<PAGE>
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 27, 1996
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 1, 1996, 13,552,093 shares of Datapoint Corporation Common Stock
were outstanding, exclusive of 7,439,124 shares held in Treasury.
<PAGE>
DATAPOINT CORPORATION AND SUBSIDIARIES
INDEX
Page
Number
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -
January 27, 1996 and July 29, 1995 3
Consolidated Statements of Operations -
Three and Six Months Ended January 27, 1996 and
January 28, 1995 4
Consolidated Statements of Cash Flows -
Six Months Ended January 27, 1996 and January 28, 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. Other Information 11
Signature 12
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
Datapoint Corporation and Subsidiaries
(In thousands, except share data)
(Unaudited)
January 27, July 29,
1996 1995
ASSETS
Current assets:
Cash and cash equivalents $6,438 $8,493
Restricted cash and cash equivalents 1,935 2,549
Accounts receivable, net of allowance for doubtful
accounts of $2,649 and $3,012, respectively 36,400 43,072
Inventories 7,816 9,754
Prepaid expenses and other current assets 4,444 3,638
Total current assets 57,033 67,506
Fixed assets, net of accumulated depreciation of
$114,868 and $117,910, respectively 16,185 18,877
Other assets, net 14,744 15,368
$87,962 $101,751
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Payable to banks $13,165 $16,757
Current maturities of long-term debt 3,959 9,217
Accounts payable 21,699 23,286
Accrued expenses 31,064 34,857
Deferred revenue 14,319 15,291
Income taxes payable 1,106 848
Total current liabilities 85,312 100,256
Long-term debt, exclusive of current maturities 69,162 64,923
Other liabilities 10,066 10,688
Commitments and contingencies
Stockholders' deficit:
Preferred stock of $1.00 par value. Shares authorized
10,000,000; shares issued and outstanding of 1,930,656
in 1996 and 1,846,456 in 1995 (aggregate liquidation
preference of $38,613 in 1996 and $36,929 in 1995). 1,931 1,846
Common stock of $.25 par value. Shares authorized
40,000,000; shares issued of 20,991,217 including
treasury shares of 7,599,781 in 1996 and 7,866,832 in
1995, respectively. 5,248 5,248
Other capital 212,672 212,630
Foreign currency translation adjustment 11,215 13,004
Retained deficit (264,741) (261,742)
Treasury stock, at cost (42,903) (45,102)
Total stockholders' deficit (76,578) (74,116)
$87,962 $101,751
See accompanying notes to consolidated financial statements
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
Datapoint Corporation and Subsidiaries
(Unaudited)
(In thousands, except share data)
Three Months Ended Six Months Ended
January 27 January 28 January 27 January 28,
1996 1995 1996 1995
Revenue:
Sales $22,398 $18,349 $46,884 $32,691
Service and other 20,890 22,844 41,987 45,609
Total revenue 43,288 41,193 88,871 78,300
Operating costs and expenses:
Cost of sales 15,884 18,091 33,791 27,828
Cost of service and other 13,071 13,040 25,901 25,785
Research and development 650 1,099 1,416 2,279
Selling, general and administrative 11,973 15,936 24,441 32,687
Reorganization/restructuring costs 77 5,695 125 5,695
Total operating costs and expenses 41,655 53,861 85,674 94,274
Operating income (loss) 1,633 (12,668) 3,197 (15,974)
Non-operating income (expense):
Interest expense (2,060) (2,525) (4,344) (4,750)
Other, net 1,102 2,068 757 1,619
Income (loss) before income taxes 675 (13,125) (390) (19,105)
Income tax expense (benefit) 612 (382) 751 80
Net income (loss) $63 $(12,743) $(1,141) $(19,185)
Net loss less preferred stock dividend $(414) $(13,189) $(2,088) $(20,077)
Net loss per common share: $(.03) $(1.02) $(.16) $(1.50)
Average common shares 13,391,107 12,905,803 13,302,714 13,396,454
See accompanying notes to consolidated financial statements
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Datapoint Corporation and Subsidiaries
(Unaudited)
(In Thousands)
Six Months Ended
January 27, January 28,
1996 1995
Cash flow from operating activities:
Net loss $(1,141) $(19,185)
Adjustments to reconcile net income to net
cash provided from operating activities:
Depreciation and amortization 3,589 4,779
Provision for fixed asset write-off - 1,870
Realized gain on sale of property - (1,709)
Provision for unrealized losses on marketable
securities - 183
Provision for (recoveries) losses on accounts
receivable (207) 71
Change in assets and liabilities:
Decrease in receivables 3,890 1,933
Decrease in inventory 1,604 6,341
Decrease in accounts payable (624) (4,803)
Increase (decrease) in accrued expenses (2,334) 1,599
Increase in other liabilities and deferred
credits 76 1,751
Other, net (1,287) 1,069
Net cash provided from (used in) operating
activities 3,566 (6,101)
Cash flow from investing activities:
Payments for fixed assets (1,569) (2,160)
Proceeds from disposition of fixed assets 50 7,582
Other, net 60 184
Net cash provided from (used in) investing
activities (1,459) 5,606
Cash flow from financing activities:
Proceeds from borrowings 13,976 11,797
Payments on borrowings (18,169) (14,094)
Proceeds from sale of common stock - 2,022
Decrease in restricted cash for letters of credit 614 281
Net cash provided from (used in) financing
activities (3,579) 6
Effect of foreign currency translation on cash (583) 404
Net decrease in cash and cash equivalents (2,055) (85)
Cash and cash equivalents at beginning of year 8,493 6,241
Cash and cash equivalents at end of period $6,438 $6,156
Cash payments for:
Interest $4,082 $4,458
Income taxes, net $254 $989
See accompanying notes to consolidated financial statements.
<PAGE>
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 29, 1995.
The results of operations for the three months ended January 27, 1996, are not
necessarily indicative of the results to be expected for the full year.
2. Inventories
Inventories consist of:
January 27, July 29,
1996 1995
Raw materials $478 $1,036
Work in process 1,894 2,613
Finished goods 5,444 6,105
$7,816 $9,754
3. 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.
During the second quarter of 1996, the Company paid the interest payment due
December 1, 1995 on its outstanding 8 7/8% Convertible Subordinated Debentures
due 2006. The payment was made within the grace period allowed under the
Indenture dated as of June 1, 1981. While payment of this $2.9 million interest
payment was funded from internal sources, in order for the Company to meet
certain of its obligations, including the $2.9 million interest payment due June
1, 1996, 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. Subsequent to the end of the second quarter of 1996, negotiations with
ADP were terminated. Also, subsequent to the end of the second quarter, the
Company entered into a non-exclusive Heads of Agreement with Kalamazoo Computer
Group, PLC. ("Kalamazoo"), a provider of automotive dealer management systems
based in the United Kingdom. While the specific terms of the agreement will not
be known until an agreement, if any, is completed, the agreement would provide
for a joint venture in which Kalamazoo will have a 51% interest and the Company
a 49% interest, as well as a payment to the Company of $15.5 million. The joint
venture would combine the Company's European-based Auto Dealer Systems business
(other than its United Kingdom operations) with Kalamazoo's Netherlands
operations. The joint venture agreement, if completed, is expected to be
implemented during the third quarter of 1996.
<PAGE>
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 and December 1995 payments. 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 arrearages whereby both the December 1994
and December 1995 payments would be made on or before January 31, 1996. The
Company and NTI subsequently amended the agreement such that the schedule for
the two payments in arrears would be extended to a period not to exceed the end
of the third quarter of 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 second 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, October 15, 1995 and January 15, 1996 preferred
dividend payments to shareholders. On January 16, 1996, the Company announced
that the preferred dividend payments were six full quarters in arrears, and
that, as such, each holder of $1.00 preferred stock has the right to exchange
each such share into two shares of the Company's common stock. In addition, the
number of directors constituting the Board of Directors of the Company will be
increased by two and holders of the $1.00 preferred stock (not including those
who have exchanged $1.00 preferred stock for the Company's common stock), voting
as a single class, will have the opportunity to elect two directors of the
Company to fill such newly created directorships at the next annual meeting of
shareholders. These rights continue until such time as the arrearages have been
paid in full. The Company had 1,930,656 shares of its $1.00 preferred stock
outstanding at January 27, 1996.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
(Years Referred to are Fiscal Years)
Overview
During the second 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 $43.3 million,
operating income of $1.6 million and a positive cash flow from operations of
$3.6 million. After considering the effect of the Company's investing and
financing activities, the Company had a net income of $63 thousand, the first
quarterly net income since the second quarter of 1994.
Despite these improved results, the Company's cash and cash equivalents
decreased $2.1 million. In order for the Company to meet certain of its
obligations, including the $2.9 million interest payment due June 1, 1996, 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.
Subsequent to the end of the second quarter of 1996, negotiations with ADP were
terminated. Also, subsequent to the end of the second quarter, the Company
entered into a non-exclusive Heads of Agreement with Kalamazoo Computer Group,
PLC. ("Kalamazoo"), a provider of automotive dealer management systems based in
the United Kingdom. While the specific terms of the agreement will not be known
until an agreement, if any, is completed, the agreement would provide for a
joint venture in which Kalamazoo will have a 51% interest and the Company a 49%
interest, as well as a payment to the Company of $15.5 million. The joint
venture would combine the Company's European-based Auto Dealer Systems business
(other than its United Kingdom operations) with Kalamazoo's Netherlands
operations. The joint venture agreement, if completed, is expected to be
implemented during the third quarter of 1996.
As a result of the Company's capital deficiency which existed at the end of
1994, 1995 and throughout the second 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, October 15, 1995 and January 15, 1996 preferred
dividend payments to shareholders. On January 16, 1996, the Company announced
that the preferred dividend payments were six full quarters in arrears, and
that, as such, each holder of $1.00 preferred stock has the right to exchange
each such share into two shares of the Company's common stock. In addition, the
number of directors constituting the Board of Directors of the Company will be
increased by two and holders of the $1.00 preferred stock (not including those
who have exchanged $1.00 preferred stock for the Company's common stock), voting
as a single class, will have the opportunity to elect two directors of the
Company to fill such newly created directorships at the next annual meeting of
shareholders. These rights continue until such time as the arrearages have been
paid in full. The Company had 1,930,656 shares of its $1.00 preferred stock
outstanding at January 27, 1996.
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 Multimedia Information Network Exchange ("MINX")
video conferencing patents and operations into separate entities. While
discussions with Vertical Financial Holdings were terminated in the second
quarter of 1996, the Company is continuing its efforts to enter into
discussions with a suitable partner to exploit the development and marketing
of its MINX video networking technology.
<PAGE>
Results of Operations
The Company had operating income of $1.6 million and net income of $63 thousand
for the second quarter of 1996 and operating income of $3.2 million and net loss
of $1.1 million for the first six months of 1996. This compares with an
operating loss of $12.7 million and a net loss of $12.7 million for the second
quarter of 1995 and an operating loss of $16.0 million and a net loss of $19.2
million for the first six months of 1995. The following is a summary of the
Company's sources of revenue:
Three Months Ended Six Months Ended
(In thousands) 01/27/96 01/28/95 01/27/96 01/28/95
Sales:
U.S. $751 $1,306 $1,989 $3,041
Foreign 21,647 17,043 44,895 29,650
22,398 18,349 46,884 32,691
Service and other:
U.S. 232 392 499 710
Foreign 20,658 22,452 41,488 44,899
20,890 22,844 41,987 45,609
Total revenue $43,288 $41,193 $88,871 $78,300
Total revenue during the second quarter of 1996 increased $2.1 million, or 5.1%,
compared with the same period of the prior year. This increase was primarily
due to the favorable impact of $2.1 million resulting from the weakening U.S.
dollar as compared to the same period of the prior year. For the first six
months of 1996, total revenue increased $10.6 million or 13.5% when compared
with the same period of the prior year. This increase was primarily
attributable to higher sales in certain of the Company's European subsidiaries,
a favorable impact of the weakening U.S. dollar when compared with the same
period a year ago, offset by a declining maintenance revenue base in the
European subsidiaries.
The gross profit margin for the second quarter and first six months of 1996 was
33.1% and 32.8%, respectively, compared with 24.4% and 31.5% for the same
periods of the prior year. The increase was primarily due to the inventory
write-downs recorded in the second quarter of 1995, offset by the impact of a
changing product mix and competitive pricing pressures worldwide.
Operating expenses (research and development plus selling, general and
administrative) during the second quarter of 1996 and for the first six months
of 1996 decreased $4.4 million and $9.1 million, respectively, as compared with
the same periods a year ago. The decreases are due primarily to the realization
of the various cost reduction activities which the Company has implemented
throughout the last year.
Non-operating income and expenses for the three months ended January 27, 1996
includes interest expense of $2.1 million offset by $1.1 million of transaction
gains as a result of the strengthening U.S. dollar against foreign currencies
during the last three months. Non-operating results for the first six months of
1995 include a gain on the sale of vacant land in San Antonio, Texas of $1.7
million.
Financial Condition
During the first six months of 1996, the Company's cash provided from operations
increased $3.6 million. Primarily, this increase was the result of strong
receivable collections, coupled with a tight inventory management program,
offset by a decrease in the foreign subsidiaries' restructuring expenses.
The Company used $1.6 million for the purchase of fixed assets (primarily test
equipment, spares and internally used equipment) during the first six months of
1996.
For the six month period ended January 27, 1996, the Company used $3.6 million
in financing activities, primarily consisting of paydowns of Company debt
approximating $18.2 million offset by additional borrowings of $14.0 million.
<PAGE>
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 and December 1995 payments. 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 arrearages whereby both the December 1994
and December 1995 payments would be made on or before January 31, 1996. The
Company and NTI subsequently amended the agreement such that the schedule for
the two payments in arrears would be extended to a period not to exceed the end
of the third quarter of 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.
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.
Reorganization/Restructuring
A rollforward of the restructuring accrual from July 31, 1993 through to January
27, 1996 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
Second quarter 1996 additions 77
Second quarter 1996 payments (885)
Restructuring accrual as of January 27, 1996 $1,986
The projected payout of the restructuring accrual balance as of January 27,
1996, which related almost entirely to unpaid employee termination costs, is as
follows:
Third quarter 1996 $1,587
Fourth quarter 1996 205
First quarter 1997 39
Second quarter 1997 22
Beyond 133
Restructuring accrual as of January 27, 1996 $1,986
<PAGE>
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.
<PAGE>
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 11, 1996 /s/ Phillip P. Krumb
Phillip P. Krumb
Chief Financial Officer
(Principal Accounting Officer)
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