventories and receivables
which accompanied the increased business volume in the second quarter of 1994
versus the first quarter of this year. The Company is carefully managing its
cash resources during this period, and is using increased bank borrowings and
trade accounts payable as well as free cash reserves to finance the expansion
of its business. Both bank debt and accounts payable rose substantially
during the first six months of 1994, helping to finance the increase in
inventory and receivables which accompanied the increased level of sales
volume. The increase in receivables was primarily related to sale shipments
near the end of the second quarter (after the Christmas holidays); the
Company expects to collect these during the third quarter of 1994. Also, the
Company paid cash dividends aggregating $0.9 million on the $1.00 preferred
stock during the first six months of 1994.
As of January 29, 1994, the Company had restricted cash and cash equivalents
of $3.6 million which was restricted primarily to cover various lines of
credit, reflected as payables to banks, and for $1.1 million of guaranteed
dividends on the $1.00 Preferred Stock, of which $0.5 million was no longer
restricted as of February 15, 1994.
The Company has a secured credit facility ("Credit Facility") with The CIT
Group, which consists of a term loan and a revolving loan. The borrowings
outstanding under the Credit Facility, as of January 29, 1994, were $3.1
million. The Credit Facility expired March 7, 1994, but by joint agreement
was extended to April 7, 1994, at which time, barring any further
extension being agreed upon, the outstanding borrowings must be repaid in
full. The Company intends to refinance this loan through The CIT Group, or
another lender, or will use internal sources of liquidity to retire the
Credit Facility.
The Company has an internal source of liquidity in an investment portfolio
with a market value of $3.7 million. As of January 29, 1994, the portfolio
consisted of $2.5 million of cash and $1.2 million of marketable securities.
Subsequent to January 29, 1994, the Company received $0.7 million in proceeds
from its insurer related to the fire on November 19, 1993 at the leased
facility in Brussels, Belgium, which was in addition to $0.7 million
received during the second quarter of 1994. Negotiations are ongoing with
the insurer regarding the remainder of the claim and the timing of payment
of the balance due on the agreed portion. The Company anticipates receiving
additional proceeds during the remainder of the third quarter of 1994, but
notes that full settlement may not be achieved in this time frame.
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PART II. OTHER INFORMATION
All information required by items in Part II is omitted because the items are
inapplicable, the answer is negative or substantially the same information has
been previously reported by the registrant.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATAPOINT CORPORATION
(Registrant)
Date: March 17, 1994 __ /s/ David G. Hargraves______
David G. Hargraves
Vice President and Chief Financial Officer
(Chief Accounting Officer)
