UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED OCTOBER 1, 1994
OR
_ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
Commission File Number 0-20252
Control Data Systems, Inc.
(Exact name of Registrant as Specified in Charter)
Delaware 41-1718075
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
___________
4201 Lexington Avenue North
Arden Hills, Minnesota 55126-6198
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 482-2401
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. X Yes No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court. Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable: 13,802,260 shares
of Common Stock, $0.01 par value per share, as of November 11, 1994.
CONTROL DATA SYSTEMS, INC.
FORM 10-Q
October 1, 1994
INDEX
Page
Part I - Financial Information:
Consolidated Statements of Operations -
Three and nine months ended October 1, 1994 and October 2, 1993 ..
2
Consolidated Balance Sheets -
October 1, 1994 and January 1, 1994 ..............................
3
Consolidated Statements of Cash Flows -
Three and nine months ended October 1, 1994 and October 2, 1993 ..
4
Notes to Consolidated Financial Statements .........................
6
Management's Discussion and Analysis of Financial
Condition and Results of Operations ..............................
7
Part II - Other Information .........................................
13
Signature ...........................................................
14
Exhibit Index .......................................................
15
PART 1
FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CONTROL DATA SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Dollars in thousands, except per share data)
Three Months Ended
Nine Months Ended
October 1,
October 2,
October 1,
October 2,
1994
1993
1994
1993
REVENUES:
Net sales and rentals..................
$
64,601
$
44,649
$
242,225
$
153,712
Services...............................
49,045
52,442
148,325
161,025
Total revenues.......................
113,646
97,091
390,550
314,737
COST OF REVENUES:
Net sales and rentals..................
46,458
26,358
172,201
88,545
Services...............................
36,971
33,888
108,957
104,398
Total cost of revenues...............
83,429
60,246
281,158
192,943
Gross profit.........................
30,217
36,845
109,392
121,794
OPERATING EXPENSES:
Selling, general and
administrative........................
32,985
33,604
102,901
101,544
Technical..............................
3,190
4,632
10,420
19,347
Total operating expenses.............
36,175
38,236
113,321
120,891
Earnings (loss) from operations......
(5,958)
(1,391)
(3,929)
903
OTHER INCOME (EXPENSES):
Interest expense.......................
(316)
(507)
(979)
(1,640)
Interest income........................
1,058
1,404
3,351
4,793
Other income, net......................
790
78
104
3,662
Total other income, net..............
1,532
975
2,476
6,815
Earnings (loss) before income taxes..
(4,426)
(416)
(1,453)
7,718
PROVISION FOR INCOME TAXES..............
549
(1,398)
1,480
1,081
Net earnings (loss).................
$
(4,975)
$
982
$
(2,933)
$
6,637
Net earnings (loss) per common share
and common share equivalents.........
$
(0.36)
$
0.07
$
(0.21)
$
0.49
Weighted average common shares
outstanding (in thousands)...........
13,780
14,250
13,734
13,616
The accompanying notes are an integral part of these consolidated financial
statements.
CONTROL DATA SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
ASSETS
October 1,
January 1,
1994
1994
(Unaudited)
Current assets:
Cash and short-term investments................
$
76,650
$
81,635
Trade and other receivables....................
113,392
125,470
Inventories....................................
47,894
56,222
Prepaid expenses and other current assets......
7,904
7,898
Total current assets.........................
245,840
271,225
Investments and advances.........................
1,144
615
Property and equipment, net......................
28,250
28,058
Leased and data center equipment, net............
2,564
4,779
Noncurrent trade and other receivables...........
8,210
11,638
Goodwill, net....................................
34,171
27,842
Other noncurrent assets..........................
10,944
8,766
Total assets.................................
$
331,123
$
352,923
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable..................................
$
8,415
$
1,891
Accounts payable...............................
28,518
35,212
Customer advances and deferred income..........
14,763
19,665
Accrued taxes..................................
983
4,104
Accrued salaries and wages.....................
18,077
16,620
Restructure reserves, current portion..........
10,968
21,722
Other accrued expenses.........................
33,524
38,143
Total current liabilities....................
115,248
137,357
Deferred income taxes............................
1,118
1,123
Restructure reserves, less current portion.......
5,501
10,554
Pension liabilities..............................
29,706
27,870
Other noncurrent liabilities.....................
5,361
843
Total liabilities............................
156,934
177,747
Stockholders' equity:
Preferred stock, par value $.01 per share,
authorized 5,000,000 shares; none issued
and outstanding..............................
-
-
Common stock, par value $.01 per share,
authorized 50,000,000 shares; issued and
outstanding 13,780,410 and 13,598,668 shares
as of October 1, 1994 and January 1, 1994,
respectively.................................
138
136
Additional paid-in capital.....................
160,977
159,683
Retained earnings..............................
20,229
23,162
Minimum pension liability adjustment...........
(4,722)
(4,722)
Foreign currency translation adjustment........
(2,433)
(3,083)
Total stockholders' equity...................
174,189
175,176
Total liabilities and stockholders' equity...
$
331,123
$
352,923
The accompanying notes are an integral part of these consolidated financial
statements.
CONTROL DATA SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
Nine Months Ended
October 1,
October 2,
1994
1993
Cash Flows from Operating Activities:
Net earnings (loss)................................
$
(2,933)
$
6,637
Adjustments to reconcile net earnings (loss) to net
cash used in operating activities:
Depreciation...................................
11,251
12,558
Amortization...................................
3,437
1,195
Foreign currency transaction loss (gain).......
(798)
116
Equity in losses (gains) of affiliates.........
714
(177)
Restructure reserves utilized..................
(16,276)
(18,864)
Loss (gain) on sale of marketable securities
and other assets.............................
342
(1,291)
Net change in working capital items............
3,967
(15,693)
Net change in noncurrent trade receivables.....
619
(161)
Other..........................................
(366)
714
Net cash used in operating activities.........
(43)
(14,966)
Cash Flows from Investing Activities:
Expended for property and equipment................
(5,956)
(7,021)
Expended for leased and data center equipment......
(769)
(1,838)
Investment in affiliates...........................
(518)
(80)
Proceeds from sales of property and equipment......
795
1,631
Proceeds from sale of Silicon Graphics, Inc.
common stock.....................................
-
3,244
Acquisitions of businesses, net of cash provided...
(3,844)
(10,687)
Change in short-term investments...................
1,679
43,852
Net cash provided by (used in) investing
activities..................................
(8,613)
29,101
Cash Flows from Financing Activities:
Borrowings under short-term financing
arrangements, net
3,732
(1,342)
Repayments of long-term obligations................
-
(7,125)
Proceeds from issuance of common stock, net of
issuance costs...................................
1,296
1,836
Proceeds from issuance of non-refundable equity
option in ICEM Systems GmbH......................
-
2,813
Net cash provided by (used in) financing
activities..................................
5,028
(3,818)
Effect of Exchange Rate Changes on Cash..............
322
(674)
Net change in cash and cash equivalents.........
(3,306)
9,643
Cash and cash equivalents, beginning of period..
19,164
5,142
Cash and cash equivalents, end of period........
15,858
14,785
Short-term investments..........................
60,792
85,429
Cash and short-term investments, end of period.......
$
76,650
$
100,214
The accompanying notes are an integral part of these consolidated financial
statements.
CONTROL DATA SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
Nine Months Ended
October 1,
October 2,
1994
1993
Net Change in Working Capital Items:
Trade and other receivables........................
$
22,677
$
3,349
Inventories........................................
12,106
(10,093)
Prepaid expenses and other current assets..........
294
1,377
Accounts Payable...................................
(16,614)
(5,191)
Customer advances and deferred income..............
(6,410)
904
Accrued taxes......................................
(2,420)
(3,548)
Accrued salaries and wages.........................
947
(3,563)
Other accrued expenses.............................
(6,613)
1,072
Net change in working capital items...............
$
3,967
$
(15,693)
Supplemental Disclosures of Cash Flow Information:
Cash paid (received) during the period for:
Interest paid....................................
$
989
$
1,640
Income taxes paid................................
2,330
5,612
Income taxes refunded............................
(646)
(1,094)
The accompanying notes are an integral part of these consolidated financial
statements.
CONTROL DATA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
OCTOBER 1, 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The financial statements include the accounts of all majority-owned
subsidiaries. All significant intercompany transactions have been
eliminated.
Net Earnings Per Share
The net earnings per common share and common share equivalents is
computed by dividing net earnings by the weighted average number of shares
and dilutive common equivalent shares outstanding during each period.
Common stock equivalents result from dilutive stock options and warrants
computed using the treasury stock method. Fully diluted earnings per share
did not differ from primary earnings per share in the periods presented.
2. STOCKHOLDERS' EQUITY
(Dollars and shares in thousands)
Minimum
Foreign
Common Stock
Additional
Pension
Currency
Number
Paid-In
Retained
Liability
Translation
of Shares
Amount
Capital
Earnings
Adjustment
Adjustment
Total
Balance at January 1, 1994.........
13,599
$
136
$
159,683
$
23,162
$
(4,722)
$
(3,083)
$
175,176
Issuance of common stock under
the Employee Stock Purchase Plan.
42
-
336
-
-
-
336
Exercises of stock options........
48
1
320
-
-
-
321
Foreign currency translation
adjustment.......................
-
-
-
-
-
32
32
Net earnings......................
-
-
-
1,359
-
-
1,359
Balance at April 2, 1994...........
13,689
137
160,339
24,521
(4,722)
(3,051)
177,224
Issuance of common stock under
the Employee Stock Purchase Plan.
20
-
137
-
-
-
137
Exercises of stock options........
71
1
500
-
-
-
501
Foreign currency translation
adjustment.......................
-
-
-
-
-
(964)
(964)
Net earnings......................
-
-
-
683
-
-
683
Balance at July 2, 1994............
13,780
138
160,976
25,204
(4,722)
(4,015)
177,581
Issuance of common stock under
the Employee Stock Purchase Plan.
-
-
1
-
-
-
1
Exercises of stock options........
-
-
-
-
-
-
-
Foreign currency translation
adjustment.......................
-
-
-
-
-
1,582
1,582
Net loss..........................
-
-
-
(4,975)
-
-
(4,975)
Balance at October 1, 1994.........
13,780
$
138
$
160,977
$
20,229
$
(4,722)
$
(2,433)
$
174,189
CONTROL DATA SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Unaudited)
(Dollars in Millions)
Overview. Control Data Systems, Inc. ("Control Data Systems" or the
"Company") is a comprehensive systems integration company that helps
businesses and government institutions provide measurable value to their
customers and constituents by coupling business process improvement with
technology innovation. The Company relies upon its computer professionals
to provide the consulting services required to define, develop, install and
maintain computer-based solutions. The Company has a growing family of open
systems technology partners and suppliers offering a range of hardware
platforms and software products which the Company then customizes for a
particular customer environment. These integration/consulting services -
Control Data Brainware(TM) - are based upon the Company's 37 years of
experience in implementing leading-edge solutions for complex computing
environments. The Company serves customers in technical, government and
commercial markets.
Revenues by Category
Three Months Ended
Nine Months Ended
October 1,
October 2,
October 1,
October 2,
1994
1993
Change
1994
1993
Change
Software and services....
$
32.2
$
33.5
(3.9)
%
$
103.6
$
104.3
(0.7)
%
Maintenance and support..
23.7
26.3
(9.9)
%
69.1
84.0
(17.7)
%
Hardware products........
57.7
37.3
54.7
%
217.8
126.4
72.3
%
Total revenues........
$
113.6
$
97.1
17.0
%
$
390.5
$
314.7
24.1
%
Revenues by Geography
Three Months Ended
Nine Months Ended
October 1,
October 2,
October 1,
October 2,
1994
1993
Change
1994
1993
Change
Americas.................
$
48.2
$
47.5
1.5
%
$
178.4
$
141.9
25.7
%
Europe...................
53.4
37.3
43.2
%
166.7
128.2
30.0
%
Asia.....................
12.0
12.3
(2.4)
%
45.4
44.6
1.8
%
Total revenues........
$
113.6
$
97.1
17.0
%
$
390.5
$
314.7
24.1
%
Revenues for third quarter 1994 of $113.6 million increased 17% from
third quarter 1993 revenues of $97.1 million. Revenues for the first nine
months of 1994 totaled $390.5 million, an increase of 24.1% from the $314.7
million of revenue in the first nine months of 1993. The increase in both
the third quarter and the first nine months of 1994 results from the
inclusion of revenues of acquired companies and increased revenue levels
resulting from implementing open systems solutions for the Company's
customers and offset by declines in the sale and servicing of proprietary
hardware and software products. The majority of the increase in hardware
products is attributable to the inclusion of revenue from recent
acquisitions that were completed in the fourth quarter of 1993 and the
first quarter of 1994.
CONTROL DATA SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Unaudited) (Continued)
(Dollars in Millions)
Cost of Revenues and Gross Profit
Three Months Ended
Nine Months Ended
October 1,
October 2,
October 1,
October 2,
1994
1993
Change
1994
1993
Change
Cost of revenues........
$
83.4
$
60.2
38.5
%
$
281.1
$
192.9
45.7
%
Percentage of revenues..
73.4
%
62.0
%
72.0
%
61.3
%
Gross profit............
$
30.2
$
36.9
(18.2)
%
$
109.4
$
121.8
(10.2)
%
Percentage of revenues..
26.6
%
38.0
%
28.0
%
38.7
%
A combination of factors contribute to an increase in cost of revenues
greater than the increase in revenues, which results in lower gross margin
dollars as a percentage of revenue in the third quarter and first nine
months of 1994 compared to the comparable periods of 1993. Revenue mix in
terms of a greater proportion of lower margin hardware business associated
with recent acquisitions, lower quantities of higher margin maintenance and
proprietary hardware sales combined with lower margins on software and
services revenue are the primary factors contributing to the decrease in
overall gross margin dollars and lower gross margin percentages. The
software and services gross margin is primarily impacted by the
underutilization of the technical resources due to contract award slippage
and the changing skill requirements required by the Company's direction
into specific market focused programs.
Operating Expenses
Three Months Ended
Nine Months Ended
October 1,
October 2,
October 1,
October 2,
1994
1993
Change
1994
1993
Change
Selling, general and
administrative........
$
33.0
$
33.6
(1.8)
%
$
102.9
$
101.5
1.4
%
Percentage of revenues..
29.0
%
34.6
%
26.4
%
32.3
%
Technical...............
$
3.1
$
4.7
(34.0)
%
$
10.4
$
19.4
(46.4)
%
Percentage of revenues..
2.7
%
4.8
%
2.7
%
6.2
%
Selling, general and administrative (SG&A). SG&A expense in the third
quarter of 1994 is slightly lower than the comparable quarter in 1993.
SG&A expense for the first nine months of 1994 has increased by 1.4% from
the comparable period in 1993. The inclusion of companies acquired in the
fourth quarter of 1993 and the first quarter of 1994 is the primary reason
for the increase. SG&A expenses associated with the non-acquired business
base has decreased approximately 13% in the first nine months of 1994
compared to the comparable period in 1993.
Technical. The decrease in technical expense is an ongoing trend as the
Company continues its transition from a provider of proprietary products,
which requires higher technical spending as a percentage of revenues, to a
systems integration company.
CONTROL DATA SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Unaudited) (Continued)
(Dollars in Millions)
Nonoperating Income
Three Months Ended
Nine Months Ended
October 1,
October 2,
October 1,
October 2,
1994
1993
Change
1994
1993
Change
Nonoperating income....
$
1.6
$
1.0
60.0
%
$
2.5
$
6.8
(63.2)
%
Percentage of revenues.
1.4
%
1.0
%
0.6
%
2.2
%
Interest expense. Interest expense decreased in the third quarter and
first nine months of 1994 versus the comparable periods in 1993 due to
lower interest rates on outstanding borrowings.
Interest income. Interest income decreased in the third quarter and the
first nine months of 1994 versus the comparable periods of 1993 due to
lower average daily cash and short-term investment balances combined with
lower interest rates on the investments.
Other income. Other income increased by $.6 million in the third quarter
of 1994 versus the third quarter of the previous year. The primary factor
in this increase is an increase in favorable foreign currency exchange gain
in the current quarter versus the comparable quarter in 1993. Other income
for the first nine months of 1994 is $3.6 million lower than the comparable
period in 1993. The primary factors for the decrease relate to the
inclusion of a gain on investments in 1993 arising out of the sale of
Silicon Graphics Inc. common stock versus no similar gain on investments in
1994, a $.7 million loss in affiliates in 1994 versus a gain of $.2 in 1993
primarily related to the Company's fifty percent interest in Metaphase
Technologies, Inc. and $1.0 million other expense in 1994 resulting from
the reduction in the market value of certain short-term investments due to
increases in interest rates.
Provision for Income Taxes
Three Months Ended
Nine Months Ended
October 1,
October 2,
October 1,
October 2,
1994
1993
1994
1993
Provision for Income Taxes..
$
0.6
$
(1.4)
$
1.5
$
1.1
Percentage of revenues......
0.5
%
(1.4)
%
0.4
%
0.3
%
The provision for income taxes in third quarter and first nine months
of 1994 and the comparable periods in 1993 relate primarily to foreign
income taxes on the earnings of the Company's foreign subsidiaries and
foreign withholding taxes on certain United States income and state
franchise taxes.
CONTROL DATA SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Unaudited) (Continued)
(Dollars in Millions)
Net Earnings and Earnings Per Share
Three Months Ended
Nine Months Ended
October 1,
October 2,
October 1,
October 2,
1994
1993
1994
1993
[S]
[C]
[C]
[C]
[C]
Net earnings (loss).........
$
(5.0)
$
0.9
$
(2.9)
$
6.6
Percentage of revenues......
(4.4)
%
0.9
%
(0.7)
%
2.1
%
Earnings (loss) per share...
$
(0.36)
$
0.07
$
(0.21)
$
0.49
The Company operated at a net loss for the third quarter and first
nine months of 1994 compared to a net gain for the comparable periods in
1993. The primary factors are the lower gross margins and the decreased
other income in 1994 versus the comparable periods of the prior year.
Operating results for the nine months ended October 1, 1994 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1994.
Outlook
The following factors, among others, should be considered in
evaluating the Company's outlook.
General. The Company participates in the systems integration segment of
the information systems and services market. This segment is projected to
grow by more than 15% per year over the next four years. Equipment
manufacturers, large consulting firms and traditional systems integrators
also compete in this market segment. There are many smaller firms also
active in this market segment with no one firm having a dominant position.
Many of the companies in this market segment offer outsourcing and other
types of long-term agreements with their customer base. The result of
these types of activities is to develop a backlog of business that creates
a certain predictable revenue base in future periods. The Company has a
limited number of these types of arrangements. Therefore, revenue
predictability is currently difficult, which produces additional volatility
of earnings quarter to quarter.
Business activity in selected operations during the first nine months
of 1994 has fallen below the Company's business plan. Slower than planned
revenues from systems integration activities, significant decline in
revenues at certain recently acquired companies, lower than expected gross
margins associated with hardware sales and excess technical resources in
the consulting sector have been the primary issues. While expenses are
also below the Company's plan, the reduction is not adequate to offset
lower gross margin levels. The Company is nearing completion of a thorough
review of its worldwide business operations and market opportunities.
Tentative findings indicate a reduction in the geographic scope of
operations, downsizing of employment levels worldwide and refocusing of
product and service offerings is necessary to remain competitive in the
future. The Company announced in October an anticipated fourth quarter
1994 restructuring and asset valuation charge of approximately $95 million
that is expected to result from the completion of the review and the fourth
quarter decisions to be made based upon the results of the review. This
charge will include expenses for reducing the worldwide employee population
by approximately 600 people, consolidating operations in selected
locations, and revaluing of intangible assets associated with acquisitions
and certain proprietary hardware assets. The cash portion of the total
restructuring charge will be approximately half of the total charge.
CONTROL DATA SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Unaudited) (Continued)
(Dollars in Millions)
Revenues. The Company expects total revenues to increase in 1994 over 1993
levels due in part to the recent acquisition activity in Canada and the
United Kingdom and in part to increased revenues from providing integration
services to its customers, offset by declining revenues in the sales and
servicing of proprietary products. Revenue levels in 1995 could be
impacted by the elimination or downsizing of selected worldwide
operations.
Cost of revenues. The Company's cost of revenues as a percentage of total
revenues increased in the third quarter and first nine months of 1994 from
the comparable periods of the prior year. Gross margins, as a percentage
of sales, for the balance of 1994 are expected to continue at levels lower
than comparable periods in 1993 and lower than the Company's business plan
for 1994. The gross margin trend for 1995 is difficult to predict at this
point in time. Cost savings resulting from the planned restructuring
program could be partially offset by continuing declines in the servicing
of proprietary products and a change in revenue mix, resulting from faster
growth in lower margin hardware products. Due to varying gross margins of
different types of product sales and varying gross margins of specific
large projects quarter to quarter, total gross margins will be volatile.
Selling, general and administrative expenses. SG&A expenses are expected
to decrease as a percentage of revenues in 1994, as revenues are expected
to increase at a faster rate than SG&A expenses, including the expenses of
the acquired businesses. Excluding the expense associated with the
acquired businesses, SG&A expense has been declining during 1994 versus
1993 levels. This trend is expected to continue in 1995 primarily as a
result of the restructuring activity.
Technical expenses. Technical spending declined in the third quarter and
for the first nine months of 1994 from the comparable periods in 1993. The
Company continues to transition away from being a provider of proprietary
products, which requires higher technical spending as a percentage of
revenues than does a systems integration company. Technical spending for
the fourth quarter of 1994 is expected to be comparable to the first three
quarters of the year. Technical spending in 1995 is expected to decline
further as the majority of the technical spending for proprietary products
is expected to be completed in 1994. Some of this decline will be offset by
higher spending on Electronic Commerce products and services, which is one
on the company's primary targeted markets.
Income tax rate. In total, the Company has $110 million of deferred tax
assets at January 1, 1994, which can be used to offset taxes on future
earnings. While the Company maintains significant operations outside the
United States, the majority of these operations will also have deferred tax
assets as of December 31, 1994, resulting from lower than expected 1994
earnings, caused in part by the planned worldwide restructuring program.
In the long term this will significantly reduce the Company's tax expense.
However, given the wide geographical dispersion of the Company's operations
the tax rate will be volatile.
Foreign exchange. A large percentage of the Company's revenues, costs and
expenses are transacted in local currencies. As a result, the Company's
financial results are subject to foreign exchange rate fluctuations.
Accounting standards. Accounting standards promulgated by the Financial
Accounting Standards Board change periodically. Changes in such standards,
including currently proposed changes in accounting for employee stock
option plans, may have a negative impact on the Company's future reported
earnings.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Unaudited) (Continued)
(Dollars in Millions)
Financial Condition
The Company's cash and short-term investments totaled $76.6 million at
October 1, 1994 and represented 23.1% of total assets. The Company has no
long-term debt. Stockholders' equity at October 1, 1994 was $174.2 million.
As a result of the planned restructuring and asset revaluation charge
announced by the Company in October, 1994, stockholders' equity will be
impacted by the charge excluding any revaluation of foreign currency
translation adjustments. Total cash and short-term investment balances
declined by $5.0 million from the corresponding January 1, 1994 balances.
The primary factors in the decrease are the acquisition of MICHAEL Business
Systems Plc which totaled $3.8 million, restructuring payments which
totaled $16.3 million and property and equipment investments which totaled
$6.0 million offset by an increase in short-term borrowings of $6.5 million
and positive cash flow from operations.
As of October 1, 1994, the Company has available up to $31.2 million,
primarily short-term notes and overdraft facilities, under bank lines of
credit in certain international subsidiaries. The Company has a domestic
credit arrangement which provides up to $10.0 million in unsecured short-
term credit.
The Company has $16.5 million of restructure obligations as of October
1, 1994, $11.0 million which are expected to be cash outlays in the next
twelve months primarily for severance costs, lease and other obligations
related to excess facilities, and litigation costs. In addition,
approximately half of the Company's estimated restructuring charge of $95
million in the fourth quarter of this year will require cash. The Company
believes that it can finance this additional cash requirement through a
combination of existing cash reserves, cash flow from operations, asset
sales and its borrowing capacity. To the extent it may be necessary to
supplement these sources of cash, the Company could seek financing from
strategic investors and through future debt or equity financing in the
public or private markets. The ability of the Company to borrow money or
to sell debt or equity securities will depend on its results of operations,
financial condition and business prospects, as well as conditions then
prevailing in the computer industry and the relevant capital markets.
PART II
OTHER INFORMATION
ITEM 6 Exhibits and reports on Form 8-K
(a) Exhibits
11 Computation of Earnings (Loss) per Common Share
27 Financial Data Schedule
(b) Reports on Form 8-K
A report on Form 8-K dated July 21, 1994 was filed during the
Registrant's fiscal quarter ended October 1, 1994 reporting under
Item 5-Other Events the results of the Company's second quarter
for fiscal 1994.
A report on Form 8-K dated October 20, 1994 was filed subsequent
to the Registrant's fiscal quarter ended October 1, 1994
reporting under Item 5-Other Events the results of the Company's
third quarter for fiscal 1994.
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 hereunto duly authorized.
CONTROL DATA SYSTEMS, INC.
Registrant
Date: November 11, 1994 /s/ J. F. KILLORAN
J. F. Killoran
Vice President and Chief Financial Officer
(Principal Accounting Officer)
EXHIBIT INDEX
EXHIBITS FILED AS ITEM 6 TO THE QUARTERLY REPORT OF CONTROL DATA SYSTEMS,
INC. ON FORM 10-Q FOR THE QUARTER ENDED OCTOBER 1, 1994.
(11) - Computation of Earnings (Loss) Per Common Share
(27) - Financial Data Schedule
2
EXHIBIT 11
CONTROL DATA SYSTEMS, INC.
Computation of Earnings Per Common Share
(Dollars in thousands, except per share data)
Three Months Ended
Nine Months Ended
October 1,
October 2,
October 1,
October 2,
1994
1993
1994
1993
Net earnings (loss) applicable to
common shares:
Net earnings (loss)....................
$
(4,975)
$
982
$
(2,933)
$
6,637
Primary:
Shares for common and common share
equivalent earnings (loss) per share (1):
Weighted average number of
common shares outstanding............
13,780,379
13,579,145
13,734,254
13,012,226
Dilutive effect of outstanding
stock options and warrants...........
0
670,658
0
604,040
13,780,379
14,249,803
13,734,254
13,616,266
Net earnings (loss) per common share
and common share equivalents.............
$
(0.36)
$
0.07
$
(0.21)
$
0.49
Fully Diluted:
Shares for common and common share
equivalent earnings (loss) per share (2):
Weighted average number of
common shares outstanding............
13,780,379
13,579,145
13,734,254
13,012,226
Dilutive effect of outstanding
stock options and warrants...........
0
697,064
0
660,997
13,780,379
14,276,209
13,734,254
13,673,223
Net earnings (loss) per common share
and common share equivalents.............
$
(0.36)
$
0.07
$
(0.21)
$
0.49
(1) Outstanding stock options, warrants and shares issuable under employee
stock purchase plans are converted to common share equivalents by the
treasury stock method using the average market price of the Company's
shares during each period.
(2) Outstanding stock options, warrants and shares issuable under employee
stock purchase plans are converted to common share equivalents by the
treasury stock method using the greater of the average market price or
the period-end market price of the Company's shares during each period.
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<ARTICLE> 5
<MULTIPLIER> 1,000
<PERIOD-TYPE>
9-MOS
<FISCAL-YEAR-END>
Dec-31-1994
<PERIOD-END>
Oct-01-1994
<CASH>
76,650
<SECURITIES>
0
<RECEIVABLES>
113,392
<ALLOWANCES>
0
<INVENTORY>
47,894
<CURRENT-ASSETS>
245,840
<PP&E>
30,814
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0
<TOTAL-ASSETS>
331,123
<CURRENT-LIABILITIES>
115,248
<BONDS>
0
<COMMON>
138
0
0
<OTHER-SE>
174,051
<TOTAL-LIABILITY-AND-EQUITY>
331,123
<SALES>
242,225
<TOTAL-REVENUES>
390,550
<CGS>
172,201
<TOTAL-COSTS>
394,479
<OTHER-EXPENSES>
(3,455)
<LOSS-PROVISION>
0
<INTEREST-EXPENSE>
979
<INCOME-PRETAX>
(1,453)
<INCOME-TAX>
1,480
<INCOME-CONTINUING>
0
<DISCONTINUED>
0
<EXTRAORDINARY>
0
<CHANGES>
0
<NET-INCOME>
(2,933)
<EPS-PRIMARY>
(0.21)
<EPS-DILUTED>
(0.21)
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