<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 APRIL 2, 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: 13,701,366 shares of Common Stock,
$0.01 par value per share, as of May 9, 1994.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CONTROL DATA SYSTEMS, INC.
FORM 10-Q
APRIL 2, 1994
INDEX
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
PART I -- FINANCIAL INFORMATION:
Consolidated Statements of Operations --
Three months ended April 2, 1994 and April 3, 1993...................................................... 2
Consolidated Balance Sheets --
April 2, 1994 and January 1, 1994....................................................................... 3
Consolidated Statements of Cash Flows --
Three months ended April 2, 1994 and April 3, 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............................................................................... 11
SIGNATURE.................................................................................................. 12
EXHIBIT INDEX.............................................................................................. 13
</TABLE>
1
<PAGE>
PART 1
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONTROL DATA SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------
APRIL 2, APRIL 3,
1994 1993
----------- -----------
<S> <C> <C>
REVENUES:
Net sales and rentals.............................................................. $ 96,553 $ 49,659
Services........................................................................... 49,077 53,086
----------- -----------
Total revenues................................................................... 145,630 102,745
COST OF REVENUES:
Net sales and rentals.............................................................. 69,934 27,095
Services........................................................................... 35,680 34,507
----------- -----------
Total cost of revenues........................................................... 105,614 61,602
----------- -----------
Gross profit..................................................................... 40,016 41,143
OPERATING EXPENSES:
Selling, general and administrative................................................ 35,171 33,546
Technical.......................................................................... 3,581 7,419
----------- -----------
Total operating expenses......................................................... 38,752 40,965
----------- -----------
Earnings from operations......................................................... 1,264 178
----------- -----------
OTHER INCOME (EXPENSES):
Interest expense................................................................... (277) (688)
Interest income.................................................................... 1,205 1,794
Other income (expenses), net....................................................... (403) 1,304
----------- -----------
Total other income, net.......................................................... 525 2,410
----------- -----------
Earnings before income taxes..................................................... 1,789 2,588
PROVISION FOR INCOME TAXES........................................................... 430 1,250
----------- -----------
Net earnings..................................................................... $ 1,359 $ 1,338
----------- -----------
----------- -----------
Net earnings per common share and common share equivalents........................... $ 0.10 $ 0.10
----------- -----------
----------- -----------
Weighted average common shares outstanding (in thousands)............................ 13,786 13,309
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
CONTROL DATA SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
APRIL 2, JANUARY 1,
1994 1994
----------- -----------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and short-term investments.................................................... $ 78,051 $ 81,635
Trade and other receivables........................................................ 132,620 125,470
Inventories........................................................................ 62,856 56,222
Prepaid expenses and other current assets.......................................... 7,441 7,898
----------- -----------
Total current assets............................................................. 280,968 271,225
Investments and advances........................................................... 612 615
Property and equipment, net........................................................ 30,492 28,058
Leased and data center equipment, net.............................................. 3,590 4,779
Noncurrent trade receivables....................................................... 11,363 11,638
Goodwill, net...................................................................... 35,493 27,842
Other noncurrent assets............................................................ 9,115 8,766
----------- -----------
Total assets..................................................................... $ 371,633 $ 352,923
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable...................................................................... $ 6,533 $ 1,891
Accounts payable................................................................... 51,135 35,212
Customer advances and deferred income.............................................. 19,101 19,665
Accrued taxes...................................................................... 2,506 4,104
Accrued salaries and wages......................................................... 17,209 16,620
Restructure reserves, current portion.............................................. 15,056 21,722
Other accrued expenses............................................................. 38,701 38,143
----------- -----------
Total current liabilities........................................................ 150,241 137,357
Deferred income taxes................................................................ 1,061 1,123
Restructure reserves, less current portion........................................... 9,901 10,554
Pension liabilities.................................................................. 28,089 27,870
Other noncurrent liabilities......................................................... 5,117 843
----------- -----------
Total liabilities................................................................ 194,409 177,747
----------- -----------
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 13,688,640 and 13,598,668 shares as of April 2, 1994 and January 1,
1994, respectively................................................................ 137 136
Additional paid-in capital......................................................... 160,339 159,683
Retained earnings.................................................................. 24,521 23,162
Minimum pension liability adjustment............................................... (4,722) (4,722)
Foreign currency translation adjustment............................................ (3,051) (3,083)
----------- -----------
Total stockholders' equity....................................................... 177,224 175,176
----------- -----------
Total liabilities and stockholders' equity....................................... $ 371,633 $ 352,923
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
CONTROL DATA SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------
APRIL 2, APRIL 3,
1994 1993
---------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net earnings........................................................................ $ 1,359 $ 1,338
Adjustments to reconcile net earnings to net cash
used in operating activities:
Depreciation...................................................................... 3,444 4,160
Amortization...................................................................... 1,078 35
Foreign currency transaction loss................................................. 30 188
Equity in losses (gains) of affiliates............................................ 316 (375)
Restructure reserves utilized..................................................... (7,103) (8,331)
Loss (gain) from sale of marketable securities and other assets................... 476 (34)
Net change in working capital items............................................... 127 (393)
Net change in noncurrent trade receivables........................................ (723) 1,065
Other............................................................................. 273 1,104
---------- -----------
Net cash used in operating activities........................................... (723) (1,243)
---------- -----------
Cash Flows from Investing Activities:
Expended for property and equipment................................................. (1,980) (2,389)
Expended for leased and data center equipment....................................... (239) (369)
Proceeds from sales of property and equipment....................................... 214 836
Acquisitions of businesses, net of cash provided.................................... (3,844) --
Change in short-term investments.................................................... (5,451) 8,054
---------- -----------
Net cash (used in) provided by investing activities............................. (11,300) 6,132
---------- -----------
Cash Flows from Financing Activities:
Borrowings under short-term financing arrangements, net............................. 2,416 2,837
Repayments of long-term obligations................................................. -- (7,125)
Proceeds from issuance of common stock, net of issuance costs....................... 657 529
Proceeds from issuance of nonrefundable equity option in ICEM Systems GmbH.......... -- 2,813
---------- -----------
Net cash provided by (used in) financing activities............................. 3,073 (946)
---------- -----------
Effect of Exchange Rate Changes on Cash............................................... (85) (99)
---------- -----------
Net change in cash and cash equivalents............................................. (9,035) 3,844
Cash and cash equivalents, beginning of period...................................... 19,164 5,142
---------- -----------
Cash and cash equivalents, end of period............................................ 10,129 8,986
Short-term investments.............................................................. 67,922 121,227
---------- -----------
Cash and short-term investments, end of period........................................ $ 78,051 $ 130,213
---------- -----------
---------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
CONTROL DATA SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------
APRIL 2, APRIL 3,
1994 1993
--------- ---------
<S> <C> <C>
Net Change in Working Capital Items:
Trade and other receivables............................................................ $ (420) $ (200)
Inventories............................................................................ (4,234) (3,260)
Prepaid expenses and other current assets.............................................. 434 (100)
Accounts payable....................................................................... 6,908 (884)
Customer advances and deferred income.................................................. (1,696) 2,308
Accrued taxes.......................................................................... (1,586) (596)
Accrued salaries and wages............................................................. 659 (2,800)
Other accrued expenses................................................................. 62 5,139
--------- ---------
Net change in working capital items.................................................. $ 127 $ (393)
--------- ---------
--------- ---------
Supplemental Cash Flow Information:
Cash paid (received) during the period for:
Interest paid........................................................................ $ 282 $ 688
Income taxes paid.................................................................... 483 2,683
Income taxes refunded................................................................ (180) (3)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
CONTROL DATA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
APRIL 2, 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
<TABLE>
<CAPTION>
COMMON STOCK MINIMUM FOREIGN
------------------------ ADDITIONAL PENSION CURRENCY
NUMBER PAID-IN RETAINED LIABILITY TRANSLATION
OF SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT ADJUSTMENT TOTAL
----------- ----------- ---------- --------- ----------- ----------- ----------
(DOLLARS AND SHARES IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
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
----------- ----- ---------- --------- ----------- ----------- ----------
----------- ----- ---------- --------- ----------- ----------- ----------
</TABLE>
3. ACQUISITION
On January 4, 1994, the Company acquired all of the outstanding capital
stock of MICHAEL Business Systems Plc for $3.4 million in cash, plus a
contingent payment of up to $1.5 million, payable over the next three years.
MICHAEL Business Systems Plc was a privately held United Kingdom company
providing microcomputer-based products and network integration services. The
acquisition will be accounted for as a purchase and the net assets and results
of operations will be included in the Company's Consolidated Financial
Statements beginning January 4, 1994.
The purchase price and expenses associated with the acquisition exceeded the
fair market value of the net assets acquired by approximately $8.7 million and
will be amortized on a straight-line basis over ten years.
The following represents the unaudited pro forma results of operations and
assumes that the acquisition described above occurred as of the period presented
after giving effect to certain adjustments, including the excess of cost over
the underlying fair market value of net assets.
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 1,
1994
--------------
<S> <C>
Revenues.......................................................................................... $ 487,291
Net earnings...................................................................................... $ 8,407
Net earnings per share............................................................................ $ 0.61
Weighted average common shares outstanding........................................................ 13,764
</TABLE>
The pro forma financial information does not purport to be indicative of the
results of operations that would have occurred had this transaction taken place
at the beginning of the period presented or of future results of operations.
6
<PAGE>
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 systems integrator, developing and implementing open systems
solutions for the operational problems of customers worldwide. 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
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------
APRIL 2, APRIL 3,
1994 1993 CHANGE
--------- --------- -----------
<S> <C> <C> <C>
Software and services............................................... $ 35.1 $ 33.8 3.8%
Maintenance and support............................................. 22.7 28.3 (19.8)%
--------- --------- -----
Integration services.............................................. 57.8 62.1 (6.9)%
Hardware products................................................... 87.8 40.6 116.3%
--------- --------- -----
Total revenues.................................................... $ 145.6 $ 102.7 41.8%
--------- --------- -----
--------- --------- -----
</TABLE>
REVENUES BY GEOGRAPHY
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------
APRIL 2, APRIL 3,
1994 1993 CHANGE
--------- --------- -----------
<S> <C> <C> <C>
Americas............................................................. $ 73.7 $ 45.8 60.9%
Europe............................................................... 55.4 44.8 23.7%
Asia................................................................. 16.5 12.1 36.4%
--------- --------- -----
Total revenues..................................................... $ 145.6 $ 102.7 41.8%
--------- --------- -----
--------- --------- -----
</TABLE>
Revenues for first quarter 1994 of $145.6 million increased 41.8% from first
quarter 1993 revenues of $102.7 million. The increase results from a combination
of the inclusion of revenues from acquired companies and increased revenue
levels resulting from implementing open systems solutions for the Company's
customers. The majority of the increase in hardware products results from the
inclusion of revenue from recent acquisitions that were completed in the second
half of 1993 and the first quarter of 1994. The operations of the acquired
companies have been or are in the process of being integrated with existing
Company operations. This integration is being done to maximize the strengths of
both the acquired and existing operations. It will not be possible to quantify
the incremental revenues from the acquired companies in future periods.
7
<PAGE>
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
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------
APRIL 2, APRIL 3,
1994 1993 CHANGE
----------- ----------- -----------
<S> <C> <C> <C>
Cost of revenues..................................................... $ 105.6 $ 61.6 71.4%
Percentage of revenues............................................... 72.5% 60.0%
Gross profit......................................................... $ 40.0 $ 41.1 (2.7)%
Percentage of revenues............................................... 27.5% 40.0%
</TABLE>
Revenue mix is the primary factor in the decrease of gross margins in the
first quarter of 1994. Hardware product revenue volume represented 60% of total
revenue volume in the quarter compared with 40% in the year ago quarter. The
inclusion of lower gross margin hardware products from the recently acquired
companies was a primary factor in the decrease in overall margin. In addition,
gross margins in the software and services revenue segment were lower than the
year ago quarter. This results in part from an increase in staffing of customer
service personnel in anticipation of increased requirements later in the year,
and in part from the transfer of personnel that were previously focused on
technical and marketing support activities.
OPERATING EXPENSES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------
APRIL 2, APRIL 3,
1994 1993 CHANGE
----------- ----------- -----------
<S> <C> <C> <C>
Selling, general and administrative.................................... $ 35.2 $ 33.5 5.1%
Percentage of revenues................................................. 24.2% 32.6%
Technical.............................................................. $ 3.6 $ 7.4 (51.4)%
Percentage of revenues................................................. 2.5% 7.2%
</TABLE>
SELLING, GENERAL AND ADMINISTRATIVE (SG&A). The increase in SG&A results
primarily from the SG&A expenses assumed in the acquisitions completed in June
and October of 1993 and January 1994.
TECHNICAL. The decrease in technical expense is an ongoing trend as the
Company continues its transition from a provider of proprietary products to a
systems integration company.
NONOPERATING INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------
APRIL 2, APRIL 3,
1994 1993 CHANGE
----------- ----------- -----------
<S> <C> <C> <C>
Nonoperating income.................................................... $ 0.5 $ 2.4 (79.2)%
Percentage of revenues................................................. 0.3% 2.3%
</TABLE>
INTEREST EXPENSE. Interest expense decreased in the first quarter of 1994
due to decreased average daily short-term borrowings in certain international
subsidiaries.
INTEREST INCOME. Interest income decreased in the first quarter of 1994 due
to lower average daily cash and short-term investments balances versus the first
quarter of 1993.
OTHER INCOME. Other income decreased in first quarter 1994 due to foreign
currency transaction losses of $0.3 million in the first quarter 1994 versus
$0.2 million of foreign currency transaction gains in the first quarter 1993 and
$0.3 million in equity in losses of affiliates in the first quarter 1994 versus
$0.4 million in equity in earnings of affiliates in the first quarter 1993.
Other income in the year ago quarter also included a $0.6 million gain from sale
of land.
8
<PAGE>
CONTROL DATA SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (UNAUDITED) (CONTINUED)
(DOLLARS IN MILLIONS)
PROVISION FOR INCOME TAXES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------
APRIL 2, APRIL 3,
1994 1993
----------- -----------
<S> <C> <C>
Provision for income taxes..................................................... $ 0.4 $ 1.3
Percentage of revenues......................................................... 0.3% 1.2%
</TABLE>
The provisions for income taxes in first quarter 1994 and 1993 relate
primarily to foreign income taxes on the earnings of the Company's foreign
subsidiaries and state franchise and foreign withholding taxes on certain United
States income.
NET EARNINGS AND EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------
APRIL 2, APRIL 3,
1994 1993
----------- -----------
<S> <C> <C>
Net earnings................................................................... $ 1.4 $ 1.3
Percentage of revenues......................................................... 1.0% 1.3%
Earnings per share............................................................. $ 0.10 $ 0.10
</TABLE>
Net earnings for the first quarter of 1994 were comparable to the first
quarter of 1993, however, earnings from operations for the first quarter of 1994
increased by $1.1 million to $1.3 million from the year ago quarter. The
increase in operating earnings is due to increased revenues and a reduction in
total operating expenses. Operating results for the three months ended April 2,
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 in
excess of 15% per year over the next four years. Equipment manufacturers, large
consulting firms and traditional systems integrators also compete in this market
segment. However, there are many smaller firms also active in this segment with
no one firm having a dominant position.
REVENUES. The Company expects total revenues to increase in 1994 over 1993
levels due in part to the recent acquisition activity and in part to increased
revenues from providing integration services to its customers. These are
expected to more than offset the continuing decline in the sale and servicing of
proprietary products.
COST OF REVENUES. The Company's cost of revenues as a percentage of total
revenues increased in the first quarter of 1994 from the year ago quarter. Gross
margins, as a percentage of sales, for the balance of 1994 are expected to
continue at levels lower than comparable periods of 1993.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses increased in
first quarter of 1994 from 1993. 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.
TECHNICAL EXPENSES. Technical spending declined in the first quarter of
1994 from a year ago. The Company continues to transition from a provider of
proprietary products to a systems integrator. Technical spending for the
remainder of the year is expected to be comparable to first quarter 1994.
9
<PAGE>
CONTROL DATA SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (UNAUDITED) (CONTINUED)
(DOLLARS IN MILLIONS)
INCOME TAX RATE. In total, the Company has $110.0 million of deferred tax
assets at January 1, 1994, which can be used to offset taxes on future earnings.
However, the Company maintains significant operations outside the United States
that, if profitable, will be subject to corporate income taxes in 1994.
Consequently, the Company's 1994 current estimated tax rate of 24% is highly
dependent on its geographic distribution of earnings, and therefore volatile.
FOREIGN EXCHANGE. A large percentage of the Company's revenues is
transacted in local currencies. As a result, the Company's revenues 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.
FINANCIAL CONDITION
The Company's cash and short-term investments totaled $78.1 million at April
2, 1994 and represented 21.0% of total assets.
The Company has no long-term debt. Stockholders' equity at April 2, 1994 was
$177.2 million.
Total cash and short-term investment balances decreased by $3.6 million in
the first quarter of 1994 primarily due to the acquisition of MICHAEL Business
Systems Plc which totaled $3.8 million for purchase of equity and payment of
acquisition related expenses.
Cash used in operations was $0.7 million in the first quarter of 1994 due to
restructuring payments of $7.1 million partially offset by depreciation and
amortization of $4.5 million and net earnings of $1.4 million.
As of April 2, 1994, the Company has available up to $33.5 million under
bank lines of credit in certain international subsidiaries and a U.S. credit
agreement which provides up to $10.0 million in unsecured short-term financing.
The Company still has $25.0 million of restructure obligations as of April
2, 1994, $15.1 million of which are expected to be paid in the next twelve
months. In addition, pressure on gross margins is expected to continue,
reflecting the shift in revenue mix towards open systems products and downward
price pressures facing resellers of computer equipment. The Company's operations
are highly decentralized and geographically dispersed, which constrains the
ability to quickly reduce certain infrastructure costs if revenue volumes
unexpectedly decline. Additionally, timing of product orders by customers may
cause operating earnings to fluctuate between periods. Despite these factors,
the above-mentioned funds are expected to be sufficient to meet the Company's
operating requirements in 1994. 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 on conditions then prevailing in the computer industry and
the relevant capital markets.
10
<PAGE>
PART II
OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits
11 Computation of Earnings per Common share
(b) Reports on Form 8-K
None.
11
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CONTROL DATA SYSTEMS, INC.
--------------------------------------
Registrant
Date: May 13, 1994 /s/ J. F. KILLORAN
--------------------------------------
J. F. Killoran
VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER
(PRINCIPAL ACCOUNTING OFFICER)
12
<PAGE>
EXHIBIT INDEX
EXHIBITS FILED AS ITEM 6 TO THE QUARTERLY REPORT OF CONTROL DATA SYSTEMS, INC.
ON FORM 1O-Q FOR THE QUARTER ENDED APRIL 2, 1994.
(11) -- Computation of Earnings Per Common Share
13
<PAGE>
EXHIBIT 11
CONTROL DATA SYSTEMS, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
APRIL 2, 1994 APRIL 3, 1993
-------------- --------------
<S> <C> <C>
Net earnings applicable to common shares:
Net earnings................................................................ $ 1,359 $ 1,338
-------------- --------------
-------------- --------------
Primary:
Shares for common and common share equivalent earnings per share (1):
Weighted average number of common shares outstanding...................... 13,680,519 12,587,660
Dilutive effect of outstanding stock options and warrants................. 105,578 720,974
-------------- --------------
13,786,097 13,308,634
-------------- --------------
-------------- --------------
Net earnings per common share and common share equivalents.................... $ 0.10 $ 0.10
-------------- --------------
-------------- --------------
Fully Diluted:
Shares for common and common share equivalent earnings per share (2):
Weighted average number of common shares outstanding...................... 13,680,519 12,587,660
Dilutive effect of outstanding stock options and warrants................. 105,578 865,440
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13,786,097 13,453,100
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Net earnings per common share and common share equivalents.................... $ 0.10 $ 0.10
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<FN>
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(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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