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 April 30, 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 Identificatio 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 June 4, 1994, 14,465,923 shares of Datapoint Corporation Common
Stock were outstanding, exclusive of 6,525,294 shares held in Treasury.
DATAPOINT CORPORATION AND SUBSIDIARIES
INDEX
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -
April 30, 1994 and July 31, 1993
Consolidated Statements of Operations -
Three and Nine Months Ended April 30, 1994 and May 1, 1993
Consolidated Statements of Cash Flows -
Nine Months Ended April 30, 1994 and May 1, 1993
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II. Other Information
Signature
Part I. Financial Information
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
Datapoint Corporation and Subsidiaries
(In thousands, except share data)
(Unaudited)
April 30, July 31,
1994 1993
ASSETS
Current assets:
Cash and cash equivalents $12,277 $22,452
Restricted cash and cash equivalents 3,505 4,459
Marketable securities, at market 554 789
Accounts receivable, net 45,265 45,090
Inventories 18,755 17,536
Prepaid expenses and other current assets 3,860 3,843
Total current assets 84,216 94,169
Fixed assets, net 28,947 27,950
Goodwill, net 57,168 58,216
Other assets, net 24,081 21,940
$194,412 $202,275
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Payable to banks $16,922 $14,129
Current maturities of long-term debt 2,560 4,246
Accounts payable 21,121 15,914
Accrued expenses 26,099 26,683
Deferred revenue 14,525 12,579
Income taxes payable 777 1,208
Total current liabilities 82,004 74,759
Long-term debt, exclusive of
current maturities 70,626 71,551
Other liabilities 9,079 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 6,531,119 and 6,637,065, respectively. 5,248 5,248
Other capital 212,599 212,599
Foreign currency translation adjustment 8,423 7,707
Retained deficit (141,493) (125,581)
Treasury stock, at cost (53,858) (54,736)
Total stockholders' equity 32,703 47,021
$194,412 $202,275
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF OPERATIONS
Datapoint Corporation and Subsidiaries
(Unaudited)
(In thousands, except share data)
Three Months Ended Nine Months Ended
April 30, May 1, April 30, May 1,
1994 1993 1994 1993
Revenue:
Sales $21,070 $23,042 $63,705 $79,238
Service and other 21,732 25,542 65,531 84,185
Total revenue 42,802 48,584 129,236 163,423
Operating costs and expenses:
Cost of sales 13,508 11,617 35,417 35,939
Cost of service and other 14,676 17,539 42,858 56,351
Research and development 1,660 1,800 4,918 5,814
Selling, general and
administrative 16,596 16,945 47,988 56,463
Restructuring costs 955 2,206 955 3,850
Total operating costs
and expenses 47,395 50,107 132,136 158,417
Operating income (loss) (4,593) (1,523) (2,900) 5,006
Non-operating income (expense):
Interest expense (2,266) (2,394) (6,751) (6,862)
Other, net (982) (913) 453 (682)
Loss before income taxes
and extraordinary item (7,841) (4,830) (9,198) (2,538)
Income taxes (benefit) 120 (519) 557 917
Loss before extraordinary
item (7,961) (4,311) (9,755) (3,455)
Extraordinary item:
Utilization of tax loss
carryforward - (593) - 602
Loss before effect of
change in accounting
principle $(7,961) $(4,904) $(9,755) $(2,853)
Effect of change in
accounting principle - - 1,340 -
Net loss $(7,961) $(4,904) $(8,415) $(2,853)
Net loss less preferred
stock dividend $(8,407) $(5,350) $(9,753) $(4,191)
Net income (loss) per
common share:
Before extraordinary item
and effect of change in
accounting principle $(.58) $(.34) $(.77) $(.34)
Extraordinary item - (.04) - .04
Effect of change in
accounting principle - - .09 -
Net loss $(.58) $(.38) $(.68) $(.30)
Average common shares 14,447,811 14,172,116 14,421,060 13,998,414
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
Datapoint Corporation and Subsidiaries
(Unaudited)
(In Thousands)
Nine Months Ended
April 30, May 1,
1994 1993
Cash flow from operating activities:
Net loss $(8,415) $(2,853)
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 234 (9)
Depreciation and amortization 8,008 8,925
Provision for (gains) losses on accounts
receivable 32 (634)
Realized gain on fixed assets fire settlement (840) (1,165)
Change in assets and liabilities:
(Increase) decrease in receivables (77) 16,685
(Increase) decrease in inventory (768) 3,247
Increase (decrease) in accounts payable 5,135 (10,882)
Decrease in accrued expenses (595) (6,414)
Increase (decrease) in other liabilities
and deferred credits 1,344 (1,924)
Other, net (92) (1,187)
Net cash (used in) and provided from
operating activities (2,844) 3,789
Cash flow from investing activities:
Proceeds from marketable securities - 249
Payments for fixed assets (8,368) (7,271)
Proceeds from disposition of fixed assets 2,319 6,795
Investments in capitalized software and
license fees (188) (938)
Other, net (583) 381
Net cash used in investing activities (6,820) (784)
Cash flow from financing activities:
Proceeds from borrowings 24,347 50,927
Payments on borrowings (24,585) (54,719)
Payments of dividends on preferred stock (1,338) (1,338)
Decrease in restricted cash for letters
of credit 954 290
Other, net 189 688
Net cash used in financing activities (433) (4,152)
Effect of foreign currency translation on cash (78) (47)
Net decrease in cash and cash equivalents (10,175) (1,194)
Cash and cash equivalents at beginning of year 22,452 20,021
Cash and cash equivalents at end of period $12,277 $18,827
Cash payments for:
Interest $5,404 $5,471
Income taxes, net $938 $773
See accompanying notes to consolidated financial statements.
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 nine months ended April 30,
1994 are not necessarily indicative of the results to be expected for
the full year.
2. Extraordinary Items
Due to the third quarter loss incurred during fiscal 1993, the Company
recorded an extraordinary loss of $0.6 million reversing a portion of
the $1.2 million in extraordinary gains previously recognized during the
first six months of fiscal 1993 for utilization of post-acquisition net
operating loss carryforwards of certain foreign subsidiaries.
3. Change in Accounting Principle
(In thousands)
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
4. Inventories
(In thousands)
Inventories consist of:
April 30, July 31,
1994 1993
Raw materials $6,157 $5,619
Work in process 2,499 2,041
Finished products 10,099 9,876
$18,755 $17,536
5. The CIT Group/Credit Finance Secured Credit Facility
The Company has a secured credit facility ("Credit Facility") with The
CIT Group/Credit Finance, Inc. ("CIT") which consists of a term loan and
a revolving loan. The borrowings outstanding under the Credit Facility,
as of April 30, 1994, were $2.8 million, the maximum based upon the
available collateral as of that date. The Credit Facility expired
March 7, 1994, but was extended on a monthly basis to June 14, 1994,
when a new one-year agreement was reached with CIT. The maximum
borrowing was amended to $7.5 million from $15.0 million. The minimum
borrowing, or the primary principal amount upon which interest is
calculated, was reduced to $5.0 million from $7.5 million. In addition,
the term loan was extended to June 1997 from January 1995. The
extension of the term loan and the reduction in the minimum borrowings
will reduce the monthly payment by approximately $0.1 million beginning
with the July 1994 payment.
6. 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.
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 an operating loss of $4.6 million and a net loss of $8.0
million for the third quarter of 1994, compared with an operating loss
of $1.5 million and a net loss of $4.9 million for the third quarter of
1993. The Company's operating loss and net loss for the first nine
months of 1994 were $2.9 million and $8.4 million, respectively,
compared with operating income of $5.0 million and a net loss of $2.9
million for the first nine months of 1993.
Operating income during the first nine months 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. Operating income during the first nine months of 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 Nine Months Ended
April 30, May 1, April 30, May 1,
(In thousands) 1994 1993 1994 1993
Sales:
U.S. $1,072 $1,543 $4,883 $4,131
Foreign 19,998 21,499 58,822 75,107
21,070 23,042 63,705 79,238
Service and other:
U.S. 286 379 882 1,203
Foreign 21,446 25,163 64,649 82,982
21,732 25,542 65,531 84,185
Total revenue $42,802 $48,584 $129,236 $163,423
Revenue declined during the third quarter of 1994 $5.8 million, or
11.9%, and for the first nine months of 1994 $34.2 million, or 20.9%,
compared with the same periods of the prior year. These declines were
partly due to an overall stronger U.S. dollar this year as compared to
the same periods last year. The overall strengthening of the U.S.
dollar during this time period negatively impacted sales revenue for the
third quarter and first nine months by $0.8 million and $6.6 million,
respectively, while service and other revenue were negatively impacted
by $0.8 million and $8.0 million, respectively. In addition, revenue
for the first nine months of 1993 included $4.2 million for the former
Australian subsidiary that was sold at the end of the second quarter of
1993. Excluding these items, revenue declined for the third quarter and
first nine months by $4.2 million and $15.4 million, respectively.
Revenue in the United Kingdom was negatively impacted by a shortage of
unique components from a single supplier that has delayed the Company's
ability to ship $3.3 million in revenue to a single customer.
The Company has experienced a downward trend in sales and, to a lesser
extent, service revenues since the beginning of fiscal 1993. Management
has undertaken a number of aggressive technological, marketing and sales
initiatives which it believes are well selected to reverse this trend,
including several key product announcements made during and subsequent
to the third quarter. The Company announced several new products on 10
June, 1994. The announcements included the SuperHub 3200 that supports
video network expansion up to 786 connections and permits per-seat
pricing to drop as low as $1,999. A PCNVS card, which is the
functional equivalent of the NVS series of products on a single PC card,
was also introduced, as was an option that allows simultaneous data and
video transmission for both point-to-point and multi-point
transmissions. Several new peripherals were announced, including a
video peripheral pack which includes full duplex echo cancellation, and
a new CODEC offering with integrated terminal adapters. Also, an
extended Video Implementation Program was introduced to provide users
the capability to move into increasingly larger video networks at a
reducing cost per seat, with the expense associated with network
hardware absorbed in the per-seat price. While the Company believes
these actions will serve to reverse the downward revenue trend, the
effectiveness of these measures should not necessarily be assumed.
Gross profit margins for the third quarter and first nine months of 1994
were 34.2% and 39.4%, respectively, compared with 40.0% and 43.5% 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 first nine months of 1994 would have been 38.1% compared with 40.3%
for the same period of the prior year. The fiscal 1994 decline in gross
profit margins was primarily attributable to a change in product mix
from fiscal 1993 as sales of proprietary product declined as a
percentage of revenue and sales of non-Datapoint sourced products
increased as a percentage of revenue. The thrust of the Company's R&D
work in fiscal 1994 has been to reverse this trend as well as increase
revenue.
Operating expenses (research and development plus selling, general &
administrative) during the third quarter declined 2.6% from the same
period of the prior year despite a significant increase in advertising
expenses for the purpose of introducing new products. Operating
expenses for the first nine months of 1994 declined $9.4 million, or
15.0%, from the same period a year ago. Excluding the effect of the
stronger U.S. dollar, operating expenses were flat during the third
quarter of 1994 and declined $5.4 million or 8.7% for the first nine
months of 1994 as compared to the same periods of 1993. The year-to-
date decline was attributable to significantly reduced costs of internal
operations resulting from cost-cutting actions taken over the last
twelve months. Restructuring costs in both 1994 and 1993 were related
to reductions of personnel whose skills do not fit with the Company's
future plans. During the third quarter of 1994 the Company incurred
$1.0 million in such staff reduction costs as compared to staff
reduction charges of $2.2 million and $3.9 million for the third quarter
and first nine months of 1993, respectively.
Non-operating results for the first nine months of 1994 and 1993
included fire settlement gains on fixed assets of $0.8 million and $1.2
million, respectively. Excluding interest expense, during the third
quarter of 1994 the Company incurred a $0.6 million loss on the
depreciation in value of an equity investment in a related party, and a
$0.2 million loss on the depreciation in value of a bond mutual fund
held in a trust fund. The comparable loss during the third quarter of
1993 resulted from the unfavorable impact of changes in foreign currency
exchange rates on certain of the Company's intercompany receivables and
payables. The improvement in non-operating results for the first nine
months of 1994 as compared to the same period of 1993 was due primarily
to the negative impact on 1993 of the currency changes noted above.
Income tax expense for the first nine 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 that, 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.
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 nine months of 1994, the Company's cash and cash
equivalents decreased $10.2 million. It will be necessary for the
Company to reverse the downward trend if the Company is to meet its
various obligations while maintaining its current level of operations.
The decrease in cash was the result of losses, coupled with an
investment in inventories. The Company is carefully managing its cash
resources and has utilized bank debt and trade accounts payable, as well
as free cash reserves, to finance its operations. During the third quarter
the Company met all revenue shipment requirements as the Company
successfully worked with its trade accounts payable vendors to extend
additional credit and existing credit terms, thereby allowing the Company to
make required inventory purchases. Although the Company did not experience
any credit related product shortages that negatively impacted revenue during
the third quarter of 1994, the Company could potentially experience delays
in revenue shipments during the fourth quarter of 1994 if vendor credit
terms deteriorate significantly from the third quarter level. The Company is
in discussions with various potential sources of equity financing, but
there can be no assurances that the Company can conclude such financing.
As of April 30, 1994, the Company had restricted cash and cash
equivalents of $3.5 million which was restricted primarily to cover
various lines of credit, reflected as payables to banks, and for $0.6
million of guaranteed dividends on the $1.00 preferred stock, of which
$0.5 million was no longer restricted as of May 15, 1994. During the
first nine months of 1994 the Company paid cash dividends aggregating
$1.3 million on this stock.
During the third quarter of 1994 the Company placed increased emphasis
on the sale of networked video conferencing products. The Company
advertised this product line extensively during the third quarter and
generated a significant number of sales leads. The Company built up
inventories beyond the level of the actual shipment demand, leaving the
Company with a continued high level of inventory.
As has been the case for several years, the Company typically ships products
for revenue in the same fiscal quarter that the bookings for such products
is recorded. As a result, the Company has not had a significant backlog
that it carries forward from quarter to quarter. The Company's recent
initiatives in telephony sales are in the early stages of reversing this
trend.
The Company has an internal source of liquidity in an investment
portfolio with a market value of $3.3 million. As of April 30, 1994,
the portfolio consisted of $2.7 million of cash and $0.6 million of
marketable securities. The investment portfolio was negatively impacted
during the third quarter of 1994 by the $0.6 million decline in the
equity investment noted above. Subsequent to the third quarter, during
May 1994, the Company withdrew $2.0 million of cash from this investment
portfolio to partially fund the June 1, 1994, semi-annual payment of
$2.9 million in interest on the Company's 8-7/8% convertible
subordinated debentures. The withdrawal and subsequent disposition of
these funds has weakened the Company's ability to internally finance its
cash flow requirements.
Subsequent to the third quarter, during June 1994, the Company withdrew
$0.7 million in cash surrender value related to life insurance contracts
for management.
As of April 30, 1994, the Company had received $1.4 million from its
insurer related to the fire on November 19, 1993, at the leased facility
in Brussels, Belgium. 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 has a secured credit facility ("Credit Facility") with The
CIT Group/Credit Finance, Inc. ("CIT") which consists of a term loan and
a revolving loan. The borrowings outstanding under the Credit Facility,
as of April 30, 1994, were $2.8 million, the maximum based upon the
available collateral as of that date. The Credit Facility expired
March 7, 1994, but was extended on a monthly basis to June 14, 1994,
when a new one-year agreement was reached with CIT. The maximum
borrowing was amended to $7.5 million from $15.0 million. The minimum
borrowing, or the primary principal amount upon which interest is
calculated, was reduced to $5.0 million from $7.5 million. In addition,
the term loan was extended to June 1997 from January 1995. The
extension of the term loan and the reduction in the minimum borrowings
will reduce the monthly payment by approximately $0.1 million beginning
with the July 1994 payment.
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.
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: /s/ David G. Hargraves
David G. Hargraves
Vice President and Chief Financial Officer
(Chief Accounting Officer)
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