SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] Quarterly Report Pursuant To Section 13 Or 15(d) Of The Securities
Exchange Act Of 1934 For the quarterly period ended January 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 March 3, 1995, 12,910,026 shares of Datapoint Corporation Common Stock
were outstanding, exclusive of 6,548,641 shares held in Treasury.
DATAPOINT CORPORATION AND SUBSIDIARIES
INDEX
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -
January 28, 1995 and July 30, 1994
Consolidated Statements of Operations -
Three and Six Months Ended January 28, 1995 and January 29, 1994
Consolidated Statements of Cash Flows -
Six Months Ended January 28, 1995 and January 29, 1994
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II. Other Information
Signature
Part I. Financial Information
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
Datapoint Corporation and Subsidiaries
(In thousands, except share data)
(Unaudited)
January 28, July 30,
1995 1994
ASSETS
Current assets:
Cash and cash equivalents $6,156 $6,241
Restricted cash and cash equivalents 4,031 4,312
Marketable securities, at market 151 334
Accounts receivable, net of allowance for doubtful
accounts of $1,131 and $2,568, respectively 44,181 44,379
Inventories 11,649 17,674
Prepaid expenses and other current assets 6,038 6,975
Total current assets 72,206 79,915
Fixed assets, net of accumulated depreciation of
$112,976 and $106,023, respectively 19,709 29,088
Other assets, net 18,438 18,431
$110,353 $127,434
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Payable to banks $16,157 $17,963
Current maturities of long-term debt 3,459 2,370
Accounts payable 21,446 25,649
Accrued expenses 39,890 37,732
Deferred revenue 15,789 13,728
Income taxes payable 831 760
Total current liabilities 97,572 98,202
Long-term debt, exclusive of current maturities 69,443 70,561
Other liabilities 9,906 9,432
Commitments and contingencies
Stockholders' deficit:
Preferred stock of $1.00 par value. Shares
authorized 10,000,000; shares issued and
outstanding 1,784,456 (aggregate liquidation
preference $36,135). 1,784 1,784
Common stock of $.25 par value. Shares
authorized 40,000,000; shares issued of
20,991,217 in fiscal 1995 and 20,991,217
in fiscal 1994, including treasury shares
of 8,081,368 and 6,546,825 respectively. 5,248 5,248
Other capital 212,599 212,599
Foreign currency translation adjustment 11,908 10,552
Retained deficit (246,162) (226,977)
Treasury stock, at cost (51,945) (53,967)
Total stockholders' deficit (66,568) (50,761)
$110,353 $127,434
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF OPERATIONS
Datapoint Corporation and Subsidiaries
(Unaudited)
(In thousands, except share data)
Three Months Ended Six Months Ended
01/28/95 01/29/94 01/28/95 01/29/94
Revenue:
Sales $18,349 $23,306 $32,691 $42,635
Service and other 22,844 21,480 45,609 43,799
Total revenue 41,193 44,786 78,300 86,434
Operating costs and expenses:
Cost of sales 18,091 11,068 27,828 21,909
Cost of service and other 13,040 14,489 25,785 28,182
Research and development 1,099 1,542 2,279 3,258
Selling, general and administrative 15,936 15,703 32,687 31,392
Reorganization/restructuring costs 5,695 - 5,695 -
Total operating costs and expenses 53,861 42,802 94,274 84,741
Operating income (loss) (12,668) 1,984 (15,974) 1,693
Non-operating income (expense):
Interest expense (2,525) (2,214) (4,750) (4,485)
Other, net 2,068 1,150 1,619 1,435
Income (loss) before income taxes (13,125) 920 (19,105) (1,357)
Income tax expense (benefit) (382 388 80 437
Income (loss) before effect of change
in accounting principle $(12,743) $532 $(19,185) $(1,794)
Effect of change in accounting
principle - - - 1,340
Net income (loss) $(12,743) $532 $(19,185) $(454)
Net income (loss) less preferred
stock dividend $(13,189) $86 $(20,077) $(1,346)
Net income (loss) per common share:
Before effect of change in
accounting principle $(1.02) $.01 $(1.50) $(.18)
Effect of change in
accounting principle - - - .09
Net income (loss) $(1.02) $.01 $(1.50) $(.09)
Average common shares 12,905,803 14,434,696 13,396,454 14,407,684
See accompanying notes to consolidated financial statement
CONSOLIDATED STATEMENTS OF CASH FLOWS
Datapoint Corporation and Subsidiaries
(Unaudited)
(In Thousands)
Six Months Ended
January 28, January 29,
1995 1994
Cash flow from operating activities:
Net loss $(19,185) $(454)
Adjustments to reconcile net income to net cash
provided from operating activities:
Depreciation and amortization 4,779 5,318
Provision for fixed asset write-off 1,870 -
Realized gain on sale of property (1,709) -
Losses incurred in lag month eliminated - (5,470)
Effect of change in accounting principle - (1,340)
Realized gain on fixed assets fire settlement - (840)
Provision for unrealized losses (recoveries)
on marketable securities 183 (386)
Provision for (gains) losses on accounts receivable 71 107
Change in assets and liabilities:
(Increase) decrease in receivables 1,933 (9,749)
(Increase) decrease in inventory 6,341 (1,566)
Increase (decrease) in accounts payable (4,803) 3,769
Increase (decrease) in accrued expenses 1,599 (2,793)
Increase in other liabilities and deferred credits 1,751 2,380
Other, net 1,069 126
Net cash used in operating activities (6,101) (10,898)
Cash flow from investing activities:
Payments for fixed assets (2,160) (4,890)
Proceeds from disposition of fixed assets 7,582 1,926
Investments in capitalized software and license fees 53 (192)
Other, net 131 (245)
Net cash (used in) provided from investing activities 5,606 (3,401)
Cash flow from financing activities:
Proceeds from borrowings 11,797 19,409
Payments on borrowings (14,094) (18,330)
Payments of dividends on preferred stock - (892)
Proceeds from sale of common stock 2,022 -
Decrease in restricted cash for letters of credit 281 886
Other, net - 133
Net cash provided from financing activities 6 1,206
Effect of foreign currency translation on cash 404 (424)
Net decrease in cash and cash equivalents (85) (13,517)
Cash and cash equivalents at beginning of year 6,241 22,452
Cash and cash equivalents at end of period $6,156 $8,935
Cash payments for:
Interest $4,458 $4,161
Income taxes, net $989 $580
See accompanying notes to consolidated financial statements.
DATAPOINT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share data)
(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 30, 1994.
The results of operations for the three months ended January 28, 1995, are not
necessarily indicative of the results to be expected for the full year.
Prior to 1994, the Company's foreign subsidiaries reported their results to the
parent on a one-month lag which allowed more time to compile results but
produced comparability problems in management accounting. The one-month lag
became unnecessary and therefore was eliminated subsequent to 1993 and prior to
1994. As a result, the July 1993 results of operations for the Company's
foreign subsidiaries were 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.
2. Change in Accounting Principle
Effective August 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes." SFAS 109
requires that liabilities and receivables for future taxes be calculated using
a balance sheet approach rather than the income statement approach. As a
result, the Company recorded additional deferred income tax assets of $2,075,
after a valuation allowance of $66,720, and increased deferred income tax
liabilities by $735 which, in total, resulted in a $1,340 credit ($.09 per
share) for the cumulative effect of the accounting change. Management believes
that future taxable income of the Company will more likely than not result in
utilization of the net deferred tax asset at August 1, 1993. Such future
income levels are not assured due to the nature of the Company's business which
is generally characterized by rapidly changing technology and intense
competition.
3. Inventories
Inventories consist of:
January 28, July 30,
1995 1994
Raw materials $1,950 $5,657
Work in process 2,304 1,601
Finished goods 7,395 10,416
$11,649 $17,674
4. 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.
5. Common Stock
In August 1994 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.
6. Income Taxes
Income taxes for the first six months of 1995 were $80 on a pre-tax loss of
$14,905. The income taxes were the result of profitable operations at
certain European subsidiaries which could not be offset against the overall
consolidated loss.
7. Subsequent Event
A hearing has been scheduled in the New Castle County Delaware Chancery Court
for May 8, 1995 to consider whether the proposed settlements in two stockholder
derivative litigations should be approved by the Court as fair, reasonable and
in the best interests of the stockholders of the Company. These lawsuits are
Heineman vs. Datapoint Corporation, et al. ("Heineman I"), Case No. 7956 and
Heineman vs. Datapoint Corporation, et al. (Heineman II"), Case No. 8873,
respectively. Subject to court approval, the settlement in Heineman I provides
for the payment of $2,000, plus interest, less plaintiff's attorneys fees,
costs and expenses to the Company. Further, if the Heineman I settlement is
approved, the Company will amend its bylaws within 60 days of the effective
date of the settlement so that effective upon adoption of the amendment, any
employment agreement between the Company and its officers who serve on the
Board of Directors shall not be approved or amended by the Board unless first
approved by a Board committee consisting entirely of non-employee, independent
directors. Subject to court approval, the settlement in Heineman II provides
for the payment of $3,540 less plaintiff's attorneys fees, costs and expenses
to the Company. Further, if the Heineman II settlement is approved,
the Company will amend its bylaws within 60 days of the effective date of
the settlement to provide that, effective upon adoption of the amendment, any
transaction between any board member who is a 5% or more holder of the
Company's common stock (or any affiliate of such a stockholder) shall be
reviewed and recommended by a committee of the Board consisting entirely of
non-employee, independent directors. The settlement of the Heineman I
litigation is contingent upon court approval of the settlement in Heineman II.
Similarly, the settlement of the Heineman II litigation is contingent upon
court approval of the settlement in Heineman I.
Provided the proposed settlements are approved by the Delaware Chancery Court,
the Company expects to receive proceeds of approximately $4,000 after attorney
fees and plans to utilize such cash infusion for the operating and financing
requirements of the Company.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
(Years Referred to are Fiscal Years)
Overview
During the first six months of 1995, the Company continued to experience
operating losses due to a significant decline in sales revenue and sales gross
profit margins. The Company continued the restructuring of its worldwide
operations as cost cutting actions were taken in all of the significant
operations of the Company. These actions resulted in a charge of $5.7 million
during the second quarter of 1995 and consisted of $3.8 million in personnel
reduction costs and $1.9 million in fixed asset write-downs for unutilized
assets. In addition the Company recorded $4.5 million in inventory write-downs
due to the obsolscence of certain of the Company's older product lines. The
decline in sales revenue and sales gross profit margins and the worldwide
restructuring resulted in an operating loss of $12.7 million in the second
quarter and $16.0 million for the first six months of 1995 and negative cash
flows from operations of $6.1 million for the first six months of 1995.
The Company recorded $3.8 million of charges during the second quarter of 1995
as a result of the implementation of a reorganization plan for the U.S.
headquarters, European headquarters and all of the Company's European
subsidiaries excluding France and Italy. Management implemented the plan as a
result of the revenue decline in Europe and reduced both subsidiary personnel
and headquarter personnel primarily in general and administrative support
positions. Sales and service support personnel were essentially not affected
by this reduction. The reduction will reduce the operating cash flow
requirements while not significantly affecting the revenue generating portions
of the business.
The operating loss during the second quarter of 1995 was narrowed from the last
two quarters of 1994 due to the reorganization of the French subsidiary
recorded during the fourth quarter of 1994 which resulted in savings of $2.4
million during the second quarter and $4.8 million for the first six months
of 1995. The reorganization of the French subsidiary resulted in reduced 1995
quarterly costs and expenses of $2.4 million. In addition, the write-off of
goodwill in the fourth quarter of 1994 resulted in reduced quarterly
amortization expense of $.5 million. These actions coupled with the
restructuring actions taken in the second quarter of 1995 and planned continued
measures to be taken in the third quarter of 1995 will improve the Company's
operating performance and improve the Company's cash liquidity position.
During the first half of 1995, the Company had one-time cash infusions from the
sale of vacant land in San Antonio, Texas of ($7.2 million), the sale of
700,000 shares of common stock ($1.8 million), settlement proceeds received
from a defendant in patent infringement litigation ($1.0 million), the final
insurance payment related to the fire in the Belgian subsidiary ($1.5 million
included in accounts receivables collections). The proceeds from the sale of
property were partially utilized to extinguish a term loan facility with
The CIT Group/Credit Finance ($.9 million).
In addition to these one-time cash infusions, subsequent to the second quarter,
the Company was the beneficiary of the proposed settlement of two derivative
action suits. Provided the proposed settlements are approved by the Delaware
Chancery Court, the Company expects to receive proceeds of approximately $4.0
million after attorney fees and plans to utilize such cash infusion for the
operating and financing requirements of the Company. The Company will
continue to pursue additional one-time cash infusions as a means of augmenting
cash during the remainder of 1995. Although there are a number of these
available, no assurances can be given that the efforts to pursue such cash
infusions will be successful in any case.
Results of Operations
The Company had an operating loss and net loss of $12.7 million for the second
quarter of 1995 and an operating loss of $16.0 million and net loss of $19.2
million for the first six months of 1995. This compares with operating income
of $2.0 million and net income of $.5 million for the second quarter of 1994
and net income of $1.7 million and a net loss of $.5 million for the first six
months of 1994. The following is a summary of the Company's sources of
revenue:
Three Months Ended Six Months Ended
(In thousands) 01/28/95 01/29/94 01/28/95 01/29/94
Sales:
U.S. $1,306 $1,490 $3,041 $3,811
Foreign 17,043 21,816 29,650 38,824
18,349 23,306 32,691 42,635
Service and other:
U.S. 392 264 710 596
Foreign 22,452 21,216 44,899 43,203
22,844 21,480 45,609 43,799
Total revenue $41,193 $44,786 $78,300 $86,434
Revenue during the second quarter of 1995 declined $3.6 million, compared with
the same period of the prior year. Foreign sales revenues, and to a lesser
extent service and other revenue, for both the second quarter and the first
six months of 1995 declined significantly as performance in certain European
subsidiaries deteriorated as the Company experienced a slowdown in new orders.
The slowdown was partially offset by the weakening of the U.S. dollar
throughout the first half of fiscal 1995 which favorably impacted foreign sales
revenue by $1.8 million and $2.3 million for the second quarter and first six
months of 1995 and service and other revenue by $1.5 million and $3.5 million
for the same periods.
The gross profit margin for the second quarter and first six months of 1995 was
24.4% and 31.5% , respectively, compared with 42.9% and 42.0% for the same
periods of the prior year. The decline was due the inventory write-downs
recorded in the second quarter of 1995 and to a lesser extent to a change in
product mix and vendors. Operating expenses (research and development plus
selling, general & administrative) during the second quarter of 1995 declined
slightly and was essentially flat for the first six months of 1995 as compared
to the same period of the prior years. Reorganization actions recorded
during the fourth quarter of 1994 generated $2.9 million of cost savings during
both the second quarter and first six months of 1995. These savings were
partially offset by the weakened U.S. dollar which resulted in an increase
in operating costs and expenses of $1.2 million and $1.8 million,
respectively, for the second quarter and first six months of 1995.
Non-operating income and expenses includes a gain of $1.7 million on the sale
of vacant land in San Antonio, Texas, whereas, non-operating results for the
second quarter and first six months of 1994 included fire settlement gains on
fixed assets of $0.8 million. Interest expense increased during the second
quarter and first six months of 1995 as compared to the same periods of the
prior year due primarily to rising interest rates on borrowings in certain
countries as the level of borrowings has actually declined slightly
during the comparison periods.
In the first quarter of 1994, the Company adopted Statement of Financial
Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes."
SFAS 109 requires that liabilities and receivables for future taxes be
calculated using a balance sheet approach rather than the income statement
approach. As a result, the Company recorded additional deferred income tax
assets of $2.1 million, after a valuation allowance of $66.7 million, and
increased deferred income tax liabilities by $.7 million which, in total,
resulted in a $1.3 million credit ($.09 per share) for the cumulative effect
of the accounting change. The valuation allowance reflects the Company's
assessment regarding the realizability of certain U.S. and non-U.S. deferred
income tax assets. Management believes that future taxable income of the
Company will more likely than not result in utilization of the net deferred
tax asset at August 1, 1993. Such future income levels are not assured due
to the nature of the Company's business which is generally characterized by
rapidly changing technology and intense competition. The Company evaluates
realizability of the deferred income tax assets on a quarterly basis.
Prior to 1994, the Company's foreign subsidiaries reported their results to the
parent on a one-month lag which allowed more time to compile results but
produced comparability problems in management accounting. 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 were 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 of the fiscal year 1994.
Financial Condition
During the first six months of 1995, the Company's cash and cash equivalents
declined $.1 million. Cash remained flat during this time period as
substantial one-time cash infusions from the sale of land, sale of common
stock, insurance proceeds, and legal settlement proceeds coupled with
operating activities which emphasized inventory reductions and receivables
collections were essentially offset by the operating loss, payments on
borrowings and reductions of accounts payable.
As of January 28, 1995, the Company had restricted cash and cash equivalents of
$4.0 million which was restricted primarily to cover various lines of credits.
As of January 28, 1995, the Company has included in payables to banks an amount
of $6.5 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 during the first quarter of 1995 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.
As an additional means of preserving cash flow for operations, the Company's
Board of Directors elected to defer the October 15, 1994 and January 15, 1995
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.
PART II. OTHER INFORMATION
All information required by items in Part II is omitted because the items are
inapplicable, the answer is negative or substantially the same information has
been previously reported by the registrant.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATAPOINT CORPORATION
(Registrant)
Date: March 14, 1995 /s/ Paul D. Sheetz
Paul D. Sheetz
Assistant Controller
(Chief Accounting Officer)
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