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 26, 1997
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)
(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 April 26, 1997, 17,681,194 shares of Datapoint Corporation Common
Stock were outstanding, exclusive of 3,310,023 shares held in Treasury.
<PAGE>
DATAPOINT CORPORATION AND SUBSIDIARIES
INDEX
Page
Number
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets --
April 26, 1997 and July 27, 1996 3
Consolidated Statements of Operations --
Quarter and Nine Months Ended April 26, 1997 and April 27, 1996 4
Consolidated Statements of Cash Flows --
Nine Months Ended April 26, 1997 and April 27, 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II. Other Information
Item 1. Legal Proceedings 13
Signature 14
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
Datapoint Corporation and Subsidiaries
<TABLE>
<CAPTION>
(In thousands, except share data)
- ------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
Apr. 26, 1997 July 27, 1996
- ------------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 12,781 $ 23,184
Restricted cash and cash equivalents 155 864
Accounts receivable, net of allowance for doubtful
accounts of $2,474 and $2,791, respectively 32,418 38,735
Inventories 3,982 3,726
Prepaid expenses and other current assets 3,069 3,486
----- -----
Total current assets 52,405 69,995
Fixed assets, net 12,535 14,625
Other assets, net 8,805 9,198
---------
$ 73,745 $ 93,818
========= ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Payable to banks $ 11,597 $ 9,831
Current maturities of long-term debt 1,302 3,114
Accounts payable 15,952 20,280
Accrued expenses 23,130 29,256
Deferred revenue 11,479 11,642
Income taxes payable 1,867 2,842
----- -----
Total current liabilities 65,327 76,965
Long-term debt, exclusive of current maturities 61,066 63,945
Other liabilities 7,254 8,110
Commitments and contingencies
Stockholders' deficit:
Preferred stock of $1.00 par value. Shares authorized 10,000,000;
shares issued and outstanding of 721,976 in 1997 and 1,868,071 in
1996 (aggregate liquidation preference, including dividend in
arrears, $16,425 in 1997 and $41,061 in 1996) 722 1,868
Common stock of $.25 par value. Shares authorized 40,000,000;
shares issued 20,991,217 including treasury shares of 3,310,023
in 1997 and 7,043,593 in 1996 5,248 5,248
Other capital 212,655 212,655
Foreign currency translation adjustment 7,107 11,567
Retained deficit (278,121) (248,226)
Treasury stock, at cost (7,513) (38,314)
------ -------
Total stockholders' deficit (59,902) (55,202)
------- -------
$ 73,745 $ 93,818
========= ========
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
Datapoint Corporation and Subsidiaries
(Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
(In thousands, except share data)
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Quarter Ended Nine Months Ended
- ------------------------------------------------------------------------------------------------------------------------------
Apr. 26, 1997 Apr. 27, 1996 Apr. 26, 1997 Apr. 27, 1996
<S> <C> <C> <C> <C>
------------- ------------- ------------- -------------
Revenue:
Sales $ 21,973 $ 26,438 $ 57,523 $ 73,322
Service and other 15,787 20,365 47,498 62,352
Total revenue 37,760 46,803 105,021 135,674
Operating costs and expenses:
Cost of sales 16,774 20,485 42,482 54,276
Cost of service and other 10,052 13,009 32,150 38,910
Research and development 564 627 1,518 2,043
Selling, general and administrative 8,612 11,024 26,957 35,465
Reorganization/restructuring costs 55 69 2,413 194
Total operating costs and expenses 36,057 45,214 105,520 130,888
Operating income (loss) 1,703 1,589 (499) 4,786
Non-operating income (expense):
Interest expense (1,670) (2,144) (4,999) (6,488)
Other, net 1,270 (3,009) 4,616 (2,252)
Income (loss) before income taxes and
extraordinary credit 1,303 (3,564) (882) (3,954)
Income tax expense 492 430 512 1,181
Income (loss) before extraordinary credit 811 (3,994) (1,394) (5,135)
Extraordinary credit -- debt extinguishment 253 -- 1,156 --
Net income (loss) $ 1,064 $ (3,994) $ (238) $ (5,135)
Net income (loss) applicable to common shareholders:
Net income (loss) $ 1,064 $ (3,994) $ (238) $ (5,135)
Preferred stock dividends accumulated (181) (472) (829) (1,418)
Gain on exchange and retirement of preferred stock -- -- 3,810 --
Net income (loss) applicable to common shareholders: $ 883 $ (4,466) $ 2,743 $ (6,553)
Net income (loss) per common share:
Before extraordinary credit $ .04 $ (.33) $ .11 $ (.49)
Extraordinary credit -- debt extinguishment .01 -- .07 --
Net income (loss) $ .05 $ (.33) $ .18 $ (.49)
Average common shares 17,718,842 13,472,367 15,579,270 13,359,265
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Datapoint Corporation and Subsidiaries
(Unaudited)
<TABLE>
<CAPTION>
(In Thousands)
- ------------------------------------------------------------------------------------------------------------------------------
Nine Months Ended
- ------------------------------------------------------------------------------------------------------------------------------
Apr. 26, 1997 Apr. 27, 1996
<S> <C> <C>
Cash flow from operating activities:
Net loss $ (238) $ (5,135)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 3,937 5,285
Provision for losses (recoveries) on accounts receivable 74 (253)
Gain on debt extinguishment (1,156) --
Changes in assets and liabilities:
Increase in receivables (790) (2,391)
(Increase) decrease in inventory (794) 812
(Decrease) increase in accounts payable and accrued expenses (6,674) 572
Decrease in other liabilities and deferred credits (4) (644)
Other, net (728) (547)
Net cash used in operating activities (6,373) (2,301)
Cash flow from investing activities:
Payments for fixed assets (2,843) (2,083)
Proceeds from disposition of fixed assets -- 50
Other, net 186 35
Net cash used in investing activities (2,657) (1,998)
Cash flow from financing activities:
Proceeds from borrowings 10,016 26,505
Payments on borrowings (10,384) (26,549)
Restricted cash for letters of credit 709 1,493
Net cash provided by financing activities 341 1,449
Effect of foreign currency translation on cash (1,714) (679)
Net decrease in cash and cash equivalents (10,403) (3,529)
Cash and cash equivalents at beginning of year 23,184 8,493
Cash and cash equivalents at end of period $ 12,781 $ 4,964
Cash payments for:
Interest $ 3,687 $ 4,674
Income taxes, net $ 546 $ 398
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
DATAPOINT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share data)
(Unaudited)
1. Preparation of Financial Statements
The accompanying unaudited consolidated financial statements have been prepared
by Datapoint Corporation (the "Company"), in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, the information furnished reflects all adjustments that 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 quarter-ended April 26, 1997, are not
necessarily indicative of the results to be expected for the full year.
2. Inventories
Inventories consist of:
Apr. 26, 1997 July 27, 1996
Raw materials $528 $731
Work in process 256 389
Finished goods 3,198 2,606
----- -----
$3,982 $3,726
====== ======
3. Commitments and Contingencies
The Company is a defendant in various lawsuits generally incidental to its
business. Currently, there is no such suit that 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 a
material 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 and software 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 who were dedicated to the EADS business. The consolidated
statement of operations for the three month period ended April 27, 1996,
includes revenues of $6.0 million and costs and expenses of $4.3 million and for
the nine months ended April 27, 1996, includes revenues of $14.7 million and
costs and expenses of $10.8 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.
6. Preferred Stock Exchange
During the second quarter of 1997, the Company accepted 1,145,945 shares of its
$1.00 Exchangeable Preferred Stock, liquidation preference $20 per share ("the
$1.00 Preferred Stock"), tendered in its exchange offer described in the proxy
statement/prospectus delivered to the holders of the Company's common stock, par
value $.25 per share (the "Common Stock"), and to the holders of $1.00 Preferred
Stock. Under the terms of the exchange offer, each share of $1.00 Preferred
Stock tendered was exchanged for 3.25 shares of Common Stock. The exchange offer
expired December 10, 1996, at 9:00 a.m., New York City time. The tendered shares
approximated 61.34% of the total outstanding shares of $1.00 Preferred Stock
immediately prior to the expiration of the exchange offer. For purposes of
calculating net income applicable to common shareholders and related per share
amounts for the nine month period ended April 26, 1997, a gain on exchange and
retirement of preferred stock has been added to net income or loss. This gain
includes the excess of the carrying value of preferred stock accepted in the
exchange over the fair value of the common stock issued. In addition, the gain
includes accumulated dividends on the retired preferred stock. The effect of
this gain on income before extraordinary items per common share was
approximately $.24 for the nine month period, ending April 26, 1997.
Also, the Company's proposal to its stockholders to adopt an amendment to the
Company's certificate of incorporation whereby all outstanding shares of its
$1.00 Preferred Stock would be automatically converted into the right to receive
3.25 shares of Common Stock, did not receive the requisite vote required of the
approval of holders of at least two-thirds of the outstanding shares of $1.00
Preferred Stock and a majority of the outstanding shares of Common Stock, and
thus was not adopted.
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 networking patents.
During the third quarter of 1997, the Company had net income of $1.1 million
compared with a net loss of $4.0 million for the same period a year ago. For the
first nine months of 1997, the Company had a net loss of $0.2 million compared
with a net loss of $5.1 million for the same period a year ago.
Included in non-operating income for the third quarter and for the first nine
months of fiscal 1997, are $1.5 million and $4.9 million, respectively, related
to transaction gains resulting from the strengthening U.S. dollar against
foreign currencies, as compared to gains of $0.7 million and $1.8 million,
respectively, during the same periods in the prior year. These gains, caused by
the strengthening U.S. dollar against certain foreign currencies, relate to
short term intercompany notes and international subsidiary U.S. dollar
denominated cash.
<PAGE>
The Company reported operating income of $1.7 million during the third
quarter of fiscal 1997, compared with operating income of $1.6 million for the
third quarter of the prior year. Included in the operating income for the third
quarter of the previous year was $1.7 million related to the operations of EADS.
Revenue during the third quarter of 1997 declined $9.0 million to $37.8 million
when compared to the same period a year ago. Approximately $6.0 million of the
decrease is attributable to the loss of business (mostly service) caused by the
sale of EADS to Kalamazoo and approximately $3.3 million is due to the
unfavorable impact related to the strengthening U.S. dollar when compared to the
same period a year ago. Revenue declined $30.7 million during the first nine
months of 1997 to $105.0 million when compared to the same period a year ago.
Approximately $14.7 million of the decline is attributable to the loss of
business (mostly service) caused by the sale of EADS to Kalamazoo, and
approximately $3.9 million is due to the unfavorable impact related to the
strengthening U.S. dollar when compared to the same period a year ago, and the
fact that the sales 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 third quarter of 1997 were $9.2 million, compared
with $11.7 for the same period a year ago. Approximately $1.8 million of the
decrease is due to the sale of EADS described above and approximately $0.4
million of the decrease is due to the effect of the strengthening U.S. dollar
when compared to the same period a year ago. For the first nine months of fiscal
year 1997, operating expenses were $28.5 million, compared with $37.5 million
for the same period a year ago. Approximately $4.8 million of the decrease is
due to the sale of EADS and approximately $0.6 million of the decrease is due to
the effect of the strengthening U.S. dollar when compared to the same period a
year ago. The remaining decrease was the result of the continued cost cutting
actions undertaken by the Company. Also, the Company recorded restructuring
charges of $55 thousand during the third quarter of 1997 and $2.4 million for
the first nine months of fiscal 1997 primarily related to the reorganizations
resulting from the sale of EADS.
In addition, during the third quarter of 1997 and for the first nine months of
fiscal year 1997, the Company repurchased in the public market approximately
$0.5 million and $2.7 million, respectively, face value of its 8-7/8%
convertible subordinated debentures resulting in extraordinary gains of $0.3
million and $1.2 million, respectively.
During the second quarter of 1997, the Company accepted 1,145,945 shares of its
$1.00 Exchangeable Preferred Stock, liquidation preference $20 per share ("the
$1.00 Preferred Stock"), tendered in its exchange offer described in the proxy
statement/prospectus delivered to the holders of the Company's common stock, par
value $.25 per share (the "Common Stock"), and to the holders of $1.00 Preferred
Stock. Under the terms of the exchange offer, each share of $1.00 Preferred
Stock tendered was exchanged for 3.25 shares of Common Stock. The exchange offer
expired December 10, 1996, at 9:00 a.m., New York City time. The tendered shares
approximated 61.34% of the total outstanding shares of $1.00 Preferred Stock
immediately prior to the expiration of the exchange offer. For purposes of
calculating net income applicable to common shareholders and related per share
amounts for the nine month period ended April 26, 1997, a gain on exchange and
retirement of preferred stock has been added to net income or loss. This gain
includes the excess of the carrying value of preferred stock accepted in the
exchange over the fair value of the common stock issued. In addition, the gain
includes accumulated dividends on the retired preferred stock. The effect of
this gain on income before extraordinary items per common share was
approximately $.24 for the nine month period ending April 26, 1997.
Also, the Company's proposal to its stockholders to adopt an amendment to the
Company's certificate of incorporation whereby all outstanding shares of its
$1.00 Preferred Stock would be automatically converted into the right to receive
3.25 shares of Common Stock, did not receive the requisite vote required of the
approval of holders of at least two-thirds of the outstanding shares of $1.00
Preferred Stock and a majority of the outstanding shares of Common Stock, and
thus was not adopted.
During the current fiscal year, the Company is continuing to pursue actions that
will provide cash infusions, including the sale of surplus real estate, selected
assets and/or operations of the Company, and to improve its financial position.
The Company had previously announced that consideration was being given to the
potential sale of its telephony business. Subsequently, the Company decided not
to pursue further negotiations with interested parties for the sale of its
telephony business. The Company will continue to position itself as an
integrated system provider of both telephonic and data transmission services,
and as such, believes that its short term and long term prospects can be better
maximized by retaining the telephony business.
<PAGE>
Patents and Trademarks
Datapoint owns certain patents, copyrights, trademarks and trade secrets in both
network and video conferencing technologies, which it considers valuable
proprietary assets. The Company believes that in particular its video
conferencing patents and multi-speed network processing patents and the related
patents are of material importance to its business as a whole.
Video Conferencing Patents
Datapoint owns United States Patent Nos. 4,710,917 and 4,847,829 related to
video teleconferencing technology. Datapoint has filed infringement actions
against several companies. In 1995, the Company negotiated two settlements for
such infringement for an aggregate of $1.0 million, and, in 1996, the Company
entered into an agreement with NEC America, Inc. for the licensing of the `917
and `829 patents for an undisclosed amount. Several patent infringement suits
are currently pending:
(1) Datapoint Corporation v. Compression Labs, Inc. No. 3:93-CV-2522-D
(N.D. Texas); trial is scheduled for November 1997; In addition, Datapoint
Corporation asserted a fraud claim against CLI and a tortious interference with
prospective advantage and other claims against Vtel Corp., with whom CLI
recently merged. No. 3:97-CV-1093-D (N.D. Texas);
(2) Datapoint Corporation v. PictureTel Corporation, No. 3:93-CV-2381-D
(N.D. Texas); trial is scheduled for October 1997;
(3) Datapoint Corporation v. Teleos Communications, Inc. No. 95-4455-AET
(D.N.J.); this action is in the early stages of discovery; no trial date has
been scheduled;
(4) Datapoint Corporation v. Videolan Technologies, Inc.; Videolan
Technologies, Inc. v. Datapoint Corporation, No. 96 CV-604-H (W.D. Kentucky) et
al; in these actions, Datapoint has asserted that Videolan has infringed the
`917 and `829 patents. Videolan has asserted the following claims: antitrust,
patent misuse, unfair competition, and seeks a declaratory judgment that the
`917 and `829 patents and another Datapoint patent, No. 4,686,698, are not valid
and are not infringed. These actions are in the early stages; no trial date has
been set in either matter.
In addition, discussions and negotiations are taking place with certain
companies to enter into mutually agreeable licensing arrangements.
In John Frassanito and David A. Monroe v. Datapoint Corp., No. H-95-812 (S.D.
Tex) plaintiffs alleged that the Company usurped various patentable inventions
and trade secrets in connection with the development of its MINX systems. They
also asserted a cause of action for patent infringement, and a cause of action
requiring Datapoint to assign certain MINX-related patents and other
intellectual property. On August 16, 1996, the Court dismissed with prejudice
plaintiffs' claims of patent infringement against Datapoint and dismissed
without prejudice plaintiff's pendent State law claims and Datapoint's State law
counter-claims for lack of subject matter jurisdiction. Plaintiffs in this
action moved to intervene in the Picturetel and CLI actions. Datapoint believes
this matter will be resolved without further proceedings by a confidential
agreement.
Multi-speed Networking Patents
Datapoint is also the owner of United States Patent Nos. 5,008,879 and 5,077,732
related to Local Area Networks ("LAN"). The Company believes these patents cover
most products introduced by various suppliers to the local area network industry
and dominates certain types of dual-speed LAN Adaptor Products recently
introduced by various industry leaders. Datapoint has asserted one or both of
these patents in the United States District Court for the Eastern District of
New York against a number of parties:
(1) Datapoint Corporation v. Standard Micro-Systems, Inc. and Intel
Corporation, No. C.V.-96-1685;
(2) Datapoint Corporation v. Cisco Systems, Plaintree Systems Corp., Accton
Technologies Corp., Cabletron Systems, Inc., Bay Networks, Inc., Crosscom Corp.
and Assante Technologies, Inc. No. CV 96 4534;
(3) Datapoint Corporation v. Dayna Communications, Inc., Sun Microsystems,
Inc., Adaptec, Inc. International Business Machines Corp., Lantronix, SVEC
America Computer Corporation, and Nbase Communications, No. CV 96 6334; and
<PAGE>
(4) Datapoint Corporation v. Standard Microsystems Corp. and Intel Corp.,
individually, and as representatives of the class of all manufacturers, vendors
and users of Fast Ethernet-compliant, dual protocol local-area network products,
No. CV-96-03819.
These actions have been consolidated for discovery. No trial date has been set.
In addition, discussions are taking place with certain companies which may
include one or more of the above companies in an attempt to reach agreement on
licensing arrangements.
The above actions represent the Company's continuing efforts to license and
enforce its video conferencing and multi-speed networking patents through
negotiations and/or litigation. The Company believes that these patents provided
broad coverage in video conferencing and multi-speed networking technology and
present the opportunity for further royalty bearing licenses. Such royalty
bearing licenses and enforcement of its patents will be a primary strategy of
the Company's business going forward to create long-term value for its
stockholders.
Results of Operations
The Company had operating income of $1.7 million and net income of $1.1 million
for the third quarter of 1997 and an operating loss of $0.5 million and a net
loss of $0.2 million for the first nine months of 1997. This compares with
operating income of $1.6 million and a net loss of $4.0 million for the third
fiscal quarter a year ago and operating income of $4.8 million and net loss of
$5.1 million for the first nine months of fiscal 1996. The following is a
summary of the Company's sources of revenue:
Quarter Ended Nine Months Ended
(In thousands) 04/26/97 04/27/96 04/26/97 04/27/96
Sales:
U.S $ 709 $ 612 $ 2,806 $ 2,601
Foreign 21,264 25,826 54,717 70,721
-------- -------- -------- --------
21,973 26,438 57,523 73,322
Service and other:
U.S 268 180 900 679
Foreign 15,519 20,185 46,598 61,673
-------- -------- -------- --------
15,787 20,365 47,498 62,352
-------- -------- -------- --------
Total revenue $ 37,760 $ 46,803 $105,021 $135,674
======== ======== ======== ========
Total revenue during the third quarter of 1997 decreased $9.0 million, or 19.3%,
compared with the same period of the prior year. Approximately $6.0 million of
the decrease is attributable to the loss of business (mostly service) caused by
the sale of EADS to Kalamazoo and approximately $3.3 million is due to the
unfavorable impact related to the strengthening U.S. dollar when compared to the
same period a year ago. For the first nine months of 1997, total revenue
decreased $30.7 million or 22.6% when compared with the same period of the prior
year. Approximately $14.7 million of the decline is attributable to the loss of
business (mostly service) caused by the sale of EADS to Kalamazoo, and $3.9
million of the decrease is due to the effect of the strengthening U.S. dollar
when compared to the same period a year ago, and the fact that the sales 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 third quarter of 1997 and the first nine months
of 1997 was 29.0% and 28.9%, respectively, compared with 28.4% and 31.3%,
respectively, for the same periods of the prior year. The decrease for the first
nine months of 1997 was primarily the result of competitive pricing pressures
worldwide and the loss of higher margin service business due to the sale of
EADS.
Operating expenses (research and development plus selling, general and
administrative) during the third quarter of 1997 decreased $2.5 million, of
which approximately $1.8 million is due to the sale of EADS and approximately
$0.4 million of the decrease is due to the effect of the strengthening U.S.
dollar when compared to the same period a year ago, and for the first nine
months of 1997 decreased $9.0 million, of which approximately $4.8 million is
due to the sale of EADS, and $0.6 million of the decrease is due to the effect
of the strengthening U.S. dollar when compared to the same period a year ago.
<PAGE>
The remainder of the decreases are due primarily to the realization of the
various cost reduction and restructuring actions that the Company has
implemented throughout the last two fiscal years. Also, the Company recorded
restructuring charges of $55 thousand in the third quarter of 1997 and $2.4
million for the first nine months of fiscal 1997 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. For the third quarter of 1996 and for the
first nine months of fiscal 1996, the Company recorded restructuring charges of
$69 thousand and $194 thousand, respectively.
Non-operating income and expenses for the quarter ended April 26, 1997, includes
interest expense of $1.7 million offset by $1.5 million of transaction gains as
a result of the strengthening U.S. dollar against foreign currencies during the
quarter. Non-operating income and expenses for the first nine months of 1997,
includes interest expense of $5.0 million offset by $4.9 million of transaction
gains. Non-operating income and expenses for the quarter ended April 27, 1996,
included interest expense 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 quarter.
Non-operating income and expenses for the first nine months of 1996, included
interest expense of $6.5 million offset by $1.8 million of transaction gains.
The transaction gains included in non-operating income, caused by the
strengthening U.S. dollar against certain foreign currencies, relate to short
term intercompany notes and international subsidiary U.S. dollar denominated
cash. These gains are offset by translation adjustment to Stockholders' Equity
and therefore have no impact on the Company's consolidated financial position.
The income tax provision for the third quarter and for the first nine
months of 1997, was $0.5 million, which includes $0.2 million related to
transaction gains.
In addition, during the third quarter of 1997 and for the first nine months of
fiscal year 1997, the Company repurchased in the public market approximately
$0.5 million and $2.7 million, respectively, face value of its 8-7/8%
convertible subordinated debentures resulting in extraordinary gains of $0.3
million and $1.2 million, respectively.
Financial Condition
During the first nine months of 1997, the Company's cash and cash equivalents
decreased $10.4 million. The decrease in cash was chiefly a result of the
revenue decline, payments of long-standing vendor obligations, payments of other
accrued liabilities including executive contractual bonuses, and the semi-annual
bond interest payment. The Company used $1.6 million to repurchase 8-7/8%
subordinated debentures with a face value of $2.7 million during the first nine
months of fiscal 1997.
The Company used $2.8 million for the purchase of fixed assets (primarily test
equipment, spares and internally used equipment and a subsidiary's building
renovations) during the first nine months of 1997.
For the nine-month period ended April 26, 1997, $0.3 million of cash was
provided from financing activities consisting of paydowns of Company debt
approximating $10.4 million offset by additional borrowings of $10.1 million,
and a decrease in restricted cash of $0.7 million.
As of April 26, 1997, the Company had cash and cash equivalents of $12.8 million
and restricted cash and cash equivalents of $0.1 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 1997.
<PAGE>
Reorganization/Restructuring
(In thousands)
A rollforward of the restructuring accrual from July 30, 1994, through April 26,
1997, 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 2,413
Fiscal 1997 payments (1,831)
- ----------------------------------------------------------------------
Restructuring accrual as of April 26, 1997 $1,237
======
The projected payout of the restructuring accrual balance as of April 26, 1997,
which related almost entirely to unpaid employee termination costs, is as
follows:
Fourth quarter 1997 $743
First quarter 1998 419
Second quarter 1998 58
Third quarter 1998 2
Beyond 15
- ---------------------------------------------------------------------
Restructuring accrual as of April 26, 1997 $1,237
======
Restructuring charges are not recorded until specific employees are notified of
termination by management in accordance with its overall restructuring plan.
Employee termination payments are generally paid 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.
Cautionary Statement Regarding Risks and Uncertainties That May Affect
Future Results
This Quarterly Report on Form 10-Q contains forward-looking statements about the
business, financial condition and prospects of the Company. The actual results
of the Company could differ materially from those indicated by the
forward-looking statements because of various risks and uncertainties including
without limitation changes in product demand, the availability of products,
changes in competition, economic conditions, new product development, various
inventory risks due to changes in market conditions, changes in tax and other
governmental rules and regulations applicable to the Company, and other risks
indicated in the Company's filings with the Securities and Exchange Commission.
These risks and uncertainties are beyond the ability of the Company to control,
and in many cases, the Company cannot predict the risks and uncertainties that
could cause its actual results to differ materially from those indicated by the
forward-looking statements. When used in this Quarterly Report on Form 10-Q, the
words "believes," "estimates," "plans," "expects," and "anticipates" and similar
expressions as they relate to the Company or its management are intended to
identify forward-looking statements.
<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 and
incorporated by reference herein.
The Company is a Plaintiff in a number of actions related to its patents and
trademarks which are more fully described in the Management's Discussion and
Analysis overview section of this Form 10Q.
<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 10, 1997 /s/ Phillip P. Krumb
--------------------
Phillip P. Krumb
Chief Financial Officer
(Principal Accounting Officer)
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