<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 MARCH 31, 1995
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: 12,688,708 shares
of Common Stock, $0.01 par value per share, as of May 8, 1995.<PAGE>
<PAGE>
CONTROL DATA SYSTEMS, INC.
FORM 10-Q
March 31, 1995
INDEX
Page
Part I - Financial Information:
Consolidated Statements of Operations -
Three months ended March 31, 1995 and April 2, 1994 2
Consolidated Balance Sheets -
March 31, 1995 and December 31, 1994 ............... 3
Consolidated Statements of Cash Flows -
Three months ended March 31, 1995 and April 2, 1994 4
Notes to Consolidated Financial Statements ........... 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations ................ 8
Part II - Other Information .......................... 14
Signature ............................................ 15
Exhibit Index ........................................ 16
1<PAGE>
<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
March 31, April 2,
1995 1994
<S> <C> <C>
REVENUES:
Net sales and rentals.................. $ 81,557 $ 95,639
Services............................... 48,507 49,991
Total revenues....................... 130,064 145,630
COST OF REVENUES:
Net sales and rentals.................. 59,252 70,677
Services............................... 37,215 36,348
Total cost of revenues............... 96,467 107,025
Gross profit......................... 33,597 38,605
OPERATING EXPENSES:
Selling, general and
administrative........................ 30,172 33,760
Technical.............................. 2,338 3,581
Total operating expenses............. 32,510 37,341
Earnings from operations............. 1,087 1,264
OTHER INCOME (EXPENSES):
Interest expense....................... (274) (277)
Interest income........................ 1,386 1,205
Other income (expenses), net........... 700 (403)
Total other income, net.............. 1,812 525
Earnings before income taxes......... 2,899 1,789
PROVISION FOR INCOME TAXES.............. 700 430
Net earnings......................... $ 2,199 $ 1,359
Net earnings per common share
and common share equivalents......... $ 0.17 $ 0.10
Weighted average common shares
outstanding (in thousands)........... 13,237 13,786
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
2<PAGE>
<PAGE>
CONTROL DATA SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
ASSETS
March 31, December 31,
1995 1994
(Unaudited)
<S> <C> <C>
Current assets:
Cash and short-term investments................ $ 82,448 $ 85,415
Trade and other receivables.................... 124,917 121,829
Inventories.................................... 43,312 38,241
Prepaid expenses and other current assets...... 6,705 6,756
Total current assets......................... 257,382 252,241
Investments and advances......................... 151 133
Property and equipment, net...................... 20,208 20,727
Leased and data center equipment, net............ 2,212 1,901
Noncurrent trade and other receivables........... 7,799 7,330
Goodwill, net.................................... 9,911 10,187
Other noncurrent assets.......................... 8,748 8,049
Total assets................................. $ 306,411 $ 300,568
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Notes payable.................................. $ 5,258 $ 2,933
Accounts payable............................... 48,600 41,004
Customer advances and deferred income.......... 21,050 24,254
Accrued taxes.................................. 6,035 4,515
Accrued salaries and wages..................... 16,286 14,320
Restructure reserves, current portion.......... 34,358 36,698
Other accrued expenses......................... 36,958 35,176
Total current liabilities.................... 168,545 158,900
Deferred income taxes............................ 618 616
Restructure reserves, less current portion....... 17,920 18,240
Pension liabilities.............................. 37,418 34,019
Other noncurrent liabilities..................... 6,172 6,487
Total liabilities............................ 230,673 218,262
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 12,667,471 and 13,803,492
shares as of March 31, 1995 and
December 31, 1994, respectively.............. 138 138
Additional paid-in capital..................... 161,351 161,105
Retained earnings.............................. (69,042) (71,241)
Minimum pension liability adjustment........... (6,957) (6,957)
Foreign currency translation adjustment........ (2,641) (739)
Treasury stock, at cost........................ (7,111) -
Total stockholders' equity................... 75,738 82,306
Total liabilities and stockholders' equity... $ 306,411 $ 300,568
3<PAGE>
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4<PAGE>
<PAGE>
CONTROL DATA SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31, April 2,
1995 1994
<S> <C> <C>
Cash Flows from Operating Activities:
Net earnings ...................................... $ 2,199 $ 1,359
Adjustments to reconcile net earnings to net
cash provided by (used in) operating activities:
Depreciation................................... 3,336 3,444
Amortization................................... 377 1,078
Foreign currency transaction (gain) loss....... (1,143) 30
Equity in losses of affiliates................. 189 316
Restructure reserves utilized.................. (4,806) (7,103)
Loss on sale of marketable securities
and other assets............................. (136) 476
Net change in working capital items............ 4,071 127
Net change in noncurrent trade receivables..... (234) (220)
Net change in other noncurrent assets.......... (453) (503)
Other.......................................... 79 273
Net cash provided by (used in) operating
activities.................................. 3,479 (723)
Cash Flows from Investing Activities:
Expended for property and equipment................ (1,904) (1,980)
Expended for leased and data center equipment...... (523) (239)
Proceeds from sales of property and equipment...... 4 214
Acquisitions of businesses, net of cash provided... - (3,844)
Change in short-term investments................... 4,612 (5,451)
Net cash provided by (used in) investing
activities.................................. 2,189 (11,300)
Cash Flows from Financing Activities:
Borrowings under short-term financing
arrangements, net 2,030 2,416
Proceeds from issuance of common stock, net of
issuance costs................................... 246 657
Purchase of treasury stock......................... (7,111) -
Net cash (used in) provided by financing
activities.................................. (4,835) 3,073
Effect of Exchange Rate Changes on Cash.............. 812 (85)
Net change in cash and cash equivalents......... 1,645 (9,035)
Cash and cash equivalents, beginning of period.. 17,277 19,164
Cash and cash equivalents, end of period........ 18,922 10,129
Short-term investments.......................... 63,526 67,922
Cash and short-term investments, end of period....... $ 82,448 $ 78,051
</TABLE>
(Continued)
5<PAGE>
<PAGE>
CONTROL DATA SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Continued)
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31, April 2,
1995 1994
<S> <C> <C>
Net Change in Working Capital Items:
Trade and other receivables........................ $ 1,077 $ (420)
Inventories........................................ (3,513) (4,234)
Prepaid expenses and other current assets.......... 600 434
Accounts Payable................................... 7,581 6,908
Customer advances and deferred income.............. (4,311) (1,696)
Accrued taxes...................................... 4,462 (1,586)
Accrued salaries and wages......................... 108 659
Other accrued expenses............................. (1,933) 62
Net change in working capital items............... $ 4,071 $ 127
Supplemental Disclosures of Cash Flow Information:
Cash paid (received) during the period for:
Interest paid.................................... $ 277 $ 282
Income taxes paid................................ 305 483
Income taxes refunded............................ (6,543) (180)
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
6<PAGE>
<PAGE>
CONTROL DATA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MARCH 31, 1995
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 share equivalents 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, Additional Paid-In Capital, Retained Earnings, and Other
Shares
--------------------------- Additional
Outstand- Treasury Common Paid-In Retained
(Dollars and shares in thousands) ing Stock Issued Stock Capital Earnings Other* Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 13,803 - 13,803 $ 138 $ 161,105 $ (71,241) $ (7,696) $ 82,306
Issuance of common stock under the
Employee Stock Purchase Plan 15 - 15 - 81 - - 81
Exercises of stock options 34 - 34 - 165 - - 165
Foreign currency translation
adjustment - - - - - - (1,902) (1,902)
Purchase of treasury stock,
at cost (1,185) 1,185 - - - - (7,111) (7,111)
Net earnings - - - - - 2,199 - 2,199
Balance at March 31, 1995 12,667 1,185 13,852 $ 138 $ 161,351 $ (69,042) $(16,709) $ 75,738
</TABLE>
<TABLE>
<CAPTION>
*Other Stockholders' Equity Items
Minimum Foreign
Pension Currency
Liability Translation Treasury
Adjustment Adjustment Stock Total
<S> <C> <C> <C> <C>
Balance at December 31, 1994 $ (6,957) $ (739) $ - $ (7,696)
7<PAGE>
Foreign currency translation
adjustment - (1,902) - (1,902)
Purchase of treasury stock,
at cost - - (7,111) (7,111)
Balance at March 31, 1995 $ (6,957) $ (2,641) $ (7,111) $ (16,709)
</TABLE>
8<PAGE>
<PAGE>
CONTROL DATA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
MARCH 31, 1995
3. RESTRUCTURING RESERVES, CURRENT AND NONCURRENT
Over the past several years, Control Data Systems, Inc. (the
"Company") has focused its core business through a series of
initiatives. The Company continues its transition from a developer and
manufacturer of proprietary mainframe computer systems to the marketing
and integration of open systems hardware, software, and consulting
services.
Cash outlays in the first quarter 1995 consisted primarily of $3.7
million for severance costs related to the reduction of the worldwide
workforce by approximately 80 individuals, and $0.7 million for lease
and other facility obligations related to commitments under leases
throughout the United States, Canada, and Europe. Cash outlays were
below Company expectations due in part to lower than planned severance
activity in its international operations because of delays in legally
required procedures for such activities. In addition, restructure
activities in certain international locations were delayed while a
divestiture activity was explored. For additional information regarding
this divestiture, see the Financial Condition section of the
Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following table represents the Company's restructuring
activities for the first quarter 1995:
<TABLE>
<CAPTION>
Asset Lease Foreign
Revaluations and Other Currency
Severance and Facility Translation
(Dollars in thousands) Costs Write-offs Obligations Adjustment Other Total
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994.. $ 33,329 $ - $ 13,840 $ - $ 7,769 $ 54,938
Noncash items................ - (10) - 2,156 - 2,146
Reclassifications
and transfers, net.......... 456 (4) 19 (155) (316) -
Foreign Currency
Translation Adjustment...... 1,473 14 360 (2,001) 154 -
Cash payments................ (3,731) - (725) - (350) (4,806)
Balance at March 31, 1995..... $ 31,527 $ - $ 13,494 $ - $ 7,257 $ 52,278
</TABLE>
Future cash outlays for the remaining restructuring reserve of $52.3
million at March 31, 1995 are anticipated to be $32.1 million for the
remainder of 1995 and $20.2 million for 1996.
4. RELATED PARTY TRANSACTION
In August 1992, an agreement was signed between Silicon Graphics,
Inc. ("SGI") and the Company to purchase 1,185,224 shares of the
Company's Common Stock for an aggregate amount of $14.4 million. On
9<PAGE>
February 14, 1995, the Company repurchased 1,185,224 shares of its
common stock from SGI for an aggregate purchase price of $7.1 million.
10<PAGE>
<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. is a global systems integrator,
developing and implementing open systems solutions for the operational
problems of customers worldwide. It focuses on the architecture,
implementation, lifetime support, and outsourcing of electronic
commerce, product data management, and client-server solutions for
government, financial services, telecommunications, and manufacturing
organizations. The Company helps its customers implement business-
related solutions by providing a range of services that include:
o Technology consulting
o Program management
o Software development
o Infrastructure integration
o Solution support
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
are based upon the Company's 38 years of experience in implementing
leading-edge solutions for complex computing environments.
For the first 32 years of its history, the Company developed,
manufactured, and integrated its own proprietary brand of computers. In
1989 it began a transition from the development, manufacture and
marketing of its own computers to the remarketing of standard UNIX
and/or Intel-based computer systems. Coupled with networking and
distributed applications, these systems form what is often referred to
as the client-server computing environment. Today the Company's
integration services include network design, installation and
maintenance; application design and deployment, particularly for
electronic commerce projects; remote and on-site systems management;
electronic mail integration; and for the discrete manufacturing
industry, computer-aided design and product data management systems.
Revenues by Category
<TABLE>
<CAPTION>
Three Months Ended
March 31, April 2,
1995 1994 Change
<S> <C> <C> <C>
Software and services.... $ 39.5 $ 36.1 9.4 %
Maintenance and support.. 20.3 23.8 (14.7)%
Hardware products........ 70.3 85.7 (18.0)%
Total revenues........ $ 130.1 $ 145.6 (10.6)%
</TABLE>
Revenues by Geography
<TABLE>
11<PAGE>
<CAPTION>
Three Months Ended
March 31, April 2,
1995 1994 Change
<S> <C> <C> <C>
Americas................. $ 49.8 $ 73.5 (32.2) %
Europe................... 69.8 55.6 25.5 %
Asia..................... 10.5 16.5 (36.4) %
Total revenues........ $ 130.1 $ 145.6 (10.6) %
</TABLE>
12<PAGE>
<PAGE>
CONTROL DATA SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Unaudited) (Continued)
(Dollars in millions)
Revenues for first quarter 1995 of $130.1 million decreased 10.6%
from first quarter 1994 revenues of $145.6 million. The revenue
decline was due primarily to decreases of 18.0% and 14.7% in hardware
products and maintenance support sales, respectively, offset in part by
an increase of 9.4% in software and services sales. The majority of the
decrease in hardware products sales was attributable to lower revenues
in the Americas and Asia, offset by an increase in revenues in Europe of
$11.8 million or 37.2%. The decrease in hardware maintenance support
sales was primarily due to lower revenues in the Americas. The increase
in software and services revenues of 9.4% was primarily due to an
increase in sales in Europe of 20.9% in the first quarter 1995 versus
the comparable quarter in 1994.
Cost of Revenues and Gross Profit
<TABLE>
<CAPTION>
Three Months Ended
March 31, April 2,
1995 1994 Change
<S> <C> <C> <C>
Cost of revenues........ $ 96.5 $ 107.0 (9.8) %
Percentage of revenues.. 74.2 % 73.5 %
Gross profit............ $ 33.6 $ 38.6 (13.0) %
Percentage of revenues.. 25.8 % 26.5 %
</TABLE>
Cost of revenues decreased by 9.8% and gross profit margins
decreased by 13.0% in first quarter 1995 from the same period in 1994.
The primary factor contributing to the cost of revenues and gross profit
margins decreases was the decline in total revenues of $15.5 million,
primarily in hardware products sales.
Operating Expenses
<TABLE>
<CAPTION>
Three Months Ended
March 31, April 2,
1995 1994 Change
<S> <C> <C> <C>
Selling, general and
administrative........ $ 30.2 $ 33.8 (10.7) %
Percentage of revenues.. 23.2 % 23.2 %
Technical............... $ 2.3 $ 3.6 (36.1) %
Percentage of revenues.. 1.8 % 2.5 %
</TABLE>
Selling, general and administrative (SG&A). The decrease in SG&A
expense is due to the downsizing actions taken by the Company over the
past year.
13<PAGE>
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
March 31, April 2,
1995 1994 Change
<S> <C> <C> <C>
Nonoperating income.... $ 1.8 $ 0.5 260.0 %
Percentage of revenues. 1.4 % 0.3 %
</TABLE>
14<PAGE>
<PAGE>
CONTROL DATA SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Unaudited) (Continued)
(Dollars in millions)
Interest expense. Interest expense in the first quarter 1995 was
unchanged from the same period in 1994.
Interest income. Interest income increased slightly in first quarter
1995 versus the first quarter 1994 due to higher average daily cash and
short-term investment balances.
Other income, net. Other income increased by $1.1 million in first
quarter 1995 versus the first quarter 1994. The primary factors for
this increase included a favorable foreign currency exchange gain of
$0.3 million in the current quarter versus a $0.3 million loss in the
comparable quarter in 1994 and a gain of $0.3 million for the increase
in the market value of certain short-term investments.
Provision for Income Taxes
<TABLE>
<CAPTION>
Three Months Ended
March 31, April 2,
1995 1994
<S> <C> <C>
Provision for Income Taxes.. $ 0.7 $ 0.4
Percentage of revenues...... 0.5 % 0.3 %
</TABLE>
The provision for income taxes in first quarter 1995 and the
comparable period in 1994 relate primarily to foreign income taxes on
the earnings of the Company's foreign subsidiaries and foreign
withholding taxes on certain United States income.
Net Earnings and Earnings Per Share
<TABLE>
<CAPTION>
Three Months Ended
March 31, April 2,
(Earnings per share in dollars) 1995 1994
<S> <C> <C>
Net earnings................ $ 2.2 $ 1.4
Percentage of revenues...... 1.7 % 1.0 %
Earnings per share.......... $ 0.17 $ 0.10
</TABLE>
Net earnings for first quarter 1995 increased by $0.8 million from
the comparable period in 1994. The primary factors for the increase
were lower operating expenses, which offset the lower gross profit
margin, and higher nonoperating income. Operating results for the three
months ended March 31, 1995 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1995.
Outlook
The following factors, among others, should be considered in
evaluating the Company's outlook.
15<PAGE>
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,
and continuing quarterly volatility of earnings can be expected.
16<PAGE>
<PAGE>
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 decrease in 1995 from
1994 due in part to the recently announced disposition of certain
international operations. The decrease in revenues could be offset in
part by the acquisition of additional strategic businesses. For
additional information regarding this disposition, see the Financial
Condition section of the Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Cost of revenues. The Company's cost of revenues as a percentage of
total revenues were slightly higher in the first quarter of 1995 than
the comparable period of 1994. Gross profit margins, as a percentage of
sales, were slightly lower in the first quarter of 1995 than the
comparable period in 1994. Cost of revenues as a percentage of revenues
for 1995 is expected to decline. Gross profit margins are expected to
increase in 1995. These 1995 expectations are based on the disposition
of certain international operations, as noted above, whose revenue mix
primarily consists of lower profit margin hardware products. However,
due to varying gross profit margins of different types of product sales
and varying gross profit margins of specific large projects quarter to
quarter, total gross profit margins will be volatile.
Selling, general and administrative expenses. SG&A expenses decreased
in the first quarter of 1995 from the year ago quarter. SG&A expenses
are expected to decline in 1995 due to the disposition of certain
international operations and restructuring actions taken in the fourth
quarter of 1994.
Technical expenses. Technical spending declined in the first quarter of
1995 from the comparable period in 1994. Technical spending is expected
to continue to decline in 1995 as the majority of the technical spending
for proprietary products was completed in 1994. Some of this decline
will be offset by higher spending on electronic commerce products and
services, one of the Company's primary targeted markets.
Income tax rate. In total, the Company has $131.2 million of deferred
tax assets at December 31, 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 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 activity. 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.
Additionally, there will be volatility in the tax rate due to the
disposition of certain international operations.
Foreign exchange. A large percentage of the Company's revenues, costs,
and expenses are transacted in currencies other than the U.S. dollar.
As a result, the Company's financial results are subject to foreign
exchange rate fluctuations.
Other. See Notes to Consolidated Financial Statements regarding other
factors concerning the Company.
17<PAGE>
<PAGE>
CONTROL DATA SYSTEMS, INC.
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 $82.4 million
at March 31, 1995 and represented 26.9% of total assets. The Company
has no long-term debt. Stockholders' equity at March 31, 1995 was $75.7
million. Total cash and short-term investment balances decreased by
$3.0 million in the quarter. The primary factors in the decrease were
the purchase of treasury stock of $7.1 million, restructuring payments
of $4.8 million, capital expenditures of $2.4 million, partially offset
by a positive cash flow of $4.1 million from working capital items,
depreciation and amortization of $3.7 million, net earnings from
operations of $2.2 million, and an increase in short-term borrowings of
$2.0 million. Stockholders' equity decreased by $6.6 million in first
quarter 1995. The decrease is primarily due to the purchase of treasury
stock of $7.1 million and a foreign currency translation adjustment of
$1.9 million, offset in part by net earnings of $2.2 million.
As of March 31, 1995, the Company has available up to $41.2 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 $52.3 million of restructure obligations as of March
31, 1995, $34.4 million of 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. 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.
The Company will continue to explore ways to accomplish its business
objectives through the acquisition of strategic businesses or the
divestiture of non-strategic operations. In line with this business
objective the Company announced on April 13, 1995, an agreement to sell
a number of its international product integration and maintenance
operations to AmeriData Technologies, a leading U.S.-based integrator.
AmeriData will pay approximately $34 million in cash for these
operations. The purchase is expected to be concluded in the second half
of 1995. The Company believes this sale is an integral part of its
strategy to focus on its core competencies in electronic commerce,
product data management, and client-server solutions. As a result of
this disposition, steps will be taken to reduce certain headquarters,
administrative, and technical support costs to align with the reduced
revenue base going forward. It is not expected that this activity will
require additional restructuring charges. The net cash received by the
Company will be approximately $25 million. It is expected that the
18<PAGE>
AmeriData transaction will not result in a significant gain or loss to
the Company.
19<PAGE>
<PAGE>
CONTROL DATA SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Unaudited) (Continued)
The following tables represent the proforma results for first
quarter 1995 and first quarter and total year 1994 based on the
elimination of operations defined in the contract between Control Data
and AmeriData dated April 12, 1995 (unaudited):
1995 Proforma Revenues and Gross Profits
<TABLE>
<CAPTION>
(Dollars in thousands) 1st Quarter
As
REVENUES Reported Proforma
<S> <C> <C>
Software and services.... $ 39,464 $ 29,446
Maintenance and support.. 20,272 15,767
Hardware products........ 70,328 23,778
Total revenues....... $ 130,064 $ 68,991
Gross profit............. $ 33,597 $ 22,650
REVENUE DISTRIBUTION
Software and services.... 30.3% 42.7%
Maintenance and support.. 15.6% 22.8%
Hardware products........ 54.1% 34.5%
Total revenues....... 100.0% 100.0%
Gross profit............. 25.8% 32.8%
</TABLE>
1994 Proforma Revenues and Gross Profits
<TABLE>
<CAPTION>
(Dollars in thousands) 1st Quarter Total Year
As As
REVENUES Reported Proforma Reported Proforma
<S> <C> <C> <C> <C>
Software and services.... $ 36,139 $ 27,199 $ 154,275 $ 120,079
Maintenance and support.. 23,753 18,653 92,785 69,778
Hardware products........ 85,738 36,332 277,167 128,714
Total revenues....... $ 145,630 $ 82,184 $ 524,227 $ 318,571
Gross profit............. $ 38,605 $ 25,010 $ 141,699 $ 99,477
REVENUE DISTRIBUTION
Software and services.... 24.8% 33.1% 29.4% 37.7%
Maintenance and support.. 16.3% 22.7% 17.7% 21.9%
20<PAGE>
Hardware products........ 58.9% 44.2% 52.9% 40.4%
Total revenues....... 100.0% 100.0% 100.0% 100.0%
Gross profit............. 26.5% 30.4% 27.0% 31.2%
</TABLE>
21<PAGE>
<PAGE>
PART II
OTHER INFORMATION
ITEM 6 Exhibits and Reports on Form 8-K
(a) Exhibits
11 Computation of Earnings per Common Share
27 Financial Data Schedule
(b) Reports on Form 8-K
A report on Form 8-K dated April 25, 1995 was filed subsequent
to the Registrant's fiscal quarter ended March 31, 1995
reporting under Item 8-Change in Fiscal Year a change in its
fiscal year end from the Saturday closest to December 31 to a
calendar fiscal year ending December 31.
22<PAGE>
<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 11, 1995 /s/ J. F. KILLORAN
J. F. Killoran
Vice President and Chief Financial Officer
(Principal Accounting Officer)
23<PAGE>
<PAGE>
EXHIBIT INDEX
EXHIBITS FILED AS ITEM 6 TO THE QUARTERLY REPORT OF CONTROL DATA
SYSTEMS, INC. ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1995.
(11) - Computation of Earnings Per Common Share
(27) - Financial Data Schedule
25<PAGE>
<PAGE>
EXHIBIT 11.0
CONTROL DATA SYSTEMS, INC.
Computation of Earnings Per Common Share
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31, April 2,
1995 1994
<S> <C> <C>
Net earnings applicable to
common shares:
Net earnings $ 2,199 $ 1,359
Primary:
Shares for common and common share
equivalent earnings per share (1):
Weighted average number of
common shares outstanding 13,237,390 13,680,519
Dilutive effect of outstanding
stock options and warrants - 105,578
13,237,390 13,786,097
Net earnings per common share
and common share equivalents $ 0.17 $ 0.10
Fully Diluted:
Shares for common and common share
equivalent earnings per share (2):
Weighted average number of
common shares outstanding 13,237,390 13,680,519
Dilutive effect of outstanding
stock options and warrants - 112,755
13,237,390 13,793,274
Net earnings per common share
and common share equivalents $ 0.17 $ 0.10
<FN>
(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.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE REGISTRANT'S
FINANCIAL STATEMENTS FOR ITS FIRST QUARTER OF
FISCAL YEAR 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS
<CAPTION>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1994
<PERIOD-END> Mar-31-1995
<CASH> 82,448
<SECURITIES> 0
<RECEIVABLES> 124,917
<ALLOWANCES> 0
<INVENTORY> 43,312
<CURRENT-ASSETS> 257,382
<PP&E> 22,420
<DEPRECIATION> 0
<TOTAL-ASSETS> 306,411
<CURRENT-LIABILITIES> 168,545
<BONDS> 0
<COMMON> 138
0
0
<OTHER-SE> 75,600
<TOTAL-LIABILITY-AND-EQUITY> 306,411
<SALES> 81,557
<TOTAL-REVENUES> 130,064
<CGS> 59,252
<TOTAL-COSTS> 128,977
<OTHER-EXPENSES> (2,086)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 274
<INCOME-PRETAX> 2,899
<INCOME-TAX> 700
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,199
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
</TABLE>
