SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] Quarterly Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange
Act Of 1934 For the quarterly period ended October 28, 1995
OR
[ ] Transition Report Pursuant To Section 13 or 15(d) Of The Securities Exchange
Act Of 1934 For the transition period from _________ to _________
Commission file number 1-7636
DATAPOINT CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 74-1605174
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5-7 rue Montalivet 75008, Paris, France
8400 Datapoint Drive
San Antonio, Texas 78229-8500
(Address of principal executive offices and zip code)
(33-1) 40 07 37 37
(210) 593-7000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X . No___.
As of December 1, 1995, 13,391,177 shares of Datapoint Corporation Common Stock
were outstanding, exclusive of 7,600,040 shares held in Treasury.
DATAPOINT CORPORATION AND SUBSIDIARIES
INDEX
Page
Number
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -
October 28, 1995 and July 29, 1995 3
Consolidated Statements of Operations -
Three Months Ended October 28, 1995 and October 29, 1994 4
Consolidated Statements of Cash Flows -
Three Months Ended October 28, 1995 and October 29, 1994 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation 8
Part II. Other Information
Item 1. Legal Proceedings 11
Signature 12
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
Datapoint Corporation and Subsidiaries
(In thousands, except share data)
(Unaudited)
October 28, July 29,
1995 1995
Assets
Current assets:
Cash and cash equivalents $5,738 $8,493
Restricted cash and cash equivalents 2,381 2,549
Accounts receivable, net of allowance for doubtful
accounts of $2,734 and $3,012, respectively 41,021 43,072
Inventories 6,766 9,754
Prepaid expenses and other current assets 4,241 3,638
Total current assets 60,147 67,506
Fixed assets, net of accumulated depreciation of
$117,375 and $117,910, respectively 17,692 18,877
Other assets, net 15,170 15,368
$93,009 $101,751
Liabilities and Stockholders' Deficit
Current liabilities:
Payables to banks $15,396 $16,757
Current maturities of long-term debt 3,514 9,217
Accounts payable 20,666 23,286
Accrued expenses 34,258 34,857
Deferred revenue 13,140 15,291
Income taxes payable 927 848
Total current liabilities 87,901 100,256
Long-term debt, exclusive of current maturities 69,734 64,923
Other liabilities 10,558 10,688
Stockholders' Deficit:
Preferred stock of $1.00 par value. Shares
authorized 10,000,000; shares issued and
outstanding of 1,896,456 in 1996 and 1,846,456 in
1995 (aggregate liquidation preference of $37,929
in 1996 and $36,929 in 1995). 1,896 1,846
Common stock of $.25 par value. Shares authorized
40,000,000; shares issued of 20,991,217 including
treasury shares 7,600,837 in 1996 and 7,866,832 in
1995, respectively. 5,248 5,248
Other capital 212,655 212,630
Foreign currency translation adjustment 12,726 13,004
Retained deficit (264,797) (261,742)
Treasury stock, at cost (42,912) (45,102)
Total stockholders' deficit (75,184) (74,116)
$93,009 $101,751
See accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
Datapoint Corporation and Subsidiaries
(Unaudited)
(In thousands, except share data)
Three Months Ended
October 28, October 29,
1995 1994
Revenue:
Sales $24,486 $14,342
Service and other 21,097 22,765
Total revenue 45,583 37,107
Operating costs and expenses:
Cost of sales 17,907 9,737
Cost of service and other 12,830 12,745
Research and development 766 1,180
Selling, general and administrative 12,516 16,751
Total operating costs and expenses 44,019 40,413
Operating income (loss) 1,564 (3,306)
Non-operating income (expense):
Interest expense (2,284) (2,225)
Other, net (345) (449)
Loss before income taxes (1,065) (5,980)
Income taxes 139 462
Net loss $(1,204) $(6,442)
Net loss, less preferred stock dividend
paid or accumulated $(1,674) $(6,888)
Net loss per common share $(.13) $(.50)
Average common shares 13,214,321 13,997,288
See accompanying Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
Datapoint Corporation and Subsidiaries
(Unaudited)
(In Thousands)
Three Months Ended
October 28, October 29,
1995 1994
Cash flows from operating activities:
Net loss $(1,204) $(6,442)
Adjustments to reconcile net loss to net
cash used in operating activities:
Provision for unrealized losses on marketable securities - 146
Depreciation and amortization 1,833 2,455
Provision for losses (recoveries) on accounts receivable (243) 54
Changes in assets and liabilities:
Decrease in receivables 1,794 10,509
Decrease in inventory 2,898 382
Decrease in accounts payable (2,409) (7,233)
Decrease in accrued expenses (329) (1,143)
Decrease in other liabilities and deferred credits (1,850) (1,827)
Other, net (211) 458
Net cash provided from (used in) operating activities 279 (2,641)
Cash flows from investing activities:
Payments for fixed assets (767) (1,020)
Proceeds from dispositions of fixed assets 50 293
Other, net 1 347
Net cash used in investing activities (716) (380)
Cash flows from financing activities:
Proceeds from borrowings 3,704 8,323
Payments on borrowings (5,988) (6,826)
Proceeds from sale of common stock - 2,003
Restricted cash for letters of credit 168 (492)
Net cash provided from (used in) financing activities (2,116) 3,008
Effect of foreign currency translation on cash (202) 539
Net (decrease) increase in cash and cash equivalents (2,755) 526
Cash and cash equivalents at beginning of year 8,493 6,241
Cash and cash equivalents at end of period $5,738 $6,767
Cash payments for:
Interest $722 $647
Income taxes (refunds), net (49) (2)
See accompanying Notes to Consolidated Financial Statements.
DATAPOINT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands)
(Unaudited)
1. Preparation of Financial Statements
The consolidated financial statements included herein have been prepared by
Datapoint Corporation (the "Company"), without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission and in accordance with
generally accepted accounting principles. In the opinion of management, the
information furnished reflects all adjustments which are necessary for a fair
statement of the results of the interim periods presented. All adjustments made
in the interim statements are of a normal recurring nature.
It is recommended that these statements be read in conjunction with the
financial statements and notes thereto included in the Company's Annual Report
and Form 10-K for the year ended July 29, 1995.
The results of operations for the three months ended October 28, 1995, are not
necessarily indicative of the results to be expected for the full year.
2. Inventories
Inventories consist of:
October 28, July 29,
1995 1995
Raw materials $834 $1,036
Work in process 1,761 2,613
Finished goods 4,171 6,105
$6,766 $9,754
3. Commitments and Contingencies
The Company is a defendant in various other 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.
In order for the Company to meet certain of its obligations, including interest
of $2.9 million on its 8 7/8% convertible subordinated debentures payable on
December 1, 1995, the Company is pursuing actions to provide additional cash
infusions and/or reduce its cost base. In this regard, during the first quarter
of 1996, the Company signed a letter of intent with Automatic Data Processing
(ADP) to sell to ADP the Company's European based Auto Dealer Systems business
for $32 million. While the specific terms of the agreement will not be known
until an agreement, if any, is completed, an important aspect of the agreement
is that ADP will subcontract Field Engineering support from the Company. In
addition, ADP will arrange to acquire certain hardware through Datapoint's
current channels, including the Company's manufactured hardware. The Company
expects to benefit from continued revenue from its Field Engineering channel and
from a substantial reduction in the operating costs of its European
subsidiaries. The sale, if completed, was originally expected to close in early
December of calendar year 1995. However, negotiations regarding the sale will
not have been completed in this time frame and the sale, if completed, is
expected to close during the first calendar quarter of 1996. As a result of
such delay, Datapoint will not have the proceeds from such anticipated sale to
make the December 1, 1995 interest payment of $2.9 million on its 8 7/8%
convertible debentures due 2006. In the event the payment is not made within
the 30-day period following December 1, 1995, 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. The Company is exploring alternative methods to enable it to make
the interest payment in order to comply with the terms of the Indenture, dated
as of June 1, 1981.
During 1993, the Company settled a long standing patent-related legal action
brought against it by Northern Telecom Inc. ("NTI"). Pursuant to this
settlement, during 1994 and 1993, the Company paid NTI $1.0 million and $7.5
million, respectively. The Company also agreed to a ten-year note payable to
NTI which requires annual $1.0 million payments each December. The Company is
presently in arrears on the December 1994 payment. On September 13, 1995, NTI
notified the Company that it had declared the entire note immediately due and
payable, which as of July 29, 1995 was $6.6 million. The Company entered into
discussions with NTI to remedy this payment default and, subsequent to the end
of the first quarter of 1996, the Company and NTI reached a new agreement to
cure the default whereby both the December 1994 and December 1995 payments would
be made on or before January 31, 1996. 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, excluding extraordinary items, in excess of
$10.0 million in each of the 10 fiscal years beginning with fiscal 1993. During
1995, 1994 and 1993, the Company incurred no liability to make such contingent
payments as a result of the net losses incurred.
As a result of the Company's capital deficiency which existed at the end of
1994, 1995 and throughout the first quarter of 1996, the Company is prohibited,
under Delaware law, to pay the October 15, 1994, January 15, 1995, April 15,
1995, July 15, 1995, and the October 15, 1995 preferred dividend payments to
shareholders. If dividends are six quarters in arrears, the preferred
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.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
(Years Referred to are Fiscal Years)
Overview
During the first quarter of 1996, the Company continued to achieve its
objectives of maintaining a consistent revenue level and tight cost control.
The effect of the two factors resulted in revenue generation of $45.6 million,
operating income of $1.6 million and a positive cash flow from operations of $.3
million. After considering the effect of the Company's investing and financing
activities, the Company had a net loss of $1.2 million, the lowest net quarterly
loss since the second quarter of 1994.
Despite these improved results, the Company's cash and cash equivalents
decreased $2.8 million. In order for the Company to meet certain of its
obligations, including interest of $2.9 million on its 8 7/8% convertible
subordinated debentures payable on December 1, 1995, the Company is pursuing
actions to provide additional cash infusions and/or reduce its cost base. In
this regard, during the first quarter of 1996, the Company signed a letter of
intent with Automatic Data Processing (ADP) to sell to ADP the Company's
European based Auto Dealer Systems business for $32 million. While the specific
terms of the agreement will not be known until an agreement, if any, is
completed, an important aspect of the agreement is that ADP will subcontract
Field Engineering support from the Company. In addition, ADP will arrange to
acquire certain hardware through Datapoint's current channels, including the
Company's manufactured hardware. The Company expects to benefit from continued
revenue from its Field Engineering channel and from a substantial reduction in
the operating costs of its European subsidiaries. The sale, if completed, was
originally expected to close in early December of calendar year 1995. However,
negotiations regarding the sale will not have been completed in this time frame
and the sale, if completed, is expected to close during the first calendar
quarter of 1996. As a result of such delay, Datapoint will not have the
proceeds from such anticipated sale to make the December 1, 1995 interest
payment of $2.9 million on its 8 7/8% convertible debentures due 2006. In the
event the payment is not made within the 30-day period following December 1,
1995, 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. The Company is exploring alternative methods
to enable it to make the interest payment in order to comply with the terms of
the Indenture, dated as of June 1, 1981.
During the first quarter of 1996, the Company also signed a letter of intent for
Vertical Financial Holdings, to become a joint venture partner with the Company
in spinning off the Company's MINX video conferencing patents and operations
into separate entities. While discussions with Vertical Financial Holdings have
since been terminated, subsequent to the end of the first quarter of 1996, the
Company is actively exploring joint venture opportunities with another potential
strategic partner. While the specific terms of any joint venture will not be
known until an agreement, if any, is completed, the Company expects to retain a
significant, but minority interest in the operations, and a majority interest
in the patents. While it is not expected that there will be a significant cash
infusion at the time of any closing, if consummated, the Company expects to
benefit from reduction of operating costs related to the MINX operations and
from participation in a future royalty stream derived from the licensing of the
MINX patents.
Results of Operations
The Company had operating income of $1.6 million and a net loss of $1.2 million
for the first quarter of 1996. This compares with an operating loss of $3.3
million and a net loss of $6.4 million, for the first quarter of 1995. The
following is a summary of the Company's sources of revenue:
Three Months Ended
(In thousands) 10/28/95 10/29/94
Sales:
Foreign $23,247 $12,607
U.S. 1,239 1,735
24,486 14,342
Service and other:
Foreign 20,830 22,447
U.S. 267 318
21,097 22,765
Total revenue $45,583 $37,107
Revenue during the first quarter of 1996 increased $8.5 million, or 22.8%,
compared with the same period of the prior year. This increase was largely the
result of higher sales volume in certain of the Company's European subsidiaries.
Total revenue was also favorable impacted by $2.0 million as a result of the
weakening U.S. dollar as compared to the same period of the prior year.
The gross profit margin for the first three months of 1996 was 32.6% compared
with 39.4% for the same period a year ago. The decrease was primarily the
result of a change in product mix and competitive pricing pressures worldwide.
Operating expenses (research and development plus selling, general &
administrative) during the first quarter of 1996 decreased $4.7 million from the
same period a year ago due primarily to the realization of the various cost
reduction activities which the Company has implemented throughout the last year.
Non-operating expenses of $2.6 million during the first quarter of 1996
consisted primarily of interest expense of $2.3 million.
Financial Condition
During the first quarter of 1996, the Company's cash provided from operations
increased $.3 million. Primarily, this increase was the result of strong
receivable collections, coupled with a tight inventory management program,
offset by payment of approximately $2.4 million in trade accounts payable.
The Company used $.8 million for the purchase of fixed assets (primarily test
equipment, spares and internally used equipment) during the first quarter of
1996.
During the first quarter of 1996, the Company used $2.1 million in financing
activities, primarily consisting of paydowns of Company debt approximating $6.0
million offset by additional borrowings of $3.7 million.
As of October 28, 1995, the Company had restricted cash and cash equivalents of
$2.4 million, which was restricted primarily to cover various lines of credit.
During 1993, the Company settled a long standing patent-related legal action
brought against it by Northern Telecom Inc. ("NTI"). Pursuant to this
settlement, during 1994 and 1993, the Company paid NTI $1.0 million and $7.5
million, respectively. The Company also agreed to a ten-year note payable to
NTI which requires annual $1.0 million payments each December. The Company is
presently in arrears on the December 1994 payment. On September 13, 1995, NTI
notified the Company that it had declared the entire note immediately due and
payable, which as of July 29, 1995 was $6.6 million. The Company entered into
discussions with NTI to remedy this payment default and, subsequent to the end
of the first quarter of 1996, the Company and NTI reached a new agreement to
cure the default whereby both the December 1994 and December 1995 payments would
be made on or before January 31, 1996. 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, excluding extraordinary items, in excess of
$10.0 million in each of the 10 fiscal years beginning with fiscal 1993. During
1995, 1994 and 1993, the Company incurred no liability to make such contingent
payments as a result of the net losses incurred.
As a result of the Company's capital deficiency which existed at the end of
1994, 1995 and throughout the first quarter of 1996, the Company is prohibited,
under Delaware law, to pay the October 15, 1994, January 15, 1995, April 15,
1995, July 15, 1995, and the October 15, 1995 preferred dividend payments to
shareholders. If dividends are six quarters in arrears, the preferred
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.
Reorganization/Restructuring
A rollforward of the restructuring accrual from July 31, 1993 through to October
28, 1995 is as follows:
TOTAL
Restructuring accrual as of July 31, 1993 $2,565
Fiscal 1994 additions 14,853
Fiscal 1994 payments (3,430)
Restructuring accrual as of July 30, 1994 13,988
Fiscal 1995 additions 9,213
Asset write-offs (1,895)
Fiscal 1995 payments (17,138)
Restructuring accrual as of July 29, 1995 4,168
First quarter 1996 additions 48
First quarter 1996 payments (1,422)
Restructuring accrual as of October 28, 1995 $2,794
The projected payout of the restructuring accrual balance as of October 28,
1995, which related almost entirely to unpaid employee termination costs, is as
follows:
Second quarter 1996 $2,141
Third quarter 1996 405
Fourth quarter 1996 60
First quarter 1997 41
Beyond 147
Restructuring accrual as of October 28, 1995 $2,794
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Item 3 of Registrant's Report on Form 10-K for the fiscal year ended July
29, 1995, for a description of certain legal proceedings heretofore reported.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATAPOINT CORPORATION
(Registrant)
DATE: December 12, 1995 /s/ Phillip P. Krumb
Phillip P. Krumb
Chief Financial Officer
(Principal Accounting Officer)
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