SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] Quarterly Report Pursuant To Section 13 Or 15(d) Of The Securities
Exchange Act Of 1934 For the quarterly period ended April 29, 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 June 2, 1995, 13,041,057 shares of Datapoint Corporation Common Stock were
outstanding, exclusive of 7,950,160 shares held in Treasury.
DATAPOINT CORPORATION AND SUBSIDIARIES
INDEX
Page
Number
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -
April 29, 1995 and July 30, 1994 3
Consolidated Statements of Operations -
Three and Nine Months Ended April 29, 1995 and April 30, 1994 4
Consolidated Statements of Cash Flows -
Nine Months Ended April 29, 1995 and April 30, 1994 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II. Other Information 12
Signature 13
Part I. Financial Information
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
Datapoint Corporation and Subsidiaries
(In thousands, except share data)
(Unaudited)
April 29, July 30,
1995 1994
ASSETS
Current assets:
Cash and cash equivalents $5,148 $6,241
Restricted cash and cash equivalents 2,420 4,312
Marketable securities, at market 147 334
Accounts receivable, net of allowance for doubtful
account of $737 and $2,568, respectively 42,440 44,379
Inventories 11,911 17,674
Prepaid expenses and other current assets 5,753 6,975
Total current assets 67,819 79,915
Fixed assets, net of accumulated depreciation of
$118,586 and $106,023 19,153 29,088
Other assets, net 18,310 18,431
$105,282 $127,434
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Payable to banks $12,889 $17,963
Current maturities of long-term debt 3,609 2,370
Accounts payable 22,337 25,649
Accrued expenses 40,340 37,732
Deferred revenue 15,942 13,728
Income taxes payable 967 760
Total current liabilities 96,084 98,202
Long-term debt, exclusive of current maturities 69,290 70,561
Other liabilities 10,639 9,432
Commitments and contingencies
Stockholders' equity:
Preferred stock of $1.00 par value. Shares authorized
10,000,000; shares issued and outstanding 1,784,456
(aggregate liquidation preference $35,689). 1,784 1,784
Common stock of $.25 par value. Shares authorized
40,000,000; shares issued of 20,991,217 in fiscal 1995
and 20,991,217 in fiscal 1994, including treasury
shares of 7,952,017 and 6,546,825, respectively. 5,248 5,248
Other capital 212,599 212,599
Foreign currency translation adjustment 13,464 10,552
Retained deficit (258,032) (226,977)
Treasury stock, at cost (45,794) (53,967)
Total stockholders' deficit (70,731) (50,761)
$105,282 $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 Nine Months Ended
April 29, April 30, April 29, April 30,
1995 1994 1995 1994
Revenue:
Sales $24,429 $21,070 $57,120 $63,705
Service and other 23,111 21,732 68,720 65,531
Total revenue 47,540 42,802 125,840 129,236
Operating costs and expenses:
Cost of sales 17,583 13,508 45,411 35,417
Cost of service and other 14,387 14,676 40,172 42,858
Research and development 1,124 1,660 3,403 4,918
Selling, general and administrative 15,153 16,596 47,840 47,988
Restructuring costs 1,810 955 7,505 955
Total operating costs and expenses 50,057 47,395 144,331 132,136
Operating loss (2,517) (4,593) (18,491) (2,900)
Non-operating income (expense):
Interest expense (2,235) (2,266) (6,985) (6,751)
Other, net (746) (982) 873 453
Loss before income taxes
and extraordinary item (5,498) (7,841) (24,603) (9,198)
Income taxes (benefit) 3 120 83 557
Loss before effect of change
in accounting principle $(5,501) $(7,961) $(24,686) $(9,755)
Effect of change in accounting
principle - - - 1,340
Net loss $(5,501) $(7,961) $(24,686) $(8,415)
Net loss less preferred stock
dividend $(5,947) $(8,407) $(26,024) $(9,753)
Net income (loss) per common share:
Before effect of change in
accounting principle $(.27) $(.58) $(1.29) $(.77)
Effect of change in accounting
principle - - - .09
Net loss $(.27) $(.58) $(1.29) $(.68)
Average common shares 12,942,448 14,447,811 13,245,119 14,421,060
See accompanying notes to consolidated financial statement
CONSOLIDATED STATEMENTS OF CASH FLOWS
Datapoint Corporation and Subsidiaries
(Unaudited)
(In Thousands)
Nine Months Ended
April 29, April 30,
1995 1994
Cash flow from operating activities:
Net loss $(24,686) $(8,415)
Adjustments to reconcile net income to net cash
provided from operating activities:
Losses incurred in lag month eliminated - (5,470)
Effect of change in accounting principle - (1,340)
Provision for unrealized losses on marketable securities 187 234
Depreciation and amortization 6,885 8,008
Provision for fixed asset write-off 1,870 -
Realized gain on sale of property (1,709) -
Provision for losses on accounts receivable 103 32
Realized gain on fixed assets fire settlement - (840)
Change in assets and liabilities:
(Increase) decrease in receivables 6,223 (77)
(Increase) decrease in inventory 6,625 (768)
Increase (decrease) in accounts payable (4,468) 5,135
Increase (decrease) in accrued expenses 773 (595)
Increase in other liabilities and deferred credits 1,583 1,344
Other, net 1,533 (92)
Net cash (used in) and provided from operating activities (5,081) (2,844)
Cash flow from investing activities:
Payments for fixed assets (3,131) (8,368)
Proceeds from disposition of fixed assets 7,910 2,319
Investments in capitalized software and license fees 235 (188)
Other, net 565 (583)
Net cash used in investing activities 5,579 (6,820)
Cash flow from financing activities:
Proceeds from borrowings 15,381 24,347
Payments on borrowings (21,439) (24,585)
Payments of dividends on preferred stock - (1,338)
Proceeds from sale of common stock 1,804 -
Decrease in restricted cash for letters of credit 1,892 954
Other, net - 189
Net cash used in financing activities (2,362) (433)
Effect of foreign currency translation on cash 771 (78)
Net decrease in cash and cash equivalents (1,093) (10,175)
Cash and cash equivalents at beginning of year 6,241 22,452
Cash and cash equivalents at end of period $5,148 $12,277
Cash payments for:
Interest $4,769 $5,404
Income taxes, net $939 $938
See accompanying notes to consolidated financial statements.
DATAPOINT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1. Preparation of Financial Statements
The consolidated financial statements included herein have been prepared by
Datapoint Corporation (the "Company"), without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission and in accordance
with generally accepted accounting principles. In the opinion of management,
the information furnished reflects all adjustments which are necessary for a
fair statement of the results of the interim periods presented. All
adjustments made in the interim statements are of a normal recurring nature.
It is recommended that these statements be read in conjunction with the
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended July 30, 1994.
The results of operations for the three and nine months ended April 29, 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:
April 29, July 30,
1995 1994
Raw materials $1,830 $5,657
Work in process 2,164 1,601
Finished products 7,917 10,416
$11,911 $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 nine months of 1995 were $83 on a pre-tax loss of
$24,603. The income taxes were the result of profitable operations at certain
of European subsidiaries which could not be offset against the overall
consolidated loss.
7. Subsequent Event
On May 8, 1995, the New Castle County Delaware Chancery Court determined that
the settlement of two stockholder derivative suits (Heineman vs. Datapoint
Corporation, et al., Case No. 7956 and Heineman vs. Datapoint Corporation, et
al., Case No. 8873) were fair, reasonable and in the best interests of the
stockholders of the Company.
The two settlements provide monetary proceeds to the Company. Additionally
there are certain by-laws which will be amended to govern the employment
contracts of employee-directors and transactions between the Company and its
shareholder directors who hold 5% or more of its common stock.
The Company expects to receive proceeds of approximately $4,000 after
attorneys fees, costs and expenses from the settlements. These proceeds are
derived from two trusts previously funded by the Company and an insurance
settlement. On May 30, 1995, the Company announced that provision had been
made for the payment of interest due as of June 1, 1995 to its bondholders of
record as of May 15,1995 on the outstanding 8 7/8% convertible subordinated
debentures due 2006 by irrevocably assigning to the indenture trustee of the
debentures a portion ($2,860) of the settlement funds pending the effective
date of the settlements (June 12, 1995).
The Company anticipates that barring any appeal of the orders and final
judgment approving the settlements, the proceeds will be received by the
Company on June 13, 1995.
8. Reorganization/Restructuring Costs
Three Months Ended Nine Months Ended
April 29, April 30 April 29, April 30,
1995 1994 1995 1994
($ in thousands)
Employee termination payments $1,400 $955 $4,413 $955
Terminated employee benefit costs - - 334 -
Provision for employees not terminated - - 453 -
Lease termination payments 230 - 230 -
Other asset write-downs 180 - 2,075 -
TOTAL $1,810 $955 $7,505 $955
The Company's restructuring charges primarily have been driven by management's
internal efforts to implement cost cutting measures in light of its overall
plan to return to profitability. In addition, competitive pressures in the
Company's industry and a slowdown of customer orders have externally
influenced the level of restructuring charges.
Restructuring charges are not recorded until specific employees are determined
(and notified of termination) by management in accordance with its overall
restructuring plan. As such, employee termination payments are generally paid
out over a period of time rather than as one lump sum. Management anticipates
further employee terminations in the fourth quarter of fiscal year 1995;
however, such employees have not been specifically identified. Although a
reasonable estimate of the amount of future termination costs cannot be made
at this time, management does expect to incur additional charges for
terminations.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
(Years Referred to are Fiscal Years)
Overview
During the first nine months of 1995, the Company continued to experience
operating losses due to a decline in sales revenue and sales gross profit
margins. The Company continued its review of worldwide operations and recorded
$1.8 million in restructuring costs during the third quarter of 1995 due to
cost cutting actions taken mostly within Europe. The decline in sales revenue,
sales gross profit margins and the restructuring resulted in an operating loss
of $2.5 million in the third quarter and $18.5 million for the first nine
months of 1995 and negative cash flows from operations of $5.1 million for the
first nine months of 1995.
The restructure actions taken during the third quarter of 1995 were again part
of management's overall plan to preserve and improve the Company's cash
liquidity position and allow the Company to meet its operating cash flow
requirements for fiscal 1995 and beyond. The Company has the following three
main objectives during fiscal 1995:
1. product marketing to maintain stabilized revenue levels
2. continued review and reduction of operating costs; and
3. one time cash infusions to meet operating requirements.
The Company's revenue level improved during the third quarter of 1995 when
compared with the second quarter of 1995, but revenue for the first nine
months of 1995 declined from the first nine months of 1994. The Company
expects to see gradually improved revenues as the markets emerge for the new
MINX line of video communications technology, sales increases from telephony
solutions internationally, and international sales increases from the
Company's new automotive dealer software package.
The Company continued its review of worldwide operations and recorded $1.8
million of charges during the third quarter as a result of a reorganization
plan primarily affecting personnel reductions in two European subsidiaries in
addition to its U.S. Headquarters. These reductions will reduce the operating
cash flow requirements while not significantly affecting the revenue
generating activities of the business. The Company will continue to review all
operations during the remainder of the year and based upon the performance of
each operation, additional restructuring accruals may be necessary.
During the first nine months of 1995, the Company had one-time cash infusions
from the sale of vacant land in San Antonio, Texas ($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), and the
final insurance payment related to the fire in the Belgian subsidiary ($1.5
million included in accounts receivable collection).
In addition to these one-time cash infusions, subsequent to the third quarter,
the Company was the beneficiary of the proposed settlement of two stockholder
derivative suits. Barring any appeal of the orders and final judgment
approving the settlement, 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.
Results of Operations
The Company had an operating loss of $2.5 million and net loss of $5.5 million
for the third quarter of 1995 and an operating loss of $18.5 million and net
loss of $24.7 million for the first nine months of 1995. This compares with
an operating loss of $4.6 million and net loss of $8.0 million for the third
quarter of 1994 and an operating loss of $2.9 million and a net loss of $8.4
million for the first nine months of 1994. The following is a summary of the
Company's sources of revenue:
Three Months Ended Nine Months Ended
(In thousands) 04/29/95 04/30/94 04/29/95 04/30/94
Sales:
U.S. $1,434 $1,072 $4,475 $4,883
Foreign 22,995 19,998 52,645 58,822
24,429 21,070 57,120 63,705
Service and other:
U.S. 310 286 1,020 882
Foreign 22,801 21,446 67,700 64,649
23,111 21,732 68,720 65,531
Total revenue $47,540 $42,802 $125,840 $129,236
Revenue during the third quarter of 1995 increased $4.7 million, compared with
the same period of the prior year. Foreign sales revenues, and service and
other revenue, for both the third quarter and the first nine months of 1995
essentially remained flat as compared with the same periods a year ago.
However, foreign sale revenue was favorably impacted by the weakening U.S.
dollar by $1.9 million and $4.3 million for the third quarter of fiscal 1995
and first nine months of 1995, respectively. Similarly, service and other
revenue was also favorably impacted by $2.6 million and $6.1 million for the
same periods.
The gross profit margin for the third quarter and first nine months of 1995
was 32.8% and 32.0% , respectively, compared with 34.2% and 39.4% for the same
periods of the prior year. The decline was due to 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 third quarter of 1995 declined
$3.1 million and $4.5 million the first nine months of 1995 as compared to the
same period of the prior years. These savings were partially offset by the
weakened U.S. dollar which resulted in an increase in operating costs and
expenses of $1.1 million and $2.8 million, respectively, for the third quarter
and first nine months of 1995.
Non-operating income and expenses for the three months ended April 29, 1995,
includes a charge of $1.2 million as a result of the weakening dollar
against foreign currencies. Included in the nine months ending April 29, 1995
is a gain of $1.7 million on the sale of vacant land in San Antonio, Texas
whereas, non-operating results for the nine months of 1994 include fire
settlement gains on fixed assets of $0.8 million.
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 nine months of 1995, the Company's cash and cash equivalents
declined $1.1 million. During this period, 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 April 29, 1995, the Company had restricted cash and cash equivalents of
$2.4 million which was restricted primarily to cover various lines of credits.
As an additional means of preserving cash flow for operations, the Company's
Board of Directors elected to defer the October 15, 1994, January 15, 1995,
and April 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.
Reorganization/Restructuring Costs
A rollforward of the restructuring accrual from July 31,1993 through to April
29, 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
First Quarter 1995 additions -
First quarter 1995 payments (2,234)
Restructuring accrual as of October 29, 1994 11,754
Second quarter 1995 additions 5,695
Asset write-offs (1,895)
Second quarter 1995 payments (5,516)
Restructuring accrual as of January 29, 1995 10,038
Third quarter 1995 additions 1,810
Third Quarter 1995 payments (4,585)
Restructuring accrual as of April 29, 1995 $7,263
The projected payout of the restructuring accrual balance as of April 29,
1995, which relates almost entirely to unpaid employee termination costs, is
as follows:
Fourth quarter 1995 $5,959
First quarter 1996 502
Second quarter 1996 465
Third quarter 1996 73
Beyond 264
Restructuring accrual as of April 29, 1995 $7,263
Included in the second and the third quarter 1995 payments is a total of
$3,882 which was paid by a foreign government and is repayable by the Company
over a number of years, which has yet to be determined. The liability has been
reclassified as a payable to the foreign government during the second and
third quarter of 1995. Due to legal stipulations in foreign countries, the
Company additionally incurs indemnification costs in certain countries
associated with employee terminations.
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: June 13, 1995 /s/ Phillip P. Krumb
Chief Financial Officer
(Chief Accounting Officer)
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