SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[ X ] Annual Report Pursuant To Section 13 Or 15(d) Of The
Securities Exchange Act Of 1934 [FEE REQUIRED]
For the fiscal year ended July 30, 1994
OR
[ ] Transition Report Pursuant To Section 13 or 15(d) Of The
Securities Exchange Act Of 1934 [NO FEE REQUIRED]
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)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of each exchange on which registered
Common Stock, $.25 par value New York Stock Exchange
$1.00 Exchangeable Preferred Stock,
$1.00 par value New York Stock Exchange
8-7/8% Convertible Subordinated
Debentures Due 2006 New York Stock Exchange
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 October 28, 1994, 12,751,605 shares of Datapoint Corporation
Common Stock were outstanding (excluding 8,239,612 shares held in Treasury),
and the aggregate market value (based upon the last reported sale price
of the Common Stock on the New York Stock Exchange - Composite Tape on
October 28, 1994) of the shares of Common Stock held by non-affiliates was
approximately $28.5 million. (For purposes of calculating the preceding
amount only, all directors and executive officers of the registrant are
assumed to be affiliates.)
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated herein by reference
in the Parts of this report indicated below:
Items 10, 11, 12 and 13 of Part III - Datapoint's Proxy Statement.
PART I
ITEM 1. Business.
General
Datapoint Corporation, including its subsidiaries (hereinafter "Datapoint"
or "the Company"), is principally engaged in the development, manufacture,
acquisition, marketing and servicing of computer and communication
products -- both hardware and software -- for integrated computer,
telecommunication and video conferencing network systems worldwide.
Datapoint was reincorporated in Delaware in 1976 as the successor
corporation to a Texas corporation originally incorporated in 1968 as Computer
Terminal Corporation and which changed its name to Datapoint Corporation in
1972. Its principal executive offices are located at 5-7 rue Montalivet
75008, Paris, France (telephone number - (33-1) 40 07 37 37) and at 8400
Datapoint Drive, San Antonio, Texas 78229-8500 (telephone number - (210)-
593-7000).
Throughout the 1970's, the Company developed, distributed and serviced
minicomputers, and later computer networks and telecommunications products.
During that period sales and service revenue was predominately derived from the
U.S. market, supplemented by international sales through a network of
independent distributors.
In 1981, the Company purchased most of its major international distributors,
which have been subsequently operated as subsidiaries. In 1985, the Company
separately incorporated its U.S. hardware service business as an independent
company and distributed its shares to shareholders.
Throughout the 1980's, the Company's business has been characterized by a
significant decline in total revenue, recurring significant losses, and a
reduction of the domestic workforce. During the 1990's this trend has continued
as the Company has experienced a decline in both foreign and domestic total
revenue (predominately in 1993 and 1994), and has experienced significant
lossesand a substantial reduction in the workforce. The continuation
of this trend was primarily due to (1) a mass entry of competitors in the
networking marketplace compounded by (2) a marketplace demand for "Open
Systems" products and standard interfaces, both of which had a negative
impact on the traditional networking and data processing components of
the Datapoint business.The marketplace was forced into a sameness of design
that lead to highly competitive pricing being the only significant product
differentiator. Theseadverse effects were, in turn, worsened by the
increasing availability of low-cost, off-the-shelf hardware applications
packages written in a number of industry-standard programming languages.
This resulted in a substantial decline in both foreign and domestic
revenues (see note 1 to Consolidated Financial Statements).
Products
The Company provides a complete line of products that meet data processing,
video communications, and telecommunications requirements. The network-based
products include video communications, data sharing applications,
platform-independency, local area networking, wide area networking, relational
database systems, and telecommunications integration.
The Company announced it's third generation of Multimedia Information Network
Exchange (MINX) video communications products which provide the capacity for
large video networks, data conferencing features, and aggressive pricing. A
complete range of products is available from a fully interactive,
broadcast-quality, full-motion video network which can accommodate over
700 local workstations to a single video station for a remote office.
All of the video products are interoperable and provide functionality
and picture quality that is unparalleled in the industry. Concurrently, the
Company strengthened its direct Sales, Support, and Engineering efforts to
respond to the growing desktop video communications market.
The Company was successful in asserting its United States video conferencing
patents resulting in payment for a license. The Company believes that these
patents provide broad coverage in switched video conferencing technology and
present the opportunity for further royalty bearing licenses.
Open Systems Networking products are industry-standard. The file servers are
based upon a scaleable architecture using the Intel microprocessor because of
its cost and performance. The multi-processor functionality is provided for
both the Company's highly sophisticated RMS network operating system and the
industry-standard UNIX operating system. The Company offers high-performance,
Pentium-based file servers for less demanding configurations in both the
RMS and UNIX environments. Redundant disk systems are also available for
customers who require uninterruptable services from their computer systems.
The Company's networking products focus on linking file servers, workstations,
terminals, printers, and other peripherals (such as modems) to the network.
High performance networking software and hardware components comprise the
product offering and provide the ability to implement high-capacity, highly
efficient networks composed of client/server and data communications devices.
The networking solutions provide the capability of running MS-DOS, UNIX, and RMS
simultaneously along with both ARCNET, ARCNETPLUS, and Ethernet adapters. These
capabilities provide customers the flexibility to design network architecture's
to meet their specific requirements.
Realizing that personal computers are the desktop workstation of choice, the
Company offers PC-based hardware and software. The software component is a full
featured, Microsoft Windows compliant terminal emulation package for the RMS
environment which can be run on existing PCs. An industry-standard UNIX
terminal is offered for customers who desire a low-cost data station rather than
a networked PC.
The Company offers a complete set of telecommunications products and services
to meet the requirements of large call centers, customer service organizations,
and telemarketing firms. Power dialers to increase call efficiency for outbound
communications applications, interactive voice response systems which allow
customers to interrogate an organization's database with a simple telephone, and
automatic call distribution systems that manage large volumes of incoming calls
comprise the portfolio of telecommunications products. The Company has an
agreement with AT&T to market their Definity line of automatic call distributors
through several of the Company's European subsidiaries. Telecommunications
solutions are provided with the combined expertise in networking, data
processing, and telecommunications products.
The supplier and value-added reseller relationships that the Company continues
to develop, allow its customers worldwide to enhance their productivity
with sensible, cost-effective computer-based networking, telephony and video
communication solutions.
Markets
Customers
Datapoint sells generally to business and government customers, including the
U.S. government, financial institutions, insurance companies, educational
institutions, and manufacturers. During fiscal 1994, no one customer accounted
for 10 percent or more of consolidated revenues.
Domestic
Datapoint markets its products in the United States through independent sales
representatives who, on a commission basis, solicit orders for Datapoint's
products; through value-added resellers, who purchase Datapoint's products for
resale; original equipment manufacturers, who integrate Datapoint's products
into their overall offerings; and through Datapoint's own end user sales force.
Independent sales representatives, value-added resellers, and original equipment
manufacturers generally market Datapoint's products in conjunction with
application software and other products developed and marketed by such firms.
International
Datapoint's products are marketed to end users in over forty countries through
a network of wholly-owned subsidiaries and independent distributors. Datapoint
distributes its products internationally through wholly-owned sales and service
operations in Belgium, France, Germany, Holland, Hong Kong, Italy, New Zealand,
Portugal, Spain, Sweden, Switzerland and the United Kingdom and through
authorized distributors worldwide. During fiscal year 1994, 92 percent of
Datapoint's international revenue was derived from customers in Western Europe.
Customer Service
Pursuant to a Master Maintenance Agreement between Intelogic Trace, Inc.
("Intelogic") and Datapoint dated June 28, 1985, Datapoint retained Intelogic
to serve as the exclusive authorized service agent for Datapoint's proprietary
data processing products in the United States for an evergreen term of six
years, subject to Datapoint's right to earlier termination under certain
conditions. Maintenance of equipment outside the United States
is provided by Datapoint's international subsidiaries and distributors.
The maintenance operations of the Company's international subsidiaries
produced 50 percent of total company revenues and 44 percent of total company
gross profit for the fiscal year ended July 30, 1994.
Manufacturing, Raw Materials, and Supplies
A significant portion of Datapoint's products are purchased from third
parties, who manufacture products meeting Datapoint's specifications.
The products are then resold badged/unbadged within Datapoint configurations.
Datapoint manufactures the remainder of its products, primarily by assembling
various purchased components into subassemblies which are then assembled into
finished products, primarily performed at Datapoint's facilities
in San Antonio, Texas.
Datapoint seeks, and maintains where practical, multiple sources of supply for
the products, components, and raw materials which it uses. However, certain
products and components are purchased only from single sources, and Datapoint
could experience manufacturing delays if such suppliers should fail to meet
Datapoint's requirements. The interruption of any components, whether for
supply or quality reasons, can become critical to production flows.
The Company's general experience has been good in terms of minimizing exposure;
however, guarantees regarding possible future situations and rectifying actions
that could arise cannot be made.
Research and Product Development
The technology involved in the design and operation of Datapoint's products
is complex and subject to constant change. Accordingly, Datapoint is committed
to a program of research and development which is oriented toward the
development of new hardware and software products and the improvement and
expansion of its existing products and services.
Datapoint incurred expense of $5.3 million, $7.8 million, and $9.3 million
in the fiscal years ended July 30, 1994, July 31, 1993, and August 1, 1992,
respectively, on research and development activity. Datapoint maintains
research and development facilities in San Antonio, Texas.
Competition
Datapoint operates in the intensely competitive computer data processing,
video conferencing and telephony industries that are characterized by the
frequent introduction of new products based upon technological advances.
Datapoint competes, domestically and abroad, with a substantial number of
companies, many of which are larger and have greater resources than Datapoint.
Such companies, considered in the aggregate, compete in the entire line of
products manufactured and marketed by Datapoint. These competitors differ
somewhat depending on the market segment, customer and geographic area involved.
Competition in this market is based primarily on the relationship between
price and performance; the ability to offer a variety of products and unique
functional capabilities; the strength of sales, service and support
organizations; and upgradability, flexibility, and ease of use of products.
The Company could be adversely affected if its competitors introduced
technologically superior products or substantial price reductions.
Backlog
The backlog of firm orders for the sale or lease of the Company's products
(using then existing end-user purchase prices for products to be leased and
giving effect to appropriate discounts for products to be sold) as of
July 30, 1994 and July 31, 1993 was $5.9 million and $11.1 million,
respectively. The backlog amounts are not necessarily indicative of the
Company's future results, since an increasing amount of the Company's
revenues are derived from orders obtained in the period of shipment.
Furthermore, a portion of the Company's backlog may be cancelable at the
customer's option, under certain conditions, without financial
penalty. All orders included in the backlog at July 30, 1994 are
currently scheduled for delivery during the subsequent 12 months. All orders
are subject to the Company's ability to meet delivery commitments. The
Company records only firm orders as backlog, and generally such orders are
cancelable only by the Company. In the event that a new product
is released, a customer is allowed to upgrade (i.e., cancel)
an existing order and place a new order for the new product. This is
done at the Company's discretion with no financial penalty to the customer.
Backlog is also not a reliable indicator of future results, as changes
in product mix (depending on whether the product content contained in
backlog has a low or high sales margin) and costs may significantly
impact reported results. Therefore, the Company believes that the backlog
data is not meaningful to an understanding of the Company's business or
future reported results.
Patents and Trademarks
Datapoint owns certain patents, copyrights, trademarks and trade secrets in
both network and video conferencing technologies, which it considers valuable
proprietary assets. The Company does not primarily rely on these rights to
establish or protect its market position, but does view them as providing the
Company a technological advantage in certain cases and does intend to fully
exploit their value, particularly with regard to the licensing of video
conferencing technology. While in the aggregate its patents are of
material importance to its business, the Company believes that no one
single patent or group of patents are of material importance to its business
as a whole, with the possible future exception of its video conferencing
patents. During 1994 the Company began patent infringement suits against
several defendants related to the Company's video conferencing
patents. Subsequent to 1994, the Company received $0.5 million from one
such defendant and patent infringement suits against other defendants are
pending. Because of the many patents issued in the electronics industry,
the Company's operations may involve claims of infringement of existing
patents.
The Company utilizes a number of trademarks, most importantly "DATAPOINT",
"ARCNET" and "MINX". The Company registers or otherwise protects those
trademarks it deems valuable to its business and anticipates no significant
impairment of its ability to continue to use and protect its important
trademarks. Datapoint, the "D" logo, ARC, ARCNET, RMS, MINX,
and Resource Management System are trademarks of Datapoint Corporation
registered in the U.S. Patent and Trademark office. Attached Resource
Computer, ARCNETPLUS, and DATALAN are trademarks of the Company.
(AT&T is a registered trademark of American Telephone and Telegraph.
Ethernet is a registered trademark of Xerox Corporation. Intel is a
registered trademark of Intel Corporation. Microsoft and MS-DOS
are registered trademarks of Microsoft Corporation. UNIX is a registered
trademark of UNIX System Laboratories, Inc.)
Employees
At July 30, 1994, the Company had 1,444 employees. The Company considers its
relations with employees to be satisfactory.
Environmental Matters
Compliance with current federal, state, and local regulations relating to the
protection of the environment has not had, and is not expected to have, a
material effect upon the capital expenditures, earnings, or competitive
position of Datapoint.
ITEM 2. Properties.
Datapoint's principal executive offices are located in Paris, France and the
Company maintains executive offices in San Antonio, Texas. Datapoint believes
that its plants and offices are generally well maintained, in good operating
condition and are adequately equipped for their present use. Information
regarding the principal plants and properties, excluding leases assigned or
subleased, as of July 30, 1994 is as follows:
Approximate
Facility
Location Use Sq. Footage Owned or Leased Land Area
San Antonio, Texas Raw Land -- Owned; 148 acres(a)
San Antonio, Texas Office 144,000 Owned; 12 acres
San Antonio, Texas Manufacturing,
warehouse
and office 126,000 Leased (b)
Gouda, Netherlands Office 52,000 Owned; 1 acre
Paris, France Office 16,000 Leased (b)
(a) The raw land owned by the Company in San Antonio, Texas is being held for
sale.
(b) Leases on facilities expire on various dates extending through July, 2002.
Additionally, at July 30, 1994, excluding leases assigned or subleased, the
Company leased sales and service offices having an aggregate of 429,000 square
feet in metropolitan areas throughout the world, pursuant to lease agreements
which expire between 1995 and 2009. The aggregate annual rental of all of these
sales and service offices is approximately $6.6 million and most of these
leases are subject to rental increases under certain escalation provisions and
renewals on similar terms.
ITEM 3. Legal Proceedings.
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 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Executive Officers of the Registrant
The following information is submitted with respect to the executive officers
of the Company as of October 28, 1994:
Officer
Name Age Position Since
A. B. Edelman 54 Chairman of the Board and
Chief Executive Officer 1985
D. D. Bencsik 63 President and Chief Operating Officer 1993
D. Berger 45 Vice President, Sales and Distribution 1993
J. Berger 51 Vice President, Marketing 1991
P. P. Krumb 52 Vice President and Chief Financial Officer 1994
G. N. Agranoff 47 Vice President, General Counsel
and Corporate Secretary 1994
J. L. Richey, Jr. 46 Vice President, Technical Operations 1994
K. L. Thrower 50 Vice President, Technical Service 1991
P. D. Sheetz 37 Assistant Corporate Controller 1994
The officers named above serve at least until the next Board of Directors
meeting immediately following the Annual Meeting of Stockholders.
Mr. Edelman joined the Company's Board of Directors as it's Chairman in
March 1985. For more than the past five years, Mr. Edelman has served as
General Partner of Plaza Securities Company. From January 1977 through
June 1984 he served as the General Partner of Arbitrage Securities Company,
a broker-dealer; from June 1984 he has served as General Partner of Asco
Partners, the sole general partner of Arbitrage thereafter. Mr. Edelman
is a director, Chairman of the Board and Chairman of the Executive
Committee of Intelogic Trace, Inc.; and a director, Chairman of the Board and
Chairman of the Executive Committee of Canal Capital Corporation (formerly
United Stockyards Corporation). The principal business address of Mr. Edelman
is 85 Av. General Guisan, CH-1009 Pully, Switzerland.
Ms. Bencsik joined the Company as Executive Vice President and Chief Operating
Officer in February 1993. In November 1993, she was promoted to President and
Chief Operating Officer. Ms. Bencsik has been a member of the Company's Board
of Directors since 1985. From 1991 to 1993 Ms. Bencsik had been employed by
Modular Computer Systems Inc., as President and Chief Executive Officer. In
addition, Ms. Bencsik has maintained a business consulting practice for more
than the past five years. Ms. Bencsik also worked at the Company from 1982 to
1987. Ms. Bencsik joined the Company in November 1982 as Vice President,
Engineering. In May 1984, she was promoted to Vice President, Operations, and
was promoted to Senior Vice President, Operations in January 1985. In
November 1985, she was promoted to Executive Vice President, Chief Operating
Officer and elected as a member of the Board of Directors. In January 1987,
Ms. Bencsik was named acting Chief Executive Officer and in June 1987 was
named to the Office of the President. The principal business
address of Ms. Bencsik is 8400 Datapoint Drive, San Antonio, Texas 78229-8500.
Mr. D. Berger was promoted to Vice President, Sales and Distribution in
July 1993. Mr. Berger joined the Company in 1991 as Managing Director of the
Company's United Kingdom subsidiary. Prior to joining the Company, Mr. Berger
was employed from 1988 to 1991 by RS2, a U.K. marketing communications company,
as Group Managing Director. The principal business address of Mr. Berger is
5-7 rue Montalivet 75008, Paris, France.
Mr. J. Berger joined the Company as Vice President, Marketing in June 1991.
Prior to joining the Company, Mr. Berger was employed by SCANVEST of Norway,
Datapoint's largest independent foreign distributor, for 21 years, most recently
as Managing Director, and previously as Director of Marketing. The principal
business address of Mr. Berger is 5-7 rue Montalivet 75008, Paris, France.
Mr. Krumb joined the Company as Vice President and Chief Financial Officer
in September 1994. Prior to joining the Company he was employed by IOMEGA
Corporation for the past 7 years as Senior Vice President Finance and Chief
Financial Officer. The principal business address of Mr. Krumb is 8400
Datapoint Drive, San Antonio, Texas 78229-8500.
Mr. Agranoff joined the Company as Vice President, General Counsel and
Corporate Secretary September 1994. Mr. Agranoff has been a member of the
Company's Board of Directors since March 1991, and is a member of the Audit and
Compensation Committees. He has been the General Partner of Asco Partners, the
sole general partner of Arbitrage securities Company for more than five years.
He has also been the general counsel to Arbitrage Securities Company and Plaza
Securities Company for more than the past five years. He is also a member of
the Board of Directors for Intelogic Trace, Inc. The principal business address
of Mr. Agranoff is 5-7 rue Montalivet 75008, Paris, France.
Mr. Richey joined the Company as Vice President, Technical Operations in
March 1994. He was previously employed by Data General and Honeywell. During
the last five years Mr. Richey was Director of Operations and most recently Vice
President, Engineering with Idea Associates and Modular Computer Systems, Inc.,
respectively. The principal business address of Mr. Richey is 8400
Datapoint Drive, San Antonio, Texas 78229-8500.
Mr. Thrower joined the Company as Vice President, Technical Services in
April 1991. He was previously employed by Memorex Telex for 12 years. He held
numerous positions with Memorex Telex, the most recent being Vice President,
Worldwide Customer Engineering. The principal business address of
Mr. Thrower is 5-7 rue Montalivet 75008, Paris, France.
Mr. Sheetz joined the Company in 1982 and has assumed an increasing level of
management responsibilities since joining the Company. He was promoted to
Assistant Controller in November 1994.
There are no family relationships between any of the executive officers of
the Company.
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Datapoint Corporation common stock is traded on the New York Stock Exchange
under the symbol "DPT". The prices below represent the high and low prices for
composite transactions for stock traded during the applicable period. The
Company has not paid cash dividends to date on its common stock and has no
present intention to pay cash dividends on its common stock in the near future.
Fiscal
year High Low
1994 Q4 6.13 3.38
Q3 7.38 4.50
Q2 8.25 5.88
Q1 7.63 5.50
High Low
1993 Q4 7.38 3.88
Q3 6.75 4.25
Q2 5.25 1.63
Q1 2.88 1.38
<TABLE>
ITEM 6. Selected Financial Data.
<CAPTION>
Selected Financial Data
Five-Year Comparison
(Dollars in thousands, except per share data)
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Operating Results for
the Fiscal Year
Total revenue $172,936 $208,344 $255,243 $265,479 $267,311
Operating income (loss) (81,021) (1,258) 6,655 13,934 (57,134)
Income (loss) before
extraordinary credits and
effect of change
in accounting principle (94,765) (11,859) (10,409) 5,335 (88,812)
Net income (loss) (93,425) (11,260) (8,756) 12,531 (82,819)
Loss per common share before
extraordinary credits and
effect of change in
accounting principle (6.69) (.97) (1.62) (.42) (9.72)
Net income (loss)
per common share (6.60) (.93) (1.47) .29 (9.13)
Financial Position at End of
Fiscal Year
Current assets $79,915 $94,169 $121,991 $122,025 $120,468
Fixed assets, net 29,088 27,950 34,533 29,572 36,723
Total assets 127,434 202,275 248,813 235,490 246,900
Current liabilities 98,202 74,759 90,581 87,591 99,305
Long-term debt 70,561 71,551 66,101 66,327 73,371
Stockholders' equity (deficit) (50,761) 47,021 74,835 71,426 64,517
Financial Condition
Working capital $(18,287) $19,410 $31,410 $34,434 $21,163
Current ratio .8 to 1 1.3 to 1 1.3 to 1 1.4 to 1 1.2 to 1
Long-term debt-to-equity
ratio N/A 1.5 to 1 .9 to 1 .9 to 1 1.1 to 1
Long-term debt as % of total
invested capital 356% 60% 47% 48% 53%
Other Information
Average common shares
outstanding 14,430,574 14,081,964 11,093,431 10,119,491 10,118,681
Number of common stockholders 3,378 3,710 3,877 3,503 3,586
Preferred shares outstanding 1,784,456 1,784,456 1,784,456 1,931,218 1,931,218
Dividends paid or
accumulated on
preferred stock $1,784 $1,784 $7,601 $9,540 $9,540
Number of employees 1,444 1,528 1,777 1,741 1,810
<FN>
No cash dividends on common stock have been declared during the five-year period.
</TABLE>
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Overview
During 1994, the Company experienced substantial operating losses due to
competitive pressures which caused a significant decline in revenues and to
a lesser extent gross profit margins. The adverse effects of competition and
the resulting decline in revenue produced an operating loss of $81.0 million,
negative working capital of $18.3 million and negative cash flows from
operations of $6.3 million for the year ended July 30, 1994. During the past
year the Company emphasized the traditional line of business and the relatively
new video conferencing and telephony markets which includes a strategic
partnership with AT&T. However, the investment in these markets have resulted
in revenues far below the Company's expectations.
The Company recorded special charges of $75.7 million during 1994. These
charges consisted of $57.7 million in write-offs of investments in the
Company's international operations, $14.8 million of reorganization charges and
$3.2 million in the write-off of a partially owned company.
The write-offs of investments in the Company's international operations
("Goodwill") was recorded in the fourth quarter of 1994 and was the result of a
reassessment of the carrying value of the Company's intangible assets. The
Company periodically reviews the carrying value of its intangible assets.
The performance of the Company's European subsidiaries began to worsen
in 1993 as the operating performance of certain of these subsidiaries
turned negative. Revenue during 1993 of these subsidiaries declined 15% from
the 1992 level. The Company's projections for 1994 were for all the European
subsidiaries to return to the profitability level of 1992, and the future
projections for these operations was adequate to support the related goodwill
balance. However, in 1994, revenue for the European subsidiaries experienced
a further 16% decline from the 1993 level and cash flow from certain of these
operations was negative for the second year in a row. Accordingly, at the
end of 1994 the Company performed a review of the carrying value of it's
goodwill. The resulting long-term projections of earnings before interest,
depreciation and amortization on an undiscounted basis were insufficient to
support the goodwill balance. As a result of these long-term projections and
the historical declines in revenue and increased operating losses, the Company
recorded a write-off of the entire remaining goodwill balance of $57.7
million (see note 1 to Consolidated Financial Statements).
Additionally, the Company recorded $13.4 million of charges in the fourth
quarter of 1994 as a result of the implementation of a statutory plan of
reorganization for one of its European subsidiaries (see note 2 to
Consolidated Financial Statements). Management developed the plan, which
is subject to administrative approval, as a result of a continued decline
in revenues resulting from the loss of several significant accounts.
These charges relate principally to severance costs associated with
the termination of approximately 140 employees spread throughout
sales, service, and general and administrative positions involved in this
European subsidiary. The plan is expected to be completed during 1995.
Management expects to fund these charges through cash inflows of the Company.
These charges have been classified as current liabilities (see note 10 to
Consolidated Financial Statements) but up to approximately $6.0 million may be
deferred and paid out on a long-term basis depending on the outcome of the
administrative proceeding. Upon completion of the plan the Company expects
annual savings to exceed $10.0 million. Although the plan may have a negative
impact upon revenue, the Company does not believe that such impact will be
material. In addition to the charges pertaining to the European subsidiary,
the Company recorded $1.4 million in Company-wide reorganization charges
related to reductions of personnel whose skills do not fit with the
Company's future plans.
The $3.2 million write-off of an investment in a partially owned company was
recorded in the fourth quarter of 1994 and resulted from a reassessment of the
carrying value of the asset in light of a sharp decline in the performance of
the partially owned company (see note 3 to Consolidated Financial Statements).
The write-off was recorded upon a succession of weakening quarterly operating
performances.
These reorganization actions taken at the end of 1994, continued cost cutting in
1995 and a stabilized level of revenue consistent with 1994 are anticipated to
preserve and improve the Company's cash liquidity position. Revenue has
declined for six consecutive years and the stabilization of the revenue stream
is a requirement if the Company is to continue to meet its various obligations.
The Company has aggressively pursued further cost-cutting actions such as
reductions of personnel and reorganization of one of the Company's
European subsidiaries, while simultaneously undertaking other actions to
supplement the cash flow from operations. These cash supplementation efforts
include the sale of common stock, potential sale of the Company's unimproved
real property situated in San Antonio, Texas, pursuit of patent infringement
claims and other cash infusions. These additional infusions are necessary
to meet certain of the Company's obligations, including interest of $2.9
million on its 8-7/8% convertible subordinated debentures payable on
December 1, 1994. While management anticipates meeting this obligation, no
assurances can be given that sufficient funds will be available. In the event
the payment is not made within the 30-day period following December 1, 1994,
the resulting default would entitle the holders of the debentures to elect
to declare the entire indebtedness of $64.4 million as immediately due
and payable. Such a default would likewise result in defaults in certain
of the Company's other debt instruments.
Financial Condition and Liquidity
The Company's cash and cash equivalents decreased $16.2 million in 1994,
compared with an increase of $2.4 million in 1993 and a decrease of $13.3
million in 1992. The decrease in 1994 was due to the decline in revenue and
gross profit margins partially offset by reduced operating costs and expenses.
The increase in 1993 was due primarily to improved collections of accounts
receivables, partially offset by the decline in revenue and margins and
continued spending on new products. During 1994, 1993 and 1992, the Company
paid dividends of $1.8 million $1.8 million and $0.3 million on the
$1.00 preferred stock.
As of July 30, 1994, the Company had restricted cash of $4.3 million as
compared to $4.5 million the prior year. The 1994 and 1993 balances were
restricted primarily to cover various lines of credits, reflected as payables to
banks. In 1993, $2.0 million of guaranteed dividends on the $1.00 preferred
stock was included in the restricted cash balance.
During 1994 the Company withdrew $3.7 million of cash from an investment
portfolio, which had $3.9 million of cash at the beginning of 1994, for the
operations of the Company. The withdrawal and disposition of these funds has
reduced the Company's liquid reserves for the internal financing of cash flow
requirements.
Cash used for investment in fixed assets was $10.8 million in 1994, compared to
$10.9 million in 1993 and $11.1 million in 1992. There are no material
commitments for capital expenditures at the present time.
Accounts payable increased to $25.6 million in 1994 from $15.9 million in 1993.
As cash and cash equivalents have declined the Company has utilized bank debt
and trade account payables to finance its operations. The Company continued to
work with its accounts payable creditors to extend additional credit and credit
terms, thus maintaining functional relationships with such creditors during
1994. The Company has no significant purchase commitments outstanding as of
July 30, 1994.
As of July 30, 1994, the Company has included in payables to banks an amount of
$7.5 million payable to International Factors "De Factorij" B.V., a subsidiary
of ABN-AMRO Bank of the Netherlands. The loan is secured by the receivables of
the Company's U.K., Dutch and German subsidiaries. The Company paid down the
loan by $1.0 million in September 1994 and is in discussion with other various
potential sources of financing to reduce the borrowings by a further $1.5
million. Upon conclusion of such financing the borrowings with International
Factors B.V. will be secured by the U.K. and Dutch receivables.
The Company has a secured credit facility with The CIT Group/Credit Finance
("CIT"), which consists of a term loan and a revolving loan. As of
July 30, 1994, the Company had borrowings against this facility of $3.3 million,
the maximum based on the available collateral as of that date and the credit
facility is callable at the option of the lender. The collateral for the
revolving credit facility consists of the Company's U.S. trade receivables,
certain trade receivables from independent foreign distributors, U.S.
inventories, real property, contract rights and general intangibles,
equipment and fixtures, and certain certificates of deposit issued to or for
the account of the Company. Available borrowings are calculated by multiplying
various percentages times the collateral, based upon type of inventory, type of
account receivable and value of such certificates of deposit issued to or for
the account of the Company. The credit facility also includes a restriction
upon the payment of dividends, allowing dividends to be paid on the Company's
$1.00 preferred stock, but prohibiting dividend payments on the Company's
common stock.
The Company has available lines of credit from foreign banks to its
foreign subsidiaries. The unused lines of credit at July 30, 1994 totaled
$2.7 million after borrowings of $7.2 million.
During 1993 the Company settled two long standing patent-related legal
actions brought against it by Northern Telecom Inc. ("NTI") and Compagnie
Internationale de Services en Informatique, S.A. ("CISI"). Pursuant to these
settlements, during 1994 and 1993, the Company paid NTI $1.0 million and
$7.5 million and paid CISI $1.0 million and $0.8 million. The Company also
agreed to a ten-year note payable to NTI which requires annual $1.0 million
payments each December. As of July 30, 1994 the Company owed CISI $0.2 million
and NTI $6.1 million which were included in current and long-term debt (see note
11 to Consolidated Financial Statements). The Company is also contingently
obligated to make payments to NTI dependent upon the Company's future
profitability. The contingent payments, up to a cumulative maximum of $12.5
million, are to be paid in annual installments calculated at 33-1/3% of the
Company's pre-tax annual profits in excess of $10.0 million in each of the 10
fiscal years beginning with fiscal 1993. During 1994 and 1993, the Company
incurred no liability to make such contingent payments as a result of
the net losses incurred.
The Company received subsequent to 1994 several one-time cash infusions.
During August 1994, the Company sold 700,000 shares of the Company's Common
Stock for $1.8 million. The Company received subsequent to 1994 a settlement
payment of $0.5 million from a defendant in patent infringement litigation
brought by the Company. Patent infringement suits against other defendants are
pending. Also, subsequent to 1994, the Company received the final $1.5 million
insurance payment related to the fire in the Belgian subsidiary. The Company
will continue to pursue additional one-time cash infusions as a means of
augmenting cash during 1995. No assurances can be given that the efforts to
pursue such cash infusions will be successful.
As an additional means of preserving cash flow for operations, the Company's
Board of Directors elected to defer the October 15, 1994 preferred dividend
payment to shareholders. If dividends are six quarters in arrears, the
preferred stock shareholders have the right to vote as a separate class and
elect two board members at the next annual meeting of shareholders and each
preferred share is exchangeable into two shares of common stock at the
option of the holder.
The Company adopted, effective August 1, 1993, SFAS No. 109, "Accounting for
Income Taxes" ("FAS 109"), which superseded SFAS No. 96 and APB Opinion No. 11.
The Company recorded a favorable cumulative accounting change effect of
approximately $1.3 million in the first quarter of fiscal 1994 (see note 4 to
Consolidated Financial Statements).
At July 30, 1994, the Company had available federal tax net operating losses
aggregating approximately $133 million, expiring in various amounts beginning in
2001. In the event that the Company's ability to utilize its net operating
losses to reduce its federal tax liability with respect to current and future
income becomes subject to limitation, the Company may be required to pay,
sooner than it otherwise might have to, any amounts owing with respect to such
federal tax liability, which would reduce the amount of cash otherwise
available to the Company (see note 4 to Consolidated Financial Statements).
Results of Operations
The following is a summary of the Company's sources of revenue for each of
fiscal 1994, 1993 and 1992:
(In thousands)
1994 1993 1992
Sales:
U.S. $6,453 $5,757 $7,483
Foreign 78,300 94,463 131,742
84,753 100,220 139,225
Service and other:
U.S. 1,164 1,529 1,762
Foreign 87,019 106,595 114,256
88,183 108,124 116,018
Total revenue $172,936 $208,344 $255,243
1994 Compared to 1993
Total revenue declined 17% to $172.9 million in 1994 from $208.3 million
in 1993. The decline was due to a stronger U.S. dollar, on average, in 1994 as
compared to the average U.S. dollar strength in 1993 as the Company incurred a
$16.0 million decline in total revenue attributable solely to currency changes.
In addition the French subsidiary incurred a sharp loss of business due to the
loss of several significant accounts to competitors and accordingly suffered a
total revenue loss of $11.7 million. The decline was also due to the sale of
the Australian subsidiary in 1993 which accounted for total revenue of $4.2
million in 1993. The Company also incurred less significant declines in
revenue in the Company's subsidiaries in Germany, Sweden and Holland
attributable to performance declines resulting primarily from competitive
pressures.
Operating income during 1994 included a fire insurance settlement gain of
$0.9 million related to a fire in the second quarter in a leased warehouse
facility in the Company's Belgian subsidiary. Operating income during 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.
Gross profit margins during 1994 were 37.9% compared with 41.6% for 1993.
Excluding the impact upon cost of sales of the fires noted above, gross profit
margins during 1994 were 37.4% compared with 39.0% for 1993.
Operating expenses (research and development plus selling, general &
administrative) during 1994 declined 9% from 1993 to $74.1 million. The
decline was a result of cost-cutting actions taken over 1994 which
significantly reduced costs of internal operations. In addition, operating
expenses were favorably impacted by the stronger U.S. dollar.
Interest expense decreased slightly in 1994 from 1993 as the Company benefited
from lower rates on borrowings in Europe and late in 1994 the Company
renegotiated its loan with CIT and significantly lowered its borrowing rate in
the U.S. The effect of lower interest rates more than offset a higher
borrowing level.
Non-operating results for 1994 includes the $3.2 million write-off of an
investment in a partially owned company, $0.7 million in foreign currency
exchange rate losses on certain of the Company's intercompany payables
and receivables and a $0.5 million fire settlement gain on fixed assets.
Non-operating results for 1993 also included a fire settlement gain on
fixed assets of $1.2 million. Interest income in 1994 declined
significantly from 1993 as the average investment balance in 1994
declined due to the usage of cash in operations.
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 applications, 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 first month following the end of a fiscal year.
For a discussion of income tax expense for 1994 and 1993, see note 4 to
Consolidated Financial Statements.
1993 Compared to 1992
Total revenue declined significantly during 1993 as compared to 1992. The
decline was most evident in sales revenue which declined 28%, primarily in the
Company's European subsidiaries. The decline was due to a recessionary economic
climate in much of Europe, exacerbated by industry difficulties, and partially
to the negative impact of a relatively stronger U.S. dollar compared to 1992.
The decline in sales revenue was also the result of the mid-year sale of the
Company's Australian subsidiary. In addition, sales were adversely impacted
by the diversion of resources to effect the Company's transition away from
reliance on traditional product lines and markets, and toward opportunities
in the growing video conferencing and telephony markets. Serviceand other
revenue declined during 1993, as compared to 1992, due mainly to the negative
effect of the stronger U.S. dollar and the sale of the Australian subsidiary.
During the second quarter of 1993, the operations of the Company's French
subsidiary were interrupted by a fire in its leased warehouse facility. The
fire negatively impacted revenue in the subsidiary, but this was compensated for
by business interruption insurance proceeds of $2.5 million. Operating income
also included $2.8 million in gains on the fire insurance settlement related
primarily to destroyed inventory and spare parts. Non-operating income
included $1.2 million in gains on the fire insurance settlement related
to destroyed fixed assets.
Gross profit margins during 1993 were 41.6% compared with 39.9% for 1992.
Excluding the $2.5 million of business interruption insurance coverage and $2.8
million of gains on the fire insurance settlement which favorably impacted cost
of sales, the gross profit margin for 1993 would have been 39.0%.
Operating expenses during 1993 declined significantly from 1992, as the
Company's emphasis on improving operating efficiencies resulted in significant
expense reductions in all major expense categories. Expenses were also
favorably effected by the stronger U.S. dollar.
Operating results during 1993 were negatively impacted by $6.2 million of
restructuring costs which were incurred to streamline the Company's internal
operations and re-position its sales, marketing and support teams to benefit
from the planned introduction of a broad range of new products. Over 97% of
these restructuring costs were related to staff reductions, of which 51% of
these costs are attributable to the French subsidiary, 23% are attributable to
the U.S. operations and the remaining percentage are attributable to
subsidiaries in Sweden, U.K., New Zealand, Germany and the Company's
former subsidiary in Australia.
Interest expense increased $0.9 million in 1993 as compared to 1992, due
primarily to an increase in debt resulting from the settlement of the NTI and
CISI patent litigation's. Other non-operating expenses for 1993 were nominal,
as foreign exchange losses resulting from the difficulties within the European
exchange rate system and the general strengthening of the U.S. dollar against
European currencies were essentially offset by interest income and the $1.2
million of insurance settlement gain related to the French fire. During 1992,
non-operating expenses were negatively impacted by $15.3 million in patent
litigation settlements with NTI and CISI, partially offset by
interest income of $3.1 million, a $3.0 million gain on the curtailment of the
U.K. pension and $2.3 million of foreign currency gains resulting from a
weakening of the U.S. dollar during 1992.
For a discussion of income tax expense for 1993 and 1992, see note 4 to
Consolidated Financial Statements.
ITEM 8. Financial Statements and Supplementary Data.
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Ernst & Young LLP
Independent Auditors
Consolidated Financial Statements
Consolidated Statements of Operations for the fiscal years 1994,
1993 and 1992
Consolidated Balance Sheets as of July 30, 1994 and July 31, 1993
Consolidated Statements of Cash Flows for the fiscal years 1994,
1993 and 1992
Consolidated Statements of Stockholders' Equity (Deficit) for the
fiscal years 1994, 1993 and 1992
Notes to Consolidated Financial Statements
Supplementary Data
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS
The Board of Directors
Datapoint Corporation
We have audited the accompanying consolidated balance sheets of Datapoint
Corporation and subsidiaries (the Company) as of July 30, 1994 and
July 31, 1993 and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for each of the
three fiscal years in the period ended July 30, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Company at
July 30, 1994 and July 31, 1993 and the consolidated results of its operations
and its cash flows for each of the three fiscal years in the period ended
July 30, 1994 in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As more fully described
in Note 1 to the consolidated financial statements, the Company has incurred
recurring operating losses, has negative working capital at July 30, 1994,
and negative cash flows from operations for the year ended July 30, 1994.
These conditions raise substantial doubt about the Company's ability
to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The consolidated financial statements
do not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification
of liabilities that may result from the outcome of this uncertainty.
As discussed in Note 4 to the consolidated financial statements, the Company
changed its method of accounting for income taxes in 1994.
/s/Ernst & Young LLP
Ernst & Young LLP
Dallas, Texas
November 14, 1994
CONSOLIDATED STATEMENTS OF OPERATIONS
Datapoint Corporation and Subsidiaries Fiscal Years 1994, 1993 and 1992
(In thousands, except share and per share data)
1994 1993 1992
Revenue:
Sales $84,753 $100,220 $139,225
Service and other 88,183 108,124 116,018
Total revenue 172,936 208,344 255,243
Operating costs and expenses:
Cost of sales 49,912 48,359 76,287
Cost of service and other 57,459 73,387 77,079
Research and development 5,268 7,754 9,330
Selling, general and administrative 68,808 73,859 85,892
Write-off of investment in foreign
operations 57,657 - -
Reorganization/restructuring costs 14,853 6,243 -
Total operating costs and expenses 253,957 209,602 248,588
Operating income (loss) (81,021) (1,258) 6,655
Non-operating income (expense):
Interest expense (9,097) (9,349) (8,432)
Other, net (4,293) (291) (7,324)
Loss before income taxes,
extraordinary credit and effect
of change in accounting principle (94,411) (10,898) (9,101)
Income taxes 354 961 1,308
Loss before extraordinary credit
and effect of change in accounting
principle (94,765) (11,859) (10,409)
Extraordinary credit:
Utilization of tax loss carryforward - 599 1,653
Loss before effect of change in
accounting principle $(94,765) $(11,260) $(8,756)
Effect of change in accounting
principle 1,340 - -
Net loss $(93,425) $(11,260) $(8,756)
Net loss, less preferred stock
dividends paid or accumulated $(95,209) $(13,044) $(16,357)
Net loss per common share:
Before extraordinary credit and
effect of change in accounting
principle $(6.69) $(.97) $(1.62)
Utilization of tax loss carryforward - .04 .15
Effect of change in accounting
principle .09 - -
Net loss $(6.60) $(.93) $(1.47)
Average common shares 14,430,574 14,081,964 11,093,431
See accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED BALANCE SHEETS
Datapoint Corporation and Subsidiaries July 30, 1994 and July 31, 1993
(In thousands, except share data)
1994 1993
Assets
Current assets:
Cash and cash equivalents $6,241 $22,452
Restricted cash and cash equivalents 4,312 4,459
Marketable securities 334 789
Accounts receivable, net of allowance for
doubtful accounts of $2,568 and $2,466,
respectively 44,379 45,090
Inventories 17,674 17,536
Prepaid expenses and other current assets 6,975 3,843
Total current assets 79,915 94,169
Fixed assets, net 29,088 27,950
Excess of cost of investment over net
assets acquired, net - 58,216
Other assets, net 18,431 21,940
$127,434 $202,275
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Payables to banks $17,963 $14,129
Current maturities of long-term debt 2,370 4,246
Accounts payable 25,649 15,914
Accrued expenses 37,732 26,683
Deferred revenue 13,728 12,579
Income taxes payable 760 1,208
Total current liabilities 98,202 74,759
Long-term debt, exclusive of current maturities 70,561 71,551
Other liabilities 9,432 8,944
Commitments and contingencies
Stockholders' equity (deficit):
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 $0.25 par value. Shares
authorized 40,000,000; shares issued and
outstanding 20,991,217, including treasury
shares of 6,546,825 in 1994 and 6,637,065
in 1993. 5,248 5,248
Other capital 212,599 212,599
Foreign currency translation adjustment 10,552 7,707
Retained deficit (226,977) (125,581)
Treasury stock, at cost (53,967) (54,736)
Total stockholders' equity (deficit) (50,761) 47,021
$127,434 $202,275
See accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Datapoint Corporation and Subsidiaries Fiscal Years 1994, 1993 and 1992
(In thousands)
1994 1993 1992
Cash flows from operating activities:
Net loss $(93,425) $(11,260) $(8,756)
Adjustments to reconcile net loss to net
cash provided from (used in) operating
activities:
Losses incurred in lag month eliminated (5,470) - -
Effect of change in accounting principle (1,340) - -
Depreciation and amortization 10,729 11,083 12,898
Write-offs of investment in foreign operations 57,657 - -
Write-off of investment in partially
owned company 3,210 - -
Net realized losses (gains) on marketable
securities - (26) 387
Provision for unrealized losses (recoveries)
on marketable securities 454 (314) (297)
Realized gain on fixed assets fire settlement (534) (1,165) --
Pension plan curtailment - - (3,009)
Provision for losses (recoveries) on accounts
receivable 803 (405) 530
Changes in assets and liabilities:
Decrease (increase) in receivables 801 17,643 (1,089)
Decrease (increase) in inventory 1,007 2,124 (729)
Increase (decrease) in accounts payable
and accrued expenses 19,747 (19,871) (1,680)
Increase in other liabilities and deferred
credits 388 1,678 3,758
Other, net (315) 314 (1,198)
Net cash provided from (used in) operating
activities (6,288) (199) 815
Cash flows from investing activities:
Proceeds from marketable securities - 88 1,319
Payments for fixed assets (10,828) (10,874) (11,118)
Proceeds from disposition of fixed assets 2,426 7,739 744
Other, net (648) 510 (506)
Net cash used in investing activities (9,050) (2,537) (9,561)
Cash flows from financing activities:
Payments on borrowings (32,606) (51,746) (50,958)
Proceeds from borrowings 33,126 59,235 50,857
Payments of dividends on preferred stock (1,784) (1,784) (303)
Disbursements related to Preferred Stock
Exchange - (116) (2,439)
Restricted cash for letters of credit 147 (240) (4,219)
Proceeds on sale of stock 52 763 125
Other, net - - (8)
Net cash provided from (used in) financing
activities (1,065) 6,112 (6,945)
Effect of foreign currency translation on cash 192 (945) 2,428
Net increase (decrease) in cash and cash
equivalents (16,211) 2,431 (13,263)
Cash and cash equivalents at beginning
of year 22,452 20,021 33,284
Cash and cash equivalents at end of year $6,241 $22,452 $20,021
Cash payments for:
Interest $8,781 $8,938 $8,549
Income taxes, net 362 1,156 2,558
See accompanying Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Datapoint Corporation and Subsidiaries Fiscal Years 1994, 1993, and 1992
(In thousands)
Foreign
$4.94 $1.00 Currency
Common Preferred Preferred Other Translation Retained Treasury
Stock Stock Stock Capital Adjustment Deficit Stock
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at July 27, 1991 $5,276 $2 000 - $257,911 $8,207 $(100,373) (101,595)
Net loss - - - - - (8,756) -
Common stock options
exercised-new shares 12 - - 28 - - -
Dividends paid on preferred
stock - - - - - (303) -
Foreign currency translation
adjustment - - - - 15,033 - -
Preferred Stock Exchange - (2,000) 1,869 (44,022) - - 41,500
Exercise of Intelogic Option (42) - (85) 127 - - -
Treasury stock:
Retirement of $4.94
preferred stock - - - (1,455) - - 1,455
Common issued to 401(k)
Plan - - - - - (82) 130
Balance at August 1, 1992 5,246 - 1,784 212,589 23,240 (109,514) (58,510)
Net loss - - - - - (11,260) -
Common stock options
exercised-new shares 2 - - 10 - - -
Dividends paid on preferred
stock - - - - - (1,784) -
Foreign currency
translation adjustment - - - - (15,533) - -
Treasury stock:
Common issued to 401(k)
Plan - - - - - (6) 13
Common stock options
exercised - - - - - (3,017) 3,761
Balance at July 31, 1993 5,248 - 1,784 212,599 7,707 (125,581) (54,736)
Losses incurred in lag
month eliminated - - - - - (5,470) -
Net loss - - - - - (93,425) -
Common stock options
exercised-new shares - - - - - (717) 935
Dividends paid on preferred
stock - - - - - (1,784) -
Foreign currency
translation adjustment - - - - 2,845 - -
Treasury stock:
Common issued to 401(k)
Plan - - - - - - 6
Common stock options
exercised - - - - - - (172)
Balance at July 30, 1994 $5,248 - $1,784 $212,599 $10,552 $(226,977) $(53,967)
<FN>
See accompanying Notes to Consolidated Financial Statement
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Datapoint Corporation and Subsidiaries July 30, 1994, July 31, 1993 and
August 1, 1992
(Dollars in thousands, except share data)
1. Summary of Significant Accounting Policies
Liquidity
In the current year, the Company's operating results continued to be adversely
affected by competition in the networking marketplace and highly competitive
pricing. Additionally, while the Company has increased its emphasis on the
telephony and video conferencing markets and management believes these markets
have significant opportunities, revenues have been substantially below the
Company's expectations.
As a result, the operating loss for 1994 was $81,021 with negative working
capital at July 30, 1994 of $18,287 and negative cash flows from operations
of $6,288 for the year ended July 30, 1994.
Management has undertaken several plans to improve operations, and reduce
negative working capital and negative cash flows. These plans include
strengthening its direct sales, support and engineering efforts to respond to
the growing video conferencing market. The Company has also announced several
new products and new peripherals which they hope will reverse the downward
trend in sales. It will be necessary for the Company to reverse this downward
trend in sales if it is to meet its various obligations. Additionally, the
Company's viability as a going concern is ultimately dependent on a return to
profitability. However, the effectiveness of these plans can not
necessarily be assured.
The Company has also aggressively pursued cost-cutting actions including
reductions of personnel whose skills do not fit with the Company's future plans
(see note 2 for discussion of a statutory plan of reorganization for one of the
Company's European subsidiaries and related severance costs). Management has
also actively undertaken other actions to supplement the cash flow from
operations, including the sale of common stock, potential sale of assets, patent
infringement claims and other cash infusions. These additional infusions are
necessary to meet certain of the Company's obligations, including interest of
$2,857 on its 8-7/8% convertible subordinated debentures payable on
December 1, 1994 (see note 11). While management anticipates meeting this
obligation, no assurances can be given that sufficient funds will be available.
In the event the payment is not made within the 30-day period following
December 1, 1994, the resulting default would entitle the holders of the
debentures to elect to declare the entire indebtedness of $64,394 as
immediately due and payable. Such a default would likely result in defaults in
certain of the Company's other debt instruments.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. The consolidated financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the outcome of this uncertainty.
Fiscal Year
The Company utilizes a 52-53 week fiscal year. References to 1994, 1993
and 1992 are for the 52-week periods ended July 30, 1994, July 31, 1993 and the
53-week period ended August 1, 1992.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. Intercompany accounts and transactions have been
eliminated upon consolidation.
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 applications, 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 $5,470 being recorded
against the retained deficit. The loss incurred in July 1993 resulted primarily
from a low revenue level, which is usual for the first month following the end
of a fiscal year.
Cash and Cash Equivalents
Cash equivalents include short-term, highly liquid investments with maturities
of three months or less from date of acquisition and as a result the carrying
value approximates fair value because of the short maturity of those
instruments. At July 30, 1994, the Company has $4,312 of restricted cash.
The amount collateralizes various lines of credit payable to banks which are
recorded as current liabilities.
Marketable Securities
Marketable securities are stated at the lower of cost, determined on a first-in,
first-out basis, or market at the balance sheet date and consist of equity
securities. At July 30, 1994, the carrying value of marketable securities is
based on quoted market prices.
Inventories
Inventories are stated at the lower of standard cost (approximates first-in,
first-out) or market (replacement cost as to raw materials and net realizable
value as to work in process and finished products).
Fixed Assets
Fixed assets are carried at cost and depreciated for financial purposes using
straight-line and accelerated methods at rates based on the economic lives of
the assets, which are generally as follows:
Buildings and land improvements 5-30 years
Machinery, equipment, furniture and fixtures 3-10 years
Equipment leased to customers 4 years
Field support spares 3 years
Major improvements that add to the productive capacity or extend the life of
an asset are capitalized while repairs and maintenance are charged to expense
as incurred.
Debt
The carrying amounts and the fair values of the Company's debt at July 30, 1994
are:
Carrying Fair
Amount Value
8-7/8% convertible subordinated debentures $64,394 $33,807
All other debt 8,537 8,537
The fair value of the Company's 8-7/8% convertible subordinated debentures is
based on a quoted market price at July 29, 1994. The carrying value of all
other debt is stated at fair value as the borrowings are at current
market borrowing rates or the debt is stated at net present value for zero
interest notes (see note 11).
Translation of Foreign Currencies
Management has determined that all of the Company's foreign subsidiaries
operate primarily in local currencies. All assets and liabilities of foreign
subsidiaries are translated into U.S. dollars using the exchange rate
prevailing at the balance sheet date, while income and expense accounts are
translated at average exchange rates during the year.
Reclassifications
Certain reclassifications to the financial statements for prior years
have been made to conform to the 1994 presentation.
Revenue Recognition
Revenue is recognized in accordance with the following criteria:
(a) Sales revenue is generally recognized at the time of shipment.
(b) Software revenue is recognized when the program is shipped, or as the
monthly license fees accrue, or over the terms of the support agreement.
(c) Service revenue is recognized ratably over a contractual period or
as services are provided.
(d) Lease revenue is recognized on the operating method ratably over the
term of the lease.
Excess of Cost of Investment Over Net Assets Acquired
The excess of cost of investment over net assets acquired was amortized
on a straight-line basis, over 40 years, following the date of purchase.
The write-offs of investments in the Company's international operations
("Goodwill") was recorded in the fourth quarter of 1994 and was the result of a
reassessment of the carrying value of the Company's intangible assets. The
Company periodically reviews the carrying value of its intangible assets.
The performance of the Company's European subsidiaries began to worsen
in 1993 as the operating performance of certain of these subsidiaries
turned negative. Revenue during 1993 of these subsidiaries declined 15%
from the 1992 level. The Company's projections for 1994 were for all the
European subsidiaries to return to the profitability level of 1992 and
the future projections for these operations was adequate to support the related
goodwill balance. However, in 1994, revenue for the European subsidiaries
experienced a 16% decline from the 1993 level and cash flow from certain of
these operations was negative for the second year in a row. Accordingly,
at the end of 1994 the Company performed a review of the carrying value
of it's goodwill. The resulting long-term projections of earnings
before interest, depreciation and amortization on an undiscounted basis
were insufficient to support the goodwill balance. As a result of these
long-term projections and the historical declines in revenue and increased
operating losses, the Company recorded a write-off of the entire remaining
goodwill balance of $57,657.
Income Taxes
The provision for income taxes is reduced by investment tax credits, which are
recognized in the year the assets giving rise to the credits are placed in
service (flow-through method) or when realized for income tax purposes, if
later.
No tax provision has been made for the undistributed earnings of foreign
subsidiaries as management expects these earnings to be reinvested indefinitely
or received substantially free of additional tax.
In February 1992, the Financial Accounting Standards Board issued SFAS No. 109,
"Accounting for Income Taxes" ("FAS 109"), which superseded SFAS No. 96 and
APB Opinion No. 11. The adoption of this new standard had a favorable
cumulative accounting change effect of $1,340 recorded in the first quarter of
fiscal 1994 (see note 4).
Loss per Common Share
Loss per common share is based on the weighted average number of common shares
outstanding during each year presented. The Company's common stock equivalents,
which include convertible debt, were antidilutive for the years presented and,
therefore, were excluded from the computation. The 1994, 1993 and 1992
computations include the effect of dividends paid or accumulated on preferred
stock of $1,784, $1,784, and $7,601, respectively. Dividends of $1,784 were
paid during 1994 and 1993, and dividends of $303 were paid during the fourth
quarter of 1992 on the $1.00 preferred stock. All other dividends accrued
during 1992 were not paid, and were eliminated in the exchange of $4.94
preferred stock for $1.00 preferred stock.
2. Reorganization/Restructuring Costs
The Company recorded $13,360 of charges in the fourth quarter of 1994 as a
result of the implementation of a statutory plan of reorganization for one of
its European subsidiaries. Management developed the plan, which is subject
to administrative approval, as a result of a continued decline in revenues
resulting from the loss of several significant accounts. These charges
relate principally to severance costs associated with the termination of
approximately 140 employees spread throughout sales, service, and general and
administrative positions involved in this European subsidiary. The plan is
expected to be completed during 1995. Management expects to fund these charges
through cash inflows of the Company. These charges have been classified as
current liabilities (see note 10) but up to approximately $6,000 may be
deferred and paid out on a long-term basis depending on the outcome of the
administrative proceeding. Upon completion of the plan the Company expects
annual savings to exceed $10,000. Although the plan may have a negative impact
upon revenue, the Company does not believe that such impact will be material.
In addition to the charges pertaining to the European subsidiary, the Company
recorded $1,493 in Company-wide reorganization charges related to reductions of
personnel whose skills do not fit with the Company's future plans.
During 1993, the Company implemented a restructuring plan designed to improve
the Company's internal operations and re-position its sales and marketing teams
to benefit from the planned introduction in fiscal 1994 of a broad range of new
products. As a result, the Company recorded restructuring charges of $6,243
primarily related to staff reductions of which 51% of these costs are
attributable to the French subsidiary, 23% are attributable to the U.S.
operations and the remaining percentage are attributable to subsidiaries
in Sweden, U.K., New Zealand, Australia and Germany.
3. Non-operating Income (Expense)
1994 1993 1992
Interest earned $313 $2,018 $3,141
Realized gain on fixed assets fire settlement 534 1,165 -
Write-off of investment in partially owned company (3,210) - -
Net unrealized recoveries (losses) on marketable
securities (454) 314 297
Foreign currency gains (losses) (718) (2,361) 2,318
Settlement of litigation - - (15,282)
Pension plan curtailment - - 3,009
Other (758) (1,427) (807)
$(4,293) $(291) $(7,324)
The $3,210 write-off of an investment in a partially owned company was recorded
in the fourth quarter of 1994 and resulted from a reassessment of the carrying
value of the asset in light of a sharp decline in the performance of the
partially owned company. The write-off was recorded upon a succession of
weakening quarterly operating performances.
4. Income Taxes
Effective August 1, 1993, the Company adopted SFAS No. 109 "Accounting for
Income Taxes" prospectively. SFAS No. 109 requires a change from the deferred
method of accounting for income taxes of APB Opinion 11 to the asset and
liability method of accounting for income taxes.
As a result of adoption of SFAS No. 109, 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.
1994 1993 1992
Income (loss) before income taxes,
extraordinary credit and effect of
change in accounting principle:
U.S. $(11,430) $2,646 $(16,083)
Outside the U.S. (82,981) (13,544) 6,982
$(94,411) $(10,898) $(9,101)
Provision for income taxes:
U.S. federal:
Current $73 $32 $617
Deferred - (221) (1,980)
$73 $(189) $(1,363)
Outside the U.S.:
Current (61) 793 1,066
Deferred 342 (242) (48)
Charge in lieu of income taxes - 599 1,653
281 1,150 2,671
Total provision $354 $961 $1,308
The differences between the tax provision in the financial statements and
the tax expense computed at the U.S. federal statutory rates are:
1994 1993 1992
Tax expense (benefit) at statutory rate $(33,043) $(3,705) $(3,094)
Increase (decrease) in taxes resulting from:
Benefit of U.S. tax loss not recognized 3,298 - 4,768
Foreign losses and other transactions on
which a tax benefit could not be recognized 9,288 3,684 1,136
Adjustment of prior year taxes - (336) (1,390)
Nondeductible amortization and write-off
of intangible assets 20,875 712 724
Effect of foreign tax refunds and U.S. tax
associated with dividends paid 73 143 33
Effect of federal tax rate less than
(greater than) foreign tax rates 142 452 (839)
Benefit of operating loss carryforwards (286) - -
Other, net 7 11 (30)
Provision for income taxes $354 $961 $1,308
The undistributed earnings, indefinitely reinvested in international business,
of the Company's foreign subsidiaries aggregated approximately $17,000 at
July 30, 1994. Determination of the amount of unrecognized deferred tax
liability on these unremitted earnings is not practicable.
The primary components of deferred income tax assets and liabilities at
July 30, 1994 are as follows:
1994
Deferred income tax assets:
Property, plant and equipment $3,955
Loss and credit carryforwards 68,213
Accrued restructuring costs 4,453
Other 9,180
85,801
Less: valuation allowance 82,217
3,584
Deferred income tax liabilities:
Accrued retirement costs (2,141)
Other (988)
(3,129)
Net deferred income tax asset $455
At July 30, 1994, the net deferred income tax asset of $455 was presented
in the balance sheet, based on tax jurisdiction, as deferred income tax assets
of $2,742 and deferred income tax liabilities of $2,287.
Timing differences at July 31, 1993, consisted primarily of differences in
depreciation rates, accrued retirement costs, accrued restructuring costs, and
legal settlements not deducted for tax purposes.
At July 30, 1994, the Company has tax operating loss carryforwards
approximating $133,000 and $30,000 for federal and foreign tax purposes,
respectively, expiring in various amounts beginning in 2001 and 1995,
respectively. Federal long-term capital loss carryforwards of $19,000 expire
in various amounts beginning in 1995. Utilization of the ordinary and
capital tax loss carryforwards is subject to limitation in the event of a
more than 50% change in ownership of the Company.
The Company has unused investment, research, and alternative minimum tax
credits for income tax purposes at July 30, 1994 of approximately $3,700
expiring at various dates through 2001 which may be used to offset future tax
liabilities of the Company. Utilization of these credits is subject to
limitation in the event of a more than 50% change in ownership of the Company.
Income taxes paid were $362, $1,156 and $2,558 for 1994, 1993 and 1992,
respectively.
5. Marketable Securities
Marketable securities are stated at market value for 1994 and 1993. Cost for
marketable securities was $4,573 for both 1994 and 1993. At July 30, 1994,
gross unrealized losses were $4,239, which represents the excess of cost over
market value. There were no gross unrealized gains as of July 30, 1994.
6. Inventories
1994 1993
Finished products $10,416 $9,876
Work in process 1,601 2,041
Raw materials 5,657 5,619
$17,674 $17,536
7. Fixed Assets
Accumulated
Cost Depreciation Net
July 30, 1994
Property, plant and equipment:
Buildings and land improvements $19,736 $14,102 $5,634
Machinery, equipment, furniture and fixtures 88,213 75,959 12,254
Land ($5,500 held for sale) 6,856 - 6,856
114,805 90,061 24,744
Field support spares 15,262 11,337 3,925
Equipment leased to customers 5,009 4,590 419
$135,076 $105,988 $29,088
July 31, 1993
Property, plant and equipment:
Buildings and land improvements $19,276 $13,430 $5,846
Machinery, equipment, furniture and fixtures 84,896 74,600 10,296
Land 6,807 - 6,807
110,979 88,030 22,949
Field support spares 18,763 14,294 4,469
Equipment leased to customers 14,294 13,762 532
$144,036 $116,086 $27,950
8. Lease Commitments
The Company leases certain facilities and equipment under various leases.
Substantially all of the leases are classified as operating leases. Rental
expense for operating leases for 1994, 1993 and 1992 was $9,137, $10,785, and
$13,314, respectively. Most of the leases contain renewal options for
various periods and require the Company to maintain the property. Certain
leases contain provisions for periodic rate adjustments to reflect Consumer
Price Index changes.
At July 30, 1994, future minimum lease payments for noncancelable leases
totaled $37,790 and are payable as follows:
1995-$7,666; 1996-$7,058; 1997-$5,281; 1998-$4,472; 1999-$4,203 and
$9,110 thereafter.
9. Payables to Bank
As of July 30, 1994, the Company has included in payables to banks an
amount of $7,500 payable to International Factors "De Factorij" B.V., a
subsidiary of ABN-AMRO Bank of the Netherlands. The loan is secured by
the receivables of the Company's U.K., Dutch and German subsidiaries. The
Company paid down the loan by $1,000 in September 1994 and is in
discussion with other various potential sources of financing to reduce
the borrowings by a further $1,500. Upon conclusion of such financing the
borrowings with International Factors B.V.will be secured by the U.K. and
Dutch receivables.
The Company has a secured credit facility ("Credit Facility") with The CIT
Group, with a maximum borrowing level of $7,500, given sufficient collateral.
The Credit Facility consists of a term loan and a revolving loan. The
borrowings outstanding under the Credit Facility, as of July 30, 1994,
were $3,312, the maximum based upon the available collateral as of that date,
and the Credit Facility is callable at the option of the lender. The borrowing
consists of $2,246 related to the revolving loan and included in payables to
banks, and $1,066 related to the term loan and included in current maturities
of long-term debt. The collateral for the revolving Credit Facility consists
of the Company's U.S. trade receivables and certain trade receivables from
independent foreign distributors, U.S. inventories, real property, contract
rights and general intangibles, equipment and fixtures, and certain
certificates of deposit issued to or for the account of the Company.
The Credit Facility requires that the Company meet a number of non-
financial covenants on an ongoing basis. The Credit Facility also requires
the Company to pay down the term loan subsequent to the sale of certain
assets. The Credit Facility expires in June 1995. The Credit Facility also
includes a restriction upon the payment of dividends, allowing dividends
to be paid on the Company's $1.00 preferred stock; but prohibiting dividend
payments on the Company's common stock.
The Company has other borrowings of $1,000 and available lines of credit from
foreign banks to its foreign subsidiaries. The unused lines of credit at
July 30, 1994 totaled $2,662 after borrowings of $7,217 which were included
in payables to banks.
10. Accrued Expenses
1994 1993
Salaries, commissions, bonuses and other benefits $8,839 $10,680
Taxes other than income taxes 6,986 5,378
Reorganization/restructuring costs 13,988 2,565
Other 7,919 8,060
$37,732 $26,683
11. Long-Term Debt
Maturities 1994 1993
8-7/8% convertible subordinated debentures 2006 $64,394 $64,394
Domestic term loan, average interest 9.4% 1995 1,066 2,158
6.5% to 9.0% real estate notes 1995 - 1999 993 1,361
Non interest bearing note-NTI 2002 6,094 6,503
Non interest bearing note-CISI 1995 195 1,083
Other obligations 1996 189 298
72,931 75,797
Less: current maturities 2,370 4,246
$70,561 $71,551
Interest on the 8-7/8% convertible subordinated debentures is payable
semiannually on June 1 and December 1. The debentures are subordinated in right
of payments to all senior indebtedness, as defined, and are convertible into
common stock of the Company at any time prior to the close of business on
June 1, 2006, unless previously redeemed. Each one thousand dollar principal
amount debenture is convertible into 55.231 shares of common stock and,
as of July 30, 1994, there were 3,556,545 shares reserved for possible
issuance. The debentures are entitled to a mandatory sinking fund,
which commenced June 1, 1991, of $5,000 annually. The Company, at its option,
may increase the sinking fund payment to $10,000 and may also receive credit
against mandatory sinking fund payments for debentures acquired through
means other than the sinking fund. The Company has applied
$20,000 in previous debenture retirements against the sinking fund
requirements for 1991 through 1994. The Company also intends to apply
previous debenture retirements of $15,606 through July 30, 1994 against the
sinking fund requirements for 1995 through 1997. The debentures are also
redeemable at the option of the Company, in whole or in part, at any
time at 100% of the principal amount together with accrued interest to
the date of redemption.
During fiscal 1985, the Company's Board of Directors authorized
management to make repurchases of up to $25,000 aggregate face value amount
of its 8-7/8% convertible subordinated debentures. Prior to 1992, the Company
had repurchased debentures having a total face value of $21,054 under this plan.
There were no such repurchases made in 1992, 1993, or 1994.
During fiscal 1993, the Company settled two long standing legal patent actions
brought against it by Northern Telecom Inc. ("NTI") and Compagnie Internationale
de Services en Informatique, S.A. ("CISI"). The Company agreed to a ten-year
note payable to NTI which requires annual $1,000 payments beginning in
December 1993. The Company is also obligated to contingent payments to NTI
dependent upon the Company's future profitability. The contingent payments,
up to a cumulative maximum of $12,500, are to be paid in annual installments
calculated at 33-1/3% of the Company's pre-tax annual profits in excess of
$10,000 in each of the 10 fiscal years beginning with fiscal 1993. Pursuant
to these settlements, during 1994, the Company paid NTI and CISI $1,000
and $1,000, respectively. At July 30, 1994 the nine remaining $1,000 annual
payments to NTI were discounted at a 10.0% effective rate. During 1994
and 1993, the Company incurred no liability to make the contingent payments
as a result of the net losses incurred.
Aggregate annual maturities of long-term debt are as follows: 1995--$2,370;
1996--$769; 1997--$749; 1998--$5,159; 1999--$5,714 and $58,170 thereafter.
12. Stockholders' Equity (Deficit)
During 1994, employees and directors of the Company exercised 113,274
options for shares of common stock. In addition, the Company repurchased
and placed into treasury stock 24,023 shares from the Company's U.S. 401(k)
retirement and savings plan. Also related to this plan, the Company
issued 989 shares from treasury stock to participants.
In the fourth quarter of 1992, the Company completed an exchange of
1,931,218 shares of $4.94 preferred stock for 1,869,456 shares of $1.00
preferred stock and 3,862,436 shares of common stock ("the Preferred Stock
Exchange"). The $1.00 preferred stock has a liquidation preference of $20.00
per share and cumulative dividends of $1.00 annually. If dividends are six
quarters in arrears, the preferred stock shareholders have the right to
vote as a separate class and elect two board members at the next annual meeting
of shareholders and each preferred share is exchangeable into two shares of
common stock at the option of the holder. These new directorships will be
filled annually by the preferred shareholders voting as a separate class until
the dividends in arrears have been paid in full. As an additional means of
preserving cash flow for operations, the Company's Board of Directors elected
to defer the October 15, 1994 preferred dividend payment to shareholders.
In August 1994, subsequent to the balance sheet date, the Company sold
700,000 shares of its common stock held in treasury for $1,750 in a transaction
outside the United States pursuant to Regulation S of the Securities and
Exchange Commission. The Company utilized the proceeds for working capital
needs. In addition, in September 1994, the Company reached an agreement with
Intelogic Trace, Inc. ("Intelogic"), in conjunction with Intelogic's court
approved reorganization, to cancel its option to repurchase at $.75 per
share, its common stock held by Intelogic in exchange for all of the Company's
holding of Intelogic preferred stock, which had no carrying value. As a result
of the exchange, the Company received from Intelogic 2,400,000 shares of
Datapoint common stock. Had these transactions occurred at the beginning of
1994 the impact on the earnings per share calculations, would have increased
the loss per common share to $(7.42) from $(6.60) per share.
13. Stock Option Plans
At July 30, 1994, 2,557,537 shares were reserved for issuance in connection with
the Company's stock option plans. Total options outstanding for all plans
total 1,524,873 and are exercisable at an average price of $4.13.
Under the Company's employee stock option plans, officers and other key
employees may be granted options to purchase common stock and related stock
appreciation rights. Under the terms of these plans, options may be granted
at no less than 75% of fair market value and expire no later than ten years
from the date of grant. The Board may grant options exercisable in full or
in installments, and has generally granted options at fair market value
exercisable in two to four installments beginning one year from the date of
grant. As of July 30, 1994 and July 31, 1993, options for 561,209 and 282,729
shares, respectively, under all employee plans were exercisable and no stock
appreciation rights had been granted. Options outstanding as of July 30, 1994
have an average exercise price of $4.43 and expire during the period
August 1994 through June 2004.
Employee Stock Option Plans
Price Range Number of Share
of Shares Under Available
Under Option Option for Option
Outstanding at July 31, 1993 $1.38-8.00 1,195,658 951,653
Shares authorized - - -
Granted 2.50-7.25 276,989 (276,989)
Exercised 1.38-5.62 (103,274) -
Canceled 1.38-7.13 (84,500) 84,500
Expired - - (1,500)
Outstanding at July 30, 1994 $1.38-8.00 1,284,873 757,664
During 1992, the 1985 Director Stock Option Plan was terminated. As of
July 30, 1994, there were continuing options for 50,000 shares outstanding from
this plan which expire five years from the date of grant. The 1985 Plan was
replaced by the 1991 Director Stock Option Plan. This plan greatly resembles
the terminated 1985 Plan and provides for a one-time grant of an option to
purchase, at fair market value as of the date of the grant, 25,000 shares of
common stock to each director, and an additional 50,000 shares to the present
and any newly elected Chairman of the Board. The 1991 Plan does not grant any
options to individuals holding options under the 1985 Plan. The Plan includes
both employee and non-employee directors and options expire five years from
the date of grant. Total director options outstanding as of July 30, 1994 have
an average exercise price of $2.53 and expire during the period April 1996
through May 1997.
Director Stock Option Plans
Price Range Number of Shares
of Shares Under Available
Under Option Option for Option
Outstanding at July 31, 1993 $1.88-3.06 250,000 275,000
Shares authorized - - -
Granted - - -
Exercised 2.50 (10,000) -
Canceled - - -
Expired - - -
Outstanding at July 30, 1994 $1.88-3.06 240,000 275,000
14. Information Relating to Business Segments and International Operations
Business Segment Information
The Company operates in one industry and is an international computer and
communications systems marketer, manufacturer and developer. Additionally, the
Company provides maintenance services on its products in the United States
through Intelogic, and services its products outside the United States through
its international distributors and subsidiaries.
International Operations
The Company conducts the majority of its international marketing and service
operations through its subsidiaries and, to a lesser extent, through various
distributorship arrangements. The Company's manufacturing is performed
domestically, and the Company's policy is to transfer products between
affiliates at prices which reflect market conditions. Financial information
on a geographic basis follows:
1994 1993 1992
Revenue - unaffiliated customers:
United States - domestic $7,617 $7,286 $9,245
- export sales 6,174 8,039 7,828
Europe 156,403 185,595 219,553
Other international 2,742 7,424 18,617
Total revenue from unaffiliated customer 172,936 208,344 255,243
Revenue - intercompany:
United States 20,868 24,910 40,495
Europe 518 516 759
Other international 7 62 793
Eliminations (21,393) (25,488) (42,047)
Total consolidated revenue $172,936 $208,344 $255,243
Operating income (loss):
United States $(8,728) $1,080 $5,636
Europe (72,517) (5,376) 2,952
Other international (904) (1,297) 881
Eliminations 1,128 4,335 (2,814)
Total operating income (loss) $(81,021) $(1,258) $6,655
Identifiable assets:
United States $43,595 $57,506 $61,873
Europe 87,159 156,320 195,649
Other international 1,250 1,384 8,435
Eliminations (4,570) (12,935) (17,144)
Total identifiable assets $127,434 $202,275 $248,813
Included in identifiable assets for 1993 is the excess of the cost of the
foreign investments over the value of the net assets acquired. The balance was
written-off in 1994 as part of a reassessment of the carrying value in light of
the financial condition of the Company. Accumulated amortization and
write-down of this excess was $110,476 at July 30, 1994 and $50,797 at
July 31, 1993.
As the value of the U.S. dollar weakens, net assets recorded in local
currencies translate into more U.S. dollars than they would have at the
previous year's rates. Conversely, as the U.S. dollar becomes stronger,
net assets recorded in local currencies translate into fewer U.S. dollars than
they would have at the previous year's rates. The translation adjustments,
resulting from the translation of net assets, amounted to a unfavorable
$2,845 and $15,033 in 1994 and 1992 respectively, reflecting a weakening
U.S. dollar, at the balance sheets dates, in those years. During 1993 the U.S.
dollar strengthened and resulted in a favorable translation adjustment of
$15,533 at the balance sheet date.
15. Retirement Income Plans
Retirement expenses incurred by the Company were as follows:
1994 1993 1992
U.S.:
Matching contributions $143 $138 $137
Profit sharing contributions - - 323
143 138 460
Outside the U.S.:
Defined benefit plans 119 (8) 778
Other plans 600 65 349
719 57 1,127
$862 $195 $1,587
U.S. Plan
The Company adopted a 401(k) retirement and savings plan effective
January 1988. The plan covers all full-time employees who have been employed
for at least 12 months. The Company's retirement and savings plan contribution
has been a 25% matching contribution for employee contributions up to 5% of each
employee's compensation. At the Board's discretion, the Company may also
contribute a profit sharing amount to the plan that is contingent upon the
performance level of the Company at the net income line. During 1993
the Company reversed the $323 that was accrued for profit sharing in
1992.
Plans Outside the U.S.
Most of the Company's foreign subsidiaries provide retirement income plans which
conform to the practice of the country in which they do business. The types of
company-sponsored plans in use are defined benefit and defined contribution.
Five of the Company's subsidiaries, including the United Kingdom, utilize
defined benefit plans with employee benefits being based primarily on years of
service and wages near retirement. The plans cover all full-time employees who
have been employed for at least 12 months. Obligations under these plans are
funded primarily through fixed rate of return investments, primarily insurance
policies, except for Germany where reserves are established for the obligations.
During 1992, the Company curtailed, but has not settled, the defined benefit
plan in the United Kingdom. This action resulted in the recognition of a
curtailment gain of $3,009.
The Company's United Kingdom and New Zealand subsidiaries have defined
contribution plans. During 1992, Australia and New Zealand had a defined
contribution plan. Retirement expenses related to defined contribution plans
declined in 1993, as compared to 1992, due primarily to a relatively expensive
Australian plan. The 1994 plans cover all full-time salaried employees who
have been employed for at least 12 months and contributions are based upon
a percentage of compensation. Obligations under these plans are funded
primarily through deposits in pooled investments or insurance policies.
1994 1993 1992
Defined benefit plans:
Service cost $773 $1,329 $1,880
Interest cost 1,770 1,917 2,067
Actual return on assets (926) (860) (2,803)
Net amortization and deferral (1,498) (2,394) (366)
Net pension cost $119 $(8) $778
The funded plan status at July 30, 1994 and July 31, 1993 was:
1994 1993
Over- Under- Over- Under-
funded funded funded funded
Actuarial present value of:
Vested benefits $16,389 $3,234 $15,059 $2,402
Accumulated benefit
obligations $16,699 $3,815 $15,431 $3,337
Projected benefit
obligations $17,619 $5,624 $16,605 $5,672
Plan assets at fair value 21,259 918 21,951 755
Plan assets in excess of
(less than) projected
benefit obligation 3,640 (4,706) 5,346 (4,917)
Unrecognized net
(gain)loss 1,519 (1,955) (511) (989)
Unrecognized transition
net loss 806 31 791 32
Prepaid (accrued) pension
cost $5,965 $(6,630) $5,626 $(5,874)
Actuarial assumptions used to determine funded status for 1994 and 1993 varied
between subsidiaries. Discount rates used to determine projected benefit
obligations range from 5.0% to 9.0% in 1994 and 1993. Rates of increase in
future compensation levels range from 3.0% to 3.5% in 1994 and 3.5% to
5.0% in 1993. The long-term rates of return on plan investments range from
5.0% to 10.0% in 1994 and 1993, and 6.5% to 10.5% in 1992.
16. Certain Relationships and Related Transactions
The Company's directors Messrs. Agranoff, Edelman, and Kail are also directors
of Intelogic, comprising three of Intelogic's seven directors. As such, they
receive compensation and/or benefits from Intelogic. Also, these three
directors may be deemed to beneficially own approximately 14% of Intelogic's
common stock. In addition, they have options to purchase shares of Intelogic
common stock equal in the aggregate to approximately 4% of the amount
presently outstanding.
Since the 1985 spin-off of Intelogic, the Company has engaged in and continues
to engage in various transactions with Intelogic. All such transactions are
billed to Intelogic by the Company at its cost. All other transactions
between the Company and Intelogic are pursuant to a Master Maintenance Agreement
entered into at the time of the spin-off and relate to the ordinary business
operations of both the Company and Intelogic. For 1994, 1993 and 1992,
Intelogic paid the Company approximately $196, $366 and $688, respectively,
for equipment and field support spares, royalties and expenses, and the
Company paid Intelogic approximately $28, $246 and $162, respectively, primarily
for services and sales. Included in accounts receivable are amounts due from
Intelogic of $298, $315 and $300, respectively.
Director Agranoff provided various tax, legal and real estate consulting
services for the Company. During 1994, 1993 and 1992, the Company paid
Mr. Agranoff $126, $104 and $87, respectively, for those services.
17. 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.
SUPPLEMENTARY DATA (Unaudited)
Selected Quarterly Financial Data
(In thousands, except per share data)
Summarized operating results of the Company by quarter for fiscal years
1994 and 1993 are presented as follows:
Q1 Q2 Q3 Q4
1994 (1)
Revenue $41,648 $44,786 $42,802 $43,700
Gross profit 17,114 19,229 14,618 14,604
Operating income (loss) (291) 1,984 (4,593) (78,121)
Income (loss) before
effect of change in
accounting principle (2,326) 532 (7,961) (85,010)
Effect of change in
accounting principle 1,340 - - -
Net income (loss) (986) 532 (7,961) (85,010)
Income (loss) per common share:
Before effect of
change in accounting principle (.19) .01 (.58) (5.93)
Effect of change in
accounting principle .09 - - -
Net income (loss) (.10) .01 (.58) (5.93)
1993 (2)
Revenue $60,543 $54,296 $48,584 $44,921
Gross profit 25,736 25,969 19,428 15,465
Operating income (loss) 2,839 3,690 (1,523) (6,264)
Income (loss) before
extraordinary items (378) 1,234 (4,311) (8,404)
Extraordinary items 473 722 (593) (3)
Net income (loss) 95 1,956 (4,904) (8,407)
Income (loss) per common share:
Before extraordinary items (.06) .06 (.34) (.62)
Extraordinary items .03 .05 (.04) -
Net income (loss) (.03) .11 (.38) (.62)
The sum of the quarterly income (loss) per share indicated above does not
necessarily equal the annual per share amount due to rounding and changes in
the average number of shares outstanding from quarter to quarter.
(1) As a result of adoption of SFAS No. 109, 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 (see note 4 to Consolidated Financial Statements).
The fourth quarter results include a reorganization charge of $13,360 for one of
the Company's European subsidiaries. In addition, the third and fourth quarter
results include Company-wide reorganization charges of $955 and $538,
respectively (see note 2 to Consolidated Financial Statements).
Fourth quarter results included a charge of $57,657 for the write-offs of
investments in the Company's international operations (see note 1 to
Consolidated Financial Statements) and a $3,210 write-off of an investment
in a partially owned company (see note 3 to Consolidated Financial Statements).
(2) The recognition of tax loss carryforward benefits resulted in
extraordinary gains (losses) of $473, $722, $(593) and $(3) in the first,
second, third and fourth quarters, respectively.
The first, second, third and fourth quarter results include restructuring
charges of $189, $1,455, $2,206 and $2,393, respectively (see note 2 to
Consolidated Financial Statements). The second and third quarter results
include restructuring charges of $78 and $371, respectively, that have been
reclassified to restructuring costs from cost of service and other.
During the second quarter of 1993, operations of the Company's French
subsidiary were interrupted by a fire in its leased warehouse facility. The
fire negatively impacted revenue in the subsidiary, but this was compensated
for by business interruption insurance coverage of $2,500. Operating income
also included $2,800 in gains on the fire insurance settlement related
primarily to destroyed inventory and spare parts. Non-operating income
included $1,165 in gains on the fire insurance settlement related to
destroyed fixed assets.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not Applicable.
PART III
ITEM 10. Directors and Executive Officers of the Registrant.
The information required by Item 10 with respect to the directors and
nominees for election to the Board of Directors of the Company is
incorporated by reference to the information set forth under the caption
"ELECTION OF DIRECTORS" in the Company's definitive proxy statement dated
November 1994. Information with respect to executive officers of the
Company is set forth in Part I hereof.
ITEM 11. Executive Compensation.
The information required by Item 11 is incorporated by reference to the
information set forth under the caption "COMPENSATION OF EXECUTIVE OFFICERS
AND DIRECTORS" in the Company's definitive proxy statement dated November
1994.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by Item 12 is incorporated by reference to the
information set forth under the captions "SECURITY OWNERSHIP OF MANAGEMENT"
in the Company's definitive proxy statement dated November 1994.
ITEM 13. Certain Relationships and Related Transactions.
The information required by Item 13 is incorporated by reference to the
information set forth under the caption "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS" in the Company's definitive proxy statement dated November 1994.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a)1 Financial Statements
The consolidated financial statements listed in the accompanying index to the
financial statements are filed as part of this report.
(a)2 Financial Statement Schedules
Schedule I - Marketable Securities
Schedule VIII - Valuation and Qualifying Accounts and Reserves
Schedule IX - Short-Term Borrowings
Schedule X - Supplementary Consolidated Statements of Operations Information
All other schedules are omitted since they are either not applicable or the
required information is shown in the Company's financial statements or notes
thereto.
Individual financial statements of the Company are omitted because the Company
is primarily an operating company and all subsidiaries included in the
Consolidated Financial Statements being filed, in the aggregate, do not have
minority equity interest and/or indebtedness to any person other than the
Company or its consolidated subsidiaries in amounts which together exceed 5%
of the total consolidated assets as shown by the most recent year-end
Consolidated Balance Sheet.
(a)3 Exhibits
The exhibits listed on the accompanying index to exhibits are filed as part
of this report.
(b) There were no reports filed on Form 8-K by the Company during the last
quarter of the fiscal year ended July 30, 1994.
INDEX TO EXHIBITS
Sequentially
Exhibit Numbered
Number Description of Exhibits Pages
(3)(a) Certificate of Incorporation of Datapoint Corporation, as
amended (filed as Exhibit (3)(a) to the Company's Annual
Report on Form 10K for the year ended July 31, 1993, and
incorporated herein by reference).
(3)(b) Bylaws of Datapoint Corporation, as amended (filed as
Exhibit (3)(b) to the Company's Annual Report on Form 10-K
for the year ended August 1, 1992, and incorporated herein
by reference).
(4)(a) Debenture holder Notice of Adjustment to Conversion Rate,
dated July 11, 1985, under Indenture dated as of June 1,
1981, between Datapoint Corporation and Continental Illinois
National Bank and Trust Company of Chicago, as Trustee,
providing for 8-7/8% Convertible Subordinated Debentures Due
2006 (filed as Exhibit (4)(a) to the Company's Annual Report
on Form 10-K for the year ended July 27, 1985 and said
Indenture filed as Exhibit 4 to the Company's Registration
Statement on Form S-16 (No. 2-72395), each incorporated
herein by reference).
(4)(c) Certificate of Designation, Preferences, Rights and
Limitations of Series of $1.00 Preferred Stock (filed as
Exhibit (4)(e) to the Company's Registration Statement on
Form S-4 dated April 30, 1992 and incorporated herein by
reference).
(10)(a) 1983 Employee Stock Option Plan (filed as Exhibit (4)(a)(4)
to the Company's Registration Statement on Form S-8 dated
November 9, 1983 and incorporated herein by reference).
(10)(b) 1985 Director Stock Option Plan (filed as Exhibit (10)(i) to
the Company's Annual Report on Form 10-K for the year ended
August 1, 1987 and incorporated herein by reference).
(10)(c) 1986 Employee Stock Option Plan (filed as Exhibit (10)(h) to
the Company's Annual Report on Form 10-K for the year ended
August 1, 1987 and incorporated herein by reference).
(10)(d) 1991 Director Stock Option Plan (filed as Exhibit (10)(b)(2)
to Amendment No. 1 dated February 6, 1992 to the Company's
Registration Statement on Form S-4 (Registration No. 33-
44097) and incorporated herein by reference).
(10)(e) 1992 Employee Stock Option Plan (filed as Exhibit (4)(a)(4)
to the Company's Registration Statement on Form S-8 dated
January 19, 1993 and incorporated herein by reference).
(10)(f) Agreement for Transfer of Assets and Liabilities in Exchange
for Stock, dated as of June 28, 1985, between the Company
and Intelogic Trace, Inc. (filed as Exhibit (10)(a) to the
Company's Current Report on Form 8-K dated July 28, 1985 and
incorporated herein by reference).
(10)(g) Master Maintenance Agreement, dated as of June 28, 1985,
between the Company and Intelogic Trace, Inc. (filed as
Exhibit (10)(b) to the Company's Current Report on Form 8-K
dated July 28, 1985 and incorporated herein by reference).
(10)(h) Maintenance Agreement regarding open systems products
between the Company and Intelogic Trace, Inc., (filed as
Exhibit (10)(g) to the Company's Annual Report on Form 10-K
for the year ended August 1, 1992, and incorporated herein
by reference).
(10)(i) Agreement between the Company and Arbitrage Securities
Company, as amended (filed as Exhibit (10)(f) to the
Company's Annual Report on Form 10-K for the year ended July
29, 1989 and incorporated herein by reference).
(10)(j) Indemnity Agreements with Officers and Directors (filed as
Exhibit (10)(f) to the Company's Annual Report on Form 10-K
for the year ended August 1, 1987 and incorporated herein by
reference).
(10)(k) First Amendment to Indemnification Agreement with certain
Officers and Directors. (filed as Exhibit (10)(h) to the
Company's Annual Report on Form 10-K for the year ended July
28, 1990 and incorporated herein by reference).
(10)(l) Second Amendment to Employment Agreement with A. B. Edelman
(said amendment filed as Exhibit (10)(h)(3) to the Company's
Registration Statement on Form S-4 dated April 30, 1992),
amending Employment Agreement dated January 9, 1991 (said
agreement filed as Exhibit (10)(j) to the Company's Annual
Report on Form 10-K for the year ended July 28, 1990), as
amended by Amendment No. 1 dated December 1, 1990 (said
amendment filed as Exhibit (10)(i) to the Company's Annual
Report on Form 10-K for the year ended July 27, 1991), each
of which are incorporated herein by reference.
(10)(m) Employment Agreement with D. Berger (filed as Exhibit
(10)(m) to the Company's Annual report on Form 10 K for the
Year ended July 31, 1993 and incorporated herein by
reference).
(10)(n) Employment Agreement with J. Berger (filed as Exhibit
(10)(l) to the company's Annual Report on Form 10 K for the
year ended August 1,1992 and incorporated herein by
reference).
(10)(o) Employment Agreement with K. L. Thrower (filed as Exhibit
(10)(o) to the company's Annual Report on Form 10 K for the
year ended August 1,1992 and incorporated herein by
reference).
(10)(p) First Amendment to the Grantor Trust Agreement dated June
18, 1991. (filed as exhibit (10)(n) to the Company's Annual
Report on Form 10-K for the year ended July 27, 1991 and
incorporated herein by reference).
(10)(q) Manufacturing facilities Agreement of Lease between the
Company and Willis and Cox Associates dated June 21, 1991
(filed as Exhibit (10)(q) to the Company's Annual Report on
Form 10-K for the year ended August 1,1992 and incorporated
herein by reference).
(10)(r) Employment agreement with D. Bencsik.
(22) Subsidiaries of Datapoint Corporation.
(24) Consent of Independent Auditors.
(27) Article 5, Financial Data Schedule.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
BY:/s/Asher B. Edelman
Asher B. Edelman
Chief Executive Officer and
Chairman of The Board
DATED: November 14, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/Asher B. Edelman Chairman of the Board and November 14, 1994
Asher B. Edelman Chief Executive Officer
(Principle Executive Officer)
/s/Doris D. Bencsik President and Chief Operating Officer November 14, 1994
Doris D. Bencsik
/s/Phillip P. Krumb Vice President and Chief November 14, 1994
Phillip P. Krumb Financial Officer
/s/Paul D. Sheetz Assistant Corporate Controller November 14, 1994
Paul D. Sheetz (Principal Accounting Officer)
/s/Gerald N. Agranoff Vice President, General Counsel November 14, 1994
Gerald N. Agranoff and Corporate Secretary
/s/Irving J. Garfinkel Director November 14, 1994
Irving J. Garfinkel
/s/Daniel R. Kail Director November 14, 1994
Daniel R. Kail
/s/Clark R. Mandigo Director November 14, 1994
Clark R. Mandigo
/s/Didier M.M. Ruffat Director November 14, 1994
Didier M.M. Ruffat
/s/Blake D. Thomas Director November 14, 1994
Blake D. Thomas
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS
The Board of Directors
Datapoint Corporation
We have audited the consolidated financial statements of Datapoint Corporation
and subsidiaries (the Company) as of July 30, 1994 and July 31, 1993, and for
each of the three fiscal years in the period ended July 30, 1994, and have
issued our report thereon dated November 14, 1994. Our audits also included the
financial statement schedules listed in the Index at Item 14(a). These schedules
are the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits.
In our opinion, the financial statements schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
/s/Ernst & Young LLP
Ernst & Young LLP
Dallas, Texas
November 14, 1994
Schedule I
DATAPOINT CORPORATION AND SUBSIDIARIES
Marketable Securities
July 30, 1994
(In thousands, except share data)
Name of issuer Number of Cost of Market value Lower of
and title of shares each at balance cost or
each issue owned issue sheet date market
Canal Capital Corp.
Common Stock 169,100 $1,157 $ 13 $ 13
Preferred Stock 430,842 2,097 101 101
Intelogic Trace, Inc.
Common Stock 292,920 1,319 220 220
Schedule VIII
DATAPOINT CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
(In thousands)
(a) (b)
Balance Charged Charged
at to (to) from Other Balance
Beginning Costs and Other Additions at End
Classification of Year Expenses Accounts (Deductions) of Year
Allowance for doubtful
accounts:
Year ended July 30, 1994 $2,466 $ 803 $ (8) $ (693) $2,568
Year ended July 31, 1993 $5,297 $(405) $ 312 $(2,738) $2,466
Year ended Aug. 1, 1992 $2,461 $ 530 $ - $ 2,306 $5,297
(a) Transfers to and from other balance sheet reserve accounts.
(b) Accounts written-off net of recoveries, other expense accounts and
translation adjustments.
Schedule IX
DATAPOINT CORPORATION AND SUBSIDIARIES
Short-Term Borrowings
(In thousands, except interest rates)
Type of Short-Term Borrowing 1994 1993 1992
Payable to Banks: (a)
Balance at end of period $17,963 $14,129 $5,898
Weighted average interest rate 10.5% 10.0% 12.3%
Maximum amount outstanding
during the period $19,088 $14,672 $8,597
Average amount outstanding
during the period (b) $17,493 $10,917 $5,806
Weighted average interest rate
during the period (c) 11.0% 12.2% 13.5%
(a) Payables to banks include debt instruments incurred by international
subsidiaries that are payable in foreign currencies and a domestic
revolving loan.
(b) Computed by taking the average of the end-of-month balances for the
13-month period ended July of each respective year.
(c) Computed by taking actual interest expense divided by average short-
term debt outstanding.
Schedule X
DATAPOINT CORPORATION AND SUBSIDIARIES
Supplementary Consolidated Statements of Operations Information
(In thousands)
Item 1994 1993 1992
Maintenance and repairs $5,293 $4,995 $5,635
Amortization of intangible assets $2,021 $2,127 $2,338
Advertising costs $2,052 $2,106 $3,279
Exhibit 10(r)
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
This Agreement ("Amendment") shall serve to modify the employment agreement
between DATAPOINT CORPORATION ("Datapoint") and DORIS D. BENCSIK ("Bencsik")
dated as of October 1, 1986 ("Agreement") effective as of February 4, 1993.
1. The parties note that Bencsik resigned as an officer and employee of
Datapoint on September 4, 1987, and subsequently elected and is receiving
payments attributable to early retirement within the meaning of
Section 1.b.(3) of the Agreement. The parties hereby agree to the
re-employment of Bencsik. Nothing contained herein shall suspend or
terminate Datapoint's supplemental retirement payment obligations
to Bencsik. Furthermore, Bencsik's part-time employment hereunder shall
not give rise to further service credit for supplemental retirement;
however, any full-time employment of Bencsik hereunder shall be bridged
so as to give rise to further service credit for supplemental retirement.
Notwithstanding anything to the contrary appearing in the Agreement or
Schedule 1 thereto relating to supplemental retirement, such further
service credit shall result in additional monthly benefits to commence
upon termination of employment, whether by retirement or for any other
reason, only as follows: each month of full-time service (including any
period of full-time salary continuation after termination pursuant to
sections 6.3 or 6.5 hereinafter) will add $250 per year to the monthly
supplemental retirement payable, subject to the restriction that the
aggregate increase by reason of such renewed service credit shall not
exceed $9,000 per year.
2. Bencsik's position shall be that of Executive Vice President and Chief
Operating Officer, with her duties being those defined from time to time
by the Board of Directors.
3. The parties agree that Bencsik may concurrently hold such other employment
and/or management consulting assignments as she holds as of the effective
date hereof, and Datapoint hereby acknowledges that Bencsik's work pursuant
hereto, including work for Datapoint performed outside her Datapoint office,
shall exceed thirty (30) hours per week for purposes of qualifying for
participating in any Datapoint benefit plans wherein participation is
limited to full-time employees.
4.1 Section 1.b.(1) of the Agreement is modified to provide for a minimum
annual base salary of $150,000.
4.2 The parties note Datapoint's action in connection with Bencsik's
re-employment granting her an option to purchase up to 75,000 shares of the
Common Stock of Datapoint at a price equal to the market price of such
stock on February 1, 1993, vesting in equal anniversary installments over 3
years and terminating after 10 years.
4.3 Bencsik will be granted an additional stock option on September 27, 1993,
allowing her to purchase 75,000 shares of Datapoint Common Stock at fair
market value that date under a Datapoint employee stock option plan, said
option to vest in three (3) equal annual installments, subject to the
condition subsequent that she assumes the position set forth in section 9.1
hereinafter on or about November 1, 1993.
5. Bencsik will be provided with any and all benefits and perquisites
provided to any U.S.-based Datapoint vice presidents except that life
insurance need be provided only to the extent that she is reasonably
insurable.
6. The term and termination of the Agreement as amended shall be as set
forth in this section 6 hereinbelow.
6.1 The Agreement and Bencsik's employment with Datapoint shall continue
indefinitely, unless earlier terminated pursuant to this section 6
hereinbelow, until September 21, 1996, whereupon Datapoint will acquire
the continuing right, notwithstanding any contrary provision appearing
elsewhere herein, to require the retirement of Bencsik as an employee of
Datapoint; beyond this obligation, Datapoint shall not be liable to
Bencsik by reason of Datapoint requiring such retirement beyond those
items listed in section 6.2 hereinbelow.
6.2 Bencsik may terminate the employment relationship at any time upon thirty
(30) days notice to Datapoint, whereupon Datapoint's only liability to
Bencsik shall be to pay any earned but unpaid salary through the effective
date of the notice, any bonus owed for any fiscal year completed on or
before such date, and any legitimate but as yet unreimbursed employee
business expenses.
6.3 Datapoint may terminate Bencsik's employment without her consent during
the term of the Agreement as herein amended, but any such termination
prior to September 21, 1996 will require Datapoint to provide Bencsik
with the items referenced in section 6.2 hereinabove, plus: (i) six (6)
months of base salary continuation; and (ii) payment of then-current-
fiscal-year bonus to the extent earned by performance until termination;
all benefits shall terminate immediately. Notwithstanding the foregoing,
Datapoint may terminate Bencsik's employment without her consent for
"cause" as defined in former section 3.d. of the Agreement without any
termination liability of Datapoint whatsoever.
6.4 Any termination of Bencsik's employment other than pursuant to section
6.2 or for cause pursuant to section 6.3 hereinabove shall result in the
immediate acceleration of vesting of all stock options.
6.5 Neither the expiration nor the termination of the Agreement shall in any
way impair Datapoint's liability to pay supplemental retirement benefits
to Bencsik as specified in section 1.b.(3) of the Agreement as increased
pursuant to section 1 hereinabove, and this obligation is hereby
expressly specified as surviving any such expiration or termination.
7. Bencsik shall be entitled to an annual performance bonus payable as soon
as practical after the close of Datapoint's fiscal year. Bencsik shall be
eligible for a prorated bonus for fiscal year 1993 provided she remains in
the employ of Datapoint through the close of that year. Bencsik shall not
be eligible for this bonus for any fiscal year which is not completed prior
to the termination of her employment, except as otherwise provided in
section 6 hereinabove with respect to involuntary termination. Bencsik's
annual performance bonus shall be calculated as follows:
Datapoint's net pre-tax earnings, excluding the excess over
$US10,000,000 of the net of any extraordinary gains due to debt
repurchase or exchange against all extraordinary losses, times one
and three quarters percent (1.75%).
8. Sections 1.a.(2), 1.b.(2), 2.a. and 3 of the Agreement are hereby
deleted in their entirety.
9. Effective November 1, 1993, the following provisions shall become
effective and shall thereafter govern over any conflicting provisions of
this Amendment or the Agreement.
9.1 Bencsik shall become President and Chief Operating Officer and a full-time
employee of Datapoint, and section 1.b.(1) of the Agreement is modified to
provide for a minimum annual base salary of $300,000.
9.2 The base salary continuation period provided for in section 6.3 hereinabove
shall be increased from six (6) months to twenty-four (24) months.
9.3 The following new section 6.6 shall be added to this Amendment:
6.6 If Bencsik should become substantially totally disabled (as defined in
former section 3.c. of the Agreement) from performing her duties
hereunder, Datapoint shall have the right to terminate her employment
by providing to Bencsik, for a period of six (6) months from the
termination of the six-month disability evaluation period set forth in
such definition, base salary and medical benefit continuation, with
base salary to be offsetable by any benefits received by Bencsik on
account of disability under any government program and/or any benefit
plan of Datapoint relating to Bencsik's disabled status.
9.4 The percentage of defined pre-tax profits upon which Bencsik's bonus shall
be calculated pursuant to section 7 hereinabove for Datapoint's fiscal year
ended 1994 and thereafter shall be increased from one and three quarters
percent (1-3/4%) to three percent (3%), except that should the annual
operating plan for a bonus year be achieved, the applicable percentage for
that year shall become four percent (4%).
9.5 Bencsik's monthly car allowance (a perquisite under section 5 hereinabove)
shall be increased from $500 to $750.
9.6 Sections 1.a.(20, 1.b.(2) and 2.a. of the Agreement shall become once
again applicable.
10. The provisions of this Amendment shall govern any conflict between
the provisions of this Amendment and the Agreement. The remaining
provisions of the Agreement shall remain in full force and effect.
INTENDING TO BE BOUND, THE PARTIES AFFIX THEIR SIGNATURES.
DATAPOINT CORPORATION DORIS D. BENCSIK
/s/ Asher B. Edelman /s/ Doris D. Bencsik
Asher B. Edelman Doris D. Bencsik
Chairman of the Board
Chief Executive Officer
Date:__________________________ Date:__________________________
[DDBKA1993F:RLHQ]
EXHIBIT 22
SUBSIDIARIES OF DATAPOINT CORPORATION
As of October 28, 1994, the following list sets forth all entities which
might be deemed to be subsidiaries of the Company (excluding subsidiaries
which, considered in the aggregate as a single subsidiary, would not constitute
a significant subsidiary). Except as otherwise noted below, all of the
voting securities of the entities described are held directly or indirectly
by the Company and all are included in the consolidated financial
statements of the Company contained herein. The Company has no "parents."
Datapoint International, Inc. (Delaware)
Inforex International, Inc. (Delaware)
Datapoint International Exports, Inc. (Delaware)
Datapoint International Investments, Inc. (Delaware)
Datapoint International Holdings, Inc. (Delaware)
Datapoint Disc, Inc. (Delaware)
Datapoint Development Center, Inc. (Delaware)
Datapoint Belgium S.A. (Belgium)
Datapoint S.A. (France)
Datapoint Deutschland GmbH (Germany)
Datapoint Italia S.P.A. (Italy)
Datapoint Vastgoed, B.V. (Netherlands)
Datapoint Beheer, B.V. (Netherlands)
Datapoint Nederland, B.V. (Netherlands)
Datapoint Corporation (N.Z.) Ltd. (New Zealand)
Point Data Sistemas Informaticos S.A. (Portugal)
Datapoint Iberica S.A. (Spain)
Datapoint Svenska AB (Sweden)
Datapoint Switzerland (Schweiz) AG (Switzerland)
Datapoint Holdings Ltd. (United Kingdom)
Datapoint (U.K.) Ltd. (United Kingdom)
Inforex Ltd. (United Kingdom)
Datapoint International Headquarters, S.A.R.L. (France)
Datapoint Far East Ltd. (Hong Kong)
EXHIBIT 24
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the following registration
statements, and in the related prospectuses, reoffer prospectuses, and
amendments previously filed thereto, of our report dated November 14, 1994,
with respect to the consolidated financial statements and schedules of the
Company included in this Annual Report on Form 10-K for the year
ended July 30, 1994: Registration Statement No. 2-60374 on Form S-8,
Registration Statement No. 2-87765 on Form S-8, Registration Statement
No. 33-19328 on Form S-8, Registration Statement No. 33-19427 on Form S-8,
and Registration Statement No. 33-57102 on Form S-8.
/s/ Ernst & Young LLP
Ernst & Young LLP
Dallas, Texas
November 14, 1994
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<PERIOD-TYPE> 12 MOS
<FISCAL-YEAR-END> JUL-30-1994
<PERIOD END> JUL-30-1994
<CASH> 6,241
<SECURITIES> 334
<RECEIVABLES> 46,947
<ALLOWANCES> 2,568
<INVENTORY> 17,674
<CURRENT-ASSETS> 79,915
<PP&E> 135,076
<DEPRECIATION> 105,988
<TOTAL-ASSETS> 127,434
<CURRENT-LIABILITIES> 98,202
<BONDS> 70,561
<COMMON> 5,248
0
1,784
<OTHER-SE> (57,793)
<TOTAL-LIABILITY-AND-EQUITY> 127,434
<SALES> 172,936
<TOTAL-REVENUES> 172,936
<CGS> 107,371
<TOTAL-COSTS> 107,371
<OTHER-EXPENSES> 76,975
<LOSS-PROVISION> 803
<INTEREST-EXPENSE> 9,097
<INCOME-PRETAX> (94,411)
<INCOME-TAX> 354
<INCOME-CONTINUING> (94,765)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 1,340
<NET-INCOME> (93,425)
<EPS-PRIMARY> (6.60)
<EPS-DILUTED> 0
This schedule contains summary financial information extracted from
Datapoint Corporations's Consolidated Statements of Operations and Consolidated
Balance Sheets and the related notes and schedules for its fiscal year end
July 30 , 1994 and is qualified in its entirety by reference to
such financial statements.
</TABLE>
