UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
------------------
Commission file number 1-6002
------
COMPUTER DATA SYSTEMS, INC.
------------------------------------------
(Exact name of registrant as specified in its charter)
MARYLAND 52-0882982
- --------------------------- ------------
(State or other jurisdiction (IRS Employer ID No.)
of incorporation or organization)
ONE CURIE COURT
ROCKVILLE, MARYLAND 20850-4389
- ---------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (301) 921-7000
--------------
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
--- ---
The number of outstanding shares of the registrant's Common Stock, par
value $0.10 per share, was 6,286,799 on November 6, 1997.
<PAGE>
PART I - FINANCIAL INFORMATION
--------------------------------
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
COMPUTER DATA SYSTEMS, INC.
Consolidated Statements of Income
(Unaudited)
For the Three Months Ended
September 30,
---------------------------
1997 1996
---- ----
<S> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 92,519,100 $ 70,073,200
------------- -------------
Costs and Expenses:
Salaries, wages and benefits . . . . . . . . . . . . . . . . . . 47,903,300 35,420,700
Subcontractors . . . . . . . . . . . . . . . . . . . . . . . . . 27,082,000 24,521,000
Travel, relocation and subsistence . . . . . . . . . . . . . . . 1,977,300 638,300
Rental of space and equipment . . . . . . . . . . . . . . . . . 1,046,800 287,400
Depreciation and amortization . . . . . . . . . . . . . . . . . 1,993,800 934,700
Other operating and administrative costs . . . . . . . . . . . . 7,180,800 3,652,900
------------- -------------
Total Costs and Expenses . . . . . . . . . . . . . . . . . 87,184,000 65,455,000
------------- -------------
Income from operations . . . . . . . . . . . . . . . . . . . . . . 5,335,100 4,618,200
Interest income and expense, net . . . . . . . . . . . . . . . . . (756,600) 14,200
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . (161,200) 0
------------- -------------
Income before income taxes . . . . . . . . . . . . . . . . . . . . 4,417,300 4,632,400
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . 1,976,100 1,846,700
------------- -------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,441,200 $ 2,785,700
============= =============
Net income per common share . . . . . . . . . . . . . . . . . . . . $ .38 $ .46
============= =============
Dividends per common share . . . . . . . . . . . . . . . . . . . . $ .06 $ .06
============= =============
</TABLE>
The unaudited financial statements presented herein reflect all material
adjustments which in management's opinion are necessary for a fair presentation
of the interim periods.
<PAGE>
<TABLE>
<CAPTION>
COMPUTER DATA SYSTEMS, INC.
Consolidated Balance Sheets
September 30, June 30,
1997 1997
Assets Unaudited Audited
- ------ --------- -------
<S> <C> <C>
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . $ 7,235,400 $ 4,330,000
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . 86,372,400 87,916,900
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . 2,993,600 4,660,400
Income tax refunds receivable . . . . . . . . . . . . . . . . . 1,749,700 2,424,800
Prepaid expenses and deposits . . . . . . . . . . . . . . . . . 2,265,300 2,254,100
-------------- --------------
Total Current Assets . . . . . . . . . . . . . . . . . . . 100,616,400 101,586,200
Long-term investments . . . . . . . . . . . . . . . . . . . . . . . 2,485,000 2,406,600
Land, building and equipment . . . . . . . . . . . . . . . . . . . 30,929,100 30,767,800
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . 48,245,900 48,811,900
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,609,200 3,877,500
-------------- --------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . $ 185,885,600 $ 187,450,000
============== ==============
Liabilities and Stockholders' Equity
- ------------------------------------
Current Liabilities:
Accounts payable and accrued liabilities . . . . . . . . . . . . $ 28,975,800 $ 32,288,800
Accrued wages and related benefits . . . . . . . . . . . . . . . 19,601,300 17,088,600
Note payable . . . . . . . . . . . . . . . . . . . . . . . . . . 6,854,400 6,854,400
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . 494,600
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . 0 274,900
-------------- --------------
Total Current Liabilities . . . . . . . . . . . . . . . . 55,926,100 56,506,700
-------------- --------------
Long-Term Liabilities:
Note payable . . . . . . . . . . . . . . . . . . . . . . . . . . 39,432,000 41,145,600
Deferred compensation . . . . . . . . . . . . . . . . . . . . . 4,583,400 4,633,800
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . 3,879,800 5,726,800
-------------- --------------
Total Long-Term Liabilities . . . . . . . . . . . . . . . 47,895,200 51,506,200
-------------- --------------
Minority Interest . . . . . . . . . . . . . . . . . . . . . . . . . 664,700 503,500
-------------- --------------
Stockholders' Equity:
Common Stock, par value $.10 . . . . . . . . . . . . . . . . . . 628,700 626,000
Capital in excess of par value . . . . . . . . . . . . . . . . . 17,469,300 16,553,400
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . 63,301,600 61,754,200
-------------- --------------
Total Stockholders' Equity . . . . . . . . . . . . . . . . 81,399,600 78,933,600
-------------- --------------
Total Liabilities and Stockholders' Equity . . . . . . . . $ 185,885,600 $ 187,450,000
============== ==============
</TABLE>
The unaudited financial statements presented herein reflect all material
adjustments which in management's opinion are necessary for a fair presentation
of the interim periods.
<PAGE>
<TABLE>
<CAPTION>
COMPUTER DATA SYSTEMS, INC.
Consolidated Statements of Cash Flows
(Unaudited)
For the Three Months Ended
September 30,
--------------------------
1997 1996
---- ----
<S> <C> <C>
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,441,200 $ 2,785,700
Adjustments to reconcile income to net cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . 1,961,100 934,700
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 0 (109,100)
Deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . 98,300 16,900
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161,200 0
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (69,700) (36,900)
Net cash provided by (used in) changes in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,219,600 (5,965,700)
Prepaid expenses and deposits . . . . . . . . . . . . . . . . . . . . . . (11,100) (169,600)
Accounts payable and accrued liabilities . . . . . . . . . . . . . . . . . (3,046,700) 2,573,700
Accrued wages and related benefits . . . . . . . . . . . . . . . . . . . . 2,441,200 (983,400)
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 494,600 349,900
------------- -------------
Net cash provided by (used in) operating activities . . . . . . . . . . . . . . 6,689,700 (603,800)
------------- -------------
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,565,700) (825,500)
Purchase of long-term investments . . . . . . . . . . . . . . . . . . . . (269,800) (144,200)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (187,000) (12,000)
------------- -------------
Net cash (used in) investing activities . . . . . . . . . . . . . . . . . . . . (2,022,500) (981,700)
------------- -------------
Cash flows from financing activities:
Payment on note payable . . . . . . . . . . . . . . . . . . . . . . . . . (1,713,600) 0
Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (376,700) (355,700)
Exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . 401,500 1,144,000
Payment of deferred compensation . . . . . . . . . . . . . . . . . . . . . (73,000) (266,600)
------------- -------------
Net cash (used in) financing activities . . . . . . . . . . . . . . . . . . . . (1,761,800) 521,700
------------- -------------
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . 2,905,400 (1,063,800)
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . 4,330,000 3,639,600
------------- -------------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . $ 7,235,400 $ 2,575,800
============= =============
</TABLE>
The unaudited financial statements presented herein reflect all material
adjustments which in management's opinion are necessary for a fair presentation
of the interim periods.
<PAGE>
COMPUTER DATA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997
A. COMPUTATION OF EARNINGS PER SHARE
---------------------------------
Net income per share of common stock is based on the weighted average
number of common and common stock equivalent shares outstanding during each
period.
Average Number of Shares Outstanding
------------------------------------
September 30, 1997 September 30, 1996
------------------ ------------------
6,433,713 6,117,870
B. OTHER INFORMATION
-----------------
On September 20, 1997, the Corporation signed a definitive agreement
pursuant to which a wholly-owned subsidiary of Affiliated Computer Services,
Inc. ("ACS") will be merged with and into the Corporation. Under the terms of
the Agreement and Plan of Merger (the "Agreement"), stockholders of the
Corporation will receive 1.759 shares of ACS Class A Common Stock for each
share of the Corporation's Common Stock.
The transaction is structured to be tax-free to the Corporation's
stockholders and accounted for as a pooling of interests. The merger is
subject to certain conditions, including without limitation, approval of the
merger by a two-thirds vote of the Corporation's stockholders, approval of the
issuance of additional shares of ACS Class A Common Stock by ACS' stockholders,
and confirmation from the independent accountants for ACS and the Corporation
that the transaction should be accounted for as a pooling of interests. With
respect to the stockholder votes, all the directors and certain executive
officers of both companies have agreed to vote their stock in favor of the
transaction. In the case of ACS, such directors and officers have sufficient
voting power to satisfy the stockholder vote condition in the Agreement. The
directors and officers of the Corporation hold stock representing approximately
ten percent of the outstanding shares.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Results of Operations
---------------------
September 30, 1997 vs September 30, 1996 - Three Months
Revenues for the quarter ended September 30, 1997 were $92,519,100 as
compared to $70,073,200 in the comparable quarter last year. Revenues in-
creased 32%, of which 22% derived from the June 1997 acquisition of Analytical
Systems Engineering Corporation (ASEC).
<PAGE>
Costs and expenses grew by 33%, a slightly higher rate compared to the
increase in revenues. This was due primarily to $670,300 of amortization of
the intangible assets that were created in the ASEC acquisition. The amort-
ization expense in the first year is higher than it will be in subsequent
years because a portion of the intangible assets were attributed to ASEC's
existing contracts. This value is being amortized over the contracts' periods
of performance.
Income from operations increased due to the higher revenues noted above.
Operating margins decreased due primarily to the amortization referenced above.
Interest income and expense, net decreased due to the interest expense of
$796,600, arising primarily from the debt incurred to finance the ASEC
acquisition.
The provision for income taxes increased as a result of higher federal
and state effective tax rates due to the nondeductibility of the amortization
of the intangibles arising from the ASEC acquisition.
Net income declined from last year's comparable quarter primarily due to
the impact of the ASEC acquisition, which resulted in higher amortization
expense, interest expense, and effective tax rates.
The majority of CDSI's contracts provide for annual adjustments on
prices. Increases in revenues are primarily the result of increased levels of
service and product sales rather than price increases.
Comparison of Financial Condition
---------------------------------
September 30, 1997 Compared to June 30, 1997
Total assets were $185,885,600, as compared to $187,450,000 at June 30,
1997, a change of less than 1%. Working capital basically remained stable,
decreasing by approximately $389,000 since June 30, 1997. The decrease is
attributed primarily to the quarterly debt service on the note payable arising
from the ASEC acquisition.
Liquidity
---------
As demonstrated on the Consolidated Statement of Cash Flows for the three
months ended September 30, 1997, the Company expects to cover investing and
financing cash needs from cash flow from operations. Working capital of $44.7
million at September 30, 1997 is substantially unchanged from $45.1 million at
June 30, 1997. The improvement in cash from operations is primarily
attributable to accounts receivable collections.
In June 1997, CDSI entered into a bank credit facility, including a $50
million term loan for the purchase of ASEC. The term loan is repayable
quarterly based on a seven-year straight-line amortization schedule, with a
final maturity in June 2002. In the current quarter, the primary financing
activity is the quarterly debt repayment, which was made in September.
<PAGE>
The primary investing activity is capital expenditures. The Company
expects capital expenditures to be in the $4,000,000 range for the current
fiscal year. The planned expenditures are for completion of the implementation
of a subsidiary's contract with the Banco Social de Cordoba, in Cordoba,
Argentina and internal use. These expenditures are anticipated to be funded
from internally generated working capital and existing credit facilities.
To provide for short-term fluctuations in cash needs, as well as
flexibility for financing future acquisitions, the Company has $25 million
available under a three-year revolving line of credit.
PART II -- OTHER INFORMATION
----------------------------
ITEMS 1-5. Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
On August 29, 1997, the Corporation filed an amendment to the Form
8-K reporting the closing of the Corporation's acquisition of
Analytical Systems Engineering Corporation (originally filed on
June 27, 1997).
On September 25, 1997, the Corporation filed a current report on
Form 8-K pursuant to Item 5 thereto, reporting the execution of a
definitive agreement for a merger with Affiliated Computer
Services, Inc.
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, in Rockville, Maryland on November 14,
1997.
COMPUTER DATA SYSTEMS, INC.
By /s/Bradley W. Kopp
___________________________________
Bradley W. Kopp
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CDSI'S
CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> SEP-30-1997
<CASH> 7,235,400
<SECURITIES> 0
<RECEIVABLES> 86,372,400
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 100,616,400
<PP&E> 30,929,100
<DEPRECIATION> 1,961,100
<TOTAL-ASSETS> 185,885,600
<CURRENT-LIABILITIES> 55,926,100
<BONDS> 0
0
0
<COMMON> 628,700
<OTHER-SE> 80,770,900
<TOTAL-LIABILITY-AND-EQUITY> 185,885,600
<SALES> 0
<TOTAL-REVENUES> 92,519,100
<CGS> 0
<TOTAL-COSTS> 87,184,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 796,600
<INCOME-PRETAX> 4,417,300
<INCOME-TAX> 1,976,100
<INCOME-CONTINUING> 2,441,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,441,200
<EPS-PRIMARY> .38
<EPS-DILUTED> .38
</TABLE>
