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 31, 1998
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 January 31, 1998, 18,010,151 shares of Datapoint Corporation Common
Stock were outstanding, exclusive of 2,981,066 shares held in Treasury.
<PAGE>
DATAPOINT CORPORATION AND SUBSIDIARIES
INDEX
Page
Number
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -
January 31, 1998 and August 2, 1997 3
Consolidated Statements of Operations -
Quarter and Six Months Ended January 31, 1998 and
January 25, 1997 4
Consolidated Statements of Cash Flows -
Six Months Ended January 31, 1998 and
January 25, 1997 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation 8
Part II. Other Information
Item 1. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders
Signature 14
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
Datapoint Corporation and Subsidiaries
(In thousands, except share data)
(Unaudited)
January 31, August 2,
1998 1997
---------- ---------
Assets
Current assets:
Cash and cash equivalents $ 10,592 $ 15,490
Restricted cash and cash equivalents 148 154
Accounts receivable, net of allowance for doubtful
accounts of $1,095 and $1,654, respectively 29,551 22,731
Inventories 3,914 3,962
Prepaid expenses and other current assets 4,075 3,003
Total current assets 48,280 45,340
Fixed assets, net 9,797 11,764
Other assets, net 5,320 5,284
$ 63,397 $ 62,388
Liabilities and Stockholders' Deficit
Current liabilities:
Payables to banks $ 8,978 $ 7,346
Current maturities of long-term debt 668 1,271
Accounts payable 14,499 12,209
Accrued expenses 17,110 20,195
Deferred revenue 10,576 11,386
Income taxes payable 1,828 1,272
Total current liabilities 53,659 53,679
Long-term debt, exclusive of current maturities 58,115 60,875
Other liabilities 13,250 11,918
Stockholders' deficit:
Preferred stock of $1.00 par value.
Shares authorized 10,000,000; shares issued
and outstanding 721,976 in 1998 and 721,976,
in 1997 (aggregate liquidation preference,
including dividend in arrears, $16,966 in
1998 and $16,605 in 1997). 722 722
Common stock of $0.25 par value. Shares
authorized 40,000,000; shares issued
20,991,217, including treasury shares of
2,981,066 in 1998 and 3,203,102 in 1997. 5,248 5,248
Other capital 212,039 212,655
Pension liability adjustment (4,488) (4,488)
Foreign currency translation adjustment 5,310 4,613
Retained deficit (275,656) (276,202)
Treasury stock, at cost (4,802) (6,632)
Total stockholders' deficit (61,627) (64,084)
$ 63,397 $ 62,388
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
Datapoint Corporation and Subsidiaries
(Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
(In thousands, except share data)
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
Quarter Ended Six Months Ended
- --------------------------------------------------------------------------------------------------------------------------
Jan. 31, 1998 Jan. 25, 1997 Jan. 31, 1998 Jan. 25, 1997
<S> <C> <C> <C> <C>
------------- ------------- ------------- -------------
Revenue:
Sales $ 24,866 $ 18,524 $ 44,369 $ 35,550
Service and other 15,578 15,757 31,148 31,711
Total revenue 40,444 34,281 75,517 67,261
Operating costs and expenses:
Cost of sales 19,803 12,936 35,232 25,708
Cost of service and other 9,941 11,270 19,838 22,098
Research and development 600 465 1,205 954
Selling, general and administrative 8,098 8,353 16,567 18,345
Reorganization/restructuring costs 52 1,549 52 2,358
Total operating costs and expenses 38,494 34,573 72,894 69,463
Operating income (loss) 1,950 (292) 2,623 (2,202)
Non-operating income (expense):
Interest expense (1,475) (1,681) (3,051) (3,329)
Other, net 2,063 2,154 2,091 3,346
Income (loss) before income taxes and
extraordinary credit 2,538 181 1,663 (2,185)
Income tax expense (benefit) 575 (33) 688 20
Income (loss) before extraordinary credit 1,963 214 975 (2,205)
Extraordinary credit -- debt extinguishment 381 81 555 903
Net income (loss) $ 2,344 $ 295 $ 1,530 $ (1,302)
Basic Earnings Per Common Share:
Income before extraordinary credit $ .10 $ .24 $ .03 $ .06
Extraordinary credit .02 .01 .03 .06
Net income per common share $ .12 $ .25 $ .06 $ .12
Diluted Earnings Per Common Share:
Income before extraordinary credit $ .09 $ .23 $ .03 $ .06
Extraordinary credit .02 -- .03 .06
Net income per common share $ .11 $ .23 $ .06 $ .12
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Datapoint Corporation and Subsidiaries
(Unaudited)
<TABLE>
<CAPTION>
(In Thousands)
Six Months Ended
January 31, January 25,
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,530 $ (1,302)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 1,800 3,151
Provision for losses (recoveries) on accounts receivable (164) 134
Gain on debt extinguishment (555) (903)
Deferred income taxes (15) (60)
Realized gain on sale of property (1,205) --
Changes in assets and liabilities:
(Increase) decrease in receivables (6,026) 2,052
(Increase) decrease in inventory 66 (1,317)
Decrease in accounts payable and accrued expenses (1,000) (7,660)
Increase in other liabilities and deferred credits 551 199
Other, net (797) (233)
Net cash used in operating activities (5,815) (5,939)
Cash flows from investing activities:
Payments for fixed assets (978) (2,054)
Proceeds from dispositions of fixed assets 3,200 --
Other, net (585) (213)
Net cash provided from (used in) investing activities 1,637 (2,267)
Cash flows from financing activities:
Proceeds from borrowings 26,549 5,959
Payments on borrowings (27,587) (8,131)
Restricted cash for letters of credit 6 551
Net cash used in financing activities (1,032) (1,621)
Effect of foreign currency translation on cash 312 (1,119)
Net decrease in cash and cash equivalents (4,898) (10,946)
Cash and cash equivalents at beginning of year 15,490 23,184
Cash and cash equivalents at end of period $ 10,592 $ 12,238
Cash payments for:
Interest $3,091 $3,351
Income taxes, net $54 $386
</TABLE>
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 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 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 August 2, 1997.
The results of operations for the quarter-ended ended January 31, 1998, are not
necessarily indicative of the results to be expected for the full year.
2. Inventories
Inventories consist of:
January 31, August 2,
1998 1997
Raw materials $150 $143
Work in process 1,028 1,077
Finished and purchased products 2,736 2,742
----- -----
$3,914 $3,962
====== ======
3. Commitments and Contingencies
From time to time, the Company is a defendant in lawsuits generally incidental
to its business. The Company is not currently aware of any such suit which, if
decided adversely to the Company, would result in a material liability.
4. Earnings Per Share
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, "Earnings per Share". Statement 128 replaced the
previously reported primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants, and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. All earnings per share amounts for
all periods have been presented, and where necessary, restated to conform to the
Statement 128 requirements. The Company adopted this new standard during the
second quarter of fiscal year 1998 and the following table sets forth the
computation of basic and diluted earnings per share ("EPS"):
<PAGE>
<TABLE>
<CAPTION>
Quarter Ended
01/31/98 01/25/97
<S> <C> <C> <C> <C> <C> <C>
Income Shares EPS Income Shares EPS
Income before extraordinary
credit $1,963 $ 214
Preferred stock dividends
accumulated (180) (181)
Gain on the exchange and
retirement of preferred stock 3,810
Basic EPS $1,783 17,966 $.10 $3,843 15,857 $.24
- --------------------------------------------------------------------------------------------------------------
Dilutives:
Stock Options -- 1,065 -- -- 182 --
Convertible preferred stock -- -- -- 181 1,444 --
---------------------------------------------------------------------------------------------------------
Diluted EPS $1,783 19,031 $.09 $4,024 17,483 $.23
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
01/31/98 01/25/97
<S> <C> <C> <C> <C> <C> <C>
Income Shares EPS Income Shares EPS
Income (loss) before extraordinary
credit $975 $(2,205)
Preferred stock dividends
accumulated (361) (648)
Gain on exchange and
retirement of preferred stock 3,810
Basic EPS $614 17,904 $.03 $ 957 14,894 $.06
- --------------------------------------------------------------------------------------------------------------
Dilutives:
Stock Options -- 1,052 -- -- 182 --
---------------------------------------------------------------------------------------------------------
Diluted EPS $614 18,956 $.03 $957 15,076 $.06
- --------------------------------------------------------------------------------------------------------------
</TABLE>
The following options to purchase shares of common stock were outstanding at
January 31, 1998, but were not included in the computation of diluted earnings
per share because the options' exercise prices were greater than the average
market price of the common shares and, therefore, the effect would be
antidilutive.
Price Range Options
$3.38 - $4.57 1,271,000
$5.25 - $7.25 264,000
5. Non-operating Income (Expense)
Quarter Ended Six Months Ended
(In thousands) 01/31/98 01/25/97 01/31/98 01/25/97
Interest earned $ 124 $ 170 $ 242 $ 322
Foreign currency gains 1,966 2,172 793 3,464
Realized gain on sale of property -- -- 1,205 --
Other (27) (188) (149) (440)
------- ------- ------- -------
$ 2,063 $ 2,154 $ 2,091 $ 3,346
======= ======= ======= =======
<PAGE>
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. For purposes of
calculating net income applicable to common shareholders and related per share
amounts, 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 and $.25 for the three month and six
month periods, respectively, ending January 25, 1997.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Years Referred to are Fiscal Years)
Overview
For 1998, the Company's main objectives are as follows:
1. Product marketing to maintain stabilized revenue levels,
2. Continued review and reduction of operating costs; and
3. The vigorous pursuit of patent royalties due from the licensing and
enforcement of its video conferencing and multi- speed patents.
The Company had operating income of $2.0 million and net income $2.3 million for
the second quarter of 1998 and operating income of $2.6 million and net income
of $1.5 million for the first six months of 1998. This compares with an
operating loss of $292 thousand and net income of $295 thousand for the second
quarter of 1997 and an operating loss of $2.2 million and net loss of $1.3
million for the first six months of 1997.
Revenue during the second quarter of 1998 increased $6.2 million, or 18%,
compared with the same period of the prior year. The increase in revenue was
primarily the result of strong sales in one of the Company's Northern European
subsidiaries. For the first six months of 1998, total revenue increased $8.3
million or 12.3% when compared with the same period of the prior year. The
increase in revenue reflects the offset of approximately $4.4 million and $7.8
million, respectively, resulting from a stronger U.S. dollar, on average, during
the first quarter of 1998 and the first six months of fiscal 1998, respectively,
as compared to the same periods of 1997.
During the second quarter of 1998, the Company repurchased in the public market
approximately $1.8 million at face value of its 8 7/8% convertible subordinated
debentures. This brings the total of repurchased bonds to $2.7 million for the
first six months of 1998. These purchases resulted in an extraordinary gain of
$381 thousand for the second quarter and $555 thousand for the first six months
of fiscal 1998.
During the first quarter of 1998, the Company sold the three buildings it owns
in San Antonio, Texas to a private unaffiliated group for approximately $3.2
million (net of mortgage obligations and closing costs). The sales contract
provides for the leaseback by the Company of one of the buildings (approximately
40,000 square feet) for an initial lease term of five years. Of the total gain
of approximately $2.3 million related to the sale, the Company recorded in
non-operating income a gain of approximately $1.2 million during the first
quarter of 1998. The remainder of the gain ($1.1 million) was deferred and will
be amortized over the lease term.
Non-operating income of $588 thousand during the second quarter of 1998
consisted primarily of interest expense of $1.5 million and transaction gains,
resulting from the strengthening U.S. dollar against foreign currencies, of $2.0
million. Non-operating income and expenses for the first six months of 1998,
includes interest expense of $3.1 million offset by a recorded gain on the sale
of excess real estate of $1.2 million and foreign exchange gains of $793
thousand. These foreign exchange gains on short term intercompany notes and
international subsidiary U.S. dollar denominated cash are offset by translation
adjustment to Stockholders' Equity and therefore have no impact on the Company's
consolidated financial position. Non-operating income and expenses for the
quarter ended January 25, 1997, included interest expense of $1.7 million offset
by $2.2 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 six months of 1997, included interest expense of $3.3
million offset by $3.5 million of transaction gains.
<PAGE>
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. The tendered shares approximate 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, 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 and $.25 for the
three month and six month periods, respectively, ending January 25, 1997.
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, along with John Frassanito and David A. Monroe, 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 October 1998;
(2) Datapoint Corporation v. PictureTel Corporation, No. 3:93-CV-2381-D
(N.D. Texas); trial is scheduled to begin March 16, 1998.
(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;
On November 25, 1997, Datapoint filed a brief in U.S. District Court requesting
that the court in Datapoint Corporation v. Intel Corp. No. 97-CV-2581 (N.D.
Texas), which was originally filed on October 21, 1997, to amend and certify the
Company's video conferencing patent infringement suit against Intel Corporation
as a class action suit. Datapoint has identified more than 500 infringers of its
two video conferencing patents in three distinct classes, including
manufacturers, communication providers and resellers. The Company has proposed
that defendant class representatives include Intel Corporation, Teleos
Communications, Pacific Bell, Hayes Microcomputer and Dell Computer Corporation.
Through the class action, Datapoint is seeking royalty payments from the
defendants.
<PAGE>
Multi-speed Networking Patents
Datapoint is also the owner of United States Patent Nos. 5,008,879 and 5,077,732
related to network technology. The Company believes these patents cover most
products introduced by various suppliers to the networking industry and
dominates certain types of dual-speed technology on networking 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
(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, and for purposes of claim
construction. 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.
On January 20, 1998, a hearing commenced in the United States District Court
that concluded on January 23, 1998 during which claim construction was submitted
to a Special Master. His decision has yet been rendered.
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 provide
broad coverage in video conferencing and multi-speed networking technology and
present the opportunity for further royalty bearing licenses. While such royalty
bearing licenses and enforcement of its patents are a primary strategy of the
Company's business to create long-term value for its stockholders, the ultimate
outcome of the above litigation and /or negotiations cannot be determined at
this time.
Results of Operations
The Company had operating income of $2.0 million and net income $2.3 million for
the second quarter of 1998 and operating income of $2.6 million and net income
of $1.5 million for the first six months of 1998. This compares with an
operating loss of $292 thousand and net income of $295 thousand for the second
quarter of 1997 and an operating loss of $2.2 million and net loss of $1.3
million for the first six months of 1997. The following is a summary of the
Company's sources of revenue:
Quarter Ended Six Months Ended
(In thousands) 01/31/98 01/25/97 01/31/98 01/25/97
Sales:
U.S $ 757 $ 963 $ 1,873 $ 2,097
Foreign 24,109 17,561 42,496 33,453
------- ------- ------- -------
24,866 18,524 44,369 35,550
Service and other:
U.S 304 341 564 632
Foreign 15,274 15,416 30,584 31,079
------- ------- ------- -------
15,578 15,757 31,148 31,711
------- ------- ------- -------
Total revenue $40,444 $34,281 $75,517 $67,261
======= ======= ======= =======
<PAGE>
Revenue during the second quarter of 1998 increased $6.2 million, or 18%,
compared with the same period of the prior year. The increase in revenue was
primarily the result of strong sales in one of the Company's Northern European
subsidiaries. For the first six months of 1998, total revenue increased $8.3
million or 12.3% when compared with the same period of the prior year. The
increase in revenue reflects the offset of approximately $4.4 million and $7.8
million, respectively, resulting from a stronger U.S. dollar, on average, during
the first quarter of 1998 and the first six months of fiscal 1998, respectively,
as compared to the same periods of 1997.
The gross profit margin for the second quarter of 1998 and the first six months
of 1998 was 26.5% and 27.1%, respectively, compared with 29.4% and 28.9%,
respectively, for the same periods of the prior year. The decrease was primarily
the result of a large volume of sales by a Northern European subsidiary of lower
margin product and competitive pricing pressures worldwide offset by higher
service margins due to continued cost cutting actions and higher revenue levels
during fiscal 1998.
Operating expenses during the second quarter of 1998 declined $120 thousand from
the same period a year ago and for the first six months of 1998 decreased $1.5
million when compared with the same period of the prior year. The decrease was
the result of continued cost cutting actions undertaken by the Company.
Non-operating income of $588 thousand during the second quarter of 1998
consisted primarily of interest expense of $1.5 million and transaction gains,
resulting from the strengthening U.S. dollar against foreign currencies, of $2.0
million. Non-operating income and expenses for the first six months of 1998,
includes interest expense of $3.1 million offset by a recorded gain on the sale
of excess real estate of $1.2 million and foreign exchange gains of $793
thousand. These foreign exchange gains on short term intercompany notes and
international subsidiary U.S. dollar denominated cash are offset by translation
adjustment to Stockholders' Equity and therefore have no impact on the Company's
consolidated financial position. Non-operating income and expenses for the
quarter ended January 25, 1997, included interest expense of $1.7 million offset
by $2.2 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 six months of 1997, included interest expense of $3.3
million offset by $3.5 million of transaction gains.
In addition, during the second quarter of 1998, the Company repurchased in the
public market approximately $1.8 million at face value of its 8-7/8% convertible
subordinated debentures. This brings the total of repurchased bonds to $2.7
million for the first six months of 1998. These purchases resulted in an
extraordinary gain of $381 thousand for the second quarter and $555 thousand for
the first six months of fiscal 1998.
Financial Condition
During the first six months of 1998, the Company's cash and cash equivalents
decreased $4.9 million due primarily to the usage of cash in operations. The
decrease in cash was chiefly a result of payment of the semi-annual bond
interest payment and the repurchase of $2.7 million face value of the 8 7/8%
subordinated debentures for $2.2 million.
During the first six months of 1998, the Company's net cash provided from
investing activities was approximately $1.6 million. Approximately $3.2 million
was related to the proceeds received from the sale of the buildings, offset by
approximately $1.0 million which was used for the purchase of fixed assets
(primarily test equipment, spares and internally used equipment).
During the first six months of 1998, the Company used $1.0 million in financing
activities, primarily consisting of paydowns of Company debt.
As of January 31, 1998, the Company had cash and cash equivalents of $10.6
million and restricted cash and cash equivalents of $148 thousand (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 1998.
<PAGE>
Reorganization/Restructuring Costs
(In thousands)
A rollforward of the restructuring accrual from July 29, 1995, through January
31, 1998, is as follows:
TOTAL
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 2,425
Fiscal 1997 payments (2,572)
- -------------------------------------------------------------------
Restructuring accrual as of August 2, 1997 $508
Fiscal 1998 additions 52
Fiscal 1998 payments (305)
- -------------------------------------------------------------------
Restructuring accrual as of January 31, 1998 $255
====
The projected payout of the restructuring accrual balance as of January 31,
1998, which related almost entirely to unpaid employee termination costs, is as
follows:
Third quarter 1998 $58
Fourth quarter 1998 114
First quarter 1999 34
Second quarter 1999 33
Beyond 16
- ----------------------------------------------------------------------
Restructuring accrual as of January 31, 1998 $255
====
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.
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 August
2, 1997, for a description of certain legal proceedings heretofore reported.
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.
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders held on January 28, 1998, the holders of
the Company's Common Stock elected seven directors, ratified the appointment of
Ernst & Young LLP, certified public accountants, as the Company's independent
auditors for fiscal year 1998, and approved the Company's 1997 Employee Stock
Option Plan, and the holders of the Company's $1.00 Preferred Stock elected two
directors. The votes on the above proposals were cast as follows:
1. Election of Directors by holders of Common Stock:
FOR WITHHELD
Gerald N. Agranoff 13,062,792 218,241
Asher B. Edelman 13,054,507 226,506
Irving J. Garfinkel 13,060,642 220,391
Daniel R. Kail 13,060,924 220,109
Phillip P. Krumb 13,069,417 211,016
Didier M. M. Ruffat 13,121,613 159,420
Blake D. Thomas 13,119,606 161,427
2. Election of Directors by holders of Preferred Stock:
FOR WITHHELD
Charles F. Robinson 590,020 36,657
Robert D. Summer 590,020 36,657
3. Ratification of Ernst & Young, LLP as independent auditors:
FOR AGAINST ABSTAIN
13,149,670 53,916 77,447
4. Adoption of the 1997 Employee Stock Option Plan:
FOR AGAINST ABSTAIN NOT VOTED
6,186,033 532,006 135,138 6,427,856
<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 12, 1998 /s/ Ronald G. Conn
Ronald G. Conn
Chief Financial Officer
(Chief Accounting Officer)
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