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 26, 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)
4 rue d'Aguesseau 75008, Paris, France
8410 Datapoint Drive
San Antonio, Texas 78229-8500
(Address of principal executive offices and zip code)
(331) 4007 3737
(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 October 26, 1996, 13,931,971 shares of Datapoint Corporation Common Stock
were outstanding, exclusive of 7,059,246 shares held in Treasury.
<PAGE>
DATAPOINT CORPORATION AND SUBSIDIARIES
INDEX
Page
Number
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -
October 26, 1996 and July 27, 1996 3
Consolidated Statements of Operations -
Three Months Ended October 26, 1996 and
October 28, 1995 4
Consolidated Statements of Cash Flows -
Three Months Ended October 26, 1996 and
October 28, 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation 7
Part II. Other Information
Item 1. Legal Proceedings 10
Signature 11
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
Datapoint Corporation and Subsidiaries
(In thousands, except share data)
(Unaudited)
October 26, July 27,
1996 1996
Assets
Current assets:
Cash and cash equivalents $18,620 $23,184
Restricted cash and cash equivalents 349 864
Accounts receivable, net of allowance for doubtful
accounts of $3,158 and $2,791, respectively 33,941 38,735
Inventories 4,871 3,726
Prepaid expenses and other current assets 4,566 3,486
Total current assets 62,347 69,995
Fixed assets, net 13,446 14,625
Other assets, net 9,317 9,198
$85,110 $93,818
Liabilities and Stockholders' Deficit
Current liabilities:
Payables to banks $10,645 $9,831
Current maturities of long-term debt and
long-term debt subject to accelerated maturity 2,461 3,114
Accounts payable 19,629 20,280
Accrued expenses 26,414 29,256
Deferred revenue 10,661 11,642
Income taxes payable 2,840 2,842
Total current liabilities 72,650 76,965
Long-term debt, exclusive of current maturities 61,840 63,945
Other liabilities 7,975 8,110
Stockholders' deficit:
Preferred stock of $1.00 par value. Shares
authorized 10,000,000; shares issued and
outstanding 1,868,071 in 1997 and 1,868,071,
in 1996 (aggregate liquidation preference,
including dividend in arrears, $41,528 in 1997
and $41,061 in 1996). 1,868 1,868
Common stock of $0.25 par value. Shares
authorized 40,000,000; shares issued 20,991,217,
including treasury shares of 7,059,246 in 1997
and 7,043,593 in 1996. 5,248 5,248
Other capital 212,655 212,655
Foreign currency translation adjustment 11,042 11,567
Retained deficit (249,724) (248,226)
Treasury stock, at cost (38,444) (38,314)
Total stockholders' deficit (57,355) (55,202)
$85,110 $93,818
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
October 26, October 28,
1996 1995
Revenue:
Sales $17,026 $24,486
Service and other 15,954 21,097
Total revenue 32,980 45,583
Operating costs and expenses:
Cost of sales 12,772 17,907
Cost of service and other 10,828 12,830
Research and development 489 766
Selling, general and administrative 9,993 12,516
Restructuring costs 809 -
Total operating costs and expenses 34,891 44,019
Operating income (loss) (1,911) 1,564
Non-operating income (expense):
Interest expense (1,648) (2,284)
Other, net 1,193 (345)
Loss before income taxes and extraordinary credit (2,366) (1,065)
Income taxes 53 139
Loss before extraordinary credit $(2,419) $(1,204)
Extraordinary credit-debt extinguishment 822 -
Net loss $(1,597) $(1,204)
Net loss less preferred stock dividend accumulated $(2,064) $(1,674)
Net loss per common share:
Before extraordinary credit $(.21) $(.13)
Extraordinary credit - debt extinguishment .06 -
Net loss $(.15) $(.13)
Average common shares 13,767,313 13,214,321
See accompanying Notes to Consolidated Financial Statements
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Datapoint Corporation and Subsidiaries
(Unaudited)
(In Thousands)
Three Months Ended
October 26, October 28,
1996 1995
Cash flows from operating activities:
Net loss $(1,597) $(1,204)
Adjustments to reconcile net loss to net
cash provided from (used in) operating activities:
Depreciation and amortization 1,483 1,833
Provision for losses (recoveries) on accounts receivable 245 (243)
Gain on debt extinguishment (822) -
Changes in assets and liabilities:
Decrease in receivables 3,870 1,794
(Increase) decrease in inventory (1,163) 2,898
Decrease in accounts payable and accrued expenses (4,001) (2,738)
Decrease in other liabilities and deferred credits (900) (1,850)
Other, net (514) (211)
Net cash provided from (used in) operating activities (3,399) 279
Cash flows from investing activities:
Payments for fixed assets (529) (767)
Proceeds from dispositions of fixed assets - 50
Other, net 280 1
Net cash used in investing activities (249) (716)
Cash flows from financing activities:
Proceeds from borrowings 3,677 3,704
Payments on borrowings (4,744) (5,988)
Restricted cash for letters of credit 515 168
Net cash used in financing activities (552) (2,116)
Effect of foreign currency translation on cash (364) (202)
Net decrease in cash and cash equivalents (4,564) (2,755)
Cash and cash equivalents at beginning of year 23,184 8,493
Cash and cash equivalents at end of period $18,620 $5,738
Cash payments for:
Interest $290 $722
Income taxes, net 78 (49)
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
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 27, 1996.
The results of operations for the three months ended October 26, 1996, are not
necessarily indicative of the results to be expected for the full year.
2. Inventories
Inventories consist of:
October 26, July 27,
1996 1996
Raw materials $524 $731
Work in process 753 389
Finished goods 3,594 2,606
$4,871 $3,726
3. Commitments and Contingencies
The Company is at times involved in various lawsuits generally incidental to its
business. Currently, there is no such suit which, if decided adversely to the
Company, would result in a material liability.
4. Fixed Assets
In March 1995, the Financial Accounting Standards Board issued Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of", which requires impairment losses to be recognized for
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows are not sufficient to recover the assets'
carrying amount. The impairment loss is measured by comparing the fair value of
the asset to its carrying amount. The Company adopted Statement No. 121 in the
first quarter of 1997. The adoption of the new impairment rules did not have an
impact on the Company's financial statements.
5. Divestiture
On May 28, 1996, the Company entered into an agreement with Kalamazoo Computer
Group, plc ("Kalamazoo") providing for the sale by the Company to Kalamazoo of
its European-based Automotive Dealer Management Systems ("EADS") business,
other than its United Kingdom operations, for a purchase price of $33.0
million.
<PAGE>
As part of the agreement in connection with the sale of the EADS business, the
Company agreed to continue to sell hardware to Kalamazoo at various discounts
from its normal hardware prices and to continue to provide hardware service
maintenance to Kalamazoo at a 15% discount from the Company's normal hardware
service maintenance prices. The Company transferred to Kalamazoo all of its
employees that were dedicated to the EADS business. The consolidated statement
of operations for the three month period ended October 28, 1995, includes
revenues of $3.9 million and costs and expenses of $2.9 million that represent
the operations of EADS sold to Kalamazoo plus the effect of discounts on the
continuing EADS business which are included in the accompanying statements of
operations. Because the Company's accounting records do not completely
segregate the EADS business' historical performance, certain allocations were
required based upon employee effort analyses of EADS and other appropriate
measures.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
(Years Referred to are Fiscal Years)
Overview
For 1997, the Company's main objectives to preserve and improve the Company's
cash liquidity and financial position and to allow the Company to meet its
future operating requirements are as follows:
1. Product marketing to maintain stabilized revenue levels,
2. Continued review and reduction of operating costs,
3. One time cash infusions to meet longer term operating requirements; and
4. The vigorous pursuit of patent royalties due from the licensing and
enforcement of its video conferencing and multi-speed patents.
During the first quarter of 1997, the Company experienced a net loss of $1.6
million compared with a net loss of $1.2 million for the same period a year ago.
While revenue for the first quarter of 1997 decreased $12.6 million to $33.0
million when compared to the same quarter in 1996, approximately $3.9 million of
the decrease is attributable to the loss of business (mostly service) caused by
the sale in the fourth quarter of 1996 of EADS to Kalamazoo. The remainder of
the decline is primarily due to the fact that the sale revenue level for the
first quarter of 1996 was unusually high compared with the Company's historical
sales performance for the first quarter of each fiscal year.
Operating expenses for the first quarter of 1997 were $10.5 million, compared
with $13.3 million for the same period a year ago. The decrease was the result
of continued cost cutting actions undertaken by the Company and the impact of
the sale of EADS mentioned above. Also, during the first quarter of 1997 the
Company recorded $0.8 million in restructuring charges primarily related to the
reorganizations resulting from the sale of EADS. As the Company continues to
pursue its objective to review and reduce operating costs, it may incur
additional restructuring charges.
In addition, during the first quarter of 1997, the Company repurchased in the
public market approximately $2.0 million face value of its 8-7/8% convertible
subordinated debentures resulting in an extraordinary gain of $0.8 million.
As previously announced, the Company is submitting to its stockholders (1) an
offer to exchange 3.25 shares of Common Stock for each share of $1.00 Preferred
Stock, and (2) a proposal for the adoption at the Annual Meeting of an amendment
to the Company's certificate of incorporation whereby each share of the
Company's $1.00 Preferred Stock would be converted into 3.25 shares of Common
Stock.
As described in the proxy statement/prospectus delivered to the holders of
Common Stock and $1.00 Preferred Stock in connection with the Annual Meeting
scheduled for December 10, 1996, the affirmative vote of the holders of at least
two-thirds of the outstanding shares of $1.00 Preferred Stock and of at least a
majority of the outstanding shares of Common Stock is required to adopt the
amendment. Each holder of $1.00 Preferred Stock currently has the right to
exchange each such share into two shares of Common Stock as a result of current
dividend arrearages.
During fiscal year 1997, the Company is continuing to pursue actions to provide
cash infusions, including the sale of surplus real estate, selected assets
and/or operations of the Company, and to improve its financial position. In
this regard, during the first quarter of 1997, the Company announced that it
has received indications of interest in connection with the potential sale of
its telephony business. Consideration is being given to the potential sale
though no conclusion has been reached.
<PAGE>
Results of Operations
The Company had an operating loss of $1.9 million and a net loss of $1.6
million for the first quarter of 1997. This compares with operating income of
$1.6 million and a net loss of $1.2 million, for the first quarter of 1996.
The following is a summary of the Company's sources of revenue:
Three Months Ended
(In thousands) 10/26/96 10/28/95
Sales:
Foreign $15,892 $23,247
U.S. 1,134 1,239
17,026 24,486
Service and other:
Foreign 15,663 20,830
U.S. 291 267
15,954 21,097
Total revenue $32,980 $45,583
Revenue during the first quarter of 1997 declined $12.6 million, or 27.6%,
compared with the same period of the prior year. Approximately $3.9 million of
the decrease is attributable to the loss of business (mostly service)
caused by the sale in the fourth quarter of 1996 of EADS to Kalamazoo. The
remainder of the decline is primarily due to the fact that the sale revenue
level for the first quarter of 1996 was unusually high compared with the
Company's historical sales performance for the first quarter of each fiscal
year.
The gross profit margin for the first three months of 1997 was 28.4% compared
with 32.6% for the same period a year ago. The decrease was primarily the
result of a change in product mix, competitive pricing pressures worldwide, and
the loss of higher margin service business due to the sale of EADS.
Operating expenses during the first quarter of 1997 declined $2.8 million from
the same period a year ago, which is partially due to the sale of EADS and to
the restructuring and cost cutting actions that the Company undertook in fiscal
years 1995 and 1996.
Non-operating expenses of $0.5 million during the quarter of 1997 consisted
primarily of interest expense of $1.6 million offset by foreign exchange gains
of $1.3 million.
In addition, during the first quarter of 1997, the Company repurchased in the
public market approximately $2.0 million face value of its 8-7/8% convertible
subordinated debentures resulting in an extraordinary gain of $0.8 million.
<PAGE>
Financial Condition
During the first three months of 1997, the Company's cash and cash equivalents
decreased $4.6 million due primarily to the usage of cash in operations. The
decrease in cash was chiefly a result of the revenue decline, payments of
long-standing vendor obligations, and payments of other accrued liabilities
including executive contractual bonuses, partially offset by continued strong
collections of accounts receivables. The Company used $1.2 million to
repurchase 8-7/8% subordinated debentures with a face value of $2.0 million.
The Company used $0.5 million for the purchase of fixed assets (primarily test
equipment, spares and internally used equipment) during the first quarter of
1997.
During the first quarter of 1997, the Company used $0.6 million in financing
activities, primarily consisting of paydowns of Company debt approximating $4.7
million offset by additional borrowings of $3.7 million.
As of October 26, 1996, the Company had cash and cash equivalents of $18.6
million and restricted cash and cash equivalents of $0.3 million (restricted
primarily to cover various lines of credits which are reflected as payables to
banks). The Company believes its available cash and cash equivalents and funds
generated from operations will be sufficient to provide its working capital and
cash requirements for fiscal 1997.
Reorganization/Restructuring Costs
(In thousands)
A rollforward of the restructuring accrual from July 30, 1994 through
October 26, 1996 is as follows:
TOTAL
Restructuring accrual as of July 30, 1994 $13,988
Fiscal 1995 additions 9,213
Fiscal 1995 asset write-offs (1,895)
Fiscal 1995 payments (17,138)
Restructuring accrual as of July 29, 1995 4,168
Fiscal 1996 additions 263
Fiscal 1996 payments (3,776)
Restructuring accrual as of July 27, 1996 655
Fiscal 1997 additions 809
Fiscal 1997 payments (425)
Restructuring accrual as of October 26, 1996 $1,039
The projected payout of the restructuring accrual balance as of October 26,
1996, which related almost entirely to unpaid employee termination costs, is as
follows:
Second quarter 1997 $948
Third quarter 1997 68
Fourth quarter 1997 3
Beyond 20
Restructuring accrual as of October 26, 1996 $1,039
Restructuring charges are not recorded until specific employees are determined
(and notified of termination) by management in accordance with its overall
restructuring plan. Employee termination payments are generally paid out over a
period of time rather than as one lump sum. As the Company continues to pursue
its objective to review and reduce operating costs, it may incur additional
restructuring charges. However, a reasonable estimate of the amount of future
restructuring costs cannot be made at this time.
<PAGE>
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 27, 1996, for a description of certain legal proceedings heretofore
reported.
<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: December 10, 1996 /s/ Phillip P. Krumb
Phillip P. Krumb
Chief Financial Officer
(Chief Accounting Officer)
<PAGE>
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<PERIOD-START> JUL-28-1996
<PERIOD-END> OCT-26-1996
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1,868
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