Control Data Corp., the Minneapolis-based computer giant, said a downward revision of earnings put it in violation of restrictions on revolving-credit arrangements with its banks and required the troubled firm to seek waivers.
The banks agreed to relax temporarily the restrictions, which apparently involved provisions for maximum debt-to-equity ratios, minimum net worth and restrictions on stock dividends.
Control Data said it plans to sell $300 million worth of securities to repay the $209 million outstanding under its credit arrangements. The banks have agreed to allow the company to pay its third-quarter dividends, which amount to $6.9 million.
The company`s current problems are no surprise to the industry, which has watched the $4 billion computer company struggle through a restructuring program during recent months.
Control Data is in a difficult position, but not its death throes, said one analyst. But he pointed out that its earnings potential in the near future remains dim.
”The restructuring of Control Data is a first in the computer industry,” said Michael Geran, a securities analyst with E.F. Hutton in New York. ”There`s no precedent for anything of this magnitude.
”It (Control Data) needs a substantial amount of restructuring in both its core computer business and its financial-services sector,” he said. ”The financial-services division still has earnings, but they have to sell off part of it to free up assets.
”The computer business has $3.8 billion in revenues, and it is just breaking even. The company needs to sell securities just to keep it rolling while the restructuring continues,” he observed.
Control Data recently revealed its finance subsidiary, Commercial Credit Co., expects to sell one-third of its loan portfolio over the next five to eight months. The disclosure came in a preliminary prospectus filed Friday with the Securities and Exchange Commission as part of registration materials for the public offering of $200 million in subordinated notes due in 1995 and $100 million of depositary convertible preferred shares.
In the prospectus, the company described Commercial Credit Co.`s plan to sell $2 billion of its $5.7 billion in finance receivables as part of a general restructuring of the subsidiary.
A company spokesman refused to speculate on how well the securities will be received on the financial markets. The company`s stock closed down $2.12 at $23 a share in trading Tuesday.
Control Data`s problems, Geran said, stem mainly from poor product strategy and too many far-flung investments in projects with long-term potential, but which are a drain in the short term. The strategical problems have been accentuated by a continuing slump in all aspects of the computer industry, he added.
Because Control Data is heavily involved in original-equipment manufacturing, it was ”hit from every angle” by the downturn, Geran said.
A spokesman said that the company is by no means at the end of its reorganization plan.
”As the year goes on, there will be more business units sold, and the work force reduced further in a variety of ways. We`re only in the fifth or sixth inning of this game,” he said, noting that unless the industry`s condition worsens the firm expects to show some signs of recovery by the fourth quarter.
Control Data`s current crisis developed last week when it revised its 1984 and 1985 financial results to cut $26.5 million from 1984 earnings and deepen the loss for the first half of 1985 by $8.6 million.
The 1984 changes were made at the suggestion of the SEC after a review of company documents. The 1985 changes came after company auditors discovered internal accounting errors.
