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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act
Of 1934 [FEE REQUIRED] For the fiscal year ended July 29, 1995
OR
[ ] Transition Report Pursuant To Section 13 or 15(d) Of The Securities Exchange
Act Of 1934 [NO FEE REQUIRED]
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)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of each exchange on which registered
Common Stock, $.25 par value New York Stock Exchange
$1.00 Exchangeable Preferred Stock,
$1.00 par value New York Stock Exchange
8-7/8% Convertible Subordinated
Debentures Due 2006 New York Stock Exchange
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 September 29, 1995, 13,127,329 shares of Datapoint Corporation Common
Stock were outstanding (excluding 7,864,085 shares held in Treasury), and the
aggregate market value (based upon the last reported sale price of the Common
Stock on the New York Stock Exchange -- Composite Tape on September 29, 1995) of
the shares of Common Stock held by non-affiliates was approximately $19.3
million. (For purposes of calculating the preceding amount only, all directors
and executive officers of the registrant are assumed to be affiliates.)
PART I
ITEM 1. Business.
General
Datapoint Corporation, including its subsidiaries (hereinafter "Datapoint" or
"the Company"), is principally engaged in the development, manufacture,
acquisition, marketing and servicing of computer and communication products --
both hardware and software -- for integrated computer, telecommunication and
video conferencing network systems.
Datapoint was reincorporated in Delaware in 1976 as the successor corporation to
a Texas corporation originally incorporated in 1968 as Computer Terminal
Corporation and which changed its name to Datapoint Corporation in 1972. Its
principal executive offices are located at 5-7 rue Montalivet 75008, Paris,
France (telephone number - (33-1) 40 07 37 37) and at 8400 Datapoint Drive, San
Antonio, Texas 78229-8500 (telephone number - (210)-593-7000).
Throughout the 1970's, the Company developed, distributed and serviced
minicomputers, and later computer networks and telecommunications products.
During that period sales and service revenue was predominately derived from the
U.S. market, supplemented by international sales through a network of
independent distributors.
In 1981, the Company purchased most of its major international distributors,
which have been subsequently operated as subsidiaries. In 1985, the Company
separately incorporated its U.S. hardware service business as an independent
company and distributed its shares to shareholders.
Throughout the 1980's, the Company's business was characterized by a significant
decline in total revenue, recurring significant losses, and a reduction of the
domestic workforce. During the 1990's this trend has continued as the Company
has experienced a decline in both foreign and domestic total revenue, and has
experienced significant losses and a substantial reduction in the workforce.
The continuation of this trend was primarily due to (1) a mass entry of
competitors in the networking marketplace compounded by (2) a marketplace demand
for "Open Systems" products and standard interfaces, both of which had a
negative impact on the traditional networking and data processing components of
the Datapoint business. The marketplace was forced into a sameness of design
that lead to highly competitive pricing being the only significant product
differentiator. These adverse effects were, in turn, worsened by the increasing
availability of low-cost, off-the-shelf software applications packages written
in a number of industry-standard programming languages. This resulted in a
substantial decline in both foreign and domestic revenues (see note 1 to
Consolidated Financial Statements).
Subsequent to year-end, the Company signed a letter of intent with Automatic
Data Processing (ADP) to sell to ADP the Company's European based Auto Dealer
Systems business for $32 million. While the specific terms of the agreement
will not be known until an agreement, if any, is completed, an important aspect
of the agreement is that ADP will subcontract Field Engineering support from the
Company. In addition, ADP will arrange to acquire certain hardware through
Datapoint's current channels, including the Company's manufactured hardware.
The Company expects to benefit from continued revenue from its Field Engineering
channel and from a substantial reduction in the operating costs of its European
subsidiaries. The sale, if completed, is expected to close in the Company's
second quarter of 1996. Also subsequent to year-end, the Company signed
a letter of intent for Vertical Financial Holdings, to become a joint venture
partner with the Company in spinning off the Company's MINX video conferencing
patents and operations into separate entities. The Company has informed
Vertical Financial Holdings that its exploration of joint venture possibilities
is no longer exclusive and is exploring joint venture opportunities with other
potential partners. While the specific terms of any joint venture will not be
known until an agreement, if any, is completed, the Company expects to retain a
significant, but minority interest in the operations, and a majority interest
in the patents. While it is not expected that there will be a significant cash
infusion at the time of any closing, if consummated, the Company expects to
benefit from reduction of operating costs related to the MINX operations and
from participation in a future royalty stream derived from the licensing of the
MINX patents.
Products
The Company provides a complete line of products that meet data processing,
video communications, and telecommunications requirements. The network-based
products include video communications, data sharing applications,
platform-independent local area networking, wide area networking, relational
database systems, and telecommunications integration.
In 1994, the Company announced its third generation of Multimedia Information
Network Exchange (MINX) video communications products which provide the capacity
for large video networks, data conferencing features, and aggressive pricing. A
complete range of products is available from a fully interactive, broadcast-
quality, full-motion video network which can accommodate over 700 local
workstations to a single video station for a remote office. All of the video
products are interoperable and provide functionality and picture quality that is
unparalleled in the industry. Concurrently, the Company strengthened its direct
Sales, Support, and Engineering efforts to respond to the growing desktop video
communications market.
The Company was successful in asserting its United States video conferencing
patents resulting in payments for a license. The Company believes that these
patents provide broad coverage in switched video conferencing technology and
present the opportunity for further royalty bearing licenses.
Open Systems Networking products are industry-standard. The file servers are
based upon a scaleable architecture using the Intel microprocessor because of
its cost and performance. The multi-processor functionality is provided for
both the Company's highly sophisticated RMS network operating system and the
industry-standard UNIX operating system. The Company offers high-performance,
Pentium-based file servers for less demanding configurations in both the RMS
and UNIX environments. Redundant disk systems are also available for customers
who require uninterruptable services from their computer systems.
The Company's networking products focus on linking file servers, workstations,
terminals, printers, and other peripherals (such as modems) to the network.
High performance networking software and hardware components comprise the
product offering and provide the ability to implement high-capacity, highly
efficient networks composed of client/server and data communications devices.
The networking solutions provide the capability of running MS-DOS, UNIX, and
RMS simultaneously along with both ARCNET, ARCNETPLUS, and Ethernet adapters.
These capabilities provide customers the flexibility to design network
architecture to meet their specific requirements.
Realizing that personal computers are the desktop workstation of choice, the
Company offers PC-based hardware and software. The software component is a full
featured, Microsoft Windows compliant terminal emulation package for the RMS
environment which can be run on existing PCs. An industry-standard UNIX
terminal is offered for customers who desire a low-cost data station rather than
a networked PC.
The Company offers a complete set of telecommunications products and services to
meet the requirements of large call centers, customer service organizations, and
telemarketing firms. Power dialers to increase call efficiency for outbound
communications applications, interactive voice response systems which allow
customers to interrogate an organization's database with a simple telephone, and
automatic call distribution systems that manage large volumes of incoming calls
comprise the portfolio of telecommunications products. The Company has an
agreement with AT&T to market their Definity line of automatic call distributors
through several of the Company's European subsidiaries. Telecommunications
solutions are provided with the combined expertise in networking, data
processing, and telecommunications products.
The supplier and value-added reseller relationships that the Company continues
to develop, allow its customers worldwide to enhance their productivity with
sensible, cost-effective computer-based networking, telephony and video
communication solutions.
Markets
Customers
Datapoint sells generally to business and government customers, including the
U.S. government, financial institutions, insurance companies, educational
institutions, and manufacturers. During fiscal 1995, no one customer accounted
for 10 percent or more of consolidated revenues.
Domestic
Datapoint markets its products in the United States through independent sales
representatives who, on a commission basis, solicit orders for Datapoint's
products; through value-added resellers, who purchase Datapoint's products for
resale; original equipment manufacturers, who integrate Datapoint's products
into their overall offerings; and through Datapoint's own end user sales force.
Independent sales representatives, value-added resellers, and original equipment
manufacturers generally market Datapoint's products in conjunction with
application software and other products developed and marketed by such firms.
International
Datapoint's products are marketed to end users in over forty countries through a
network of wholly-owned subsidiaries and independent distributors. Datapoint
distributes its products internationally through wholly-owned sales and service
operations in Belgium, France, Germany, Holland, Hong Kong, Italy, New Zealand,
Spain, Sweden, Switzerland and the United Kingdom and through authorized
distributors worldwide. During fiscal year 1995, 98 percent of Datapoint's
international revenue was derived from customers in Western Europe.
Customer Service
During 1995, Datapoint entered into an agreement with Decision Servcom, Inc.
(DSI), whereby DSI would serve as the non-exclusive authorized service agent for
Datapoint's proprietary data processing products in the United States.
Maintenance of equipment outside the United States is provided by Datapoint's
international subsidiaries and distributors. The maintenance operations of the
Company's international subsidiaries produced 51 percent of total company
revenues and 60 percent of total company gross profit for the fiscal year ended
July 29, 1995.
Manufacturing, Raw Materials, and Supplies
A significant portion of Datapoint's products are purchased from third parties,
who manufacture products meeting Datapoint's specifications. The products are
then resold badged/unbadged within Datapoint configurations. Datapoint
manufactures the remainder of its products, primarily by assembling various
purchased components into subassemblies which are then assembled into finished
products, primarily performed at Datapoint's facilities in San Antonio, Texas.
Datapoint seeks, and maintains where practical, multiple sources of supply for
the products, components, and raw materials which it uses. However, certain
products and components are purchased only from single sources, and Datapoint
could experience manufacturing delays if such suppliers should fail to meet
Datapoint's requirements. The interruption of any components, whether for
supply or quality reasons, can become critical to production flows. The
Company's general experience has been good in terms of minimizing exposure;
however, guarantees regarding possible future situations and rectifying actions
that could arise cannot be made.
Research and Product Development
The technology involved in the design and operation of Datapoint's products is
complex and subject to constant change. Accordingly, Datapoint is committed to
a program of research and development which is oriented toward the development
of new hardware and software products and the improvement and expansion of its
existing products and services.
Datapoint incurred expense of $4.3 million, $5.3 million, and $7.8 million in
the fiscal years ended July 29, 1995, July 30, 1994, and July 31, 1993,
respectively, on research and development activity. Datapoint maintains its
principal research and development facility in San Antonio, Texas.
Competition
Datapoint operates in the intensely competitive computer data processing, video
conferencing and telephony industries that are characterized by the frequent
introduction of new products based upon technological advances. Datapoint
competes, domestically and abroad, with a substantial number of companies, many
of which are larger and have greater resources than Datapoint. Such companies,
considered in the aggregate, compete in the entire line of products manufactured
and marketed by Datapoint. These competitors differ somewhat depending on the
market segment, customer and geographic area involved.
Competition in this market is based primarily on the relationship between price
and performance; the ability to offer a variety of products and unique
functional capabilities; the strength of sales, service and support
organizations; and upgradability, flexibility, and ease of use of products. The
Company could be adversely affected if its competitors introduced
technologically superior products or substantial price reductions.
Backlog
The backlog of firm orders for the sale or lease of the Company's products
(using then existing end-user purchase prices for products to be leased and
giving effect to appropriate discounts for products to be sold) as of July 29,
1995 and July 30, 1994 was $14.2 million and $5.9 million, respectively. The
backlog amounts are not necessarily indicative of the Company's future results,
since an increasing amount of the Company's revenues are derived from orders
obtained in the period of shipment. Furthermore, a portion of the Company's
backlog may be cancelable at the customer's option, under certain conditions,
without financial penalty. All orders included in the backlog at July 29, 1995
are currently scheduled for delivery during the subsequent 12 months. All
orders are subject to the Company's ability to meet delivery commitments. The
Company records only firm orders as backlog, and generally such orders are
cancelable only by the Company. In the event that a new product is released, a
customer is allowed to upgrade (i.e., cancel) an existing order and place a new
order for the new product. This is done at the Company's discretion with no
financial penalty to the customer.
Backlog is also not a reliable indicator of future results, as changes in
product mix (depending on whether the product content contained in backlog has a
low or high sales margin) and costs may significantly impact reported results.
Therefore, the Company believes that the backlog data is not meaningful to an
understanding of the Company's business or future reported results.
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 does not primarily rely on these rights to
establish or protect its market position, but does view them as providing the
Company a technological advantage in certain cases and does intend to fully
exploit their value, particularly with regard to the licensing of video
conferencing technology. While in the aggregate its patents are of material
importance to its business, the Company believes that no one single patent or
group of patents are of material importance to its business as a whole, with the
possible future exception of its video conferencing patents. In 1994, the
Company began patent infringement suits against several defendants related to
the Company's video conferencing patents. In 1995, the Company received $1.0
million from two such defendants and patent infringement suits against other
defendants are pending. Because of the many patents issued in the electronics
industry, the Company's operations may involve claims of infringement of
existing patents.
The Company utilizes a number of trademarks, most importantly "DATAPOINT",
"ARCNET" and "MINX". The Company registers or otherwise protects those
trademarks it deems valuable to its business and anticipates no significant
impairment of its ability to continue to use and protect its important
trademarks. Datapoint, the "D" logo, ARC, ARCNET, RMS, MINX, and Resource
Management System are trademarks of Datapoint Corporation registered in the U.S.
Patent and Trademark office. Attached Resource Computer, ARCNETPLUS, and
DATALAN are trademarks of the Company. (AT&T is a registered trademark of
American Telephone and Telegraph. Ethernet is a registered trademark of Xerox
Corporation. Intel is a registered trademark of Intel Corporation. Microsoft
and MS-DOS are registered trademarks of Microsoft Corporation. UNIX is a
registered trademark of UNIX System Laboratories, Inc.)
Employees
At July 29, 1995, the Company had 991 employees. The Company considers its
relations with employees to be satisfactory.
Environmental Matters
Compliance with current federal, state, and local regulations relating to the
protection of the environment has not had, and is not expected to have, a
material effect upon the capital expenditures, earnings, or competitive position
of Datapoint.
ITEM 2. Properties.
Datapoint's principal executive offices are located in Paris, France and the
Company maintains executive offices in San Antonio, Texas. Datapoint believes
that its plants and offices are generally well maintained, in good operating
condition and are adequately equipped for their present use. Information
regarding the principal plants and properties, excluding leases assigned or
subleased, as of July 29, 1995 is as follows:
Approximate
Facility
Location Use Sq. Footage Owned or Leased Land Area
San Antonio, Texas Office 144,000 Owned; 12 acres (Subject
to mortgage)
San Antonio, Texas Manufacturing,
warehouse and office 110,000 Leased (a)
Gouda, Netherlands Office 52,000 Owned; 1 acre
(Subject to mortgage)
Paris, France Office 8,000 Leased (a)
(a) Leases on facilities expire on various dates extending through August, 2002.
Additionally, at July 29, 1995, excluding leases assigned or subleased, the
Company leased sales and service offices having an aggregate of 350,000 square
feet in metropolitan areas throughout the world, pursuant to lease agreements
which expire between 1995 and 2009. The aggregate annual rental of all of these
sales and service offices is approximately $5.3 million and most of these leases
are subject to rental increases under certain escalation provisions and renewals
on similar terms.
ITEM 3. Legal Proceedings .
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.
ITEM 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Executive Officers of the Registrant
The following information is submitted with respect to the executive officers of
the Company as of July 29, 1995:
Officer
Name Age Position Since
A. B. Edelman 55 Chairman of the Board and Chief Executive Officer 1985
D. D. Bencsik 64 President and Chief Operating Officer 1993
D. Berger 46 Vice President, Sales and Distribution 1993
J. Berger 52 Vice President, Sales and Marketing 1991
P. P. Krumb 53 Vice President and Chief Financial Officer 1994
G. N. Agranoff 48 Vice President, General Counsel and Corporate
Secretary 1994
J. L. Richey, Jr. 47 Vice President, Technical Operations 1994
K. L. Thrower 51 Vice President, Services 1991
The officers named above serve at least until the next Board of Directors
meeting immediately following the Annual Meeting of Stockholders.
Mr. Edelman joined the Company's Board of Directors as its Chairman in March
1985. For more than the past five years, Mr. Edelman has served as General
Partner of Plaza Securities Company. From January 1977 through June 1984 he
served as the General Partner of Arbitrage Securities Company, a broker-dealer;
from June 1984 he has served as General Partner of Asco Partners, the sole
general partner of Arbitrage thereafter. Mr. Edelman was a director, Chairman
of the Board and Chairman of the Executive Committee of Intelogic Trace, Inc.;
and a director, Chairman of the Board and Chairman of the Executive Committee of
Canal Capital Corporation (formerly United Stockyards Corporation). The
principal business address of Mr. Edelman is 85 Av. General Guisan, CH-1009
Pully, Switzerland.
Ms. Bencsik joined the Company as Executive Vice President and Chief Operating
Officer in February 1993. In November 1993, she was promoted to President and
Chief Operating Officer. Ms. Bencsik has been a member of the Company's Board
of Directors since 1985. From 1991 to 1993 Ms. Bencsik had been employed by
Modular Computer Systems Inc., as President and Chief Executive Officer. In
addition, Ms. Bencsik has maintained a business consulting practice for more
than the past five years. Ms. Bencsik also worked at the Company from 1982 to
1987. Ms. Bencsik joined the Company in November 1982 as Vice President,
Engineering. In May 1984, she was promoted to Vice President, Operations, and
was promoted to Senior Vice President, Operations in January 1985. In November
1985, she was promoted to Executive Vice President, Chief Operating Officer and
elected as a member of the Board of Directors. In January 1987, Ms. Bencsik was
named acting Chief Executive Officer and in June 1987 was named to the Office of
the President. The principal business address of Ms. Bencsik is 8400 Datapoint
Drive, San Antonio, Texas 78229-8500.
Mr. D. Berger was promoted to Vice President, Sales and Distribution in July
1993. Mr. Berger joined the Company in 1991 as Managing Director of the
Company's United Kingdom subsidiary. Prior to joining the Company, Mr. Berger
was employed from 1988 to 1991 by RS2, a U.K. marketing communications company,
as Group Managing Director. The principal business address of Mr. Berger is 5-7
rue Montalivet 75008, Paris, France.
Mr. J. Berger joined the Company as Vice President, Sales and Marketing in June
1991. Prior to joining the Company, Mr. Berger was employed by SCANVEST of
Norway, Datapoint's largest independent foreign distributor, for 21 years, most
recently as Managing Director, and previously as Director of Marketing. The
principal business address of Mr. Berger is 5-7 rue Montalivet 75008, Paris,
France.
Mr. Krumb joined the Company as Vice President and Chief Financial Officer in
October 1994. Prior to joining the Company he was employed by IOMEGA
Corporation for the 7 years as Senior Vice President Finance and Chief
Financial Officer. The principal business address of Mr. Krumb is 8400
Datapoint Drive, San Antonio, Texas 78229-8500.
Mr. Agranoff joined the Company as Vice President, General Counsel and Corporate
Secretary in September 1994. Mr. Agranoff has been a member of the Company's
Board of Directors since March 1991. He has been the General Partner of Asco
Partners, the sole general partner of Arbitrage securities Company for more than
five years. He has also been the general counsel to Arbitrage Securities
Company and Plaza Securities Company for more than the past five years. He was
also a member of the Board of Directors for Intelogic Trace, Inc. The principal
business address of Mr. Agranoff is 8400 Datapoint Drive, San Antonio,
Texas 78229-8500.
Mr. Richey joined the Company as Vice President, Technical Operations in March
1994. He was previously employed by Data General and Honeywell. During the
last five years Mr. Richey was Director of Operations and most recently Vice
President, Engineering with Idea Associates and Modular Computer Systems Inc.,
respectively. The principal business address of Mr. Richey is 8400 Datapoint
Drive, San Antonio, Texas 78229-8500.
Mr. Thrower joined the Company as Vice President, Technical Services in April
1991. He was previously employed by Memorex Telex for 12 years. He held
numerous positions with Memorex Telex, the most recent being Vice President,
Worldwide Customer Engineering. The principal business address of Mr. Thrower
is 5-7 rue Montalivet 75008, Paris, France.
There are no family relationships between any of the executive officers of the
Company.
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters
Datapoint Corporation common stock is traded on the New York Stock Exchange
under the symbol "DPT". The prices below represent the high and low prices for
composite transactions for stock traded during the applicable period. The
Company has not paid cash dividends to date on its common stock and has no
present intention to pay cash dividends on its common stock in the near future.
Fiscal
year High Low
1995 Q4 1.88 1.00
Q3 2.00 1.25
Q2 2.34 1.50
Q1 3.88 1.25
High Low
1994 Q4 6.13 3.38
Q3 7.38 4.50
Q2 8.25 5.88
Q1 7.63 5.50
ITEM 6. Selected Financial Data.
Selected Financial Data
Five-Year Comparison
(Dollars in thousands, except per share data)
1995 1994 1993 1992 1991
Operating Results for the Fiscal Year
Total revenue $174,901 $172,936 $208,344 $255,243 $265,479
Operating income (loss) (18,232) (81,021) (1,258) 6,655 13,934
Income (loss) before extraordinary credit,
(utilization of tax loss carryforward) and
effect of change in accounting principle (28,343) (94,765) (11,859) (10,409) 5,335
Net income (loss) (28,343) (93,425) (11,260) (8,756) 12,531
Loss per common share before extraordinary
credit and effect of change in accounting
principle (2.29) (6.69) (.97) (1.62) (.42)
Net income (loss) per common share (2.29) (6.60) (.93) (1.47) .29
Financial Position at End of Fiscal Year
Current assets $67,506 $79,915 $94,169 $121,991 $122,025
Fixed assets, net 18,877 29,088 27,950 34,533 29,572
Total assets 101,751 127,434 202,275 248,813 235,490
Current liabilities 100,256 98,202 74,759 90,581 87,591
Long-term debt 64,923 70,561 71,551 66,101 66,327
Stockholders' equity (deficit) (74,116) (50,761) 47,021 74,835 71,426
Other Information
Average common shares outstanding 13,194,667 14,430,574 14,081,964 11,093,431 10,119,491
Number of common stockholders of record 3,274 3,378 3,710 3,877 3,503
Preferred shares outstanding 1,846,456 1,784,456 1,784,456 1,784,456 1,931,218
Dividends paid or accumulated on
preferred stock $1,815 $1,784 $1,784 $7,601 $9,540
Number of employees 991 1,444 1,528 1,777 1,741
No cash dividends on common stock have been declared during the five-year
period. See notes to Consolidated Financial Statements and Management Discussion
and Analysis of Financial Condition and Results of Operations.
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Overview
During 1995, while the Company was able to maintain the revenue level from the
prior year, it continued to experience significant operating losses due to
competitive pressures which resulted in a revenue and gross profit level which
was insufficient to cover the Company's costs. Realizing that the Company's cost
structure would not support a "flat" revenue level (1995 compared with 1994),
the Company implemented several actions in 1995 to reduce its costs. As these
actions were undertaken throughout the year, the full annual benefit of these
actions will not be realized until 1996. The effect of these continuing
competitive pressures resulted in an operating loss of $18.2 million, a working
capital deficiency of $32.8 million and cash used in operations of $5.6
million.
For fiscal year 1995, the Company adopted three main objectives to preserve and
improve the Company's cash liquidity position and allow the Company to meet its
future operating cash flow requirements. These objectives were 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.
The Company's revenue level for 1995 improved slightly when compared to 1994.
This slight increase was primarily due to improved sales from the new MINX line
of video communications technology, improved sales from the Company's telephony
solutions in the international markets, and improved service revenue
contribution, coupled with maintaining a consistent revenue stream in the
Company's other products.
During 1995, the Company had as one of its major objectives to continue to
review and reduce operating costs. In this regard, throughout 1995, the Company
recorded $9.2 million of restructuring charges (mostly related to severance
costs stemming from reduction of personnel) which was the result of an extensive
review of literally all of the Company's worldwide operations.
While the reorganizations and cost reduction program implemented in 1995 will
help to improve the Company's cash liquidity position, the Company is
simultaneously pursuing other actions to provide additional cash infusion(s)
and/or reduce the Company's cost base. In this regard, subsequent to year-end,
the Company signed a letter of intent with Automatic Data Processing (ADP)
to sell to ADP the Company's European based Auto Dealer Systems business for $32
million. While the specific terms of the agreement will not be known until an
agreement, if any, is completed, an important aspect of the agreement is that
ADP will subcontract Field Engineering support from the Company. In addition,
ADP will arrange to acquire certain hardware through Datapoint's current
channels, including the Company's manufactured hardware. The Company expects to
benefit from continued revenue from its Field Engineering channel and from a
substantial reduction in the operating costs of its European subsidiaries. The
sale, if completed, is expected to close in the Company's second quarter of
1996. Also subsequent to year-end, the Company signed a letter of intent
for Vertical Financial Holdings, to become a joint venture partner with the
Company in spinning off the Company's MINX video conferencing patents and
operations into separate entities. The Company has informed Vertical Financial
Holdings that its exploration of joint venture possibilities is no longer
exclusive and is exploring joint venture opportunities with other potential
partners. While the specific terms of any joint venture will not be known until
an agreement, if any, is completed, the Company expects to retain a significant,
but minority interest in the operations, and a majority interest in the patents.
While it is not expected that there will be a significant cash infusion at the
time of any closing, if consummated, the Company expects to benefit from
reduction of operating costs related to the MINX operations and from
participation in a future royalty stream derived from the licensing of the
MINX patents.
The Company will continue to proceed with the above actions and any other
actions which will result in additional cost reductions and cash infusions.
These additional cash infusions are necessary to meet certain of the Company's
obligations, including interest of $2.9 million on its 8-7/8% convertible
subordinated debentures payable on December 1, 1995. While management
anticipates meeting this obligation, no assurances can be given that sufficient
funds will be available. In the event the payment is not made within the 30-day
period following December 1, 1995, 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.
Financial Condition and Liquidity
During 1995, the Company used $5.6 million in cash related to operating
activities. Primarily, this was the result of the operating loss for the year,
$11.6 million in payments related to the Company's restructuring activities
partially offset by lower inventory purchases of $8.9 million, improved
receivable collections of $4.1 million, $1.7 million related to the gain on the
sale of vacant property and $5.5 million related to the settlement of two
shareholder derivative lawsuits.
During 1995, net cash from investing activities increased $4.0 million. This
increase was primarily due to $7.9 million of proceeds received related to the
sale of vacant property and fixed assets, releases of $1.0 million in payment
guarantees, offset by $4.7 million of fixed asset purchases.
Net cash from financing activities increased $3.0 million in 1995 primarily due
to $2.5 million being received from the sale of common stock, $1.8 million
representing releases of restricted cash related to various letters of credit
and credit lines, offset by a $1.0 million paydown of the Company's loan with
International Factors "De Factorij" B.V.
As of July 29, 1995, the Company had restricted cash of $2.5 million as compared
to $4.3 million the prior year. The 1995 and 1994 balances were restricted
primarily to cover various lines of credits, reflected as payables to banks.
Cash used for investment in fixed assets was $4.7 million in 1995, compared to
$10.8 million in 1994 and $10.9 million in 1993. There are no material
commitments for capital expenditures at the present time.
Accounts payable decreased to $23.3 million in 1995 from $25.6 million in 1994.
The Company continued to work with its accounts payable creditors to extend
additional credit and credit terms, thus maintaining functional relationships
with such creditors during 1995. The Company has no significant purchase
commitments outstanding as of July 29, 1995.
The Company had several one time cash infusions in 1995. Among these were the
sale of vacant land in San Antonio, Texas ($7.2 million), the sale of 700,000
shares of common stock ($1.7 million), settlement proceeds received from
defendants in patent infringement litigation ($1.0 million), the final insurance
payment related to the fire in the Belgian subsidiary ($1.5 million), and the
settlement of two stockholder derivative suits ($4.2 million, after legal
expenses).
As of July 29, 1995, the Company has included in payables to banks an amount of
$6.5 million payable to International Factors "De Factorij" B.V., a subsidiary
of ABN-AMRO Bank of the Netherlands. The loan is secured by the receivables of
the Company's U.K., Dutch and German subsidiaries.
The Company has a secured credit facility with The CIT Group/Credit Finance
("CIT"), which consists of a term loan and a revolving loan. As of July 29,
1995, the Company had borrowings against this facility of $1.3 million, the
maximum based on the available collateral as of that date and the credit
facility is callable at the option of the lender. The collateral for the
revolving credit facility consists of the Company's U.S. trade receivables,
certain trade receivables from independent foreign distributors, U.S.
inventories, real property, contract rights and general intangibles, equipment
and fixtures, and certain certificates of deposit issued to or for the account
of the Company. Available borrowings are calculated by multiplying various
percentages times the collateral, based upon type of inventory, type of account
receivable and value of such certificates of deposit issued to or for the
account of the Company. The credit facility also includes a restriction upon
the payment of dividends, allowing dividends to be paid on the Company's $1.00
preferred stock, but prohibiting dividend payments on the Company's common
stock.
The Company has available lines of credit from foreign banks to its foreign
subsidiaries. The unused lines of credit at July 29, 1995 totaled $1.1 million
after borrowings of $10.1 million.
During 1993, the Company settled a long standing patent-related legal action
brought against it by Northern Telecom Inc. ("NTI"). Pursuant to this
settlement, during 1994 and 1993, the Company paid NTI $1.0 million and $7.5
million. The Company also agreed to a ten-year note payable to NTI which
requires annual $1.0 million payments each December. The Company is presently
in arrears on the December 1994 payment. On September 13, 1995, NTI notified
the Company that it has declared the entire note immediately due and payable,
which as of July 29, 1995 was $6.6 million, and which was re-classified as a
current liability (Current maturities of long term debt and long term debt
subject to accelerated maturity). The Company is currently in discussions with
NTI to remedy this payment default. The Company is also contingently obligated
to make payments to NTI dependent upon the Company's future profitability. The
contingent payments, up to a cumulative maximum of $12.5 million, are to be paid
in annual installments calculated at 33-1/3% of the Company's pre-tax annual
profits, excluding extraordinary items, in excess of $10.0 million in each of
the 10 fiscal years beginning with fiscal 1993. During 1995, 1994 and 1993, the
Company incurred no liability to make such contingent payments as a result of
the net losses incurred.
As a result of the Company's capital deficiency which existed at the end of 1994
and throughout 1995, the Company is prohibited, under Delaware law, to pay the
October 15, 1994, January 15, 1995, April 15, 1995, July 15, 1995, and the
October 15, 1995 preferred dividend payments to shareholders. If dividends are
six quarters in arrears, the preferred shareholders have the right to vote as a
separate class and elect two board members at the next annual meeting of
shareholders and each preferred share is exchangeable into two shares of common
stock at the option of the holder.
The Company adopted, effective August 1, 1993, SFAS No. 109, "Accounting for
Income Taxes" ("FAS 109"), which superseded SFAS No. 96 and APB Opinion No. 11.
The Company recorded a favorable cumulative accounting change effect of
approximately $1.3 million in the first quarter of fiscal 1994 (see note 4 to
Consolidated Financial Statements).
At July 29, 1995, the Company had available federal tax net operating losses
aggregating approximately $157 million, expiring in various amounts beginning in
2001. In the event that the Company's ability to utilize its net operating
losses to reduce its federal tax liability with respect to current and future
income becomes subject to limitation, the Company may be required to pay, sooner
than it otherwise might have to, any amounts owing with respect to such federal
tax liability, which would reduce the amount of cash otherwise available to the
Company (see note 4 to Consolidated Financial Statements).
While the reorganizations and cost reduction program implemented in 1995 will
help to improve the Company's cash liquidity position, the Company is
simultaneously pursuing other actions to provide additional cash infusion(s)
and/or reduce the Company's cost base. In this regard, subsequent to year-end,
the Company signed a letter of intent with Automatic Data Processing (ADP)
to sell to ADP the Company's European based Auto Dealer Systems business for $32
million. While the specific terms of the agreement will not be known until an
agreement, if any, is completed, an important aspect of the agreement is that
ADP will subcontract Field Engineering support from the Company. In addition,
ADP will arrange to acquire certain hardware through Datapoint's current
channels, including the Company's manufactured hardware. The Company expects to
benefit from continued revenue from its Field Engineering channel and from a
substantial reduction in the operating costs of its European subsidiaries. The
sale, if completed, is expected to close in the Company's second quarter of
1996. Also subsequent to year-end, the company signed a letter of intent
for Vertical Financial Holdings, to become a joint venture partner with the
Company in spinning off the Company's MINX video conferencing patents and
operations into separate entities. The Company has informed Vertical Financial
Holdings that its exploration of joint venture possibilities is no longer
exclusive and is exploring joint venture opportunities with other potential
partners. While the specific terms of the joint venture will not be known until
an agreement, if any, is completed, the Company expects to retain a significant,
but minority interest in the operations, and a majority interest in the patents.
While it is not expected that there will be a significant cash infusion at the
time of any closing, if consummated, the Company expects to benefit from a
reduction of operating costs related to the MINX operations and from
participation in a future royalty stream derived from the licensing of the MINX
patents.
The Company will continue to proceed with the above actions and any other
actions which will result in additional cost reductions and cash infusions.
These additional cash infusions are necessary to meet certain of the Company's
obligations, including interest of $2.9 million on its 8-7/8% convertible
subordinated debentures payable on December 1, 1995. While management
anticipates meeting this obligation, no assurances can be given that sufficient
funds will be available. In the event the payment is not made within the
30-day period following December 1, 1995, 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.
Reorganization/Restructuring Costs
(In thousands)
A rollforward of the restructuring accrual from July 31, 1993 through July 29,
1995 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
First quarter 1995 payments (2,234)
Restructuring accrual as of October 29, 1994 11,754
Second quarter 1995 additions 5,695
Asset write-offs (1,895)
Second quarter 1995 payments (5,516)
Restructuring accrual as of January 28, 1995 10,038
Third quarter 1995 additions 1,810
Third quarter 1995 payments (4,585)
Restructuring accrual as of April 29, 1995 7,263
Fourth quarter 1995 additions 1,708
Fourth quarter 1995 payments (4,803)
Restructuring accrual as of July 29, 1995 $4,168
The projected payout of the restructuring accrual balance as of July 29, 1995,
which related almost entirely to unpaid employee terminations costs, is as
follows:
First quarter 1996 $1,982
Second quarter 1996 1,539
Third quarter 1996 358
Fourth quarter 1996 56
Beyond 233
Restructuring accrual as of July 29, 1995 $4,168
Included in the second, third and the fourth quarter 1995 payments is a total
of $5,570 which was paid by a foreign government and is repayable by the Company
over two years. The Company may incur additional indemnification costs in
certain countries associated with employee terminations.
Results of Operations
The following is a summary of the Company's sources of revenue for each of
fiscal 1995, 1994 and 1993:
(In thousands)
1995 1994 1993
Sales:
U.S. $5,728 $6,453 $5,757
Foreign 78,459 78,300 94,463
84,187 84,753 100,220
Service and other:
U.S. 1,393 1,164 1,529
Foreign 89,321 87,019 106,595
90,714 88,183 108,124
Total revenue $174,901 $172,936 $208,344
1995 Compared to 1994
Total revenue increased by 1% to $174.9 million in 1995 from $172.9 million in
1994. The increase was due to a weaker U.S. dollar, on average, in 1995 as
compared to the average U.S. dollar strength in 1994 as the Company incurred a
$14.6 million increase in total revenue attributable solely to currency changes
($6.4 million for sales and $8.1 million for service and other).
Included in the operating loss for 1995 of $18.2 million were additional
inventory provisions of $5.0 million and $1.0 million of additional receivable
provisions. Operating income during 1994 included a fire insurance settlement
gain of $0.9 million related to a fire in the second quarter in a leased
warehouse facility in the Company's Belgian subsidiary.
Gross profit margins during 1995 were 32.9% compared with 37.9% for 1994.
Excluding the additional inventory provisions recorded in 1995, the gross profit
margins were 35.7%. Gross profit margins during 1994 were 37.9% compared with
41.6% for 1993. Excluding the impact upon cost of sales of the fires noted
above, gross profit margins during 1994 were 37.4% compared with 39.0% for 1993.
Operating expenses (research and development plus selling, general &
administrative) during 1995 declined 10% or $7.6 million from 1994 to $66.5
million. The decline was a result of cost-cutting actions taken over 1995 which
reduced costs of internal operations. Excluding the impact of the weaker U.S.
dollar in 1995 as compared with 1994, operating expenses declined $10.3 million
year over year.
Interest expense decreased $.2 million in 1995 from 1994 as the Company
benefited from both lower rates on borrowings in Europe and decreased borrowing
amounts in the U.S.
Non-operating results for 1995 includes a gain of $1.7 million from the sale of
the vacant land in San Antonio, Texas, $1.0 million from the favorable
settlement of two patent infringement lawsuits, and $1.5 million in foreign
exchange rate losses on the Company's intercompany payables and receivables.
Non-operating results for 1994 includes the $3.2 million write-off of an
investment in a partially owned company, $0.7 million in foreign currency
exchange rate losses on certain of the Company's intercompany payables and
receivables and a $0.5 million fire settlement gain on fixed assets.
Prior to 1994, the Company's foreign subsidiaries reported their results to the
parent on a one-month lag which allowed more time to compile results but
produced comparability problems in management accounting. Due to improved
internal applications, the one-month lag became unnecessary and therefore was
eliminated subsequent to 1993 and prior to 1994. As a result, the July 1993
results of operations for the Company's foreign subsidiaries was recorded to
the retained deficit. This action resulted in a charge of $5.5 million being
recorded against the retained deficit. The loss incurred in July 1993 resulted
primarily from a low revenue level, which is usual for the first month following
the end of a fiscal year.
1994 Compared to 1993
Total revenue declined 17% to $172.9 million in 1994 from $208.3 million in
1993. The decline was due to a stronger U.S. dollar, on average, in 1994 as
compared to the average U.S. dollar strength in 1993 as the Company incurred a
$16.0 million decline in total revenue attributable solely to currency changes.
In addition the French subsidiary incurred a sharp loss of business due to the
loss of several significant accounts to competitors and accordingly suffered a
total revenue loss of $11.7 million. The decline was also due to the sale of
the Australian subsidiary in 1993 which accounted for total revenue of $4.2
million in 1993. The Company also incurred less significant declines in revenue
in the Company's subsidiaries in Germany, Sweden and Holland attributable to
performance declines resulting primarily from competitive pressures.
Operating income during 1994 included a fire insurance settlement gain of $0.9
million related to a fire in the second quarter in a leased warehouse facility
in the Company's Belgian subsidiary. Operating income during 1993 also included
$2.8 million in gains on a fire insurance settlement related to a fire in the
French subsidiary, and an additional $2.5 million for business interruption
coverage.
Gross profit margins during 1994 were 37.9% compared with 41.6% for 1993.
Excluding the impact upon cost of sales of the fires noted above, gross profit
margins during 1994 were 37.4% compared with 39.0% for 1993.
Operating expenses (research and development plus selling, general &
administrative) during 1994 declined 9% from 1993 to $74.1 million. The decline
was a result of cost-cutting actions taken over 1994 which significantly reduced
costs of internal operations. In addition, operating expenses were favorably
impacted by the stronger U.S. dollar.
Interest expense decreased slightly in 1994 from 1993 as the Company benefited
from lower rates on borrowings in Europe and late in 1994 the Company
renegotiated its loan with CIT and significantly lowered its borrowing rate in
the U.S. The effect of lower interest rates more than offset a higher borrowing
level.
Non-operating results for 1994 includes the $3.2 million write-off of an
investment in a partially owned company, $0.7 million in foreign currency
exchange rate losses on certain of the Company's intercompany payables and
receivables and a $0.5 million fire settlement gain on fixed assets.
Non-operating results for 1993 also included a fire settlement gain on fixed
assets of $1.2 million. Interest income in 1994 declined significantly from
1993 as the average investment balance in 1994 declined due to the usage of
cash in operations.
ITEM 8. Financial Statements and Supplementary Data.
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
Report of Ernst & Young LLP
Independent Auditors 17
Consolidated Financial Statements
Consolidated Statements of Operations for the fiscal years
1995, 1994 and 1993 18
Consolidated Balance Sheets as of July 29, 1995 and July 30, 1994 19
Consolidated Statements of Cash Flows for the fiscal years
1995, 1994 and 1993 20
Consolidated Statements of Stockholders' Deficit for the
fiscal years 1995, 1994 and 1993 21
Notes to Consolidated Financial Statements 22
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS
The Board of Directors
Datapoint Corporation
We have audited the accompanying consolidated balance sheets of Datapoint
Corporation and subsidiaries (the Company) as of July 29, 1995, and July 30,
1994 and the related consolidated statements of operations, stockholders'
deficit and cash flows for each of the three fiscal years in the period ended
July 29, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Company at
July 29, 1995 and July 30, 1994 and the consolidated results of its operations
and its cash flows for each of the three fiscal years in the period ended July
29, 1995 in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As more fully described in
Note 1 to the consolidated financial statements, the Company has incurred
recurring operating losses, and has a working capital deficiency and a net
capital deficiency at July 29, 1995. These conditions raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
in regard to these matters are also described in Note 1. The consolidated
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the
amounts and classification of liabilities that may result from the outcome of
this uncertainty.
As discussed in Note 4 to the consolidated financial statements, the Company
changed its method of accounting for income taxes in 1994.
Ernst & Young LLP
Dallas, Texas
November 2, 1995
CONSOLIDATED STATEMENTS OF OPERATIONS
Datapoint Corporation and Subsidiaries Fiscal Years 1995, 1994 and 1993
(In thousands, except share and per share data)
1995 1994 1993
Revenue:
Sales $84,187 $84,753 $100,220
Service and other 90,714 88,183 108,124
Total revenue 174,901 172,936 208,344
Operating costs and expenses:
Cost of sales 65,234 49,912 48,359
Cost of service and other 52,163 57,459 73,387
Research and development 4,303 5,268 7,754
Selling, general and administrative 62,220 68,808 73,859
Write-off of investment in foreign operations - 57,657 -
Reorganization/restructuring costs 9,213 14,853 6,243
Total operating costs and expenses 193,133 253,957 209,602
Operating loss (18,232) (81,021) (1,258)
Non-operating expense:
Interest expense (9,332) (9,097) (9,349)
Other, net (580) (4,293) (291)
Loss before income taxes, extraordinary credit
and effect of change in accounting principle (28,144) (94,411) (10,898)
Income taxes 199 354 961
Loss before extraordinary credit and effect
of change in accounting principle (28,343) (94,765) (11,859)
Extraordinary credit:
Utilization of tax loss carryforward - - 599
Loss before effect of change in
accounting principle (28,343) (94,765) (11,260)
Effect of change in accounting principle - 1,340 -
Net loss $(28,343) $(93,425) $(11,260)
Net loss, less preferred stock dividends
paid or accumulated $(30,158) $(95,209) $(13,044)
Net loss per common share:
Before extraordinary credit and effect of
change in accounting principle $(2.29) $(6.69) $(.97)
Utilization of tax loss carryforward - - .04
Effect of change in accounting principle - .09 -
Net loss $(2.29) $(6.60) $(.93)
Average common shares 13,194,667 14,430,574 14,081,964
See accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED BALANCE SHEETS
Datapoint Corporation and Subsidiaries July 29, 1995 and July 30, 1994
(In thousands, except share data)
1995 1994
Assets
Current assets:
Cash and cash equivalents $8,493 $6,241
Restricted cash and cash equivalents 2,549 4,312
Accounts receivable, net of allowance for doubtful
accounts of $3,012 and $2,568, respectively 43,072 44,379
Inventories 9,754 17,674
Prepaid expenses and other current assets 3,638 7,309
Total current assets 67,506 79,915
Fixed assets, net 18,877 29,088
Other assets, net 15,368 18,431
$101,751 $127,434
Liabilities and Stockholders' Deficit
Current liabilities:
Payables to banks $16,757 $17,963
Current maturities of long-term debt and
long-term debt subject to accelerated maturity 9,217 2,370
Accounts payable 23,286 25,649
Accrued expenses 34,857 37,732
Deferred revenue 15,291 13,728
Income taxes payable 848 760
Total current liabilities 100,256 98,202
Long-term debt, exclusive of current maturities 64,923 70,561
Other liabilities 10,688 9,432
Commitments and contingencies
Stockholders' deficit:
Preferred stock of $1.00 par value. Shares authorized
10,000,000; shares issued and outstanding 1,846,456
in 1995 and 1,784,456 in 1994 (aggregate liquidation
preference $36,929 in 1995 and $35,689 in 1994). 1,846 1,784
Common stock of $0.25 par value. Shares authorized
40,000,000; shares issued 20,991,217, including
treasury shares of 7,866,832 in 1995 and 6,546,825
in 1994. 5,248 5,248
Other capital 212,630 212,599
Foreign currency translation adjustment 13,004 10,552
Retained deficit (261,742) (226,977)
Treasury stock, at cost (45,102) (53,967)
Total stockholders' deficit (74,116) (50,761)
$101,751 $127,434
See accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Datapoint Corporation and Subsidiaries Fiscal Years 1995, 1994 and 1993
(In thousands)
1995 1994 1993
Cash flows from operating activities:
Net loss $(28,343) $(93,425) $(11,260)
Adjustments to reconcile net loss to net
cash used in operating activities:
Losses incurred in lag month eliminated - (5,470) -
Effect of change in accounting principle - (1,340) -
Depreciation and amortization 9,830 10,729 11,083
Write-off of investment in foreign operations - 57,657 -
Write-off of investment in partially-owned
company - 3,210 -
Proceeds from settlement of litigation 5,540 - -
Realized gain on fixed assets fire settlement - (534) (1,165)
Provision for losses (recoveries) on accounts
receivable 2,147 803 (405)
Provision for fixed asset write-off 1,895 - -
Realized gain on sale of property (1,709) - -
Changes in assets and liabilities:
Decrease in receivables 4,111 801 17,643
Decrease in inventory 8,885 1,007 2,124
Increase (decrease) in accounts payable and
accrued expenses (9,700) 19,747 (19,871)
Increase in other liabilities and deferred
credits 614 388 1,678
Other, net 1,138 139 (26)
Net cash used in operating activities (5,592) (6,288) (199)
Cash flows from investing activities:
Payments for fixed assets (4,660) (10,828) (10,874)
Proceeds from disposition of fixed assets 7,948 2,426 7,739
Other, net 699 (648) 598
Net cash from (used in) investing activities 3,987 (9,050) (2,537)
Cash flows from financing activities:
Payments on borrowings (33,149) (32,606) (51,746)
Proceeds from borrowings 31,840 33,126 59,235
Payments of dividends on preferred stock - (1,784) (1,784)
Disbursements related to Preferred Stock
Exchange - - (116)
Restricted cash for letters of credit 1,763 147 (240)
Proceeds on sale of common stock 2,536 52 763
Net cash provided from (used in) financing
activities 2,990 (1,065) 6,112
Effect of foreign currency translation on cash 867 192 (945)
Net increase (decrease) in cash and cash
equivalents 2,252 (16,211) 2,431
Cash and cash equivalents at beginning of year 6,241 22,452 20,021
Cash and cash equivalents at end of year $8,493 $6,241 $22,452
Cash payments for:
Interest $8,112 $8,781 $8,938
Income taxes (refunds), net (152) 362 1,156
See accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
Datapoint Corporation and Subsidiaries Fiscal Years 1995, 1994, and 1993
(In thousands)
Foreign
$1.00 Currency
Common Preferred Other Translation Retained Treasury
Stock Stock Capital Adjustment Deficit Stock
Balance at August 1, 1992 $5,246 $1,784 $212,589 $23,240 $(109,514) $(58,510)
Net loss - - - - (11,260) -
Common stock options exercised 2 - 10 - - -
Dividends paid on preferred stock - - - - (1,784) -
Foreign currency translation adjustment - - - (15,533) - -
Common issued to 401(k) Plan - - - - (6) 13
Common stock options exercised - - - - (3,017) 3,761
Balance at July 31, 1993 $5,248 $1,784 $212,599 $7,707 $(125,581) $(54,736)
Losses incurred in lag month
eliminated - - - - (5,470) -
Net loss - - - - (93,425) -
Common stock options exercised - - - - (717) 935
Dividends paid on preferred stock - - - - (1,784) -
Foreign currency translation adjustment - - - 2,845 - -
Common stock issued to 401(k) Plan - - - - - 6
Common stock purchased from 401(k) Plan - - - - - (172)
Balance at July 30, 1994 $5,248 $1,784 $212,599 $10,552 $(226,977) $(53,967)
Net loss - - - - (28,343) -
Common stock options exercised - - - - (1,036) 1,292
Foreign currency translation adjustment - - - 2,452 - -
Regulation S public filing - - - - (4,029) 5,776
Consulting Compensation - - - - (445) 594
Employment separation - - - - (814) 1,064
Executive Retirement Plan contribution - 62 31 - - -
Common stock issued to 401(k) Plan - - - - (98) 139
Balance at July 29, 1995 $5,248 $1,846 $212,630 $13,004 $(261,742) $(45,102)
See accompanying Notes to Consolidated Financial Statement
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Datapoint Corporation and Subsidiaries July 29, 1995, July 30, 1994 and
July 31, 1993
(Dollars in thousands, except share data)
1. Summary of Significant Accounting Policies
Liquidity
The Company's cash and cash equivalents increased $2,252 in 1995, compared with
a decrease of $16,211 in 1994 and an increase of $2,431 in 1993. The increase
in 1995 is primarily due to the one time cash infusions, partially offset by the
decline in gross profit and the decrease in 1994 was due to the decline in
revenue and gross profit margins partially offset by reduced operating costs and
expenses.
During 1995, while the Company was able to maintain the revenue level from the
prior year, it continued to experience significant operating losses due to
competitive pressures which resulted in a revenue and gross profit level which
was insufficient to cover the Company's costs. Realizing that the Company's cost
structure would not support a "flat" revenue level (1995 compared with 1994),
the Company implemented several actions in 1995 to reduce its costs. As these
actions were undertaken throughout the year, the full annual benefit of these
actions will not be realized until 1996. The effect of these continuing
competitive pressures resulted in an operating loss of $18,232, a working
capital deficiency of $32,750 and cash used in operations of $5,592.
For fiscal year 1995, the Company adopted three main objectives to preserve and
improve the Company's cash liquidity position and allow the Company to meet its
future operating cash flow requirements. These objectives were 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.
The Company's revenue level for 1995 improved slightly when compared to 1994.
This slight increase was primarily due to improved sales from the new MINX line
of video communications technology, improved sales from the Company's telephony
solutions in the International markets, and improved service revenue
contribution, coupled with maintaining a consistent revenue stream in the
Company's other products.
During 1995, the Company had as one of its major objectives to continue to
review and reduce operating costs. In this regard, throughout 1995, the Company
recorded $9,213 of restructuring charges (mostly related to severance costs
stemming from reduction of personnel) which was the result of an extensive
review of literally all of the Company's worldwide operations. During 1995, the
Company made $11,568 in restructuring payments, which negatively affected cash
flow from operations.
While the reorganizations and cost reduction program implemented in 1995 will
help to improve the Company's cash liquidity position, the Company is
simultaneously pursuing other actions to provide additional cash infusion(s)
and/or reduce the Company's cost base. In this regard, subsequent to year-end,
the Company signed a letter of intent with Automatic Data Processing (ADP) to
sell to ADP the Company's European based Auto Dealer Systems business for
$32,000. While the specific terms of the agreement will not be known until an
agreement, if any, is completed, an important aspect of the agreement is that
ADP will subcontract Field Engineering support from the Company. In addition,
ADP will arrange to acquire certain hardware through Datapoint's current
channels, including the Company's manufactured hardware. The Company expects to
benefit from continued revenue from its Field Engineering channel and from a
substantial reduction in the operating costs of its European subsidiaries. The
sale, if completed, is expected to close in the Company's second quarter of
1996. Also subsequent to year-end, the Company signed a letter of intent
for Vertical Financial Holdings, to become a joint venture partner with the
Company in spinning off the Company's MINX video conferencing patents and
operations into separate entities. The Company has informed Vertical Financial
Holdings that its exploration of joint venture possibilities is no longer
exclusive and is exploring joint venture opportunities with other potential
partners. While the specific terms of any joint venture will not be known until
an agreement, if any, is completed, the Company expects to retain a significant,
but minority interest in the operations, and a majority interest in the patents.
While it is not expected that there will be a significant cash infusion at the
time of any closing, if consummated, the Company expects to benefit from
reduction of operating costs related to the MINX operations and from
participation in a future royalty stream derived from the licensing of the MINX
patents.
The Company will continue to proceed with the above actions and any other
actions which will result in additional cost reductions and cash infusions.
These additional cash infusions are necessary to meet certain of the Company's
obligations, including interest of $2,857 on its 8-7/8% convertible subordinated
debentures payable on December 1, 1995. While management anticipates meeting
this obligation, no assurances can be given that sufficient funds will be
available. In the event the payment is not made within the 30-day period
following December 1, 1995, the resulting default would entitle the holders of
the debentures to elect to declare the entire indebtedness of $64,394 as
immediately due and payable. Such a default would likewise result in defaults
in certain of the Company's other debt instruments.
Fiscal Year
The Company utilizes a 52-53 week fiscal year ending on the Saturday following
the last Friday in July. References to 1995, 1994 and 1993 are for the fiscal
years ended July 29, 1995, July 30, 1994, and July 31, 1993.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. Intercompany accounts and transactions have been
eliminated upon consolidation.
Prior to 1994, the Company's foreign subsidiaries reported their results to the
parent on a one-month lag which allowed more time to compile results but
produced comparability problems in management accounting. Due to improved
internal applications, the one-month lag became unnecessary and therefore was
eliminated subsequent to 1993 and prior to 1994. As a result, the July 1993
results of operations for the Company's foreign subsidiaries was recorded to the
retained deficit. This action resulted in a charge of $5,470 being recorded
against the retained deficit. The loss incurred in July 1993 resulted primarily
from a low revenue level, which is usual for the first month following the end
of a fiscal year.
Cash and Cash Equivalents
Cash equivalents include short-term, highly liquid investments with maturities
of three months or less from date of acquisition and as a result the carrying
value approximates fair value because of the short maturity of those
instruments. At July 29, 1995, the Company had $2,549 of restricted cash. The
amount collateralizes various lines of credit payable to banks which are
recorded as current liabilities.
Inventories
Inventories are stated at the lower of standard cost (approximates first-in,
first-out) or market (replacement cost as to raw materials and net realizable
value as to work in process and finished products).
The Company reviews inventory obsolescence on a quarterly basis. This review
consists of a detailed inventory requirements analysis based upon actual
shipments of each product for the prior twelve months. A computation is then
made of future inventory requirements by product based on the historical
analysis adjusted for future projections including the impact of new product
introductions.
Fixed Assets
Fixed assets are carried at cost and depreciated for financial purposes using
straight-line and accelerated methods at rates based on the economic lives of
the assets, which are generally as follows:
Buildings and land improvements 5-30 years
Machinery, equipment, furniture and fixtures 3-10 years
Equipment leased to customers 4 years
Field support spares 3 years
Major improvements that add to the productive capacity or extend the life of an
asset are capitalized while repairs and maintenance are charged to expense as
incurred.
Debt
The carrying amounts and the fair values of the Company's debt at July 29, 1995
are:
Carrying Fair
Amount Value
8-7/8% convertible subordinated debentures $64,394 $22,216
The fair value of the Company's 8-7/8% convertible subordinated debentures is
based on a quoted market price at July 28, 1995.
Translation of Foreign Currencies
Management has determined that all of the Company's foreign subsidiaries operate
primarily in local currencies. All assets and liabilities of foreign
subsidiaries are translated into U.S. dollars using the exchange rate prevailing
at the balance sheet date, while income and expense accounts are translated at
average exchange rates during the year.
Reclassifications
Certain reclassifications to the financial statements for prior years have been
made to conform to the 1995 presentation.
Revenue Recognition
Revenue is recognized in accordance with the following criteria:
* Sales revenue is generally recognized at the time of shipment provided that
there are no significant vendor and post-contract support obligations and
that collections of the resulting receivable are probable. If such
obligations are present in the contract, revenue is not recognized until such
time as the contractual obligations are met.
* Software revenue is recognized when the program is shipped, or as the monthly
license fees accrue, or over the terms of the support agreement.
* Service revenue is recognized ratably over a contractual period or as
services are provided.
* Lease revenue is recognized on the operating method ratably over the term of
the lease.
Income Taxes
The provision for income taxes is reduced by investment tax credits, which are
recognized in the year the assets giving rise to the credits are placed in
service (flow-through method) or when realized for income tax purposes, if
later.
No tax provision has been made for the undistributed earnings of foreign
subsidiaries as management expects these earnings to be reinvested indefinitely
or received substantially free of additional tax.
In February 1992, the Financial Accounting Standards Board issued SFAS No. 109,
"Accounting for Income Taxes" ("FAS 109"), which superseded SFAS No. 96 and APB
Opinion No. 11. The adoption of this new standard had a favorable cumulative
accounting change effect of $1,340 recorded in the first quarter of fiscal 1994
(see note 4).
Loss per Common Share
Loss per common share is based on the weighted average number of common shares
outstanding during each year presented. The Company's common stock equivalents,
which include convertible debt, were antidilutive for the years presented and
therefore, were excluded from the computation. The 1995, 1994 and 1993
computations include the effect of dividends paid or accumulated on preferred
stock of $1,815, $1,784, and $1,784, respectively.
2. Reorganization/Restructuring Costs
1995 1994 1993
Employee termination costs $6,842 $14,853 $5,955
Lease termination costs 296 - 170
Asset write-offs 2,075 - 118
$9,213 $14,853 $6,243
The Company's 1995 restructuring charges primarily have been driven by
management's efforts to implement cost cutting measures in light of its overall
plan to return to profitability as discussed in Note 1. In addition,
competitive pressures in the Company's industry and a slowdown of customer
orders have influenced the level of restructuring charges.
The 1994 restructuring charges included $13,360 as a result of the
implementation of a statutory plan of reorganization for one of its European
subsidiaries. Management developed the plan, which was subject to
administrative approval, as a result of a continued decline in revenues
resulting from the loss of several significant accounts. These charges related
principally to severance costs associated with the termination of approximately
140 employees spread throughout sales, service, and administrative positions
involved in this European subsidiary. The reorganization plan was approved in
September 1995. Of the total restructuring amount, $5,570 was paid by the
foreign government and is repayable by the Company over two years beginning in
1996.
During 1993, the Company implemented a restructuring plan designed to improve
the Company's internal operations and re-position its sales and marketing teams
to benefit from the planned introduction in fiscal 1994 of a broad range of new
products. As a result, the Company recorded restructuring charges of $6,243,
primarily related to staff reductions in the U.S. operations and in its larger
subsidiaries.
Restructuring charges are not recorded until specific employees are determined
(and notified of termination) by management in accordance with its overall
restructuring plan. As such, employee termination payments are generally paid
out over a period of time rather than as one lump sum. Although a reasonable
estimate of the amount of future termination costs cannot be made at this time,
management expects to incur additional charges for terminations.
3. Non-operating Income (Expense)
1995 1994 1993
Interest earned $959 $313 $2,018
Realized gain on fixed assets fire settlement - 534 1,165
Write-off of investment in partially owned company - (3,210) -
Foreign currency losses (1,480) (718) (2,361)
Realized gain on sale of property 1,709 - -
Settlement of patent infringements 1,000 - -
Other (2,768) (1,212) (1,113)
$(580) $(4,293) $(291)
4. Income Taxes
Effective August 1, 1993, the Company adopted SFAS No. 109 "Accounting for
Income Taxes" prospectively. SFAS No. 109 requires a change from the deferred
method of accounting for income taxes to the asset and liability method of
accounting for income taxes.
As a result of adoption of SFAS No. 109, the Company recorded additional
deferred income tax assets of $2,075, after a valuation allowance of $66,720,
and increased deferred income tax liabilities by $735 which, in total resulted
in a $1,340 credit ($.09 per share) for the cumulative effect of the accounting
change.
1995 1994 1993
Income (loss) before income taxes,
extraordinary credit and effect of change
in accounting principle:
U.S. $(22,305) $(11,430) $2,646
Outside the U.S. (5,839) (82,981) (13,544)
$(28,144) $(94,411) $(10,898)
Provision for income taxes:
U.S. federal:
Current $53 $73 $32
Deferred - - (221)
$53 $73 $(189)
Outside the U.S.:
Current 229 (61) 793
Deferred (83) 342 (242)
Charge in lieu of income taxes - - 599
146 281 1,150
Total provision $199 $354 $961
The differences between the tax provision in the financial statements and the
tax benefit computed at the U.S. federal statutory rates are:
1995 1994 1993
Tax benefit at statutory rate $(9,850) $(33,043) $(3,705)
Increase (decrease) in taxes resulting from:
Benefit of U.S. tax loss not recognized 7,791 3,298 -
Foreign losses and other transactions on which
a tax benefit could not be recognized 1,952 9,288 3,684
Adjustment of prior year taxes - - (336)
Nondeductible amortization and write-off of
intangible assets - 20,875 712
Effect of foreign tax refunds and U.S. tax
associated with dividends paid 53 73 143
Effect of federal tax rate less than (greater than)
foreign tax rates 364 142 452
Benefit of operating loss carryforwards (127) (286) -
Other, net 16 7 11
Provision for income taxes $199 $354 $961
The undistributed earnings, indefinitely reinvested in international business,
of the Company's foreign subsidiaries aggregated approximately $15,428 at July
29, 1995. Determination of the amount of unrecognized deferred tax liability on
these unremitted earnings is not practicable.
The primary components of deferred income tax assets and liabilities are as
follows:
1995 1994
Deferred income tax assets:
Property, plant and equipment $4,475 $3,955
Loss and credit carryforwards 76,898 68,213
Accrued restructuring costs 1,417 4,453
Other 7,138 9,180
89,928 85,801
Less: valuation allowance 86,008 82,217
3,920 3,584
Deferred income tax liabilities:
Accrued retirement costs (2,457) (2,141)
Other (925) (988)
(3,382) (3,129)
Net deferred income tax asset $538 $455
At July 29, 1995, the net deferred income tax asset of $538 was presented in the
balance sheet, based on tax jurisdiction, as deferred income tax assets of
$3,079 and deferred income tax liabilities of $2,541. Realization of the
Company's deferred tax assets is dependent on generating sufficient taxable
income in certain taxing jurisdiction prior to the expiration of loss and credit
carryforwards. Management believes that more likely than not the deferred tax
assets will not be realized and has therefore provided a valuation allowance to
reserve for those deferred tax assets not considered realizable.
At July 29, 1995, the Company had tax operating loss carryforwards approximating
$157,000 and $35,000 for federal and foreign tax purposes, respectively,
expiring in various amounts beginning in 2001 and 1996, respectively. Federal
long-term capital loss carryforwards of $16,000 expire in various amounts
beginning in 1996. Utilization of the ordinary and capital tax loss
carryforwards is subject to limitation in the event of a more than 50% change in
ownership of the Company.
The Company had unused investment, research, and alternative minimum tax credits
for income tax purposes at July 29, 1995 of approximately $3,300 expiring at
various dates through 2001 which may be used to offset future tax liabilities of
the Company. Utilization of these credits is subject to limitation in the event
of a more than 50% change in ownership of the Company.
5. Inventories
1995 1994
Finished products $6,105 $10,416
Work in process 2,613 1,601
Raw materials 1,036 5,657
$9,754 $17,674
6. Fixed Assets
Accumulated
Cost Depreciation Net
July 29, 1995
Property, plant and equipment:
Buildings and land improvements $26,008 $18,390 $7,618
Machinery, equipment, furniture and fixtures 88,744 81,967 6,777
Land 1,479 - 1,479
116,231 100,357 15,874
Field support spares 14,926 12,147 2,779
Equipment leased to customers 5,630 5,406 224
$136,787 $117,910 $18,877
July 30, 1994
Property, plant and equipment:
Buildings and land improvements $19,736 $14,102 $5,634
Machinery, equipment, furniture and fixtures 88,213 75,959 12,254
Land ($5,500 held for sale) 6,856 - 6,856
114,805 90,061 24,744
Field support spares 15,262 11,337 3,925
Equipment leased to customers 5,009 4,590 419
$135,076 $105,988 $29,088
7. Lease Commitments
The Company leases certain facilities and equipment under various leases.
Substantially all of the leases are classified as operating leases. Rental
expense for operating leases for 1995, 1994 and 1993 was $10,922, $9,137, and
$10,785, respectively. Most of the leases contain renewal options for various
periods and require the Company to maintain the property. Certain leases
contain provisions for periodic rate adjustments to reflect Consumer Price Index
changes.
At July 29, 1995, future minimum lease payments for noncancelable leases totaled
$30,819 and are payable as follows: 1996-$7,513; 1997-$5,867; 1998-$5,151;
1999-$3,960; 2000-$3,515 and $4,813 thereafter.
8. Payables to Bank
As of July 29, 1995, the Company had included in payables to banks an amount of
$6,455 payable to International Factors "De Factorij" B.V., a subsidiary of
ABN-AMRO Bank of the Netherlands. The loan is secured by the receivables of the
Company's U.K., Dutch and German subsidiaries.
The Company has a secured credit facility ("Credit Facility") with The CIT
Group, with a maximum borrowing level of $2,000, given sufficient collateral.
The Credit Facility consists of a term loan and a revolving loan. The
borrowings outstanding under the Credit Facility, as of July 29, 1995, were
$1,346, the maximum based upon the available collateral as of that date, and the
Credit Facility is callable at the option of the lender. The borrowing consists
of $1,346 related to the revolving loan and included in payables to banks. The
term loan was paid off in 1995. The collateral for the revolving Credit
Facility consists of the Company's U.S. trade receivables and certain trade
receivables from independent foreign distributors, U.S. inventories, real
property, contract rights and general intangibles, equipment and fixtures, and
certain certificates of deposit issued to or for the account of the Company.
The Credit Facility requires that the Company meet a number of non-financial
covenants on an ongoing basis. The Credit Facility was extended and expires in
June 1996. The Credit Facility also includes a restriction upon the payment of
dividends, allowing dividends to be paid on the Company's $1.00 preferred stock;
but prohibiting dividend payments on the Company's common stock.
The weighted average interest rate for short term borrowings as of the fiscal
year end was 10.1% , 10.5%, 10.0% for 1995, 1994, and 1993, respectively.
The Company has available lines of credit from foreign banks to its foreign
subsidiaries. The unused lines of credit at July 29, 1995 totaled $1.1 million
after borrowings of $10.1 million.
9. Accrued Expenses
1995 1994
Salaries, commissions, bonuses and other benefits $9,661 $8,839
Taxes other than income taxes 8,687 6,986
Reorganization/restructuring costs 4,168 13,988
Payable to foreign government (see Note 2) 5,570 -
Other 6,771 7,919
$34,857 $37,732
10. Long-Term Debt
1995 1994
8-7/8% convertible subordinated debentures $64,394 $64,394
Domestic term loan, average interest 9.4% - 1,066
6.5% to 9.0% real estate notes 762 993
Non interest bearing note-NTI (net of discount
of $2,354 in 1995 and $2,906 in 1994) 6,646 6,094
Non interest bearing note-CISI - 195
Other obligations 2,338 189
74,140 72,931
Less: current maturities of long-term debt and
long-term debt subject to accelerated maturity 9,217 2,370
$64,923 $70,561
Interest on the 8-7/8% convertible subordinated debentures is payable
semiannually on June 1 and December 1. The debentures are subordinated in right
of payments to all senior indebtedness, as defined, and are convertible into
common stock of the Company at any time prior to the close of business on June
1, 2006, unless previously redeemed. Each one thousand dollar principal amount
debenture is convertible into 55,231 shares of common stock and, as of July 29,
1995, there were 3,556,545 shares reserved for possible issuance. The
debentures are entitled to a mandatory sinking fund, which commenced June 1,
1991, of $5,000 annually. The Company, at its option, may increase the sinking
fund payment to $10,000 and may also receive credit against mandatory sinking
fund payments for debentures acquired through means other than the sinking fund.
The Company has applied $25,000 in previous debenture retirements against the
sinking fund requirements for 1991 through 1995. The Company also intends to
apply previous debenture retirements of $10,606 through July 29, 1995 against
the sinking fund requirements for 1996 through 1998. The debentures are also
redeemable at the option of the Company, in whole or in part, at any time at
100% of the principal amount together with accrued interest to the date of
redemption.
During 1993, the Company settled two long standing legal patent actions brought
against it by Northern Telecom Inc. ("NTI") and Compagnie Internationale de
Services en Informatique, S.A. ("CISI"). The Company agreed to a ten-year note
payable to NTI which requires annual $1,000 payments beginning in December 1993.
The note was recorded at a discount reflecting an annual rate of interest of
10%. The Company is presently in arrears on the December 1994 payment. On
September 13, 1995, NTI notified the Company that it has declared the entire
note immediately due and payable. The note has been classified as long term
debt subject to accelerated maturity at July 29, 1995. The Company is currently
in discussions with NTI to remedy this payment default. The Company is also
contingently obligated to make payments to NTI dependent upon the Company's
future profitability. The contingent payments, up to a cumulative maximum of
$12.5 million, are to be paid in annual installments calculated at 33-1/3% of
the Company's pre-tax annual profits, excluding extraordinary items, in excess
of $10.0 million in each of the 10 fiscal years beginning with fiscal 1993.
During 1995, 1994 and 1993, the Company incurred no liability to make such
contingent payments as a result of the net losses incurred.
Aggregate scheduled maturities of long-term debt are as follows: 1996--$4,349;
1997--$749; 1998--$5,159; 1999--$5,714; 2000--$5,682 and $52,487 thereafter.
11. Stockholders' Deficit
In August 1994, the Company sold 700,000 shares of its common stock held in
treasury for $1,750 in a transaction outside the United States pursuant to
Regulation S of the Securities and Exchange Commission. The Company utilized
the proceeds for working capital needs. In addition, in September 1994, the
Company reached an agreement with Intelogic Trace, Inc. ("Intelogic"), in
conjunction with Intelogic's court approved reorganization, to cancel its option
to repurchase at $.75 per share, its common stock held by Intelogic in exchange
for all of the Company's holding of Intelogic preferred stock, which had no
carrying value. As a result of the exchange, the Company received from
Intelogic 2,400,000 shares of Datapoint common stock.
The Company issued 129,000 shares of common stock held in treasury as settlement
with the release of an employee. As compensation for consulting work, 71,999
shares of common stock held in treasury were issued to a director.
During 1995 fiscal year, the Board of Directors elected to make a corporate
contribution to the Datapoint Corporation Supplemental Executive Retirement Plan
of 62,000 shares of the Company's $1 preferred stock with a $20 per share
liquidation preference. The contribution was made on behalf of certain
participants only.
Throughout 1995, employees and directors of the Company exercised 156,666
options for shares of common stock. Additionally, the Company issued 22,328
shares from treasury to participants in the U.S. 401(k) retirement and savings
plan. In 1994, the Company purchased and placed into treasury 24,023 shares
from the Company's U.S. 401(k) retirement and savings plan.
The $1.00 preferred stock has a liquidation preference of $20.00 per share and
cumulative dividends of $1.00 annually. If dividends are six quarters in
arrears, the preferred shareholders have the right to vote as a separate class
and elect two board members at the next annual meeting of shareholders and each
preferred share is exchangeable into two shares of common stock at the option of
the holder. These new directorships will be filled annually by the preferred
shareholders voting as a separate class until the dividends in arrears have been
paid in full. As a result of the Company's capital deficiency, dividend payments
are prohibited under Delaware law. Dividends of $1,815 were accumulated and
unpaid at July 29, 1995.
12. Stock Option Plans
At July 29, 1995, 2,382,822 shares were reserved for issuance in connection with
the Company's stock option plans. Total options outstanding for all plans total
1,631,992 and are exercisable at an average price of $3.97.
Under the Company's employee stock option plans, officers and other key
employees may be granted options to purchase common stock and related stock
appreciation rights. Under the terms of these plans, options may be granted
at no less than 75% of fair market value and expire no later than ten years from
the date of grant. The Board may grant options exercisable in full or in
installments, and has generally granted options at fair market value exercisable
in two to four installments beginning one year from the date of grant. As of
July 29, 1995 and July 30, 1994, options for 499,285 and 561,209 shares,
respectively, under all employee plans were exercisable and no stock
appreciation rights had been granted. Options outstanding as of July 29, 1995
have an average exercise price of $4.16 and expire during the period June 1995
through October 2004.
Employee Stock Option Plans
Price Range Number of Shares
of Shares Under Available
Under Option Option for Option
Outstanding at July 30, 1994 $1.38-8.00 1,284,873 757,664
Granted 2.69-3.94 557,000 (557,000)
Exercised 1.38-1.63 (156,666) -
Canceled 1.63-7.38 (243,215) 243,215
Expired - - (18,049)
Outstanding at July 29, 1995 $1.38-8.00 1,441,992 425,830
During 1992, the 1985 Director Stock Option Plan was terminated. As of July 29,
1995, there were continuing options for 50,000 shares outstanding from this plan
which expire five years from the date of grant. The 1985 Plan was replaced by
the 1991 Director Stock Option Plan. This plan greatly resembles the terminated
1985 Plan and provides for a one-time grant of an option to purchase, at fair
market value as of the date of the grant, 25,000 shares of common stock to each
director, and an additional 50,000 shares to the present and any newly elected
Chairman of the Board. The 1991 Plan does not grant any options to individuals
holding options under the 1985 Plan. The Plan includes both employee and
non-employee directors and options expire five years from the date of grant.
Total director options outstanding as of July 29, 1995 have an average exercise
price of $2.53 and expire during the period April 1996 through May 1997.
Director Stock Option Plans
Price Range Number of Shares
of Shares Under Available
Under Option Option for Option
Outstanding at July 30, 1994 $1.88-3.06 240,000 275,000
Canceled 2.50 (50,000) 50,000
Outstanding at July 29, 1995 $1.88-3.06 190,000 325,000
13. Information Relating to Business Segments and International Operations
Business Segment Information
The Company operates in one industry and is an international computer and
communications systems marketer, manufacturer and developer. Additionally, the
Company provides maintenance services on its products in the United States
through a non-exclusive agreement with Decision Servcom, Inc. and services its
products outside the United States through its international distributors and
subsidiaries.
International Operations
The Company conducts the majority of its international marketing and service
operations through its subsidiaries and, to a lesser extent, through various
distributorship arrangements. The Company's manufacturing is performed
domestically, and the Company's policy is to transfer products between
affiliates at prices which reflect market conditions. Financial information on
a geographic basis follows:
1995 1994 1993
Revenue - unaffiliated customers:
United States - domestic $7,122 $7,617 $7,286
- export sales 3,899 6,174 8,039
Europe 162,146 156,403 185,595
Other international 1,734 2,742 7,424
Total revenue from unaffiliated customers 174,901 172,936 208,344
Revenue - intercompany:
United States 6,390 20,868 24,910
Europe 427 518 516
Other international - 7 62
Eliminations (6,817) (21,393) (25,488)
Total consolidated revenue $174,901 $172,936 $208,344
Operating income (loss):
United States $(25,201) $(8,728) $1,080
Europe 7,661 (72,517) (5,376)
Other international (979) (904) (1,297)
Eliminations 287 1,128 4,335
Total operating income (loss) $(18,232) $(81,021) $(1,258)
Identifiable assets:
United States $21,469 $43,595 $57,506
Europe 79,166 82,589 143,385
Other international 1,116 1,250 1,384
Total identifiable assets $101,751 $127,434 $202,275
Included in identifiable assets for 1993 is the excess of the cost of foreign
investments over the value of the net assets acquired. The balance was
written-off in 1994 as part of a reassessment of the carrying value in light of
the financial condition of the Company. Accumulated amortization and write-down
of this excess was $110,476 at July 30, 1994 and $50,797 at July 31, 1993.
14. Retirement Income Plans
Retirement expenses incurred by the Company were as follows:
1995 1994 1993
U.S.:
Matching contributions $119 $143 $138
Outside the U.S.:
Defined benefit plans 510 119 (8)
Other plans 675 600 65
1,185 719 57
$1,304 $862 $195
U.S. Plan
The Company adopted a 401(k) retirement and savings plan effective January 1988.
The plan covers all full-time employees who have been employed for at least 12
months. The Company's retirement and savings plan contribution has been a 25%
matching contribution for employee contributions up to 5% of each employee's
compensation. At the Board's discretion, the Company may also contribute a
profit sharing amount to the plan that is contingent upon the performance level
of the Company at the net income line.
Plans Outside the U.S.
Most of the Company's foreign subsidiaries provide retirement income plans which
conform to the practice of the country in which they do business. The types of
company-sponsored plans in use are defined benefit and defined contribution.
Five of the Company's subsidiaries, including the United Kingdom, utilize
defined benefit plans with employee benefits generally being based on years of
service and wages near retirement. The plans cover all full-time employees who
have been employed for at least 12 months. Obligations under these plans are
funded primarily through fixed rate of return investments, primarily insurance
policies, except for Germany where reserves are established for the obligations
The Company's United Kingdom and New Zealand subsidiaries have defined
contribution plans. The plans cover all full-time salaried employees who have
been employed for at least 12 months and contributions are based upon a
percentage of compensation. Obligations under this plan are funded primarily
through deposits in pooled investments or insurance policies.
1995 1994 1993
Defined benefit plans:
Service cost $998 $773 $1,329
Interest cost 1,931 1,770 1,917
Actual return on assets (887) (926) (860)
Net amortization and deferral (1,532) (1,498) (2,394)
Net pension cost $510 $119 $(8)
The funded plan status at July 29, 1995 and July 30, 1994 was:
1995 1994
Over- Under- Over- Under-
funded funded funded funded
Actuarial present value of:
Vested benefits $17,141 $6,454 $16,389 $3,234
Accumulated benefit
obligations $17,520 $6,503 $16,699 $3,815
Projected benefit
obligations $18,197 $7,466 $17,619 $5,624
Plan assets at fair value $20,303 $2,632 $21,259 $918
Plan assets in excess of
(less than) projected
benefit obligation 2,106 (4,834) 3,640 (4,706)
Unrecognized net (gain)loss 3,611 (2,755) 1,519 (1,955)
Unrecognized transition
net loss 797 124 806 31
Prepaid (accrued) pension
cost $6,514 $(7,465) $5,965 $(6,630)
Actuarial assumptions used to determine funded status for 1995 and 1994 varied
between subsidiaries. Discount rates used to determine projected benefit
obligations range from 5.0% to 9.0% in 1995 and 1994. Rates of increase in
future compensation levels range from 3.0% to 3.5% in 1995 and 1994. The
long-term rates of return on plan investments range from 5.0% to 10.0% in 1995
and 5.0% to 10.0% in 1994.
15. Certain Relationships and Related Transactions
Director Agranoff had provided various tax, legal and real estate consulting
services prior to being Vice President & General Counsel for the Company. During
1994 and 1993, the Company paid Mr. Agranoff $126 and $104, respectively, for
those services. During the fiscal years 1995 and 1994, Datapoint paid legal
fees of $51 and $5, respectively, to the law firm of Pryor, Cashman, Sherman, &
Flynn, to which firm Mr. Agranoff is of counsel, for legal services provided by
attorneys other than Mr. Agranoff.
Director Thomas has worked since August 1994 as a special consultant for which
he has received compensation payable in shares of common stock until May 1,
1995. Subsequently, on May 5, 1995, in consideration of the additional work and
responsibilities he has taken on for the Company as a special consultant, the
Board of Directors approved a special compensation package for Director Thomas.
From May 1, 1995 through July 31, 1995, he was paid at the rate specified per
day for his services, plus travel and housing expenses, plus additional flat
rate compensation per week. Director Thomas was also entitled to participate in
the Executive Health Benefit program of the Company until July 31, 1995 at which
time, under a new agreement, he converted to the Standard Health Benefit
program. The Board also approved a one time special issuance of shares of
common stock of the Company to Director Thomas in recognition of his service to
the Company. During the term of the agreement with Director Thomas, he will not
accrue nor receive any regular Board or committee fees. (Included in
compensation of Directors note in the proxy)
Director Ruffat had a consulting agreement from January 1994 through June 1995
in which he would receive a monthly compensation of $10. For 1995, he has been
paid $80.
16. 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 addition, in 1994, the Company began patent infringement lawsuits against
several defendants related to the Company's video conferencing patents. In
1995, the Company received $1,000 from two such defendants and patent
infringement suits against other defendants are pending. The aggregate amounts
sought in these suits are substantial. However, no provision has been made in
the accompanying financial statements for any possible gains or cash infusions
resulting from favorable judgments in these suits.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not Applicable.
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
At the Annual Meeting, seven directorships are to be filled, constituting the
entire Board of Directors of Datapoint, the directors so elected to hold office
until the next annual meeting of stockholders and until their respective
successors are elected and qualified.
Although the Board of Directors does not contemplate that any of the nominees
for directors named herein will be unavailable for election, in the event of a
vacancy in the slate of nominees, the proxy will be voted for the election of a
nominee who will be selected by the Board of Directors, unless the Board of
Directors elects instead to reduce the number of directors.
The nominees for election as directors are as follows:
GERALD N. AGRANOFF, age 48, is currently Vice President, General Counsel and
Corporate Secretary of Datapoint. Mr. Agranoff has been a General Partner of
Arbitrage Securities Company, for more than five years. Mr. Agranoff also has
been a General Partner of Plaza Securities Company since January, 1987, and a
Trustee of MAI Liquidating Trust since February 1986. Mr. Agranoff is a
director of Bull Run Corporation, Atlantic Gulf Communities, The American Energy
Group, Ltd., and Canal Capital Corporation. Mr. Agranoff also has been the
General Counsel to Arbitrage Securities Company and Plaza Securities Company for
more than five years. He has been a director of Datapoint since 1991.
DORIS D. BENCSIK, age 64, is currently President and Chief Operating Officer of
Datapoint. Mrs. Bencsik has been a member of the Datapoint's Board of Directors
since 1985. During 1992 - 1993 Mrs. Bencsik has been employed by Modular
Computer Systems Inc., as President and Chief Executive Officer. In addition,
Mrs. Bencsik has maintained a business consulting practice for more than the
past five years, in which she served as a consultant to Datapoint from October
1992 to February 1993. In February 1993, she entered the employment of
Datapoint as Executive Vice President and Chief Operating Officer, and was
promoted to President in November 1993. Mrs. Benscik also worked at Datapoint
from 1982 to 1987. Mrs. Bencsik joined Datapoint in November 1982 as Vice
President, Engineering. In May 1984, she was promoted to Vice President,
Operations, and was promoted to Senior Vice President, Operations in January
1985. In November 1985, she was promoted to Executive Vice President, Chief
Operating Officer and elected as a member of the Board of Directors. In January
1987, Mrs. Bencsik was named acting Chief Executive Officer and in June 1987,
was named to the Office of the President. Mrs. Bencsik is a member of the
Executive Committee.
ASHER B. EDELMAN, age 55, joined Datapoint's Board of Directors as its Chairman
in March 1985, and has served in that capacity and as Chairman of its Executive
Committee to the present date, and as Chief Executive Officer since February
1993. Mr. Edelman has served as General Partner of Plaza Securities Company, an
investment partnership since July 1979. From January 1977 through June 1984 he
served as the General Partner of Arbitrage Securities Company, a broker-dealer;
from June 1984 he has served as General Partner of Asco Partners, the s