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 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 May 28, 1996, 13,670,930 shares of Datapoint Corporation Common Stock were
outstanding, exclusive of 7,320,287 shares held in Treasury.
<PAGE>
DATAPOINT CORPORATION AND SUBSIDIARIES
INDEX
Page
Number
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -
April 27, 1996 and July 29, 1995 3
Consolidated Statements of Operations -
Three and Nine Months Ended April 27, 1996 and April 29, 1995 4
Consolidated Statements of Cash Flows -
Nine Months Ended April 27, 1996 and April 29, 1995 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 13
Signature 14
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
Datapoint Corporation and Subsidiaries
(In thousands, except share data)
(Unaudited)
April 27, July 29,
1996 1995
ASSETS
Current assets:
Cash and cash equivalents $4,964 $8,493
Restricted cash and cash equivalents 1,056 2,549
Accounts receivable, net of allowance
for doubtful accounts of $2,647 and
$3,012, respectively 41,788 43,072
Inventories 8,583 9,754
Prepaid expenses and other current assets 4,464 3,638
Total current assets 60,855 67,506
Fixed assets, net of accumulated depreciation
of $115,725 and $117,910, respectively 14,933 18,877
Other assets, net 14,430 15,368
$90,218 $101,751
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Payable to banks $17,134 $16,757
Current maturities of long-term debt 4,096 9,217
Accounts payable 21,581 23,286
Accrued expenses 34,697 34,857
Deferred revenue 13,299 15,291
Income taxes payable 1,481 848
Total current liabilities 92,288 100,256
Long-term debt, exclusive of current maturities 69,103 64,923
Other liabilities 9,788 10,688
Commitments and contingencies
Stockholders' deficit:
Preferred stock of $1.00 par value. Shares authorized
10,000,000; shares issued and outstanding of 1,868,071
in 1996 and 1,846,456 in 1995 (aggregate liquidation
preference of $37,361 in 1996 and $36,929 in 1995). 1,868 1,846
Common stock of $.25 par value. Shares authorized
40,000,000; shares issued of 20,991,217 including
treasury shares of 7,438,287 in 1996
and 7,866,832 in 1995, respectively. 5,248 5,248
Other capital 212,683 212,630
Foreign currency translation adjustment 10,730 13,004
Retained deficit (269,920) (261,742)
Treasury stock, at cost (41,570) (45,102)
Total stockholders' deficit (80,961) (74,116)
$90,218 $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 Nine Months Ended
April 27, April 29, April 27, April 29,
1996 1995 1996 1995
Revenue:
Sales $26,438 $24,429 $73,322 $57,120
Service and other 20,365 23,111 62,352 68,720
Total revenue 46,803 47,540 135,674 125,840
Operating costs and expenses:
Cost of sales 20,485 17,583 54,276 45,411
Cost of service and other 13,009 14,387 38,910 40,172
Research and development 627 1,124 2,043 3,403
Selling, general and administrative 11,024 15,153 35,465 47,840
Restructuring costs 69 1,810 194 7,505
Total operating costs and expens 45,214 50,057 130,888 144,331
Operating income (loss) 1,589 (2,517) 4,786 (18,491)
Non-operating income (expense):
Interest expense (2,144) (2,235) (6,488) (6,985)
Other, net (3,009) (746) (2,252) 873
Loss before income taxes
and extraordinary item (3,564) (5,498) (3,954) (24,603)
Income taxes 430 3 1,181 83
Net loss $(3,994) $(5,501) $(5,135) $(24,686)
Net loss less preferred stock
dividend $(4,466) $(5,947) $(6,553) $(26,024)
Net loss per common share: $(.33) $(.46) $(.49) $(1.96)
Average common shares 13,472,367 12,942,448 13,359,265 13,245,119
See accompanying notes to consolidated financial statements
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Datapoint Corporation and Subsidiaries
(Unaudited)
(In Thousands)
Nine Months Ended
April 27, April 29,
1996 1995
Cash flow from operating activities:
Net loss $(5,135) $(24,686)
Adjustments to reconcile net income to net
cash provided from operating activities:
Provision for unrealized losses on marketable
securities - 187
Depreciation and amortization 5,285 6,885
Provision for fixed asset write-off - 1,870
Realized gain on sale of property - (1,709)
Provision for (recoveries) losses on accounts
receivable (253) 103
Change in assets and liabilities:
(Increase) decrease in receivables (2,391) 6,223
Decrease in inventory 812 6,625
Decrease in accounts payable (717) (4,468)
Increase (decrease) in accrued expenses 1,289 773
(Decrease) increase in other liabilities and
deferred credits (644) 1,583
Other, net (547) 1,533
Net cash (used in) and provided from
operating activities (2,301) (5,081)
Cash flow from investing activities:
Payments for fixed assets (2,083) (3,131)
Proceeds from disposition of fixed assets 50 7,910
Other, net 35 800
Net cash used in investing activities (1,998) 5,579
Cash flow from financing activities:
Proceeds from borrowings 26,505 15,381
Payments on borrowings (26,549) (21,439)
Proceeds from sale of common stock - 1,804
Decrease in restricted cash for letters of credit 1,493 1,892
Net cash (used in) provided from financing
activities 1,449 (2,362)
Effect of foreign currency translation on cash (679) 771
Net decrease in cash and cash equivalents (3,529) (1,093)
Cash and cash equivalents at beginning of year 8,493 6,241
Cash and cash equivalents at end of period $4,964 $5,148
Cash payments for:
Interest $4,674 $4,769
Income taxes, net $398 $939
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 and nine months ended April 27, 1996,
are not necessarily indicative of the results to be expected for the full year.
2. Inventories
Inventories consist of:
April 27, July 29,
1996 1995
Raw materials $319 $1,036
Work in process 1,460 2,613
Finished goods 6,804 6,105
$8,583 $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.
In order for the Company to meet certain of its obligations, including interest
of $2.9 million on its 8 7/8% convertible subordinated debentures payable on
June 1, 1996, the Company is pursuing actions to provide additional cash
infusions. In this regard, upon termination of negotiations to sell the
Company's European based Auto Dealer Systems business to Automatic Data
Processing ("ADP"), the Company entered into a non-exclusive Heads of Agreement
during the third quarter of 1996 with Kalamazoo Computer Group, PLC
("Kalamazoo"), a provider of automotive dealer management systems based in the
United Kingdom. This agreement provided for a joint venture in which Kalamazoo
would have a 51% interest and the Company a 49% interest, as well as 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. Subsequent to the end of
the third quarter of 1996, the Company and Kalamazoo finalized negotiations
pertaining to the outright sale (in lieu of the joint venture) by the Company to
Kalamazoo of 100% of the Company's interest in its European based Auto Dealer
Systems business (other than its United Kingdom operations) for $33.0 million.
After payments of taxes, escrow deposits, contingencies, and other expenses
related to this sale, the Company expects the net cash proceeds from the sale to
exceed $20.0 million. As part of the arrangements, the Company will continue
to provide computer hardware and hardware services to the network through a
subcontract arrangement with Kalamazoo. While the Board of Directors of both
Kalamazoo and the Company have approved the purchase and sale, consummation is
subject to approval by Kalamazoo's shareholders. While there are no absolute
assurances that the Kalamazoo shareholders will approve the purchase, the
Company expects that such approval will be obtained and that the closing will
take place at the end of June, 1996. If this transaction is not completed by
the end of June, 1996, the Company will not have the proceeds from such
anticipated sale to make the June 1, 1996 bond interest payment of $2.9 million
during the 30 day grace period following June 1, 1996. As such, the Company
is simultaneously exploring alternative methods to enable it to make the
interest payment in order to comply with the terms of the Indenture, dated as of
June 1, 1981. In the event the payment is not made within the 30 day grace
period, the resulting default would entitle the holders of the debentures to
declare the entire indebtedness of $64.4 million as immediately due and payable.
Such a default would likewise result in defaults in certain of the Company's
other debt instruments. In addition, subsequent to the end of the third quarter
of 1996, the Company entered into an agreement with Northern Telecom Inc.
("NTI") whereby the Company would not make interest payments on the debentures
until two deferred principal payments of secured debt owed to Northern Telecom
Inc., totaling $2.0 million plus accrued interest, were paid. (See discussion
below).
During 1993, the Company settled a long standing patent-related legal action
brought against it by 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. This obligation is collateralized by
substantially all of the Company's assets. 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, during the second
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 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. As of the end of the
third quarter of 1996, the payments remained unpaid. Subsequent to the end of
the third quarter of 1996, the Company entered into another agreement with NTI,
whereby the Company agreed not to make payments of the $2.9 million interest on
the Company's 8 7/8% Convertible Subordinated Debentures, due June 1, 1996,
until the arrearages and the related unpaid interest were paid. 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 ten 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 third 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, January 15, 1996 and April 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. In addition, on April 16, 1996, the Company
announced that it intends to submit a proposal to stockholders under which each
share of its $1.00 Exchangeable Preferred Stock ($1.00 par value) would be
converted into 2.75 shares of common stock ($0.25 par value). A two-thirds vote
of the holders of the $1.00 Exchangeable Preferred Stock and a majority vote of
the Common Stock will be required to effectuate the proposal to amend the
Certificate of Designation, preferences, rights and limitations establishing the
Preferred Stock, which the Company expects to submit at its Annual Meeting of
Stockholders anticipated for the first quarter of fiscal year 1997. If the
proposal is not adopted, shares of Preferred Stock that are not exchanged will
remain outstanding. The Board of Directors has retained Patricof & Co. Capital
Corp. to act as its financial advisor and to render an opinion as to the
fairness of the proposal from a financial point of view to the holders of the
Common Stock. In addition, the Board of Directors has formed a Committee of
Independent Directors who has retained Corporate Capital Consultants, Inc. to
act as its financial advisor and to render an opinion as the fairness of the
proposal from a financial point of view to the holders of the $1.00 Exchangeable
Preferred Stock. Under the proposal, if adopted, holders of the $1.00
Exchangeable Preferred Stock would relinquish rights to dividends in arrears.
The Company had 1,868,071 shares of its $1.00 preferred stock outstanding at
April 27, 1996.
<PAGE>
In December 1994, a lawsuit was brought against the Company involving the
earlier sale of real estate by the Company. In April, 1996, an adverse jury
verdict was rendered against the Company and two of its executive officers.
Subsequent to the end of the third quarter of 1996, a settlement was reached
among the litigants. As such, the District Court entered a Judgment Non
Obstante Veredicto (Judgment Notwithstanding the Verdict) that set aside the
jury's findings against the Company and its two executive officers and set aside
all damages. The $3.3 million settlement, which was reached to avoid the
considerable expense, including the business disruption of a protracted appeal
and legal process, had no material impact on the Company's current cash position
as it included payment of funds from a non-working capital trust fund which were
otherwise not available to the Company, issuance of a short term note, and
shares of the Company's common stock.
During the third quarter of 1996, the Company was notified by the CIT
Group/Credit Finance, Inc. ("CIT") that the term of the Company's loan agreement
with CIT terminates on June 14, 1996, on which date all obligations must be paid
in full. The amount to be repaid, which at the end of the third quarter was
approximately $1.0 million, is expected to be paid from replacement financing
obtained from another financial institution, and/or the sale of the Company's
European based Auto Dealer Systems business.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
(Years Referred to are Fiscal Years)
Overview
The Company's main objectives to preserve and improve the Company's cash
liquidity position and allow the Company to meet its future operating cash flow
requirements are as follows:
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.
During the third quarter of 1996, the Company continued to achieve its
objectives of maintaining a consistent revenue level and tight cost control.
While the effect of the two factors resulted in revenue generation of $46.8
million, and operating income of $1.6 million, after considering the effect of
the Company's investing, financing activities and other non-operating items, the
Company had a net loss of $4.0 million.
Despite the consistent revenue trend and the positive operating performance,
during the third quarter of 1996, the Company's cash and cash equivalents
decreased $1.5 million. In order for the Company to meet certain of its
obligations, including interest of $2.9 million on its 8 7/8% convertible
subordinated debentures payable on June 1, 1996, the Company is pursuing actions
to provide additional cash infusions. In this regard, upon termination of
negotiations to sell the Company's European based Auto Dealer Systems business
to Automatic Data Processing ("ADP"), the Company entered into a non-exclusive
Heads of Agreement during the third quarter of 1996 with Kalamazoo Computer
Group, PLC. ("Kalamazoo"), a provider of automotive dealer management systems
based in the United Kingdom. This agreement provided for a joint venture in
which Kalamazoo would have a 51% interest and the Company a 49% interest, as
well as 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.
Subsequent to the end of the third quarter of 1996, the Company and Kalamazoo
finalized negotiations pertaining to the outright sale (in lieu of the joint
venture) by the Company to Kalamazoo of 100% of the Company's interest in its
European based Auto Dealer Systems business (other than its United Kingdom
operations) for $33.0 million. After payments of taxes, escrow deposits,
contingencies, and other expenses related to this sale, the Company expects the
net cash proceeds from the sale to exceed $20.0 million. As part of the
arrangements, the Company will continue to provide computer hardware and
hardware services to the network through a subcontract arrangement with
Kalamazoo. While the Board of Directors of both Kalamazoo and the Company have
approved the purchase and sale, consummation is subject to approval by
Kalamazoo's shareholders. While there are no absolute assurances that the
Kalamazoo shareholders will approve the purchase, the Company expects that such
approval will be obtained and that the closing will take place at the end of
June, 1996. If this transaction is not completed by the end of June, 1996, the
Company will not have the proceeds from such anticipated sale to make the
June 1, 1996 bond interest payment of $2.9 million during the 30 day grace
period following June 1, 1996. As such, the Company is simultaneously exploring
alternative methods to enable it to make the interest payment in order to comply
with the terms of the Indenture, dated as of June 1, 1981. In the event the
payment is not made within the 30 day grace period, the resulting default would
entitle the holders of the debentures to elect to declare the entire
indebtedness of $64.4 million as immediately due and payable. Such a default
would likewise result in defaults in certain of the Company's other debt
instruments. In addition, subsequent to the end of the third quarter of 1996,
the Company entered into an agreement with Northern Telecom Inc. ("NTI") whereby
the Company would not make interest payments on the debentures until two
deferred principal payments of secured debt owed to Northern Telecom Inc.,
totaling $2.0 million plus accrued interest, were paid. (See discussion below).
During 1993, the Company settled a long standing patent-related legal action
brought against it by 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. This obligation is collateralized by
substantially all of the Company's assets. 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, during the second
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 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. As of the end of the
third quarter of 1996, the payments remained unpaid. Subsequent to the end of
the third quarter of 1996, the Company entered into another agreement with NTI,
whereby the Company agreed not to make payments of the $2.9 million interest on
the Company's 8 7/8% Convertible Subordinated Debentures, due June 1, 1996,
until the arrearages and the related unpaid interest were paid. 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 ten 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.
<PAGE>
As a result of the Company's capital deficiency which existed at the end of
1994, 1995 and throughout the third 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, January 15, 1996 and April 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. In addition, on April 16, 1996, the Company
announced that it intends to submit a proposal to stockholders under which each
share of its $1.00 Exchangeable Preferred Stock ($1.00 par value) would be
converted into 2.75 shares of common stock ($0.25 par value). A two-thirds vote
of the holders of the $1.00 Exchangeable Preferred Stock and a majority vote of
the Common Stock will be required to effectuate the proposal to amend the
Certificate of Designation, preferences, rights and limitations establishing the
Preferred Stock, which the Company expects to submit at its Annual Meeting of
Stockholders anticipated for the first quarter of fiscal year 1997. If the
proposal is not adopted, shares of Preferred Stock that are not exchanged will
remain outstanding. The Board of Directors has retained Patricof & Co. Capital
Corp. to act as its financial advisor and to render an opinion as to the
fairness of the proposal from a financial point of view to the holders of the
Common Stock. In addition, the Board of Directors has formed a Committee of
Independent Directors who has retained Corporate Capital Consultants, Inc. to
act as its financial advisor and to render an opinion as the fairness of the
proposal from a financial point of view to the holders of the $1.00 Exchangeable
Preferred Stock. Under the proposal, if adopted, holders of the $1.00
Exchangeable Preferred Stock would relinquish rights to dividends in arrears.
The Company had 1,868,071 shares of its $1.00 preferred stock outstanding at
April 27, 1996.
During the third quarter of 1996, the Company had announced that it had
commenced suit to recover damages against two companies for infringement of the
Company's patent covering multispeed network processing. This patent covers
ARCNET and Fast Ethernet products recently introduced by various suppliers to
the local-area network industry. These actions represent the first step in the
Company's industry-wide program to license/enforce its multispeed networking
patents.
In December 1994, a lawsuit was brought against the Company involving the
earlier sale of real estate by the Company. In April, 1996, an adverse jury
verdict was rendered against the Company and two of its executive officers.
Subsequent to the end of the third quarter of 1996, a settlement was reached
among the litigants. As such, the District Court entered a Judgment Non
Obstante Veredicto (Judgment Notwithstanding the Verdict) that set aside the
jury's findings against the Company and its two executive officers and set aside
all damages. The $3.3 million settlement, which was reached to avoid the
considerable expense, including the business disruption of a protracted appeal
and legal process, had no material impact on the Company's current cash position
as it included payment of funds from a non-working capital trust fund which were
otherwise not available to the Company, issuance of a short term note, and
shares of the Company's common stock.
During the third quarter of 1996, the Company was notified by the CIT
Group/Credit Finance, Inc. ("CIT") that the term of the Company's loan agreement
with CIT terminates on June 14, 1996, on which date all obligations must be paid
in full. The amount to be repaid, which at the end of the third quarter was
approximately $1.0 million, is expected to be paid from replacement financing
obtained from another financial institution, and/or the sale of the Company's
European based Auto Dealer Systems business.
<PAGE>
Results of Operations
The Company had operating income of $1.6 million and net loss of $4.0 million
for the third quarter of 1996 and operating income of $4.8 million and net loss
of $5.1 million for the first nine months of 1996. This compares with an
operating loss of $2.5 million and a net loss of $5.5 million for the third
quarter of 1995 and an operating loss of $18.5 million and a net loss of $24.7
million for the first nine months of 1995. The following is a summary of the
Company's sources of revenue:
Three Months Ended Nine Months Ended
April 27, April 29, April 27, April 29,
(In thousands) 1996 1995 1996 1995
Sales:
U.S. $612 $1,434 $2,601 $4,475
Foreign 25,826 22,995 70,721 52,645
26,438 24,429 73,322 57,120
Service and other:
U.S. 180 310 679 1,020
Foreign 20,185 22,801 61,673 67,700
20,365 23,111 62,352 68,720
Total revenue $46,803 $47,540 $135,674 $125,840
Total revenue during the third quarter of 1996 decreased $0.7 million, or 1.6%,
compared with the same period of the prior year. This decrease was primarily
due to a declining maintenance revenue base in the European subsidiaries, and a
decrease in sales revenue in the U.S., offset by a higher sales volume in the
European subsidiaries. For the first nine months of 1996, total revenue
increased $9.8 million or 7.8% 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 and a favorable impact of $3.9 million
related to 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 third quarter and first nine months of 1996 was
28.4% and 31.3%, respectively, compared with 32.8% and 32.0% for the same
periods of the prior year. The decrease was primarily due to the impact of a
high sales volume of a low margin commodity product in a Northern European
subsidiary, a changing product mix toward lower margin, non-company sourced
product and competitive pricing pressures worldwide.
Operating expenses (research and development plus selling, general and
administrative) during the third quarter of 1996 and for the first nine months
of 1996 decreased $4.6 million and $13.7 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 (mostly related to personnel
reductions) which the Company has implemented throughout the last year.
Non-operating income and expenses for the three months ended April 27, 1996
includes expenses for interest of $2.1 million and a lawsuit settlement of $3.3
million, offset by $0.7 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 nine 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 nine months of 1996, the Company's cash used in operations
amounted to $2.3 million. Primarily, this decline was the result of an increase
in foreign subsidiary receivables, payments of the foreign subsidiaries'
restructuring costs, net paydowns of the Company's accounts payable, a reduction
of inventory and an increase in accrued expenses.
The Company used $2.1 million for the purchase of fixed assets (primarily test
equipment, spares and internally used equipment) during the first nine months of
1996.
For the nine month period ended April 27, 1996, the Company's cash flow from
financing activities increased $1.4 million due to a decrease in restricted
cash. As of April 27, 1996, the Company had restricted cash and cash
equivalents of $1.1 million, which was restricted primarily to cover various
lines of credit.
<PAGE>
During the first nine months of 1995, the Company's cash and cash equivalents
declined $1.1 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
April 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
Third quarter 1996 additions 69
Third quarter 1996 payments (608)
Restructuring accruals of April 27, 1996 $1,447
The projected payout of the restructuring accrual balance as of April 27, 1996,
which related almost entirely to unpaid employee termination costs, is as
follows:
Fourth quarter 1996 $1,139
First quarter 1997 131
Second quarter 1997 74
Third quarter 1997 27
Beyond 76
Restructuring accrual as of April 27, 1996 $1,447
<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: June 11, 1996 /s/ Phillip P. Krumb
Phillip P. Krumb
Chief Financial Officer
(Principal Accounting Officer)
<PAGE>
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